Wiston House where the EITI board meeting will be held next week. Wikimedia Commons.

Cross posted with permission from Oxfam America’s Politics of Poverty blog.

The oil and gas industry loves to trumpet their support of international transparency initiatives and their tax contributions to the US government, but when a new law requires them to tell the public exactly how much gets paid to whom around the world, they bring out the lobbyists and lawyers.

Browse through the corporate social responsibility reports of the top oil and gas companies, and you’ll see them singing from the same transparency hymnbook. Chevron says it “believes that the disclosure of revenues received by governments and payments made by extractive industries to governments could lead to improved governance in resource-rich countries.”

Many oil and gas companies are also “supporters” of the global Extractive Industries Transparency Initiative (EITI). (Companies can become a “supporter” simply by declaring “their support publicly”.) Unless a country decides to implement EITI, though, they are obliged to disclose nothing. For a company such as Chevron, this means disclosing tax and other payments in Nigeria (perhaps years after the fact), but nothing in next-door Equatorial Guinea, a classic petro-dictatorship. For the citizens of Equatorial Guinea—mala suerte (tough luck)!

In July 2010, the Dodd-Frank Wall Street Reform Act was signed into law. Dodd-Frank contains an important provision (“Section 1504″) that requires each oil, gas, and mining company to disclose their tax, royalty and other payments to governments in every country of operation. (Oxfam and our allies in the Publish What You Pay campaign fought hard for the inclusion of this provision—alongside our support for EITI.)

Many of the same companies praising transparency have been actively lobbying since the law passed to gut implementation by the Securities and Exchange Commission (SEC). The hypocrisy is out there in the open if you know where to look. Senate lobbying disclosure forms show that Chevron, Exxon, Shell, Conoco Phillips,Marathon, Occidental, the American Petroleum Institute (API), and others have been very active in Washington on this provision, targeting not only the SEC, but the House of Representatives, Senate, Department of State, Department of the Interior, and the National Security Council.

As I wrote last week, API (revenues of more than $198 million in 2009) has now threatened to sue the SEC unless the agency withdraws its proposed rule and starts from scratch to meet big oil’s secrecy wishes rather than the law and Congressional mandate. (Five API member companies are also on the EITI board, Exxon, Chevron, Shell, BP, and Statoil.)

No one knows how much the oil and gas industry is spending specifically to undo the Dodd-Frank provision, but the oil and gas industry is one of the biggest lobbyists in the US, spending more than $145 million on lobbying activities in 2011. ConocoPhillips, Shell, ExxonMobil, Chevron and BP were the top five oil and gas spenders on lobbying in 2011, with ConocoPhillips spending a staggering $20.5 million. API spent more than $7 million in lobbying in 2011 and is spending a “significant amount” on its faux “grassroots” advertising campaign called“Vote 4 Energy”. These are the same companies who complain that the cost to disclose information they already collect is too onerous.

The yawning gap between the transparency rhetoric of companies and the reality of their actions has never been more apparent than it is now. The SEC may shortly issue a final rule to implement the Dodd-Frank provision, while on February 14th the oil industry’s designated transparency groupies, governments, and civil society groups will convene in the UK for the latest EITI board meeting. While the EITI board members enjoy the lovely and historic “Downton Abbey”-esque country manor setting of their board meeting, the industry’s lawyers and lobbyists will be working hard in Washington to gut a new global corporate transparency standard.

It’s time to blow the whistle on the industry’s transparent hypocrisy. For the more than 1.5 billion people living on less than $2 a day in resource-rich countries, there’s no time left to wait.

Front Page Photo Credit: Rebecca Blackwell/Oxfam America

South Africa is the first African country to join the Task Force. Its experience, expertise and influence as both a regional and international power will be of great benefit to The Task Force as it works to promote greater transparency and fairness in the international financial system.

The issue of illicit financial flows is particularly important in Africa as a 2010 report [1] calculated that from 1970-2008, US$854 billion left the continent as a result of this underground economy. Furthermore, a 2011 report [2] found that the continent lost US$79 billion in revenue to tax evasion in 2010 alone.

These illicit capital outflows represent money that could contribute significantly toward poverty alleviation and economic development both in Africa and elsewhere.

Launched in January 2009, the Task Force on Financial Integrity and Economic Development is a unique global coalition of civil society organizations and governments, which advocates for greatly improved transparency and accountability in the global financial system. Task Force membership is organized by the following component groups: a Coordinating Committee, composed of international Civil Society organizations, [3] the Partnership Panel, an Economist Advisory Council, and Allied Organizations.

The Partnership Panel’s mandate is to facilitate meetings with other government officials, provide information on discussions and conferences that are relevant to the Task Force, and strategize on how to best promote Task Force goals within governments, multilateral organizations, and other institutions. In turn, the Task Force helps support efforts by member governments to stem their own illicit financial flows by providing data, expertise and proven policy prescriptions.

The Task Force advocates five recommendations for addressing the current global financial crisis, each one focusing on transparency and extending initiatives that have already begun to be put into place:

• Curtailment of mispricing in trade imports and exports;
• Country-by-country accounting of sales, profits, and taxes paid by multinational corporations;
• Require that the beneficial ownership of companies, trusts and foundations be readily available on public record;
• Automatic cross-border exchange of tax information on personal and business accounts;
• and Harmonization of predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries.

###

Notes to Editors:

[1] Global Financial Integrity report, “Illicit Financial Flows from Africa: Hidden Resource for Development” (available online here).
[2] Tax Justice Network report, “The Cost of Tax Abuse” (available online here). (PDF)
[3] The Task Force Coordinating Committee comprises Christian Aid, Eurodad, Global Financial Integrity, Global Witness, Tax Justice Network, Tax Research LLP, Transparency International, and the Secretariat for the Leading Group on Innovative Financing for Development.

Contact:

Dietlind Lerner
dlerner@financialtaskforce.org
+1 202.577.3455

Nick Mathiason
nmathiason@financialtaskforce.org
+44 7799.3486.19

Front Page Image:  Some rights reserved by coda

What’s the Taxcast?

The Taxcast is an entertaining and informative 15 minute monthly podcast with the latest news, research and analysis of events in tax evasion, tax avoidance and the shadow banking system. It has 3 segments: headlines, analysis with campaigning economist Richard Murphy (The Courageous State) and a mini-documentary.

Study Recommends Policies Be Implemented to Address Trade Mispricing, Money Laundering, Tax Evasion

MEXICO CITY / WASHINGTON, DC – Crime, corruption and tax evasion cost the Mexican economy US$872 billion between 1970 and 2010 according to a new report from Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization. The illicit financial outflows, which averaged a massive 5.2% of GDP, grew significantly over the 41-year period studied from just US$1 billion in 1970 to US$68.5 billion in 2010.

“This is a devastatingly large amount of money for any developing country to lose,” said Raymond W. Baker, director of GFI. “$872 billion is gone, which could have been used to develop the Mexican economy, to invest in education, to build roads, or to fight the drug cartels. The negative ramifications are huge for everyday Mexicans.”

The study, which was authored by Dr. Dev Kar, GFI lead economist, saw illicit outflows explode from an annual average of US$3.0 billion in the 1970s, to US$10.4 billion in the 1980s, to US$17.4 billion in the 1990s, and US$49.6 billion in the decade ending 2009.

Underground Economy

Moreover, illicit outflows were found to drive the domestic underground economy, which includes—among other things—drug smuggling, arms trafficking and human trafficking. Thus, illegal capital flight was found to contribute to a deterioration in governance. Likewise, growth in the underground economy was also shown to drive illicit flows, creating “a snowballing effect whereby both the underground economy and illicit flows continue to grow at an increasing rate unless policy measures and institutions intervene,” according to Dr. Kar, who worked as a senior economist at the International Monetary Fund before joining GFI.

Trade Mispricing and NAFTA

The report concluded that policymakers should focus on measures to curtail trade mispricing, a form of trade based money-laundering, which skyrocketed in the years after NAFTA came into effect and which was shown to account for 73.7% of total illicit financial outflows over the 41-year time period.

The study recommends three policy measures to reduce trade mispricing:

• Require the utilization of computer software to detect export and import prices that are clearly out of line with international norms; (49)
• Require that the parties conducting a sale of goods or services in a cross-border transaction sign a statement in the commercial invoice certifying that no trade mispricing has taken place in an attempt to avoid duties or taxes and that the transaction is priced using the OECD arms-length principle; (51) and
• Undertake additional measures to curb abusive transfer pricing. (51)

Further Policy Recommendations

In addition to recommending policies to curtail trade mispricing, the report recommends four additional policy actions to reduce illegal capital flight from Mexico:

• Expand double tax avoidance agreements with other jurisdictions; (53)
• Require automatic cross-border exchange of tax information with other jurisdictions on personal and business accounts; (54)
• Maintain macroeconomic stability, which includes maintaining low budget deficits, low external debt levels, and low and stable inflation rates; (56) and
• Take steps to reign in the role of offshore financial centers (OFCs) and banks. (59)

Destination of Illicit Outflows

While the report cannot specifically breakdown into which jurisdictions illicit outflows from Mexico are deposited, the study does indicate that a majority of Mexican capital outflows, which include both licit and illicit capital, end up in U.S. banks. The large spike in illicit outflows following the implementation of NAFTA would imply that much of those outflows were indeed headed for the United States. This suggests that U.S. policymakers have a significant role to play in curtailing the flow of illicit money out of their southern neighbor.

In addition to the U.S., tax havens in the Caribbean and Europe were the second and third largest recipients of Mexican capital outflows.

Drug Cartels and National Security Risk

A large portion of drug cartel activity is conducted in cash, and none of those cash transactions are detected in GFI’s data, which is one of the reasons why the organization believes its figures to be extremely conservative. That said, drug cartels like many criminal enterprises also utilize legitimate commercial transactions to launder their profits. In fact, the Los Angeles Times reported last month that Mexican drug cartels were utilizing trade-based money laundering techniques to move their money across the U.S.-Mexico border. Those kinds of business transactions would show up in the organizations data, however it cannot be determined exactly how much of the trade mispricing in GFI’s report is attributable to the activities of drug cartels.

As such, the organization believes that this has serious implications for national security.

“The ease with which money can be laundered across the U.S.-Mexico border via trade mispricing poses a major national security risk to both the United States and Mexico,” said Mr. Baker. “Drug traffickers, like kleptocrats, terrorists and tax dodgers, all gain from anonymous shell companies, tax haven secrecy, and nefarious trade mispricing tactics. Taking steps to address these issues would curtail a number of societal ills.”

###

Notes to Editors:

• Download an embargoed full copy of the report in English here [PDF - 3.56MB] and in Spanish here [PDF - 3.52MB].
• A media tip-sheet is available to journalists for download in English here [PDF - 197KB] and in Spanish here [PDF - 122KB].
• Download this press release as a PDF in English here [PDF - 387KB] and in Spanish here [PDF - 101KB].
• Press briefings will be held in Mexico City and in Washington, DC on Monday January 30, 2012. The Mexico City press briefing will take place at the Hilton Mexico City Reforma Hotel on Monday, January 30, 2012 at 11am CST. To RSVP for the Mexico City press briefing, contact Clark Gascoigne at cgascoigne@gfintegrity.org. The Washington, DC briefing event will take place at 1319 18th Street NW, Suite 200, Washington, DC at 10am EST on Monday January 30, 2012. To RSVP for the Washington, DC launch event, contact EJ Fagan at efagan@gfintegrity.org.

Contact:

English:

Mexico City/Washington, DC:

Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740 x222 (office)

Washington, DC:

EJ Fagan
efagan@gfintegrity.org
+1 202 293 0740 x227

En español:

Mexico City:

Emilene Martínez
emilene17@gmail.com
+52 1 55 6010 0835

_____________________________

Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system.

For additional information please visit www.gfintegrity.org. 

Follow us on: Twitter | Facebook | YouTube

Rarely have politicians and business leaders met at Davos against such a gloomy backdrop. The World Economic Forum (WEF) helped to set the tone this month when it issued a chilling dystopian vision of mass youth unemployment, wholly inadequate elderly care provision and widening global inequality. WEF’s global risks 2012 report suggested fresh economic turmoil and social upheaval could wipe out gains produced by globalisation. Nationalism, populism and protectionism threatened to take root, it warned.

The world is calling for a bold vision of economic justice to counter dislocation and austerity. But since the global economic crisis reasserted its icy grip after a brief Keynesian impasse, world leaders have failed to deliver one. The inability to articulate a narrative beyond a long, hard march out of economic malaise ultimately caused by politicians’ and regulators’ failure to adequately supervise the financial system is resulting in a widespread disillusionment with mainstream politics that threatens to undermine faith in democracy.

Read the rest here.

Front page image:  Some rights reserved by jbachman01

Mitt Romney’s direction of Bain Capital’s tax avoidance activities now threaten to become a major campaign issue. But how questionable are his actions? We need to ask: “What would I do if I could legally avoid paying income tax?”

In taking advantage of tax regulation for personal gain, Romney followed a legal strategy likely used by countless other businessmen and politicians. But since he is running for office, maybe we need to establish some safe-guards so that such problematic choices are not legally condoned.

A plausible scenario plays out like this: I hire an accountant. Doing her job, my accountant tells me that if I sign a few legal documents and route my money through a small Caribbean island, I could keep more of my paycheck and pay a lower tax rate. I may have earned my money in the United States, but legally I can claim that it was, in fact, earned in a tax haven.

You can read the whole Op-Ed here.

Report Finds Developing World Lost US$8.44 Trillion over the Decade 2000-2009

Global Financial Integrity

WASHINGTON, DC – Developing countries lost US$903 billion in illicit financial outflows in 2009 despite the massive slowdown in economic activity which rocked world markets in late 2008, finds a new study by Global Financial Integrity (GFI), a Washington-based research and advocacy organization.

“Illicit Financial Flows from Developing Countries over the Decade Ending 2009,” which estimates the developing world lost US$8.44 trillion over the decade ending in 2009, is GFI’s annual update on the amount of money flowing out of developing economies via crime, corruption and tax evasion, and it is the first of GFI’s reports to include data for the year 2009.

“This is a breathtakingly large sum at a time when developing and developed countries alike are struggling to make ends meet,” said GFI Director Raymond Baker.  “This report should be a wake-up call to world leaders that more must be done to address these harmful outflows.”

While US$903 billion marks a drop from the US$1.55 trillion¹ that illicitly flowed out of the developing world in 2008, the study finds the decrease is almost entirely attributable to the global financial crisis rather than any governance improvements or economic reforms.

The study, which was co-authored by GFI Lead Economist Dev Kar and GFI Economist Sarah Freitas, tracks the amount of illegal capital flowing out of 157 different developing countries over the 10-year period from 2000 through 2009, and it ranks the countries by magnitude of illicit outflows. According to the report, the 20 biggest victims of illicit financial flows over the decade are:

1. China ……………………………………… $2.74 trillion
2. Mexico …………………………………….. $504 billion
3. Russia …………………………………….. $501 billion
4. Saudi Arabia …………………………… $380 billion
5. Malaysia …………………………………. $350 billion
6. United Arab Emirates………………. $296 billion
7. Kuwait …………………………………….. $271 billion
8. Nigeria ……………………………………. $182 billion
9. Venezuela ………………………………. $179 billion
10. Qatar ………………………………………. $175 billion
11. Poland …………………………………….. $162 billion
12. Indonesia ………………………………… $145 billion
13. Philippines ……………………………… $142 billion
14. Kazakhstan …………………………….. $131 billion
15. India ………………………………………… $128 billion
16. Chile ………………………………………. $97.5 billion
17. Ukraine ………………………………….. $95.8 billion
18. Argentina ……………………………….. $95.8 billion
19. South Africa ……………………………. $85.5 billion
20. Turkey…………………………………….. $79.1 billion

For a complete ranking of average annual illicit financial outflows over the decade by country, please refer to Table 5 of the report’s appendix.

The report also reveals the top victims of illegal capital flight in 2009.  The top 20 countries suffering the highest illicit outflows in 2009 were:

1. China ……………………………………… $291 billion
2. Saudi Arabia …………………………… $82.3 billion
3. Poland ……………………………………. $66.3 billion
4. Malaysia ………………………………… $46.8 billion
5. Mexico …………………………………… $34.6 billion
6. Nigeria ………………………………….. $33.4 billion
7. Russia ……………………………………. $23.4 billion
8. Indonesia ……………………………….. $20.5 billion
9. United Arab Emirates ……………… $19.5 billion
10. Venezuela ………………………………. $18.8 billion
11. Iran ………………………………………. $18.1 billion
12. Azerbaijan ……………………………… $14.3 billion
13. Chile ……………………………………… $13.1 billion
14. South Africa …………………………… $12.9 billion
15. Vietnam ………………………………… $12.5 billion
16. Philippines ……………………………… $12.1 billion
17. Argentina ………………………………. $11.7 billion
18. Thailand ………………………………… $10.8 billion
19. Romania ……………………………….. $10.0 billion
20. Ukraine …………………………………. $9.8 billion

To schedule an interview with GFI spokespersons on this report, contact Clark Gascoigne at +1 202 293 0740, ext. 222 or cgascoigne@gfintegrity.org. On-camera spokespersons are available in Washington, DC.

For more information on the report, visit http://iffdec2011.gfintegrity.org.

###

Footnotes:

1. GFI’s previous annual study of illicit financial flows out of developing countries, “Illicit Financial Flows from Developing Countries: 2000-2009,” published in January 2011, found that US$1.44 trillion had flown out of developing economies in 2008.  Due to revised/improved World Bank and IMF data, GFI’s new report estimates that US$1.55 trillion is a more accurate measurement of illicit financial outflows in 2008.

Notes to Editors:

• The full embargoed report can be downloaded here [PDF 2.90 MB].
• A tip-sheet for journalists can be downloaded here [PDF 155 KB].

Contact:

Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740, ext. 222

__________

Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system.

For additional information please visit www.gfintegrity.org. 

Follow us on: Twitter | Facebook | YouTube

This year the Task Force has been joined by member organizations and Global Financial Integrity Advisory Board member Dr. Thomas Pogge in showing our support of anti-corruption and human rights.  In a piece written for the Task Force, Dr. Pogge examines how corruption contributes to the continued under-fulfillment of basic socioeconomic rights and rising global inequality.  Task Force Members have joined together to discuss how the work of each of their organizations helps promote and defend human rights.  It is important to recognize that we are all in this together.  For this years’ Anti-Corruption and Human Rights days let’s reflect on how greater transparency and accountability in governments, business, and other institutions will help ensure basic human rights and standards of living.

The view the album, click here.

In the UK for instance, a staggering £69.9 billion a year is lost to tax evasion in the ‘shadow economy’ – that is, 56% of the country’s total healthcare spend.

Tax havens are a major part of the tax evasion problem – and these new findings come as the Tax Justice Network launches Tackle Tax Havens, a new campaign aimed at the general public that highlights the critical role that these secretive states play in corrupting the global economy.

The issue of tax collection is rising fast up the political and social agenda, as countries across the world make deep cuts in public spending and increase taxes in ways that hurt the poor and the middle classes the most.

This new research demonstrates how important it is to tackle tax evasion and the tax havens that help wealthy individuals and organisations escape from contributing to the services that directly benefit them – from the health and education systems that support their workforces, to the roads that ship their goods to markets, to the courts of law that enforce their contracts or to the police who protect their property.

But tax havens are not just about tax: they cause colossal damage on many fronts. Tackle Tax Havens aims to arm the general public with a solid working knowledge of the offshore system and the problems it causes — and to show what we can do about it.

Other key findings of the new report include:

• Europe as a whole loses the equivalent of 87% of its total healthcare budget to tax evasion, while Africa loses 98% and South America 139%
• Over the 145 countries surveyed, an unweighted average of 110% of the annual healthcare budget was lost to tax evasion
• 119 of the 145 countries surveyed are losing over half of their healthcare budget to tax evasion
• In 67 countries, tax evasion losses are larger than their entire health budgets
• In Bolivia, tax evasion is more than four times as large as that oil rich country’s health spending. In Russia, it is more than three times the size
• More than $1 in every $6 earned in the world is not subject to tax because those earning it have deliberately ensured that their income is hidden from the world’s tax authorities
• In Greece and Italy, where economic collapse currently looks possible, more than €1 in €4 is hidden in the shadow economy

Quotes:

John Christensen, Director of the Tax Justice Network:

“Tackling tax havens is a crucial part of ending the culture of tax evasion.  Tax evasion is crippling public finances across the world but governments aren’t doing nearly enough to end this cancer.”

“Tax havens are engaged in economic warfare against the tax regimes of sovereign countries, and these estimates reveal the human cost in terms of the impact on health services.”

Richard Murphy of Tax Research UK, who undertook the research for the Tax Justice Network:

“New data from the World Bank published last year on the size of countries’ shadow economies let us prepare this estimate of tax lost to criminal tax evasion annually. The findings add a new policy agenda to public debate on the world’s financial crisis. For example, Italy loses €183 billion to tax evasion a year. Its current debt of €1.9 trillion represents just over 10 years tax of tax evasion on this basis.  If only more had been done to tackle rampant tax evasion, Europe would not be facing a crisis today.”

“Tax havens can be beaten using three simple measures. First we demand that all tax havens put details of the ownership of all companies and trusts located there, and the accounts of those organisations, on public record. Second we demand that all multinational companies publish accounts that reveal their use of tax havens. Last, we believe that all tax havens should be required to exchange information each year on the income recorded within them belonging to the citizens of other countries with the places where those people really live.”

“These measures would shatter the secrecy of tax havens for good, and that means those committing tax crimes will no longer have places to hide the proceeds of their crimes. Nothing could make a bigger contribution than this to solving the world’s financial crisis right now.”

Please note:

• Tackle Tax Havens website: www.tackletaxhavens.com
• Campaign video: http://www.youtube.com/watch?v=4d5FZU64Bnw
• Twitter: @tackletaxhavens
• Facebook: www.facebook.com/tackletaxhavens
• Download full research findings and methodology: http://www.tackletaxhavens.com/Cost_of_Tax_Abuse_TJN_Research_23rd_Nov_2011.pdf
• To discuss the research findings please contact Richard Murphy of Tax Research UK who undertook the research on behalf of the Tax Justice Network richard.murphy@taxresearch.org.uk / +447775 521 797
• All other enquiries: please contact rich@taxjustice.net / +447968 082 921

Section 2 of the report describes the problem of illicit financial flows with a specific focus on those stemming from tax dodging by multinational companies (MNCs) which account for more than half of the total estimated illicit financial flows from developing countries. Companies use subsidiaries located in tax havens in order to dismantle the added value they are producing, concentrating their profits in tax havens and current accounting rules allow them to obscure this.

Section 3 of the report analyses the existing regulatory framework for MNCs financial transparency. It explains current regulatory initiatives on country-by-country reporting in the extractive sector such as the Extractive Industries Transparency Initiative (EITI), and the recent stock exchange reporting regulations in the US and in Hong Kong. It explains why the civil society proposal for full country-by-country reporting, contributes to addressing tax dodging by MNCs, which the current regulatory initiatives fail to do.

Section 4 focuses on the European agenda, it shows that implementing ambitious standards is a matter of political will. The review of the transparency and the accounting directives in 2011 and 2012 provide a unique opportunity to make real progress by proposing ambitious measures on country-by-country disclosure requirements for European companies. The European Union also has a key role to play by pushing this within the G20, OECD and International Accounting Standards Board (IASB). Section 5 outlines civil society’s proposal for a truly effective country-by-country reporting that would contribute to address MNC tax dodging. Section 6 shows that such country-by-country reporting is feasible and is also desirable for a wide range of stakeholders including CSOs, tax administrations and investors. It provides statements from investors arguing in favour of this disclosure.

Part 2 of the report develops in detail two case studies of companies operating in developing countries the brewery SABMiller, operating in Ghana and Swiss mining company Glencore operating in Zambia. These examples show how country-by-country reporting would have enabled the identification of illegal and ethically questionable tax practices that deprive developing countries of much needed tax revenues.