Monday, November 30, 2009

The End of Poverty? Think again - screening and panel discussion at the British Film Institute

The award winning film The End of Poverty? Think again, by Philippe Diaz and featuring a galaxy of critics of the orthodox economic policies of the past thirty years, will be screened on 12th December 2009 at the British Film Institute.



Voiced over by Martin Sheen, and with commentary by Amartya Sen, Susan George, Joseph Stiglitz, William Easterly, and many others including TJN's John Christensen, The End of Poverty? explores the roots of inequality and poverty going as far back as the conquest of the Americas in the 16th century, and explains how the looting of resource-rich countries is sustained by policies designed for that very purpose - including the tax consensus imposed on poorer countries since the 1980s which shifted the tax charge from businesses and rich people onto middle and low income households.

After the screening there will be a panel discussion involving:

Irene Khan - Amnesty International’s seventh secretary general and has taken the helm as the first woman, the first Asian and the first Muslim to guide the world’s largest human rights organisation. She is the author of the recent Amnesty publication ‘The Unheard Truth – Poverty and Human Rights’, which represents Amnesty’s new focus on global poverty.

Clare Short MP - Secretary of State for the UK Department for International Development from 1997 to May 2003. DFID was a new ministry created after the 1997 general election to promote policies for sustainable development and the elimination of poverty. She is currently the Independent Labour MP for Birmingham Ladywood.

John Hilary - Executive director of War on Want, a charity that fights poverty in developing countries in partnership with people affected by globalisation. He has worked for the past 20 years in the international development and human rights sector, and is a recognised expert in many fields across the global justice agenda.

Colin Prescod has worked in film, television, theatre and academia. He is chair of the Institute of Race Relations in London, and a member of the editorial working committee of the international journal ‘Race and Class’, as well as chair of the Association for Cultural Advancement through Visual Art (ACAVA).

Philippe Diaz is the award-winning producer and director of ‘The End of Poverty?’. Having attained international acclaim for many of his productions since the 1980s, he established Cinema Libre Studio in 2003 with a consortium of partners as a vehicle for intelligent, independent films to be financed, produced and distributed.

0 comments links to this post

Whistleblowers in the US need support

UBS whistleblower Bradley Birkenfeld is seeking to get the money he says is owed to him on account of his having brought information to the U.S. Internal Revenue Services (IRS), helping it crack down on Switzerland's UBS and its wealthy clients. As the New York Times reports:

"Mr. Birkenfeld and his lawyers hope to use a new federal whistle-blower law to claim a multibillion-dollar reward from the American government. If they succeed — and legal experts say the odds are pretty good — it would be the largest reward of its kind.
. . .
Informants now stand to collect 15 to 30 percent of the taxes, fines, penalties and interest ultimately collected by the I.R.S. — billions of dollars, in the case of UBS."


What do we think of such a thing? Birkenfeld isn't exactly an innocent man: he was a key UBS operative, having admitted, among other things, smuggling diamonds in toothpaste tubes to avoid detection. Was he a genuine whistleblower? Not in the mould of Enron's Sherron Watkins, to be sure, who simply found something that stank and blew the whistle. Birkenfeld, by contrast, sang after being arrested.

TJN-USA's director Jack Blum was recently talking about whistleblowers more generally, noting that even if large payouts to former practitioners may be distasteful, the greater good is served by having a good whistleblower programme. And that isn't currently the case:

"(on the subject of whistleblower money) Congress passed a law and the IRS was put in charge of an office in Buffalo, New York, that has been run by lower-level civil servants who seem terrified at the thought of actually rewarding people who have given up information. So in at least two other cases I am involved in, where there is no question of criminal behaviour in the United States on the part of the person who blew the whistle, they still haven't come up with the money even though they (the IRS) have collected tens of millions."

More is needed, Blum says.

"Congress needs much more oversight. They really need to ask some hard questions. Among other things, in the proposed regs they are saying that if any of the materials used in informing the IRS were obtained illegally, they won't pay the reward. So the question then becomes how do you provide information about an individul employer who has violated tax law without violating some other law? And that question hasn't been answered.

So if I take payroll records that say the employer is cheating on tax, and my employer says those records were stolen, does that mean no reward? And if they assume that, that means nobody ever collects.

The problem is enforcement, enforcement tools and where we go from here. The office that provides the rewards has to be cleaned up; the IRS needs more manpower, more trained people, greater capacity to really go after the people who've been cheating and whom they find out about."


Also note his co-speaker Jesselyn Radack who supports this view:

"I have had other potential financial whistleblower clients on the offshore tax haven issue who have not gone forward because of what they saw happening to Bradley Birkenfeld."


The world needs whistleblowers - and if this means negotiating with them for the greater good - then so be it.

0 comments links to this post

Taxes: boosting private sector growth?

Take a look at this table (click to enlarge). It is drawn recent post from the Angry Bear blog in the U.S. The blogger notes:

"Since Ike took office, only three administrations (JFK, LBJ and Clinton) increased the percentage of the private sector GDP that goes to taxes; they make up three out of the four administrations with the fastest increases in the annualized real private GDP. Regular readers also may recall those are the three administrations with the fastest annualized increases in real GDP per capita, including the government portion of the festivities.
. . .
I dislike paying taxes as much as a Glenn Beck does, but the story line about big bad taxes choking off the private sector doesn’t add up."

And they add this detail:

"The annual average increase in real private GDP is about 2.4% for administrations that cut share of private sector GDP going to taxes, and 4.2% to the administrations that increased it."

What is this data set? Read the full article, and explanation, here.

Hat tip: Tax Prof.

0 comments links to this post

Vultures hiding behind the veil of corporate secrecy

Amongst the many unethical practices that go against the grain of natural justice, the activities of vulture funds chasing governments of impoverished countries for repayment of odious debts run up by past dictators and suchlike rank are truly repulsive. Especially so, when the country in question has been ravaged by war, pillaging, looting and civil strife, which was at least partially funded by external debt in the first place.

But there are other reasons for regarding the activities of vulture funds as unacceptable. And one of them is the fact that these funds typically operate behind a veil of corporate secrecy which prevents anyone from know who operates them and who benefits from these operations. TJN does not oppose a secondary market in debt, but we think that all markets should be operationally transparent: when courts allow vulture funds to operate behind the veil of secrecy they open up possibilities for corrupt practices, including tax evasion. Who can tell whether the people behind the vulture fund weren't involved in profiting from the original loan?

An article in the Independent this weekend reveals that the British High Court has ordered the Liberian government to pay US$20 million to two vulture funds, or face seizure of assets held in the UK. The two funds in question are based in the British Virgin Islands and the Cayman Islands. The funds trace back to a US$6 million loan advanced by the US-based Chemical Bank in 1978. Disturbingly, the debt has been shuffled around since that time to such an extent that no one is able to say how much interest has been paid on the principle, and whether any of the principle was repaid between 1978 and 2009.

Liberia ranks as second poorest country on the face of the planet. Interestingly it is also ranked as a secrecy jurisdiction, though this has not in any way helped the ordinary people of Liberia, especially since the ship registry for which the country is famous actually operates from a law firm in Virginia, U.S.A.

Everything about the case is shameful, not least the fact that British High Courts allow the vultures to operate behind the veil of corporate secrecy. At the very least, those who engage in distasteful activities should be compelled by the courts to reveal their true identity.

0 comments links to this post

On the (non) wholesale flight from Britain's top tax rate

Private Eye in Britain remains on form. From the latest edition:

"Actors, artists and a host of hedge-fund managers are among those fleeing the introduction of a 50p tax rate," the Daily Telegraph claimed last Saturday, in a feature on "the fury driving the super-rich abroad."

In the interests of balance, the Telegraph pointed out that "the government sees the 50p rate as a signal; that the rich, who did so well in the boom years, must carry their share of the burden in hard times." What it wisely omitted to add was that some of the super-rich fled long ago to avoid their share of the burden even in the good times - not least weirdo wins Dave and Fred Barclay, the ageing Jedwards who own the Telegraph.


Governments quail in the face of this kind of language - but reality is very different. Most of those who threaten to leave don't. Talk is cheap.

The edition carries more on the offshore-diving Commonwealth Development Fund (CDC) explaining "what happens when poverty relief meets private equity;" plus a long article about UK Conservative Party donor Michael Ashcroft. Unfortunately, it's subscription-only, so we can't provide the link.

0 comments links to this post

Dubai: conjuring chocolate biscuits from thin air

Much is being written about the Dubai fiasco, and about financial markets more generally, but this article perhaps puts the problems as aptly as anything that's out there:

"the world's financial markets seem shocked and surprised, like Bagpuss being disappointed to learn that the mice from the mouse organ couldn't really create an endless supply of chocolate biscuits from thin air."

The article, even if it doesn't add much to the sum of human knowledge, is worth reading for entertainment value alone. How secretive is Dubai? Take a look here.

TJN's John Christensen was in Doha recently. He found it intriguing how -- just as in Dubai - there were all these tower blocks under construction, towering over the place (see picture). He spoke to someone attached to a Qatari development agency, and asked him "do you have tenants?" The answer came: they weren't enormously concerned about obtaining tenants at that stage - property prices were escalating so fast and tenants tended to detract from the value of the properties!

Christensen also spoke to somebody back in London who was deeply involved in putting together structured finance packages for property developments around all the United Arab Emirates, almost invariably routed through tax havens. A shaky set of packages, it seemed, although note that Qatar, being backed by vast gas reserves, is a very different place from Dubai.

1 comments links to this post

Offshore bankers hate living wills

From the FT:

"Regulators are keen to see living wills prepared for all systemically important financial groups, but the concept has split the banking world, with the more complex groups arguing that such documents will be almost impossible to draft without knowing the cause of any future crisis."

Living wills are procedures to simplify and streamline financial institutions so that they can be wound down quickly and efficiently if needs be. As we blogged earlier, quoting the FT again:

in the past few decades, the largest banks in the world have stealthily built corporate structures that are fiendishly complex, straddling numerous borders and plagued with offshore entities. Lehman Brothers was but one example of that. The pattern, of course, is no accident. After all, large investment banks excel in regulatory and tax arbitrage, and all that cross-border complexity and opacity enables them to exploit such loopholes with ease."


It is good to see that the "living wills" proposal has legs, and seems to be moving forwards. Although not overtly an anti tax haven initiative, the living wills proposal is, at the day's end, just that, though dressed up in different clothes. It won't be an easy ride to get a meaningful version of this proposal pushed through: just think of all that lobbying money and muscle bristling in the wings, ready to eviscerate and weaken such proposals as they emerge.

0 comments links to this post

Friday, November 27, 2009

Krugman: time for Financial Transaction taxes

The Nobel prize winning economist Paul Krugman is noting:

"Should we use taxes to deter financial speculation? Yes, say top British officials, who oversee the City of London, one of the world’s two great banking centers. Other European governments agree — and they’re right."

And, as is well known:

"It would be a trivial expense for long-term investors, but it would deter much of the churning that now takes place in our hyperactive financial markets.

This would be a bad thing if financial hyperactivity were productive. But after the debacle of the past two years, there’s broad agreement — I’m tempted to say, agreement on the part of almost everyone not on the financial industry’s payroll — with Mr. Turner’s assertion that a lot of what Wall Street and the City do is “socially useless.” And a transactions tax could generate substantial revenue, helping alleviate fears about government deficits. What’s not to like?"


Read the rest here. As he explains, its opponents who say it's unworkable and doesn't address the real problem, are plain wrong.

And on a separate but somewhat related matter, it's also worth reading Martin Wolf - the FT's chief economics correspondent - on why it's time to tax bankers' pay. Among other things, he explains that:

"Since the aim of policy is to recapitalise the banks, the tax should not reduce their ability to do so. It would be far better then to impose a tax on contributions made to the bonus pool. There is no public interest in such payments."

What is needed, at the end of day, is leadership.

1 comments links to this post

Financial Policy Forum: a hidden nugget

Put together by people who know what they are talking about, this website is well worth a visit.

Note the dates on the briefs and reports: these warnings were issued long before the great economic crisis (and, we were reminded yesterday, it might be W-shaped or worse.) The section on special reports and briefs petered out in late 2006, seemingly because almost nobody was interested in that sort of thing in those heady days.

Still, it has some excellent primers on derivatives and other complex, dangerous things, and there is a little bit of more recent material here.

0 comments links to this post

The OECD's programme is failing

We have already blogged extensively about the OECD's failures in many areas with respect to secrecy jurisdictions (tax havens.) In fact, we have a super-blog on the OECD which links to most of our other blogs on the subject.

We've relied quite heavily this morning on the Tax Research blog: here's another one, and it's an important post - short, and worth reading in full. It does some data mining on the OECD's Tax Information Exchange Agreements (TIEAs), and highlights things that TJN has been saying for some time, such as the fact that secrecy jurisdictions are signing agreements with each other, so as to vault over the OECD's pitifully low bar on TIEAs:

"66 of the 180 TIEAs are between secrecy jurisdictions . . . these ‘non-compliant’ secrecy jurisdictions listed by the OECD in April 2009 have been seeking to become ‘internationally compliant’ by signing TIEAs with each other."


(The OECD's own list of jurisdictions, including some older ones, is here.) And, crucially:

"The rate of 66 out of 180 may not sound worrying, but it is. 67 of the remaining agreements are with Nordic states. Now I’m not chastising those Nordic states, but when 28 of all agreements are with the Faroe Island, Greenland and Iceland the standard is obviously wrong."

But perhaps most damningly of all, this club of rich countries has created a list that has this kind of problem:

"The absentees from the list (are) very notable: India, China, Japan, Brazil, most of Africa, almost all developing countries. When will they get a deal from states that are willingly, knowingly and very deliberately abusing this new standard to sign deals with each other so that the people who need information to enforce their tax laws will not receive it?"

We have called the OECD white list a whitewash. The numbers tell us that we were right to do so.

0 comments links to this post

Hong Kong: a stink in the fragrant port

From the Korea Times:

Hong Kong is one of the most beautiful cities in the world with its name meaning "fragrant port," but there is a smelly part of the city ― the tax evasion base for Koreans. . . Brokers in Hong Kong have provided schemes for offshore tax evasion. They even provide customer-specialized schemes on how to hide corporate and slush funds in the tax haven," Park Yun-jun, assistant commissioner of the National Tax Service (NTS) said."

And of course:

"The official admitted that many cases occurred in the city, but there was a limit to investigations because Hong Kong refuses to exchange information on taxation with Korea."

Hong Kong: fragrant or stinking? You decide.

0 comments links to this post

From the Huffington Post:

"In the war on drugs the most powerful ammunition law enforcement has is information. Whoever calls the shots is usually the same person who sits atop the money pyramid and while law enforcement may know who these persons are, they have a much more difficult time proving guilt and securing convictions.

Much of the blame for this lies in the calamitous state of justice and rule of law in Mexico. The rest though, lies squarely with the United States, which for far too long has maintained a dangerously laissez-faire attitude about what is permissible conduct in its domestic financial practices.

One such practice is company formation. . . . these U.S. corporate entities serve as fiscal engines for some of society's worst crimes"

Read on.

TJN has just visited the offices of what is probably the largest of these company formation agents. An extraordinary place. We'll bring you more on this in due course.

0 comments links to this post

Walker: Recommendation 15: deleted

Intriguing.

Update: the answer seems to have been supplied in the comments. A non-event, in the end.

0 comments links to this post

Austria attacks channel island trusts

As International Adviser notes:

"Ahead of December 2’s ECOFIN meeting of European finance ministers, at which political support for changes to the EU Savings Directive will be sought, Josef Pröll (Austria's finance minister) is said to have demanded action against trusts, and singled out the Channel Islands in particular for being responsible for helping mask the identity of settlors – those who set up the trusts – and therefore evade taxes."

When it comes to secrecy, Austria is a fine one to talk. But we don't disagree with Pröll here. Trusts are vastly important, and in many cases vastly pernicious. Read more about trusts here. And read more about Austria's Treuhands here.

Hat tip: Tax Research

0 comments links to this post

Share of workforce in financial services in tax havens

The Mapping the Faultlines project has a new report looking at the share of each secrecy jurisdiction's workforce working in financial services. As the report notes:

A high proportion of people working in financial services in the overall economic activity of a country is likely to indicate the existence of considerable political influence by the financial services industry on the government of the jurisdiction. . . . the more reliant a territory is upon a particular economic activity the more deferential it is likely to be to the demands of that sector. Such influence can undermine democratic decision making processes, can facilitate corruption, in the case of financial services can create a strong orientation towards the needs of those outside the territory who would not normally be the prime concern of its government, and can be (but we stress, is not always) conducive to a criminogenic environment.

NB due to an absence of cross-country comparable data, several jurisdictions, notably the United States, are not part of this survey. See more here.

0 comments links to this post

The G20: a club of gate crashers and insiders' intrigues?

The G20 has, as we have previously blogged, produced exceedingly flimsy, and in some cases quite appalling, responses to issues like tax havens (secrecy jurisdictions) and illicit flows. Now we have a good article in the FT explaining some unfortunate things that go on:

"Spain, the world’s ninth largest economy, was left out, but it barged into the Washington summit last November. Holland just decided to join, and no one stopped it. After all, its economy is much larger than that of Argentina, a G20 member. An international community based on the principle of gate-crashing deserves no respect."

We don't have any particular objection to any of these countries' participation in G20 meetings, but the process does look dubious. And there is more:

"Nor does the G20 possess agreed rules of governance. At the London summit last April, complaints abounded that actual decisions were based on the intrigues of the leading insiders, excluding at least half the G20 countries. That is the natural outcome if aggressive political leaders are let loose without rules."

Indeed. The G20 can play a role. But treat it with caution and skepticism.

0 comments links to this post

Thursday, November 26, 2009

Just like haven? Why does the European Investment Bank route its funding through tax havens?


0 comments links to this post

The Commonwealth: a jamboree of corruption

In a Guardian article titled A jamboree of repression, Tom Porteous, director of Human Rights Watch, raises concerns about the failure amongst Commonwealth countries to "muster the collective political will to uphold its core values of political freedom and respect for human rights" and concludes that the Commonwealth has become a 'haven for human rights abusers.'

Porteous supports his case by highlighting recent actions by governments in Sri Lanka, Pakistan, Bangladesh, Kenya, Cameroon, Uganda and Gambia, all of which have engaged in repressive actions against their citizens without any sign of disapproval or action by the Commonwealth. As the article notes:

"Its secretariat fails to push or fund its human rights unit as a viable mechanism to encourage its members to comply with international standards; neither the secretary-general nor the diplomats of leading member states make a serious effort to get the Commonwealth to act collectively at the UN and elsewhere to champion human rights."

This is important and Porteous argues his case robustly but with the appropriate degree of diplomacy. Tax Justice Network would like to come at this issue from another angle: the Commonwealth is also a haven for the majority of the world's secrecy jurisdictions (generally known as tax havens).

Far from taking action to curtail their harmful practices (and let's not forget that many of the victims of secrecy jurisdictions are the ordinary people of Commonwealth member states) the Commonwealth secretariat actively participates in organisations lobbying on their behalf. This includes the International Trade and Investment Organisation, the latter having been created specifically to counter the efforts by the OECD to counter harmful tax competition. The Commonwealth's involvement in this organisation, and its lobbying efforts on behalf of secrecy jurisdictions more generally, is nothing short of scandalous.

Time after time, TJN's observers at UN events have witnessed Commonwealth member states actively engaged in blocking international efforts to strengthen cooperation in tackling corrupt tax practices. Such behaviour is wholly inconsistent with the idea, recently expressed by Lord Howell, former chair of the British parliament's foreign affairs committe, that the Commonwealth has a role to play as an "ideal soft power network" for the 21st Century.

Britain and the collection of states and dependencies formerly known as the British Empire, are collectively responsible for around one-third of the global market in cross-border financial services. A significant part of this cross-border trade involves illicit flows, largely routed through structures created in secrecy jurisdictions. These illicits flows devastate the efforts of countries aiming to achieve self-reliance and tackle poverty. There is a direct link between the corrupt practices of secrecy jurisdictions and the human rights abuses in the countries of origin of the illicit funds. In this respect the Commonwealth has a major role to play in engaging constructively with its members to address their shortcomings and take action to diversify their economies away from dependence on secretive offshore financial services.

Secrecy has no useful role in the modern world of globalised financial markets. The activities of secrecy jurisdictions are harmful to the vast majority of countries and people. They encourage and facilitate corrupt practices. They support the kleptocrats and business elites who abuse human rights and undermine undermine respect for democracy and the rule of law. Their activities are incompatible with the core values of the human rights agenda. The Commonwealth must urgently get its own house into order.

0 comments links to this post

Wednesday, November 25, 2009

The dogs that haven't barked

Another day, another report into the financial crisis by a banking industry insider.

Sir David Walker's report, published today, is the third in a series of reports to the British government into the banking crisis that literally brought financial capitalism crashing down in the Autumn of 2008. Walker is a City grandee, a former Treasury and International Monetary Fund official, a former regulator and director of the Bank of England, and a former chairman of the investment bank Morgan Stanley. In other words, the epitome of what the British like to call "a safe pair of hands" [Brit-speak for someone who can be counted on to avoid doing anything that might alter the status quo].

Try as you might, you will find no trace of Walker having at any stage in the years building up to the crash raised an alarm about the structural deficiencies in the financial architecture. He is not alone in this: Walker's lack of insight was shared by almost the entire community of "talent" that is the financial services industry, including the majority of board directors, risk managers, credit rating agencies, financial journalists, fund managers, regulators, auditors, and last but not least politicians like London Mayor Boris Johnson who continue to fail to see that what is good for bankers is not necessarily good for the public interest.

David Walker's lack of prescience in foreseeing the financial crisis is reflected in his report, which can only be described as weak, weak, weak. Commissioned by British Chancellor of the Exchequer Alistair Darling, the Walker report follows earlier reports by Sir Win Bischoff - former chair of failed Citigroup - and by Robert Wigley, chair of the European division of Merrill Lynch. The former report was commissioned by Alistair Darling, the latter by Boris Johnson. All of these reports can be characterised as distractions, the latter in particular being nothing more than a public relations exercise for and on behalf of banking interests.

Boris Johnson's agenda was to retain the "competitiveness" of the City of London. Readers familiar with financial Newspeak will know that the word "competitiveness" used in the context financial services, has no relation to the word "competitiveness" as applied to the world of microeconomics. Bankers do not compete by charging lower fees or providing better service to their customers: instead they compete by pushing governments for lax regulation and tax breaks. Decades of regulatory degradation and market distorting tax subsidies, have led to a situation which encourages excessive debt leveraging, regulatory arbitrage and tax avoidance. Don't take our word for it: here is what the IMF reported in a little explored report they issued in June 2009. Needless to say, none of the banking grandees asked to report on the crisis have so much as even referred to the IMF's concerns, let alone called for a broader investigation into the issues raised by the IMF.

The Walker report is merely a distraction and a wasted opportunity. It epitomises so much of what is wrong with contemporary politics: rather than address the fundamentals -look out guys, there's another iceberg ahead - an insider is appointed to check the layout of the deck furniture. In our opinion, this failure of political will to properly investigate the roots of the crisis, addressing amongst other issues the conclusions of the IMF report on debt bias and other fiscal distortions, makes another crisis almost inevitable.

Readers looking for a more incisive explanation of the crisis, and some trenchant recommendations for the way forward, are advised to ignore the Walker / Wigley / Bischoff reports and head straight for the dog which has barked, which you will find here.

0 comments links to this post

Tuesday, November 24, 2009

In place of cuts

In Shock Doctrine, Naomi Klein notes how Milton Friedman of the University of Chicago and his powerful followers pursued a stealthy strategy of exploiting the confusion caused by economic and social crises to push through radical programmes that would ordinarily be totally unacceptable to the majority of people.

As Friedman observed:

"Only a crisis - actual or perceived - produces real change. When that crisis occurs, the actions taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable."

As we all know, the free-market ideology preached by Friedman and his colleagues provided the intellectual underpinnings for the de-regulated financial markets that crashed and burned in 2007/08. Even Alan Greenspan, the ultimate disciple of the free-market faith, has recanted. But the strategy of using moments of crisis to push forward with radical free-market policies remains live and operational.

The opening lines of a new report by Compass captures well the sense of disbelief that the free-marketeers, far from standing back for a few, much needed, years of reflection, have brazenly diverted attention from their own shortcomings and are pushing an agenda for cutting the public deficit that would be nothing short of folly if any elected government actually tried to implement it:

"Inexplicably Britain has moved from a credit crunch and an economic recession caused in large part by the excesses of bankers to a public expenditure and public services crisis. Those at the top have been bailed out by the public, while those at the bottom will have pay and benefits frozen and services cut. We simply cannot allow this to happen."

The Compass report, co-authored by TJN's Richard Murphy, makes the case lucidly for a radically different fiscal strategy to that currently being proposed by the main political parties in Britain. Instead of cuts to public services it lays out a series of nine key policy proposals (see below) that would raise additional revenue for the UK Exchequer while also increasing the fairness of a tax system that has becoming increasingly unjust and complex over the past three decades.

According to the authors, their proposals would raise additional revenue amounting to approximately £47 billion over the next 4 years. This money could contribute to financing a major green investment programme, which is exactly what it is needed to counter the appalling prospect of rising unemployment and increased poverty that will undoubtedly flow from the orthodox policy prescriptions of the tax cutters and de-regulators.

Furthermore, the nine proposals (including the suggestions that the Trident nuclear programme be scrapped, and that the use of off-balance sheet borrowings by government under the ludicrously expensive Private Finance Initiative be abolished) are wholly consistent with our vision of social justice. As the authors note:

"Crucially, the cumulative impact of these reforms helps the bottom 90% of income earners as only those who can afford it, the top 10%, are asked to contribute more."

In a society as unequal and divided as Britain, we have no problem with the idea that the top ten per cent should contribute more to the public good.

Here are the report's key proposals:

1. Introduce a 50% Income Tax band for gross incomes above £100,000. This raises £4.7 billion compared with the current (2009/10) tax system, or an extra £2.3 billion compared with introducing this band at £150,000 as proposed by the Chancellor.

2. Uncap National Insurance Contributions (NICs) such that they are paid at 11% all the way up the income scale (although pensioners would continue to be exempt); make NICs payable on investment income. This results in further revenue of £9.1 billion.

3. In addition to (1) above, introduce minimum tax rates of 40% and 50% on incomes of above £100,000 and £150,000 respectively; these raise an additional £14.9 billion.

4. Introduce a special lower tax band of 10% below the poverty line (below £13,500 per annum), while restoring the ‘basic rate’ to 22%. This costs £11.5 billion.

5. Increase the tax payable (higher multipliers) for houses in Council Tax bands E through H (while awaiting a thorough overhaul of property valuation and local authority taxation) raising a further £1.7 billion.


6. Minimise personal and corporate tax avoidance by requiring tax havens to disclose information fully and changing the definition of ‘tax residence’; these two reforms are estimated minimally to yield £10 billion.

7. Introduce a Financial Transactions Tax (FTT) at a rate of 0.1%, applicable to all transactions. This would raise a further £4.2 billion.

8. Immediately scrap a number of government spending programmes (including ID cards, Trident, new aircraft carriers, PFI schemes), reforms totalling £15.1 billion.

9. Urge that all current small limited companies be re-registered as limited liability partnerships to simplify their administration and reduce opportunities for tax avoidance.

The message to political leaders is clear. Pace Milton Friedman (see above), here are some new ideas. They're good: far, far better than the cuts proposed by the free-marketeers who caused this mess in the first place. Now implement them.

0 comments links to this post

Monday, November 23, 2009

Swiss judgement targets the pinstripe infrastructure of crime

A judgement by Swiss judge Yves Aeschlimann looks set to cast another shadow over the cosy world of lawyers, bankers, accountants et al who operate from secrecy jurisdictions to provide support services to dodgy clients.

The Financial Times reports that M. Aeschlimann, a magistrate in Geneva, has fined an unnamed Monaco-based intermediary who helped Abba Abacha, son of the former dictator of Nigeria, to launder his gains from "participation in a criminal organisation." In addition to the fine, the intermediary has also been ordered to pay SFr10 million (€6.6 million)- the value of fees charged for acting as a fence to Mr Abacha jnr. - to the canton of Geneva.

According to the FT, this move "marks a further step in international efforts to tackle theft by corrupt rulers by going after intermediaries as well as principals."

Switzerland is gaining itself a reputation for taking a lead in tracking down and repatriating embezzled funds. This latest move will set a legal precedent that should cast a chill in the bones of a wide range of intermediaries, including lawyers, trustees, fiduciaries, investment companies, accountants, and bankers who until now have been all too willing to act the 'wilfully blind professional' in return for massive fees and charges.

The FT also reports that another financier accused of helping Gen Abacha to launder cash through the British Channel Island of Jersey has been arrested and is expected to stand trial.

2 comments links to this post

Goodbye Millenium Goals?

This new report by Jakob Vestergaard and Martin Højland of the Danish Institute for International Studies examines claims about the magnitude of illicit financial flows from developing countries and concludes that tackling these flows is a crucial part of the poverty alleviation agenda.

In their starkly worded opening section the authors note:

If the UN Millenium Development Goals are to be reached by 2015, development aid needs to be tripled - which is most unlikely. Instead, countries should unite in a concerted mulitlateral effort to combat illiict financial flows: for every dollar poor countries receive in development assistance, more than eight dollars are illegally transferred back to rich countries, most of it in order to avoid local taxation. Effectively combating these illicit financial flows would generate more financial resources for development than foreign aid is likely to ever do - and help build a sustainable tax base in developing countries for the benefit of future development efforts.

This single paragraph lays bare the core of the development problem which TJN has been highlighting since our launch in 2003. Until such time as effective measures are taken to combat the abusive practices that both encourage and facilitate illicit financial flows, efforts to generate sustainable societies and economies in poorer countries are doomed to failure.

Vestergaard and Højland's policy recommendations are also very much aligned with the TJN policy agenda:

1. Developed countries should immediately and consistently assist developing countries in combating tax evasion practices by multinational companies;

2. Country-by-country reporting should hence be compulsory for all multinational corporations to increase transparency on sales, profits and taxes paid in all the jurisdictions where they operate;

3. Tax authorities in all countries should enhance their exchange of information in a joint effort to combat tax evasion;

4. Donors should fund capacity building for tax collection in developing countries so as to establish a foundation for independent financing of future development efforts.

Good to see that this agenda is taking root.

0 comments links to this post

Friday, November 20, 2009

Thank havens for new taxes

The Our Taxes, Our Lives campaign group is organising another event in the UK Parliament on Wednesday 25th November 2009. This event features Richard Wilkinson (one of the authors of the enormously important The Spirit Level), Kate Green from Child Poverty Action Group, and a certain Richard Murphy.

Now here are a few random facts that we might expect to form the basis of their discussion:

* Britain has proportionally more children in poverty than most rich countries;

* Relative to comparable countries in the European Union, inequality is far starker in Britain and the number of pensioners and children living in poverty is higher today than in the 1970s;

* Britain is estimated to lose around £18.5 billion a year because of tax evasion via secrecy jurisdictions;

* Exactly one half of all secrecy jurisdictions have political ties to Britain;

It doesn't take a rocket scientist to put these factors together and conclude that we'd all be a great deal better off if Britain kicked its tax haven habit and redistributed some of the proceeds towards tackling poverty.

Here are the details of the event on the 25th:


INVITATION

Meeting hosted by David Drew, MP

Wednesday November 25, 2009
7.00 – 9.00
Wilson Room, Portcullis House

Premiere of 2nd YouTube film
--------------
Dysfunctional societies: why inequality matters

Richard Wilkinson
Emeritus Professor of Social Epidemiology
and co-author of “The Spirit Level”
--------------
The UK's Child Poverty Challenge

Kate Green, OBE
Chief Executive,Child Poverty Action Group
---------------
Thank havens for new taxes

Richard Murphy
Director of Tax Research UK
--------------

Portcullis House is on the Embankment, just round the corner from
Westminster Underground station. Allow 15 minutes to get through security

1 comments links to this post

A public message from the Ministry for Peace

The ministry for peace has produced a short video on how secrecy jurisdictions harm ordinary people in Britain.

Nice to see Sir Humphrey being brought out of retirement to carry on the crucial task of bamboozling politicians and thwarting progress.

To watch the video press the contact below. To read more about the Our taxes our lives initiative launched in 2009 by ministry for peace and its partners, press here


0 comments links to this post

Thursday, November 19, 2009

Offshore Watch and so on

Every now and then it's worth posting a reminder - for those who are hungry for more stories beyond the TJN blog, there's usually a good selection over at Offshore Watch. And, of course, Tax Research, the Task Force blog, Global Financial Integrity, and many more here (please alert us if you think there are others we should highlight; this last page hasn't been updated for a while.)

As mentioned, TJN blogging will be a bit lighter for a week or so, for travel reasons.

0 comments links to this post

http://www.taxresearch.org.uk/Blog/2009/11/19/the-isle-of-man-deal-was-too-good-to-continue-because-it-as-a-subsidy/

The Isle of Man has been directly, but secretly, subsidised by the United Kingdom, allowing it to pursue its tax haven activities. TJN senior adviser Richard Murphy exposed this charade. Now, as Manx radio reports, things are changing. Read more here.

Postscript: TJN blogging may be a bit lighter in the next few days, for travel reasons.

0 comments links to this post

Cry Havoc - why mercenaries love tax havens

From the FT this morning:

"Authorities in Pretoria are investigating reports that South African mercenaries are operating illegally in the West African state of Guinea, training and equipping militias loyal to the military junta there. Ayanda Ntsaluba, South Africa’s director-general of international relations and co-operation, told journalists the mercenaries appeared to be working for a company “operating largely through Dubai”

Why Dubai? We have a one-word answer: secrecy. Dubai is a secrecy jurisdiction. Our Mapping the Faultlines project gave it an opacity score of 92%, one of the worst. Why do mercenaries love tax havens? Obviously, they want to hide what they are doing. And Guinea's situation is very, very nasty.

"Since Guinean soldiers opened fire on opposition demonstrators in September, killing 150 of them according to human rights groups, the country has been on a knife edge. International concern is mounting that an outbreak of violence could spill into the fragile neighbouring states of Sierra Leone, Liberia and Ivory Coast, all of which are recovering from civil war."

This use of secrecy jurisdictions by those in the business of killing happens as a matter of routine. Just off the top of our heads: take the very recent case of Delaware being fingered as hosting business for the notorious arms trafficker Victor Bout. There is the Simon Mann-Equatorial Guinea connection, featuring Guernsey and other tax havens which fought for the privacy of their client who sought to take over a small African country. This blogger has met several mercenaries in the field in Africa, who make no bones about their routine use of tax havens to conduct their business behind the scenes.

It isn't pretty. The tax havens are steeped in blood.

0 comments links to this post

Why the US-Swiss-UBS deal is such a travesty

We have already blogged statements by Carl Levin, expressing deep disappointment with the details of the UBS-US-Swiss deal; and a response from GFI. If some of the details may have seemed difficult to get to grips with, this brief video involving Jack Blum, Chairman of TJN-USA, puts the whole thing in wide perspective, in clear and simple terms. Part of the transcript (of Jack talking - Jesselyn Radack is worth listening too) is provided below.



Blum:

"(Tax havens and tax evasion is) not new. What's new is how easy it became because of the web and the extraordinary sales efforts of large numbers of international financial institutions. . . It typically doesn't require a lot of machination by the individual. There are sales people for these banks, some as we know from the UBS case plied the U.S. vigorously looking for customers. Once they find the customer they set up all the necessary machinery to move the money out of the country and hide it offshore. UBS got caught and we saw the machinery in operation and they held these events: yacht races, art festivals, and they'd bring their salesmen to connect with very rich people.

UBS itself said we're talking about $20bn in assets on which they were earning fees of $200m a year. And the irony of all this is that they made more money over the years involved than they paid in fines. So they were net ahead on this business. The further irony is that the amesty was so set up so that it only looked back six years; some of these customers had been doing it for 20 years and had never paid tax on the money originally earned that went into the account. They came out net ahead after paying penalties and (?) taxes on the past six years."

(On UBS' role in the financial crisis:)

"The really surprising part of his story is that while this was going on, the Federal Reserve bailed out UBS! UBS was in the hole $86bn on bad dealing in US mortgage backed securities. UBS went to the Swiss National Bank and said unless we get a big pile of money - in this case i think it was $50bn or more - we're out of business. The Swiss then came to the Fed and said we need dollars to take care of UBS' problem. The Fed said 'no problem, we'll give you a swap line, unlimited, at the current exchange rate.' That bailed out UBS. No conditions, no turnover of the 52,000 names. Here we are, one central bank to another - at the minimum they should have said '52,000 names - or you can go to the dustbin of banking history.'"

There you have it. It's nothing short of a scandal.

But watch the whole thing: there's more in there, such as the U.S.' shabby treatment of whistleblowers.

1 comments links to this post

TJN-USA in The American Interest

The latest edition of The American Interest has a long and important article called Bank Shots, which consists of a long interview with Jack Blum, chairman of TJN-USA.

The article is subscription-only but the preliminaries pose this question:

"Liechtenstein reports having 161 billion in Swiss francs (equal to about $158 billion at current rates) on deposit in 2006. The Bahamas reportedly has about $200 billion in deposits. By contrast, the Cayman Islands boasted that it had over $1.9 trillion on deposit as of September 2007. . . . Total deposits in the Caymans now amount to four times the total deposits in all the banks in New York City.

Now, most Americans, I think, would be amazed at numbers like these, despite having become a bit jaded by the large bailout sums disbursed over the past year or two. How did these numbers get so large? Is this an old problem that has lately gotten much worse, and if so why?"

Blum replies:

"There’s no way to make sense of the offshore problem without getting your head around the numbers you mentioned. And those numbers leave out financial assets held by corporations and trusts. Trying to understand the role of offshore secrecy and regulatory havens in the financial crisis is like the problem a doctor has treating a metabolic disease with multiple symptoms. Diabetes, for instance, causes high cholesterol, high blood pressure and all sorts of other problems. You can treat several symptoms and still not cure the disease.

Similarly, there are plenty of discrete aspects of the meltdown to talk about and many possible treatments for symptoms, but offshore is at the heart of this metabolic disorder. Its roots reach back decades, in bankers’ attempts to escape regulation and taxation and make banking a highly profitable growth business that mimics the industrial economy."


TJN has (obviously) seen the full article but this blogger doesn't have it to hand right now; suffice to say that it's very worth getting hold of if you can.

0 comments links to this post

Wednesday, November 18, 2009

New study: regressive state taxes in the U.S.

The Institute on Taxation and Economic Policy (ITEP) in the United States has just published Who Pays, a comprehensive analysis of taxes in all fifty states, which concludes that

"The harsh reality is that most states require their poor and middle-income taxpayers to pay the most taxes as a share of income; middle- and low-income non-elderly families pay much higher shares of their income in state and local taxes than do the very well-off."

And it adds:

"Ten states-Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada, and Alabama-are particularly regressive. These "Terrible Ten" states ask poor families-those in the bottom 20% of the income scale-to pay almost six times as much of their earnings in taxes as do the wealthy. Middle income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families. 'Virtually every state has a regressive tax system," noted Gardner. "But these ten states stand out for the extraordinary degree to which they have shifted the cost of funding public investments to their very poorest residents.'"

The study does not mention tax competition but there can be no doubt at all that it is at play, wreaking terrible effects.

1 comments links to this post

McIntyre proposes an alternative information exchange model

Michael McIntyre, a leading U.S. tax expert who recently testified how automatic information exchange is becoming the emerging global standard, has now made available on his website an excellent and detailed article entitled How to End the Charade of Information Exchange (no link, but his own website offers this piece) which he published in Tax Notes on October 26, highlighting the deep flaws in current information exchange schemes and proposing a way forward.

Among other things, McIntyre says:

"One of the key tools for combating tax haven abuses is supposed to be an effective exchange of information. The G-20 countries, at their April 2009 meeting, declared that countries that refuse to meet the international standard for effective information exchange would be blacklisted and subject to sanctions. So far, the blacklist has been a sad joke. The OECD also has a gray list, and that list is also a joke."

It is always good to have knowledgeable individuals speak truth to power. He continues, with biting humour, to examine the OECD's model Tax Information Exchange Agreement (TIEA):

"The view is widely held that the OECD TIEA is ineffective — not nothing, but not much. Tax haven countries that agree to this ineffective TIEA are provided with an undeserved patina of respectability. They have been eager to sign up, and most have done so. . . I do not mean to condemn the G-20 and the OECD for promoting a TIEA with limited effectiveness. In international politics, brazen hypocrisy is sometimes a useful tool for good."

Pre-empting the latest flurry of reports on the agreement between the U.S. and Switzerland, he notes:

"I believe that the agreement is nearly useless as a device for ferreting out a significant number of American tax cheats operating out of Switzerland."

But along with the opinions, there is real meat buried in this article. Notably, in Appendix A, he has prepared his own model TIEA, and in Appendix B, he provides a detailed comparison between his TIEA and the OECD's model TIEA.

The alternative TIEA is here.

0 comments links to this post

Tax builds a habitat-Archbishop

From the Archbishop of Canterbury:

“We should be thinking about taxation neither as an unreasonable burden on enterprise nor as a simple mechanism of redistribution but as a potentially sophisticated tool for long-term economy — housekeeping. Taxation builds a habitat — already, quite properly, through state welfare provision, but potentially in other less familiar ways.”

Well said.

0 comments links to this post

Tuesday, November 17, 2009

GFI: Further Steps Needed in Crackdown

Following the excellent statement of Senator Levin on the US-UBS-Switzerland deal, Global Financial Integrity has prepared its own statement. Click here.

Levin and others are also well aware of, and campaign against, the open doors that the U.S. shows to dirty money from around the world. Two recent stories about super-wealthy Teodoro Nguema Obiang (Teodorín) of Equatorial Guinea (whom this blogger, as it happens, met in person at one of his homesteads in Bata) are worth reading, from this point of view. The first, from Ken Silverstein of Harper's magazine - the journalist who properly broke open the Equatorial Guinea-US connection for a worldwide audience - is worth reading. It cites former Senate Counsel Jack Blum, chair of TJN-USA, as asking why the US isn't plugging this particular inflow of dirty money:

“The least they could do is cut off his shopping privileges by denying him entry into the United States,” he said. “Where the hell is the U.S. government?”

For connoisseurs of Equatorial Guinea, the New York Times followed Silverstein's article with this:

"federal law enforcement officials believe that “most if not all” of his wealth comes from corruption related to the extensive oil and gas reserves"


And Global Witness has produced a new report on Equatorial Guinea, here. And, in a separate but related U.S. matter that hints at why the U.S. continues to hold its doors open to dirty money, there is also this:

"While Congress has debated legislation to reform Wall Street, the financial services industry has showered members of the Senate and House banking committees with about two and a half times as much money, on average, as other members of Congress, according to a new Public Citizen report."

0 comments links to this post

In the FT: modern version of anti-slavery campaign needed

From the Financial Times this morning:

"Complicity by powerful nations in some controversial aspects of offshore finance has invited scepticism about politicians’ determination to stamp out evasion. John Christensen of Tax Justice Network, a campaign group, says that “nothing short of a political movement comparable to the 19th-century anti-slave trade campaign will put an end to Britain’s dependence on dirty business”.

The article, which broadly takes far too indulgent a view of offshore abuses for our tastes but does at least contain some balanced commentary in places, also makes this similarly historical point: an imperial flavour to Britain's tax havenry that we noted at the launch of our Financial Secrecy Index

"The financial centres that operate in the last remnants of the British empire face a bleak future, according to Rodney Gallagher, a veteran Foreign Office adviser."

The future for these places is bleaker than it was, to be sure - this May 2009 letter from the Cayman Islands highlights the panic -- but a bleaker future for the relatively small populations of the classic secrecy jurisdictions almost automatically means a better future for the far larger populations of ordinary people in developing and developed world alike. There will undoubtedly be a re-ordering of financial flows, with jurisdictions backed by major states doing better than many others, as Marty Sullivan of TaxAnalysts notes:

"'It has always been dangerous to invest in tax havens. Who are these people? Will they be there tomorrow? Will they freeze assets when the banks fail? Who is going to bail them out?” As some tax havens fade away, others will benefit, he says. “Somebody’s crisis is someone else’s bonanza.”

The article cites

"Guernsey’s Mr Niven, recently returned from China, reports a positive reception in an Asia where offshore services are deemed to “oil the wheels” of financial centres rather than simply be the “pariahs” they are often seen as in the west."

Hmm. We wonder if it is ordinary Asians, or super-wealthy ones Mr. Niven has been talking to. The answer is provided:

"Europe’s offshore centres are in turn marketing their wealth management services to the fast expanding number of rich Asian families."

So the strategy is simple, really: implicitly subsidise Asia's rich, and let Asia's poor bear the burden. Would rich Asians want their accomplices in crime and abuse to become pariahs? Of course not.

And in a separate article immediately beneath the first one, the FT notes:

"The rich nations’ decade-old campaign for tax haven reform has grown from an attack on paradise islands into a broader assault on the corporate structures and regulatory practices worldwide that allow financial crime to flourish, writes Michael Peel.
. . .
The altered global landscape was highlighted in a survey published last month by the UK’s Tax Justice Network campaign group, which suggested powerful countries were as culpable over illicit fund flows as the offshore centres they have attacked since the financial crisis began."

0 comments links to this post

Swiss UBS deal a disappointment - Levin

Having blogged the US-Switzerland-UBS details, we now have this from Carl Levin:

"While it is good to know that 14,700 people have now disclosed previously hidden offshore bank accounts, the U.S.–Swiss Annex disclosed today, designed to compel disclosure of the names of U.S persons with Swiss accounts at UBS, is very disappointing. It complicates and muddies what should have been a straightforward agreement by UBS and the Swiss Government to disclose Swiss accounts hidden from the United States by U.S. accountholders.

UBS admitted last year that it ‘participated in a scheme to defraud the United States’ out of tax revenue. Since then, UBS has been prohibited by its government from simply turning over the names of the 52,000 U.S. clients suspected of participating in that tax evasion scheme with UBS. Instead, the tortured wording and the many limitations in this Annex shows the Swiss Government trying to preserve as much bank secrecy as it can for the future, while pushing to conceal the names of tens of thousands of suspected U.S. tax cheats. It is disappointing that the U.S. government went along."

He's right.

2 comments links to this post

British football: diving yet further offshore

Following our blogs about the UK football clubs Leeds, Portsmouth, Hull City, Notts County, and Fifa itself, now we have this,

"Despite calls for greater transparency over the ownership of football clubs, it has emerged that unidentifiable investors could now have a controlling interest in Birmingham City, after a hefty percentage of the company which owns the club was transferred to two unknown companies registered in the British Virgin Islands."


The deal "gives two companies, both registered in the British Virgin Islands, a controlling interest in Birmingham City."

It is a sorry state of affairs. As Richard Williams pointed out in The Guardian recently (though not about this latest case):

"Even those few who start each season in the legitimate hope of ending it with a trophy are mortgaged up to the eyeballs. So now skirts are lifted to any passing oil sheikh, while more and more clubs are willing to tie their destinies to a web of holding companies with tax-haven addresses, behind which the "ultimate beneficial owners" can safely preserve their anonymity, like the customers of exclusive brothels.

What use is a fit-and-proper-person test for incoming owners who cannot be identified? And when they can be pinned down, recent history suggests that no meaningful action is taken. Your father is accused of arms dealing? You acquired your fortune through hoovering up the rights to natural resources that were supposed to become the property of your humble compatriots? You are accused by Amnesty International of sanctioning human-rights violations? Come right in and take that upholstered seat in the directors’ box.

Sven-Goran Eriksson summed it up in Sunday’s interview with the Observer. Asked the source of the funding behind his new project to revive Notts County, he replied: "Where exactly [the money] is coming from, who could care as long as it’s legal?" Dear disingenuous Sven, if you don’t know where it’s coming from, how can you assess its legality?

And don't get us started on the non-domicile issue, which seems to have led to this.

0 comments links to this post

Jersey has biggest share of financial services in GDP

Another report has emerged from our Mapping the Faultlines project, looking at the contribution of the financial services sector to the overall economy of each jurisdiction surveyed. The graph tells a big part of the story. The Tax Research summary is here, noting, crucially, that

"a high share of financial services in the overall economic activity of a country is likely to indicate the presence of considerable political influence by the financial services industry on the government of the jurisdiction."

The full report is here.

0 comments links to this post

US Justice Department announces results in UBS case

On the face of it, it's been a day of positive statements on tax. Having already blogged positive noises from the UK, Switzerland and France, now we have this from the U.S. Department of Justice:

"The Justice Department and IRS announced that over 14,700 taxpayers have come forward to report previously-undisclosed foreign bank accounts under the voluntary disclosure program the IRS implemented following the settlement. This figure represents almost double the initial numbers the IRS announced in October and dwarfs the number of voluntary disclosures received in 2008.

The background is this:

"These efforts began in February 2009, with UBS AG’s agreement to enter into a groundbreaking deferred prosecution agreement, admitting guilt on charges of conspiring to defraud the United States by impeding the IRS. As part of the agreement, UBS immediately provided the United States with the identities of, and account information for, a number of U.S. UBS customers and paid $780 million in fines, penalties, interest, and restitution.

To date, the Justice Department has successfully prosecuted six U.S. customers of UBS whose information was provided pursuant to the Deferred Prosecution Agreement, and is conducting investigations of dozens of other UBS customers.

In addition to the deferred prosecution agreement, in August of this year, the IRS, the Justice Department, UBS and the Swiss Government, entered into a similarly landmark agreement, in the John Doe summons action, whereby the IRS was to receive thousands of additional undisclosed UBS accounts."

For details on criteria and such terms as "tax fraud or the like" and "scheme of lies," see the details from Switzerland here and from the U.S. side here.

Update: the details mean this is a great disappointment.

0 comments links to this post

Dave Hartnett: Britain's tax enforcer

Britain's Daily Telegraph newspaper is carrying a long interview with Dave Hartnett, the permanent secretary at Her Majesty's Revenue and Customs (HMRC,) with a wealth of interesting material and anecdote. For instance:

"I think our top priority right now is the work we are doing to end tax secrecy, particularly in tax havens.”

Which is heartening, though not quite so heartening once we consider that the pro-offshore Conservative Party is likely to be in power by the middle of next year, with an attitude summed up neatly here. Hartnett talks his own book in this interview and pats himself on the back a fair bit - we know from our own contacts that he is much, much softer on corporations than the image he likes to portray -- but the interview is still well worth reading, for its assorted snippets.

Among other things, he has served notices on 308 banks at home and abroad asking for details about foreign accounts held by their British customers.

"He expects the amnesty and bank data will provide details of half a million offshore bank accounts.'We expect 20pc of them to contain income gains or profits that should have been taxed,' he says. 'So arguably 100,000 people will have to make their peace with us.' . . . The pre-Budget review on December 9 is expected to announce a crackdown on tax."

If properly followed through, which we'll believe when we see it, that will be a vast political issue.

On banks, he says

"The banks have three roles. They provide schemes for tax avoidance for others; they use avoidance themselves and they fund schemes."

It is shocking that they have been allowed to - and continue to be allowed to - undermine our democracies like this. As if the interlinked economic crisis wasn't enough reason for them to feel ashamed. This may help, but much more is needed.

His comments on Liechtenstein -- where whistleblower information has revealed a lot of British tax-dodgers -- are eye-opening too:

“I didn’t expect to see such extraordinary sums of money and some pretty dirty deals as well. I never thought it would happen,” he said. It is taking time for the new tax stream to flow, not least because the disks are in German: “I don’t expect any money to flow from the Liechtenstein arrangement until at the earliest the middle of next year and because the trust structures are so complicated it will be another year before the money really starts to flow but we are talking about significant amounts.”

The disks have been a goldmine of information, not all of it useful for HMRC. “There’s big bribes, very big bribes, money hidden by revolutionary leaders, people squirrelling away part of their income and professional people. They are going to be in pretty serious difficulty with us,” says Hartnett.

And guess what? The Swiss have not been co-operating.

"He is champing at the bit to gain access to the holy grail of tax havens. The Swiss gnomes, however, are masters of the art of secrecy and have only made modest concessions to representations from Hartnett and his international tax colleagues but another whistleblower has excited him with information about more secret bank accounts. “I can’t say anything more,” he says with a smile."


Again, we await further developments with great interest.

0 comments links to this post

African tax administrators meet soon in Uganda

As noted on our recent blog on South Africa's Pravin Gordhan, the African Tax Administration Forum will be launched on Thursday in Kampala, Uganda, a signal of a new direction in the African tax administration, to promote and facilitate cooperation. Officials from about 25 countries will attend. As AllAfrica.com reports:

“The formation of a continental tax administration forum reflects a new approach and thinking on tax in Africa,” said Allen Kagina, Commissioner General Uganda Revenue Authority. She added that it is a significant move away from dealing with tax collection in a purely technical or administrative manner, to a deeper understanding of the role of taxation in state building.

She noted capital flight, presence of tax havens and the continent’s dependence on foreign assistance and indebtedness as some of the most pressing issues of the revenue sector. “Billions of dollars leave the African continent each year. Between 1961 and 2004, these outflows are estimated at around 7.6 per cent of the annual GDP of the region and in effect make African countries net creditors of donor countries,” Kagina said."

Gordhan added:

“They use the opportunity of different tax jurisdictions, declare their profits in their home jurisdictions and declare their losses in our jurisdictions and then make either no or less tax due.”

0 comments links to this post

UBS Criteria Release May Unveil Model for IRS Crusade

From Bloomberg:

"Switzerland will release the criteria used to turn over details of 4,450 UBS AG accounts to the Internal Revenue Service tomorrow, revealing the U.S. model for chasing tax evaders in other banks and jurisdictions. There may be as many as a dozen criteria, including accounts containing more than 1 million Swiss francs ($988,000) and those set up through structures such as foreign trusts or foundations, said William Sharp, a lawyer at Sharp & Associates in Tampa, Florida, based on the profiles of clients who were told their account details may be turned over.

Sharp said the IRS is using this template to pursue banks in other countries, adding that Hong Kong, Singapore and Dubai are already under scrutiny. We await more information with interest.

Update: Switzerland has now published the criteria, here.

0 comments links to this post

Positive mood continues to emerge on tax

From Taxanalysts:

"The French government on November 16 issued draft legislation that would curb tax avoidance by implementing new trust measures and strengthening existing tax laws governing companies operating in uncooperative jurisdictions."


Separately, but in a similar spirit, the United States is considering something interesting, described in the New York Daily news:

"The state Tax Department is considering creating a Most Wanted list to shame tax cheats into paying, the Daily News has learned. Tax officials are looking into posting the top 200 business and top 200 personal tax delinquents online.

"It's a good idea as a tax enforcement device and we are exploring that," tax department spokeswoman Susan Burns said. As of April, there were about 1 million outstanding tax warrants totalling $14.4 billion, officials said."

And in the United Kingdom Dr Brooke Maganti, the sex worker behind the Belle du Jour publishing phenomenon, joins Katie Melua and Graham Norton in a similar spirit:

"She also took the opportunity to clarify her relationship with Her Majesty’s Revenue and Customs department. “So much curiosity about my tax situation!” she wrote. “Yes, I did pay taxes on sex work earnings.”

And in Switzerland, we have this:

"Swiss banks are considering asking some foreign clients to sign a pledge declaring they aren't breaking tax laws at home, a Swiss newspaper reported Sunday."


These are all just anecdotal examples of a mood swing. Yet a few swallows don't make a summer, and the pervasive mistake that is being made is to assume that these constitute a global groundswell that is solving the problem of tax havens, leading to headlines such as Forbes' recent "G20 stamps out tax havens." Nonsense.

The ferocious forces of tax competition are raging as strongly as ever, and the standards endorsed by the G20 and OECD are, as we have noted ad nauseam, woefully inadequate: like putting sticking plasters on a broken limb. The second line of the above Swiss story illustrates the caveats and weaknesses in all this apparent progress: the pledge request proposal is, according to the chairman of the Swiss Bankers Association, Patrick Odier, merely a possible way of forestalling demands for an automatic exchange of client information with other countries. In other words, give the appearance of change, while leaving the

So while we welcome the signs of a definite mood swing -- hardly surprising in the wake of such a severe financial crisis - we don't see signs that the change runs especially deep.

0 comments links to this post

Illicit Money: Can It Be Stopped?

The above title is drawn from an article in the latest edition of the New York Review of Books, by Raymond Baker, director of Washington-based Global Financial Integrity, and GFI Advisor Eva Joly. From the essay:

"On May 4, the Obama administration announced a plan to crack down on offshore tax havens, which it said are costing the United States tens of billions of dollars each year. The President’s proposals were primarily aimed at finding ways to increase revenue from wealthy companies and investors who use loopholes in the law and offshore subsidiaries to reduce their US taxes. But the administration is largely missing a far more devastating problem related to offshore finance: money gained from criminal and other illicit sources. With the use of tax havens and other elements of an increasingly complex ’shadow’ financial network, vast sums of illegal money are being shifted throughout the global economy virtually undetected."


The long article calls for strengthening anti-money-laundering regulations, implementing a form of automatic exchange of tax information among jurisdictions, and a new form of accounting requiring multinational corporations to disclose profits earned on a country-by-country basis.

hat tip: Task Force blog

0 comments links to this post

Monday, November 16, 2009

More questions over UK party funding

Labour MPs have demanded an urgent meeting with Britain's elections watchdog over possibly offshore-sourced funding for Britain's Conservative Party. From The Guardian:

The Lib Dems are also demanding action before the election. Lord Oakeshott, the party's treasury spokesman, said: "Democracy is in danger if Lord Ashcroft has been pouring millions into Conservative campaigns through an offshore pipeline from a Caribbean tax haven.

"The general election is already well under way, so the referee needs to say whether the Tory team is playing by the rules. It's pointless showing the red card after the match is over."


Read the full story here.

1 comments links to this post

Why Has Domestic Revenue Stagnated in Low-Income Countries?

A new paper by the Center for Development Policy and Research at the School of Oriental and African Studies in London sets out to answer the question posed in our headline, drawing on extensive disaggregated data. It argues that:

There has been miserably slow progress in increasing domestic revenue in low-income countries since the 1990s. . . the reigning 'tax consensus' has placed an inordinate emphasis on boosting domestic indirect taxes, and the value added tax (VAT) in particular.
. . .
At the same time, the 'consensus' has advocated eliminating import taxes (in order to liberalise trade) and lowering tax rates on corporate profits (in order to compete with other rate-cutting countries). Consequently, trade taxes have been particularly hard hit while increases in direct taxes, which cover mainly personal income and corporate profits, have generally been anaemic.

Overall revenue has ended up stagnating because of the resultant reliance on boosting revenue from only one major component, i.e., taxes on domestic goods and services."


And their conclusions include this:

"Increases in direct taxes have generally been unsatisfactory, due partly to widespread slashing of rates on corporate profits, based on the expectation that more profits would thereby be generated and hence more revenue collected. But the evidence of such an effect is weak or conflicts with such a rosy expectation."

Which dovetails neatly with what we have been saying for some time. A key reference for the above paper, providing more detail, is here.

0 comments links to this post