Wednesday, July 30, 2008

Conning the Congo: $15 billion in capital flight

Two reports have just emerged highlighting the scale of transfer pricing abuses and capital flight from the Democratic Republic of Congo (DRC), one of Africa's most poverty-stricken and conflicted nations.

One is from Greenpeace International, whose new report Conning the Congo describes how a Switzerland-based logging company, the Danzer Group, has been exporting timber products at below world market price to shift profits out of the Congo to its offshore subsidiary, Interholco:

"Internal Danzer Group documents show in great detail the price fixing arrangements between the Group’s Swiss-based trading arm Interholco AG and the parent firm’s logging subsidiaries in the DRC and the Republic of the Congo. The DRC-based Siforco sells its wood to Interholco at an official price below the true market value of the wood. The shortfall is made up through unofficial payments into offshore bank accounts in Europe, enabling the Danzer Group to evade the payment of a variety of taxes to which it is liable in the DRC."

A second report, neatly complementing the first, comes from Washington-based Global Financial Integrity, which estimates that the DRC lost an estimated $15.5 billion due to capital flight from 1980 to 2006. As the accompanying press release says:

"'pervasive corruption,' and trade mispricing in goods and services led to a per annum loss of nearly $600 million dollars from the DRC economy. Notes the report’s author, lead economist Dev Kar, “With that money, the DRC could have paid off its entire external debt, which is $11.2 billion.”

And it continues:

"If the DRC would have been successful in stemming this capital flight through prudent macroeconomic policies and better governance, not only would the DRC have paid off its entire external debt at end 2006 (US$ 11.2 billion), another US$4.3 billion would have been left to add to the country’s foreign exchange reserves or used to invest in infrastructure and human capital."

This all follows a broader report from the University of Amherst, Massachusets, using different methodology, estimating capital flight of over $600 billion from Africa from 40 African countries from 1970-2004, including imputed interest earnings (and "just $420 billion if interest earnings are not included; still nearly twice these countries' external debt in 2004).

The reports this week from Greenpeace and GFIP coincide with the start of a critical phase of a government-led legal review of forestry concessions in the DRC.

The Greenpeace report, highlighting the extent of tax evasion in the logging sector, calls on the DRC government to cancel non-compliant logging titles and to enforce the May 2002 moratorium on the awarding of new titles and the extension and / or renewal of existing ones.

Speaking at the launch of the Greenpeace report in Zurich, on 30th July, Bruno Gurtner, chair of the international board of Tax Justice Network, described how transfer mispricing practices "prevent governments from collecting a fair and appropriate share of taxes from multinational corporations", noting also that "almost two thirds of the worldwide trade in goods and services do not take place on the free market but in transactions between subsidiaries of the same corporate parent."


International news - July 30

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

Democratic Republic of Congo Lost $15.5 Billion in Capital Flight Since 1980, According to Global Financial Integrity Report
July 24 (GFI) – The Democratic Republic of Congo (DRC) lost an estimated $15.5 billion due to capital flight from 1980 to 2006, according to a new report from Global Financial Integrity (GFI), a program of the Center for International Policy. The report was prepared using data from the International Monetary Fund and World Bank and represents the most up-to-date figures for illicit capital outflow from the DRC.

18,857 firms: one registered address. Ugland House goes to Washington.
Jul 25 (TJN) - The U.S. Government Accountability Office states that Ugland House, George Town, Cayman Islands, whose sole tenant is the law firm Maples & Calder, is now the registered office of 18,857 distinct legal entities. Featuring TJN senior adviser Jack Blum, whose testimony can be see here.

Sub-prime - a crisis in journalism?
Jul 25 (TJN) - In an important article, independent journalist Paul Lashmar, has explored how newspapers and other media covered the developments in the financial markets which led up to the sub-prime crisis in 2007.

Swiss lawyer urges governments to help tax evaders "come clean"
Jul 24 (TJN) - Philip Marcovici, partner in Zurich of one of the largest international law firms, stresses that “[wealth] owners need to understand that non-compliance with tax laws is simply not an option in today’s environment. Breaking the law carries criminal, financial and reputational risks”.

The challenge offshore banking poses
Jul 25 (Tax Research UK) - James Henry has written an amazing article in the US magazine The Nation regarding the US Senate hearings on UBS and LGT. It’s lengthy, and I recommend it in full, but I select some elements here. Read the full story here (recommended)

Tesco tax avoidance schemes can form part of libel case, judge rules
July 30 (Guardian) – A judge ruled that details of elaborate offshore corporation tax avoidance schemes operated by Tesco using partnerships and holding companies in Switzerland and Luxembourg were allowed to be introduced into evidence in a libel case the supermarket chain is bringing against the Guardian. Tesco must decide by September 15 whether to accept the Guardian's offer of an apology and damages.

France flags OECD tax meeting after evasion probe
July 30 (Reuters) - France and Germany want OECD countries to meet in October to boost the struggle against tax evasion after an international scandal centred on Liechtenstein, French Budget Minister Eric Woerth said.

New deal offered on tax haven cash
Jul 27 (Times) - Investors who have stashed money in tax havens in Europe and the Channel Islands are to be asked to give themselves up to HM Revenue & Customs in exchange for reduced penalties, in a move designed to flush out those with secret savings in offshore bank accounts ahead of legal moves by the Revenue to force 117 foreign and UK institutions to disclose customers’ details.

The great offshore riddle: keeping the taxman at bay
Jul 27 (Times) - With offshore account-holders coming under attack from HM Revenue & Customs, which is now hoping to flush out Britons with billions of pounds hidden overseas, here is a handy guide to the safe way to save offshore.

Editorial: The noose gets tighter
Jul 22 (Cayman Net News) - Two reports last week, one by Reuters and the other in Time magazine, must have raised the consternation level on the part of offshore bankers everywhere.

Tax haven probe targets rich Britons
Jul 21 (FT) - About 300 wealthy Britons who secretly salted away more than £1bn ($2bn, €1.26bn) in the tax haven of Liechtenstein are facing investigation and possible criminal prosecution by the UK tax authorities.

Tax answers for the nonplussed non-doms
Jul 28 (FT) - After more rewrites than a Hollywood script, the new rules for individuals not domiciled in the United Kingdom are now in their final form. David Kilshaw of accountants KPMG reviews the position and assesses what it means for taxpayers.

Tax tourists and the crown prince of thieves
Jul 26 (Sydney Morning Herald) - Adele Horin muses on tax evasion, theft, and the importance of honest work, such as driving taxis.

Alaska Senator Is Indicted on Corruption Charges
Jul 30 (NYT) - Senator Ted Stevens of Alaska, the longest-serving Republican senator in United States history and a figure of great influence in Washington as well as in his home state, has been indicted on federal corruption charges.

Executive Refuses to Answer Tax Haven Questions
Jul 26 (Reuters) — The group managing director of the Westfield Group, a major shopping mall group based in Australia, refused on Friday to answer questions before a Senate subcommittee investigating international tax havens.

Bank memos raise questions about Lowys' dealings
Jul 24 (The Age) – Billionare Frank Lowy and his sons used the cloak of secrecy provided by a Liechtenstein bank to buy shares in the Westfield Group on behalf of the family in 1997, according to an internal bank memo obtained by a US Senate committee.

Working Paper No. 08/185: Rising Income Inequality: Technology, or Trade and Financial Globalization?
Summary: We examine the relationship between trade and financial globalization and the rise in inequality in most countries in recent decades. Whereas trade globalization is associated with a reduction in inequality, financial globalization-and foreign direct investment in particular-is associated with an increase.

Nigeria: NNPC Rejects Tax Exemption for NLNG Contractors
18 July (Leadership Nigeria) - The House of Representatives Committee on Gas has expressed deep concern over the attitude of Nigerian Agip Oil Company Limited (NAOC) for its poor response to the efforts to amend the Nigeria Liquefied Natural Gas (NLNG) fiscal incentives, guarantees and assurances Act by the House.

Rwanda: Paying Taxes for Economic Independence
18 July - AllAfrica - President Paul Kagame has urged tax payers to be more compliant, as it is the only way for Rwanda to be economically independent. Kagame was speaking at the 7th Taxpayers' Day, during which Rwanda Revenue Authority (RRA) also celebrated its 10th anniversary.

Senators Score IRS for Failing To Pursue Offshore Tax Havens
Jul 25 (NY Sun) - The Senate Finance Committee is pressing the Internal Revenue Service to escalate its policing of offshore accounts for instances of tax evasion. During a hearing yesterday, senators Kerry and Conrad, in particular, criticized the IRS for not doing more to investigate such funds.

IMF set to end offshore 'stigma'
July 14 (FT) - The distinction between "offshore" and "onshore" financial centres has been dropped by the International Monetary Fund, in a victory for more than 40 small countries that complained they had been unfairly stigmatised in the fight against financial crime.

Tax consultations to be launched
Jul 28 (FT) - The government will today launch three consultations designed to improve the tax status of UK investment funds. The moves were first flagged in the budget in March in response to complaints from the industry that some tax rules set it at a disadvantage to funds based in Luxembourg and Ireland.

Siemens enters crunch week in bribery scandal
Jul 27 (FT) - The legal battles surrounding Siemens’ long-running €1.3bn ($2bn) bribery scandal reach a critical point this week with the first court verdict expected on Monday and the engineering group’s supervisory board expected to decide on Tuesday whether to sue former managers for damages.

Fannie’s and Freddie’s free lunch
Jul 24 (FT) - Much has been made in recent years of private/public partnerships. The US government is about to embark on another example of such a partnership, in which the private sector takes the profits and the public sector bears the risk. The proposed bail-out of Fannie Mae and Freddie Mac entails the socialisation of risk – with all the long-term adverse implications for moral hazard – from an administration supposedly committed to free-market principles.

A winning formula for the next UK election
July 24 (The First Post ) - Under Mrs Thatcher and her New Labour acolytes, the British public were generally persuaded by the package of right-wing economics and left-wing cultural politics. Now, what looks like emerging as the next popular political formula is a just economic order coupled with the re-moralisation of society. Whichever party can recognise and respond to this new political landscape will dictate the future and win the next election.

We must break the prism of corporate interests
July 24 (Guardian) - Reform of financial regulations is to be carried out by the City elites who profit from their current laxity

How to stop erosion of our tax base
July 24 (FT) – A letter on the “anger and alarm” from British-based multinationals concerning Treasury proposals for corporate taxation from Lord Wallace of Saltaire.

Sub prime – a crisis in journalism?
July 18 (Press Gazette) - “With Enron and WorldCom their problems were in the company accounts if you knew where to look. But the composition of CDOs were known to a handful of people and do not appear in company accounts. They are a secret and impossible to crack without a whistleblower.”

Internet shopping: Cheap DVDs coming soon to your HMV - via a nifty legal loophole and an offshore tax haven
July 19 (Guardian) - HMV is extending to its high-street stores a controversial VAT-avoidance scheme that it currently operates solely through the group's website, which is based offshore. The move will offer shoppers discounts and free delivery on out-of-stock titles, at the expense of Treasury coffers.

Copper mining in Zambia: The developmental legacy of privatisation
July (Institute for Security Studies) - This paper discusses the impact of copper mining on local communities and the contestations over control of and access to mineral wealth. It provides a background to mining in Zambia up to 2000, reviews the ‘resource curse’ theory in relation to Zambia and critically assesses the performance of the copper mining industry after privatisation. Finally, the paper discusses the impact of large-scale mining on local communities.


Super-rich tax cheats and their lawyers

If you have a few spare minutes, take a look at this well-crafted news snippet, which covers the current U.S. Senate Permanent Sub-Committee hearing into the dark side of Swiss banking giant UBS and the European principality of Liechtenstein (the latter often associated with the type of business that even the grubbiest of Swiss cantons would prefer not to handle).

In an exquisite moment towards the end of the film, David Lowy's lawyer inadvertently gives the game away on camera, revealing his strategy to distract public attention from the core issues. A rare moment of honest journalists being able to penetrate behind the wall of spin and nonsense that protects the rich and powerful from public scrutiny.

Also note the quote from Warren Buffett:

". . in our office 15 people cooperated in a survey out of 18 - my total tax - payroll taxes plus income taxes - mine came to 17.7% - the average for office was 32.9% there wasn't anyone in the office from the receptionist up who paid a lower tax rate. And I have no tax planning, I don't have an accountant, I don't have tax shelters, I just do what congress tells me to do."


Friday, July 25, 2008

18,857 firms: one registered address. Ugland House goes to Washington.

In its report to the U.S. Senate Finance Committee, the U.S. Government Accountability Office states that Ugland House, George Town, Cayman Islands, whose sole tenant is the law firm Maples & Calder, is now the registered office of 18,857 distinct legal entities. This news was greeted with some incredulity at the Committee's hearings on 24th July, where it was noted that 5 per cent of these entities were wholly U.S. owned, and up to half had a U.S. billing address.

Addressing the Committee's hearings, TJN senior adviser Jack Blum said it was completely unacceptable for offshore corporations to continue to be treated as beneficial owners and he proposed that, amongst measures to tackle tax evasion the qualified intermediary programme, which was comprehensively abused by the U.S. division of Swiss private banking giant UBS, should quite simply be abolished.

In a dramatic intervention during discussions with Inland Revenue Service Commissioner Frank Ng, Committee Chairman Kent Conrad (D-N.D.) showed his exasparation at the lack of progress being made in tackling tax havens: "I don't think you guys are taking this seriously. I'm all done defending you."

Referring to the difficulties facing national authorities in a world of globalised financial markets, Jack commented:

"The regulators are in the position of police on a freeway without a speed limit using bicycles to stop Ferraris. The tax avoiders and tax cheats see national borders as their friends and freely use secrecy jurisdictions and jurisdictions with lax trust, corporation and insurance laws to create structures that hide money from tax collectors and law enforcement."

You can watch Jack's testimony, and that of other expert witnesses called to the Finance Committee hearing here.


Sub-prime - a crisis in journalism?

In an important article, independent journalist Paul Lashmar, has explored how newspapers and other media covered the developments in the financial markets which led up to the sub-prime crisis in 2007.

He opens the article citing former BBC economics editor, Evan Davis, saying that he felt that journalists did not adequately fulfil their role in helping the general public to understand the problems that were building up:

"I do ask" Davis is quoted saying "whether we did our best to warn people of impending problems during the upswing of the [economic] cycle."

The question is rhetorical, but the answer must be a resounding no.

Lashmar's research into reporting prior to the sub-prime market collapse in mid-year 2007 suggests that very few journalists had made any serious investigation into how significant economic risks were being disguised and hidden in complex offshore structures. Too often, the journalists simply accepted the line that these structures formed part of a new "innovative" form of financial capitalism: an issue covered in the editorial of the most recent edition of Tax Justice Focus. More importantly, journalists were deterred by a dangerous combination of complexity and opacity from asking crucial questions about how offshore structures actually add economic value to the wealth creation process.

The upshot of this failure to lift the rocks to see what lurked underneath, is that journalists contributed to the build up of the current banking crisis through their largely uncritical analysis of the free market miracle, and misled the public in the process. This led to a situation in which the public were lulled into a wholly false sense of security, with lamentable economic and social outcomes which challenge the bedrock of liberal economics: without perfect market knowledge, buyers cannot understand the nature of the transactions they engage in. As Paul de Grauwe commented recently in the Financial Times:

If we have learnt one thing from the credit crisis it is that individuals did not understand the “truth” and, it must be admitted, neither did economists. Individuals who sold the new financial instruments did not understand the risk embedded in these instruments, nor did the buyers. When the bubble started many interpreted the happy turn of affairs as permanent and took on massive levels of debt that turned out to be unsustainable. When the bubble burst, they did not understand what had happened and nor did most experts. Our world is one of a fundamental lack of understanding of the “truth”.

Its not as if the warning signs were not flashing red long before 2007. Lashmar reports that major figures in the City of London were raising alarms about "toxic" collateralised debt obligations (CDOs) in 2002. This blogger attended a meeting attended by senior officials of the UK Financial Services Authority in 2004 when similar warnings were given, but the clear impression was conveyed by the officials in attendance that the FSA regarded such concerns as (a) alarmist, and (b) not their responsibility since so many of the derivative instruments involved were being traded offshore.

Experts associated with TJN were raising concerns about unsustainable levels of leverage in 2003. They were also commenting on the rapid growth in the number and size of hedge funds operated from tax haven jurisdictions, many of which lack capacity to regulate such funds effectively, or even decline to do so entirely. More recently, Richard Murphy, for example, has raised concerns about how Jersey, which was a major centre for the type of mortgage asset securitisation that underlay the sub-prime credit crisis, now allows hedge funds to operate entirely without regulation. The UK government has responsibility for the good governance of its Crown Dependencies, of which Jersey is one, but still shrugs its shoulders and allows business to continue as usual. This attitude should not be allowed to continue one day further: important commentators have already signalled that the days of unregulated financial capitalism are over. Martin Wolf of the Financial Times wrote in March 2008:

Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Josef Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.

The British government, beleagured on all sides and facing a massive loss of public confidence, must urgently accept its primary responsibility for protecting the public interest from the predatory activities of its Crown Dependencies and Overseas Territories: without any further delay. The current Treasury Committee hearings into the role of offshore financial centres in undermining financial stability and transparency is an important step in this direction (click here for TJN's major submission to this inquiry), but we need clear evidence that this inquiry is supported by both the Prime Minister and the Chancellor, and they will take action on its findings.

TJN has been warning for years about the hazards that tax havens have created in the new world order of disorder. These hazards extend beyond the creation of unregulated and undisclosed market risks. Tax havens create a crimonogenic financial infrastructure, which both encourages and facilitates crime and grand corruption. By and large journalists have failed to make this connection. They are not alone in this failure: politicians and researchers have also largely ignored these issues. But the fourth estate is supposed to act in the public interest in exposing what goes on below the surface, and this is generally not happening.

Several reasons might explain this failure. First, the bulk of financial "innovation" in the past decade has been both complex and opaque, and therefore difficult to investigate. Second, the advertising revenue from banks, accounting firms, and other major financial market players, contributes a significant income to financial papers and the specialist media: dare we suggest that this might dull objectivity. Third, and perhaps most insidiously, major media companies throughout Europe and America are owned by individuals and companies who are themselves users of complex offshore structures (and they don't come much more complex than Rupert Murdoch's News International, to cite one example), rendering editors less likely to take a critical stance of how tax havens are used.

Whatever the reason, there has clearly been a major failure on the part of financial journalists, and the few exceptions prove the point. Lashmar does the public a major service by raising this important point.


Thursday, July 24, 2008

Swiss lawyer urges governments to help tax evaders "come clean"

“Bank secrecy can no longer be misused to permit the evasion of tax.”

The importance of this statement is highlighted by the identity of its author: Philip Marcovici, partner in Zurich of one of the largest international law firms, Baker & McKenzie, and Chair of that firm’s Global Private Banking Practice Group (“Time for Calm on Secrecy” Financial Times, June 18, 2008).

Marcovici stresses the changing international environment: “Wealth owners need to understand that non-compliance with tax laws is simply not an option in today’s environment. Breaking the law carries criminal, financial and reputational risks”.

The role of the wealth management industry is criticized by Marcovici as outdated:

"In today’s transparent world, wealth owners are badly served by advisers who emphasise bank secrecy as a means of avoiding taxation. It is surprising that Singapore, a model of strategic planning, seems to be falling into the trap of secrecy-based private banking, maintaining a system that attracts Europe’s tax evaders fleeing the tightening grip of the EU Directive [on the Taxation of Savings] . . . "

He continues:

"At the moment, the wealth management industry is not doing enough to address the real long term needs of wealth owners. While a substantial and growing business, in all too many quarters little effort is made to understand the changing international environment within which banks operate and on training and knowledge management.

Given that many advisers and intermediaries are living in the past, great care needs to be taken by wealth owners who obtain advice from those who have a financial interest in enabling assets to continue to be maintained on a non-declared basis."

Marcovici recognizes that the efforts to confront cross-border tax evasion and for governments to exchange tax related information have become more intense: the U.S. Qualified Intermediary rules, technology, the growing ease with which tax authorities can obtain credit card, financial and other information, greater co-operation among governments resulting in wide information sharing, and the EU Savings Tax Directive and efforts to close loopholes in that Directive.

Marcovici declares, however, that “it is also time for governments to make it easier for taxpayers to ‘come clean’,” urging a “creative approach to resolving a global problem.”

"Wealth owners must become familiar with ways to address issues of undeclared money including voluntary disclosure, amnesty arrangements and review of statutes of limitations and other relevant rules that can help families to “come clean”. Wealth owners are doing their children no favours by not thinking seriously about the future…..

A solution to the issue of undeclared funds will need to involve financial institutions and governments working together co-operatively . . . While bank secrecy has been abused, many wealth owners deserve a sympathetic approach to regularizing undeclared monies. That will require the co-operation of government and banks and other providers of services to wealth owners."

The Marcovici article demonstrates the concerns of wealth owners with undeclared funds about their fate, unless there is a “sympathetic approach” by governments to wealth owners “regularizing” those undeclared funds. However, as wealth owners become more concerned about their illegal activities, why should governments be "sympathetic" to helping wealth owners climb out of their self-created illegal morass?


Friday, July 18, 2008


From the Editors

July 18th, 2008

The Research Edition - click here
The second quarter 2008 edition of Tax Justice Focus is a special edition drawing on papers presented at the AABA/TJN research workshop held in Essex, UK, on July 3-4. It is edited by Nicholas Shaxson and John Christensen. (For access to all the papers at the Essex workshop, click here.)

In the editorial, Not On My Watch, Please, we focus on the key theme of this edition of Tax Justice Focus: the role that tax havens and tax and regulatory "competition" play in the current global financial crisis. We look at how tax havens have encouraged and allowed financial and other companies to roll back regulation, ushering in a period of dangerous indebtedness especially in the United States and Britain, the two countries at the forefront of financial "innovation" in recent years. Tax havens have also magnified two other major interrelated elements of the crisis: complexity in international finance, and secrecy.

In our lead article Shadow Regulation and the Shadow Banking System, JIM STEWART, Senior Lecturer in finance at Trinity College, Dublin, scrutinises the vast global "shadow banking" system that has emerged stealthily in recent years. He examines the specific case of how the International Financial Services Centre (IFSC) in Dublin enabled large institutions like the now-collapsed U.S. financial giant Bear Stearns to escape regulation and build up dangerously high levels of borrowing, where one dollar of equity financed $119 of gross assets. Stewart's original workshop presentation can be downloaded here.

Stewart's analysis is complemented by PHILIP SARRE'S article on page six, Global Financial Flows: the big picture, in which he examines the results of deregulation of global financial flows, which was supposed to promote efficient capital markets and make more capital available to developing countries. He finds the results disappointing: since 1971 annual net capital flows increased eightfold (while global GDP simply doubled) but open capital markets seem to have resulted in capital being concentrated in the wealthier countries, with only small and volatile flows going to poorer nations. He also identifies discrepancies in reported assets and liabilities adding up to six percent of global GDP. Sarre's original workshop paper can be downloaded here

The following article on page nine, In Need Of a Fix: double tax avoidance rules as the institutional foundation of tax competition by THOMAS RIXEN at the Social Science Research Centre in Berlin, powerfully argues that under current rules in international taxation countries seek to preserve sovereignty and to resist allowing international tax agreements to impinge on their domestic national tax systems. The result, he concludes, is counter-productive, since these rules then set in motion powerful international dynamics of tax competition which result in significant reductions of sovereignty, and erosion of democratic choice in the countries affected. He proposes a bold solution. Rixen's original workshop paper can be downloaded here.

The next article, Making The Link: tax, governance and civil society by OLIVIA McDONALD of Christian Aid, takes a different tack. Building on research and analysis by Alex Cobham, Mick Moore and Nardia Simpson in TJF vol. 3 Issue 2, into the links between taxation and political accountability and state-building in developing nations, she explores how Christian Aid is using its research strengths and wide networks on the ground in Africa and elsewhere to push this issue forwards. It will have major implications for Christian Aid's lobbying and campaigning efforts.

Other key articles:

* JOHN CHRISTENSEN on page 13 looks at a series of submissions made by the Tax Justice Network and various others to the UK Treasury Committee, which has launched an inquiry into the role of tax havens. This is a crucial matter, as Britain is at the heart of the global offshore infrastructure. TJN's submission to the Treasury Committee, Tax Havens: Creating Turmoil, is available for download here.

* ATTIYA WARIS records a tax justice seminar in Amsterdam in May, organised by TJN-Netherlands to bring together tax practitioners, finance ministry officials, academics, journalists and non-governmental groups to look at the Netherlands' role in international taxation as it relates to developing countries.

* SOL PICCIOTTO reviews an important new book on international taxation, International Tax as International Law: an analysis of the international tax regime by Reuven Avi-Yonah, a leading academic expert on international taxation. The review looks at some of the ways multinational companies abuse international taxation, and Picciotto finds himself in agreement with Thomas Rixen (above) as to possible solutions.

* JOHN CHRISTENSEN follows this with the more light-hearted The Language of Offshore which nevertheless examines a serious point: how language has been hi-jacked by the boosters of tax havens to lend support for their damaging world-view. The article contains a handy table, the "TJN Dictionary of Offshore Obfuscation" which unpacks some of the things the supporters of offshore say, to reveal what they really mean.

* SILKE ÖTSCH then complements John Christensen's piece on the language of offshore with a look at the imagery of offshore, and announces a photo competition. The idea is to deconstruct common images of tax havens as sunny island paradises and paragons of freedom, and show them for what they really are.

The final item on page 18 is a calendar, which leads up to a key focus of TJN: the international summit meeting on finance for development to be held on November 29th to December 2 in Doha, Qatar.



US Senate - Carl Levin's statement

We would like to point to a statement by Carl Levin before the U.S. Senate Permanent Subcommittee on Investigations. A few paragraphs are worth highlighting, such as this one:

About 50 tax havens operate in the world today. Their twin hallmarks are secrecy and tax avoidance. Some tax havens are little known places like Andorra and Vanuatu that few Americans have heard of. Others, like Switzerland and Liechtenstein, are notorious for operating behind an iron ring of secrecy. Billions and billions of dollars worth of U.S. assets find their way into these secrecy tax havens, aided by banks, trust companies, accountants, lawyers, and others. Each year, the United States Treasury loses an estimated $100 billion in tax revenues from offshore tax abuses. Tax havens are engaged in economic warfare against the United States and honest, hardworking American taxpayers.

That's quite correct. The only thing he didn't mention (and it isn't his business to do so) is that this problem is replicated around the world, with developing nations in Africa and elsewhere especially vulnerable to the offshore menace.

This follows a Senate report in 2006 which states:

A sophisticated offshore industry, composed of a cadre of international professionals including tax attorneys, accountants, bankers, brokers, corporate service providers, and trust administrators, aggressively promotes offshore jurisdictions to U.S. citizens as a means to avoid taxes and creditors in their home jurisdictions. These professionals, many of whom are located or do business in the United States, advise and assist U.S. citizens on the opening of offshore accounts establishing sham trusts, and shell corporations, hiding assets offshore, and making secret use of their offshore assets here at home.

Absolutely. Something will be done about all this. We would like also to highlight this statement from Carl Levin, which we applaud, as it's something that we've recently called for:

I don't think that any bank that goes to the extent that UBS has gone through to avoid doing what their agreements with the United States require them to do, should be allowed to continue to do business unless they clean up their act

TJN's John Christensen was quoted in Time Magazine and on ABC prime time television on all this. More details from the hearings are available here. The full report from the Permanent Subcommittee is here.


Thursday, July 17, 2008

Hans-Adams II and the cloak of secrecy

The US Senate Permanent Subcommittee on Investigations is scheduled to hold a hearing today which will, in their rather restrained language,

"examine how financial institutions located in offshore tax havens, including Liechtenstein and Switzerland, may be engaged in banking practices that could facilitate, and in some instances have resulted in, tax evasion and other misconduct by U.S. clients."

This comes amid an ongoing scandal concerning the Swiss bank UBS under investigation for helping wealthy US citizens evade taxes. TJN's John Christensen was on ABC News on U.S. television last night talking about the affair, as well as the lawyer Jack Blum, who is a Senior Adviser to TJN.

The Financial Times has an advance copy of a 100-page report saying the Subcommittee will accuse UBS and Liechtenstein’s LGT Group, owned by Prince Hans-Adam II of Liechtenstein (you should refer to him as Johannes Adam Ferdinand Alois Josef Maria Marko d'Aviano Pius von und zu Liechtenstein, styled HSH The Sovereign Prince of Liechtenstein: see the picture) of using the “cloak of bank secrecy laws” to help American clients evade billions of dollars in taxes. The report estimates the US Treasury loses $100bn (€63bn) annually to offshore tax abuses.


Wednesday, July 16, 2008

Britain's disgrace (not tax havens, this time)

Tax havens are used routinely by many of the world's wealthiest and most powerful people, n ot content with the privacy and other laws put in place by democratically accountable parliaments, to suppress information that they do not want in the public domain. One set of rules for them, it seems and another set for the rest of us.

Here is another way that they do so. For anyone interested in free speech, this article by George Monbiot is well worth reading, and it is highly important. It impacts on TJN's work, since it prevents much vital information about international skulduggery from emerging into the public domain. Here is a short extract:

"The libel laws of England and Wales are tilted so heavily against the defendant and involve such monumental costs that they amount, in effect, to censorship by private interests: a sedition law for the exclusive use of millionaires."

He is not alone. The campaigning organisation Global Witness has its own campaign, called Tilt the Balance, stemming from their anger at these sorts of practices.

Today's TJN blogger can confirm from experience as a published author (see here) that what Monbiot says about the threat to free speech is absolutely correct (though he is perhaps a bit harsh in his judgement of some British newspapers.) We hear stories about lawyers sitting in London, reading new books, then ringing up foreign dictators and crooks and saying "did you know that someone is writing xyz about you? You didn't? Well, let me tell you about it (and, of course, I can represent you . . .) "

It is right that Britain should have libel laws like any other country. It is not right that Britain's laws are so far removed from what other countries do that they have become, as Monbiot says, a global menace. We are therefore heartened to see him say this:

Yesterday two men with whom I seldom agree, the US senators Arlen Specter and Joe Lieberman, launched a new bill, called the Free Speech Protection Act, to defend US citizens against English libel law. Our laws, they argue, threaten the "free-flowing marketplace of ideas" which "enables the ideals of democracy to defeat the totalitarian vision of al-Qaida and other terrorist organisations". English libel law is an international menace, a national disgrace, a pre-democratic anachronism. It defends crooks, terrorists and tyrants from investigation. It threatens the free speech of people all over the world and causes untold damage to the reputation of this country. And neither the British government nor the British parliament gives a damn.

Look at the top quote in this story again "a sedition law for the exclusive use of millionaires." Could it be a co-incidence that Britain is at the very centre of the tax haven world, and that its libel laws are so aggressive and aggressively pursused overseas?


International News - July 16

** Also see for a permanent list of past story summaries; and Offshore Watch for more stories. **
Tax havens and the financial crisis
July 15 (TJN) - In a few years, we shall look back at this time as one that redefined the landscape of the US financial system and, by association, the workings of global capital markets. What roles have tax havens played in this gigantic, unfolding global mess? Some important recent pointers can be found here. But we will also be turning to this in the next edition of Tax Justice Focus, due out in the next few days.

Research workshop papers
July 10 (TJN) - The Association for Accountancy and Business Affairs, which hosts the Offshore Watch site, held a most successful conference at Essex University in the UK on July 3-4, in partnership with the Tax Justice Network and the Centre for Global Accountability. The papers are available here.

Nigeria's Blood Oil
July 9 (TJN) - "We have to put in place a tracking system. This is not a new idea. In 2003, Shell proposed the certification of oil exports based on chemical fingerprinting to prevent stolen oil being sold on the open market. Companies operating in Nigeria have the technology to trace oil to individual flow stations.

July 8 (TJN) – On a review of a book by the award-winning journalist Misha Glenny. “He ends with a call for action. The task, which no government wants to confront, is to regulate the global markets and above all the financial markets. National governments (including the British) which issue sanctimonious statements about global crime must start by closing down their offshore banking centres.

Mitchell's miracle in Iceland
July 2 (TJN) - Last August, Dan Mitchell of the Cato Institute and the Center for Freedom and Prosperity Foundation issued a press release about the virtues of Iceland's low-tax, flat-tax economic model. But is Iceland really doing as well as espoused?

Tax Haven Banks and U. S. Tax Compliance
July (US Senate) - The Permanent Subcommittee on Investigations has scheduled a hearing on July 17 to examine how financial institutions in offshore tax havens, including Liechtenstein and Switzerland, may be facilitating tax evasion and other misconduct by U.S. clients.

A national disgrace, a global menace, and a pre-democratic anachronism
July 15 (Guardian) - Britain's libel laws are a gift to the censorious and powerful. It's better to be caught mugging than to be caught speaking freely.

I.R.S. Aims to Give Teeth to a Program Meant to Counter Offshore Tax Avoidance
July 15 (NYT) The Internal Revenue Service plans to tighten the rules for a multibillion-dollar Qualified Intermediary program created to make sure offshore bank customers pay their United States taxes, top tax officials say.

Death of globalisation consensus
July 13 (Project Syndicate) - There was a time when global elites could comfort themselves with the thought that opposition to the world trading regime consisted of violent anarchists, self-serving protectionists, trade unionists, and ignorant, if idealistic youth. They regarded themselves as the true progressives. But that self-assured attitude has all but disappeared.

Shares of Freddie and Fannie plunge as bailout becomes possibleJuly 10 (IHT) - "Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer," Poole told Bloomberg News.

Brazil's Richest Man Attracts Federal Probe
July 12 (WSJournal ) - Federal police Friday searched the offices of Eike Batista, Brazil's richest man, as part of a probe into government corruption and tax evasion.

Citigroup's $1.1 Trillion of Mysterious Assets Shadows Earnings
July 14 (Bloomberg) -- At an investor presentation in May by Citigroup Inc., nowhere mentioned in the 66-page handout were the additional $1.1 trillion of assets that New York-based Citigroup keeps off its books.``The banks will say that it was disclosed. Investors are saying, `Yeah, but it was cryptic. We really didn't know what you were telling us.'''

Time for comrade Paulson to pull the plug on the Fannie and Freddie charade
July 12 (FT)The creation of the Delaware SPV that houses $30 billion worth of the most toxic waste from the Bear Stearns balance sheet (with only $1 billion of JP Morgan money standing between the tax payer and the likely losses on the $29 billion committed by the Fed to fund the SPV on a non-recourse basis) is the clearest example of quasi-fiscal obfuscation I have come across in an advanced industrial country.

International Expansion: US hedge funds head to Asia
to include “This dispels the theory that hedge funds are opting out of London because of changes in tax treatment.

Hedge fund managers throw weight behind Obama
Jul 11 (Reuters) - Hedge fund managers are famous for betting against conventional wisdom, and this year many are doing just that by backing Democrat Barack Obama's White House bid and defying Wall Street's usual embrace of Republicans.

IMF Executive Board Integrates the Offshore Financial Center Assessment Program with the FSAP
Jul 9 (IMF) - In a bid to facilitate a more uniform and risk-based approach to financial sector surveillance and improve coordination of IMF analysis across jurisdictions, provide for a better allocation of Fund resources, and eliminate the need to maintain a potentially discriminatory list of OFC jurisdictions.

Natural Resource Endowments, Governance, and the Domestic Revenue Effort: Evidence from a Panel of Countries
July 1 (IMF) - Countries with large natural resource revenues typically raise less domestic taxation. Our results indicate that the offset between hydrocarbon revenues and revenues from other domestic sources is about 20 percent
Working Paper No. 08/168: The Distributional Impact of Fiscal Policy in Honduras
July 1 (IMF) - This paper uses household survey data to estimate the incidence of tax and spending programs in Honduras.

Liechtenstein wird weich and Angriff auf Vaduz
These two stories suggest that: 1) EU allows Liechtenstein to take part in Schengen in exchange for legal assistance not only in tax fraud, but also tax evasion ONLY with indirect taxes (tariffs, VAT); regarding income tax the text is more ambiguous stating that legal assistance not only in fraud, but also in 'similar offenses'. 2) german government is working on an anti-Liechtenstein-Law. 3) Liechtenstein appears to be willing to water down bilaterally banking secrecy and tax cooperation, in exchange for a DTT with Germany. In German: try

Iran bank's UK unit loses sanctions challenge
July 9 (Reuters) - A London-based unit of Iran's largest bank, Bank Melli, failed in a High Court challenge on Wednesday against an asset freeze imposed by the European Union.

‘Outrageous’ tax avoidance by PFIs must stop, says MP
Jul 8 (WalesOnline) – A Welsh MP Nia Griffith, the Labour MP for Llanelli, said it was “outrageous” that some companies given contracts under the Private Finance Initiative were registered abroad in order to reduce their tax bills, and will bid to change the law today to force firms that build schools, roads and hospitals to pay tax in the UK. (also see here )

Hedge funds invest in Hill allies
July 8 (Politico) - The hedge fund industry is upgrading its Washington operation in preparation for a showdown with Congress next year over taxes, regulations and a host of other issues.

New tax fraud allegations against former Cayman Islands banker
July 8 (Cayman Net News) - New allegations of tax fraud in the US have been made against a former Cayman Islands-based banker, John Mathewson. A new investigation began after another former offshore-based private banker allegedly “informed on Mathewson to the IRS and made a claim under the tax agency’s Informant Reward Program for 10 percent of any funds that are recovered.

Transfer pricing holds clues to international money laundering, terrorist financing, and more
July (Florida International University) – John Zdanowicz, professor and Florida International Bankers Association Chair, Department of Finance and Real Estate in the College of Business Administration, has recently launched a web site,, which enables interested parties to check prices of goods and determine if they are out of line.

Only 1% of Taxpayers Would Be Affected by Obama's Proposal to Increase the Social Security Payroll Tax for the Rich

July 7 (CTJ) - Presidential candidate Senator Barack Obama has proposed increasing the Social Security payroll tax on wealthy Americans to enhance the program's solvency for years to come. While several commentators and politicians have suggested that this would burden the middle-class, only around 1 percent of taxpayers would actually be affected by this proposal.

Jamaica signs double taxation treaty with Spain - Agreement to take island off 'tax haven' list
July 9 (Jamaica Gleaner) - Jamaica has signed a double-taxation treaty with the government of Spain, becoming the first Caribbean English-speaking country to so engage the European nation. But more important, once ratified, it will take Jamaica off Spain's list of 'tax havens' and clear the way for Spanish investors here to pay income tax in one jurisdiction instead of two.

Germany signs Jersey tax deal
Jul 7 (Accountancy Age) - Germany has made an agreement with Jersey for the exchange of information for tax purposes.

Swiss widen probe into BAE arms dealJuly 10 (AP) — Swiss authorities have widened a corruption investigation linked to arms deals by the British company BAE Systems PLC, prosecutors said.

€2bn duty loophole to remain for developers
July 7 (Herald) - A tax loophole allowing wealthy Irish developers to escape stamp duty will not be closed despite the super-rich benefiting by €2bn a year and with exchequer figures showing a shortfall of €1.5bn. Advice to the Government has been to allow the loophole to stay because of a downturn in the construction sector.

Tanzania: No Tax Holidays, Report Says
July 9 (Daily News) - The President's Committee on the Mining Sector has advised the government to stop throwing away the country's riches in lavish tax exemptions, saying the investors don't need any such coaxing. Instead, the Committee recommends increased royalties based on gross rather net-back values, which often suffer from under-declarations and other ways employed to evade tax.

Kenya: MPs Willing to Pay Taxes, Says Kalonzo
July 14 (AllAfrica) - Vice President Kalonzo Musyoka has re-ignited the debate of taxing allowances of members of Parliament, saying the MPs were willing to pay taxes. "All of us in Parliament are willing to be taxpayers," Mr Musyoka said yesterday. "We have to lead from the front.”
City watchdog rejects oil markets loophole
July 15 (FT) - Accusations that Britain’s oil markets operate under a “London loophole” of lax regulation were dismissed on Tuesday by the City watchdog.


Tuesday, July 15, 2008

Tax havens and the financial crisis

Equity markets and the dollar have been diving today, as investors took a jaundiced view of U.S. government plans to rescue the struggling mortgage giants Fannie Mae and Freddie Mac. The scale of what is happening is unimaginable - these institutions own or guarantee at least five trillion dollars (yes, trillons.)

How bad is the rescue plan? Let's turn to Willem Buiter of the London School of Economics, a regular commentator in the Financial Times:

The bail-out of Fannie Mae and Freddie Mac by the combined forces of the US Treasury and the Federal Reserve Board is the ugliest exercise of its kind I have ever observed outside early transition economies and mature banana republics.

Strong stuff. Read his article here, it's worth it (and scary stuff.) He also gives a handy history of some of this, laced with acidic comments. Try this section, for example:

There are many forms of socialism. The version practiced in the US is the most deceitful one I know. An honest, courageous socialist government would say: this is a worthwhile social purpose (financing home ownership, helping my friends on Wall Street); therefore I am going to subsidize it; and here are the additional taxes (or cuts in other public spending) to finance it.

Instead the dishonest, spineless socialist policy makers in successive Democratic and Republican admininstrations have systematically tried to hide both the subsidies and size and distribution of the incremental fiscal burden associated with the provision of these subsidies, behind an endless array of opaque arrangements and institutions.
Off-balance-sheet vehicles and off-budget financing were the bread and butter of the US federal government long before they became popular in Wall Street and the City of London.

The abuse of the Fed as a quasi-fiscal agent of the federal government in the rescue of Bear Stearns is without precedent, and quite possibly without legal justification.

How bad is all this? It's fundamentally bad. Another commentator, for example, said this:

In a few years, we shall look back at this time as one that redefined the landscape of the US financial system and, by association, the workings of global capital markets.

All of these things are tax justice set of issues. For one thing, it is all about taxpayers subsidising some of the wealthiest sections of society. We have written about this kind of thing before.

But there is something else. What roles have tax havens played in this gigantic, unfolding global mess? Some important recent pointers can be found here. But we will also be turning to this in the next edition of Tax Justice Focus, due out in the next few days. Watch this space.


Thursday, July 10, 2008

Research workshop papers

The Association for Accountancy and Business Affairs, which hosts the Offshore Watch site, held a most successful conference at Essex University in the UK on July 3-4, in partnership with the Tax Justice Network and the Centre for Global Accountability. The papers are available here.

The papers are as follows (click on the hyperlinks, where possible, to access the papers.) Some of these papers will be summarised in the forthcoming edition of Tax Justice Focus.

Philip Sarre, Open University
The geography of international financial flows.
Geographers should take more interest in the effects of the international financial system. Penetration of OFC and TNC secrecy would be a useful first step, which would also allow more accurate documentation of financial flows.

Kevin Jestin (Assistant professor Aix-Marseille)
Mutual assistance has developed alongside International Fiscal Law, through conventions to avoid double taxation and tax avoidance and evasion, a process in which international organizations have gone to considerable effort to encourage collaboration among domestic tax administrations through different agreements, but what are the trends and challenges in this difficult process? No link yet.
Alex Cobham, Professor Valpy Fitzgerald and John Roche
Demonstrating the state of play of the international tax research database they are currently developing, and bringing us up to date on the development of the Plato Index. No link yet.

Owolabi M Bakre, University of Essex
“Looting by the Ruling Elites, Multinational Corporations and the Accountants: The Genesis of Indebtedness, Poverty and Underdevelopment of Nigeria” Any genuine efforts to control corruption in developing countries in general and Nigeria in particular must involve an effective legislation that prosecutes the erring local elite, politician, public officials; tames the excessiveness of the Western economic powers-based multinational corporations and sanctions the professional misconduct of accountants.

Alex Cobham (Christian Aid)
This paper questions whether it matters where money comes from and finds it does; money raised from taxation is good for governance. But what does this mean for development policy and practice, particularly for an international charity that supports southern organisations? This paper, based on literature analysis, internal debate and inputs from partner experience, delves into this debate. No link available.

Lauren Damme, Tiffany Misrahi, Stepanie Orel, LSE
Taxation Policy in Developing Countries: What is the IMF’s Involvement?
Over the past three decades, the IMF has been heavily involved in the tax reforms of less developed countries. The standard prescription of the IMF is fewer taxes, fewer rates, fewer exemptions and the implementation of the Value Added Tax (VAT) while avoiding corruption. This paper questions whether this is the right prescription for the South and whether sufficient transparency exists within the IMF process for alternative opinion to be considered.

Andy Wynne
Are public sector accounting and auditing standards discouraging progressive taxation and public investment in developing countries?

Nicholas Shaxson, Associate Fellow, Chatham House, consultant to TJN
“Oil For the People: A Solution to the “Resource Curse”
The notion that mineral-dependent countries like Angola or Iraq are afflicted by a “Resource Curse” is now well established in academic literature. To address this, a more radical approach must now be pushed forwards: distribute mineral revenues directly and equally to all of a country’s citizens, then tax the population directly. This paper will make the case for Direct Distribution, address the objections that have been raised, explore strategies for putting it into place, and propose that organisations such as the Tax Justice Network actively promote it.

Thomas Rixen, Social Science Research Center Berlin, WZB
The Double Tax Avoidance Regime as Institutional Foundation of Tax Competition. Governments will only be able to realize their policy goals if they give up at least part of their formal tax sovereignty. Unitary taxation with formula apportionment is one possible solution.

Loren Ponds, Universität Hamburg

Resolving Multilateral Tax Treaty Disputes: (In)competent Authority in the 21st Century. (Slides) Is there a better way to negotiate the outcome of the disputes and what changes are needed to allow this to happen?

Jim Stewart, Trinity College, Dublin
Low tax Financial Centres and the Subprime Crisis: The IFSC in Ireland.
Financial centres such as the IFSC, Dublin and Jersey have two distinct but associated features: low tax and light touch regulation. Such centres have encouraged the emergence of the 'shadow banking system', with all the harmful consequences that we observe. These centres are not transparent in terms of their activities. Despite the fact that many of the hedge and other funds that have got into difficulties are 'based' in the IFSC in Dublib, this fact is rarely mentioned in news and other reports. Even where banks have faced a credit crisis because of their Irish operations, such as IKB based in Germany, the connection with the IFSC is rarely mentioned, or the relatively low level of regulation of such entities at the IFSC. This paper explores this issue.


Wednesday, July 09, 2008

Nigeria's Blood Oil

World oil prices are central to global inflation, one of the great concerns of central bankers, politicians - and ordinary citizens - around the world. Crude oil supply disruptions, and fears of supply disruptions are crucial factors in this, and no country (except, perhaps Iraq) is more acutely affected by supply disruptions than Nigeria, where well-armed militants routinely take out hundreds of thousands of barrels per day from world markets in armed attacks and in lucrative "bunkering" operations - where oil is siphoned out of oil pipes and sold on world markets, with the proceeds feeding into criminalised politics in Nigeria and elsewhere.

We are heartened, then, to see that Nigeria's president, Umaru Yar'Adua, has called for an international effort to stop the international trade in "blood oil" from Nigeria's Niger Delta. He made the comparison with a campaign originally pioneered by the UK-based non-governmental organisation Global Witness which helped crack down on the international trade on "blood diamonds" (or "conflict diamonds") which were mined by rebel groups destabilising governments in countries like war-torn Angola and Sierra Leone, and made a meaningful dent in these trades and undoubtedly helped shorten and mitigate these terrible wars.

The comparison with "blood oil" is certainly apt: despite its enormous oil wealth, the oil-rich Niger Delta is one of the most dysfunctional and poverty-stricken parts of the world. We therefore warmly welcome President Yar'Adua's words. This must be done - and urgently.

It is important to understand that "bunkering" is much more than it seems. This blogger has interviewed politicians, security experts, analysts and many ordinary people on the ground in the Niger Delta, and it is clear that money from this "blood oil" not only goes to pay for arms (in quite large quantities,) but feeds directly into the Nigerian political system, pushing forwards the criminalisation of the Nigerian already badly distorted economy. And the quantities involved are quite astonishing - estimates range from about a few tens of thousands of barrels per day to half a million, on a bad day. The Nigerian navy appears to be politely looking the other way, as this massive theft goes on. As Dele Cole, a guest columnist in a recent Financial Times Survey on Nigeria commented:

"It is said in the Nigerian military that you will never find a poor admiral. It is easy to see why. Nigeria loses between $4bn and $18bn worth of oil a year to illegal bunkering, depending on the estimates you use. This theft began at about 20,000 b/d. In 2001, it reached 200,000 b/d and it may now intermittently reach 500,000. On a bad day, 25 per cent of Nigeria’s oil exports are illegal."

Think of the numbers here: let's take a very conservative estimate of, say, 100,000 barrels of oil per day being stolen. Today's oil price is around $135 per barrel: that is $13 million per day being channeled into a giant criminal enterprise. Dele Cole estimates a $20m daily turnover.

Someone is buying this oil. It is going into international refineries. Cole offers an interesting solution:

"We have to put in place a tracking system. This is not a new idea. In 2003, Shell proposed the certification of oil exports based on chemical fingerprinting to prevent stolen oil being sold on the open market. Companies operating in Nigeria have the technology to trace oil to individual flow stations. So, if a ship is stopped and contains oil that does not appear to have a legitimate source, a sample can be taken. If there is no record of a sale from the source to the operator of the vessel, then the government could confiscate the oil or require those purchasing it, such as refineries, to verify its provenance. In this way it should be possible to create a paper trail at least as effective as the Kimberley Process, established to curb the trade in conflict diamonds from Africa’s war zones. Even if this cannot stop bunkering altogether, it should at least mean that stolen oil is sold at greater discount, thus undercutting profits from the illegal trade."

A very good idea, and rather straightforward in practical terms. Unfortunately, the reason such a system has not been implemented is almost certainly due to resistance from very powerful political interests in Nigeria, which benefit from these sales of blood oil.

So in the absence of firm action on this in Nigeria, another possibility would be for a non-governmental group, or a media organisation, or some other, to trace a physical cargo (or cargoes) of this blood oil across the high seas, even as it is trans-shipped from one vessel to another, and then identify the refineries where this crude oil ends up, as it must do at some point. Then identify the owners of these refineries, and call them to account. It would not be easy: certainly costly and rather difficult, and more likely than not, rather dangerous.

How interesting it would be, too, to follow the money trails. You can be sure that tax havens, including tax havens linked to Nigeria's former colonial power Britain, figure prominently in the secret world of Nigeria's blood oil.


Tuesday, July 08, 2008


Misha Glenny is an award-winning journalist and an expert in the Balkans. He has just written a book called McMafia: Crime without Frontiers. It is reviewed in an article entitled "Gazillions" in the latest edition of the London Review of Books. This blogger has not, admittedly, read the book yet, but the review is encouraging:

This is essentially a book of wonderful reporting. Although it has reflections at the beginning and the end, its matter is divided up into stories of Glenny’s expeditions into region after region. And in each place he visits, Glenny usually does four things. He meets somebody in the game who is prepared to talk and boast; he interviews a law enforcer (a whole gallery of brave, wise but usually pessimistic cops); he seeks out humble victims of the traffic or the racket; and he explains the local history of organised crime.

The review, and the book, examine many of the dynamics of diverse arrays of mafias and their historical context, and make some interesting points. Here is one:

At the heart of all the arguments about mafias and organised crime lies the issue of denied demand. People want something. Governments and international organisations say they shouldn’t have it, or only at prohibitively inflated prices. This denied demand instantly creates a network of illegal, criminal services. Neoliberals can retort: liberalise and legalise, then stand back and watch the mafias wither. This is not Glenny’s instinct. He has walked in too many dark places to believe in benevolent ‘hidden hands’, or in some Big Smiley in the sky blessing every want and lust. . .

It’s a mistake, anyway, to see organised crime as merely a shadow extension of the free-market economy. The unregulated market is itself largely a myth; it creates disorder and risks which require more policing and more public rescue interventions than the old Keynesian economies did.

This kind of discussion about liberalisation and regulation presents an interesting set of arguments, which TJN has explored, and will continue to explore, on many occasions. Yet it is the final paragraph of this book review which catches our eye, and is worth noting from a renowned expert in the field.

Glenny ends with a call for action. The task, which no government wants to confront, is to regulate the global markets and above all the financial markets. National governments (including the British) which issue sanctimonious statements about global crime must start by closing down their offshore banking centres (the Caymans, the British Virgin Islands and so on), which are the world’s laundries for dirty money. There was a moment in the 1990s when regulation seemed possible. But nothing happened. Misha Glenny’s closing words are despairing: ‘Since the millennium . . . a hostile United States, an incompetent European Union, a cynical Russia and an indifferent Japan have combined with the unstoppable ambition of China and India to usher in a vigorous springtime both for global corporations and for transnational organised crime.’

We agree with the prescription. But we are less despairing, it seems, than Glenny seems to be, about the possibility of change. Glenny correctly identifies some of the big challenges, certainly, and is right to note how a brief period of hope in the 1990s, when some political will began to emerge in the OECD and the United States to tackle the problems - before being extinguished again when - and even before - the current U.S. administration took power.

But the times, they are-a-changing again. On a daily basis we sniff the global political winds, and we sense a completely different political environment today - a distinct and powerful mood shift that has emerged only in the past year, and especially in the last six months, with new events such as the UBS scandal, the Liechtenstein Affair, US Senator Barack Obama's Stop Tax Haven Abuse Act, recognition by U.S. Democrats and by Republicans of the need for dramatic changes to domestic and international taxation, the subprime crisis provoking new calls for regulation of international finance- and much, much more. Join us, and push for changes that could dramatically reduce poverty, inequality, instability, corruption, exclusion, and that would profoundly reinforce democratic processes around the world and starve Glenny's burgeoning mafias of the oxygen they need to survive and flourish.


International News - July 8

A list of recent news stories of interest. Also see Offshore Watch and the TJN news archive.

Italy's 2007 tax evasion falls to 100.1 billion euros vs 115.0 billion - study
July 4 (Thomson Financial) - Italy's tax evasion fell to 100.1 billion euros in 2007, from 115.0 billion a year earlier, said Il Sole 24 Ore, based on its analysis of Istat statistical office data on the black economy. The largest area was in social contributions where 37.1 billion euros was lost, followed by 27.6 billion in personal income tax, and 14.7 billion from value added tax, it said.

Brazil: Governo amplia conceito de paraíso fiscal
June 27 (Meujornal) - The new Brazilian law shows that Brazil is becoming more sophisticated. Brazil will now apply higher withholding tax rates and special transfer pricing rules on payments to recipients to include jurisdictions where there is lack of information as to the "partners"/shareholders of a legal entity – these are in effect taxed as if such recipients were located in zero or low tax jurisdictions. (Google translation from Portuguese.)

More 'diligent' auditing required to halt bribery
July 7 (Accountancy Age) - Global Witness said auditors should sift ‘more diligently’ through company accounts to root out bribery by UK companies overseas, in response to proposals being considered by the UK Serious Fraud Office that companies could cut deals to admit bribery in return lighter sentences. “We also need a crackdown on offshore tax havens.

UBS Liechtenstein Adviser Had Scandal-Tainted Clients (Update2)
July 7 (Bloomberg) -- Mario Staggl, a Liechtenstein investment adviser indicted in a tax-evasion probe of UBS, told German prosecutors he set up companies for a consultant in South Africa who later pleaded guilty to trying to help Libya obtain nuclear bomb-making equipment, and helped manage offshore assets for the family of a London politician.

Tax office chasing Paul Hogan: report
July 4 (ABC) - The Australian Tax Office (ATO) is ramping up its investigation into actor Paul Hogan over alleged tax liabilities. Australian authorities have reportedly enlisted the help of the United States Internal Revenue Service (IRS) to order three American banks to hand over almost a decade's worth of Hogan's banking records.

CORRUPTION: Norway Turns the Spotlight on Tax Havens
Jul 4 (IPS) - A new commission appointed by Norway will investigate ways of putting a stop to the huge flows of money into tax havens. Tax evasion and corruption are believed to cost poor countries at least 50 billion dollars a year.

JP Morgan red-faced after private client disclosure
July 4 (Wealth Bulletin) - A list giving the names and account details of 200 clients at JP Morgan's private bank in Latin America has emerged in an unprecedented level of disclosure for the sector, which is being targeted by US authorities looking to crack down on tax evasion.

Phil Gramm's UBS Problem
July 7 (Slate) - If the Texas senator and McCain adviser was supposed to keep the Swiss bank out of trouble, he's made a mess of it.

IRS to seek accountants’ help on evasion
July 4 (FT) - The US Internal Revenue Service is to solicit the help of the world’s top accounting firms in its widening effort to clamp down on offshore tax evasion.

G8 attacked for bribery 'failure'
July 5 (FT) - The Group of Eight countries are failing to stamp out corruption and bribery, with damaging implications for trade, business and broader international goals such as tackling poverty, according to Transparency International.

Government loses tax haven court battle
July 4 - The UK government has lost a crucial court battle in its fight to prevent companies using European tax havens after a judge ruled that Vodafone does not have to pay extra corporation tax on a Luxembourg-based subsidiary.

Tax credit set to lift UBS into black
July 4 (Guardian) - A big tax credit is set to save embattled Swiss bank UBS from posting another hefty loss in the second quarter. The news surprised analysts and lifted the shares by more than 4%.

US demands names of UBS customers
July 2 (Times Online) - The US Government moved a step closer yesterday to ripping off the veil of secrecy that for centuries has protected the identity of UBS clients as a federal court took the unprecedented step of demanding that the Swiss bank hand over the names of as many as 20,000 of its customers.

Even the rich admit they have it too easy in unfair tax system
July 1 ( - People in every region and age group of the UK, including even the wealthiest households, overwhelmingly say that the tax system is unfair, and that it is too easy for big companies and the rich to get out of paying a fair level of tax, according to a YouGov poll published today (Wednesday) for the Trades Union Congress.

Jersey: costing £500 million in tax evasion to the UK a year, at least
Jersey has published its figures for tax retained under the EU Savings Tax Directive in 2007. The press release they put out is misleading. I thought it would be useful to compare the 2007 data with that for 2006 as an indication of how things are really going. Richard Murphy unpicks the data.

Japan grants tax exemptions
June 30 (FT) - Tokyo's financial authorities have agreed the terms under which investments by offshore funds investing in Japan would be exempt from taxes in a bid to encourage fund managers to do business in Japan.

Beijing to mend loophole in tax evasion of online shops
July 3 (Xinhua) -- The Beijing municipal government announced here Thursday it would require all individuals or vendors doing online businesses to register and pay taxes on their transactions.

'Corruption and climate of fear' in UK's Caribbean territories
July 6 (Guardian) - MPs' committee reports allegations that premier of celebrity hideaway made a fortune from illegal land deals and locals are too afraid to speak.

Udaras na Gaeltachta proposes tax haven status for Irish islands
July 6 (Sunday Business Post) - Ireland’s islands could be transformed into tax havens for businesses and residents under proposals drawn up by Udaras na Gaeltachta, the body charged with promoting the Gaeltacht areas. It has submitted a plan to the Commission on Taxation aimed at injecting new economic life into the islands by offering major tax incentives.

The Angel watching over global finance
July 6 (Observer) - OECD’s Angel Gurria: 'Countries became rather proud of the fact that their banking industry was so creative, so aggressive. They were saying, "Look, they're getting things off their balance sheets."' a loan is a loan is a loan, and therefore you need some reserves against possible losses, depending on the riskiness, some capital to be allocated, etc - were not happening.' Now, he says, it is time for financial regulators to get 'back to basics'.

Finance : que faire face aux paradis fiscaux ?
July 8 (Le Monde) – A long article on tax havens, quoting TJN. In French.