How the OECD had a ‘bad Panama Papers’ – and why it matters

The OECD's headquarters at Chateau de la Muette

The OECD’s: Chateau de la Muette

This is a long read, with three main components. First, we examine the OECD’s position as an international tax organisation  – and the gradual weakening of its preeminence. Second, we consider two specific aspects of the OECD’s work as a watchdog for noncooperative jurisdictions, as they have played out in the Panama papers. And finally, we draw some conclusions about the scope for an intergovernmental tax body (but more directly about the importance of using objectively verifiable criteria for any ‘tax haven’ blacklisting that might follow Panamania.

After a lot of argument and evidence we will draw some quite strong conclusions, such as this one: Continue reading “How the OECD had a ‘bad Panama Papers’ – and why it matters” →

Irish Times: US taxpayers growing tired of Ireland’s one big idea

Celtic-tigerThat one big idea isn’t corporate tax avoidance – though one might be forgiven for thinking so. It’s Foreign Direct Investment, or FDI. As we’ve shown, FDI into Ireland, and the so-called “Celtic Tiger, was primarily not driven by tax and corporate tax avoidance. Really, it wasn’t.

Now Fintan O’Toole, one of Ireland’s best known commentators, has written a profoundly important article in the Irish Times, which should resonate far beyond Ireland’s shores. (hat tip:@sorleymccaughey) We’ve borrowed its headline: US taxpayers growing tired of Ireland’s one big idea. Continue reading “Irish Times: US taxpayers growing tired of Ireland’s one big idea” →

Luxleaks whistleblowers on trial in a week, face 10 years in jail

Luxleaks whistleblower Antoine Deltour.

Luxleaks whistleblower Antoine Deltour.

This is one of the clearest cases of tax justice versus tax haven ‘justice.’

From Change.org via the Support Antoine Deltour campaign: a call to get involved in support of the main #Luxleaks whistleblower, Antoine Deltour, and two others accused with him.

Please share this: the case has seen greater support among Francophone communities than among those of other languages: let’s help redress the balance. The #Luxleaks Affair is one of the great tax haven whistleblower scandals.

“LuxLeaks” trial to start on April 26th

From Antoine Deltour’s support committee: Continue reading “Luxleaks whistleblowers on trial in a week, face 10 years in jail” →

Five myths about tax havens

WaPoTJN’s Nicholas Shaxson has an article in the Washington Post entitled Five Myths about Tax havens. The myths go like this:

Now read the article for the rebuttals. And for further rebuttals, see our FAQ page, with more myths, and this longer piece entitled The Non-Perils of Information Exchange.

 

 

Panama makes a concession – and G20 offers some buzzwords

IMF psring meetingsFrom the Buenos Aires Herald, on Friday:

“Panama has caved into the broad front of criticism over its banking practices and has decided to adopt international tax reporting standards, the Organization for Economic Cooperation and Development (OECD) chief José Ángel Gurría said yesterday, calling the turnaround a beneficial impact of the “Panama Papers” controversy.”

Which is good news, as far as it goes – but of course Panama has for decades made a business model out of disregarding not only the laws of other jurisdictions, but also its own weak laws. Many further countermeasures – including against private sector players – now need to be thrown into the pot.

Next, a G20 communique, from the IMF and World Bank “spring meetings” over the weekend. The relevant sections read: Continue reading “Panama makes a concession – and G20 offers some buzzwords” →

Three things the heads of the World Bank and IMF got wrong about an intergovernmental tax body

On Sunday, the International Monetary Fund will host a major event on tax. The IMF, of course, would love to take some of the OECD’s space as the go-to organisation on tax for the G8 (G7) and G20 groups of countries.

Earlier this week, a UK member of parliament asked both Christine Lagarde and Jim Yong Kim (the heads of the IMF and World Bank, respectively) for their views on proposals for an intergovernmental tax body – and their answers were surprisingly poorly informed. That might not matter if this wasn’t a live policy issue; but it is, and it does.

The panel, which will be webcast live, will include two firm supporters of an intergovernmental tax body: Joseph Stiglitz, a member of the Independent Commission for Reform of International Corporate Taxation; and Winnie Byanyima of Oxfam.

Christine Lagarde will also speak; and so we thought it might be useful to flag in advance three main areas in which the IMF and World Bank heads seemed confused. (Quotes are taken from this handy Guardian piece.)

1.      An intergovernmental tax body involves ‘thinking outside the box’

‘Christine Lagarde [said she was unfamiliar with the proposal] but acknowledged: “I think it’s an area where we all have to think outside the box… thinking outside the box might be of great interest.”’

International policy discussions are continually guilty of forgetting their own past. Tax in particular has been neglected as a development policy issue for decades, and only in the last few years has that started to unwind – so some ‘new’ ideas turn out to have been considered in the 1960s or 1970s, for example.

The idea of an intergovernmental tax body has long roots, but was most famously promoted by Vito Tanzi through the 1990s and since. Who is Vito Tanzi, you ask? No less than the long-standing and well-respected then head of the tax unit at… the IMF. From there, it was adopted as a central recommendation of the Zedillo panel, which underpinned the Monterrey Consensus on Financing for Development that was intended to give the Millennium Development Goals some basis beyond aid.

But even if you’d forgotten that recent history, you’d have to have taken the first half of 2015 on holiday in order not to have seen that the discussions leading up to and at the Addis Financing for Development summit in July were dominated by a single issue: yes, the question of whether to create an intergovernmental tax body.  (OECD members led by the UK and US were finally able, albeit at a substantial cost in political credibility, to block a solid G77 and wider majority in favour of such a body.)

2.      An intergovernmental tax body will be a drain on aid

‘Jim Yong Kim… was even more sceptical[.] “If you’re going to add another UN institution it will require some chunk of ODA [official development assistance]… I do not see your parliaments rushing to have a competition to increase taxes and increase your tax base so you can give more aid. I don’t see that happening.”’

The second claim concerns resourcing. On the one hand, it’s certainly true that the UN tax committee – the closest thing to an intergovernmental body in practice – is woefully under-funded. For that reason, OECD member states tend to argue that the highly-funded tax team in their organisation should lead any technical work.

But of course tax decisions at the international level are political more than they are technical, as distributional impacts come to the fore and are bargained over – so having decisions taken in the confines of the rich country’s club is a recipe for decisions that favour members over non-members. Not unrelatedly, recall that the split over whether or not to agree an intergovernmental body at Addis looked a lot like OECD members versus the rest of the world. Hmm.

Anyway, the point made was about aid. The OECD is currently inviting developing countries to join one of its fora, on two conditions: first, that they sign up to everything just agreed (largely without them) in the Base Erosion and Profit Shifting initiative; and second, that they pay for the privilege. An outsider would suggest that the technical budget of the OECD, plus a highly progressive sliding scale of fees, would be sufficient to get a new body going fairly well.

And in the medium-term or sooner, investment in such a body is likely to yield substantial returns – from even a small dent in multinational profit-shifting (estimated to be around 25% of global profits) and/or undeclared offshore assets (where the low-end estimate is around 8% of private household wealth).

There are very good reasons to invest aid directly in public services such as education and health, and a good chance in many cases of eventual economic returns through higher GDP. But we also have evidence that governments perform better when tax is the main source of revenue, and that a higher proportion of tax than aid tends to be spent on those public services – so the priority has to be to support national tax-raising efforts.

This means that it’s likely to be a highly efficient use of a small fraction of the global aid budget to support an intergovernmental tax body tasked with improving the international transparency of assets, income streams and profits; and with providing a globally representative space to discuss and agree improvements to international tax rules. Focusing on the potential upfront cost, to the exclusion of the likely return, is myopic to the point of being self-defeating.

3.      An intergovernmental tax body is a threat to national sovereignty

Perhaps the most damaging thing said was this from Christine Lagarde:

“[I]f anything, levying taxation is considered as an attribute of sovereignty, and anything that takes away from that is going to be very strongly opposed by many countries in the world, many forces.”

This rests on a fundamental misunderstanding of the proposal, and of the way that international tax currently operates. If decisions about taxes were simply to be given up by national legislatures, to some world tax authority for example, there might be a point. But the entire purpose of the proposal is to return and bolster tax sovereignty at the national level.

Without good information on the offshore assets and income streams of residents, or on the full global operations of multinational companies, national tax authorities are unable to take sovereign decisions over direct taxation – meaning, all too often, that they are unable to achieve either the level of revenues or of progressive reduction in inequality that political preferences would indicate. An intergovernmental body that addresses these issues would bolster sovereignty for the great majority of states.

One group would, however, face a possible threat. At risk would be the sovereign freedom of Panama and others, including many states of the USA, to offer financial secrecy vehicles that undermine taxing rights elsewhere. Most would see the decision here as a clear one. But even here, there would for the first time be a truly representative, global body to take such decisions about the relative merits of protecting different types of sovereignty – rather than the narrow OECD.

Tune in

Perhaps Sunday’s event will see a beautiful consensus emerge – frankly, it’s about time.

The OECD has, arguably, had its chance to show it can provide a forum for truly global discussion and agreement. The failure of the BEPS process to deliver for developing countries above all has surely closed the door on that.

Or else it’s been achieved by the organisation’s current, increasingly laughable inability to name the United States – rather than Panama – as by far the biggest remaining financial centre to refuse to sign up to automatic exchange of tax information.

The US (perhaps still with UK support) retains the power, if not the credibility, to block the creation of an intergovernmental body. But as the US is increasingly seen as the tax haven of choice, for how long?

 

Graph of the day: the broken U.S. tax system

From Oxfam America’s new report Broken at the Top: How America’s dysfunctional tax system costs billions in corporate tax dodging:

US Corp taxes

Now read on.

 

 

Finance ministers: “hammer blow against tax evasion” – or a feather-swipe?

Updated: April 18th

The Finance Ministers of Germany, France, Britain, Italy and Spain have announced a new plan to share information about the beneficial ownership of companies, trusts, foundations and other structures, complementing existing efforts by the OECD (the Common Reporting Standard) to create a global system for sharing banking information. UK Chancellor [Finance Minister] George Osborne said:

“Today we deal another hammer blow against those who hide their illegal tax evasion in the dark corners of the financial system. Britain will work with our major European partners to find out who really owns the secretive shell companies and trusts that have been used as conduits for evading tax, laundering money and benefiting from corruption.”

The statement, as we’ll show, contains some positive elements but lacks in ambition. And this raises a big question: in terms of the particular details, while parts of this statement might look like a step forwards, a cynic might read it instead as an attempt to deflect attention away from where it is really needed: the need for publication of beneficial ownership information about shell companies, trusts and so on. In which case it would be a step backwards.

Not only that, but there are some slightly odd things about this statement. Continue reading “Finance ministers: “hammer blow against tax evasion” – or a feather-swipe?” →

Trove of secret Swiss bank data released to European countries: now use it!

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From Campact in Germany

Image: Campact, Germany

Back in 2014 Reuters reported, in a pre-echo of the Panama scandal:

“Authorities in the German state of North Rhine-Westphalia [NRW] have bought a CD containing data about several thousand German clients of a Swiss bank, German newspaper Bild am Sonntag said on Sunday without citing its sources.”

And this wasn’t the only one: already in 2013, half a dozen of these CDs had already been purchased.

Now, from NRW’s Finance Ministry, via Sven Giegold and Tove Maria Ryding:

“The revenue service of the German state of North Rhine-Westphalia last week forwarded electronic records to more than twenty countries in Europe for scrutiny and to help prosecute tax evaders. Modelled on earlier cooperation with Greece, information on holders of Swiss bank accounts was sent to the Federal Central Tax Office (BZSt) and passed on to the various authorities.”

Continue reading “Trove of secret Swiss bank data released to European countries: now use it!” →

Whistleblower Antoine Deltour warns MEPs: DON’T vote for the EU Trade Secrets Directive tomorrow

Thanks to the so-called #LuxLeaks revelations hundreds of tax agreements between the Luxembourg authorities and multinational companies made behind closed doors were made public and the consequences are still in play. Former employee of Price Waterhouse Coopers Antoine Deltour is the whistleblower behind the disclosure of many of those documents. He’s being prosecuted by the Luxembourg authorities alongside two journalists, and faces several years in jail. The trial begins soon on the 26th April and you can read more about it here.

Now, such is Deltour’s concern about tomorrow’s vote in the European Parliament on the European Trade Secrets Directive he’s has released a personal statement on the matter via MEP Fabio De Masi:

“In 2012, I gave documents to a journalist whose publication triggered the Luxleaks scandal. I was awarded the European Citizen Award by the European Parliament last year for this. But both me and the journalist are now being prosecuted in Luxembourg for trade secrets “violation”. The exemptions foreseen in this directive to supposedly protect whistle-blowers would not protect me, nor the journalist, because we did not reveal anything illegal, just immoral. This directive will enable companies to sue anyone who accesses, uses or publishes an information that they consider a trade secret, which, according to the definition foreseen in the text, can be almost any internal information. It applies to all citizens and not, as it should, to economic competitors only. Before you vote this directive, I urge you to reflect on this question: do you really want a society where it is impossible for the public to access information crucial to the public good?”

As MEP Fabio de Masi says to his fellow MEPs:

“I sincerely hope that you will be able to re-evaluate whether or not we want to promote or restrict individuals’ efforts to provide society with information of public value, free of fear of subsequent repression.”

Antonio Gambini of CNCD 11.11.11 wrote a blog for us here looking at the Directive and the implications for future whistleblowers. We’ll be covering Antoine Deltour’s trail in this month’s Taxcast, our monthly podcast, as well as of course discussing the Panama Papers.

It’s not too late to sign the petition against new secrecy rights for businesses here.

Area more than three times the size of Greater London owned in UK by secret companies in offshore tax havens

Global_Witness_official_logoFrom Global Witness (no further comment from us is needed):

Area more than three times the size of Greater London owned by secret companies in offshore tax havens

An area of British land more than three times the size of Greater London is owned by secret companies in offshore jurisdictions like the British Virgin Islands,  Global Witness revealed today based on data from Private Eye (1).

The veil of secrecy makes it impossible to identify who actually owns this land and whether it was bought with clean money. This leaves the UK’s housing market wide open to abuse by corrupt politicians, tax evaders, money launderers and other criminals. The findings come as the effectiveness of the UK government’s proposals to crack down on tax haven secrecy in the wake of the “Panama Papers” are being questioned.  Continue reading “Area more than three times the size of Greater London owned in UK by secret companies in offshore tax havens” →

Taxing tax havens – Foreign Affairs article

James S. Henry

James S. Henry

TJN Senior Adviser James S. Henry has an article in the latest edition of Foreign Affairs entitled Taxing Tax Havens: How to Respond to the Panama Papers. It makes the point, as we have, that the tax havens are about so much more than tax, and then adds that much of the wealth supposedly stashed in these places is actually not there.

“Most of this wealth is not actually invested in the treasure islands themselves. The reason is simple: the very things that make the islands good places to stash money also make them dangerous places to do so. They generally have tiny capital markets and loose financial regulations; they are home to regulators, police, and judges who are not quite as impervious to back-door influences as First World enforcers. So offshore investors are generally unwilling to trust such places with large amounts of their financial wealth.”

Continue reading “Taxing tax havens – Foreign Affairs article” →

If you’re in Washington, D.C. on April 14th . . .

TJN eventFrom the Institute for International Economic Policy:

Thursday, April 14th, 2016

5:30 – 8:30 PM

Harry Harding Auditorium, Room 213

Elliott School of International Affairs

1957 E Street NW, Washington, D.C.

The Institute for International Economic Policy at the George Washington University is pleased to host a special film screening, book release, and panel discussion on global tax reform on Thursday, April 14, in the Elliott School of International Affairs. The program has been brought to GWU through the efforts of James Foster, Professor of Economics and International Affairs and former Director of IIEP at GWU and by Thomas Pogge, Professor of Philosophy at Yale University. If you are in search of a deeper understanding of the “offshore” financial world being exposed in the Panama Papers scandal – and interested in what countries, individually and collectively, can do to stem this massive drain on their resources– please join us on the night before taxes.”

With a star-studded cast. If you’re in the area, this is clearly the place to be.

Press release: Tax Justice Network responds to European Commission proposals for public country-by-country reporting

The European Commission’s proposals mark one more step towards the global adoption of a crucial measure for international tax transparency and accountability – but they are so highly flawed that as things stand they would most likely be bad for European tax revenues, and provide no help at all to developing countries.

Why should country-by-country reporting be public?

Since the Tax Justice Network developed the modern proposal for country-by-country reporting with Richard Murphy in 2003, there has been a long, hard road to its adoption as a global policy. Only in 2013 did the G8 and G20 groups of countries recognise the importance of understanding the misalignment between declared profits, tax paid and the location of real activity – and mandated the OECD to produce a standard that closely matches our proposals. Continue reading “Press release: Tax Justice Network responds to European Commission proposals for public country-by-country reporting” →

The Panama papers are not about tax

Screen Shot 2016-04-08 at 17.14.28Update: see TJN writer in UK’s Prospect Magazine making this general point.

This deliberately provocative headline is of course not fully true: tax is clearly a tremendously important aspect of the Panama papers scandal, as it continues to roil governments and élites and their advisers, around the globe. But there are far too many commentators who seem to be putting this into a ‘tax’ pigeonhole. Many have dubbed this “the Panama tax avoidance scandal” (or variants of this) — which reflects a profound misunderstanding of what is going on.

First, as an aside, we should probably banish this word ‘avoidance’ from the tax lexicon, because it’s so widely misused and misunderstood (it helps use words like ‘tax cheating’ or ‘escape’ instead, to keep you out of the thorny thickets of what’s legal or not.) But more importantly for today’s blog, these commentators have erred when they put Panama into the ‘tax’ box. Tax is a subsidiary story. Continue reading “The Panama papers are not about tax” →

Oxfam: the International Finance Corporation and tax havens – new report

Monday 11th April

Oxfam has launched a new briefing on the IFC and tax havens.

This briefing will also be presented and discussed at our event at the World Bank CSO forum on Friday 15th of April at 11 am-12.30 in Washington DC. Continue reading “Oxfam: the International Finance Corporation and tax havens – new report” →

The mentality behind the #PanamaPapers secrets, explained in 3 seconds

We think this sums it up pretty well, nice work from these guys! We adapted it a little…

Screen Shot 2016-04-08 at 17.14.28

Mossack Fonseca: why so few American clients? (Hold the conspiracy theories)

From The Guardian

From The Guardian

There has been a lot of buzz about one aspect of the Panama Papers: why have so few U.S. citizens been exposed in these leaks? Panama was set up originally as a country – and as a tax haven — with the help of U.S. financial interests, and it has been substantially within the U.S. orbit (mainly with the purpose of keeping influence over the Panama Canal.)

There are all kinds of theories doing the rounds (of course) about CIA plots and other skulduggery to explain this anomaly, but we think other factors are more likely to explain it. Continue reading “Mossack Fonseca: why so few American clients? (Hold the conspiracy theories)” →

As #PanamaPapers break, Europe plans to water down company ownership transparency

Press Release: As Panama Papers break, Europe plans to water down company ownership transparency

Just as the Panama papers reveal the mayhem that can be caused by secret shell companies, the European Union is set to relax ownership transparency requirements for shell companies in its forthcoming Fourth Anti-Money Laundering Directive.

The Tax Justice Network is calling for the European Parliament, the European Commission and the Heads of State of European Union Member States to address three serious shortcomings in the fourth European Anti-Money Laundering Directive (2015/849,) a common European framework designed to establish an EU-wide approach to preventing the laundering of the proceeds of crime. It is scheduled to come into force by mid-2017 across the European Union.

Unless the proposed rules are tightened, shell company abuses will become easier in Europe.

The common thread in the Panama Papers is secrecy, enabling perpetrators to launder illicit proceeds  of corruption, tax evasion, drugs money and much more. In order to escape law enforcement, they depend on secrecy – very often through using shell companies, trusts and foundations available in most countries worldwide. Intermediaries such as lawyers, notaries, family offices and banks help create and handle those structures.

In 2005 (2005/60), the rules for identifying the owners of offshore companies who seek to open accounts, hold shares or buy property in the European Union included rules to identify the real owner(s) of offshore companies – the so-called “beneficial” owner(s).

According to the existing rules from 2005, a beneficial owner in the European Union has to be the ‘natural person’ actually controlling the legal entity, no matter how many lawyers of nominees, shell companies or trusts are placed in between (see Article 3.6, on page 8). So a Panama or British Virgin Islands company has to reveal its real beneficial owners to the relevant EU banks, lawyers and notaries involved. Failing to comply with those obligations (by, for example, recording a nominee director instead,) is sanctioned, and can be a criminal offence.

Now, the European Union in its 2016 amendments under the 4th Anti-Money Laundering Directive propose adding an exception to this requirement for all legal entities.

The incoming rules contain an ambiguity that will invite abuses, allowing an exception where the bank, notary or lawyer can record (instead of the true beneficial owner) the “natural person(s) who hold the position of senior managing official(s)” (see Article 3.6.a.ii, on page 14).

Of course these “senior managing officials” could be nominee directors – the bread and butter of secrecy: they are a shield between the companies (and the assets they hold); and the real beneficial owners. These nominees sometimes manage of thousands of shell companies each – and under the incoming rules they can be defined across the European Union as the beneficial owners.

Furthermore, the fourth Anti Money Laundering Directive contains some good news: it will create registries of beneficial owners of shell companies. However, in November 2014 Germany’s government (together with Malta and Cyprus) opposed a mandatory provision to publish this new registry’s data, even against the more progressive positions of the UK, French, Italian and Spanish governments.  Publication is only permitted, not mandatory. The UK and Netherlands have agreed to a public registry, but many governments including Germany will preserve the veil of corporate secrecy in Europe – and across the World.

Last but not least, the current Directive suffers another major loophole: while foundations are covered by the new mandatory registration of ownership, trusts (the Anglo-Saxon cousins of foundations) have been excluded. As was revealed on 7 April 2016, British Prime Minister David Cameron intervened personally in 2013 to stop offshore trusts from being included in EU proposals for a crackdown on tax avoidance. These structures can be used to cause the same or even worse damage as shell companies.

John Christensen said:

“We have always said that any registry of beneficial ownership must include offshore companies, trusts and foundations. To fail to do that would simply result in a stampede towards any vehicles not included in public registry. It’s not rocket science.”

Alex Cobham, Director of Research at TJN, said:

“Politicians across the world who are welcoming the Panama Papers have to realize that they don’t need to rely on lucky leaks. They can simply close their markets – where all the real economic activity takes place – to any entity from a jurisdiction that does not freely publish registers of beneficial ownership. Pretty soon, you’d find those jurisdictions turn themselves around.”

Andres Knobel, a consultant at TJN, said:

“The current EU plans are a huge missed opportunity and would exacerbate the impact of offshore secrecy across Europe. We have to remind our political leaders that the people want public transparency, not more of the same institutional corruption.”

Nicholas Shaxson said:

“Why should we allow masked offshore investors to undermine the integrity of our economies? If you are going to set up legal entities in Europe, then it should be clear who owns them so that crime-fighters can do their jobs.”

Liz Nelson, a director of TJN, said:

“After Panama Papers, we have to let go the naïve notion that anonymous private companies serve any legitimate purposes.  These shell companies are like weapons, and if we cannot control their producers, we must ensure tight regulation of their owners”.

Markus Meinzer said:

“The EU has already planned to reopen the Directive in the 2nd Quarter of 2016 in order to beef up anti-terror financing provisions after the disastrous recent attacks. Surely the scale and system of abuse revealed through Panama Papers warrants to add crucial public transparency to this proposal”.

Tax Justice Network Contacts:

Andres Knobel   [email protected]  tel.  +54911 6008 3197

Nicholas Shaxson   [email protected] tel.  +49 172 772 9806

Markus Meinzer   [email protected] tel.  +49 178 3405673

Alex Cobham   [email protected] tel.  +44 7982 236863

Liz Nelson   [email protected] tel.  +44 7887 740798

Notes to editors:

About the Tax Justice Network

We are an independent international network focused on tax justice: the role of tax in society, and the role of tax havens in undermining democracy, boosting inequality and corrupting the global economy. We seek to create understanding and debate, and to promote reform, especially in poorer countries. We are not aligned to any political party.

 

#PanamaPapers: Panama govt misinterprets our work

From TJN’s research director @alexcobham. Read the story in the original format here.

 

Panama papers help the world wake up to Tax Haven USA

The U.S., as foreign tax authorities see it

The U.S., as foreign tax authorities see it

We’re heartened to see that the Tax Haven USA story — one that we seem to have helped breathe new life into with this blog in January last year, and our subsequent USA report, coming into the mainstream, helped by the Panama Papers. There are many, many stories out there now, including a comment article in yesterday’s Financial Times from today’s TJN blogger, entitled Panama is only one head of the tax haven hydra.

Continue reading “Panama papers help the world wake up to Tax Haven USA” →

Tax haven USA, after #PanamaPapers

“Unless the United States, and other countries, lead by example in closing some of these loopholes and provisions, then in many cases you can trace what’s taking place but you can’t stop it… There’s always going to be illicit movement of funds around the world, but we shouldn’t make it easy.”

So said President Obama, responding to the #PanamaPapers. Leadership by example is certainly what’s needed – because the United States itself represents the biggest global threat to progress against financial secrecy.

Tax haven USA

In January 2015, we wrote a long piece about the increasing role of the US as a tax haven.  Then in November, we published the latest edition of the Financial Secrecy Index – the global ranking of tax havens. This showed one major mover at the top: the United States, leapfrogging the Cayman Islands and Luxembourg to claim third place behind Switzerland and Hong Kong.

There followed a swathe of leading media pieces making the same point: including The Economist, Bloomberg and just this week The Washington Post – not to mention being promoted by the advisers at Rothschild Trust.

The USA is not the most financially secretive jurisdiction, overall – although some individual states are highly opaque; but the national combination of substantial secrecy, with very large scale, make it one of the biggest contributors to the global problem. Key components of US secrecy are the aggressive competition among states to offer anonymous company ownership services; and the rejection of automatic information exchange between jurisdictions.

Now, public registers of beneficial ownership and automatic information exchange are critical to any serious attempt to end the era of tax havens. [Not coincidentally, these are also two of the three policy measures TJN has long promoted – the other being country-by-country reporting by multinationals.]

A conflicted international watchdog

Sadly, the OECD – which is responsible for the multilateral agreement on information exchange, appears so in thrall to its largest member that it cannot manage the same clarity. The OECD’s latest list shows 55 jurisdictions committing to automatic exchange in 2017; a further 41 to join in 2018; and just four (Bahrain, Nauru, Vanuatu and – yes – Panama) so far unwilling to commit. On this basis, the OECD top brass have been across the #PanamaPapers media calling the country out as ‘the last financial centre that has refused to implement global standards of fiscal transparency’.

But wait: buried in a footnote of the OECD doc is the fact that the United States has not so much held off on committing, but has explicitly stated that it will not cooperate. Instead, it will continue to adopt bilateral intergovernmental agreements to ensure that it receives informational automatically, and in the great majority of cases does not reciprocate.

The case, in tweets:

Where next?

On the immediate horizon, there’s been a good deal of discussion of whether #PanamaPapers will provide major US revelations, which haven’t appeared yet. Some have suggested there’s a big story coming down the line; others, that the prevalence of secrecy on offer in the US means that demand for overseas alternatives such as Panama is limited, so there won’t be anything more to see. We couldn’t possibly comment.

In the somewhat longer term, these are the key questions:

  1. Will the US finally follow its own logic, and commit to develop a public register of beneficial ownership, and to provide tax information automatically to the rest of the world?The last throw of the dice for those committed to financial secrecy is that the US is unable to commit itself to transparent, globally responsible behaviour. That will leave a gaping hole in international arrangements, as well as legitimising exactly the approaches revealed in the Panama Papers.And the US will be unable to shake off the labels of both ‘tax haven’ and indeed ‘hypocrite’, if it continues to demand full tax information from other countries in respect of on any beneficial ownership by American citizens, without providing the same in return.
  2. If not, who will act? Since the OECD seems unlikely to overcome its current inability even to mention US secrecy, will the EU take a stand? To be effective, it seems likely that that would ultimately require making the same threat of withholding taxes, by which the US obtained global automatic information from the rest of the world, to pressure the US itself to cooperate. A 30% rate like the US take with FATCA, say? We made a detailed proposal on this in January.Will the UK be in a position to offer any leadership here? At present, the UK has its own issues to address. The UK’s network of Overseas Territories (such as the British Virgin Islands) and Crown Dependencies (such as Jersey) includes many major players in the Panama documents. If taken together, this network would sit clearly at the top of the Financial Secrecy Index, above even Switzerland. So Her Majesty’s Government will be unable to sustain a claim of leadership on transparency and accountability at its anti-corruption summit in May, if it fails to have its Overseas Territories and Crown Dependencies commit to public registers of beneficial ownership – as the UK, to its credit, has itself just introduced.