Podcast: ‘The Whiteness of Wealth,’ a conversation with Professor Dorothy Brown

In this Taxcast Extra we were honoured to speak with Law Professor Dorothy Brown, whose seminal book has just been released in the United States: ‘The Whiteness of Wealth: how the US tax system impoverishes black Americans – and how we can fix it’.

Let’s be clear – when I started writing about race and tax, I was not – my scholarship nor I were welcomed by the white male law professor tax gatekeepers.“

Regular listeners to our long-running monthly podcast the Taxcast will have heard episodes 102 and 103 where we looked at just some of the many complex issues around tax and race in the US and the UK context, the roots of structural racism and the lived experiences of people of colour today as citizens, taxpayers and economic actors. (You can find the Taxcast on most podcast apps or subscribe here by email. It’s on Twitter too).

There are huge research and knowledge gaps in the area of tax and race in many countries. The doors have not been open to work in this area, as Professor Brown explains in our podcast: “Let’s be clear – when I started writing about race and tax, I was not – my scholarship nor I were welcomed by the white male law professor tax gatekeepers.”

Researchers have invariably been told that it’s a class issue, not a race issue. While of course there are overlaps, as Professor Brown says in this podcast, “in the US, the data has been crystal clear. Black people cannot earn our way out of systemic oppression in the internal revenue code. If there’s one takeaway from my book, the whiteness of wealth, that’s it!”

The Tax Justice Network has joined up with its sister organisation Tax Justice UK and with the organisation Decolonising Economics, to work with political economist Keval Bharadia to research the UK context – what we know, what we don’t know, and what we need to know, so we can work together for deep reform. Here’s the conversation Keval Bharadia had with Professor Dorothy Brown below. A transcript is available here.

Taxcast Extra: The Whiteness of Wealth

The image “Locked out of King’s Institute” by Ravages is licensed under CC BY-NC-SA 2.0

$300bn in new tax revenues? Weighing the US intervention in global tax reform

The Biden administration has continued its charge to drive through international corporate tax reforms. Yesterday we evaluated Treasury Secretary Yellen’s call for an end to the race to the bottom. At the same time, the Biden administration released its ‘Made in America tax plan’, and the headlines of its international proposals were more or less simultaneously leaked from the OECD where they had been presented.

So today, we’re trying to read the runes. First, what’s the broad significance of the Biden tax stance? Second, what specifically is achievable within the last couple of months of the G20/OECD reform process – and how much tax revenue is at stake now, and for who? And third, due to how much will be left still to do in any scenario, what’s the global outlook after that?

1. The ‘Made in America tax plan’

The Biden administration’s ‘Made in America tax plan‘ is an impressive piece of work. For one thing, as a political statement on tax it’s the most academically impressive document I can remember seeing. Unsurprising, perhaps, given the quality of the academic staff that the US Treasury has taken on, but great to see all the same.

More substantively, this is a statement of powerful intent. The plan identifies a series of major problems with the US tax system, and lays out targeted actions to address each of them. This sits within an overall framing which is itself an impressive reframing of what has been an ideologically skewed debate in the US for so long.

The ‘Made in America tax plan’ is nothing short of the reclaiming of a tax justice narrative for US corporate tax policy.

The approach is based on six aims or principles, each of which is supported by an array of evidence and gives rise to specific measures:

The ‘Made in America tax plan’ is nothing short of the reclaiming of a tax justice narrative for US corporate tax policy. And because corporate tax is a key underpinning of a broader progressive tax system, including as a form of wealth taxation, this is a major contribution to tax justice overall in the US.

2. Economic assessment: $300bn or more, globally

Central to the ‘Made in America’ plan is the piece about changing the incentives for other jurisdictions, by encouraging a robust, global minimum corporate tax plan. As laid out here yesterday, the US position has added real ambition to the OECD reforms which have been in grave danger of fizzling out into nothing.

While the global minimum tax rate is ‘pillar 2’ of the OECD process, we now have via the FT a leak of the US position on ‘pillar 1’. Pillar 1 is a move to tax some profits on a formulary basis, instead of the arm’s length principle which is no longer fit for purpose. This is an attempt from the US to revive it.

The OECD secretariat, and France in particular among member countries, have insisted on the complete package: that the pillars be inseparable. But this threatens any progress at all, for two main reasons.

First, pillar one as proposed would require global treaty change. That means that it could easily be blocked by those havens that would lose most, like Ireland and the Netherlands. If pillars are required to be jointly introduced, the block to pillar one is a block to both.

And second, there is no agreement on pillar one. Even with the Biden administration signalling early that they’d take the Trump opt-out (mislabelled as a ‘safe harbor’) off the table, the differences remain great. The EU countries and some others have largely sought a pillar one that addresses ‘digital’ multinationals only. The US (all administrations) wanted it to apply to all sectors, so their tech companies are not singled out.

The latest OECD proposal tries to split the difference, with a scope of ‘consumer-facing’ businesses – roughly 2,300 multinationals, they reckon. Now the US is offering something to try to get this moving – but it is much narrower than anything anyone has proposed. Per the FT, the US proposal covers “only the very largest and most profitable companies, regardless of sector, based on level of revenue and profit margins…[and] would likely include about 100 companies, comprising the big US tech groups as well as other very large multinationals.”

The proposal looks real, in the sense that it would involve a genuine formulary approach (which is the end game for all international corporate tax). The very important downside, in addition to narrowing the scope so dramatically, is that it would apportion taxable revenues only on the basis of sales, an unbalanced formula that would fail entirely to recognise employment as a factor of production, and so would privilege large (rich) market economies over lower-income producer countries.

The proposal is potentially face-saving, in the sense that it offers France and the OECD secretariat something, instead of having to accept that there be no pillar one at all. This is consistent with the US aim of having pillar two broadly accepted.

As ever with OECD processes, the entire thing leaves the citizens and non-corporate taxpayers of the world in the dark. (An important reason for the move to a UN setting, which looks increasingly likely – as with the UNFCCC on climate change, for example, this would ensure the ability of the world’s people to scrutinise the negotiating positions of their own governments.) One thing we really need to know is whether the Biden proposal would still require global treaty change.

If it does, then it’s hard to see the result going through the US Congress, never mind a series of tax havens signing up. In this scenario, the proposal starts to look like a pure face-saving olive branch, as it won’t ever happen – but would still allow pillar two to move ahead alone, in a coalition of the willing.

It’s possible though that elements of our METR proposal (a Minimum Effective Tax Rate) have been included. In this, we combine the best technical elements of pillar one into a global minimum tax to deliver pillar two, and without requiring treaty changes. The US proposal might just manage that if a similar line on the key point was taken. And then it could fly.

The OECD approach, with a Biden-backed minimum rate of 21%, would yield some $300bn or more in additional revenues worldwide – delivering a large part of of Janet Yellen’s call to end, finally, the race to the bottom.

But even if that’s the case, this will remain relatively small beer compared to the prize of a genuinely effective global minimum tax rate. The pillar one discussions may still turn out to be important, because of the norm-setting effect of agreeing to tax even this handful of large multinationals on the basis of unitary taxation and formulary apportionment – just as the G24 group of countries had initially proposed, and the Inclusive Framework supported, before the OECD eliminated it in order to focus on the Trump-France bilateral deal.

In terms of the revenue gains to be had from any feasible outcome of the OECD process, however, the importance of an ambitious global minimum corporate tax rate is clear – and hence the Biden administration’s focus is well supported.

Our modelling of the OECD pillar 2 proposal, in order to compare with our METR (Minimum Effective Tax Rate) proposal, suggests that even the OECD approach, with a Biden-backed minimum rate of 21%, would yield some $300bn or more in additional revenues worldwide. That would include increases in corporate income tax revenue for high income countries of 30% or more on average, and for low and middle income countries of 20% or more. While the OECD approach is somewhat globally regressive compared to the METR, it would still generate substantial gains for most countries, by disciplining profit shifting worldwide – delivering a large part of US Treasury Secretary Janet Yellen’s call to end, finally, the race to the bottom.

Estimated Revenue Gains from the METR

3. Global outlook

The chances of a deal in the OECD process by June – in time for the July meeting of G20 finance ministers – are now sharply higher than they were, even last week. The chances of that deal having a meaningful impact on the scale of global profit shifting are also much higher.

The Biden administration is leading the charge for a new politics of tax justice, which will not only yield benefits for people in the US, but, due to their hegemonic power, has the possibility also to spread wider. Just as Trump’s attitude to truth and tax seemed to empower a generation of politicians around the world to act in his image, so – we might hope – a US administration leading on tax justice may also shift norms and narratives.

But even a good outcome should not blind anyone to the irretrievable, unacceptable flaws of the underlying process. The structural injustice of international tax rules being set by a club of rich countries, cannot provide the basis for addressing the inequalities in global taxing rights.

The need for a UN tax convention, setting the basis for a globally inclusive, intergovernmental body to negotiate tax rules under UN auspices rather than the rich countries’ club at the OECD, will remain clear and urgent.

US Treasury Secretary Yellen confirms: It’s time to end the race to the bottom on corporate tax

Sometimes things move slowly – and then they go very fast indeed.

“[A] consequence of an interconnected world has been a thirty-year race to the bottom on corporate tax rates. Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids. It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government. President Biden’s proposals announced last week call for bold domestic action, including to raise the U.S. minimum tax rate, and renewed international engagement, recognizing that it is important to work with other countries to end the pressures of tax competition and corporate tax base erosion. We are working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom. Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity.”

Remarks by Secretary of the Treasury Janet L. Yellen on International Priorities to The Chicago Council on Global Affairs, April 5, 2021.

If you blinked recently, you might have missed the idea of a global minimum tax rate for multinational companies, as it shifted almost imperceptibly from the wild margins of tax justice, to becoming the settled will of the world’s richest countries. Countries which are also, of course, home to the multinationals responsible for the most aggressive profit shifting and tax abuse…

Tax sovereignty: the narrative shifts

It feels like an age since the Tax Justice Network began calling for an end to the race to the bottom – for multinational companies to face a meaningful rate of corporate tax, regardless of how and where they manage to engineer their profits. And even in 2019, when a global minimum tax was presented as the second pillar of the G20/OECD reform process (which began after the global financial crisis and has still not delivered), progress felt distant at best. When the December 2020 deadline came and went, it started to feel as if the chance might have been wasted.

But in a few months of 2021, the slow shift has become a sudden one. In January, President Biden was sworn in, and a new US administration began to appoint some of the country’s best tax (justice) experts to the Treasury, starting with Prof. Kim Clausing.

In February, the UN FACTI panel (the High-Level Panel on International Financial Accountability, Transparency and Integrity) presented its final report, calling for sweeping reforms to the global architecture around tax and illicit finance – including a global corporate minimum tax rate.

Now, US Treasury Secretary Janet Yellen has signalled that the US is throwing its full weight behind a global minimum corporate tax rate – and framing this quite explicitly as an end to the race to the bottom.

This is a powerful narrative shift, in favour of tax justice. Once, the defenders of the race to the bottom wrapped themselves – unchallenged – in the mantle of “tax sovereignty”. Every state must have the freedom, they opined, to set the tax rules and rates they wished – regardless of the damage it might do to their neighbours. Anything else would be an unconscionable erosion of tax freedom…

Secretary Yellen, holding perhaps the most powerful single role in the global economy, has confirmed the flipping of this malign, hard right trope on its head. Instead, Yellen argues the tax justice case: we need to limit the worst behaviours of states that make up the race to the bottom, precisely so that we can all enjoy tax sovereignty: so that “governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises… [and t]ogether we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity.”

Without a degree of international cooperation and coordination, individual states lack the ability to tax wealth and income, including corporate profit, that can be hidden offshore. That leaves inequalities needlessly high, and uncounted, and inhibits inclusive public policy.

The tax freedom that matters is the freedom of people to choose governments that can deliver the level of revenues, progressively raised and spent, that meets their preferences – instead of being limited to governments that cannot tackle inequalities or deliver sustainable public finances, due to the undermining actions of tax havens.

A global minimum corporate tax rate is not sufficient alone to ensure this; but it is a significant step on the road. The narrative shift, to recognise that all of our tax sovereignty depends on constraining the most damaging effects of tax havenry, is powerful.

OECD obstacles

Things are never, of course, as easy to deliver as they are to wish for. And there are major challenges for a global corporate minimum tax rate, even with full US support.

There remain significant difficulties in the OECD process, with its two-pillar proposals. First, there is no common ground on ‘Pillar One’. This is the element which would go beyond the archaic arm’s length principle and introduce some element of formulary apportionment (that is, allocating a share of each multinational’s global profits to the places where they actually do business, in the form of sales and employment). The US (under Biden, as under Trump) wants Pillar One to apply to all businesses; the EU is focused on the big tech multinationals; and the OECD proposal to identify ‘consumer-facing’ businesses falls somewhere in between these.

As things stand, the OECD proposal is highly complex and would retain arm’s length pricing for most profits, and therefore result in relatively little reduction in profit shifting – making it largely unattractive for most countries. At the same time, the proposal would require global treaty change, meaning that it could very easily be blocked – including by the US Congress, regardless of whether the Biden administration had come around to support it.

‘Pillar Two’ contemplates a global minimum corporate tax rate. This has the potential to go a long way to stop profit shifting, not by making it harder to achieve but by making it much less rewarding – since multinationals would, in theory, end up being taxed at the minimum rate even if they managed to shift the profits to a zero rate jurisdiction.

Here again though, the current OECD proposals are highly complex, and have been very unambitious. And an argument about ‘rule order’ – in simple terms, whether the home country of a multinational goes first in levying any top-up tax, or the various host countries – has exposed the major distributional question. Despite some initial optimism, most non-OECD members have by now become thoroughly disillusioned with the process. An outcome that favours OECD members, despite lower-income countries bearing disproportionately high revenue losses due to profit shifting, would be unconscionable – but, sadly, not entirely unexpected.

Lastly, the insistence that the two pillars are inseparable, and must be delivered jointly, creates a hugely complicated contraption requiring great resources to move ahead, but with little certainty over any benefits.

The way forward

Stepping out of the limitations of the OECD process, things very quickly start to look much brighter. This is for three main reasons.

First, the two pillars can be separated – and that means the unworkable and unambitious ‘Pillar One’ can be left behind, along with the requirement for global treaty change. Instead, a global minimum corporate tax can be taken forward by a coalition of the willing. (In fairness to the OECD secretariat, they have raised this possibility at times also, recognising the practical difficulties of their Pillar One.) With the US and Germany (and the European Commission) committed to a minimum tax, broad agreement on the shape could be reached relatively quickly.

Second, the OECD leadership’s longstanding insistence on a very low minimum rate of 12.5% can be set aside. The Biden administration has indicated a rate of 21%. The Independent Commission for the Reform of International Corporate Taxation has proposed 25% as an absolute minimum; while discussions among various groups of lower-income countries have suggested higher rates still, to ensure that they are not disadvantaged. Negotiating upwards from 21% – and with the possibility of different countries taking their own approaches as appropriate – would provide a quite different dynamic.

And third, the setting aside of Pillar One creates the possibility of pursuing a more ambitious approach to the minimum tax. Our proposal for the METR, or Minimum Effective Tax Rate for multinationals, does just this. We propose a method that builds on the technical efforts of the OECD secretariat, who have done sterling work in establishing various approaches to identify and to apportion taxable profits, but shifts the politics substantially.

In effect, the METR combines the two pillars by identifying under-taxed profits, and then apportioning these for ‘top-up’ taxation on a formulary basis, according to the location of multinationals’ real activity. In this way, the METR cuts through any ‘rule order’ debates and instead treats all countries, home or host, on an equivalent basis.

Our modelling of the METR shows that countries at all income levels may receive substantially higher revenues, with the exception of some of the most egregious profit shifting jurisdictions (which fare better under OECD proposals – and would now not be able to block progress simply by opposing any treaty change).

At the moment, the best guess is probably that the OECD will deliver something in the summer. This will most likely involve a coalition of the willing moving ahead with a minimum tax of some sort, but with the risk of adhering too closely to the Pillar Two proposal and ending up with something of limited effectiveness and high complexity, that may benefit the (OECD) home countries of multinationals rather more than lower-income country hosts of multinationals’ activities. But even in this case the shift, in terms of leading countries committing to end the race to the bottom, will be a powerful one.

Adoption of the METR proposal would raise substantially higher revenues across the board, and in a globally progressive way that would provide an important counter to the still-rising costs of the pandemic.

Politically, the momentum for globally inclusive solutions at the UN, rather than the rich countries’ club at the OECD, will continue to grow – and especially if a one-sided minimum tax solution emerges from the OECD now. The FACTI panel report called for the negotiation of a UN tax convention, which would provide the basis for an intergovernmental body under UN auspices to set corporate tax rules in future – including a global minimum tax rate designed to benefit all.

That the US administration is now leading the push for an ambitious global minimum tax rate confirms this as the new norm. The decisions set to be made in the next couple of months, over technical design and political inclusion, will determine just how effective this can be in bringing an end – finally – to the decades-long race to the bottom in corporate tax.

With the confirmation of this new narrative, it seems likely that what is left undone in the OECD process will be resolved through a combination of unilateral and UN action.

Tax Justice Network Arabic podcast, edition #40: الجباية ببساطة #40 – الإمارات في تصنيف عشر أكثر دول تشجيع على التجاوزات الضريبية للشركات

Welcome to the 40th edition of our Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. It’s produced and presented by Walid Ben Rhouma and is available for listeners to download. Any radio station is welcome to broadcast it for free and websites are also welcome to share it. You can join the programme on Facebook and on Twitter.

الجباية ببساطة #40 – الإمارات في تصنيف عشر أكثر دول تشجيع على التجاوزات الضريبية للشركات

مرحبا بكم في العدد الأربعين من الجباية ببساطة.

في هذا العدد تطرّقنا لتصنيف الدول الأكثر تواطؤ في مساعدة الشركات متعددة الجنسيات على دفع ضرائب أقل مما هو مطلوب منها من خلال حوار مع الباحثة في العدالة الضريبية نورهان شريف حول “مؤشر الملاذ الضريبي للشركات لسنة 2021” والذي شهد دخول الإمارات العربية لنادي العشر الأوائل في العالم في تسهيل التجاوزات الضريبية للشركات.

في أخبارنا المتفرقة، تناولنا تقرير صندوق النقد الدولي حول تزايد التفاوت الناجم عن جائحة كوفيد-19 وتأثيره الإجتماعي بالإضافة لتسريب وثائق تأكد أن  دول غنية منها بريطانيا تعرقل قدرات إنتاج اللقاحات في الدول النامية. زيادة على تخفيض قبرص للضريبة على السفن التي تستخدم الوقود النظيف وإلغاء مجلس النواب المصري لإعفاء مكافآت النواب من الخضوع للضرائب والرسوم.

الجباية ببساطة #40 – الإمارات في تصنيف عشر أكثر دول تشجيع على التجاوزات الضريبية للشركات

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Buffet of tax-evading secrecy revealed by US settlement with Swiss bank Rahn+Bodmer

The US signed a deferred prosecution agreement last month with Zurich’s oldest private bank, Rahn+Bodmer, after the Swiss bank admitted to helping US account holders evade US tax obligations by hiding hundreds of millions of dollars in offshore bank accounts at Rahn+Bodmer (R+B). The settlement exposes a buffet of secrecy tools used by the Swiss bank to help US clients evade tax, all of which have been tracked and scrutinised for years by our Financial Secrecy Index. This is a global ranking of the countries most complicit in helping wealthy individuals hide their wealth from the rule of law, and on which the US and Switzerland currently rank 2nd and 3rd respectively.

The revelations to come out of the settlement are bittersweet. On the one hand, it provides yet more proof of the index’s accuracy in identifying loopholes and other regulatory shortcomings that foster harmful financial secrecy – and so the settlement can only strengthen confidence in the scope to stamp out financial secrecy by implementing our policy recommendations. But at the same time, the settlement is further proof of the widespread use of financial secrecy and the astronomical costs that countries around the world incur with every day that governments delay taking real action.

Zurich’s oldest private bank is not a major global player, but it still had a fair haul. Per the US Department of Justice:

From at least in or about 2004 and continuing until at least in or about 2012, R+B conspired with certain of its U.S. accountholders and others to defraud the United States with respect to taxes, file false federal tax returns, and commit tax evasion… R+B admitted to holding undeclared accounts on behalf of approximately 340 U.S. taxpayers, who collectively evaded approximately $16.4 million in U.S. taxes between in or about 2004 and in or about 2012.  The assets under management that R+B held for undeclared U.S. accountholders increased from approximately $391 million in 2004 to approximately $550 million in 2007, its peak year for undeclared assets under management.

This is a drop in the bucket compared to our estimate of lost tax revenues of $182 billion a year globally, due to undeclared offshore assets. But big enough that the bank seem to have used a great many of the secrecy tricks in the book.

Calling the variety of tactics used by Rahn+Bodmer to help US clients evade tax a “buffet” is no exaggeration. From the most typical uses of banking secrecy, to the involvement of opaque foundations, it’s all there. We provide a short summary here of the various tactics exposed by the settlement, but start first with the usual suspects dishing these tactics out.

Switzerland

No one can be surprised to see a Swiss bank at the heart of yet another tax evasion hustle, given that Switzerland has ranked among the top three worst offenders on the Financial Secrecy Index since the very first edition in 2009. Just two months ago one in eight Swiss banks were revealed to be involved in embezzling Venezuelan public funds.

The US authorities, in particular, could not have been surprised by the behaviours of Rahn+Bodmer in this settlement case, and not just because a lot has been written on the role of enablers↪NOTEIntermediaries like accountants and bankers are not just passive facilitators of global tax abuse. They’re often active, and sometimes aggressive purveyors. Learn more here., ie  bankers, lawyers and other intermediaries, in facilitating illicit financial flows, but because the US has already caught other Swiss banks such as UBS and Credit Suisse helping US clients evade tax before.

As we reported here in 2014,  the infamous US “qualified intermediary” system relied on banks to properly collect taxes on non-US persons based on treaty provisions, so that US authorities didn’t need to find out the identity of those non-US persons. However, Swiss and other banks that were designated as “qualified intermediaries” were found to exploit the system to enable Americans to evade taxes. These abuses of trust by banks (which we now know also included Rahn+Bodmer), is what led to the establishing of automatic exchange of bank account information under the US the Foreign Account Tax Compliance Act (FATCA). This way, instead of blindly trusting banks, the US required all financial institutions in the world to identify any American taxpayer holding foreign accounts.

The “qualified intermediary” experience goes to show that without meaningful accountability and repercussions, such as jail time, enablers will continue to operate business as usual. But in light of the $22 million speeding ticket the Department of Justice has levied on Rahn+Bodmer under the new settlement, it seems this lesson continues to go unlearnt.

In 2001, R+B entered into a Qualified Intermediary Agreement (“QI”) with the IRS… Under the QI, R+B was generally obligated to identify and document any accounts that held U.S. source income by collecting either an IRS Form W-91 for U.S. persons… [However,] R+B also opened and maintained accounts on behalf of 174 U.S. taxpayer-clients in the names of non-U.S. structures, including sham structures. R+B treated these non-U.S. structures as the account holders, and accordingly did not require the submission of Forms W-9 for these accounts. R+B client advisors understood that these structures could be used for tax evasion. R+B bankers’ knowledge that the accounts at issue were actually owned by U.S. taxpayers was demonstrated by a particular form in the account opening documents (“Form A”) that was required to be maintained by Swiss banks under Swiss banking regulations and that set forth the true beneficial owners of the accounts in question.

Speaking of beneficial owners, this case illustrates one of the reasons why the Financial Secrecy Index, unlike the OECD’s Global Forum or the Financial Action Task Force (FATF), does not consider relying on banks alone to collect beneficial ownership information to be robust implementation. While financial institutions have a role to play in helping detect and report discrepancies in information submitted by their clients, we consider that beneficial ownership information for all legal vehicles must always be held by government authorities directly, in order for the registration process to be effective.

Banking secrecy

Banking secrecy comes in many, increasingly sophisticated flavours these days as enablers look to bypass the growing implementation of exchange of information between countries. However, the Rahn+Bodmer case also encompasses plain vanilla banking secrecy:

R+B opened and maintained “numbered” or “pseudonym” accounts for numerous U.S. taxpayer-clients to ensure that the U.S. taxpayer-clients’ names would not appear on bank documents relating to their accounts and thereby reduce the risk that U.S. tax authorities would learn the identities of the U.S. taxpayer-clients.

Trusts, foundations and closing exemptions

As we reported in April 2020, more than 80 jurisdictions had approved laws requiring beneficial ownership to be registered with a government authority. However, the scope of these laws is many times flawed with loopholes. For instance, some countries’ beneficial ownership laws only cover companies or at best legal persons, ignoring the more sophisticated legal vehicles such as trusts and foundations. Although many argue that these structures are just used for charities or in private family matters (and in some cases that may be true), the Financial Secrecy Index and a range of publications (e.g. here, here and here) have shown how trusts and foundations can equally be abused for illicit financial flows.

Beneficial ownership law should cover these types of sophisticated legal vehicles not just because of their secretive features, but because tax transparency laws must cover all relevant legal entities (without loopholes) in order to be effective. Otherwise, room is left for enablers to find alternative ways to help clients evade tax – and so the legislation ends up pointing enablers in the direction of structures that may not previously have been much abused for illicit flows.

It’s the same with exchange of information. If some countries are excluded from the necessary treaties, not only will they be unable to obtain relevant information to prevent their residents from engaging in illicit financial flows, they may also become tax havens themselves, intentionally or not. And of course it is lower-income countries that are most likely to be excluded when the rules are set by the richest countries in the OECD. Excluded countries can become hotspots for individuals looking to move their bank accounts outside of any possible information exchange, and this is precisely what happened in the Rahn+Bodmer case:

After Liechtenstein and the United States signed a Tax Information Exchange Treaty (“TIEA”), under which Liechtenstein agreed to provide the United States with access to certain bank and other information needed to enforce U.S. tax laws, R+B transferred undeclared assets of several U.S. taxpayer-clients from accounts held in the names of sham foundations organized under the laws of Liechtenstein to new accounts held in the names of new sham foundations organized under the laws of Panama in an effort to further conceal the U.S. taxpayer-accounts.

Non-financial assets: gold, jewellery, etc.

As we’ve discussed before, one of the loopholes of the automatic exchange of information system is that it only covers financial accounts, but fails to cover other hard assets such as precious metals, jewellery and artwork. Freeports↪NOTEThe term “freeport” can conjure up images of bustling seaports brimming with commercial ships and towering stacks of cargo containers. In reality, freeports are large, fortress-like warehouses where unnamed wealthy individuals can hide and launder their valuable assets. The Geneva Freeport, for example, houses the world’s largest art collection. Learn more here., open warehouses and similar venues have been promoted in tax havens precisely to hide these valuable assets from authorities. For this reason, the Financial Secrecy Index has an indicator on other wealth covering freeports and real estate ownership. Efforts to establish a Global Asset Registry have also raised the importance of ownership information for these other types of wealth. The Rahn+Bodmer case confirms that these assets are exploited for secrecy purposes:

[they] took steps to further conceal the undeclared assets of several U.S. taxpayer-clients at R+B by using these assets to purchase gold and other precious metals.

And:

R+B helped U.S. accountholders to repatriate funds to the United States in a manner designed to ensure that U.S. tax authorities did not discover the undeclared accounts, including by transferring the funds of one U.S. accountholder in increments of approximately $100,000 to another Swiss bank before the U.S. accountholder routed the funds to a diamond dealer in Manhattan, where the U.S. accountholder ultimately received them.

Abuse of attorney-client privilege

We have written here about the risks of exploiting attorney-client privilege to engage in illicit financial flows, here on the risks of excluding escrow accounts from automatic exchange system, and here on the risks of exempting lawyer-held accounts from automatic exchanges. All these risks are actualised in the Rahn+Bodmer case:

Following the public announcement of the UBS AG (“UBS”) deferred prosecution agreement with the United States Department of Justice in February 2009, R+B opened on behalf of a Swiss attorney “escrow” accounts to facilitate the transfer of undeclared assets of U.S. taxpayer-clients that had been converted to gold and other precious metals held in a vault at UBS.

Conclusion…

The Financial Secrecy Index and policy recommendations are again proven right. Our roadmap to stamping out financial secrecy can and will deliver. But we can also see that all these secrecy provisions we’ve identified and scrutinised are still being utilised on a regular basis.

With the call from a number of heads of state in February this year for a UN tax convention and aggressive action against the professional enablers; and with President Biden’s stated commitment to cleaning up global illicit finance, this might be the year finally to put to rest the myth that we can rely on banks alone to report tax-evasion activity by clients.

…but not before some hypocrisy pie

And now for your blog dessert: a syrupy serving of tax evasion hypocrisy from an unrelated case last month in the state of Georgia.  

We have written here, here and here about the risks posed by golden visas, which allow individuals to acquire residency or citizenship in a country (usually a tax haven) in exchange for a large sum of money. The main problem of these schemes, aside from the injustice of rejecting refugees but accepting the rich, is that individuals who acquire these certificates don’t need to emigrate or spend much time in the countries which grant them golden visas. They may keep living and enjoying the stability, private property, health, education and other perks of many developed democracies while pretending to be resident somewhere else when it comes to paying taxes.

As documented by the Financial Secrecy Index 2020, the US is among those offering golden visas. But the US District Court for the Southern District of Georgia has now determined in the case of Craig Thomas Jones v. United States that the US may refuse to issue a US passport to a US person who evaded taxes. According to the court, unlike the right to interstate travel, the right to international travel is not a fundamental right. Not surprisingly, this shows, as we have argued many times, that countries may be very strict when it comes to locals evading taxes, but much more lenient to foreigners willing to invest ill-gotten or undeclared money.

The US remains in the business of selling American passports to tax evaders – just so long as they’re not American citizens.

FREE LUNCH THINKING: How Economics Ruins the Economy

This review of Tom Bergin’s new book, Free Lunch Thinking: How Economics Ruins the Economy, was originally published in the Black Lives Shattered edition of our flagship publication – Tax Justice Focus. Tom was also interviewed for the March 2021 edition of the Taxcast, which you can listen to here.

By John Christensen

In October 2000 I went climbing in the Trossach mountains with Margaret Thatcher’s supply-side economics guru, Patrick Minford.  He was fascinated by tax havens, waxing on about how tax competition forces governments of other countries to lower taxes on capital and substitute consumption taxes like VAT, which he considered somehow ‘fairer’.  Low taxes, he enthused, encourage wealthy people to invest more, while also encouraging ‘wealth-creators’ to work harder.  Better still, tax cuts yield increased government revenues thanks to a mysterious alchemy called the Laffer Curve. What could be more seductive than that?  Politicians on both right and centre-left lapped up these supply-side nostrums, which by now, as Tom Bergin notes in this excellent book, have become “so embedded in the DNA of classical and neoclassical economic theory that (they are) difficult to shift.” 

Shift they must, however, because despite all the enthusiasm of supply-side theorists, their ideas simply don’t reflect observable reality.  In practice, business surveys from the 1960s onwards have shown that tax rates have no or minimal influence on investment in new equipment, or research, or training, or anything to do with the productive economy.  Nor is there evidence to support the idea that high taxes deter people from working.  Nor for that matter, has slashing corporate tax rates led to higher wages for workers (disproving the half-baked ‘incidence’ arguments touted by the Oxford Centre for Business (non)Taxation, a lobby group). 

For decades, supply-side economists have waiter for really existing neoliberalism to prove them right. But the evidence suggests otherwise, and the models have been quietly abandoned.

A cottage industry of economic modellers has purported to show that low taxes generate rapid growth and high taxes lead to stagnation. For decades, supply-side economists waited for really existing neoliberalism to prove them right. But the evidence suggests otherwise, and the models have been quietly abandoned.

But lack of evidence has never deterred the corporate shills or snake-oil economists, and Art Laffer’s ideas live on, for example in Prime Minister Johnson’s enthusiasm for re-introducing freeports to the UK, another idea carried forward from the 1980s despite plentiful evidence that they really didn’t work back then.  Still, as Einstein argued, it takes madness to repeat an experiment in the expectation of a different result second time round.

Free Lunch Thinking is a fascinating deep dive into the history of how the economics of tax policy has been (mis)shaped by supply-side thinking.  An early experiment in radical tax-cutting by US Treasury Secretary Andrew Mellon, a banking tycoon, serves as a fine example, or horrible warning, of how tax cuts play out in the real economy.  Over the course of the 1920s Mellon slashed income tax rates for wealthy Americans; stockbrokers jived down Wall Street, and tax revenues rose.  Vindication for the supply-siders?  Well, as everybody knows, it didn’t end well, and Mellon’s reputation for economic acumen was trashed as a result.

In the decades following the Wall Street crash, the ideas of British economist John Maynard Keynes came to the fore.  Keynes was concerned with demand, and saw the state as a key agent in regulating economies to avoid boom and bust.  According to Keynesians, Mellon got things completely out of synch: when the economy was booming in the mid-20s he should have raised taxes to withdraw demand from the economy.  When Wall Street went bust he should have injected demand by increasing expenditure at ground level.  In economics-speak, he exacerbated the crisis by applying pro-cyclical rather than counter-cyclical measures.  Mellon is mainly remembered for catastrophic mismanagement. 

Yet come the 1970s, Keynesian demand management policies struggled with both weak growth and rising inflation, a combination known as ‘stagflation’, and as the OPEC-induced oil crisis caused private investment in both the UK and USA to slump, supply-siders waiting in the wings pushed hard to rehabilitate Mellon’s ideas.  At that time, supply-siders were widely dismissed as “charlatans and cranks”, and in 1980 Vice President George H. W. Bush famously described Laffer’s curve as “voodoo economics”.  Ronald Reagan, however, and successors such as Donald Trump, thought otherwise. 

Indeed, Trump, took advice from Art Laffer before and during his Presidency and awarded him the Presidential Medal of Freedom, the United States’ highest civilian honour, in 2017. That same year Trump made the Tax Cut and Jobs Act the centrepiece of his economic policies.  Biden, of course, must reverse that act without delay to avert disaster in the coming years.

Despite scepticism among most economists, since the 1980s supply-side ideas, and tax cuts in particular, have become the mainstay of conservative economic thinking.  Even in the face of the catastrophic banking crash of 2008, the conservative response was to impose austerity on the poor and tax cuts for the rich.  Needless to say, the promised private investment-led recovery was feeble, real wages continued to stagnate, private and corporate debt rose steeply, and inequality reached alarming peaks. 

So is Bergin justified in arguing that economics has ruined the economy?  I mulled this question as I walked across the snowbound Chiltern hills this morning.  On reflection I think his accusation stacks up.  Pre-Covid, supply-side thinking remained the dominant narrative and heterodox economists, including me, struggled to persuade politicians and the wider public that tax policies need a comprehensive rethink.  The pandemic might prove a game-changer in this respect.

As you’d expect from an award-winning journalist, Bergin combines evidence and anecdote into a rich and highly readable book about the theoretical underpinnings of tax injustice, making this an invaluable read for the tax justice community.  Make space for it alongside your other lockdown reading.

The Tax Justice Network’s French podcast: En République Démocratique du Congo: les exonérations fiscales privent les populations des services essentiels #26

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En République Démocratique du Congo: les exonérations fiscales privent les populations des services essentiels #26

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Africa’s Path towards Resilience and Sovereignty: the Real Wakanda is within Reach

Colonialism stripped Africa of agency and confidence as well as material resources. In this article from Tax Justice Focus, Fadhel Kaboub* sets out a path towards independence and prosperity. He calls for a thorough-going rejection of the policy prescriptions offered by the former colonial powers, a renewed faith in the energy and creativity of Africa’s peoples, and a step-by-step programme to build sovereignty through the expansion of domestic production in energy, food and value added goods.

Africa was not colonised because it was poor, but rather precisely because it was and continues to be a very rich continent. Colonialism was fundamentally about extracting natural resources and labour power, but most importantly it was about establishing an economic, political, legal, educational and cultural ecosystem to institutionalise an abusive power structure, to affirm it as the unescapable model of economic development, and to acclimate the natives into embracing and reproducing its roots long after the end of colonial presence. Colonial institutions were not just administrative, bureaucratic, organisational, and legal codes, but they were also habits of thoughts and routines of behaviour that were deeply embedded within the social fabric.

So how can African nations undo these colonial and neocolonial shackles and mobilise their resources to achieve higher quality of life, prosperity, equity, and justice for their people? First, we need to undertake a detective-like forensic analysis to reveal the roots of these neocolonial shackles. Second, we must acknowledge that we need a coherent long-term vision for a comprehensive, multipronged, and sustained policy framework that cannot be interrupted by short-time political calculations. Third, we need to establish a rigorous financing mechanism that is transparent, just, and sustainable. In what follows I argue that a real-life Wakanda is actually within reach and that we have a realistic policy framework to achieve it.

Root Causes and Quagmires

Most African economies suffer from three structural deficiencies: the lack of food sovereignty, lack of energy sovereignty, and the low value-added content of exports relative to imports. These are typically the key pressure points that produce large trade deficits, which subsequently put downward pressure on the exchange rates of African currencies relative to major currencies like the US dollar and the euro. A weak exchange rate means that imports of basic necessities such as food, fuel, and medicine will be more expensive. This type of inflation often leads to social and political instability, which governments typically avoid by subsidising the price of basic necessities, and by artificially keeping their exchange rate strong via the accumulation of debt denominated in foreign currencies. This external debt accumulation is believed to be a solution when it’s in fact a quagmire. Prioritising debt payments often means reducing budget allocations for education, health, and critical infrastructure investments. Furthermore, the policies that are designed to increase foreign currency earnings to pay off the debt end up being entrapment strategies that deepen the quagmire.

For instance, policies that encourage tourism end up increasing food and fuel imports to feed, transport, house, and entertain millions of tourists. Policies that encourage exports end up leading to more imports of fuel, capital equipment, and intermediate inputs. Policies that promote foreign direct investment (FDI) end up increasing imports of fuel for energy production and transportation. Policies that encourage outbound immigration in order to increase remittances of foreign currencies end up promoting brain drain. Policies that promote the liberalisation of financial services end up hurting domestic investors and inviting speculative attacks from abroad. All of these policies masquerade as solutions when they are in fact structural traps. These traps are further amplified with a global race to the bottom forcing most developing countries into lower labour and environmental standards, more regulatory and fiscal concessions to foreign investors, and ever more dependence on the Global North.

This analysis suggest that the only way out of this trap is to invest in sustainable agriculture and renewable energy, and to invest in education, vocational and technical training, research and development, and basic infrastructure in order to accomplish higher degrees of food and energy sovereignty as well as an industrial basis focused on higher value-added content. 

A United African Vision: A Real-Life Wakanda

If Africa doesn’t have a coherent and unified long-term vision for itself, it is certainly going to continue being part of someone else’s vision (i.e. Europe, the U.S., and China). A real-life Wakanda is not going to be imported from or delivered by the Global North; it will be built by Africans, for Africans. That requires a collective vision and commitment to sustained efforts over the next 3 to 5 decades focused on three core pillars: food, energy, and high value-added manufacturing.

African economic sovereignty implies resilience to external shocks that often lead to counterproductive policy priorities such as agricultural policies that are aimed for increasing export revenues to favour export crops while undermining domestic food security. Allocating the most precious water resources and the most fertile land to the production of export crops like strawberries is the most inefficient and unsustainable use of resources.

Ensuring food sovereignty begins with sustainable agricultural strategies to restore soil health and to reallocate land and water use to enhance food security. These policies should be supplemented by localised investments in aquaponics farming which produces 100% organic leafy greens and high quality proteins, while using 90% less water compared to traditional agricultural techniques, no fertile soil, and no chemical fertilisers.

We cannot have a prosperous economy without adequate energy production capabilities. Africa has tremendous potential for renewable energy production including solar, wind, tidal, and geothermal energy. The goal is to build a resilient and carbon-free electric grid to power the entire continent via a network of national and regional grids, supplemented by microgrids, and energy storage capabilities. The manufacturing, installation, and maintenance of this critical infrastructure will create millions of well-paid jobs and will improve access to electricity, reduce pollution, improve health outcomes, and boost overall quality of life across the continent.

Africa’s industrial strategy cannot prioritise the needs of the Global North by continuing to serve as the source of cheap raw materials and assembly line for workers. The obsessive focus on economic growth for its own sake, the myth of “catching up” with the developed world, and competing in the global economy are some of the most destructive strategies used in the Global South. The alternative is a South-South regional trade and cooperation industrial strategy that promotes competition among equals, complementary and strategic collaboration in heavy industry, and resilience-focused industries such as energy, health, broadband internet, and transportation. The South-South trade model leverages complementary resources from multiple countries, allows for specialisation, shared responsibility, research and development, job creation, and access to a larger consumer base in the entire region, which allows for economies of scale to kick in and makes industrialisation profitable.

The guiding principles of this vision cannot be the traditional metrics of economic growth and export revenues, but rather a broad dashboard of environmental, social, and economic indicators focused on quality of life and resilience.

How to Pay for it?

The Global South is a net-creditor to the Global North at the tune of $2 trillion annually. Even if Africa’s debt is cancelled today, the financial neocolonial extractive mechanisms will quickly build up more external debt. This financial extraction is compounded by the usual extraction of natural resources and brain power. A real-life Wakanda cannot be built unless these extractive practices are reversed. The main pillars suggested above are necessary but they may not be sufficient to restore an economic, social, and ecological balance quickly enough.

In order to accelerate the transition to a real-life Wakanda, there is a case to be made for a substantial transfer of financial and technological sources from the Global North to the Global South. This is not a plea for help or charity. This is a call for climate, colonial, and neocolonial reparations. The Global North is responsible for the vast majority of CO2 emissions since the industrial revolution; that is a climate debt. The existing economic deficiencies in the Global South can be directly traced back to extractive colonial and neocolonial policies. There is a case to be made for decades worth of colonial and post-colonial debts to compensate Africans for abuse, violence, genocide, cultural appropriation, and biopiracy.

Debt cancellation and reparations (both financial and in-kind technology transfers) are the first step in an economic, social, and ecological restorative justice process. This is the pre-requisite for restoring a higher degree of monetary sovereignty to African nations, which can then be leveraged to build productive capacity, invest in research and development, indigenous technologies, eco-housing, eco-tourism, cultural heritage preservation, and adequate care for people and nature. Once we settle climate, colonial, and neocolonial debts and unshackle African nations from those grips, African government will be able to mobilise their own resources to promote full employment and price stability by building the adequate level of productive capacity needed for a real-life Wakanda. The reality of an economically sovereign, resilient, prosperous, just, and equitable African continent is within reach, and it begins by educating, organizing, and mobilising millions of Africans to decolonise their economies, their educational systems, and every aspect of post-colonial institutions. 

Fadhel Kaboub is an associate professor of economics at Denison University, and the president of the Global Institute for Sustainable Prosperity. He has held research affiliations with the Levy Economics Institute, and the John F. Kennedy School of Government at Harvard University. He is an expert on Modern Monetary Theory, the Green New Deal, and the Job Guarantee. His work focuses on public policies to enhance monetary and economic sovereignty in the Global South, build resilience, and promote equitable and sustainable prosperity. You can follow him on Twitter @FadhelKaboub  and @GISP_Tweets

Chinese Engagement in Africa: Beyond the Caricature

Western commentary on China’s engagement with Africa often treats it as a new form of colonialism. In this article W. Gyude Moore looks beyond this simplistic framework to analyse China’s approach on its own terms, and sets out some of the ways in which African countries can secure greater leverage in their negotiations with all of the great powers. This is the third article of our Black Lives Shattered edition of Tax Justice Focus, guest edited by Dara Latinwo.

W.Gyude Moore *

China’s emergence as a competitor to the United States and its Western allies has evoked hyperbolic descriptions about its motives and methods in Africa. Chinese debt to African countries has been caught in Western accusations of China’s alleged ‘debt trap’ diplomacy. These conversations have both elided the context in which China’s relationship emerged and failed to address the staying power of the colonial nature of Africa’s trade and commercial ties with all external actors, including China. This discussion attempts to explore the actual origins and nature of Chinese engagement in Africa and draw attention to the change required in Africa’s relationship with the world.

The beginning of Africa-China engagement

In 2000, African Presidents, dozens of ministers from China and Africa, and representatives from various international and regional organizations met in Beijing for the first Forum on China-Africa Cooperation. Over the next twenty years, the Forum would become the key mechanism for Chinese engagement on the continent. Held every three years, the Forum on China-Africa Cooperation culminates in an announcement of ever increasing amounts available for loans and aid to African countries. Beginning with $1 billion in 2000 and rising to $60 billion in 2015 and 2018.

During this time China’s engagement has superseded that of other external actors on the continent. Construction companies spread across the continent building railways (over 6,000 kilometres), roads (over 6,000 kilometres) ports (about 20), and power plants (over 80). China’s seemingly insatiable appetite for African commodities fuelled a boom and delivered growth across the continent’s many resource-dependent economies.

But questions arose about China’s true intent in Africa. Was the goal to replace the Washington Consensus with the Beijing Consensus?[1] Was this a new form of colonialism?[2] These questions, usually raised in Western press, were never based on evidence since China’s undertaking was never coherent and cohesive enough to be called a consensus and the voluntary nature of its bilateral relationships was a far cry from colonialism.

So how did China come to be such a dominant actor in Africa in just two decades?

An Economist piece from five months before the first Forum on China-Africa Cooperation offers an insight into the West’s own consensus on Africa’s prospects in 2000. In a piece called Hopeless Africa, the authors use Sierra Leone as a stand-in for the entire continent, writing that the country “is an extreme, but not untypical, example of a state with all the epiphenomena and none of the institutions of government” and that “it has poverty and disease in abundance, and riches too: its diamonds sustain the rebels who terrorise the place.”[3] Nothing in this passage is technically inaccurate. An HIV-AIDS pandemic had ravaged parts of central and southern Africa. The continent’s plethora of civil wars had precipitated humanitarian catastrophes that sent refugees streaming across borders. Africa’s external debt profile had worsened considerably such that by the end of 1990s the region’s debt had skyrocketed to $271.9 billion.[4] To address the low income countries’ debt crisis, the High Indebted Poor Countries Initiative (HIPC) was launched in 1996. In 2000, the UN launched its Millennium Development Goals, with Africa central to the campaign against extreme poverty. For many in the West, Africa was perceived as a problem to be solved and not a partner for business.

For China however, which was solidifying its place as the world’s factory, Africa provided an opportunity free of rivals. For a continent lagging behind every other region in infrastructure and labour productivity, locked out of international financial markets, and facing borrowing constraints, the Chinese engagement was a gift from the gods. Beyond financing and construction projects, China’s lack of concerns about rights violations, corruption. or poor public financial management suited African autocrats. Chinese loan agreements with undisclosed terms and no-bid contracts blossomed in countries with weak accountability systems. Without guardrails to protect against cost inflation or public debate about debt terms, these deals sowed the seeds of the modern criticism of Chinese lending in Africa.

But efforts to describe Chinese-financed projects as debt traps are not backed by evidence. As my colleagues at the Center for Global Development note, “It is a myth that massive Chinese lending has only supported white elephant projects and bridges to nowhere. In reality, evidence suggests that Chinese financed infrastructure projects have had positive economic effects for many developing countries.”[5]

Africa’s Relationship with the Rest Today  

What has gotten lost in accusations of debt traps and neo-colonialism is the underlying, unchanging pattern of African trade with the rest of the world. The arrival of China has not altered the colonial origins and character of this pattern.  Africa remains trapped in trade dynamics – where the continent exports raw materials and imports finished goods – that were first developed during the colonial era when Africa served as a feedstock to advanced economies.

These dynamics have important effects today. In a study of world merchandise exports between 1948 and 2015, no African country was among the top 30 exporters of goods and services. With Africa’s exports skewed towards primary commodities, the continent is vulnerable to price shocks. The maintenance of this extractivist model is responsible for the widening income gap between Africa and the rest of the world and it has sustained the exodus of Africans looking for opportunities elsewhere. 

Africa’s engagement with the rest of the world has always been from a position of weakness. In some ways, Africa-China engagement today continues this trend, with China setting and announcing the Forum on China-Africa Cooperation agendas.[6]

It is important not to minimise the impact of the suboptimal decisions and political distortions wrought by Africa’s leaders. There is no substitute for local leadership and unless the quality of governance improves, it is difficult to imagine how Africa will ever improve the terms of its loan or trade agreements. No external actor, bilateral or multilateral, will assume more responsibility for the continent’s future than its citizens.

What can be done

COVID-19 has plunged the continent into its first recession in 25 years and recovery will difficult, but Africa’s partners can help. By the end of the pandemic, government spending (a significant portion across the developed world) and private borrowing to mitigate the pandemic’s effects had risen by $24 trillion dollars.[7] It is an indication that the developed world has the economic wherewithal to assist Africa in breaking out of colonial patterns. With 54 votes in international forums, African states must begin to collectively advocate in both multilateral and bilateral relationships, an agenda that seeks to break free from this pattern. At summits like the Forum on China-Africa Cooperation, they need to influence the agenda to reflect this objective. Below are three recommendations for what this new agenda would entail:

  1. A truce on the developing Great Power competition in Africa:  The scale of Africa’s infrastructure and social services funding gap means that the continent will need both the United States and China and must not be pushed into selecting one over the other. The Chinese will remain dominant in infrastructure financing and continue to find willing partners in Africa, and the West needs to accept it. But agreements that lack transparency and need better governance undermine long-term growth. Africa needs its Western partners for continued investment in education, training, health, and soft infrastructure, like border systems and customs control, that make integration possible. Africa needs the unique competences of these external actors and cannot afford to have a single partner of choice.

* W. Gyude Moore is a senior policy fellow at the Center for Global Development where he focuses on infrastructure financing in Africa and the changing landscape of development finance on the continent, including the rise of China. Previously Moore served as Liberia’s Minister of Public Works with oversight over the construction and maintenance of public infrastructure from December 2014 to January 2018.

[1] https://dealbook.nytimes.com/2011/01/28/what-is-the-beijing-consensus/

[2] https://www.theguardian.com/cities/2018/jul/31/china-in-africa-win-win-development-or-a-new-colonialism

[3] https://www.theatlantic.com/international/archive/2021/02/china-debt-trap-diplomacy/617953/

[4] https://www.econstor.eu/bitstream/10419/140384/1/v28-i01-a07-BF02928100.pdf

[5] https://www.cgdev.org/publication/chinas-role-developing-countries-resetting-us-policy-3-cs-agenda

[6] https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1844079.shtml

[7] https://www.iif.com/Portals/0/Files/content/Global%20Debt%20Monitor_Feb2021_vf.pdf

[8] https://republic.com.ng/october-november-2020/unprofitable-diseases/

[9] https://www.scmp.com/news/china/diplomacy/article/3116198/china-mauritius-free-trade-deal-creates-model-beijings-trade

[10] https://www.dw.com/en/uk-africa-trade-what-will-brexit-change/a-56262464

[11] https://www.energyforgrowth.org/blog/what-happens-to-global-emissions-if-africa-triples-down-on-natural-gas-for-power/

[12] https://www.brookings.edu/research/africa-can-play-a-leading-role-in-the-fight-against-climate-change/

How economics ruins economies: the Tax Justice Network podcast, March 2021

Welcome to the latest episode of the Tax Justice Network’s monthly podcast, the Taxcast. You can subscribe either by emailing naomi [at] taxjustice.net or find us on your favourite podcast app.

Here’s the transcript of the show (may not be 100% accurate) 

Featuring:

How Economics Ruins Economies #110

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Tax Justice Network Portuguese podcast #23: Por que mulheres são mais tributadas que os homens?

Welcome to our monthly podcast in Portuguese, É da sua conta (it’s your business). All our podcasts are unique productions in five different languages – English, Spanish, Arabic, French, Portuguese. They’re all available here.

Você sabia que absorventes menstruais têm alta carga tributária? E que desodorantes femininos são mais caros do que os masculinos? E por que as mulheres são proporcionalmente mais tributadas que os homens? Mulheres e justiça fiscal é o tema do episódio #23 do É da sua conta. Você também vai ouvir sobre as injustiças do sistema tributário brasileiro e angolano, o subsídio dado pelas mulheres às economias através do trabalho de cuidado e como abusos fiscais – que muitas vezes estão relacionados ao crime organizado – afetam mais a vida de mulheres e meninas.

Participantes desta edição:

É da sua conta é o podcast mensal em português da Tax Justice Network. Produção de Daniela Stefano, Grazielle David e Luciano Máximo. Coordenação: Naomi Fowler.

Por que mulheres são mais tributadas que os homens? #23

Mais informações:

Economia do Cuidado: como podemos visibilizar o trabalho invisível das mulheres na economia do cuidado? (Think Olga)

Live de lançamento do estudo sobre o impacto da Covid 19 da vida das mulheres zungueiras em Luanda (Assoge)

Privatização da água na cidade de Manaus e os impactos sobre as mulheres (Instituto Equit)

Trabalho de cuidado: uma questão também econômica (Oxfam Brasil)

Reforma tributária e desigualdade de gênero (FGV Direito SP)

O estado atual da Justica Fiscal Internacional (Tax Justice Network)

Conecte-se com a gente!

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Inscreva-se: [email protected]

Download do podcast em MP3

Capital flight from Africa: Resource Plunder and the Poisoned Paradises in Tax Havens

In the second article of our Black Lives Shattered edition of Tax Justice Focus, renowned expert Léonce Ndikumana* explains how colonialism and the tax haven system have accelerated the rate of plunder of Africa’s vast wealth of natural resources, sustaining injustice, impunity and corruption throughout the global system.

Léonce Ndikumana

Africa’s financial haemorrhage, a paradox

While Africa has emerged as one of the fastest growing regions since the turn of the century, capital flight has, ironically, accelerated in a period marked by improvement in political and macroeconomic stability. The continent loses more than US$50 billion per year through capital flight. Why would capital flee from a ‘continent on the rise’? What do resident individuals and corporations know that foreign investors flocking into the continent do not know?

Most likely, capital flees Africa in search of protection from prosecution about the origins of the money and to evade taxation. Thus, owners of illicitly acquired wealth are happy to accept negative rates of return on their money in safe havens, in exchange for protection from legal nuisance.

The problem of capital flight is even more critical now as the continent faces protracted recession and long-lasting scarring effects from the Covid-19 pandemic. As fiscal space is threatened by declining exports and tourism receipts, African governments may be forced to cut development expenditures, which undermines provision of vital public services and derails progress in poverty reduction. The haemorrhage of wealth through capital flight means more lives lost due to lack of healthcare, more children denied education, and stunted private sector development for lack of transport, power and telecommunication infrastructure.

African resource-rich countries are particularly exposed to capital flight through embezzlement of export proceeds and export misinvoicing. Moreover, resource-rich countries lose large amounts of tax revenue through manipulation of transfer pricing by multinational corporations that take advantage of tax havens. Oil-rich African countries account for over 55 percent of total capital flight from the continent (Ndikumana and Boyce 2018). On the top of the list is Nigeria, which lost a staggering $467 billion through capital flight between 1970 and 2018.[1] The key channels of capital flight are leakages through the Balance of Payments (money that enters the country but cannot be traced in the recorded uses of funds) and trade misinvoicing (underinvoicing of exports and overinvoicing of imports). Money borrowed by governments or raised through resource exports often goes missing; public infrastructure projects are executed at inflated costs, with the difference being pocketed by politicians and channelled abroad as capital flight. As of end of 2018, Angola lost as much as $103 billion through capital flight.[2]This is a country where 76 percent of the rural population lives in extreme poverty below $1.90 per day. The national poverty rate in Angola has risen from 34 percent to 52 percent in the past decade, and the number of poor people more than doubled from 7.5 to 16 million (World Bank). For the ordinary Angolan, capital flight means more hunger and more destitution.

A key mechanism of capital flight is embezzlement of the proceeds of oil extraction and tax evasion to the benefit of multinational corporations and the Angolan elite. For example, the former President’s daughter, Isabel dos Santos has amassed massive wealth and established a global business empire by exploiting her influence in state enterprises such as Sonangol. The January 2020 ‘Luanda Leaks’ report by the International Consortium of Investigative Journalists (ICIJ) identified more than 400 companies in Isabel dos Santos’ business empire, including 94 in recognised tax havens (Shaxson 2021). Thus, Angola’s wealth has served to lubricate financial systems in the West, not only in the usual offshore financial centres, but also in the ‘supposedly onshore countries’ like Portugal (Shaxson 2021).

Angola is not alone; and wealth capture is not limited to oil. For example, Côte d’Ivoire is better known for cocoa. As of end of 2018, the country had lost $55 billion through capital flight since 1970. Côte d’Ivoire is the world’s top cocoa producer, accounting for 40 percent of global supply. Yet the country receives only 5-7 percent of the profit generated globally by cocoa (Merckaert 2020). Cocoa farmers get little reward for their hard labour. Most of the value of cocoa accrues to local intermediaries, international export and processing corporations, and powerful politicians. This system has been preserved by successive political regimes; for everyone that matters gets their cut; the Ivorian people lose, but they have no means to change the system. As the country’s wealth is expropriated through capital flight, the Ivorian people lack basic services. Less than 40 percent of the population have access to clean sanitation facilities.

South Africa, another richly endowed country, has suffered from capital flight orchestrated by an intricate network of players and enablers connected to both the domestic political system and the international financial system (Ndikumana, Naidoo and Aboobaker 2020). From 1970 to 2018, South Africa lost a staggering $329 billion through capital flight. The proceeds of massive misinvoicing of mineral exports, embezzlement of state resources in the context of ‘state capture’ by powerful and politically connected individuals and corporations, and corporate tax evasion have fuelled the accumulation of private wealth in offshore financial centres. The inability to take full advantage of its own resources is a major reason for the slow progress in poverty reduction in ‘the most unequal country in the World’.[3] The top 10 percent richest of the population own 51 percent of the country’s wealth; the bottom 10 percent hold less than 1 percent.

Capital flight, a reincarnation of colonial resource plunder

Capital flight from Africa is a modern-day reincarnation of the colonial state-led plunder of the continent’s natural resources. In this new scramble for Africa, multinational corporations replay the Berlin Conference of 1884-85 and compete for a slice of the African cake. In a world with weak corporate sector regulation, multinational corporations capture Africa’s resources for cheap and repatriating profits, leaving behind an impoverished population and a devastated environment.

Modern-day plunder of African resources operates along a sophisticated criminal enterprise value chain (Ayogu 2020), from the predicate crime (origins of the illicit funds), to the illicit cross-border transfer of funds, all the way to the concealment of the proceeds in the poisoned paradises called tax havens. The plunder of Africa’s wealth is aided by an intricate transnational takers network that takes advantage of structural flaws in the international regulatory system. The wealth of High Net Worth Individuals, corporations, and politicians is channelled through safe havens with the help of custodian banks and an industry of enablers comprising of law firms, accounting firms, audit firms, and other deal makers. Thus, the origins of the wealth are disguised, and the true beneficial owners are made ‘invisible’ with the stroke of a pen. Hence, financial crime is separated from the criminals; impunity prevails.

So, what to do about it?

From a micro perspective, evidence suggests that capital flight is not primarily the outcome of normal portfolio choice by African wealth holders (Ndikumana, Boyce and Ndiaye 2015). Therefore, while policies aimed at increasing returns to domestic investment in Africa are desirable, they are not effective in deterring capital flight. A better strategy is to strengthen the human and technical capabilities and effectiveness of specialised national institutions such as customs services, financial intelligence units, and anti-corruption agencies, to increase the capacity to detect fraud, embezzlement of public resources, illicit financial transactions, and trade misinvoicing, and to  increase penalties for financial crimes. In other words, the key is to ensure that financial crime does not pay; whoever does the crime must do the time.

At the macro level, while macroeconomic stability and growth are desirable, they are not a sufficient deterrent of capital flight. Macroeconomic policies aimed at raising the returns to investment such as high interest rates are unlikely to stem capital flight, even as they suffocate domestic investment (Fofack and Ndikumana 2015). No interest rates can be high enough to persuade criminals to leave stolen money within the reach of the legal authority.

Africa needs strong rules and institutions that keep private and public sector corruption in check. At the national level, African governments must establish strong legal frameworks on transparent and accountable management of natural resources. This involves notably systematic publication of records on domestic and foreign investments in extractive industries, tax payments by corporations operating in these industries, as well as open legal proceedings of prosecutions of economic crimes.  The African public has the right to know who operates in extractive industries, how much is produced, how much is exported, and how much revenue accrues to government coffers. Only then can African people hold their governments accountable, and eventually reap the gains from natural resource exploitation in the form of social development outcomes.

At the global level, the key is to increase transparency in trade and finance, especially breaking the tradition of banking secrecy, and combatting trade misinvoicing and abusive transfer pricing. The worst culprits of banking secrecy are not necessarily remote islands in the tropics, but rather major financial centres in advanced economies notably the United Kingdom and its territories, the United States, Switzerland, the Netherlands and others (Tax Justice Network, Financial Secrecy Index 2020). These are also Africa’s leading donors. They could increase the effectiveness of their aid to the continent by helping to plug the leakage of Africa’s wealth by denying a home to illicit flows from the continent.   The adoption of universal automatic exchange of tax information is a major step in combatting trade misinvoicing, abusive transfer pricing and concealment of private wealth abroad. In addition, a shift to unitary taxation of multinational corporations, which would end the practice of considering subsidiaries of an MNC as separate independent entities for tax purposes, would greatly help in combatting corporate tax evasion (ICRICT).

Building national and global support for policies against capital flight requires shifting the conversation from capital flight being an African or developing countries problem to being a global problem. In this respect, it is important to emphasise that while the costs of capital flight are shouldered by African economies, the gains from stemming capital flight and improving international financial transparency will be shared globally.

* Léonce Ndikumana is a Distinguished Professor at the University of Massachusetts Amherst where he directs the African Development Policy Program at the Political Economy Research Institute. He is also a member of the Independent Commission for the Reform of International Corporate Taxation (ICRICT). He is the author and editor of books including Capital Flight from Africa: Causes, Effects and Policy Issues (with Ibi Ajayi), Africa’s Odious Debts: How Foreign Loans and Capital Flight Bled a Continent (with James Boyce), and dozens of academic publications.

[1] Ndikumana, L. and Boyce, J.K. 2021. Updated estimates of capital flight from Africa 1970-2018. PERI Report, forthcoming.

[2] Ndikumana, L. and J.K. Boyce (2021). On the Trail of Capital Flight from Africa: The Takers and the Enablers. Oxford University Press, forthcoming

[3] Pomerantz, K. 2019. The Story Behind TIME’s Cover on Inequality in South Africa. Time, 2 May,

The CFA Franc as a vivid symbol of colonial continuities in Francophone Africa

In the first article of our Black Lives Shattered edition of Tax Justice Focus, Dr N.S. Sylla explains how monetary policy in Africa has been dominated by a consensus formed in Europe and the United States. In France’s former colonies in West and Central Africa this has helped preserve the substance of empire long after its formal end.

Dr. Ndongo Samba Sylla *

The history of money and finance in the former French colonies south of the Sahara presents remarkable continuities, despite the political and institutional changes that occurred with the decolonisation process in the 1960s. The most obvious symbol of these continuities is no doubt the CFA franc. The acronym of this currency created in 1945 by the French provisional government originally stood for franc of the French colonies in Africa. It still circulates in eight countries in West Africa and six countries in Central Africa without its founding principles having been altered.

To have a proper sense of the history of French monetary imperialism in Africa, one has to go back at least to the mid-19th century. With the abolition of slavery in France in 1848, the French state had to compensate French slave owners for the loss of their “movable” property. Part of the financial compensation had been used to set up colonial banks under the authority of the Bank of France. This was the case of the Bank of Senegal, created in 1853 by a decree of Louis Napoleon. Unlike the other colonial banks whose headquarters were located in metropolitan France, the Bank of Senegal was based in Saint-Louis, in the north of Senegal. It started in 1855 as a loan and discount bank. Being under the financial control of the Bordeaux trading houses, its role was to promote their export and import activities to the detriment of their local rivals who suffered discrimination in accessing credit.  Following its dissolution in 1901, the Bank of Senegal was succeeded by the Bank of West Africa, a private bank that had a monopoly on the issuance of francs in the French colonial empire south of the Sahara.

African people had for a long time resisted the imposition of the French currency. For their trade, but also for religious purposes, they used currencies like the cowries, a shell from the Indian Ocean, and the manilla (a bracelet). They were aware that the acceptance of the colonial currency would disrupt their trade and more importantly would make them economically subordinated to the diktats of their colonial masters. If you no longer have control over your currency as a nation, you no longer have control over what you produce, consume and exchange. As the ban on the import of cowries and the obligation to pay taxes in the colonial currency were not always effective, colonial administrators were often obliged to use legal sanctions and physical force. Their sense of masculinity often suffered from the defiant attitude of African women who did not want to use the franc in their daily trade.  Only the creation of the CFA franc would end decades of resistance from ordinary people against the French imperial monetary order.

The Bank of West Africa was replaced in 1955 by two public issuing institutions that four years later became the Central Bank of West African States and the Central Bank of Equatorial African States and Cameroon, renamed the Bank of Central African States. These two central banks each separately issue a currency whose acronym is the CFA franc: the franc of the African financial community in the first case; the franc of financial cooperation in Central Africa in the second. In the mid-1970s their headquarters were moved to Dakar (Senegal) and Yaounde (Cameroon) respectively. Their staff was ‘Africanised’ in the same process.

The ‘Africanization’ of the management of the Central Bank of West African States and the Bank of Central African States did not put an end to the colonial character of the monetary system. The CFA franc still functions according to the same principles and purpose established during the colonial period. Its rigid peg to the French currency (franc then euro, from 1999) and the freedom of transfers between France and countries using the CFA franc were not abolished after independence. Similarly, the French government’s direct control over monetary and exchange rate policy is still exercised through its representation in the organs of the two central banks with a veto power that has become implicit over time, and the obligation for the latter to deposit part of their foreign exchange reserves with the French Treasury (50 percent since the mid-2000s).

The purpose of this ‘monetary arrangement’ from its origin to the present day is to maintain satellite economies that are ‘complementary’ to the French economy. That is, economies that serve as cheap sources of raw material supplies and captive outlets.

The fixed parity reduces transaction costs and protects French companies (and now all foreign companies operating in euros) from exchange rate risk. The structural overvaluation of the CFA franc, the artificially high level of its value against the reference currencies, tends to favour imports, including luxury goods, to the detriment of exports.

The fixed parity thus constitutes a kind of trade preference granted to the euro zone, since African countries cannot use their exchange rate as an instrument to boost at times the price competitiveness of their exports. Finally, it deprives the Central Bank of West African States and the Bank of Central African States of the possibility of using the exchange rate to absorb shocks. Thus, in the event of a crisis, the need to defend the peg implies a reduction in public expenditure and credits to the economy, as well as an increased dependence on external financing flows.

As for the freedom of transfer, it allows for the free investment and disinvestment of French capital as well as the repatriation of profits, dividends, etc. In resource-rich CFA countries, this freedom is often associated with significant financial bleeding. For example, over the period 1970-2008, illicit financial flows from Côte d’Ivoire and Cameroon are respectively estimated in 2008 US dollars at 66.2 billion and 33 billion, which was 6 times and 13 times higher than their respective stock of external debt.

In addition to the handicaps resulting from an overvalued exchange rate and the outward transfer of local economic surpluses, the behaviour of the banking sector retains its colonial character.

In CFA countries, credits to the economy remain low, with short maturities and prohibitive interest rates. Loans are mainly oriented towards the trade sector to the detriment of invesmtnet in agriculture and manufacturing. Bank loans are primarily targeted at large companies and governments to the detriment of SMEs in general. The decline in the market share of French banks in CFA countries has not changed this general observation. The banking landscape has become less oligopolistic but is still largely dominated by foreign banking groups. In Senegal, for example, the latter control more than 90 percent of banking assets.

Thus, domestic production in CFA countries is penalised on the one hand by the low level and inadequacy of the credits to the economy and on the other by the overvaluation of the exchange rate. This pattern is aggravated by trade liberalisation policies and those dictated by the ideology of fiscal austerity.

The persistence of neo-colonial monetary and financial relationships has favoured neither structural transformation nor regional integration, and has done even less for the economic development of the CFA countries, 9 out of 14 of which are among the Least Developed Countries. In terms of health and education achievements, CFA franc using countries occupy the lowest ranks worldwide. Among a total of 189 countries, Niger, Central African Republic and Chad had the lowest score on the 2020 Human Development Index. Looking from a long term perspective, average real incomes have stagnated or declined in five of the biggest CFA franc using economies: Cote d’Ivoire, Cameroun, Gabon, Senegal and Congo Republic.

If this monetary bond did not prevent the commercial and financial decline of France in its sphere of influence, it has nonetheless contributed to the institution of centralised political regimes that are more responsive to the priorities of the French government, French companies and foreign investors than to the interests of their citizens. For example, in oil-exporting CFA countries such as Chad, Gabon, the Republic of Congo and Equatorial Guinea, the ‘president for life’ model remains the norm, notwithstanding the frequent organisation of formal elections with a foregone conclusion.

In other words, the CFA franc existence favours a particular type of political leadership. Those who can aspire to lead CFA countries are those who will not question its limitations. It is these leaders that have enjoyed the active solidarity and support of the French government over the last six decades.

In the face of growing protests against this colonial relic led by pan-Africanist social movements and intellectuals, France, in alliance with Côte d’Ivoire, decided in December 2019 to soften its stance on the West African CFA franc. As with previous CFA franc reforms, the current one is very limited in scope. Its motivation is to tackle the embarrassing symbols – the name of the currency, French representation within the Central Bank of West African States and the control of the French Treasury over the latter’s foreign exchange reserves – while ignoring the points that African economists criticise: the existence of a formal link of monetary subordination between France and the CFA countries, the fixed parity with the euro, the freedom of transfers, and also the existence of two monetary unions that have no other foundation than colonial history.

While the abolition of the CFA franc does not in itself guarantee that its member countries will develop more equitably and rapidly, extending its life expectancy cannot but hinder any prospect of political and economic emancipation of African peoples.

You can access the entire Black Lives Shattered edition of Tax Justice Focus here

** Dr. Ndongo Samba Sylla is a Senegalese development economist and researcher at the West Africa Office of the Rosa Luxemburg Foundation. He is the co-author with Fanny Pigeaud of Africa’s Last Colonial Currency: The CFA Franc Story (London: Pluto Press, 2021).

#BlackLivesShattered – colonialism, tax havens, and African development

In 2020, as Black Lives Matter activists challenged unequal power relations across the world, Dara Latinwo – a One Young World ambassador* – contacted Tax Justice Network to discuss how tax havens and illicit financial flows have thwarted African development in the decades since many states won their independence from European empires. We suggested that Dara guest edit a special edition of Tax Justice Focus, our flagship publication, and invite four eminent scholars to contribute their views on the subject. Here is that special edition, and in the following blog we publish Dara’s guest editorial in full.

************

Editorial by Dara Latinwo

In a year plagued by pandemic-driven loss and lockdowns, the death of George Floyd did the seemingly impossible and pierced sharply into the global consciousness of 2020, sparking fervour that fuelled worldwide protests against racial injustice and police brutality.

Keen to keep up with those marching in the streets, corporations and celebrities were quick to claim solidarity on social media, showcasing their support for ‘The struggle’ and displaying their donations on blacked out Instagram accounts. However, wading through this deluge of diversity-themed tweets and posts left me uneasy. After all, many of those hurrying to hashtag their ‘allyship’ with one hand, are also hiding their wealth in tax havens with the other.

These secretive repositories starve governments of vital resources that could be used to improve the lives and prospects of millions of people like George Floyd. (Whether those governments would use the resources in this way is a question for another editorial.) Moreover, by harnessing havens for their own benefit, individuals and organisations prop up structures that serve as the final destination for funds stolen from public coffers across Africa – the region with the most black lives.

As long as Africa remains economically hobbled by these exploitative global financial flows and systems, it will not just be capital that flees from the continent but, increasingly, its desperate population too, hungry for basic opportunities to develop and dignify itself. However, more often than not, these economic evacuees find only a frosty reception on reaching foreign shores: described and dismissed as ‘migrants’, they end up at the bottom of yet another pile. With this being the case, it is no surprise – but no excuse either – that the black diaspora finds itself particularly vulnerable to the sort of prejudices that led the store owner to call the police on Floyd last summer and Chinese authorities to hound African expats out of their homes last spring.

For this reason, any debate or discussion that is serious about tearing down racial injustice, rather than just statues, must include Africa. As the competition between actual and aspiring superpower states intensifies, it is imperative that African countries enhance their economic and geopolitical heft on the world stage, especially as other governments have few, if any, scruples about strengthening themselves at Africa’s expense.

Hence, the decision to commission this special edition of Tax Justice Focus which spotlights Africa and explores the international dimension to racial inequity buried in the continent’s past, playing out in its present, and looming over its future.

In the first article Dr Ndongo Samba Sylla, a former technical adviser at the Senegalese Presidency and current research & programme manager at the Rosa Luxemburg Foundation, explores the colonial past and neo-colonial present of West and Central Africa’s monetary system.  Tracing the origins of the region’s economic entanglement with France, Dr Ndongo illustrates how technocratic control over monetary policy has helped Paris keep its former possessions in a state of underdevelopment long after the end of formal empire.

Pulling the reader into the present with the second article is Léonce Ndikumana, a director at the Political Economy Research Institute (PERI) and a UN Development Committee member. His piece follows the trail of devastationleft by illicit financial flows, all the way to the poisoned paradises of modern-day tax havens – the temporary homes for ill-gotten gains siphoned from the continent. Casting a glance back at some of the financially hollowed-out African nations, Léonce’s contribution highlights the human cost of havens and the systemic corruption they contaminate countries with.

Gyude Moore, a former Minister of Public Works in Liberia and current senior policy fellow at the Center for Global Development, uses the third article to peer more closely at Africa’s relationship with China in order to present a more nuanced picture of this oft-discussed commercial and political ‘partnership’. Looking ahead to an uncertain post-pandemic future, Gyude offers practical policy recommendations on how Africa can strategically navigate its way along this second incarnation of the ‘Silk Road’.

The final feature article in this edition, written by Fadhel Kaboub, Associate Professor of economics at Denison and President of the Global Institute for Sustainable Prosperity, seeks to grapple with the question of what a sovereign and sustainability-focussed African continent could look like and convincingly maps out the journey there. In so doing, Fadhel persuasively lays out for readers what it would take for Africa to wake up as a real-life Wakanda.

The issue concludes with a review of Tom Bergin’s Free Lunch Thinking, a reminder that underdevelopment in Africa is in part the culmination of a steady process of intellectual decay in Europe and North America.

Although the heady ‘Africa rising’ narratives, which have waxed and waned over the years, strive to create compelling visions of a strong, self-determining Africa that exists beyond a Marvel film fantasy, these narratives often miss a central truth: that Africa did rise. Indeed, its proud pre-colonial past is a testament to this rarely revealed reality.

Thanks to curious history hunters, such as broadcaster Zeinab Badawi with her BBC History of Africa series and the musician Akala with his lectures on ancient and medieval Africa, new light is being shed on the array of technological advances made by sophisticated African civilisations before transatlantic slavery and colonialism shattered the continent’s sense of self and confidence.

Social media support, mingled with sympathy, for black communities across the world ultimately rings hollow without an accompanying readiness to rethink and remove the economic and financial strangleholds that have enfeebled the African continent. This edition of Tax Justice Focus represents an attempt to loosen some of these so that Africa can, one day soon, rise again.

Download the entire edition here.

About the Guest Editor: Dara Latinwo is a One Young World (OYW) ambassador who was selected by the ICAEW to attend the 2017 OYW annual summit, held in Bogotá, Colombia.

Having lived and worked across four different continents, she is
passionate about rethinking and redesigning the paradigm within which organisations operate, such that sustainability – economic, environmental and societal – sits at the heart of solutions and strategies proposed for the future.

A new anti-monopoly initiative opens today

In November 2019 we published a long article entitled If tax havens scare you, monopolies should too. And vice versa.

The article described how a small group of ideologues in Chicago from the 1970s popularised a harmful new story about monopolies and competition, which was so influential that it effectively de-fanged government protections and allowed a wave of corporate mergers and rising corporate power, first in the United States, then in Europe and beyond. We described the emergence in the past few years of a powerful new antimonopoly movement in the United States, wielding a vibrant new story that is now starting to overthrow the Chicago-school ideology of antitrust.

Unfortunately, this new story had not – and still has not – spread very far beyond the United States. Hopefully, this will soon start to change. This week, a new newsletter was launched, The Counterbalance, which notes:

“We first came together in late 2020 when Barry Lynn [a leading light of the new US antitrust movement] sent Michelle [Meagher, a competition lawyer} an article by Nick [Shaxson of TJN,] entitled “If tax havens scare you, monopolies should too. And vice versa,” calling for a new antimonopoly movement outside the United States. We recognised our shared interests, and began working together almost immediately.”

The Counterbalance is only a newsletter at this stage. The participants are setting up an organisation – The Balanced Economy Project – to tackle these enormous issues. It will have a global focus.

Now please read on – and if you like what you see, please subscribe.

The Tax Justice Network March 2021 Spanish language podcast, Justicia ImPositiva: Los países que más facilitan el abuso tributario corporativo #57

Welcome to our Spanish language podcast and radio programme with Marcelo Justo and Marta Nuñez, free to download and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónico! Escuche por su app de podcast favorita.

En este programa:

Invitados: 

Los países que más facilitan el abuso tributario corporativo #57

MÁS INFORMACIÓN:

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O envien un correo electronico a Naomi [@] taxjustice.net para ser incorporado a nuestra lista de suscriptores.

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Tax Justice Network Arabic podcast, edition 39: الجباية ببساطة #٣٩- العدالة الضريبية وتحقيق أهداف التنمية المستدامة

Welcome to the 39th edition of our Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. It’s produced and presented by Walid Ben Rhouma and is available for listeners to download. Any radio station is welcome to broadcast it for free and websites are also welcome to share it. You can join the programme on Facebook and on Twitter.

مرحبا بكم في العدد التاسع والثلاثين من الجباية ببساطة.


في هذه الحلقة سلطنا الضوء على الأزمة الإقتصادية الخانقة التي تعيشها السودان ما دفع بالبنك المركزي السوداني إلي خفض قيمة العملة بصورة حادة. دائما في اخبارنا المتفرقة، عودة على أهم ما جاء في رسالة مديرة صندوق النقد الدولي لإجتماع مجموعة السبعة وتوصياتها للإسراع في استعادة نسق نمو يعود بالنفع على كل البلدان.
في الجزء الثاني من الحلقة، حاور وليد بن رحومة السيد كريم داهر، أحد أعضاء الفريق رفيع المستوى المعيّن من الأمم المتحدة والمعني بالمساءلة المالية الدولية والشفافية والنزاهة من أجل تحقيق أجندة 2030، للحديث عن أهم مخرجات التقرير الصادر مؤخرا وما جاء فيه من توصيات لمحاربة التدفقات المالية غير المشروعة والتهرب الضريبي وتبييض الاموال.

تابعونا على صفحتنا على الفايسبوك وتويتر https://www.facebook.com/ TaxesSimplyTweets by taxes_simply

The Tax Justice Network’s French podcast: L’idée d’un système fiscal international désormais acquise au niveau des Nations Unies #25

Pour la 25ème édition de votre podcast en français Impôts et Justice Sociale sur la justice fiscale et sociale en Afrique et dans le monde proposée par Tax Justice Network avec Idriss Linge:

Nous parlerons du rapport final du Panel FACTI, qui valide plusieurs thèses défendues depuis de longues années par l’ONG Tax Justice Nework, notamment : Le besoin d’un système fiscal international avec un niveau minimum de taxation, l’élargissement de la reconnaissance des actes susceptibles d’être qualifiés de Flux Financiers Illicites, et la lutte contre les paradis fiscaux et le secret offshore.

Seront écoutés à ce sujet dans ce programme :

Nous parlons aussi du message de la France à propos de la dette africaine, avec une déclaration du Président Emmanuel Macron, et en posture d’invité, nous avons Alain Symphorien Ndzana Biloa, expert de la fiscalité basée au Cameroun, et auteur d’un livre sur le besoin d’un système fiscal international

Un système fiscal international désormais acquise au niveau des Nations Unies #25

Vous pouvez suivre le Podcast sur:

Beneficial ownership verification: exploring Belgium’s sophisticated system

Belgium’s automated IT system, which comprises cross-checks, validations and structured data on ownership chains, sets an example for other countries to follow. However, it should improve its public access.

Despite many jurisdictions approving laws to establish beneficial ownership registers (we reported more than 80 countries back in April 2020, and the US became the latest to do so in January of 2021), verification of beneficial ownership remains a challenge. Countries offering beneficial ownership information online and for free have enabled the public (for example journalists and civil society organisations) to assess the extent of the problems in accuracy of beneficial ownership information. Examples of this third-party verification include Global Witness’ analysis of the UK beneficial ownership register, Transparency International’s use of the Slovak beneficial ownership register to detect abuses by the Czech Prime Minister, or the recent OpenLux investigation into Luxembourg’s beneficial ownership register.

We have been writing about beneficial ownership verification since our first proposals in 2017, which we updated in 2019. We have also set up a multi-stakeholder group with other allied organisations to promote pilots to verify beneficial ownership information. During the group’s calls we have heard presentations on how different stakeholders are going about verifying this information, and a curated collection of our work on the issue is available here.

Cutting-edge verification

In 2019 the Financial Action Task Force (FATF) published a paper on best practices of beneficial ownership for legal persons, describing the sophisticated verification systems of some countries, with one of the examples being Denmark. Representatives from the Danish Business Register made a presentation to our multi-stakeholders group and also wrote a guest blog post describing the impressive Danish system.

A few months later we got in touch with Alexandre Taymans and Sébastien Guillaume from Belgium’s Ministry of Finance. They were kind enough to present the very sophisticated IT system used by the Belgian beneficial ownership register at the VI edition of the Buenos Aires beneficial ownership event that we co-organised with Latindadd and Fundación SES as members of the Financial Transparency Coalition.

Now, Belgium’s Ministry of Finance has also prepared an illustrative and detailed report on how the Belgian IT system works. The report shows how the system detects inconsistencies, for example if the user declares a national tax identification number or other personal information that doesn’t match the records of the register of natural persons.

The report also elucidates the requirements to disclose the ownership chain and how the system presents this as structured data, creating graphic representations as well.

Overall, the Belgian IT system for beneficial ownership verification sets an example for other countries to follow. The detailed report gives precise descriptions of what the checks look like and it proposes some future improvements. It is a must-read for any country planning to set up a beneficial ownership IT system. However, Belgium could also learn from countries such as the UK and Denmark that make beneficial ownership information available in open data format. Belgium should improve its public access to the beneficial ownership register; this would also enable, among other benefits, verification by third parties. As detailed in TJN’s, Financial Secrecy Index, access to beneficial ownership information is currently restricted to those with a Belgian electronic Id or those who are physically in Belgium.  The index also identified loopholes in relation to legal ownership registration that should be fixed.

Tax Justice Network Portuguese podcast #22: América Latina perde US$ 43 bi por ano; valor dá pra vacinar toda região

Welcome to our monthly podcast in Portuguese, É da sua conta (it’s your business). All our podcasts are unique productions in five different languages – English, Spanish, Arabic, French, Portuguese. They’re all available here.

#22 América Latina perde US$ 43 bi por ano; valor dá pra vacinar toda região

Mais de US$ 40 bilhões em recursos que poderiam ser investidos no desenvolvimento da região, em educação, saúde, na compra de 2 bilhões de doses de vacina contra a covid-19 estão vazando da América Latina e Caribe em forma de fluxos financeiros ilícitos. Esse dinheiro sai de nossos países de maneira ilegal e sustenta o tráfico de pessoas, drogas, armas, a lavagem de dinheiro e também muitos abusos fiscais.

Esses vazamentos criminosos são destaques da edição #22 do É da sua conta, que traz as informações do recém lançado estudo “Vulnerabilidades e exposição a riscos de fluxos financeiros ilícitos na América Latina”, da Tax Justice Network. De acordo com o material, os principais  buracos que  permitem essas perdas bilionárias estão no comércio internacional, nos investimentos estrangeiros nos países latinoamericanos e movimentações bancárias suspeitas.

Além de colocar a lanterna e mostrar onde está o problema, o podcast também traz as ferramentas para vedar os canais de fluxos financeiros ilícitos apresentados no estudo da TJN. Acabar com estes fluxos financeiros ilícitos é possível. Ouça o podcast e descubra como.

Participantes desta edição:

Transcrição do podcast

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#22 América Latina perde US$ 43 bi por ano; valor dá pra vacinar toda região

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É da sua conta é o podcast mensal em português da Tax Justice Network. Produção de Daniela Stefano, Grazielle David e Luciano Máximo. Coordenação: Naomi Fowler.

Download gratuito. Reprodução livre para rádios.

Casino Capitalism and a just transition: the Tax Justice Network podcast, February 2021

Welcome to the latest episode of the Tax Justice Network’s monthly podcast, the Taxcast. You can subscribe either by emailing naomi [at] taxjustice.net or find us on your favourite podcast app.

In this month’s episode:

The transcript is available here (some is automated and there may be small inaccuracies)

Featuring:

The Taxcast: Casino Capitalism and a just transition #109

We can do this, you know, there are solutions. The next 20 years could be one in which we rebuild a more just global economic system.”

~ Ben Tippet of the Transnational Institute

In the same way that Bitcoin has surged in price, the Gamestop bubble has no rooting in any kind of economic reality. The term ‘investment’ is very widely used and abused by politicians and by journalists. We need to see huge investment directed towards a new energy efficient, non-fossil fuel market. There’s a huge transition facing humanity and at the moment, I don’t think markets are in any way geared to making that kind of transition.”

~ John Christensen of the Tax Justice Network

Further reading:

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A tide-turning moment in the global struggle for tax justice

It’s not often that you can celebrate an outright, global triumph for the advocacy efforts of a movement. Today, for tax justice, is one of those days. The high level UN panel report launched today, by a group of heads of state and ministers from around the world, may come to be seen as a pivotal moment in the world’s fight against illicit finance and tax abuse. If their envisaged changes follow, the $427 billion that we conservatively estimate to be lost in tax revenue each year may finally be curbed.↪NOTEOur State of Tax Justice 2020 report revealed in November 2020 that countries around the world are losing over $427 billion in tax each year to international corporate tax abuse and private tax evasion, costing countries altogether the equivalent of nearly 34 million nurses’ annual salaries every year – or one nurse’s annual salary every second.

The UN High-Level Panel on International Financial Accountability, Transparency and Integrity (the FACTI panel) was launched in March 2020 to study the impact of tax abuse, money laundering and illicit financial flows on the ability of states to meet the UN’s Sustainable Development Goals by 2030.

The FACTI panel’s final report represents a year’s worth of detailed analysis and engagement with UN member states in every global region. From the perspective of two decades of struggle by the tax justice movement, the recommendations are nothing short of remarkable.

The report calls for powerful, specific policies to be implemented, in respect of both tax transparency and international tax rules. It also envisages sweeping reforms to the global architecture. In each area, a raft of tax justice proposals are adopted.

Consider first the “ABC’s of tax transparency”. This is the suite of policy measures that the Tax Justice Network proposed shortly after our formal establishment in 2003, each of which was first dismissed as utopian and unrealistic by policymakers and OECD officials.

A is for the automatic exchange of information, delivered through a multilateral instrument to ensure that tax authorities are aware of their tax residents’ offshore financial accounts. This was adopted by the OECD in the Common Reporting Standard, which now covers all major financial centres except the United States, but excludes most lower-income countries from effective access to information.

B is for beneficial ownership transparency, and specifically the creation of public registers of the ultimate warm-blooded human beings who own companies, trusts and foundations. Around 80 countries now have registers for companies at least.

C is for country by country reporting by multinational companies, to show the extent and nature of profit shifting. The G20 directed the OECD to develop a standard in 2013, which was finalised in 2015 and follows closely the original proposals of the tax justice movement – but under heavy lobbying introduced various technical weaknesses and an extreme turnover threshold, and critically did not allow for the data to be made public.

The FACTI panel identifies each of the ABC as crucial policy tools for the fight against tax abuse and illicit finance. In each, the recommendation is close to the full demand of the movement: to end the exclusion of lower-income countries from automatic information exchange; to establish central registers of beneficial ownership for all legal entities, and ‘encourage’ at least that these be made public; and to require all multinationals to publish country by country reporting.

Turning to international corporate tax rules, the tax justice movement has long called for two measures to end profit shifting ↪NOTEProfit shifting is a technique used by multinational corporations to pay less tax than they should that involves a multinational corporation moving the profit it makes in the country where it sells good and services into to a tax haven. By shifting profit into a tax haven, the multinational corporation underreports the value of its profit in the countries where it sells goods and services and so pays less or no tax in that country. The profit shifted into a tax haven then gets taxed at a very low rate or not at all depending on whether the tax haven has a very low corporate tax rate or no corporate tax rate. Learn more here. and the race to the bottom on tax rates. The first of these is unitary taxation: the taxation of multinationals on the basis of their global group profits, apportioned as tax base between the countries where their real economic activity (sales and employment) takes place. This is the antidote to the current, failing system which relies on the economically illogical “arm’s length principle” to ensure that entities within the same multinational group each end up with an appropriate amount of taxable profit – despite the obvious incentives to shift profits to where tax will be low or zero.

The second measure is the introduction of a global minimum tax rate – to end the provision of precisely those low and zero effective tax rates which provide the incentive for profit shifting.

The latest OECD reform process has finally embraced both of these ideas in theory. In practice, however, the process has stalled entirely with the secretariat’s proposals seen as highly complex and unlikely to deliver any significant revenue increase. Most profits would still be allocated under the arm’s length principle, and the proposed minimum tax approach would do little for the lower-income countries that host most multinational activity. Indeed, lower-income countries are projected to continue to suffer disproportionately higher losses as a share of current revenues – but even OECD member countries would gain little.

Here, the FACTI panel has embraced in full the tax justice proposals, and call for multinationals to be taxed on a unitary basis and subject to a global minimum corporate tax.↪NOTEFor an interactive summary of our key tax justice proposals and how they tackle inequality, see our “What we’re fighting for” page.

And this is the context for the third major element of the FACTI panel’s recommendations, and where the turf battle begins in earnest. The report calls for a set of reforms to the global architecture, and they have one thing in common: they take power away from the OECD and related institutions, and seat it instead at globally inclusive institutions.

The central element is the creation of a UN tax convention, to be negotiated on an inclusive basis and to set rigorous standards for the global exchange of information and for tax cooperation. Second is the establishment of an intergovernmental body under UN auspices, to oversee the setting of international tax rules. And while these have long been advocated by the tax justice movement, the third is a relatively new proposal: a Centre for Monitoring Tax Rights, first proposed in 2019 (in my book The Uncounted), to collate, analyse and publish data on the extent of international tax abuse affecting (and facilitated by) each individual country and jurisdiction.

The report recommendations here are blunt, and based on the detailed analysis of their interim report in September 2020. These reforms, they see, are necessary to address the fundamental failures of the existing architecture – which is to say, the fundamental failures of the OECD and related institutions to provide fair, effective and globally inclusive progress against tax abuse.

The outstanding question now is that of political will. Are UN policymakers willing to take this turf battle on, while OECD officials are increasingly open in their hostility? Are heads of state and finance ministers ready to push the measures through, to deliver the powerful changes needed – and to reap the revenues that will follow from strengthening key elements of transparency and accountability?

These questions, ultimately, come back to the tax justice movement. Political will is not a question of politicians’ will, but the political context in which they operate. Policymakers do not see the light, they say; but they do feel the heat. If ever there was a rallying cry for the global tax justice movement to stand up as one and call for public pressure for national and international policymakers to do the right thing, this report from the FACTI panel is it. Let us rise!