Continue Reading »

Rep. Jim Sensenbrenner (R-WI) and the U.S. Chamber of Commerce are trying to gut the world’s flagship anti-corruption legislation, but “we must stand firm in our values, our principles, and our promises,” writes Ann Hollingshead

I’m a little annoyed. I say “a little” only out of a desire to stay civil.

Today the House Judiciary committee held a hearing on the Foreign Corrupt Practices Act (FCPA), the flagship U.S. legislation that makes it illegal to bribe a foreign official. The Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have jurisdiction over the FCPA, which was unique worldwide for almost 20 years until 1997 when thirty-four OECD countries committed to put in place similar legislation. And now the House Judiciary Committee, after months of lobbying from the Chamber of Commerce, wants to “provide greater clarity” to U.S. businesses complying with the law.

I’m all for a healthy discussion about the pros and cons of certain legislation. I’m all for reform, clarification, and efficiency in our legal system. And I am absolutely in favor of intelligent discussions of how to make the FCPA work better.  But this hearing wasn’t about “providing clarity.” Such a label is downright laughable. It was a one-sided conversation about dismantling the FCPA and rendering it ineffective.

The Chamber, which retained former U.S. Attorney General Michael Mukasey on its behalf, advocates limiting the liability of a parent company for the actions of its subsidiaries. As Raymond Baker, director of Global Financial Integrity (GFI), has pointed out, “in a world where so much of global business is done by companies via hundreds, even thousands, of subsidiaries, gutting the FCPA in this way would subject the United States to ridicule.” The Chamber is also seeking to define “foreign official,” to give companies “great certainty.” Greater certainty of what, exactly? Exactly who you can and can’t bribe? Try this: don’t bribe anyone.

Continue Reading »

Continue Reading »

Rumour reaches me that Jersey has failed its OECD peer review.

The OECD says of the peer review process that:

The international fight against cross-border tax evasion has entered a new phase with the launch by countries participating in the Global Forum on Transparency and Exchange of Information of a peer review process covering a first group of 18 jurisdictions: Australia, Barbados, Bermuda, Botswana, Cayman Islands, Denmark, India, Ireland, Jamaica, Jersey, Mauritius, Monaco, Norway, Panama, Qatar, San Marino, Seychelles and Trinidad & Tobago.

The reviews are a first step in a three-year process approved in February by the Global Forum in response to the call by G20 leaders at their Pittsburgh Summit in September 2009 for improved tax transparency and exchange of information.

Note Jersey is involved.

Continue Reading »

Continue Reading »

Cross-posted, with small amendments, from the Treasure Islands blog.

A new report from the IMF (hat tip: Markus Henn) tallies surprisingly closely, at least in part, with what members of the Task Force have been saying for some time. Take this, for example, on the role of secrecy jurisdictions (the IMF prefers the term Offshore Financial Centers, or OFCs:)

Before the 2008–09 economic crisis, many banks and hedge funds used OFCs for off-balance-sheet activities such as the so-called special purpose vehicles or structured investment vehicles. These vehicles were typically funded in onshore financial markets and purchased onshore assets.

Indeed. Off-balance-sheet finance isn’t the same as offshore finance – but as I mention in Treasure Islands, and as the IMF agrees, there’s a massive overlap. (They both involve escaping the social contract.) Now here’s something else, in the same vein:

Continue Reading »

The powerless have few tools to use against the powerful. Sometimes the powerless are a minority. Sometimes they are a majority. Suffrage, freedom of speech, and freedom of the press are tools civilizations have developed to give powerless people more power. But the other side has its own tools, which the powerful use to perpetuate their power. Corruption and nepotism are the most obvious examples. These tools are not only used by theocrats and autocrats. They are used in democracies too, and they erode democratic systems by concentrating power in the hands of a few, depriving the powerless of their voice.

In the face of deprivation, the powerless have few tools to respond. Sometimes they turn to protests—as we have seen this Arab Spring in Tunisia and Egypt. Sometimes protestors turn to violence, as we now see in Libya.

Another of these tools is the hunger strike, which is a very specific form of peaceful protest. It is self-destructive, but often effective. Its success rests on two main factors: publicity and the sympathies of both supporters and adversaries. India’s Mohandas Gandhi most famously used hunger strikes or highly publicized fasts to protest colonial rule by the British. But they are actually quite universal. Hunger strikes have a long (legal) history in Ireland, where as early as the 8^th century villagers would air grievances and settle disputes “by fasting on the doorsteps of wrongdoers until they were publicly shamed into doing the right thing.” Thomas Ashe, an IRA leader, died during a hunger strike in 1917 while in a British prison, which sparked a following among other IRA inmates. The British eventually released 89 strikers to avoid creating more political martyrs.

Continue Reading »

Vectorportal/Flickr

Global Financial Integrity Managing Director Tom Cardamone has written a blog post for the TrustLaw website examining the shortfalls of anti-bribery and anti-corruption compliance efforts at companies around the world. A study showed that a third of firms saw anti-bribery programs as “an example of the governments imposing costly and excessive requirements”, demonstrating a lack of motivation in reducing unethical business practices.

Referencing the effectiveness of penalties for corrupt practices, Cardamone writes:

An even closer read of the stories behind these fines shows that seldom do they make a significant dent in the profits of the firms involved and rarely does anyone go to jail.  And if there ever is any investor angst in reaction to charges of wrongdoing—as could be seen in a drop of a company’s stock price—it is fleeting.  Perhaps the quickest way to drive home the point that corruption will be given no quarter is to have cold steel clicked around the wrists of an increasing number of corporate executives.

Continue Reading »

Continue Reading »

Cross-posted from the Tax Justice Network blog.

David Spencer, a Senior Advisor to the Tax Justice Network, has just delivered a hard-hitting speech at a major United Nations meeting on transfer pricing, an arcane-sounding but extraordinarily important issue in the field of international tax.

Spencer’s speech is here. It is an outspoken document, couched in diplomatic language, which contains too much important stuff for us to summarise in detail on this blog – so here is a short summary. Read the whole document for the full effect.

Companies can manipulate their internal trade (“transfer”) prices to shift profits and cut their tax bills. Governments try to stop them – but this is a highly complex area, and the dominant standard model for checking these internal prices is the the OECD’s furiously defended model known as the ‘arm’s length rule’ – whereby internal prices are supposed to be set according to supposedly independent, ‘arm’s length’ prices reflecting their real value. The trouble is, the arm’s length rule is hopeless in the modern global economy, enabling corporations to run rings around governments – and especially those of developing countries.

Continue Reading »

People only form companies for economic reasons. There really is no other reason to have one.

Despite that just one in three companies in the UK pay tax. The data is based on the year to March 2010. All the details on how I got the data is in a report here. The facts are:

a)     There were about 2.6 million companies on the Register throughout most of that year.

b)     Of these about 500,000 claimed to be dormant.

c)     That leaves 2.1 million potentially taxable.

d)     But I guessed at least 180,000 of the companies likely to be formed that year would never trade and so would not owe tax.

e)     That left 1.92 million trading companies.

Continue Reading »

Continue Reading »