Nós da Tax Justice Network e do É da sua conta estamos respeitando todas as medidas necessárias para ajudar na contenção do coronavírus. Mas o episódio 11 é sobre um outro tipo de vírus: a corrupção. Mas também vamos falar de um de seus poderosos antídotos: os leaks, vazamentos de informação em português. Vamos mergulhar num caso recente, o Luanda Leaks, e mostrar o papel parasitário dos países ricos nesse escândalo de corrupção em Angola, com repercussões no mundo inteiro.
Ouvimos especialistas em transparência, ativistas e cidadãos angolanos para esmiuçar esse vazamento que trata de como a filha do ex-presidente angolano, Isabel dos Santos, desviou milhões de dólares dos cofres angolanos entre 1980 e 2018, com a ajuda de bancos, empresas de consultoria e contabilidade, e paraísos fiscais do norte global. Conversamos também com o os responsáveis por divulgar os vazamentos e os advogados do denunciante. Prepare os fones de ouvidos e venha com a gente!
E uma novidade: estamos com um site novo. Em www.edasuaconta.com você tem acesso a todos os episódios do podcast. Confira!
No É da sua conta #11 você ouve:
Enquanto pessoas ricas e poderosas conseguem criar empresas e contas offshore para driblar regras bancárias e financeira para lavar dinheiro, pessoas comuns têm que seguir uma série de restrições para fazer operações financeiras simples.
Tudo sobre o Angola Leaks e os esquemas criminosos de Isabel dos Santos: entrevistas com representantes do Consórcio Internacional de Jornalistas Investigativos, da Plataforma para Proteção aos Denunciantes na África (PPLAAF) e o advogado do denunciante Rui Pinto.
A repercussão do Luanda Leaks em Angola. A reação da diáspora angolana em São Paulo e da Open Society Angola ao fato de que milhões de dólares foram desviados enquanto a população não tem acesso à saúde e saneamento básico.
Como bancos e escritórios de direito e contabilidade dos países ricos do hemisfério norte facilitaram esses esquema de corrupção revelado pelo Luanda Leaks.
O que são leaks, como surgiram e qual seu papel?
Call to action: empoderamento das pessoas, redução do sigilo fiscal, regulação dos fluxos financeiros internacionais e punição aos corruptos e quem os auxilia
Bonus: entrevista completa com Sizaltina Cutaia, diretora da Open Society Angola (Osisa)
Participantes desta edição:
Micael Pereira, Consórcio Internacional de Jornalistas Investigativos (ICIJ)
The Covid-19 Coronavirus pandemic is, at least on available evidence, striking rich western countries the hardest so far. Lower-income countries will be hit hard too, however: massive capital flight is already underway. And in all societies, as ever, the impacts fall hardest on those who are already marginalised and vulnerable.
But for now, rich countries have an abundance of resources to feed, house and care for all their citizens adequately. The question of how those resources are shared out is a political choice. Tax plays an important role.
Western nations are now in conditions like wartime. (The world is in a kind of war, against an unseen enemy.) Today’s blogger, based in Berlin, isn’t allowed in the streets with more than one companion, without documents to show they’re a family member. In Britain, a standard-bearer for “free” [in reality, rigged] markets, the first nationalisations have begun, and a national lockdown has (belatedly) been ordered. Italian mayors are threatening “to send the police over, with flamethrowers” to people breaking curfew. As workers stay at home to avoid contagion, a shutdown threatens massive job losses: perhaps a fifth of all U.S. workers, on one estimate. A huge global economic crisis looms. And this won’t go away soon.
Governments and societies face colossal economic costs now, as they are confronted by millions of workers losing their jobs and millions of businesses going broke. Old economic orthodoxies are toppling, one by one.
Business as usual is over.
How will societies and economies deal with these costs? First, by accepting that when millions of people stop work, overall economic output must fall. The next question is, who in society will bear the burden, where will they be, and how and when will they bear it? Again, these will be political choices. We can, we must, influence those choices.
Second, governments will massively, suddenly, have to boost public spending: if they don’t, there will be riots. Denmark, for instance, has said it will pay 75 percent of the salaries of employees who would otherwise be fired. Others are following suit with a raft of measures including cash transfers for individuals and support for businesses.
How will states “pay for” this? There are two main ways.
The first, most important, will be through borrowing. There is no inflation on the horizon, interest rates are low and in some cases negative, and financial markets have been eating up government debt without so much as a burp. If there’s a time to borrow, it’s now. And it is already happening. In a move that would have been astonishing just a few weeks ago, Germany has suddenly punched through its long-held (and idiotic) “Black Zero” policies to balance its budgets and not take on new debt. As the Financial Timesreports:
The time has come for governments to spend. To protect vulnerable people, broad populations, essential workers, institutions, and the economy. Even the financial sector, where its collapse could pose a threat.
But we are generally a revenue-side organisation, not a spending-side organisation, so we’ll focus on the second way governments can “pay for” the massively expensive new measures coming in, which is tax. Although tax receipts don’t need to match spending, they do still need to be collected, where possible.
Tax systems play another crucial role in that economic question at the heart of this crisis: they help governments choose how the pain of lost output is shared out.
And with all the old ideological orthodoxies are suddenly up in the air, and despite the special interests clamouring for yet more tax breaks, NOW is the time to push hard for tax justice.
In short, tax justice campaigners should be calling for a strong fiscal stimulus which will lead to poor and vulnerable people paying less and rich people and strong, profitable corporations paying more.
Lessons from history
History provides some grounds for optimism as to what comes next. In times of war, governments have tended to make wealthier sections of the population and large businesses carry a larger share of the burden than before. In the First World War, for instance, both Britain and the United States imposed an 80 percent tax rate on excess corporate profits (above an 8% annual return,) and the top income tax rate on the highest earners rose from 15 percent to 77 percent. Something similar happened in the Second War, when top income tax rates rose to 94 percent. In the United Kindgom, the top income tax rate rose to an even more eye-watering 99.25%. Similar tax measures were adopted by other countries at war.
Over time, from one war to the next, taxes have assumed a growing share of the revenue mix, as this graph shows.
Source: Goldin, C. (1980). War. In G. Porter (Ed.),Encyclopedia of American economic history: Studies of the principal move-ments and ideas(pp. 935–957). New York: Charles Scribner’s Sons. Via FT.
Taxes were preferred above borrowing or other measures at times when support for wars was high. Famed economist John Maynard Keynes produced a radical plan for funding the UK’s involvement in WW2 which involved a sharply progressive surtax on high incomes and personal wealth, and he was keen to shift as much of the cost of financing the war effort onto richer people.
It is worth adding that very high rates persisted for at least a couple of decades after the Second World War’s end, accompanied by a raft of other progressive policies and the highest and most broad-based economic growth in world history, before or since. People who have been until recently gloomy about the prospects of an increasingly entrenched, lawless, powerful and tax-free global oligarchy may have grounds for optimism.
Is this time different?
There is a big difference between now and the time of World Wars, however. Back then, employment was running at full tilt, with men heading off to fight and women flooding into the factories. Right now, the opposite is happening: workers are heading home, and millions of businesses face bankruptcy.
So is this the time to be raising taxes? Should we not be cutting taxes instead?
The simple answer is: it is time to be smart about this. Taxes should be cut to help those worst affected — but for those companies that are still making profits, and the wealthiest sections of society, they should now be increased significantly – even massively. Public appetite for this was already in place before the crisis.
But let’s start with all-important measures to support collapsing businesses and workers’ incomes. Women will pay a heavy price, since they will disproportionately be working on the health frontlines, and in the social care sectors, while also caring for children ejected from schools, and the elderly.
The most important measures to help are on the spending side and on other policy measures, such as enforced rent or mortgage delays or freezes or forgiveness. These are beyond the scope of this blog.
On the tax side, there are many ways to support people and struggling businesses. For instance, targeted reductions to value added taxes, focused on basic necessities, would help ordinary people, as would property taxes. Taxes on payrolls, business rates (on real estate) and other taxes which add to the costs of doing business, should be judiciously cut, at least for those businesses facing hardship due to Covid-19. Measures such as “accelerated depreciation” (to allow affected businesses to offset investment costs against tax more quickly) will help shore up investment, though great care is required so they don’t become expensive and pointless loopholes.
But in other areas, taxes should be raised – and raised A LOT.
Tax profitable corporations more
Take corporate income taxes, for instance. These are levied on profits. If companies are struggling, they won’t be making profits, so they won’t pay this tax. So corporate income tax rates can be increased right now, because they will only strike profitable businesses. (There are timing issues: a teetering company could be bankrupted by a crippling tax bill from a previous quarter, but these are details to be managed skilfully.)
Some businesses will do very well out of this catastrophe. Lots of people locked down at home are now turning to Zoom, for instance, to communicate with loved ones. Its share price is now several times what it was in early January.
Likewise, many bricks-and-mortar shops (the ones that hadn’t already been slaughtered by the Amazon steamroller) are now facing temporary or permanent closure – and the American behemoth is ready to hoover up the pieces. Antitrust authorities are nowhere (as we recently remarked.) Let corporate tax pick up some of the slack.
And from a justice perspective, we have to agree with Pope Francis.
Those who do not pay taxes do not only commit a felony but also a crime: if there are not enough hospital beds and artificial respirators, it is also their fault.”
It is not only just and right that the wealthiest people and profitable corporations pay, but if they are still wealthy or still profitable, they also have a greater ability to pay.
So let’s not mess around here. In recent years mainstream governments have been bickering over whether corporate taxes should be at 25 percent, or 20 percent, or 18 percent. All that needs to go out of the window now.
Let’s now start to talk about levying excess corporate income tax rates dramatically high. Let’s start with a 50 percent rate, and start thinking about 75 percent on excess profits, above, say, a five percent hurdle rate. This is way out there on past consensus, but who knows where we’ll be in five years’ time – or in a few months?. (Update, March 27. Top US tax expert Reuven Avi-Yonah and economist Gabriel Zucman echo our call for an excess profits tax.)
This protects the weak, and gets the strong to support the weak.
Barely profitable firms that aren’t making excess profits would pay nothing: it’s those hedge funds profiting from currency collapses, tech firms eating distressed companies’ lunches, or private equity firms buying distressed assets cheaply and financially engineering them for profit – which can and must now pay their share.
Obviously, different countries, and different sectors, face different conditions. But what’s most important now is to start to shift the “Overton Window” – the realm of what is politically possible and what the public is willingly to accept – firmly in the direction of tax justice. Make no mistake: there are powerful forces that want to use the opportunity of this crisis to push exactly in the other direction.
Tax rich people more
Income tax is another flexible mechanism to tax different segments of society at different rates. Under a healthy progressive tax system, the first portion of an individual’s income (say, from 0 to $10,000 per year) isn’t taxed at all; the next portion (say, $10-20,000) is taxed at a low rate; the next portion, let’s say $20-50,000, is taxed at a higher rate, and then above a certain income level, the top rate is applied. In rich countries, that top rate is often of the order of 40-50 percent.
Remember, though, that the top rate has historically been as high as 99.25 percent. Now is a time to raise this rate a long way. It won’t hurt people in the lower tax brackets – if it means more public spending on hospitals, say, it will help them.
How high should they go? Well, there’s research suggesting that the revenue-maximising rate in the United States is somewhere like 75 percent. So let’s start shifting the Overton Window, and push our governments to aim in this direction. And let’s beef this up with wealth taxes, land value taxes, and other progressive taxes. If you’re wealthy, you can afford these.
Tighten up
People will of course shriek at these proposals. High tax rates will discourage investment, they will cry. Clever rich folks will run away with their money to Geneva or Hong Kong or Dubai, where they can get ‘friendlier’ tax rates. Or corporations and rich folk will get busy with their tax advisers, to use offshore trusts and many other subterfuges to escape paying their fair share. It’s like a balloon, they cry: if you squeeze in one place, it will just displace somewhere else, but the volume will remain the same.
Despair! The poor must pay!
Not so. As we and many others have shown many times, high corporate tax rates may affect corporate profit-shuffling, but they do not generally discourage the kinds of investment that healthy economies need. (They do, however, tend to discourage more predatory forms of investment, which is another benefit.)
Corporations say they need corporate tax cuts to invest, in the same way that my children say they need ice cream. And do not buy the old argument that corporations and rich people will stop avoiding tax or invest more if only you cut their effective tax rates. As a recent book explains:
More on all this soon.
No, the answer isn’t to kowtow and appease mobile capital and rich people. The time has come to start tightening up. Crack down properly, to stem leakage, to reduce loopholes, increase transparency, and so on. It’s not like a balloon: it’s more like a sponge. When you squeeze, you may get some displacement – but you’ll also wring out a bunch of water too.
So a slighty better slogan is this: tax the poor and fragile and vulnerable less, tax the rich and profitable more, and tighten up to make sure they pay.
We have been working for years on a whole tax justice toolkit, to achieve just this. It includes
And plenty more. The main point is that the time has come to get much more ambitious about all of these.
This blog is about the role of tax systems in the Covid-19 crisis. We will follow it with a series of others: about the role of tax havens, the role of bailouts and subsidies, and the role of a race to the bottom on regulation, tax and other areas. And more. Please watch this space.
In our monthly podcast, the Taxcast: How many more signs do we need to tell us we must urgently reform our economies, keep essential services out of private hands and transition away from fossil fuels? As the world buckles up for a different kind of crisis tackling the Coronavirus, we look at how tax justice is key to all economic reform in the public interest. Solving the climate crisis – any crisis – is impossible without it. Never miss an epsiode! You can subscribe to the Taxcast via email by contacting the Taxcast producer on naomi [at] taxjustice.net
We speak to Dr Gail Bradbrook, co-founder of Extinction Rebellion on a vision of hope, John Christensen of the Tax Justice Network. We also bring you the voices of tax office workers from their protest outside the British Parliament against the government’s closing of tax offices, shedding up to 50,000 jobs (video below). Unfortunately this is a worldwide trend. Produced and presented by Naomi Fowler.
The majority of the public now understand that there is an emergency. But the other bit of it we haven’t done strongly enough yet is to hold out the vision that change is possible. We know that tax is a really key issue.”
~ Dr Gail Bradbrook, co-founder of Extinction Rebellion
We’re really needed more than ever now especially in the light of the coronavirus, we’ll need all the taxes we can get for all the extra care that people will need.”
“500 offices being closed, 50,000 staff being lost and yet you want the biggest budget to spend the most money, nobody’s going to be around to collect it.”
“We’re the best bargain that you’ll ever get, the money that we cost compared to the money that we raise for hospitals, for schools, for infrastructure, for the roads, we’re a great bargain.”
~ Tax office workers, UK Parliament protest
If you include all the health impacts of fossil fuel production and the damage caused by extreme climate events linked to global warming, the floods and the forest fires and the increased incidence of drought and so on, and if you bring all of those costs into the equation, the true cost of subsidies to the fossil fuel sector runs to an astonishing 5.2 trillion US dollars every year. Or get this, that’s 10 million US dollars every minute of every day of the year.”
~ John Christensen, Tax Justice Network
Further reading:
Part 1 of our special series on financing the transition away from fossil fuels is available here. Part 2 will be out soon.
Spain nationalises all of its private hospitals as the country goes into coronavirus lockdown, details here.
By popular request, a transcript of the programme is available here (not 100% accurate)
Want to download and listen on the go? Download onto your phone or hand held device by clicking ‘save link’ or ‘download link’ here.
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Investors responsible for trillions of dollars of assets have called on the OECD to ensure that the country by country reporting of multinational companies is made public. With leading experts, standard setters and civil society groups fully in agreement, the only remaining opposition to this most basic transparency measure comes from multinationals and industry groups that benefit from opacity that allows them to hide the extent of profit shifting, and the professional services firms that advise them.
In 2013, the G20 group of countries mandated the OECD to produce a country by country reporting standard. This marked a crucial turning point in the work of tax justice campaigners, some ten years after the Tax Justice Network published the first model accounting standard. The standard came out in 2015, with a commitment to review it in 2020. A call for submissions closed on 6 March, and in a world not facing a global health crisis, this week would have seen the OECD host a public meeting to discuss the different views. While that meeting has been cancelled due to coronavirus concerns, the submissions have been published and we can now present a summary of the findings.
As context, it’s worth noting that there was criticism from all sides of the consultation itself – and in particular, of the very short window for submissions. And while some objected to the length and detail of the consultation document because it identifies too many possibilities for the standard to change, others highlighted the complete absence of provisions to address many of the larger questions. Despite this, the results are clear – as are the divisions.
Key findings
There were 80 submissions to the OECD review. Of those, half came from multinationals such as Astra Zeneca and InterContinental Hotels, and industry groups including the French Banking Federation and US Chamber of Commerce. A further 16 came from professional services firms including the big four accounting firms and various law firms and others. The remaining submissions came from investors, academics, individuals, labour organisations and other civil society groups – oh, and 33 US Senators and members of Congress*, including erstwhile Democratic presidential candidates Elizabeth Warren, Bernie Sanders and Cory Booker.
In addition to the submission from UN PRI (Principles of Responsible Investment) group, whose members have some $90 trillion under management, other investor submissions included Norges Bank, with $1 trillion, Australia’s HESTA (US$37 billion), and a joint submission from US groups with assets conservatively stated at $847 billion.
As the figure below shows, there was a decisive split in the responses to the consultation. On three key points, there was near perfect alignment between investors, experts and civil society – a result that is all the more striking in light of the fact that the OECD’s weighty consultation document did not even mention the first two.
1. Make the data public
[W]e believe it is time that members of the OECD Inclusive Framework move at all deliberate speed towards full publication of large companies’ CbC reporting to provide us and other investors the information we need to make sound decisions when evaluating a corporation’s ongoing profitability and financial risk on a country by country basis. This is an important strategic and policy matter for investors interested in long-term value creation.
– Submission to OECD: Group of investors representing investments totaling $847 billion.
Multinationals and their professional services firms used to argue that compliance costs made country by country reporting unthinkable. When the International Accounting Standards Board convened a meeting on the issue a little before the global financial crisis, a representative from one of the big four accounting firms claimed that it could double the cost of auditing. But since the G20 directed the OECD to create a standard, and the world failed to stop, that argument has been largely replaced by another.
Today, we see entirely voluntary reporting of country by country data, typically to the OECD standard or better, from major multinationals in a variety of sectors – from Vodafone to Shell, for example, and from Anglo American to NN Group.
Some multinationals, however, have simply switched out the compliance cost argument for others. Some have told civil society activists that while they are not necessarily opposed to publication of their country by country reporting in principle, there are still costs to doing so and these would not be justified if the data is not going to be well used. There are so many calls for sustainability reporting, they have said, among which they have to prioritise, that if investors are not asking for the data to be available then it won’t happen.
With the comprehensive response of investors to this consultation , that argument too has been eliminated. Investor submissions show they are increasingly aware of the evidence that shows they bear the risks of companies engineering lower effective tax rates, but receive no compensating return. At the same time, submissions from the labour movement reflect their clarity that the processes that hide profits from tax authorities are also used, all too often, to skew the starting point for wage bargaining. Broader civil society concerns are fully aligned with both, on the basis that public country by country reporting is crucial for the accountability of both tax authorities and major corporate taxpayers. Evidence that tax payments have increased by around ten per cent where the measure is already in place for EU banks and financial institutions confirms the potential scale of effects.
It should be clear to policymakers worldwide that the tipping point for public country by country reporting has been passed: the alignment in favour of this basic transparency measure is broad indeed.
2. Use the Global Reporting Initiative standard
Reporting standards should be aligned with the Global Reporting Initiative (GRI) model
GRI sets reporting standards used by 78 percent of companies in the Dow Jones Industrial Average and 75 percent of NASDAQ 250 companies […]. GRI developed this standard in consultation with multinational corporations, accounting firms, academics, and other stakeholders in addition to investors. Broadly speaking, aligning the various country by country standards would ease record-keeping burdens for businesses and present a clearer picture to users of these reports.
– Submission to OECD: 13 US Senators including Elizabeth Warren and Bernie Sanders, and 20 members of Congress.*
If support for public country by country reporting – despite its absence from the consultation document – is striking, it also follows many years of campaigning and awareness-raising. But the degree of support for the GRI standard, which was only launched at the London Stock Exchange (video available here) in January this year, reflects the remarkable level of backing that is already in place from the various stakeholder groups including investors.
Fiona Reynolds, CEO of PRI (Principles for Responsible Investment), the global investor network with over 2,600 signatories who collectively manage in excess of U$89 trillion, said: “Tax avoidance is a leading driver of inequality and as such a responsible approach to tax by business is essential. The PRI has been leading efforts to drive more meaningful corporate disclosure. GRI’s new Tax Standard marks an evolution in tax transparency and provides a much-needed and ambitious framework for corporate tax reporting.”
The GRI standard is the product of wide consultation over two years, and many, in-depth and occasionally heated but always respectful discussions in a technical committee comprising individual experts from reporting companies, investors, accountants, labour organisations, academia and civil society. That process has led to a standard which addresses, flaw by flaw, all of the technical shortcomings of the OECD standard – including but not limited to three key points raised by multiple submissions:
Failure to ensure reconciliation with global, consolidated group accounts
Failure to deal with intra-group transactions on a consistent basis
Lack of a requirement for entity-level reporting for ‘stateless’ entities
Convergence to the GRI standard in this review period would allow the OECD to piggyback on that work, and at the same time to eliminate for participating companies the costs of complying with multiple standards.
An interesting pointer on business expectations was provided by the World Economic Forum in January. Just weeks after the GRI standard launched, the World Economic Forum International Business Council (IBC) launched a report at Davos which “proposes a common, core set of metrics and recommended disclosures that IBC members could use to align their mainstream reporting and, in so doing, reduce fragmentation and encourage faster progress towards a systemic solution, perhaps to include a generally accepted international accounting standard. To the maximum extent practicable, the report incorporates well‑established metrics and disclosures for the express purpose of building upon the extensive and rigorous work that has already been done by those who have developed the existing standards. The objective is to amplify those standards and more fully harness their synergies rather than create a new standard altogether.”
The IBC report states, exceptionally, that it was “Prepared in collaboration with Deloitte, EY, KPMG and PwC”. While the big four’s (separate) submissions to the OECD review largely duck the issue, the IBC identifies GRI country by country reporting as a ‘core metric’.
The OECD should acknowledge the breadth of support for the GRI standard, and the fact it addresses in detail the technical flaws in the OECD standard, and make the decision now to converge.
3. Extend the coverage
The current threshold of having country by country reports applying to MNEs with a turnover minimum of EUR 750 million should be revised… While the objective of this is to include the majority of tax revenue whilst keeping burden on companies limited, what is ignored is that this high threshold is inappropriate for many smaller economies. In smaller economies, multinational companies with a much lower turnover are responsible for larger shares of economic activity and large shares of tax liabilities. The OECD itself suggests that 85-90% of the world’s multinational corporations do not meet the threshold… there is a need to consider a threshold which would allow coverage of the highest percentage of MNEs.
– Submission to OECD: ActionAid International.
The remaining area of common ground among investors and civil society groups is on the need to extend the coverage of the OECD standard – specifically, to abolish or greatly reduce the revenue threshold, so that many more multinationals are required to provide this basic transparency.
Here, many submissions cited existing US, EU or Australian thresholds for ‘large’ enterprises – typically in the range of around $20 million – $100 million for turnover. But other submissions noted that this would still exclude many businesses with important operations in lower-income countries, and that a threshold of just a few million would be much more appropriate.
An approach consistent with the GRI standard would be to require such reporting where the underlying substance (i.e. corporate income tax in this case) is material to the business. Given existing tax rates and an accounting materiality threshold set at 5%, this brings all businesses with any significant second (or further) country operations into scope. The effect is to shift the ‘threshold’ from one of scale, to one of substance – so the question is whether a business operates multinationally, rather than with what revenue it does so.
‘Too soon’…
[We] believe it is too soon after the introduction of CbC reporting (“CbCR”) to implement major changes…
– Submission to the OECD: Business at the OECD (BIAC).
It is too soon to be able to evaluate how useful the information is and how effective it is as a risk assessment tool.
– Submission to the OECD: EY.
Lastly, we can consider the positions of those who, broadly, have opposed improvements to the OECD standard (some of whom were also involved in lobbying to introduce, from the outset, some of the weaknesses now widely recognised). There are many businesses and industry groups, to say nothing of staff at the big four accounting firms, that are supportive of tax transparency in broad terms (for example, the B Team), and of public country by country reporting in particular (not least, the multinationals named above; and the big four contributors to the World Economic Forum report).
As none of these groups made submissions to the OECD review, however, the overall position of submitting multinationals, professional services firms and industry groups, was largely negative. In addition to outright opposition to transparency, those represented largely focused on the detailed, technical questions posed by the OECD. There is a more detailed analysis to be done of these responses, which show considerable variation. But for the present purposes of assessing the main thrust, it is notable how often a particular response appears across the groups.
The single counter-argument around which oppositional submissions have coalesced is the idea that 2020 is too soon to make changes to a standard mandated in 2013 and finalised in 2015, for use thereafter. Indeed, the argument in practice relates to 2021 which is the earliest that any changes could come into force. It is tempting to conclude that this is the final evolution of the counter-arguments – and a pretty thin one at that.
Tipping point
The OECD review of its standard may well turn out to be the tipping point towards public, country by country reporting of high quality and broad coverage. While the institution itself faces heavy lobbying against taking these steps, the sheer weight of investor and other support seen in the public submissions to the review may turn out to be enough to move policymakers at the EU and elsewhere, to leapfrog the OECD and mandate public reporting.
It would be in the interests of both reporters and users of the data if there was clear convergence to the GRI standard, not only of the OECD standard but also the other existing standards such as the CRD IV requirement that applies to banks and other financial institutions in the EU already. The extractive sector would need to retain their own standards in a number of areas specific to their activities, including for project-level reporting, resource values and for other payments to governments; but would also benefit from converging to the GRI standard in the relevant areas.
The year 2023 will mark two decades since both the formal establishment of Tax Justice Network, and the publication of the first draft accounting standard for country by country reporting. Will we have full, public data by then? Watch this space.
* This article was updated on 20 March 2020 to reflect that the submission published as ’33 US Senators.pdf’ is signed by 13 US Senators and 20 members of Congress. Thanks @danielbunn!
Auditors have been described as gatekeepers of capitalism, yet there is widespread concern that the current Coronavirus pandemic, and the global recession that will inevitably accompany it, reveals a pattern of audit failures similar to recent high-profile corporate failures which surfaced in the past two years. In this guest blog, researchers Adam Leaver, Leonard Seabrooke, Saila Stausholm, and Duncan Wigan discuss the findings of their new research paper, published today.
Moments
of financial stress have historically revealed weaknesses in our systems of
accumulation built up over time. Whilst it is well-recognised that central
banks played a defining role in steadying markets after the 2008 crisis, the
growing significance of the Big Four accounting firms, and the fair value
accounting system they work within, is perhaps less well understood as a
feature that has shaped our economy since the crash. A string of recent
high-profile corporate failures in the UK – including Carillion, Thomas Cook and
Patisserie Valerie – have already revealed the parlous state of auditing at
many large corporations. Now, as we enter this new period of financial
uncertainty amid the rapidly spreading Coronavirus pandemic, we may soon get a
better idea of just how weak our systems of financial reporting have been. As
U.S. billionaire investor Warren Buffet noted, “you only find out who is swimming naked when the
tide goes out”.
It
argues, if accounting creates, rather than merely reflects, financial realities,
the job of auditing is to verify that financial statements produced by a
company’s management present a “true and fair view” of a company or group’s
assets, liabilities, financial position and profit or loss (UK Companies Act
2006, section 393). Ensuring that mission is adhered to, is not just a concern
for company shareholders. Auditing performs a social function: we are all
affected when that mission fails. Confidence in companies disappears, banks
will not lend, shareholders will not invest, workers will not commit their
labour, suppliers will not transact and consumers will not buy. If audit
failures lead to corporate failure, the state may step in to provide support
for the company, or the Pension Protection Fund may pick up the tab for a
collapsing company’s pension fund. So audit failures are always also failures
of public accountability.
The
British government commissioned two independent reviews on this: the Kingman
Review, to look at regulation and the Brydon Review to examine the
effectiveness of audit. At the same time,
the Competition and Markets Authority (CMA) has examined competition and
resilience in the audit sector; and the Business, Energy and Industrial
Strategy Committee’s analysis, ‘The Future of Audit’ fed into these reports.
These
reports raise serious questions about audit culture, the problems of market
concentration in auditing services and conflicts of interest inside
the Big Four accounting firms (BEIS 2018, 2019; Competition & Markets
Authority 2019 (CMA); Kingman Review (2019). But our report begins from a
different vantage point: that these failures indicate a public ‘accountability
gap’: a shortfall between what the wider public might legitimately expect
auditors to do, and what the audit process currently delivers.
We
argue that this accountability gap is the product of economic, cultural, and regulatory
arrangements which create ‘opportunity spaces’ inside which audit failures take
place[i]. Specifically, for the UK we
argue that the large opportunity spaces for audit failure emerge from the interaction
of:
shareholder
value linked remuneration structures for senior managers,
fair
value accounting standards where valuations require some subjective judgement by
those managers and
International
Financial Reporting Standards (IFRS) which encourage proceduralism over judgement
These
spaces provide senior managers with the incentive and the room for manoeuvre to
produce optimistic valuations, while the proceduralism of IFRS rules creates
ambiguity for auditors as to where the rules end and where judgement begins, and
this reduces their incentives to challenge.
In
short, we see the post-crisis period in terms of a withering of the countervailing
regulatory, legal and social forces that should act as a check on bad accounting
practice. Many companies do act in good faith and will strive to post ‘true and
fair’ accounts. But audit failures mean we cannot be sure which do, and which
don’t.
Our
report asks whether the problems are caused by the Big Four and whether
they have shaped the culture of auditing through their dominance, or whether
the Big Four has emerged from, and merely institutionalised, a longer-standing
culture that preceded them.
We
argue that the cultures and practices long predate the current environment where
the Big Four dominate. So a focus just on competition, while ignoring other
reform options, would ignore the documented experiences when there were five or
even eight large audit firms. For us, the original problems are cultural and institutional.
It
is quite possible for different cultures to co-exist within the same
organisation without one necessarily overcoming the other. But consulting is
often the driver of profit within the Big Four, and we argue that the
institutional logic of consulting is incompatible with those of auditing. This tension leaves auditors compromised, when
they should instead feel free to exercise scepticism fearlessly. This may be made worse by the Big Four partnership
system, which can promote non-audit services in ways that diminish the status
and role of audit.
Historical
efforts to reform the audit industry have, however, disappointed because the very
process of audit reform has been captured by the industry – they possess exclusive,
technical knowledge to assert ‘what works’ in a context where audit is of low
political interest amongst the general public.
So our report recommends:
To reassert the proper role of audit practice, the accounting
framework should be amended to reinforce the 2006 UK Companies Act. It
should also be stated in that framework that accounting rules are subordinate
to law, and that the role of auditing is to exercise prudential judgement to
prioritise capital maintenance.
To reinvigorate a culture of scepticism and prudence, we
recommend that audit and non-audit activities are legally separated
To reduce moral hazard, limited liability privileges should be withdrawn
from both audit and non-audit services
The Financial Reporting Council (FRC) should be replaced with an Audit,
Reporting and Governance Authority (ARGA,) as the Kingman Review recommended. 0
To shrink the harmful “opportunity spaces”, we recommend a
government review into the role of fair value accounting rules in audit failure.
Specifically, whether IFRS rules – with their combination of subjectivity and
proceduralism – create an ambiguity as to where rules end and judgement begins
for auditors.
Finally, to address the relative lack of countervailing forces, we
recommend the inclusion of civil society representatives in key regulatory
bodies and bodies involved in the audit reform process. We also see a role
for civil society bodies in creating new networked alliances between academics,
public intellectuals and seasoned campaigners to build an effective civil
society check on audit failure.
[i] We
define an opportunity space as: ‘the room
for manoeuvre within a valuation process, where opportunities to overstate accounting items are taken
because auditor judgement is compromised or constrained, leading to information
asymmetries between the acting party or parties and those seeking accounting
accuracy and accountability.’
As the climate crisis comes into ever sharper focus the question of how we pay for a just transition takes on ever greater urgency. In this, the first of a two-part special edition of Tax Justice Focus, guest edited by TJN Senior Adviser James Henry, we have brought together key policy proposals to make what is now urgently necessary possible.
This two-part collection of essays is the first in a series of TJN initiatives to bring the global struggles for tax justice, financial transparency, and climate justice closer together, explore common problems and solutions, and help each other to succeed.
Many people think that economic justice is a nice add-on to the climate fight. It isn’t. Without economic justice the fight to tackle the climate crisis will fail. That is because if the great burden of this transition is placed on the shoulders of middle-income and lower-income groups (and especially if the risks of an economically unjust transition materialise, as our second edition will show,) then majorities will not only start to oppose the changes — as the Gilets Jaunes protests in France have shown us — but they will also become prey to fake news and demagogues who seek to overturn the climate justice movement. Tax justice, economic justice, and climate justice must be joined at the hip.
This edition contains five essays, to be followed by four in the next edition.
In the first essay in this editionLaura Merrill, a renowned expert on fossil fuel subsidies lays out the sheer scale of ongoing public sector support for fossil fuels, but also sets out how governments are successfully moving away from this and freeing up some funds to combat climate change — while also improving people’s lives in other ways.
The next article, by Rod Campbell of the Australia Institute, unpicks the bankruptcy of the fossil fuel lobby’s rhetoric in a country that has only recently experienced terrible bushfires.
Next, U.S. economist Professor James K. Boyce, argues in the following article that governments must urgently deploy a powerful and ingenious mechanism to restrict carbon use drastically — and in a politically popular, and just way. The answer is to auction a restricted set of carbon permits – more restricted each year – and redistribute the proceeds equally to all citizens as a universal dividend. Those who use less carbon — which means, predominantly, those in lower-income groups — will receive a net income from the scheme. Eventually the scheme will wither away, as the economy converts rapidly to green energy production, storage, transmission and use.
Then Gail Bradbrook, a founder of the Extinction Rebellion, reflects on the movement’s (enormous) successes and (lesser) failures, and points to how activism will proceed. (Naomi Fowler’s longer version of the Bradbrook interview will be aired in our March 2020 Taxcast.)
Finally, Richard Murphy sets out new accounting proposals to shift the risks being created by large corporations to where they belong – onto balance sheets, so that investors can take a clear and reasoned view of the long-term profitability of companies whose activities harm the climate, and whose business models will now happily come under extreme pressure.
Getting these solutions adopted in a timeframe equal to the urgency of the climate crisis will require us to figure out how to tackle and defeat the shared enemies of both the environmental and tax justice movements: the world’s largest, most influential public and private fossil fuels producers, public utilities, oil and LNG shipping companies, pipeline companies, and agri-businesses — as well as, as the next edition will show the myriad of giant banks, pension funds, hedge funds, other corporate investors, law firms, and accounting firms that stand behind them: tackling the climate emergency will require tackling what academics call financialisation, and what we at TJN call the Finance Curse.
Download and read the full edition of this round of essays here.
The next edition, due on March 26th, will feature articles by
Peter Bofinger, until recently a member of Germany’s official Council of Economic Advisers, opens that edition with a powerful piece laying out clearly why it has to be the state, especially through judicious borrowing, that leads the climate fight. Unfortunately, old ideologies and Germany’s “Black Zero” obsession with austerity and with curbing borrowing puts the entire climate agenda at risk.
Daniela Gabor will complement Bofinger’s article, pointing to the exceptional dangers posed by a Wall Street Climate Consensus, now embraced by the World Bank, various central banks, and many others. The alluring argument is that the financial sector can provide the funds to finance the enormous transition: the reality is that while finance can play a role, a finance-led model will eventually create enormous losses to broad populations and to the climate fight – while delivering vast wealth to the financial sector. (As Bank of England Governor Mark Carney said, “This could turn an existential risk into the greatest commercial opportunity of all time.”)
Jacqueline Cottrell, a member of the Global Conference on Environmental Taxation, writes about the importance of embedding carbon taxes in a broader justice agenda.
Andres Carvallo, the CEO of a global energy consulting firm, explains how smart grids can break the power of large monopolising utilities and create more just and green forms of energy distribution.
And finally, to coincide with the launch of this new TJN series, John Christensen gave a public talk to a Global Justice Now meeting in Reading on 11th March. A copy of the powerpoint presentation John used for this talk is available here.
Welcome to this month’s latest podcast and radio programme in Spanish 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! (Ahora también estamos en iTunes.)
El secreto financiero a nivel mundial: las islas Caiman y Estados Unidos encabezan el ranking de la Tax Justice Network, la Red de Justicia Fiscal.
En este mapa de la evasión fiscal planetaria, revelamos los flujos financieros ilícitos, sus protagonistas y su formula para que el dinero parezca invisible.
¿Qué nos revela el índice de la Red de Justicia Fiscal sobre América Latina una de las regiones que más golpeadas por la canaleta de los paraísos fiscales?
¿Y cómo sigue la lucha contra los Paraísos fiscales, la evasión y por una inversión social que cubra las necesidades de nuestros pueblos?
Great that you remembered 8 March is International Women’s Day!
The Global Alliance for Tax Justice (GATJ) has too! The Global Alliance and its members around the world have been organising and today begin the Global Days of Action on #TaxJustice for #WomensRights, 8-20 March 2020!
We are sad to hear of the death of the Reverend Paul Nicholson.
Paul was a lifelong campaigner for social and economic justice, always fighting on behalf of vulnerable people, and happy to use his extensive knowledge and experience to push back against oppression.
This blogger had the good fortune to meet Paul on several occasions, including during his epic fight for tax justice against the council in the London Borough of Haringey, when he was prepared to go to jail in the face of what he considered (rightly, in my opinion) a flagrant abuse of power.
Paul was selfless, always supportive, and deeply critical of greed and unbridled corruption. He saw his mission as one of protecting people from the destructive forces unleashed by neoliberalism. His commitment to this mission has been a great source of inspiration to everyone who met him.
In December 2019, the Tax Justice Network held its first
virtual conference, bringing together over 150 people from around the world
from Portland to Sydney. Offices, living rooms and libraries on different continents
were connected into one virtual space where speakers from the OECD, G24, IMF,
World Bank and ICRICT discussed leading proposals to reform the international
tax system.
Following the conference, we have seen increased recognition
of the necessity for such a platform, particularly as governments warn against holding
large meetings amidst the Coronavirus outbreak, and organisations begin to take
seriously their responsibility to reduce their carbon footprint in order to
help tackle the climate crisis.
Our feedback paper and this blog detail some of the findings from our conference, including how to approach planning, the technology used and lessons learned. We hope that this will help other organisations to get to grips with the tools and knowledge needed to move virtual conferences into the mainstream.
Why host a virtual conference?
At the Tax Justice Network, we host a large-scale in-person conference
once a year, bringing together hundreds of people to debate key issues on the
tax justice agenda. While we recognise that this type of organising is
necessary, in-person conferences are hugely time-intensive for our small team
and have high overhead costs, leaving us with limited capacity to host
essential debates and discussions.
On top of this, we are increasingly concerned about the
climate crisis. While it ultimately falls to governments to respond in line
with the scale of the calamity that we face, we are committed to making urgent efforts
to reduce our carbon footprint. Following the conference, we published
a blog estimating the carbon emissions averted by moving our conference
online.
Another huge benefit of going virtual is the ability to
increase the participation of both delegates and speakers. Removing expensive
flights and hotels costs, as well the large time commitment needed to travel,
meant that speakers could allocate just a couple of hours in their diary as
opposed to an entire week. The demographics of delegates can also change
dramatically when a conference is more accessible, and as virtual platforms are
scalable, capacity limitations are removed, thereby opening the conference to a
much wider global audience.
Below we provide some lessons learned for successful virtual
conference planning.
Logistics and planning
Deciding on the date and timing of our conference was a
challenge as we needed to be inclusive and give our audience the opportunity to
connect from across the world. We settled on the time frame of 13:00 – 17:30
GMT, which meant an early start of 5.30am for participants on the US West
coast, while some participants from Australia stayed up until 2.30am to join
the conference.
Our session structure was driven by the content, which we
split into two halves – the technical aspects of international tax reforms,
followed by a wider debate on the political landscape. We opened both halves
with keynotes and presentations to set the context of the discussion, followed
by panel debates on each topic.
We had around seven weeks to plan our conference, as we
wanted to fit in around international events and timelines for tax reforms.
This was tight, especially given that it was our first time organising a
virtual event, but it proved to be achievable for organising a one-day
conference. We used Airtable, Zoom meetings and Slack
for the bulk of our virtual planning.
Technology
After trialling many different platforms, we opted for a low-cost
combination of Zoom conference call software to host the panel discussions,
which were then streamed through OBS: Open
Broadcaster Software to the Crowdcast
platform.
Screenshot from the conference
This setup combined reliability and high-quality calls for
the presentations and discussions with the user-friendly interface of the Crowdcast
platform, which gives audience members the ability to setup a profile, chat,
ask and upvote questions and navigate easily between conference sessions. Feedback
on the technology was excellent, and almost all audience members were able to
connect and view the conference without any issues – some even noted that they
were able to see and hear the content more clearly than if they were at an
in-person conference.
Screenshot from the conference
Whichever platform you choose, we found that testing the
platform with each speaker in advance was essential for a smooth operation on
the day, particularly as we had quite large panels and sessions that ran back-to-back,
with just 5 or 10 minutes to gather everyone together in the ‘virtual green
room’ beforehand. We had all speakers test microphones, webcams, internet
connections and presentation sharing in advance of the conference, which was
invaluable and meant that all of the speakers were prepared and on time for
their sessions.
Session formats and hosting
Working within our limited time window of five hours, which allowed
most parts of the globe to connect for at least some of the live conference
(sorry Australia!), we broke our content down into three sessions – the opening
keynote, a technical panel discussion, and a broader political keynote and
discussion.
The host, our CEO Alex Cobham,
opened the conference and advised participants in each session on the format
and discussions ahead. The feedback on the sessions structure was generally
positive, though the first session ran over slightly. To tackle this in future
we will opt for briefer presentation sessions where possible so as to allow
adequate time for Q&A, separate to panel discussions. The Crowdcast
platform can be used to invite audience members on screen to pose questions to
the presenter.
Improving networking channels
One commonly stated downside to virtual conferences is the
lack of networking opportunities that come from hallway conversations at
in-person conferences. To go some way towards addressing this challenge we used
Slack channels to share materials with delegates in advance of the conference,
with the intention of fostering discussions between staff and recipients and
increasing the representation of ideas.
The channels were not used as fully as we had hoped, which
we put down to our not dedicating enough resources to this in advance, and not
promoting this as often as we should have to foster discussion. This is one
area we will be investing further resources in next time around, with more
engaging content such as Q&A sessions with speakers to enable debate
beforehand.
Other feedback and considerations
There was a consensus that we need to work harder to be more
inclusive and represent all parties in the debate, and that we should partner
with organisations that are often under-represented in international
discussions, particularly those in the global south. In future conferences, we
will secure key speakers for the debate earlier in the process, while also looking
for ways to support audience members to access stable internet connections to
participate in the debates.
What we would do differently next time
Finally, a few things we would do differently next time:
Get more team members to moderate and engage on
the Slack channels, host discussions and promote more widely
Consider other networking tools on the market
Look at alternative session formats – keeping
them smaller where possible
Partner with other organisations or ask others
to lead panels – particular those in the global south – and secure a wider range
of speakers
This year’s edition of the Financial
Secrecy Index 2020 – our biennial ranking of the world’s biggest supplies of
financial secrecy – has received more
news coverage and global support than any previous editions of the index.
With over 700 news articles and broadcast pieces published on the index in the
past two weeks across 80 countries, it is clear that tackling financial secrecy
has become an important issue to people around the world. More people are recognising
the harmful impact rampant tax abuse by the ultra-rich and powerful has on
their lives and want their governments to do something about it.
But perhaps, one of the best indicators of
the success of the Financial Secrecy Index is the increasing hostility it
receives from representatives of secrecy jurisdictions ranking high on the
index. The first edition of the Financial Secrecy Index was published in 2009
so we at the Tax Justice Network have become familiar with the boilerplate responses
from secrecy jurisdictions to our research. However, this year’s responses have
been particularly aggressive: Luxembourg’s Finance Ministry called the index “misleading,
if not often outright false”. We have been accused of making assumptions “without
providing enough clear and credible evidence to support [our] analysis.” Cayman’s
Ministry of Financial Services has said “TJN’s methodology remains flawed”. The
UK’s Financial Secretary to the Treasury has said our research is “bogus”,
except for the parts that criticise the legacy of the opposition party.
The most aggressive and coordinated attack
on the Financial Secrecy Index, however, has unsurprisingly come from the
Cayman government and Cayman Finance (the association of the financial services
industry of the Cayman Islands). On the same day that our Financial Secrecy
Index 2020 went live and ranked the British Overseas Territory, Cayman as the
world’s biggest supplier of financial secrecy, the EU blacklisted Cayman as a
non-cooperative jurisdiction. These two developments without a doubt have
raised serious concerns for the territory and more broadly the rest of the UK’s
network of secrecy jurisdictions (the UK spider’s
web), particularly in this post-Brexit era.
After publishing a statement saying “TJN purposefully uses outdated, inaccurate and irrelevant information to manipulate the results of its report”, Cayman Finance then chased journalists who had published articles about the index to persuade them of the supposed inaccuracy of our research, and when that failed to yield success, resorted to promoting their tweets about the index.
As before, however, the attacks and responses have not identified any actual inaccuracies in the research or the calculations behind the index, and most are in the form of sweeping accusations. But in light of the coordinated efforts we’ve seen this year to target journalists and our Twitter followers with misinformation, and to misdirect scrutiny away from secrecy jurisdictions, we’ve prepared this blog to debunk some of the common claims used by secrecy jurisdictions to excuse their ranking on the index.
Claim
1: The Financial Secrecy Index unfairly targets or penalises jurisdictions with
“successful” financial service industries.
The Financial Secrecy Index ranks
countries not on how secretive their financial laws are, but on how much
financial secrecy they supply to non-residents outside of the country looking
to hide their finances from the rule of law. This is done by grading each
country’s legal and financial system with a secrecy score out of 100 where a
zero out of 100 is full transparency and a 100 out of 100 is full secrecy. The
country’s secrecy score is then combined with the volume of financial activity
conducted in the country by non-residents to calculate how much financial
secrecy is supplied to the world by the country.
This means a highly secretive jurisdiction
that provides little to no financial services to non-residents, like Samoa
(ranked 86th), will rank below a moderately secretive jurisdiction that is a
major world player, like Japan (ranked 7th). The point is that a highly
secretive jurisdiction used by no one, does less damage than a moderately
secretive jurisdiction used by many people around the world.
Secrecy jurisdictions often twist this analysis on its head, claiming they are being treated unfairly for “successfully” attracting money from non-residents. Because they can sometimes have lower secrecy scores than some of the jurisdictions which they rank above, they claim the index purposefully ignores more secretive jurisdictions and targets jurisdictions with bigger financial services industries. Cayman Finance made this claim in their statement, saying “the TJN’s weighting system penalises countries with successful financial services industries.” The Cayman government then repeated this claim verbatim in subsequent responses.
The UK’s Financial Secretary to the Treasury similarly argued that the reason the UK ranks so high on the index despite having a lower secrecy score than countries like Brunei and Liberia is due to a “fudge factor”. He argues, “In its list of 133 jurisdictions, we [the UK] supposedly come 12th in terms of offensiveness, yet near the bottom we see Brunei, Vanuatu and Liberia. Is anyone seriously suggesting that this country is a less robust and effectively transparent tax jurisdiction than those?”
These claims miss the central purpose of the
Financial Secrecy Index’s ranking of countries by their supply of financial
secrecy as opposed to the secrecy of their financial laws: All countries have a
responsibility to safeguard against financial secrecy. The more financial
activity a country seeks to pull in from other countries’ residents, the
greater the responsibility that country has to make sure its financial sector
is not abused by people to evade or avoid tax in other countries or to launder
money they’ve obtained elsewhere through illegal means.
To illustrate the point, imagine if Samoa,
which is ranked 86th and has a secrecy score of 75, and Luxembourg,
which is ranked 6th and has a secrecy score of 55, became fully transparent.
Which country’s change in secrecy would make a much bigger impact on the world?
Hint: only one of these countries has had a global financial scandal named
after them.
And anyway, if Luxembourg actually becomes
fully transparent, it would get a secrecy score of zero, which would rank it at
the bottom of our index, no matter how big its financial centre is. So the size
of a financial centre is neither good nor bad, but when combined with the
secrecy score, its level of responsibility for illicit financial flows and
other global ills is well reflected.We want to see reforms in the big financial
centres like Switzerland, Cayman, the US, Luxembourg, Singapore and Hong Kong: only
if they became more transparent, there would be a significant impact in the
fight against crime and illicit financial flows.
To answer the UK’s Financial Secretary to
the Treasury directly: no, we are not ‘suggesting’ that the UK is less
transparent than Vanuatu. In fact, the objectively verifiable criteria of the
secrecy score provide powerful evidence that the UK is more transparent
than Vanuatu – on which, well done. But the UK’s global importance means that
its moderate secrecy poses a much, much higher risk to the world of
facilitating tax abuse and other corruption. We would welcome improvements in
Vanuatu’s secrecy; but the UK’s scale of activity brings with it great
responsibility. And that is why the UK’s backsliding has seen it move up to 12th
in the index, as a jurisdiction of very substantial concern.
Claim
2: We are complying with global standards on transparency.
Secrecy jurisdictions often claim in
response to their ranking on the Financial Secrecy Index that they are
complying with, or have committed to comply in the future with, international
standards on transparency and are therefore transparent. In some cases, secrecy
jurisdictions claim that the index does not take these standards into account. In
other cases, secrecy jurisdictions, claim that their compliance with
international standards is proof that the Financial Secrecy Index does not
provide an accurate assessment.
For example, Luxembourg has claimed “…the
analysis (and concomitant ranking) fails to take into account the fact that
regulators and institutions of the Luxembourg financial centre are applying all
the relevant EU and international standards. Luxembourg…has implemented and put
in practice all applicable OECD and EU rules”. Gibraltar has similarly argued
that it “complies with all global standards” and is “at the forefront of
transparency and global standards in this field”. The Cayman government
argued, “The Cayman Islands’s standards of transparency are based upon
recognised global standards. Unfortunately, the TJN’s methodology remains
flawed, as does their definition of regulatory standards, which are not
recognised by any global standard setting body.”
The Financial Secrecy Index grades each country’s financial and legal system against 100 datapoints, which includes compliance with various international standards, such as the Financial Action Task Force (FATF) anti-money laundering recommendations, the Common Reporting Standard and the OECD’s Global Forum standard on access to banking information. However, many existing international standards are widely recognised as being far too weak to effectively safeguard against financial secrecy. As a result, complying with international standards is often not enough to ensure effective financial transparency in practice. The is one of the primary reasons why the OECD has been working recently on proposals to reform the century-old international tax system in place today.
Under current international tax rules, multinational corporations have been able to dodge an estimated $500 billion in tax every year and offshore jurisdictions have accrued huge concentrations of untaxed private wealth. So we often set a higher bar that reflects what truly effective safeguarding against financial secrecy looks like in practice.
Our higher standards have, over the years,
helped drive better international standards. We have, since our founding,
advocated a number of positions – such as automatic
information exchange, country-by-country
reporting, and beneficial
ownership transparency – which were all called unrealistic
and utopian when we first proposed them. Nonetheless, all of these have become emerging
international standards in the past few years. Moreover, many countries and
corporations are now voluntarily complying with our more robust transparency
standards that have not become international standards yet, such as online
public access to registries of beneficial ownership and local filing of country
by country reports whenever the country cannot obtain it via automatic exchange
of information.
Claim
3: Misquoting what the Financial Secrecy Index scores the country on
The Financial Secrecy Index evaluates
countries against 20 indicators, each consisting of several sub-indicators,
totaling over a hundred datapoints against which each country is scored. This
data is made public on the Financial Secrecy Index website and is available to
download in excel files. This data is also sent to each ranked jurisdiction
ahead of the launch of the index to provide jurisdictions the opportunity to
identify any inaccuracies in our research in advance.
Nonetheless, some secrecy jurisdiction do
not engage with this data at all and falsely claim that the index has evaluated
them on something completely different. In some cases, secrecy jurisdictions
misquote our press releases. More often, secrecy jurisdictions quote the
historical summaries that we provide on some countries’ financial sectors
alongside our evaluation and ranking of those countries’ financial and legal
system. These historical summaries are independent pieces which are not
factored into countries’ ranking – they’re purely additional information we
provide on the history and of the secrecy jurisdiction. Perplexingly, some
secrecy jurisdictions ignore the index’s latest evaluation of their financial
and legal systems and instead lambast our summary of their history for being
“outdated”.
For example, Cayman Finance claims that
both the 2018 and 2020 edition of the Financial Secrecy Index “cite a report by
the U.S. Congress’ Joint Committee on Taxation to support an allegation that
U.S. corporate “foreign earnings and profits” are shifted out of other
countries and into Cayman. The report was published in 2010, making the
information within it eight years old when TJN included it within the 2018 FSI
and ten years old.” Neither edition of the index used this report to evaluate
Cayman’s ranking. The report was mentioned in the historical summary we
provided in 2018 on the jurisdiction, and since history doesn’t change, the
report was mentioned in the historical summary in 2020.
A similar claim is made by Luxembourg in a
Delano article on the Financial Secrecy Index 2020:
Luxembourg’s finance ministry said in a statement to Delano on 19 February: “…The research methodology, for its part, on which it is based seems to be flawed, as it fails to reflect the major progress that has been achieved over the last 5 years in the field of transparency in Luxembourg.”
Indeed, the TJN report cited Jean-Claude Juncker, Luxembourg’s prime minister until 2013, 13 times, but only mentioned Xavier Bettel, PM for the past 6 years, twice.
All of these references to prime ministers
were made in our historical summary of Luxembourg. These references have
nothing to do with Luxembourg’s ranking on the index. Not surprisingly, Luxembourg’s
response to the index did not mention any of the data on which the country was
actually evaluated and ranked.
One last claim made by the Cayman
government, and on the face of it more specific, is this: “The Cayman Islands
does not permit shell companies, bearer shares or anonymously numbered bank
accounts that conceal ownership.” But this is again, a misdirection. The index
does not claim that Cayman permits bearer shares or anonymous numbered bank
accounts: see points 172, 157 and 158 on our interactive database
(click on Cayman). Our secrecy scores are made up of 20 indicators, so
achieving low secrecy in one doesn’t make the whole jurisdiction secrecy-free. And
while there is no precise definition of a ‘shell company’, this is typically
taken to relate to anonymous ownership and the Index shows that Cayman has much
to improve in respect of legal ownership registration for companies.
Miscellaneous
claims
Cayman Finance: “The TJN’s assessment criteria are geared toward countries with direct taxation systems. Our public revenue is collected upon transactions, principally on goods, but the TJN’s methodology doesn’t account for this. For example, one of its Key Financial Secrecy Indicators (KFSI) isn’t applied to jurisdictions with indirect taxation, and so TJN arbitrarily ascribes a full secrecy score to Cayman”
The index assesses more than 130
jurisdictions and is definitely not ‘geared’ specifically towards countries
with direct taxation systems. However, a lack of direct taxation is relevant
for the index, mostly because it all but guarantees lower transparency.
Countries that don’t have income taxes have little interest in information to keep
track of taxpayers.
Like United Arab Emirates, Bahamas, and other jurisdictions we assess, Cayman does not have a direct taxation system which means Cayman does not collect information on taxpayers like other countries do. For instance, Cayman doesn’t issue tax identification numbers (TINs) which is what most countries use to identify a specific taxpayer or company. This affects Cayman’s ability to fight against corruption and money laundering.
The absence of direct income tax is also
reflected in the key
indicator (KFSI9) that measures the
publication of cross-border unilateral tax rulings. Since Cayman does not have
a direct income tax, it does not issue unilateral tax rulings, which can be
abused as a form of financial secrecy (and the LuxLeaks scandal revealed
how extremely harmful these rulings can be).. Cayman claims that since it does
not issue unilateral tax rulings, it should not be scored as fully secretive on
this indicator. However, Cayman not issuing unilateral tax rulings does not
mean that Cayman has opted for transparency, but rather that it is offering a
more simple form of secrecy: the outright refusal to collect any tax
information.
What is more, with the OECD’s Common
Reporting Standard (CRS) for automatic exchange of information (See Annex A)
Cayman has taken the “voluntary
secrecy” option. That means that while Cayman
does send information to other
countries about many non-residents, it declines to receive information from abroad on its own residents. This gives
a strong secrecy signal to individuals who pay a token investment (and fees) to
become a Cayman-resident “Person of Independent Means”. This often referred to
as a “Golden Visa”, which gives individuals a fake residency in a country which
they can use to open bank accounts in the country. When information is
collected on the accounts of golden-visa holders by more transparent countries,
the information is sent to the individual’s fake resident country instead of
their true country of residency, where they really should be paying
taxes. For golden-visa holders “resident” in Cayman, the jurisdiction under
voluntary secrecy, declines to receive the information sent by more transparent
countries.
Another key indicator which reflects the
absence of direct income tax is KFSI 14 on “tax court secrecy.” Cayman argues
it should not have received ‘not applicable’ (equal to 100% secrecy score in
this case) only because it has no direct income tax and therefore does not have
these types of tax court proceedings. Naturally,
no one needs to go to a tax court to ask for a reduction of taxes owed, if they
don’t pay tax anyway but this is definitely not an indication for being
transparent. As we explained above, a lack of direct taxation guarantees lower
financial transparency, and this is exactly what our index attempts to measure.
The key point, as discussed under ‘Claim
1’ above, is that jurisdictions have a responsibility for the impact of their
secrecy on the tax abuse and other forms of corruption that they facilitate in
other countries. For Cayman to claim that it does not need a certain measure
because of its own tax system is irrelevant, if the effect of that system is to
promote abuse elsewhere. Cayman remains responsible for the secrecy it sells.
Despite the hostility directed by
representatives of secrecy jurisdictions towards the Financial Secrecy Index
2020, they have been unable to muster any factually-based criticisms of the
index. Instead, their responses have mostly fallen under the three types of
claims debunked above. Perhaps this in itself is most revealing of all.
The Financial Secrecy Index 2020 has, as of the time of writing this, enjoyed media coverage in outlets with a combined audience of more than 2 billion people. The claims put out in response by secrecy jurisdictions have reached far fewer people and likely convinced even fewer (the responses to the promoted tweets of Cayman Finance are a joyous read, for example). Nonetheless, as public pressure continues to grown on governments to clamp down on financial secrecy, some secrecy jurisdictions will become even more desperate in their attempts to misdirect scrutiny and spread misinformation. Let’s make it clear that we’re on to their act.
This four-part podcast special series is well worth a listen. It’s called My Mother’s Murder, an investigation into the assassination of Daphne Caruana Galizia. It is narrated by one of her sons Paul Caruana Galizia. Here’s part of the description of the podcast series:
Daphne investigated corruption involving the most powerful businessmen and politicians in Malta where she lived. She paid with her life. Her son Paul goes in search of the men who ordered her murder.“
At the Tax Justice Network we have the highest respect for the courage of the incredible Daphne Caruana Galizia, whose work we followed closely, and also the bravery of her family who have continued the fight for justice in Malta.
Their perseverance, with massive support from the Daphne Project, has yielded impressive results, with regular visits and pressure from MEPs and eventually an inquiry by the European Banking Authority into the notorious Pilatus Bank, which you can read more about here and here. Members of the European Parliament expressed their concern that
in the absence of proper regulation Pilatus Bank has been free to pursue investigative journalists and whistleblowers with the full force of the law.”
This podcast is important particularly in the way it dissects how the corrupt can dismantle the State and capture it for their own ends, sliding so quickly into intimidation and violent repression of all who stand in their way.
Daphne’s work went way beyond Malta, to the very nature of corruption, its facilitators in the world’s most powerful countries, and of the finance curse, which we’ve written and warned so much about – Malta is an example of the worst that can happen when a nation has an overgrown finance sector which has total state protection. We’ve seen so much intimidation and fear of speaking out, particularly in small island nations suffering from the finance curse.
Malta is ranked number 18 in our most recent Financial Secrecy Index, with a secrecy score (62) which places it among the worst offenders in Europe . You can read our assessment here.
Here’s a trailer from Tortoise Media on the 4 part podcast series below. The podcast is available on various podcast platforms. Do have a listen.
One last thing. It’d be remiss of us not to mention our own monthly podcast the Taxcast which covers corruption, scandal and the fight for tax and economic justice around the world, which the mainstream media either ignores or covers badly. Check that out too!
Days
before the annual UN Commission on the Status of Women was scheduled to
meet in New Yorkto focus on the gender equality aims
promised in global agreements, goals and declarations, writes Liz Nelson,
will we finally look beyond traditional thinking about how these aims can (or
cannot) be funded? Are we ready to admit that progressively targeted tax is the
only effective financing solution?
We’ve all done it: promised, but not delivered. And our governments are
no different. But should we really be so forgiving of our elected
representatives when they fail to keep their promises on issues that are
fundamental to our well-being and human development?
No: for everyone’s sake, and
especially this year for women during the Beijing
+ 25 intergovernmental review of progress towards gender equality,
we should not. We must be willing to hold our governments to account when they
fail to take progressive action, or when they remain politically indifferent to
the need to take substantial measures to achieve gender equality. Even when
governments appear to be working toward those goals, how can we make sure they
are delivering on their promises? Taxation and gender impact analysis are two
of the most powerful ways we can hold our politicians to account.
Platforms, plans and priorities – and very little progress According to the Convention on the Elimination of Discrimination Against Women (CEDAW), a United Nations treaty signed in 1979 that is frequently described as an “international bill of human rights for women”, by ratifying international human rights treaties such as CEDAW, states assume obligations under international human rights law – and as “duty bearers” they have an obligation to “refrain from making laws, policies, regulations, programmes, administrative procedures and international structures that directly or indirectly result in the denial of the equal enjoyment by women of their civil, political, economic, social and cultural rights” (CEDAW/C/GC/28).
Civil society letter supporting postponement of CSW64
An official letter advocating for a postponement of UN CSW as opposed to a scaled down version and signed by 499 civil society organisations from 92 countries was sent this week to UN Secretary General António Guterres and UN Women Executive Director Phumzile Mlambo-Ngcuka.
It sets out why the Commission on the Status of Women’s (CSW) annual
meeting is such an important mechanism for accountability ‘to all women and
girls in all their diversity around the world’ and the ‘most important annual
process to review progress and challenges towards achieving women’s human
rights, gender equality and the empowerment of all women and girls.’
Launched two weeks ago, the 2020 edition of our Financial
Secrecy Index has broken every record we track on the index’s reach and media
impact. First published in 2009, the global coverage of this year’s edition of the
index reflects a growing urgency shared by people around the world to expose
and reign in rampant tax abuse by the ultra-rich and powerful.
The Financial Secrecy Index ranks each country based on how intensely the country’s legal and financial system allows wealthy individuals and criminals to hide and launder money extracted from around the world. A higher rank on the index does not necessarily mean a jurisdiction is more secretive, but rather that the jurisdiction plays a bigger role globally in enabling secretive banking, anonymous shell company ownership, anonymous real estate ownership or other forms of financial secrecy, which in turn enable money laundering, tax evasion and huge offshore concentrations of untaxed wealth. A highly secretive jurisdiction that provides little to no financial services to non-residents, like Samoa (ranked 86th), will rank below a moderately secretive jurisdiction that is a major world player, like Japan (ranked 7th). The aim is not to penalise jurisdictions with greater scale, but simply to recognise that their secrecy poses greater risks – and so it is more important that they behave responsibly.
World’s top suppliers of financial secrecy:
1 Cayman 2 US 3 Switzerland 4 Hong Kong 5 Singapore 6 Luxembourg 7 Japan 8 Netherlands 9 BVI 10 UAE
Financial secrecy keeps tax abuse feasible, drug cartels bankable. But most gov'ts are saying enough. #FSI2020https://t.co/54gVv1mmD4
The 2020 edition of the index saw Switzerland reduce its
ranking to the third biggest enabler of financial secrecy in the world, marking
the first time the country did not rank worst on the index since 2011. Despite
escalating its contribution to global financial secrecy since the publication
of the 2018 edition of the index, the US remained the second biggest enabler of
financial secrecy in the world after Cayman overtook both the US and
Switzerland to the top of the 2020 index. This marks the first time Cayman
ranked first on the Financial Secrecy Index.
These changes on the ranking told three major international stories that were covered widely around the world: a British territory topped the index for the first time on the same day the EU blacklisted the territory; the US continued to escalate its financial secrecy despite ambitions announced by Senator Lindsey Graham to improve the US’s ranking on the Financial Secrecy Index; Switzerland managed to lose its position as the world’s greatest enabler of financial secrecy amid a global trend of governments curbing financial secrecy. The index also told many regional and country-specific stories on which we worked with our partners and allies around the world to shine a spotlight on.
The launch of the index also saw an outpour of support and
commentary from renowned economists, organisations and tax advocates. Gabriel
Zucman, professor of economics at the University of California at Berkeley and
author of The Triumph of Injustice: How
the Rich Dodge Taxes and How to Make Them Pay, described
the index as “a valuable tool to spot where bad regulations emerge around
the world and thus be able to propose strategies for a more transparent world.”
Transparency International published a comparison
of the Financial Secrecy Index and Corruption Perception Index,
illustrating how the two indices build a fuller picture. OpenOwnership discussed
the global progress on beneficial ownership revealed by the index.
Altogether, we saw eight op-eds supporting the index
published in Latin America, four in Europe, four in Africa and two in Asia. Among
these were several from Independent Commission for the Reform of International
Corporate Taxation commissioners, including Eva
Joly former member of the European Parliament and vice chair of the
Commission of Inquiry on Money Laundering, Tax Evasion and Fraud; Léonce
Ndikumana, Professor of economics and Director of the African Development
Policy Program at the Political Economy Research Institute at the University of
Massachusetts; Jayati
Ghosh, professor of economics at Jawaharlal Nehru University; Wayne
Swan, former treasurer and deputy prime minister of Australia; and Ricardo
Martner, economist and former Chief of the Fiscal Affairs Unit of the United
Nations Economic Commission for Latin America and the Caribbean.
Discussions of the Financial Secrecy Index took place beyond just screens and broadsheets. The UK’s performance on the index was raised in the House of Commons by UK Shadow Chancellor John McDonnell, and speakers from across the parliament in a debate on tax avoidance and evasion. The index was presented in the US Senate by the FACT Coalition, with speakers from Transparency International, the National District Attorneys Association, the Fraternal Order of Police, Global Financial Integrity and Jubilee USA Network.
All in all, the Financial Secrecy Index 2020 has so far reached a viewership of over 2 billion, blasting a bright, searing light through the fog of financial secrecy. Countries that peddle in financial secrecy can no longer do so in secret and the record-breaking reach of the Financial Secrecy Index shows that people around the world will no longer stomach financial secrecy.
We’re pleased to share the 13th edition of Tax Justice Network’s monthly podcast/radio show for francophone Africa by finance journalist Idriss Linge in Cameroon covering the Financial Secrecy Index 2020 results. Nous sommes fiers de partager avec vous cette nouvelle émission de radio/podcast du Réseau pour la Justice Fiscale, Tax Justice Network produite en Afrique francophone par le journaliste financier Idriss Linge au Cameroun.
Dans cette 13ème édition du programme Impôts et Justice Sociale:
Nous revenons sur Le Financial Secrecy Index, l’indice d’opacité financière publiée par Tax Justice Network le 18 février 2020. 17 pays africains ont été notés, et sont ceux qui impacte le moins au niveau du monde. Mais sur bien des indicateurs du classement, l’Afrique est critiquable. C’est le cas en matière de secret bancaire, ou des transactions juridiques sur les entreprises
Si vous souhaitez recevoir cette production ou être média partenaires ou simplement contribuer, vous pouvez nous écrire à l’adresse Impô[email protected]
Welcome to the twenty-sixth edition of our monthly Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. Taxes Simply الجباية ببساطة is produced and presented by Walid Ben Rhouma and Osama Diab of the Egyptian Initiative for Personal Rights, also an investigative journalist. The programme is available for listeners to download and it’s also available for free to any radio stations who’d like to broadcast it or websites who’d like to post it. You can also join the programme on Facebook and on Twitter.
Taxes Simply #26 – Arab countries’ performance in the Financial Secrecy Index
Welcome to the twenty-sixth edition of Taxes Simply, a special edition that covers the performance of Arab countries in the recently published Financial Secrecy Index published by the Tax Justice Network in a conversation between Walid Ben Rhouma and the researcher in the Egyptian Initiative for Personal Rights, Osama Diab.
This edition also contains a collection of the most important economic and tax news in the region and the world including:
The United Nations issues a report on companies operating in Israeli settlements
Egypt is negotiating a new agreement with the International Monetary Fund
The death of former Egyptian President Hosni Mubarak, whose era was characterised by the spread of financial corruption, which was one of the key reasons for his 2011 overthrow.
الجباية ببساطة #٢٦ –
أداء الدول العربية في مؤشر السرية المالية ٢٠٢٠
أهلا بكم في العدد
السادس والعشرين من الجباية ببساطة وهو العدد الخاص الذي يتناول أداء الدول
العربية في مؤشر السرية العالمية الصادر حديثا عن شبكة العدالة الضريبية في حوار
ما بين وليد بن رحومة والباحث في المبادرة المصرية للحقوق الشخصية أسامة دياب.
يحتوي أيضا العدد على مجموعة من أهم الأخبار الاقتصادية والضريبية في المنطقة
والعالم وتشمل: ١) إصدار الأمم المتحدة لتقرير عن الشركات العاملة بالمستوطنات
الإسرائيلية؛ ٢) مصر تتفاوض على اتفاق جديد مع صندوق النقد الدولي؛ ٣) وفاة رئيس
مصر السابق حسني مبارك والذي تميز عهده باستشراء الفساد المالي والذي كان واحدا من
أسباب الإطاحة به في عام ٢٠١١.
Just a couple of years ago, some members of a Lebanese family were suspected of committing mafia-style crimes, including blackmail, drug-dealing, the theft of a giant gold coin (100 kg!) from Berlin’s Bode Museum, and the laundering of millions of euros through real estate investments. Remember? This story reminds the whole world that Germany has so far been in no position to mock countries shaken by embezzlement scandals, such as the recent Luanda Leaks in Angola. But that is not because of foreign family clans, but because of a much more German variant of family dynasties.
A large economy, internationally networked, legally secured, with a
culture of secrecy and virtually no means of unmasking and punishing money
launderers: criminals couldn’t dream of anything better. Every year, up to €100 billion are
laundered in this country, according to an academic report written at the request
of the Finance Ministry.
When illegal funds are
laundered in the housing sector, they do not only risk financing mafias and
terrorists, but they also contribute to rising rents and purchase prices. In Berlin, real estate
transactions amounted to €11 bn in 2018, up from €3.6 billion in 2009,
with rents for ordinary tenants exploding. Some of the demand driving up the
prices is likely to consist of money of dubious origin.
That’s why we can only applaud the fact that, after years of denial,
Germany finally seems determined to get rid of its reputation of being a
“gangster’s paradise”. This is even the main piece of news coming out of the
publication of the 2020
Financial Secrecy Index. According to the 2020
Financial Secrecy Index published by the Tax Justice Network, a UK-based thinktank
of which I am a director, Europe’s
leading economy managed to dramatically reduce its contribution to global
financial secrecy, taking its ranking down from 7th on the 2018 index to
14th.
This improvement is mainly due to the adoption of the new European directive regulations into local legislation. In response to the Panama Papers revelations,the European Union (EU) tightened its directive to counter money laundering within the European financial system. One important step is to unmask criminals that hide behind anonymous companies by the introduction, in January 2020, of registers of corporate ownership, showing who ultimately controls every company incorporated across most of Europe, and in theory accessible not only to the tax administrations and law enforcement, but also to journalists and civil society.
Few countries have complied timely with the new rules. Germany’s swift action is all the more impressive as it extended the obligation to disclose the names of the beneficial owners to foreign trusts and foreign letter box companies purchasing German real estate, going even further than the EU required. This decision was made despite intense resistance, particularly from the almighty German business dynasties. Speaking in the name of tradition, these huge so-called family businesses now threaten to defend their culture of secrecy at court. .
The Deutschland dynasties believe they do not have
to reveal their profits, even though, in reality, many of them are now
multinationals. And their counterattack has already begun. Last November, in a
decision that the majority of citizens didn’t notice, Germany was, because of
their lobbying, one of the 15 European countries failing to support a new directive that would require
multinationals to reveal how much profit they make and how little tax they pay
in each country they operate in.
Gangster's Paradise Germany: What criminal clans and German family businesses have in common. My op-ed today in @handelsblatt
When multinationals and the super-rich manage
not to pay their fair share of taxes, governments cannot invest in access to
education, health care, and decent pensions, or take measures to mitigate and
adapt to the climate crisis. Arguing that their coffers are empty, those
governments opt for austerity measures, becoming more and more discredited in
the eyes of the population, and fostering the kind of populist
backlash that allows authoritarianism to flourish.
This dynamic also exacerbates gender inequality,
because, in Europe just as in the rest of the world, women are overrepresented
among the poor and among the demographic group with informal or low-paid jobs.
In addition, they tend to take on a larger share of unpaid care work when
social services are cut.
Germany must now prove that it is really willing to enforce its stricter
laws. It will have the opportunity to do so in the coming months when faced
with the experts from the Financial Action Task Force (FATF), the most
important international body for the prevention of money laundering. Based in
Paris, this organization examines every ten years whether states comply with
international standards, and Germany’s audit will begin in April.
In 2010, the experts were unforgiving. Germany failed 20 out of the
49 criteria and according to observers barely escaped the body’s
blacklist. To make them forget their last evaluation, Berlin should take bold
steps: give its public prosecutors, police and supervisory agencies real
resources to investigate, as well as annul old bearer shares that allow their
holders completely anonymous ownership of companies despite all transparency
registers.
With Brexit a reality, the risk now is that the UK may transform itself
into a so-called “Singapore-on- Thames”, ie an even more harmful facilitator of
financial secrecy, putting European countries’ efforts in jeopardy. But it is
also an amazing opportunity. Outside the EU, the United Kingdom will no longer
be able to block anti-tax haven measures from being adopted in Brussels, and to
defend its satellite secrecy jurisdictions. Europe, and especially Germany, no
longer has an excuse for not going further with transparency. German family
dynasties finally have to let go of some of their cherished secrecy because it
is this very secrecy that keeps criminals in business.
In this special extended Taxcast, Naomi Fowler takes you on a whistle-stop guided tour on an express train around the world with some of the Tax Justice Network team, looking at the worst offenders selling secrecy services according to the latest Financial Secrecy Index results What can nations can do to protect themselves and their populations from financial and legal secrecy?
The financial secrecy index was first published in 2009. So we now have over 10 years of data to draw on…and it shows that civil society can really make a difference.
Non-OECD countries should recognise that OECD member States are only interested in protecting their own interests and cannot even begin to pretend that they are representing the interests of the rest of the world. So if the non OECD member States, in other words, the rest of the world, want to become rule makers, not rule takers, then they need to reject the pretensions of the OECD member States to be the rule makers. We need a global, legitimate rule maker. And ideally it should be the United Nations that takes on the role of making the rules for the whole of the world.”
~ John Christensen
Find out more:
There’s more information on the Financial Secrecy Index here.
The full podcasts on each region are available here.
Webinars on the index, including tutorials are available here.
Want to download and listen on the go? Download onto your phone or hand held device by clicking ‘save link’ or ‘download link’ here.
Want more Taxcasts? The full playlist is here and here. Or here.
Want to subscribe? Subscribe via email by contacting the Taxcast producer on naomi [at] taxjustice.net OR subscribe to the Taxcast RSS feed here OR subscribe to our youtube channel, Tax Justice TV OR find us on Acast, Spotify, iTunes or Stitcher.
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An article in the U.S. magazine The Nation, written by today’s blogger (pictured above), highlights how the finance curse strikes U.S. agriculture.
It starts by focusing on the political divides that seem to have opened up between the so-called “coastal elites” which tend to vote for Democrats, and more rural constituencies, which voted more heavily for Donald Trump in the last elections. Voting patterns are obviously more complex than that, but the article highlights that there is great resentment among many people in urban centres about “whining and begging” rural farmers taking handouts.
Once the finance curse analysis comes into the picture, however, the picture changes completely. As the article notes:
both the narrative that subsidies flow from “coastal elites” to farmers and the fatalism about rural economic decline indicate a profound misunderstanding of what’s actually going on.
That’s because of the role of financial players, institutions, mechanisms and techniques, often on behalf of distant shareholders. Several decades ago, much of the wealth that was created from the soils, sun and rains tended to circulate back to local communities, as farmers bought inputs and services from local seeds suppliers, grocery stores, parts suppliers, doctors, restaurants, banks, insurance firms, and so on. Since the 1980s in particular, “financialisation” has happened: the penetration of financial players, techniques, institutions and mechanisms into every step of the agricultural process.
Large firms often based in distant money centres have gobbled up the local players, taken these formerly local services in-house, cut out the local suppliers, and sent the dividends off to shareholders and owners in New York, Chicago, Houston, and overseas and offshore. Those local circulatory systems for wealth have been unrolled and turned into a one-way conveyor belt shipping wealth outwards.
We have already pointed to the same essential geographical story in Britain, as private equity firms and other predatory players based substantially in London extract wealth from other parts of the country, not just redistributing wealth upwards, but harming overall national prosperity too.
This giant extraction machine generates tremendous anger, of course. But the article goes on to say that this extraction isn’t just happening in agriculture: it’s happening all across the economy.
It turns out that rural U.S. farmers and those “coastal elites” are on the same side of the real economic divide, which is between the beneficiaries of the financial extraction, and those being extracted from. In this analysis, of course, lies the seeds of some potentially interesting political alliances.
Join Tax Justice Network and the FACT Coalition for a discussion of the 2020 Financial Secrecy Index and relevant US legislation.
As Congress considers measures to combat financial secrecy and end the formation of anonymous companies in the United States, the Tax Justice Network and the Financial Accountability and Corporate Transparency (FACT) Coalition ask you to join them on Capitol Hill for the US launch of the 2020 Financial Secrecy Index on Wednesday, February 19, 2020, from 9:30 am – 10:30 am. The event will take place in SD-106 (Dirksen Senate Office Building).
Since 2009, the Tax Justice Network has produced the Financial Secrecy Index biennially, analysing the level of secrecy in the world’s financial centres. It is the only comprehensive ranking that seeks to apply a methodical approach to defining secrecy jurisdictions. The previous iteration of the Financial Secrecy Index, released in January 2018, rated the United States as the 2nd largest secrecy jurisdiction in the world, behind only Switzerland.
The 2020 Financial Secrecy Index Launch Event will feature a presentation by Tax Justice Network on the 2020 Financial Secrecy Index results, including where the US falls in the new rankings and why. A panel of experts will then discuss the national security, law enforcement, human rights, and economic implications of financial secrecy in the United States as well as bipartisan legislation (such as the ILLICIT CASH Act and the Corporate Transparency Act) currently pending in Congress to tackle financial secrecy.
Coffee, Tea, and Light Pastries Will Be Provided
9:30 AM – Welcome Remarks — Clark Gascoigne, The FACT Coalition 9:35 AM — Presentation of the Financial Secrecy Index 2020 – Jack Blum, Tax Justice Network 9:50 AM – Panel Discussion featuring:
Caren Benjamin, Polaris
Jack Blum, Tax Justice Network
Annabel Lee Hogg, The B Team (TBC)
Tim Richardson, Fraternal Order of Police
Jodi Vittori, Transparency International Defense & Security
The Cayman Islands will join Oman, Fiji, and Vanuatu on an EU blacklist of foreign tax havens, making it the first UK overseas territory to be named and shamed by Brussels
We have lambasted Europe’s blacklists for years, which are based above all on political considerations. In particular, the EU does not seem to want to blacklist EU member states, or powerful countries or . . . any tax haven that really matters. At the time of writing, the list consists of these giants of global finance:
American Samoa
Fiji
Guam
Oman
Samoa
Trinidad and Tobago
US Virgin Islands
Vanuatu
The EU even has official excuses for this nonsense. For a more serious list, based on objectively verifiable criteria, see our 2018 Financial Secrecy Index (FSI) – Cayman is at number three, below Switzerland and the United States. The all new Financial Secrecy Index 2020 will be published next week – where will these three jurisdictions be? We can already reveal that there will be significant changes, up and down the index! (And some good news.)
In the tax haven world, Cayman isn’t a minnow. So this latest move by the EU, which needs to be confirmed by EU Finance Ministers next week, is significant.
We also expect, based on conversations we’ve been having, that the forthcoming blacklist will include the current eight, plus Palau, Botswana, Panama and Cayman. Turkey is a question mark. This is an improvement: in 2018, we reckoned that the EU’s blacklist targeted just 1 percent of financial secrecy services threatening EU economies: if our sources are correct, the new list would represent 7.3 percent. Or about one fourteenth of the total problem…
It’s notable, of course, that this comes just a few weeks after Britain’s formal exit as a full member of the European Union, and as it enters a transitional negotiation stage for final exit. Cayman and the British Virgin Islands, another British overseas territory, was already under review and on an EU grey list, (a classification that gives jurisdictions time to shape up). While it could be argued that Cayman had simply failed to address the specific technical criteria laid down by the criteria, there is no doubt that it represents, as the Guardian puts it:
a clear indication of [Britain’s] loss of influence on the EU’s decision-making
Britain has for years fought hard to protect the interests of the offshore financial industry in its Crown Dependencies and Overseas Territories like Cayman, and Brexit certainly weakens their positions. While TJN has not taken a position to support Brexit (far from it), we recognise that the EU’s new freedom to sanction recalcitrant British offshore jurisdictions, without British lobbying, is a positive thing.
The EU has made clear, repeatedly, that the UK will not be allowed to undercut it on financial and other regulations, and keep full access to the single market. While UK politicians may insist on their post-Brexit right to race to the bottom, and profess surprise at the unreasonableness of the EU position, the choice is stark. If Britain is determined to hold onto its grubby role as the master of ceremonies for the financial recalcitrants of its secrecy network, the UK and the City of London financial centre which derives so much wealth from these places will face some uncomfortable truths. Many Europeans don’t have much appetite for compromise, and even see Brexit as an opportunity.
In the words of Sven Giegold, a leading member of the European Parliament (and also, as it happens, a founder of TJN):
The time for special treatment of the UK is over. The British government’s attempt to give its London financial centre permanent and comprehensive access to the European financial system for decades is audacious. The EU will not let the decision as to which British financial market rules are compatible with European rules be taken out of its hands.
We’d fully support that. Interesting times lie ahead.
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