Wednesday, May 28, 2008

Capital Flight from poor countries: new report

A new report has just been published on capital flight out of poor countries, compiled and published by the non-governmental groups Eurodad, WEED, CRBM and the Bretton Woods Project. As the report says:

"The media is full of the credit crunch, write-downs by private banks and dramatic price rises. There is discussion of how these incidents are spilling over across the economy in the U.S.A., Europe and elsewhere, with people losing their homes and jobs and struggling to provide meals for their families. Very little attention is given to the specific impacts in the world’s poorest countries. Yet global financial stability – like climate change – is a key global challenge and one that the current financial and regulatory system is ill-equipped to handle."

It also points out that:

"The financial system is not only unstable, it is also unjust, resources are flowing from poorer to richer. Experts estimate that every year $500 - $800 billion leave Southern countries due to criminal activities, tax evasion, and corruption. This makes South-North financial flows several times higher than the average $90 billion annual aid flows, the $240 billion foreign direct investment to the South and the couple of hundreds of billions of dollars of remittances transferred from migrants."

Take a look: the report is available here, and it is accompanied by a fact sheet, which is here. More generally, most of the main reports and publications of interest to TJN are available in a relatively new, and expanding, archive.


Tuesday, May 27, 2008

International News - May 27

** Also see our permanent list of past story summaries; and Offshore Watch for more stories. **

Top EU politicians: under-regulation, inadequate supervision, an undersupply of public goods
May 27 (TJN) - Thomson-Reuters has reported on a new letter sent by top European politicians and notables about the financial crisis and their frustration that the European Commission has largely opted for industry-led solutions to rectify flaws highlighted by market turbulence." The signatories include some of the biggest names in European political life of recent years.

Bono, Baker and the snow globe
We would like to highlight a new documentary film about tax havens. Featuring TJN's John Christensen, Raymond Baker of Global Financial Integrity, Richard Murphy, and many more, it was broadcast recently on France 2 television, and gained a large audience and generated significant debate in France. It shows the Irish singer Bono being presented with a snow globe - representing a tax haven. In French.

Tax competition: TJN in FT Economists' forum
May 26 (TJN) - TJN’s John Christensen writes a comment piece about tax competi
tion and co-operation in the Financial Times’ prestigious Economists’ forum, responding primarily to an article written by the FT’s chief economics commentator Martin Wolf.

Switzerland: attacking our democracies
May 26 (TJN) – Looking at a telling quote from a Swiss banker: a perfect example of how tax havens justify their barbed intervention into other nations’ democratic processes.

Regulators now need to think globally
May 25 (FT) – A review of Global Financial Regulation: The Essential Guide. It is only a matter of time before we confront a serious crisis in an institution with complex cross-border ramifications. Howard Davies and David Green offer a superb account of the international regulatory system, together with a set of proposals for its reform that are highly relevant.

US will crack down on corrupt mining firms
May 25 (Observer UK) - US quoted mining firms will be forced to disclose every payment over $100,000 in a measure to be brought before US legislators next month. The move has been hailed as one of the most significant developments in the drive to ensure transparency and thwart corruption in the extractive industries.

Ramos Horta calls for Timor to be tax free
May 23 (Radio Australia) - East Timor's President has again declared his desire to see the fledgling nation become a tax-free state. But Jose Ramos Horta is now saying he would like to see it happen before the end of the year. But the Minister for Economy and Development, Joao Gonsalves, thinks otherwise. Even the opposition agrees with the Minister.

Transnational tax: this time Darling shouldn't back down
May 25 (The UK Independent) – A think piece about the tax woes of the embattled UK Prime Minister and Labour Party. Another tax, another retreat. That seems to be par for the course with the Government's fiscal policy. Last week Chancellor Alistair Darling signalled that the Treasury, faced with an exodus from Britain of multinational companies, would backdown on plans to tax earnings from foreign subsidiaries.

May 22 (Tax Research) - It was good to be in the Netherlands yesterday at the conference of the Tax Justice Network in that country. The event did not just attract TJN people or development agencies (although it was good t
o see them). PWC were also there in force, and contributing. So too were academics from several Dutch universities, and as welcome, the Dutch finance and foreign ministries.

Fuel-Tax Cheating Multiplies in U.S. as Bootlegging Pays Off
May 23 (Bloomberg) -- Presidential candidates John McCain, Hillary Clinton and Barack Obama are bickering over whether to suspend the 18.4-cent-a-gallon federal gasoline tax to ease the impact of rising prices. Some people are increasingly taking matters into their own hands.

Denmark–a tax haven until 2010?
May 21 (AINonline) - Value Added Tax (VAT) and import duties for aircraft currently stand at zero percent in Denmark. This allows international operators to escape tax by basing their aircraft in Denm
ark. However, zero-rated VAT is in contradiction with European law and pressure is mounting on Danish legislators to adjust their taxes upward.

Surging inflation will stoke riots and conflict between nations, says report
May 23 (Guardian UK) - Riots, protests and political unrest could multiply in the developing world as soaring inflation widens the gap between the "haves" and the "have nots", Merrill Lynch predicted yesterday. Merrill's chief international economist said this could be the tip of the iceberg, warning of more trouble "between nations and within nations" as people struggle to pay for everyday goods

Grenada amending offshore laws
May 26 (AP) — Grenada is relaunching its offshore sector after a six-year hiatus that was prompted by a multimillion-dollar (euro) fraud scheme when the First International Bank of Grenada collapsed and investors were cheated out of US$170 million (euro108 million).

Siemens defendant says slush funds ordered
MUNICH, Germany, May 26 - A key defendant accused of enabling corruption at German engineering giant Siemens descibed on Monday how he built a system of slush funds and front firms at the request of his superiors.

New Report from CTJ: Bush Administration Demands that Congress Increase the Deficit with Tax Breaks for Business
May (CTJ) - A new report from Citizens for Tax Justice examines the $54 billion tax cut bill that the President is threatening to veto because it includes revenue-raising provisions to offset the costs. The President's stance threatens a needed improvement in the Child Tax Credit for poor families with children, as well as several other tax changes sought by lawmakers.

Exemptions for Charities Face New Challenges
May 26 (NY Times) - Authorities from the local tax assessor to members of Congress are increasingly challenging the tax-exempt status of nonprofit institutions — ranging from small group homes to wealthy universities — questioning whether they deserve special treatment.

Nigeria hands big tax bill to Shell and Exxon
May 23 (FT) - Nigeria is demanding Shell and ExxonMobil pay a combined total of almost $2bn in unpaid taxes and revenues after a review of contracts covering giant offshore oilfields signed in the early 1990s. The committee concluded that Shell and ExxonMobil owe the government a total of $1.9bn after reviewing the way tax breaks were implemented under the agreements, and the pricing system for gas sold by Shell.

The Coming Tax Hike
document link:
May 19 (Mankiw blog) - CBO writes to Congressman Paul Ryan: “The Congressional Budget Office (CBO) has prepared the attached analysis of the potential economic effects of...using higher income tax rates alone to finance the increases in spending… With no economic feedbacks taken into account and under an assumption that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double.

Spanish steps
May 15 (The Economist) - Following the Northern Rock affair, the reputation of Britain's Financial Services Authority (FSA) has taken the biggest knock of all the regulators. In Madrid, by contrast, a sense of quiet satisfaction prevails, thanks to two distinctive policies. One helped Spanish banks to avoid the worst of the subprime fallout and the other to prepare for the downside of an economic cycle.

Offshore-Account Holders Bite Their Nails
May 21 (WS Journal) - As government officials intensify a multinational crackdown on offshore bank accounts, many wealthy Americans who use them to illegally shield income are facing a difficult decision: whether to turn themselves in -- and if so, how.

Three big challenges for Berlusconi’s cabinet
May 21 (FT) - It would be suicide for the new government to trash the remarkable results achieved by the Prodi government in cutting tax evasion. It is estimated that up to €20bn ($31bn) was raised by widening the tax base. The tradition of Mr Berlusconi’s cabinets, by contrast, has been one of declining tax revenues even when it left tax rates unchanged. The first steps of the new government are not encouraging.

Taking on the free trade bogeyman
May 19 (FT) - It is time to worry when both US Democratic presidential hopefuls say too much free trade is a bad thing. There are alternatives to protectionism. The US could take the lead in global co-operation to ensure the rich pay taxes.

How to survive a transfer pricing audit in India
May 22, (TP Week) - The Indian Transfer Pricing Regulations came into force in 2001 with the transfer pricing audits effectively beginning from 2003. The Central Board of Taxes in India introduced a special cell of trained officers which is responsible for all transfer pricing audits. Over the past four years, there has been a significant increase in the number of transfer pricing audit officers (TPOs).

Tax Evasion: Contracts
May 19 (UK parliament) - UK Parliamentary questions on tax evasion, tax co-operation re tax havens, tax relief on pensions, membership of and criteria of membership for the Business-Government forum on tax, and more.


Top EU politicians: under-regulation, inadequate supervision, an undersupply of public goods

Thomson-Reuters has reported on a new letter sent by top European politicians and notables about the financial crisis and their frustration that "the European Commission -- which has sole right at European Union level to propose financial regulation -- has largely opted for industry-led solutions to rectify flaws highlighted by market turbulence."

The signatories include some of the biggest names in European political life of recent years: Lionel Jospin, Jacques Santer, Jacques Delors, Helmut Schmidt, Göran Persson, and others. We can offer the text of the letter in full, here.

A couple of excerpts give a flavour of their concerns:

"This crisis is a failure of poorly, or unregulated markets, and shows us, once more, that the financial market is not capable of self-regulation. It also reminds us of worrisome escalating income discrepancies in our societies, and raises serious questions about our ability to engage developing nations in a credible dialogue about global challenges.

Financial markets have become increasingly opaque and, identifying those who bear and evaluate the risk is frequently more than a formidable task. The size of the lightly or not-at-all regulated “shadow banking sector”, has constantly increased in the last twenty years. Major banks have been involved in a game of “origination and distribution” of highly complex financial products and in pretty questionable packaging and selling of debt tied to high risk mortgages. Inadequate incentive schemes, short-termism and blatant conflicts of interest have enhanced speculative

This is more or less what we have been saying for some time. They offer a brief summary:

The problem is a model of economic and business governance based on under-regulation, inadequate supervision and an undersupply of public goods.

The whole letter is well worth reading.

There are those who argue that the credit crisis is nearly over, and that things will return to "normal" before too long. If you think that, it would be worth reading this hard-hitting piece by the Financial Times' well-informed economics commentator Wolfgang Munchau, about the dangers posed by inflation. Among other things, he argues that "our situation could be worse than during the 1970s." Read that, and then read about this Merrill Lynch report, warning of more trouble "between nations and within nations" as people struggle to pay for everyday goods.

So the European notables are right to be concerned. They argue that it is time to set up an “European Crisis Committee” gathering high-profile politicians, former Heads of State and Government or Finance Ministers as well as renowned economists and financial experts on all the continents. In their concluding paragraph, they say:

"We must ensure that Europe’s competitiveness is supported and not undermined by financial markets."

In light of the current and impending property price corrections now underway in many economies, a result of the bursting of finance-fueled bubbles, this appears to be well said.


Monday, May 26, 2008

Bono, Baker and the snow globe

We would like to highlight a new documentary film about tax havens. Featuring TJN's John Christensen, Raymond Baker of Global Financial Integrity, and including a lengthy walk in the City of London with accounting superstar Richard Murphy, plus many more, it was broadcast recently on France 2 television, and gained a large audience and generated significant debate in France.

For those of you who speak French, this short excerpt gives a flavour of the film. Among other things, it shows the Irish singer Bono being presented with a snow globe - representing a tax haven.


Tax competition: TJN in FT Economists' forum

The Tax Justice Network has long argued in favour of international co-operation on tax and regulation. It is necessary in order to restrict the ability of some to free-ride on the services provided by others, and to prevent the race-to-the-bottom dynamics that have helped discredit markets, trade and financial liberalisation in the eyes of many millions of people.
On several occasions we have praised Martin Wolf, the Financial Times' chief economics commentator, for his clarity and ability to explain complex matters simply. His latest article, "Preserving the open economy at times of stress" examines globalisation and the recent comments of former U.S. Treasury Secretary Larry Summers, whom we wrote about very recently and who argued in favour of more progressive taxation, and breathing new life into international co-operation on tax and regulation.

Martin Wolf appears unconvinced so far on the need for strong international co-operation on tax (though he favours it on regulation,) but adds that "what is desperately needed is an honest debate about these issues."

Wolf also presides over the FT's Economists' Forum, where the world's distinguished economists, and occasional guest contributors, are invited to comment on world affairs. TJN's John Christensen, in the spirit of this debate, has just been published in this forum. We hope the FT does not mind that we reproduce our own words here in full:

John Christensen, Tax Justice Network (guest contributor): I welcome Martin Wolf’s timely article about globalisation “Preserving the open economy at times of stress” It is mostly up to his usual standards of clarity and wisdom. There is one section, however, where more clarity would be welcomed.

He says taxes will have to be raised, and points out that the freer movement of capital (or labour) makes it harder to tax and regulate those able to move. Yet his response to Larry Summers’ recent proposal for greater international co-operation is only luke warm. He favours greater international agreement on regulation in some areas, notably finance, but thinks the case for tax co-operation is weaker. If Sweden’s taxes can be 56 per cent of GDP, he says, it is not tax competition that keeps the US at just 34 per cent. “The mobility of capital and people is an excuse, not a justification, for low US tax levels.

This is not quite, but looks like, a rejection of international co-operation on tax. We would welcome more clarity on this. Does he oppose it?

Second, he seems to make an analytical distinction between tax and regulation, but there is no solid dividing line. One area is in the transparency of international taxation. With some flawed exceptions, nations generally cannot “see” the income their residents earn in other countries, and consequently cannot tax it. Tax authorities cannot easily “see” whether multinational companies are mispricing internal transfers or carrying out fake transactions to evade tax. Developing nations are especially vulnerable here. Many hundreds of billions of dollars are involved annually; several strategies are needed to improve transparency; each requires international co-operation on what is both a tax matter and a regulatory one. We believe Martin Wolf would favour a strong push for transparency for international taxation: we would welcome more clarity from him on this.

Third, he recognises that taxes will have to be raised, but then seems to argue that because Sweden can have relatively high taxes (and relatively little inequality) in spite of globalisation and tax competition, this means that tax competition is not the problem to attend to. If this is his argument, he is wrong.

Other countries have not gone Sweden’s way, and they cannot and will not in current circumstances. Aside from the fact that tax competition seriously restricts nation states’ sovereignty and means governments cannot get the tax systems their voters want, tax competition also powerfully shapes and distorts the national debates themselves. Witness the pressure that business lobbyists are currently putting on the UK’s Chancellor, Alistair Darling, using threats by some companies to relocate elsewhere as sticks to beat him with. Witness the debate over “non-domiciled” residents, and what Mr. Wolf’s excellent recent article on that debate described as “special interest ‘the sky is falling‘ pleading.” The domicile rules emerged for historical reasons, but have endured for so long precisely because of tax competition. “Don’t tax us too heavily,” the non-doms threaten, “or we’ll run away to Switzerland.”

Ferocious tax competition is stopping Britons from getting a more progressive tax system, even if they don’t want to go as far as Sweden. Most pernicious is competition from tax havens like Switzerland or Liechtenstein. Their aggressive appropriation of other nations’ taxable incomes – not to mention their conducive climate for organised crime and international corruption – punches special-interest loopholes in reputable nation states’ tax systems. Once again, developing nations are the most vulnerable. They are often in no position to resist the demands from multinational companies to grant them tax concessions and other subsidies which allow them to free-ride on services provided by others. All this distorts markets, tending to shift investment away from where it is most productive towards where it is able to secure the biggest fiscal subsidy.

A race to the bottom on secrecy and regulation is real. The race to the bottom on tax is different: people and many resources are not as mobile as capital, so states can still extract high taxes. Yet that does not mean that tax competition is not a problem. As a result of tax competition, states are under great pressure to replace the taxes lost because of their difficulties in taxing flighty capital, by introducing regressive taxes like VAT and by taxing lower-paid labour more heavily. Taxing capital better must be an essential part of dealing with the challenge of inequality, and only international co-operation on tax will do it.

It is time to recognise that tax competition is harmful, and that that if we want (as I do) to rebuild and preserve a good reputation for globalisation, then real progress is simply not possible without strong international co-operation on both tax and regulation.

Read more here.


Switzerland: attacking our democracies

The headline above this blog is drawn from a recent story from Germany's Der Spiegel, investigating the arrest of an employee of the Swiss banking giant UBS, which American authorities are investigating for allegedly helping clients to evade taxes. The article reports on the indictment of his colleagues:

"According to the indictment, a fortune of about $200 million (€129 million) was sheltered from tax authorities "in secret bank accounts in Switzerland and Liechtenstein." Prosecutors allege that Staggl's attorney in Gibraltar even helped Olenicoff hide the details of his ownership of a '147-foot yacht.'"

The story is worth reading. We'd like to highlight a couple of points from it. First, the offshore world places institutions that navigate these murky waters in conflicted positions:

"UBS is walking a thin line. On the one hand, it has to show a willingness to cooperate. On the other, it is trying to protect its customers' banking secrets," says Robert Heim, an attorney in New York and a former investigator with the US Securities and Exchange Commission. . . .He expects that their testimony will soon lead to further indictments and arrests. "This is a very bad development for UBS," says Heim.

This is analagous to the strange, conflicted positions that companies find themselves in, with responsibilities to shareholders that suggest they should minimise taxes as far as possible, and responsibilities to the wider democratic societies in which they are embedded and on which they depend - with a responsibility to pay their taxes in full. This issue of (tax) has to be next on the corporate social responsibility agenda - and it is coming. The aggressive tax avoiders won't like it - but those that take a responsible approach to taxation should welcome it.

While the UBS example above is about secrecy and crime (we recently blogged about this, looking at an interesting legal case involving the whistleblower Rudolf Elmer); the following paragraph about shareholders and society is typically about legal but often questionable minimisation of tax - a large grey area between the fully legal and the criminal. In both cases, however, those that take the most aggressive action - those providing criminal tax evasion services and those avoiding tax most aggressively - have in these years of deregulation and feeble government intervention been those that have grown the richest, and the most powerful, the fastest. It is a pernicious race-to-the-bottom dynamic that has got so far out of hand as to discredit markets themselves. Now that governments are starting to step in more actively in these areas, we will start to have a chance to disrupt these harmful dynamics and allow the more reputable actors to come to the fore. International co-operation is required here, as we have long been arguing.

There is another part of this Der Spiegel story that is well worth noting about Swiss bankers, which French Finance Minister Eric Woerth rightly described as Alpine "tax robbers," and that is a quote by Konrad Hummler, a partner in Wegelin & Co., Switzerland's oldest private bank. German tax evasion, he argues, is a legitimate defense by citizens attempting to

"partially escape the current grasp of the administrators of a disastrous social welfare state and its fiscal policies. . . . "Swiss-style saving outside the system" is something to which not only the wealthy, but also productive small and mid-sized businesses are entitled. "These people must be protected," says Hummler.

This provides a perfect example of how tax havens justify their intervention into democratic processes. Such intervention is both criminal and anti-democratic. We should simply not accept this aggression from this Alpine banking power. It is high time for Europe, and the world, to act decisively and stop this.


Tuesday, May 20, 2008

International News - May 20

Magnitudes: dirty money, lost taxes and offshore May 20 (TJN) - The magnitudes section of the TJN website is slowly but steadily being expanded. More information is now available. Comments welcome.

EU Savings Tax Directive - Part 2
May 15 (TJN) - We have just blogged on the meeting of European finance ministers on the Savings Tax Directive - a vitally important, if flawed, tool against international tax evasion. We can report significant progress.

Proposed Surtax on Millionaires to Help Veterans Would Be a Tiny Sacrifice for the Richest 0.3 Percent
The U.S. House of Representatives took votes on amendments to an emergency supplemental spending bill to fund military operations in Iraq and Afghanistan. The legislation includes a small surtax of 0.47 percent on gross income over $1m for married couples and over half a million dollars for other taxpayers. New CTJ figures
show that in 2007 only 0.3 percent of taxpayers were rich enough to be affected by such a tax.

Belize Bank: A $10m mystery
The Economist investigates Belize Bank, a story involving Michael Ashcroft, the offshore financier of the UK’S Conservative party. Also involving Venezuela, Taiwan.

May 19 (Tax Research) – UBS has predicted a gradual erosion of governments’ ability to tax. The comment was made in response to the supposed exodus of companies from the UK. Why is the CBI happy about this? Why are the British Chamber of Commerce happy about this? Why are the IoD happy about this? Which party is going to turn round and say that this is wrong: we are taxing the wrong enterprises? TJN has been saying this for a long time. Tax justice favours small business.

Call for papers for a special Issue of Critical Perspectives on Accounting: Critical Perspectives on Taxation
Guest Editor: Dr. Sheila Killian, Kemmy Business School, University of Limerick, Ireland. Manuscripts for this special edition should be submitted directly by email to the Guest Editor at The deadline is 31st January, 2009.
No link available.

Transparency International Press Release on Tax Haven
May 15 (Transparency International) - Transparency International, India is concerned over the attitude of the Indian Government in seeking information from the German Government about millions of dollars of un-accounted-for money, belonging to the people of India, lying in Liechtenstein, a small country near Germany.

Swiss banker blows whistle on industry
May 15 (FT) - A Swiss banker has lodged a case with the European Court of Human Rights against Switzerland's rules on bank secrecy. Also see TJN blog on this.

Comment: Funds hedge their Swiss bets
May 19 – Financial News - The creation of a Geneva-based hedge fund business by private bank Lombard Odier Darier Hentsch has rekindled the idea of hedge funds moving to Switzerland from London en masse.

Cindy McCain's Tax Returns Called For By Three Op-Eds
May 14 (Huffington Post) - Cindy McCain's declaration that she would never produce her tax returns has struck a chord with a few editorial pages around the country. In the past two days, the Washington Post, Washington Times and the New York Observer have all penned demands that Cindy come clean on her fortune.

Sen Panel OKs Blocking Funds From Cos With Offshore Tax Shelters
May 15 (Dow Jones) - The U.S. Senate Appropriations Committee on Thursday approved an amendment to a supplemental war-funding bill that would block funds from going to companies with offshore tax shelters. Also see NYT editorial.

The Great Tax Cut Delusion and the Decline of Good Government in America
May 17 (TaxProf) - According to political scientist Bryan D. Jones and policy analyst Walter Williams, tax cuts are bad for the American people. In their new book, ... they draw on in-depth research and insightful analysis to argue that tax cuts without spending limits have harmed the government’s long-term fiscal stability, and explain why, despite evidence to the contrary, people keep believing that reducing taxes will create economic growth.

Companies leaving the UK: what will we lose?
May 15 (Accountancy Age0 - Let’s not worry about companies leaving the UK for tax reasons. For a start, the tax loss looks likely to be minimal. And how many execs will want to trek out to some far flung tax haven to work? Not many. If it really is the case that companies without the best will wither and die, then those companies fleeing our shores will not be long for this world.

Willbros to pay hefty US fine in Nigeria, Ecuador bribery probe
May (AFP) — Willbros, an oil and gas industry services firm, has agreed to pay over 32 million dollars in fines and forfeitures to settle accusations of bribing Nigerian and Ecuadoran government officials, the US Justice Department said Wednesday.

Editorial: The tax avoidance mafia
May 14 (Cayman Net News) - Sooner or later more people are going to draw the parallel between the high standard of living enjoyed by Cayman residents with the grinding poverty found in other less well off countries that may be exacerbated by tax avoidance and/or evasion facilitated by the Cayman Islands.

Transfer pricing forms key part of IBSA alliance
May 15 (TP Week) - A trilateral alliance of the governments of Brazil, India and South Africa has decided to focus on transfer pricing as a key economic theme. IBSA, which was formed following a G8 meeting in Evian in 2003, examines economic and social issues which are relevant to the three countries. Also see: Somerset West Ministerial Communiqué, India – Brazil – South Africa (IBSA) Dialogue Forum, 11 May 2008

How big UK groups paid no corporation tax in 2007
May 20 (UK Times) - Research by The Times shows that FTSE-100 companies – Cadbury, Standard Chartered and British American Tobacco, which have a combined market capitalisation of £75 billion, employed almost 11,000 UK staff and generated more than £6 billion in global profits, – paid zero corporation tax in Britain last year. Quoting TJN’s Richard Murphy.

Richard Murphy examines Tesco’s accounts and argues that the Guardian’s enquiry was quite legitimate.

EU commissioner sees support for tax haven clamp-down
May 15 (AFP) — EU Tax Commissioner Laszlo Kovacs said Wednesday he saw support among finance ministers in the bloc to broaden out rules against tax dodgers who stash cash in offshore accounts. (For more on the European Savings Tax Directive, see )

On the offensive: How Gunvor rose to the top of Russian oil trading
May 14 (FT) - Investigation into one of the world’s fastest-growing – and most secretive – oil traders. It is owned by a holding company in the Netherlands, Gunvor International BV, which is in turn owned by one in Cyprus, Gunvor Cyprus Holding Ltd. The ownership of the Cyprus entity ends at another postbox holding structure in the British Virgin Islands. “It’s an absolutely closed box,”

HMRC Publishes Draft Changes To Offshore Funds Regulations
May 20 ( – UK Revenue and Customs (HMRC) on Friday published a set of partial draft regulations regarding changes to offshore funds regulations for comment, and
to show the intended use of the powers in clauses 38 and 39 of the Finance Bill 2008.

FBI serves subpoenas on BAE chief and US colleagues
May 19 (Guardian) - Attempts by BAE to escape allegations of corruption in Saudi arms deals seemed to have failed last night as the arms company admitted that FBI agents had picked up its chief executive, Mike Turner, and served subpoenas on him and US colleagues.

UK’s Cameron harks back to Thatcher on taxation
May 19 (Guardian) – UK Conservative Party leader David Cameron will today issue his clearest signal that a Conservative government would aim to cut taxes when he declares that Britain has reached the "limits of acceptable taxation" and revives landmark declarations by Margaret Thatcher.

May 19 (Tax Research) – Before David Cameron say too loudly that Britain has reached the limits of acceptable taxation he should reflect on an FT poll showing that Strong majorities in five European countries - ranging from 76 per cent in Spain to 87 per cent in Germany - consider that income inequality is too great. And 78 per cent of respondents in the US, traditionally seen as more tolerant of income inequality, also think the gap is too wide.

Köhler attacks markets ‘monster’
May 14 (FT) - Global financial markets have become “a monster” that “must be put back in its place”, the German president (and former head of the IMF) has said, comparing bankers with alchemists who were responsible for “massive destruction of assets”.

Dutch move to limit big payouts for chief executives
May 13 (IHT) - Jan Bennink became famous in the Netherlands not for his boardroom success, but for cashing in stock options, performance shares and bonuses worth around €80 million, or $124 million, when Danone snapped up Numico for €12.3 billion last year. The compensation created such a public furor among the egalitarian Dutch that the government is backing an unusual law that takes a first crack at curbing such windfalls.

Global wealth survey: the data in full
April 20 (FT) - The ranks of the world’s rich swelled to 8m during 2007 as the wealthy proved immune to the strains across global economies in the latter half of the year. Below we publish the data. Detailed survey data from Knight Frank and Citi Private Bank. Also, for A global survey of the best-paid hedge fund managers, see here

Alistair Darling counts cost as party over for UK plc
May 14 (UK Times) - Lawrence Summers, a former US Treasury Secretary, has suggested that governments should co-operate in matters of income tax to avoid the race to the bottom that is troubling Mr Darling. It cannot have escaped the latter's attention that he has a common interest with other Europeans in protecting his tax revenue base. A look at the failure of the UK’s model.

Try out ‘toff tax’ for inclusive honours
May 17 (FT) - An amusing letter suggesting that British peerages and other titles should be based on taxpaying. This annual “toff tax” would be a lucrative way for the state (not the party) to collect revenue to fund the political infrastructure we demand but will not fund ourselves. It will also allow those honoured to proclaim publicly their loyalty to the nation that honours them.

For sale: one Channel island. Tax haven, has own jail
May (AFP) — For sale: tiny Channel island. Includes own jail. One of the eight inhabited Channel islands off the northern coast of France has gone on the market, the estate agency handling the sale said. There are 50 permanent residents on the island. It is also a tax haven.

Merkel faces rebellion on tax cut stance
May 16 (FT) - Angela Merkel could be forced to renounce her pledge to eradicate Germany’s budget deficit by 2011 in the face of a challenge by rebellious MPs calling for immediate tax cuts.


Offshore: how big is it?

We have been upgrading our website section called "Magnitudes" which outlines the different estimates of the size of the offshore problem.

The size of the offshore economy is hard to measure precisely, as a result of its fragmented nature, difficulties involved in defining it, and a pervasive culture of secrecy. International efforts to measure it often focus only on narrow aspects of it. For example, much effort is expended on measuring and tackling terrorist finances or (to a lesser extent) international bribery, but little attention is paid to problems on much, much larger scales -- such as commercial transfer mispricing abuses.

We outline a number of different measurements, from several different sources, and we will be adding to it over time. Take a look. Comments and suggestions are welcome: contact info (at)

In the longer term, we will be producing much a more detailed overview of the offshore world: how it works, and how big it is, in a project called Mapping the Faultlines, which is being funded by the Ford Foundation and carried out by TJN and Washington-based Global Financial Integrity (hosted at the Center for International Policy, and run by Raymond Baker, author of the landmark book Capitalism's Achilles' Heel - a must-read for anyone wishing to understand the phenomenon of dirty money (see a good review of it here.)

This is a large project, and first results from Mapping the Faultlines will not be available before 2009.


Friday, May 16, 2008

Swiss banker blows whistle on industry

Rudolf Elmer, a former employee of the Swiss bank Julius Baer, has lodged a case with the European Court of Human Rights against Switzerland's rules on bank secrecy. A correspondent in Berlin told us this:

I went to the press conference of Rudolf Elmer in Berlin yesterday, that's the former manager of Swiss bank Julius Baer in the Cayman Islands. The news was that he filed a complained with the European Court of Human Rights against the Swiss banking secrecy law saying that it deprives him of a fair trial. If he produced documents to prove that he was fired unjustifiedly he would automatically violate the secrecy law, he claims. He's already been prosecuted for breach of that law (because of offshore customer data that appeared on, and says that he's been denied access to records and a lawyer during interrogations because Zurich law provides for that when banking secrecy is in question. (See more on Elmer's site, ).

The Financial Times said this:

He (Elmer) said he would present the Strasbourg-based court with internal protocols and evidence of false documentation by the bank for clients "showing that (Julius Baer) knew it was encouraging tax evasion". However, unlike the Liechtenstein case, he would not present, or sell, the bank account data as his target was the "Swiss system of bank secrecy", not individual customers.

Swiss bankers, like those in Liechtenstein, Luxembourg, Jersey, and so many other corrupt jurisdictions, are conducting acts of aggression against other sovereign nation states. They argue that it is up to the other jurisdictions to police their taxpayers. This is like arguing that it is fine to be, and even actively to support, drugs production and smuggling from your territory: it is up to other countries to police their drugs laws. These arguments are quite clearly not acceptable.

Those involved in propagating Swiss harm around the world ought to be feeling nervous. Yesterday, Richard Murphy noted this:

I hear rumours from Switzerland. Apparently the indictment of a UBS banker in the USA on charges relating to tax evasion through Liechtenstein has made the banking communtiy somewhat bervous. Some Swiss banks have apparently ordered travel restrictions for the USA. No more Florida sunbathing and New York Christmas shopping for Swiss bankers, I suspect.

More generally, the global mood is now changing decisively, in terms of reining in the arrogance of those who feel they can use the loopholes and interstices of the international financial system to place themselves above the law. According to David Rothkopf, a visiting scholar at the Carnegie Endowment for International Peace and author of a new book about the world's wealthy superclass:

"The power of financial elites had been evident in their ability to argue that global financial markets and markets in new securities should remain “self-regulating” (how many of them would hop into a self-regulating taxicab?), then when crisis comes – as with mortgage-backed securities – these champions of less government involvement have then persuaded governments to cauterise their wounds. Now, however, there are encouraging, if preliminary, signs of a push towards more effective collaboration between governments – the first steps towards creating the much needed checks on global markets that exist within nations. This could erode the agility of financial elites to play governments off against each other, with the weakest regulator setting the rules."

This is all good news. Let's hope the European Court of Human rights helps properly expose Swiss banking for what it is: a forum for global corruption, crime and generalised abuse.


Thursday, May 15, 2008

EU Savings Tax Directive - Part 2

We have just blogged on the meeting of European finance ministers on the Savings Tax Directive - a vitally important, if flawed, tool against international tax evasion. We can report significant progress. As an EU Council press release says, the Council:

"Underlines the importance of implementing, on as broad a geographical basis as possible, the principles of good governance in the tax area, i.e. the principles of transparency, exchange of information and fair tax competition. . . Good governance in the tax area is not only an essential means for combating cross-border tax fraud and evasion, but can strengthen the fight against money laundering, corruption, and the financing of terrorism."

The Council now wants good governance on tax to be included in agreements reached with countries outside the EU . . . (EU member states) "will improve international cooperation in the tax area, facilitate the collection of legitimate tax revenues, and develop measures for effective implementation."

The International Herald Tribune has reported on this, under the headline 'EU considers toughening offensive on tax havens.'

"EU commissioner responsible for taxation, Laszlo Kovacs, said he would propose an extension to the scope of the EU's directive on the taxation of savings, which applied primarily to bank accounts. This could be done by expanding the list of products covered, perhaps to include trusts or foundations, or by applying the law to legal entities rather than just individuals, Kovacs said. On Wednesday Germany's finance minister, Peer Steinbrück, highlighted the way in which investment foundations circumvent the current EU savings tax directive, which applies only to individuals.

"They are founded to cheat the tax authority," he said."

This kind of progress is essential. The IHT noted that Germany alone loses some 30 billion Euros per year from tax evasion.

Predictably, the tax haven vested interests were out in force. Luxembourg continued its deeply shameful pursuit of delay, arguing that changes would need lots, and lots, of time (as the IHT noted, . TJN's Richard Murphy saw right through Luxembourg's tactic:

"Luxembourg might just as well said: 'Luxembourg makes a living from stealing other EU member’s taxes and therefore does not want the EUSD tightened.'

It is time for reasonable people to realise, as Murphy rightly points out, that countries like Luxembourg are prime suppliers of corruption services. They need to be stopped, and the EU needs to do it. Here is another opportunity to get involved: a forthcoming EU report.


Wednesday, May 14, 2008

The European Savings Tax directive

For those who read French, please take a look at this blog by Christian Chavagneux, who is writing about a meeting today of European Finance Ministers to discuss strengthening the EU Savings Tax Directive, which aims to tackle tax evasion in Europe and enhance the EU's internal market. It is a vitally important tool, but it contains loopholes: see our recent briefing paper for a straightforward description of the Directive and its flaws.

As we have already remarked, Europe probably leads the world in terms of thinking of ways to deal with the threats from tax havens, and the political mood is in place for healthy reforms to tackle tax evasion. As Chavagneux notes, the French and German finance ministers want information to be exchanged automatically between countries and, crucially, that the directive should be extended so that it does not only cover individuals' bank savings, but also covers legal entities such as trusts, as well as sophisticated instruments such as derivatives, insurance, and other innovative financial tools. The EU Savings Tax directive has been far less successful than its originators hoped, because wealthy individuals have been adept at exploiting these kinds of glaring loopholes - which are there as a result of behind the scenes lobbying by vested interest from Britain, Luxembourg, and other places with a vested interest in promoting international corruption.

On May 9th the EU Commission presented a document preparing for the meeting which, as Chavagneux notes, mixes sensible proposals with others, which appear to reflect "a will not to annoy the financiers too much" and added this:

"While the Commission presents the notion of extending (the directive's coverage) from merely individuals and towards all legal entities (foundations, trusts, etc.), its analysis, page after page, finally limits the field of those to whom it would apply to entities registered . . . . outside the European Union! Nothing inside the Union (trusts registered in London, in Luxembourg, etc.)! Switzerland, Liechtenstein and the other Anglo-Norman islands (Jersey, Guernsey etc.) will only have to present this evidence of discrimination in order to refuse it en masse."

Read Chavagneux' article: there is more. Richard Murphy has also covered this in detail on his blog. Regarding the selective extension of the EU STD only to outsiders, he says:

"There is considerable risk in this: the concept of the level playing field is important, and the need to prevent market distortion is noted throughout the document. To create an obligation on non-EU locations covered by the STD not imposed on EU members would be dangerous and might induce the withdrawal of these locations from the scheme altogether. That would not be beneficial."

Murphy also makes some strong proposals for change, which are well worth reading.

Chavagneux ends:

"There is surely a window of opportunity in Europe to go further in the fight against tax havens. In terms of principles, it is a question of equality of treatment of rich and the less well off. On a political level, we are talking about 40 to 50 billion Euros of lost tax revenues for France, more than its budget deficit."


International News Links

A selection of stories from the last few days. A longer history of news links is available here. Also see Offshore Watch.

Tax evasion 'costs the lives of 1,000 children a day'
Guardian (May 12) - Illegal tax evasion by companies is depriving the developing world of $160bn (£82bn) a year, which could be used to prevent the deaths of 1,000 children every day, Christian Aid says today. (The Christian Aid report is here )

Press release: Equitable Taxation Not Aid Will End The Looting Of Africa
A TJN4Africa press release, with recommendations for change. From a well-attended tax justice seminar held in Zambia. Times of Zambia report is here

Zambia and British banks
May 19 (TJN) - The Zambian government says it has recovered money and assets worth nearly $60m stolen during the rule of former President Frederick Chiluba. The allegedly stolen money passed through bank accounts in London. An older story from the Times of Zambia mentions Jersey, the Isle of Man, Belgium, and elsewhere. Also see this: and see this older Tax Research blog:

Hacks v beaks
The growing use of English courts by foreign libel litigants is arousing increasing concern among free-speech campaigners: “manna from heaven for deeply illiberal and fantastically wealthy ex-Soviet oligarchs and Middle-Eastern oil tycoons. Everyone knows the potency of the English laws and everyone takes it into account, at an incalculable cost to free speech.” A matter of great concern for TJN.

UK Taxman finds back door into Swiss accounts
May 11 (Times UK) - UK Revenue & Customs is linking up with the German tax authorities to get information about those who have deposited their ill-gotten gains in Switzerland. “If the Revenue can use the Germans as a back door into Switzerland, that is a major coup. . . . Dubai and Singapore are about the only places left who have made it abundantly clear that they are not going to divulge information.

Larry the Loophole
ON private equity, the loophole for "carried interest," capital gains and more. Cartoon, starring Larry the Loophole. A petition for US presidential candidates.

Tax black hole
May 12 (Guardian) - Why isn't UK chancellor Alistair Darling clawing back the enormous tax avoided (legal, but immoral) or evaded (illegal) to help balance the books without putting up taxes for the rest of the population? A recent TUC pamphlet written by the tax accountant Richard Murphy found that tax avoidance and tax planning by very rich individuals amounts to £13bn a year and by companies a further £12bn a year.

New State-by-State Data Show Majority of Bush Tax Cuts for Capital Gains and Dividends Go to the Richest One Percent
May 13 (CTJ) – Clinton and Obama might allow the Bush tax breaks for capital gains and dividends to expire, and Obama might go farther by making the tax rate for capital gains closer to the rate for wages. A new report from Citizens for Tax Justice finds that most of the benefits of the tax cuts go to the richest one percent. Revenue from the capital gains tax was much higher during the Clinton administration, when the tax rate on capital gains was higher. State-by-state fact sheets:

Halliburton unit's role in Nigeria faces probe
May 10 (FT) - US anti-bribery investigators are targeting a former Halliburton subsidiary over its work on a key Royal Dutch Shell project in Nigeria, widening a corruption probe into the country's troubled oil industry.

UK Treasury backs down from taxing foreign sport stars
May 13 (Accountancy Age) - HM Treasury has backed down from taxing foreign sport stars’ global income on the threat of losing out in the selection to host top sports events such as Uefa Champions League Final in 2011.

Investors Say Tax Increase Wouldn't Alter Strategy (Update1)
May 14 (Bloomberg) -- Affluent investors say a small increase in the capital gains tax, as suggested by Democratic presidential candidates Barack Obama and Hillary Clinton, wouldn't affect their investment decisions.

An in-depth documentary on Tax havens to be aired on May 15 on France 2. With plenty of material from the Tax Justice Network. In French.

KPMG hired for Jamaica offshore centre study
May 11 (Jamaica Gleaner) - Jamaica has contracted the consultancy arm of auditing firm KPMG to undertake an assessment of the local market for the establishment of an international financial services centre (IFSC).

Jamaica's fiscal crisis
May 11 (Jamaica Gleaner) - Eighty per cent of the company taxes and 50 per cent of the property taxes owing are not being collected or paid. This is a good example of how the fiscal crisis plays itself out as a political crisis.

India silent on German Bank disclosure offer
May 10 (NewInd Press) - NEARLY three months ago, Germany obtained a list of account holders at a bank in Liechtenstein, a tiny Alpine principality that is also a tax haven. The Germans offered the names to any country that asked for it. Curiously, India, with a history of black money stashed abroad, has shown no interest in the list; it still has not made a request for details.

Not paying their dues
May 12 (Guardian) – by Prem Sikka - Global companies are evading tax in the developing world. The money lost could go towards alleviating poverty and saving lives. The tax avoidance industry is the mafia of our times.

The well-off can enjoy the über-rich treatment
May 9 (FT) - Private banking is no longer the preserve of the super-rich as large banks and smaller wealth managers are increasingly bringing bespoke services to the masses.

$1.4 trillion Indian ‘black’ money in Swiss banks
A 2006 report of the Swiss Banking Association dug out by an Indian private channel, CNN-IBN, claims Indians are the biggest depositors of black money in banks located in Switzerland. India with $1456 billion or $1.4 trillion has more money in Swiss banks than rest of the world combined. (NB these figures have been published in several places in the Indian media; TJN has not been able to confirm the existence of such a report.)

Officials say multinationals rip off gov’t with transfer pricing
May 12 (Thanhniennews) - Slim tax payments collected from foreign-invested businesses in Vietnam led legislators to accuse multinationals of transfer pricing at Saturday’s National Assembly session in Hanoi. The government filed a report saying 2006’s tax revenues collected from foreign-invested businesses were around VND1.97 trillion (US$122 million) less than expected.

Tax heaven or hell?
May 11 (Times UK) - Is tax exile all it’s cracked up to be? John Arlidge weighs the pros and cons for the day when you take your money and run.

Bribery: the net tightens but holes remain
May 9 (FT) - The list of big name corporations facing corruption allegations just keeps growing. This week saw details emerge of alleged bribery by Alstom, the French engineering group. It follows ongoing investigations into Siemens of Germany and BAE Systems of the UK. The growing list is emblematic of the ever-widening impact of the international drive against corporate corruption.

Clegg says 40% should mean 40%
May 12 (Tax Research) - UK Liberal Democrats have abandoned their plans for a 50 per cent top rate of income tax for high earners, but say that the 40 per cent top rate should mean 40 per cent

Ex-Banker From UBS Is Indicted in Tax Case
May 14 – NY Times - Some of the secrets of Switzerland’s biggest bank were put on display on Tuesday as federal authorities indicted a former UBS banker on charges of helping a wealthy American real estate developer evade taxes.

Top Investigator: Much of Bulgaria's Capital Comes from Money Laundering
May 9 (Turkish Weekly) - The Director of the National Investigation Service (NIS) Boyko Naydenov stated Thursday that much of the capital in Bulgaria came from "dirty money", that were turned into fresh investments though laundering.


Larry the Loophole

Thanks to the US-based group Citizens for Tax Justice, we have noticed this short but cheerful online cartoon (starring: Larry the Loophole) with a petition to the US presidential candidates. CTJ described it like this:

"The most recent video explains the tax loopholes used by the industry, including the loophole for "carried interest," which is basically compensation paid to fund managers for managing other people's money. Although the video does not use the term "carried interest," it does explain that these super-wealthy fund managers are allowed to pay taxes on their compensation at the special low 15 percent rate reserved for capital gains.

Many were disappointed last year when the Senate failed to approve a House-passed bill that would have closed the carried interest loophole and clamp down on the fund managers' use of offshore tax avoidance schemes. Hundreds of organizations had publicly endorsed the effort to close the carried interest loophole.

For its part, the private equity industry/buyout industry seems to know that the loopholes it enjoys still infuriate some members of Congress and the public. KKR just hired Ken Mehlman, the former chairman of the Republican National Committee, to run its public affairs department, demonstrating real concern that Congress may move to check the unfair advantages the industry enjoys."

Take a look.


Monday, May 12, 2008

Tax evasion kills 1,000 children every day

The development NGO Christian Aid today releases a report predicting that illegal, trade-related tax evasion alone will be responsible for some 5.6 million deaths of young children in the developing world between 2000 and 2015: almost 1,000 a day. Half are already dead.

From just two activities - transfer mispricing (where different parts of a company sell goods or services to each other at manipulated prices) and false invoicing (where similar transactions take place between unrelated companies) the developing world is currently losing $160bn a year - more than one and a half times the combined aid budgets of the whole rich world: $103.7bn in 2007.

Between 2000, when the Millennium Development Goals were set, and 2015 when they are supposed to be realised, the amount lost by these two specific methods will total US$2.5 trillion. Taking into account additional sums from aggressive tax avoidance and other forms
of trade abuse, the total loss is likely to be several times that amount.

The two illegal activities identified above, leading to these startling statistics, are an important, but by no means a complete, picture in the problem of lost taxes. There is much more, too: the legal and questionably legal mechanisms that come up under the term "tax avoidance" are likely to be at least as important again. As The Independent newspaper summarised it:

"The conventional distinction drawn between tax planning and tax avoidance, which are legal, and tax evasion, which is not, but says that avoidance is part of a "sliding scale of legitimacy", in which ever more ingenious and complex methods are used to get around the rules and shelter corporate profits, notably through the use of tax havens, places where extreme secrecy in turn encourages a more general criminality."

The report also highlights the hypocrisy of tax haven states like Britain and Ireland, which trumpet their efforts to boost foreign aid, and then yet undermine the tax bases of other states. It makes some hard-hitting regommendations.

"Christian Aid calls on the UK and Irish governments to join together in taking a lead in reforming this system and in questioning the assumptions on which it is based. Primarily, they should support international moves to curtail and regulate the secrecy of tax havens, thereby lifting the lid on the tax industry and its machinations."

A common accounting standard should also be promoted, they say, to make the hiding of profits impossible by requiring companies to report what they do on a country-by-country basis. This is exactly what TJN has been campaigning for.

"Abuse of the tax system by accountants, lawyers and bankers should also be challenged. This should be preceded by a thorough assessment of the scale of illicit capital flows, in particular tax evasion, facilitated by banks and corporations operating through the City of London or Dublin. Once identified, illicit wealth from the developing world must be repatriated."

Good idea too. The paper finishes with a very apt quote, from Raymond Baker, a senior fellow at the US Center for International Policy, a guest scholar at the Brookings Institution, and a world authority on illicit financial flows:

"For the first time in the 200-year run of the free-market system, we have built and expanded an entire integrated global financial structure the basic purpose of which is to shift money from poor to rich. [It is] the ugliest chapter in global economic affairs since slavery"


TJN 4 Africa: Press release

The Tax Justice Network for Africa has just issued this press release:




Capital flight from Africa is devastating development at an alarming rate. It deprives Africa of investment and further exacerbates the gap between the North and South and also between rich and poor people. 35 civil society representatives from 13 southern African and 2 European Countries gathered in Lusaka to discuss strategies to combat revenue leakages in Africa. They met under the banner of the Tax Justice Network for Africa (TJN-A), which was established in 2007 at the World Social Forum in Nairobi.

Addressing the meeting hosted by the Civil Society Trade Network of Zambia (CSTNZ), John Christensen, the Director of the Tax Justice Network International, revealed that $607 billion (US) has been shifted out of Africa over the last three decades. This is depriving Africa of investment and tax revenues that it needs to fund its own development. According to Mr Christensen: “Since the 1970’s, for every dollar in external loans to Africa roughly 60 cents left as capital flight in the same year. For example Zambia has lost 19.8 billion dollars in capital flight representing 272% of the debt stock as at 2004.”

Mr Christensen also cited other examples of Southern African countries experiencing massive capital flight and external debt: Angola has experienced 50 billion dollars of capital flight representing 535% of that country’s external debt. Over the same period, Zimbabwe has lost almost 25 billion dollars, more than 5 times the value of its external debt. The figure for Swaziland stands at 1.3 billion dollars and Lesotho has lost 893 million dollars.

Alvin Mosioma, who coordinates the activities of Tax Justice Network for Africa, said: “Africa is particularly vulnerable to capital flight, tax avoidance and evasion. African leaders must take urgent steps in a concerted political effort to seal the loopholes that are haemorrhaging the outflow of resources from Africa and protect their population from predatory tax practices. They must also join international efforts to close down havens that act as parasites on the global economy.”

As a result of massive tax evasion and avoidance via tax havens, states often attempt to recover lost taxation revenue through increasing regressive taxes that hurt the poor most - such as the Value Added Tax. Governments are placed under pressure to put in place incentives such as tax holidays and other incentives which do not serve a useful purpose. Manipulative accounting policies of multinational corporations, assisted by ac counting firms and banks, are at the heart of the matter. They channel corporate profits to secretive offshore tax havens in order to escape paying taxes in the countries that multinationals operate in.

“The aggressive tax avoidance policies of multinationals are amongst the darker sides of globalization. The problem is not limited to Zambia and Southern Africa. Over half of world trade is channelled through tax havens, despite the fact that these tax havens account for only 3% of the global GDP,” says Francis Weyzig, an expert from the Centre for Research on Multinational Corporations (SOMO) based in the Netherlands. The problem is a worldwide epidemic that threatens the sovereignty of both developing and developed countries. US Senator Barack Obama has even sponsored a bill in the US: the Stop Tax Haven Abuse Act.

So why hasn’t the problem been addressed before?

Savior Mwambwa, of CSTNZ, explains: “The discussions around tax have traditionally taken place in closed circles, in esoteric language purposely designed to confuse the common person. We know there are also acute vested political interests of businesses and elites who would prefer the situation to continue as it does presently.”

The Civil Society Organisations Call upon :

National Government:

- To set up regulatory policies that monitor the transfer of funds

- To reconsider tax policies that place SMEs at a comparative disadvantage and stifle development

- To promote taxation policy that encourages sustainable business environments

- To demand country by country reporting by companies stating clearly what profits are made in each country where they operate

- To encourage a global standard in accounting?

- To call on the UN to adopt a global standard in taxation policy

- To negotiate Information exchange with tax havens

- To end retrogressive tax incentives such as EPZs

- To review mining contracts

- strengthen government institutions that limit corruption


- Respect the sovereign right of countries to setup national tax policy

- The incorporate of taxation policies into sustainability reporting

Civil Society Organizations should:


- Act as a check on business and government with respect to taxation policy

- Target small to medium size business who are less able to take advantage of tax flight.

- Raise awareness among citizens about expanding the definition of corruption to include facilitators and tax havens that enable capital flight.

Matthew Clarke, a commentator on corporate responsibility working in South Africa, concludes: “Civil society is aware of the fact that business will argue that they are in fact the engine of development bringing jobs and important resources to communities. But predatory state taxation policies that encourage MNCs to set up shop without paying taxes place small to medium sized business at a financial disadvantage - stifling development.”

For more information contact:

Alvin Mosioma,

Tax Justice Network for Africa

Savior Mwambwa - National Coordinator

Civil Society Trade Network of Zambia- 0977-875404


-What is capital flight- The deliberate and illicit disguise expatriation of money by those resident or taxable within the country of origin.

-What is VAT, Value Added Tax - A form of consumption tax

-Creative accounting - Accounting practices designed to evade national taxation


Saturday, May 10, 2008

Zambia and British banks

The Zambian government says it has recovered money and assets worth nearly $60m stolen during the rule of former President Frederick Chiluba. As the BBC reports, Chiluba is on trial at the Magistrates Court in Lusaka, charged with corruption; The civil action was brought in Britain because the allegedly stolen money passed through bank accounts in London.

The BBC did not say which banks were at stake, though it said various officials were involved. According to an older story from the Times of Zambia, an injunction was obtained in June last year in London and Belgium, as well as accounts at a number of banks in London, Jersey, the Isle of Man, Belgium, and elsewhere. We recently described how American banks appear to have happily received large amounts of money from corrupt African rulers, and explained how Britain appears to be at least as bad.


Thursday, May 08, 2008

International News Links

A selection of stories from the last few days. A longer history of news links is available here.
Also see Offshore Watch

Charles Taylor again, and Citibank
May 8 (TJN) - We bring you an update on investigations into the financial affairs of the former Liberian strongman Charles Taylor. The Special Court's chief prosecutor, Stephen Rapp, said a London law firm working with the court had found records of two bank accounts in Taylor's name at Citibank in New York.
(and )

France and Germany to step up drive against evasion
May 8 (FT) - France and Germany want G7 finance ministers to mandate the Organisation for Economic Co-operation and Development to revisit its blacklist of tax havens, in an effort to step up the momentum against tax evasion in the wake of Germany's big Liechtenstein tax investigation this year.

Private banks face tax evasion crackdown
May 8 (FT) - The world’s leading private banks could be facing an international government crackdown on tax evasion. Matters could escalate this month, when European Union finance ministers review arrangements allowing private banking centres, such as Switzerland and Liechtenstein, to retain client confidentiality in return for taxing foreigners’ savings.

Visitors prefer banks in secluded valley
May 8 (FT) - Kleinwalsertal, a picturesque blind valley nestling amid Austria’s western Alps. For more than 100 years, the narrow valley in the Vorarlberg region has enjoyed special status. The valley was ceded to Berlin for customs purposes while retaining Austrian sovereignty. The valley has exploited its special status to develop an additional asset – private banking for foreigners.

AP IMPACT: An islands tax haven for US defense contractor
May 8 – AP - When the Pentagon announced an obscure California company had won a lucrative military contract, no one mentioned any plans for a Caribbean outpost — a tropical shell the company quickly created that allowed it to duck millions in taxes and deflect U.S. lawsuits.

Amendment would prohibit contracting with firms in tax havens
May 7 (Federal Times) - Sen. Byron Dorgan, D-N.D., said May 7 he will offer an amendment to the fiscal 2008 emergency Defense Department supplemental to restrict any of the supplemental funds from going to firms that set up offshore subsidiaries to avoid paying U.S. taxes.

Old Mutual mulls joining the list of companies looking for a foreign tax haven
May 8 – Times (UK) - British American Tobacco, Britain’s twelfth-largest company, paid no UK tax last year. On pre-tax profits of £3.08 billion, the company faced a UK tax charge of £977 million, but this was cancelled out by foreign tax credits, adjustments and deferred charges. A spokeswoman for BAT confirmed that the company paid no corporation tax in the UK during 2007. Building on work by TJN’s Richard Murphy.

West Indies tax havens attract Canadian cash
May 7 (Globe and Mail) - Several of the top 10 destinations for Canadian direct investment abroad in 2007 are known for their favourable tax treatment of foreign money. These include Barbados, the Bahamas, Bermuda and the Cayman Islands, which accounted for 16.5 per cent of total Canadian foreign direct investment last year, up sharply from 5.4 per cent a decade earlier, Statistics Canada said in a report.

Value-Added Taxes: Lessons Learned from Other Countries on Compliance Risks, Administrative Costs, Compliance Burden, and Transition. GAO-08-566, April 4
Highlights -
United States Government Accountability Office, Report to Congressional Requesters (April 2008) Dissatisfaction with the federal tax system has led to a debate about U.S. tax reform, including proposals for a national consumption tax. One type of proposed consumption tax is a value-added tax (VAT), widely used around the world.

Il Corriere della Sera.
Two Sicilian businessmen have been arrested together with a Swiss banker for illegaly exporting capital out of Italy in a "mafia" linked case. The Swiss banker is the co-director of the Arner Bank, in Lugano, and a member of a Swiss banking association. In Italian.

The Copenhagen Consensus
April (Foreign Affairs) The Danes are passionate free traders. The World Economic Forum's Global Competitiveness Index ranks Denmark third, just behind the United States and Switzerland. Denmark's financial markets are clean and transparent, its barriers to imports minimal, its labor markets the most flexible in Europe, its multinational corporations dynamic and largely unmolested by industrial policies, and its unemployment rate of 2.8 percent the second lowest in the OECD. On the other hand, Denmark spends about 50 percent of its GDP on public outlays and has the world's second-highest tax rate, after Sweden; strong trade unions; and one of the world's most equal income distributions.

May 7 (Tax Research) – Richard Murphy unpicks a CEO’s remuneration package to look at one of the real reasons why a company is relocating to a tax raider haven. Follows a series of Murphy investigations into companies that claim to be relocating because of UK tax law.

In Europe, New Scrutiny of Ethical Standards
May 7 (NYT) - A series of bribery investigations at leading European companies has helped to accelerate compliance with global anticorruption standards as managers recognize the risk to their brands and reputations, legal analysts and international regulators say.

Top UBS banker detained by US
May 7 (FT) - One of the most senior private bankers at UBS, the world’s leading wealth manager, has been detained by authorities in the US investigating whether the Swiss bank helped its American clients evade tax.

UBS Announces $10.9 Billion Loss, Job Cuts, and Tax Probe
May 7 (NYTimes) - The Swiss ban UBS said Tuesday it had sold $15 billion of subprime mortgage debt and would cut 5,500 jobs as part of its cleanup. But the bank already faces new challenges elsewhere. Customers are withdrawing money from its asset- and wealth-management business and it is still looking for a long-term strategy for its investment banking unit.

End-of-the-World Trade
LRB ( May) – A profound, fascinating and intensely readable exploration of the worlds of risk, credit and international finance.

Knowing me, knowing you
May 6 (Guardian UK) In Norway, you can look up anyone's income and tax payments on the internet. And why not? Norway makes these figures available to increase transparency in society. The idea is that when everyone knows what everyone else is earning the risks of personal corruption are less.

Seven habits finance regulators must acquire
May 6 (FT) by Martin Wolf“Simply stated, the bright new financial system – for all its talented participants, for all its rich rewards – has failed the test of the market place.” Paul Volcker, April 8 2008 Tighter regulation is desirable in the longer-run interests of the industry itself, let alone the public’s. I would like to analyse what I see as the fundamental issues. I am influenced in doing so by an excellent recent paper* from Nouriel Roubini of New York University’s Stern Business School.

A strategy to promote healthy globalisation
May (FT) – By Lawrence Summers - The US should take the lead in promoting global co-operation in the international tax arena. There has been a race to the bottom in the taxation of corporate income as nations lower their rates to entice business to issue more debt and invest in their jurisdictions. Closely related is the problem of tax havens that seek to lure wealthy citizens with promises that they can avoid paying taxes altogether on large parts of their fortunes. It might be inevitable that globalisation leads to some increases in inequality; it is not necessary that it also compromise the possibility of progressive taxation.

Prem Sikka on the tax avoidance scam operated by some PFI companies
May (Chartist) - The operation of the Private Finance Initiative (PFI) provides illustration of the ways in which corporations feed off the taxpayer and then develop strategies for eroding the tax base.

French Firm Scrutinized In Global Bribe Probe
May 6 (WSJ) - French and Swiss authorities are investigating whether Alstom SA, a Paris-based engineering giant, paid hundreds of millions of dollars in bribes to win contracts in Asia and South America between 1995 and 2003, people involved in the matter say.

Swiss banks refuse blame for foreign clients' tax evasion
May 5 (AP) - Swiss banks cannot be expected to police foreign clients' tax affairs, one of the country's top banking officials said Monday, rejecting German demands for greater cooperation to catch tax evaders.

The world needs a workable air travel tax
May 5 (FT) – An exploration of the possibilities and pitfalls in an air travel tax.

Vanuatu to ditch tax haven
May 6 – The Australian - Vanuatu Government will scrap its secretive company law provisions within months as part of a legal overhaul aimed at abolishing the Pacific nation's reputation as an international tax haven.

Vanuatu political split over tax-haven status
May 7 (The Australian) - Australian Federal Police's $100 million money laundering sting in Vanuatu has caused a political rift in the Pacific nation, with its finance minister chastising the corporate regulator over its plan to abolish the country's tax haven status.