Statement by Norwegian State Secretary Ingrid Fiskaa

Thank you, Mr President

The fourth UN conference on the least developed countries is an important opportunity to renew and revitalise the global partnership for our common good. I would like to thank the Government of Turkey for hosting this conference and for the leadership it has shown in the preparations.

Climate change represents a serious challenge to sustainable development. It is a global challenge that we all have to face, but we know that LDCs are particularly vulnerable in this regard – not least related to food security.

The link between climate change, development and sustainable growth is vital. We need to work hard to sufficiently reduce emissions to limit climate change to an increase of two degrees Celsius. Many of the LDCs have hardly any emissions to reduce, and we as donors can make it attractive to choose a more climate-friendly course of development.

But even if we do manage to meet the two degrees Celsius target, climate change will still have severe consequences, especially for the poorest countries. And women will suffer the most. There is a huge need for climate adaptation funding. Norway’s climate adaptation aid will focus on increased food security and disaster risk reduction.

In the preparations for this conference, the LDCs have stressed the need to focus on economic growth and infrastructure. We fully support that. Access to energy for all, both at household level and for industrial purposes is vital for economic growth in these countries. This is not least important for women. Norway is currently preparing for an international conference on access to energy for all to be held in Oslo in October. We have substantially increased our ODA allocation for renewable energy initiatives, mainly for hydropower, but also for small-scale power plants based on wind and solar power as well as other renewable sources.

However, aid alone will not be sufficient to fund development of renewable energy. It is crucial to find ways of using aid money to stimulate private–public partnerships in the renewable energy sector. Access to energy and private sector development is key to fight poverty and ensure sustainable development. This must be combined with equitable distribution of wealth and opportunities. Decent jobs for both women and men, and predictable tax systems, combined with good public health, education and other social services are also key factors.

Aid has been, and will continue to be for a long time, an important source of revenue for LDCs. The Norwegian Government is committed to allocating at least 1% of GDP to ODA. However, we also need to examine other financial flows in and out of poor countries. Developing countries probably lose at least ten times the amount they receive in aid through illicit financial flows. This money is mainly generated by trade mispricing and tax evasion, but also trafficking, the drugs and arms trade, and corruption. And it usually ends up in a tax haven. These financial flows represent a serious crime against the world’s poor and against the governments trying to promote development in their countries. Well functioning tax systems, dedicated police forces and judiciaries, and international action against tax havens and bank secrecy are important elements in the global fight against poverty and for justice.

Tax systems are crucial not only to secure increased revenues, but also to build citizenship. When you pay tax, you also take on a larger stake in the development of your country.

The size of the poverty challenge also requires us to scale up innovative financing. During the opening week of the 65th General Assembly, several countries, including Norway, agreed to work towards introducing a levy on financial transactions. The levy would be applied on a large scale, and to a wide range of transactions, and could provide stable and substantial financing for development.

International trade is also a potential engine for growth, provided developing countries gain access to markets and the know-how to negotiate the best possible agreements. We know, however, that formal market access is insufficient for many LDCs with weak productive capacities. Norway supports Aid for Trade through a number of multilateral initiatives. There is also need for a more fair international trade system, where countries can find policy space for their own development strategies.

Excellencies,

Emerging economies have changed the picture of international financial flows and international trade since the conference in Brussels. We are pleased to welcome middle-income countries into our common partnership for the LDCs. A number of emerging economies are providing a substantial amount of aid to LDCs. Whether we are discussing aid, debt relief, trade or investments, it is clear that partners in the South are crucial for the future success of our efforts. At the same time, we need to strengthen our global systems for financing development. More than anything we need to broaden the financial basis of the United Nations funds and programmes. The more multilateral, and thus less “Western” they become, the more sustainable they will be. There are many competitors out there. Let us all join together to address global problems with global solutions – through multilateral structures.

Excellencies,

We know that the political and economic empowerment of women is the single most important catalyst for change and development. Therefore, investing in women and girls opportunities is crucial. For example, the UN estimates that we can lift 150 million people out of poverty if women gain better access to land and equipment in the agriculture sector.

In a multilateral context we have made important progress in this area over the last 30 years. However, during the preparation for this conference, we have been very concerned about attempts to take us back in time. In this day and age, any suggestion that the empowerment of women is problematic is simply anachronistic. Development can only happen when a country can tap its full potential, including women.

Finally Mr President,

The Istanbul Programme of Action will reach beyond 2015. It must therefore be our shared responsibility to secure an outcome that will serve as a sound building block for our continuing efforts to fight poverty. We need to build further on the crucial factors for reaching the Millennium Development Goals, namely political will, good governance, protection of human rights, and particular focus on education and health, women and young people. At the same time, we must increase our focus on the structural causes of poverty: climate change, armed conflicts and illicit capital flows out of developing countries.

We look forward to working with our partners on all of these issues, and to securing a successful outcome of the fourth LDC conference.

Thank you.

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Source: Norwegian Ministry of Foreign Affairs

U.S. Senator Carl Levin Introduces Nicholas Shaxson, Author of the New Book “Treasure Islands,” at the National Press Club

Full Text, Speech as Prepared for Delivery

Good morning. I’d like to thank Nick Shaxson and the Financial Accountability and Corporate Transparency Coalition for inviting me to discuss for a few moments an issue that has huge implication for our country and for the global economy: offshore tax havens.

It’s an especially appropriate time of the year to take up this subject. I’d like to give you my thoughts on why it is not only timely, but of critical importance.

U.S. Sen. Carl Levin speeks at the launch of Nicholas Shaxson's "Treasure Islands" on April 12, 2011.

Next Monday is tax day.  Millions of American families will finish their tax returns and file them with the IRS.  Millions more will have already filed their returns by then.  Needless to say, tax day is not exactly a celebrated American holiday.  We will grumble.  We will complain about how much we pay in taxes or owe to Uncle Sam.  But nearly all of us will fill out the form, write the check if we have to, and file our returns.

We do so partly because, hey, who wants to get in hot water with the IRS? Failing to pay taxes is serious business, and nobody wants to take on the tax man. But for most of us, I think there is something else going on as well, even if it’s in the back of our minds, and that is a sense of civic duty. We have many disagreements about how much we should pay, who should pay, and how the money we pay should be spent.  But most of us also know that for our country to remain safe, secure, and prosperous, paying taxes is not only necessary, but a patriotic commitment to the country we love.  A country that, for all its flaws, we believe is the best place to live in the world.

Meanwhile, here in Washington, we see another aspect of the tax issue: the argument over the budget.  The turbulence of the last two weeks is just a preview of the debate that has already begun over the budget for 2012 and beyond.  By any accounting, our projected deficits in coming years are unsustainable. The mismatch between our spending and our revenue is too great. And this mismatch has sparked an enormous, contentious, difficult debate over how best to resolve the issue.

So how do those two events – tax day and the deficit debate – relate to Nick Shaxson and his book on tax havens?  It’s the contrast between those millions of ordinary Americans fulfilling their legal and civic obligation to pay taxes to Uncle Sam, while others, most of them wealthy individuals or profitable corporations, are taking evasive action to dodge the very same obligations.  Many of those tax dodgers will use offshore tax havens to hide income and assets, and shelter them from taxes.  Which means that the families who pay their fair share will have to pay more, because they will have to carry the load for the tax dodgers using offshore havens to evade their taxes.

Nick Shaxson admirably lays out the history of how tax havens have become such an insidious feature of the global economy.  Today, folks around the globe know to go offshore to hide money.  They know tax havens can be used to hide funds not only from tax authorities, but from law enforcement, courts and creditors. Enron had over 400 offshore subsidiaries. A single building in the Cayman Islands, called the Ugland House, serves as the mail drop for nearly 19,000 companies incorporated there for tax-dodging purposes. Hedge funds whose employees live right here in the U.S. pretend to be based in tax havens to dodge U.S. taxes, and some companies keep their money offshore so they don’t have to pay one thin dime to support this country – in fact, they get tax refunds instead.

The Senate Permanent Subcommittee on Investigations, which I chair, has spent more than a decade exploring how offshore tax havens conceal wealth, distort commerce, and abet crime, money laundering and corruption.  The truth is that tax havens have declared economic war on honest countries, including the United States by helping U.S. taxpayers dodge U.S. taxes and rob the U.S. Treasury of needed funds.

The ongoing drain on the U.S. Treasury is massive – and it bears directly on the budget and deficit debate.  In 2006, our Subcommittee estimated that offshore tax abuses cost our Treasury about $100 billion a year in lost revenues. The big budget debate this year focused on about $70 billion in proposed budget cuts, which means the revenues lost to tax havens might have – all by themselves –resolved the problem.  Now I am not so naïve as to believe that if we had that lost tax haven revenue, we would avoid contentious debates over the budget.  But whether you, like me, believe the budget cuts proposed by House Republicans are too deep, or whether you are a Tea Party fan who would use that revenue to fund additional tax cuts, there is no doubt that closing down tax haven abuse would make a big dent in the problems we face.

While offshore tax abuse remains rampant, the news is not all bad.  There have been some recent successes in the effort to rein in the problem.  Last year, Congress enacted the Foreign Account Tax Compliance Act which, when it becomes effective in 2013, will require overseas banks to disclose to the IRS all accounts opened by U.S. depositors.  If they don’t disclose, those banks will face a 30% withholding tax on all their U.S. income.  That new law hopefully will help flush out hidden bank accounts by giving foreign banks a reason to disclose them.  In another important step, in 2010, after a long battle, the IRS succeeded in piercing Switzerland’s veil of bank secrecy and forced its largest bank, UBS, to provide the names of thousands of U.S. clients who had opened hidden Swiss bank accounts.  Similar efforts to identify tax cheats at other tax haven banks are under way.

These victories prove that the battle against offshore tax abuse can make progress, but they also represent skirmishes in what will likely be a very long war.  I’d like to discuss two pieces of legislation that I have introduced in the past, and plan to reintroduce in this Congress, to continue the fight.

The first bill is the Stop Tax Haven Abuse Act, which President Obama cosponsored when he was a member of the Senate.  This bill would enact a number of measures to combat offshore tax abuse, including enabling the United States to take steps against offshore financial institutions or jurisdictions that impede U.S. tax enforcement.  For example, it would allow the Treasury Department to act against tax haven countries that don’t cooperate with our tax enforcement efforts by preventing U.S. banks from doing business with or honoring credit cards from banks in those countries. It would also simplify U.S. tax enforcement by allowing courts to apply a rebuttable presumption that U.S. persons who form, send money to, or receive money from offshore entities control those entities; and it would toughen penalties against tax shelter promoters and others who aid or abet tax evasion.

The second bill is the Incorporation Transparency and Law Enforcement Assistance Act, which addresses a problem in our own backyard.  Nearly two million corporations and limited liability companies are formed within the United States each year, and we don’t know who is behind them, because the states forming those new companies don’t ask.  U.S. corporations with hidden owners are not only used to evade taxes, but have been used by terrorists, narcotraffickers, corrupt dictators, and other criminals.  My bill would require those who set up U.S. companies to disclose the names of the people behind them — the beneficial owners.  Those names would be made available to law enforcement agencies and to the IRS upon presentation of a subpoena.  It’s a heck of a lot harder to argue for an end to offshore secrecy in tax haven countries if we don’t put our own house in order and meet our international commitments to obtain ownership information for the corporations formed here.

So we have work to do.  One important part of that work is informing the public, taxpayers, policy makers and the media about the scope of the offshore tax abuse problem.  Nick Shaxson’s “Treasure Islands” does just that, pointing out problems not just in jurisdictions known for offshore secrecy, but also here in the United States, and in his home country, the United Kingdom.  His book has won widespread praise in Europe. It’s been called “riveting,” “blistering,” “gobsmacking,” and “perhaps the most important book published in the UK so far this year.”  I hope we on this side of the pond will give his book the same amount of attention.  In the week before tax day and in the midst of the ongoing budget debates, his book will help us get serious about shutting down offshore tax abuses that continue to rob this country of needed tax revenues. Ladies and gentlemen, Nicholas Shaxson.

Source: Office of U.S. Senator Carl Levin

Eurodad is a member of the Task Force on Financial Integrity and Economic Development, an international coalition where governments –  including the Spanish government – and civil society organizations work together to improve transparency and the accounting representation of the reality in a global system. One of the priorities of the Task Force in order to improve transparency is the implementation of a country by country reporting standard for multinationals.

The global financial and economic crisis has pointed out deficiencies of the international financial system: its opacity, deficient control and excessive leeway in the business interpretation of law. In this international context, the consequences of tax evasion in developed countries are on first line of debate. But the impact of tax evasion on poor states is even more dramatic, since their economies depend to a much larger extent on taxes that multinational companies pay. This is, especially the case of natural resource rich countries where hydrocarbon sectors represent high percentages of their GDP. These states are often unable to finance their own development.

Conservative estimates point out that illicit capital flows from developing countries fluctuate from 650 billion to 1.000 billion $ a year, number that exceeds that estimated by the World Bank as necessary to reach the Millenium Development Goals. About 60% of this quantity is due to multinational companies’ tax evasion and avoidance through abusive practices such as transfer mispricing and by using subsidiaries in tax havens.

It is widespread practice among multinationals to submit the accounting results on a consolidated basis. This contributes to provide opacity that encourages such practices and their subsequent diversion of resources from developing countries. More than 50% of world trade occurs intra-group and therefore is likely to be subject to transfer pricing abuse or be directed to tax havens. However, not one of those intra-group transactions is broken down in the accounts of the multinationals.

According to various estimates, 50% of global trade passes through a tax haven. About 99% of the biggest European enterprises have at least one affiliate in a tax haven. Repsol is not an exception. Just in the Cayman Islands, Repsol has 10 registered companies with almost no dividends distributed derived from that activity

The fight against tax evasion has generated widespread international support to various initiatives to improve financial transparency, including the presentation of annual accounts on a country by country basis. This initiative is now acknowledged and supported by the OECD, the European Parliament and the European Commission.

Country by country financial reporting should be reflected by an International Accounting Standard for all economic activities across the board. Furthermore, the extractive industry has unique characteristics that require the development of a specific Accounting Standard for the extractive sector.

Therefore, we encourage Repsol to show their support to the adoption of a new international accounting standard for extractive industry that includes the proposals of civil society. In particular we refer to the identification and breakdown on a country by country basis of subsidiaries and associated legal structures for businesses, purchases and sales within the group and third parties, costs and production volumes, profits, reserves and any government payments.

Repsol YPF, as an enterprise that believes that the future of the company will only prosper if it adds the big challenges of the global society of which it is part, should know how to address this challenge and support a legal mandatory measure of transparency that goes beyond the sphere of corporate social responsibility.

Therefore, we insist that, by avoiding bad corporate governance practices and collusion with avoidance and tax evasion, Repsol YPF has much to contribute to the new international accounting standard for extractive industries now under discussion (IFRS-6), giving its public and explicit support to country by country reporting.

Keynote Address by Senator Carl Levin at the Conference on Increasing Transparency in Global Finance: A Development Imperative

Remarks as prepared for delivery

I’m pleased to be with you tonight to discuss an issue of great importance to me, and I know to you as well: the scourge of offshore tax abuse.

It is highly encouraging that you are meeting to discuss how illicit money arising from tax scams, corporate misconduct, foreign corruption, and other wrongdoing has hurt economic development, emerging civil societies, and the rule of law. It is also a pleasure to be introduced by so accomplished a scholar as Professor Fukuyama, who once famously proclaimed “the end of history.” I’d settle for the end of abusive tax havens.

We’re actually making some progress on doing that, but the battle is far from over.

Let me begin with something of a spy story. Now, maybe you wouldn’t expect somebody like me – who Time Magazine once described as “balding and … rumpled” – to be spinning James Bond-like tales of secret codes, smuggled diamonds, and sudden betrayals. But what’s been happening in the offshore tax haven world reads like the stuff of a novel. It involves billions of dollars in hidden assets, secret documents, clandestine meetings, and scheming in cities around the world. It involves conflict among some of the world’s richest nations. And in recent months, political events have caused a near earthquake in the offshore world that has shaken the marbled headquarters of some of the world’s richest private banks serving some of the world’s wealthiest people.

As many of you know, for the last ten years we have been investigating tax havens and offshore tax abuse at the Permanent Subcommittee on Investigations, which I chair. Our Subcommittee has jurisdiction and broad subpoena authority to investigate wrongdoing. Our probe, which has enjoyed bipartisan support, has yielded a series of hearings and reports over the years exposing how some financial institutions and professionals aid and abet tax evasion and help taxpayers dodge their tax obligations.

My interest in the offshore world was first triggered by our 1999 investigation of U.S. banks that were offering private banking services, including offshore shell companies and bank accounts, to some foreign heads of state and their relatives suspected of hiding their illicit funds. That was followed by a 2001 investigation into how small offshore banks were using major U.S. banks to move criminal proceeds deposited by drug traffickers and financial fraudsters, and a 2002 investigation of Enron that was using phony offshore transactions to inflate its revenues and minimize its taxes. Enron alone formed 440 shell companies in the Cayman Islands, and one small building in the Caymans, called the Ugland House, provides the mailing address for 12,000 shell companies. In 2003, we investigated how major U.S. accounting firms like KPMG were designing and marketing abusive tax shelters, including some with offshore transactions. In 2004, we investigated a bank in Washington, D.C., that formed offshore entities for Augusto Pinochet, former president of Chile, and the sitting president of Equatorial Guinea. In 2006, we presented six case studies of how U.S. taxpayers were using tax haven jurisdictions to hide assets and dodge their U.S. taxes.

Over the last year, we held dramatic hearings showing how two tax haven banks in particular, LGT Bank in Liechtenstein and UBS in Switzerland, used their bank secrecy laws to help wealthy U.S. residents conceal billions of dollars in assets in secret financial accounts which are supposed to be disclosed to the IRS, but which weren’t. Of course, these banks didn’t limit themselves to U.S. clients; they provided the same assistance to tax cheats in Germany, France, the United Kingdom, Canada, Australia, and many other jurisdictions.

Hiding assets offshore is blatantly unfair to the vast majority of taxpayers who comply with their civic obligations and have to shoulder the additional tax burden when others don’t pay what they owe. It deprives government treasuries of money needed to protect our citizens and provide the services that make our nations more secure and prosperous. In the United States alone, we’ve estimated that offshore tax abuse deprives the U.S. Treasury of approximately $100 billion in revenues each year.

Offshore tax cheating also undermines the justice of our tax systems, leading taxpayers to conclude that the systems favor those with the means to shield income from tax officials and building resentment, distrust, and anger. In other nations, and in particular developing nations where legal and societal frameworks are less robust and more vulnerable to abuse, I believe these problems can be even more damaging than in the United States, sending needed resources out of the country, draining government treasuries, and poisoning civil society.

But back to the spy story. It starts with Heinrich Kieber, a computer technician at LGT, with is owned by the Liechtenstein royal family. Mr. Kieber saw how LGT was helping taxpayers around the world hide income and assets, and decided to expose the wrongdoing. He provided names, account numbers, and account information to tax authorities in the United States and other nations and to my Subcommittee. He disclosed how LGT bankers developed code names for prized customers, used pay phones to conceal calls to clients, set up corporations and foundations to hide account ownership, and used elaborate means to move money in and out of accounts to conceal the audit trail. In 2008, when his information went public following high profile arrests in Germany, it snowballed into a worldwide scandal focused on how LGT was helping hundreds if not thousands of taxpayers evade payment of taxes.

For his trouble, Mr. Kieber is now in hiding. There is a warrant out for his arrest, and a $10 million bounty placed on his head by unknown individuals. In July of 2008, when he testified before my Subcommittee about LGT’s misconduct, we had to use complex security procedures to protect his new identity, including taking his testimony on videotape without showing his face to the world.

Mr. Kieber’s revelations shook the offshore world. He was followed by Bradley Birkenfeld, a former UBS banker who went to law enforcement officials with evidence that peeled back the curtain of secrecy hiding UBS’s years-long, flagrant violations of U.S. tax law. He told of UBS bankers who secretly visited U.S. clients to manage accounts hidden from the IRS, used encrypted computers to conceal client data, received counter-surveillance training to deflect U.S. inquiries, and opened accounts in the names of offshore corporations to conceal their true owners. He admitted helping one U.S. client hide $200 million in Swiss and Liechtenstein accounts, and another smuggle diamonds into the United States in a tube of toothpaste. Mr. Birkenfeld has since pleaded guilty to aiding and abetting U.S. tax evasion. UBS has admitted that Swiss accounts opened by U.S. taxpayers held more than $18 billion in assets and income hidden from the IRS.

The banking activities described in the Kieber and Birkenfeld revelations were so detailed, so brazen, and so startling that they fueled worldwide outrage at tax haven banks, the use of bank secrecy to facilitate tax evasion, and the complicity of offshore governments in the misconduct, producing what may be our best chance in decades to put a stop to offshore tax abuse.

That’s why, in our spy story, for the moment at least, the good guys are on the march. In the fight against tax havens, we have made more progress in the last year than the previous ten years combined. Let me outline some of the developments.

* Liechtenstein and Switzerland have reversed decades of resistance and agreed to enter into Tax Information Exchange Agreements in line with the model agreement developed by the Organization for Economic Cooperation and Development (OECD). Both countries have already initialed such agreements with the United States and other countries.
* UBS has entered into a deferred prosecution agreement with the United States in which it admitted conspiring with some clients to defraud the United States out of tax revenues, paid a $750 million fine, and agreed not to open any more U.S. client accounts without alerting the IRS. Think of it: UBS, the largest private bank in the world, has said that it will no longer offer hidden Swiss accounts to U.S. residents. When UBS first announced that radical change in policy at one of my Subcommittee hearings, it almost knocked me off my chair.

* In addition, as part of the deferred prosecution agreement, UBS and the Swiss Government broke decades of practice and turned over between 250 and 300 names of U.S. clients to the U.S. Justice Department. To settle a civil lawsuit brought by the U.S. Justice Department, UBS and the Swiss have also recently promised to turn over about 4,500 additional client names over the next year.

* As G-20 leaders signaled a new willingness to take action against uncooperative tax havens, the changes made by Liechtenstein and Switzerland set off a chain reaction in other bank-secrecy nations. Places like Luxembourg, Austria, Andorra, Monaco, and others also pledged for the first time to share tax information and cooperate with international tax enforcement.

* Last week, at a meeting in Mexico City, the OECD announced that all 87 countries in its Global Forum on Transparency and Information Exchange had agreed to adopt the OECD model agreement on tax information sharing. Essentially, those 87 nations – including some of the most notorious tax havens in the world – pledged to no longer allow bank secrecy laws to be used to carry out tax evasion.

* In the United States, indictments have begun to be filed against tax cheats and the lawyers, accountants, and others who helped them set up their secret Swiss accounts at UBS. We’ve been told that cases involving other tax haven banks may follow.

* In addition, U.S. tax officials have initiated a voluntary program allowing U.S. taxpayers with tax haven bank accounts to come clean, pay their back taxes, and avoid criminal prosecution. Hundreds of tax evaders are coming forward in a development that could restore a billion dollars or more in unpaid taxes to the U.S. Treasury.

Together, these events reflect an upheaval in the offshore tax haven world – a growing worldwide consensus that bank secrecy laws can no longer be relied upon to carry out tax evasion. This progress resulted from bank insiders willing to disclose offshore misconduct, law enforcement officers willing to pursue wrongdoing in the courts, and international leaders willing to demand change. It shows the power of Congressional oversight. And it shows that the scourge of offshore tax abuse is not an inevitable evil we have to live with, but misconduct that we can expose and hopefully eliminate.

Of course, the battle to end offshore tax abuse is far from over. And I am concerned that in our spy story, the good guys may declare victory and relax before the villains are vanquished. We need to take action now to ensure we get a happy ending.

Our first opportunity comes next week when the G20 summit meets in Pittsburgh to discuss financial reform, and tax havens are on the agenda. I recently urged the Obama Administration to work with our G20 partners to support the longstanding effort of the OECD to establish a system of international sanctions that can be taken against tax havens that don’t cooperate with international tax enforcement.

While 87 nations have now pledged to adopt the OECD’s model tax information exchange agreement, it is critical that the international community ensure that these pledges are followed by concrete actions – that tax havens not only sign tax sharing agreements but implement them. If words are not followed by deeds, the international community must have a way to respond.

In my letter, I highlight one possible tax haven sanction that our G-20 partners could consider, which would replicate the successful approach the United States has already pioneered to combat international money laundering. That approach allows the U.S. Treasury to take a series of increasingly tough steps against financial institutions or jurisdictions that pose money laundering concerns, including authority to bar U.S. financial institutions from doing business with the offending bank or jurisdiction and essentially locking them out of the U.S. financial system.

That same lock-out approach could be applied to tax haven banks or jurisdictions that fail to cooperate with international tax enforcement. The G-20 or a smaller subset like the G-7 nations could act as a group to bar their financial institutions from doing business with uncooperative tax haven banks or jurisdictions. Tax haven banks facing that type of united action would have a much harder time turning law enforcement away empty handed. And putting the necessary legal mechanism in place now to stop tax haven abuses in the future would give the international community a powerful new tool to use when the next offshore tax scandal hits.

Here in the United States, there are additional steps we can and should take to stop offshore tax abuse. As a legislator, my priority is to enact two pieces of legislation now before the Congress.

The first is the Stop Tax Haven Abuse Act, S. 506, which I and four colleagues have introduced in the Senate. Congressman Lloyd Doggett and some of his colleagues have introduced the bill in the House. President Obama cosponsored this legislation when he was a member of the Senate, and he endorsed its passage again earlier this year. This bill would enact a long list of measures to combat offshore tax abuse, including measures to enable the United States to take steps against offshore financial institutions or jurisdictions that impede U.S. tax enforcement as I just discussed. It would also simplify U.S. tax enforcement actions by allowing courts to presume that U.S. persons who form, send money to, or receive money from offshore entities control those entities; tighten reporting requirements for financial institutions that establish offshore accounts or entities for U.S. taxpayers; give law enforcement more time to pursue offshore tax cheats; and toughen penalties against those who aid or abet tax evasion. Passage of this legislation holds significant promise of reducing the current $100 billion drain on the U.S. treasury from offshore tax abuse each year.

The Senate Finance Committee and the House Ways and Means Committee have both said they would enact bills addressing offshore tax haven abuses this year. Everyone with an interest in this issue, at home and abroad, should urge the Committees to do just that and to include the key provisions of the Stop Tax Havens Abuse Act in the final product. We could sure use that revenue to help fund health care reform.

The second piece of legislation would take important steps to put our own house in order by ending a form of corporate secrecy in the United States. Today, our 50 states form nearly two million corporations and limited liability companies each year and, in almost every case, do so without requesting the names of the beneficial owners – the people behind the newly formed company’s activities. The failure to request beneficial ownership information creates U.S. corporations with hidden owners who can more easily engage in tax fraud, money laundering, or other misconduct. This corporate secrecy frustrates law enforcement. It also violates our international anti-money laundering commitments and undermines U.S. efforts to persuade offshore jurisdictions to identify the beneficial owners of the companies they form.

S. 569, the Incorporation Transparency and Law Enforcement Assistance Act, which I have introduced with Senators Grassley and McCaskill in this Congress and which was cosponsored by President Obama in the last Congress, would eliminate this weakness in U.S. law. Many groups – some represented in this room – have endorsed the bill, including the Federal Law Enforcement Officers Association, Fraternal Order of Police, Citizens for Tax Justice, and Global Financial Integrity which is helping sponsor this conference. Again, I hope all of you will help us get this bill enacted into law.

Another step we need to take is to support the efforts of the U.S. Justice Department and IRS to take abusive tax haven banks to court, stop their misconduct, and identify their clients. Some would like to shut down that enforcement effort; I want to strengthen it and expand it beyond the groundbreaking UBS case.

In addition, while recognizing the UBS case has been the most aggressive, innovative pursuit of a tax haven bank in U.S. history, we need to recognize that victory is far from complete. A 2004 document indicated that UBS had 52,000 U.S. clients with hidden Swiss accounts. UBS and the Swiss have agreed to disclose only about 5,000 client names. Clearly, some tax cheats will evade investigators, and we will have to rely on UBS and the Swiss government to give us the names of the worst offenders. Before we pop the champagne corks, we need to see how the UBS agreement plays out and how effective it is in identifying the tax offenders.

Next, while widespread adoption of the OECD model tax information sharing agreement is a breakthrough, we shouldn’t kid ourselves that it will solve the offshore tax abuse problem. For one thing, we have to see how many nations that are now promising to sign and implement these agreements actually do so. For another, and this is key, the model agreement has traditionally been interpreted as requiring a country to supply information only when a requesting jurisdiction has the name of a specific, suspect taxpayer. Most governments take the position that if the requesting jurisdiction doesn’t have the taxpayer’s name, no information can be shared, even if bank secrecy laws make obtaining that taxpayer’s name difficult or impossible.

That has to change. That restrictive interpretation has been a key barrier to effective use of international tax information exchange agreements, and it must be broadened. The first step has already been taken in the UBS case. Switzerland has agreed that, in response to a U.S. treaty request, UBS can supply the names of some of their U.S. clients as well as their account information. This concession by the Swiss is a major development that needs to be recognized and pressed worldwide, so that tax information exchange agreements can be used to obtain information not only in cases where the requesting jurisdiction has a specific taxpayer name, but also where the requesting jurisdiction identifies a specific entity that is facilitating tax evasion — such as a bank, attorney, or corporate administrator — and requests the names of that entity’s clients.

Finally, offshore tax abuse needs to be taken into account when developing international trade policy. Specifically, there ought to be a policy against rewarding trading partners that refuse to adopt the growing global consensus against tax evasion. The nation of Panama, for example, hopes to conclude a free trade agreement with the United States in the near future. But at the same time, after pledging in 2002 to negotiate a tax information exchange agreement with the United States, Panama is stonewalling. The United States should insist that Panama and other nations agree to tax information sharing before extending to them the advantages of a free-trade agreement.

We have the means to end offshore tax abuse if we have the political will to act. Offshore tax evasion currently deprives countries of billions of dollars in needed revenues, benefiting the wealthy few who have the resources to hide assets offshore while offloading their tax burden onto the backs of honest taxpayers. When that happens, tax haven abuse undercuts the tenets of fairness and shared sacrifice on which free societies rely.

Tax evaders reap enormous benefits from civil society — they enjoy the security our military and law enforcement agencies provide; they invest and prosper thanks to the rule of law and sanctity of contract which our regulators and court system enforce; and they build their economic future on the financial, communications, and transportation infrastructure that taxpayers finance. What we ask in return is that all members of society pay that share of their income that they owe, so that governments can continue to protect fundamental rights and provide basic services. If that social contract breaks down and some refuse to pay their share, the effects on civil society are caustic. Ending offshore tax abuse is about more than money; it is about protecting the principles upon which our economic and political systems are built.

As Justice Oliver Wendell Holmes famously said, “Taxes are the price we pay for civilization.” Those who seek to avoid their tax obligations are not just free loaders, they are weakening that civilization. But if we take the right steps, together across the globe, we can finally end the scourge of offshore tax abuse.

Thank you for listening, and thanks for the work you do to combat offshore abuse in all its forms.

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As Prepared for Delivery

I run the international development program at SAIS, at Johns Hopkins, and for the last several years I’ve been involved in governance issues because it does seem to me that the development community has finally woken up to the importance of good governance and institutions.  Obviously, the fight against corruption is a key part of this agenda.  I think there is a very broad consensus that has fallen into place over the last decade or so about just how detrimental corruption is in undermining the legitimacy of democratic institutions and in impeding growth.

If you bear with me I’m actually going to take a little bit of an historical detour because for the past couple of years I’ve been involved in writing a very long book on the origin of institutions, and among the institutions that I’ve been looking at is [the rise of] accountable government, political accountability, or what we call democracy today.  This will get back to the subject at hand, you’ll see.  I’ve spent a lot a time dealing with early modern Europe in the 16^th -17^th centuries. The rise of representative democracy in the West was very much related to the desire of absolute monarchs in this period to tax their populations and in many respects Parliament in England would not have become the body that it is today but for the fact that the early Stuarts wanted to tax British taxpayers in order to raise money for wars. That was the main driver of the government’s demand for revenues in this period.  And those of you who know the history of the 17^th century in Britain know that they actually fought a civil war, a long civil war, and after that was overn eventually ended up replacing their monarch with a pretender from the low countries in order to establish the principle of no taxation without representation, that there should not be any extraction of revenue without the consent of parliament,.  Our political system is a direct outgrowth of this victory and principle of political accountability.

Things were very different in France, in the France of Louis XIV and Louis XIII.  There was great weakness in France, because although you had an absolutist government, it could not tax the elites in French society for a whole variety of reasons. The wealthy aristocracy and the bourgeoisie managed to buy for themselves exemptions, and they got very good at hiding their income from the tax man. In fact, the French monarchy had to resort to the sale of offices. Henry IV actually auctioned off the post of finance minister to the highest bidder. He got something like 17 bids, sold it to the guy who gave him the most money, and then the finance minister went to town using that post for his own corrupt purposes.  Now this was very important because it had very negative effects on French political development.  For one thing, it completely undermined the solidarity of the elites in France to resist absolutist power because they were all bought off as individuals. Nobody wanted to harm the inherited privileges that they could hand down to their children that the French monarchy had given them.  And it was also very bad for the society because it meant that if you can’t tax the rich the burden of taxation was going to fall on ordinary people through excise taxes and through taxes on the peasantry. It was an extremely regressive form of taxation and the result was the French revolution, quite honestly.

Now the reason I have taken this digression is that I think that you can see a certain parallel between the old regime in France and the situation in many developing countries today.  — We can discuss the comparison to contemporary America: I think we’re not quite as bad as auctioning off the post of Treasury Secretary but we may get there one day. — But, in any event, it is certainly the case in many developing countries that you have a situation that is very parallel to the old regime in France in the sense that the government really does not have the legitimacy or the authority to tax its own society, and the kinds of taxes it has to raise therefore fall on the weakest members of those societies. For Latin America, as a whole, I believe that the total amount of income tax that is taken from individuals is only 7% of total tax revenues.  Now this is where GFI, it seems to me, comes in. If you think about the difference between the 17^th century and the current situation, in many respects the ability of elites and wealthy individuals and corporations to resist taxation is enormously greater today than it was back then.  Back then you would try to avoid the cadastral survey, you’d hide your gold in the family vault, but you physically couldn’t take your assets out of the country — most of your assets were your manor and your land and so forth.  But today obviously things are much more mobile and you have an entire global economic system that is institutionally set up to facilitate people moving money across borders.  And therefore all of the ills of the old regime in France, it seems to me, fall on those societies that are subject to this problem.  There can be no demand for democracy if all the rich people, if all the elites in the country, can manage to protect their own private fortunes, they have no reason to work with other people to resist the government, to demand democracy, to demand accountable government. There’s no demand for less corrupt government because everybody has taken care of themselves as an individual and it delegitimizes democracy.  Again, I point back to that very important link between a society’s ability to tax its own people and the demand for representative government because the two of those are absolutely bound together historically, and once you break that link you get very weak support for political accountability. So anything that can be done to reduce the ability of people to transfer assets and to avoid the sovereignty of the state, it seems to me, is very important.