Task Force on Financial Integrity and Economic Development

Cross-border tax probes set to rise
Number of tax probes set to rise after AstraZeneca settles transfer pricing dispute with HMRC
Accountancy Age, March 4, 2010

Man jailed for trying to smuggle £60,000 cash in his underpants
The Daily Telegraph, March 4, 2010

Man held as police look to track down £2m in ‘dirty money’
Scottish Daily Record, March 4, 2010

Kazakhs accuse ex-uranium boss of money laundering
Reuters, March 4, 2010

US queries delays in law to fight crime
The Daily Nation, March 4, 2010

Oregon Man Charged with Operating Illegal Money Transmitting Business That Moved More Than $172 Million Through Shell Corporations in the US
US Dept of Justice, March 3, 2010

Advani demands white paper on black money
Indian Express, March 4, 2010

Jobs bill vote this afternoon
MSNBC, March 4, 2010

Kirk gets pressure on trade deals
Says labor has voice, not veto
The Washington Times, March 4, 2010

DND to bare bets using drug money in campaign
Manila Bulletin, March 4, 2010

From Monterrey to Doha: Taxation and Financing for Development

Tax Justice Network — Wed, 03 Mar 2010 19:53:41 +0000

Our colleagues Dries Lesage (Ghent University), David McNair (Christian Aid), and Mattias Vermeiren (Ghent University), have had a scholarly paper published in Development Policy Review in which they trace recent progress in the global debate on tax and finance for development.

The paper explores the background to the Financing for Development (FfD) process of the United Nations, explaining the institutional and political reasons why the original Monterrey Consensus of 2002, described by the authors as “a mix of . . . compromise and lowest common denominators between the different blocs,” rarely mentioned tax. This was not for want of trying on the part of those who had been pushing the FfD agenda prior to Monterrey, including and especially Ernest Zedillo (ex-President of Mexico), whose high-level panel of experts had identified how ill-conceived tax policies, illicit financial flows, and tax evasion, were eviscerating the tax regimes of poorer countries.

The problem with Monterrey was that policy makers from both North and South were locked in the ideological strait jacket of a tax consensus which elevated the virtues of tax cuts targeted at investors and tax hikes on consumers, and down-played the role of the state in providing core services such as health, education and public infrastructure. Global governance issues were scarcely considered, other than as they relate to tackling bribe-taking and combating narco-trafficking and terrorist funding: strengthening international initiatives against tax havens was definitely not on the menu at that time.

The conservative position adopted at Monterrey shifted only slightly at the Doha review summit in 2008. By that stage TJN was actively involved, pushing for stronger measures to combat tax evasion and strengthen international cooperation. But the successes at Doha were modest, and progressive measures being proposed at that time, including country-by-country reporting by multinational companies and automatic information exchange as the appropriate international standard for combating tax evasion, faced strong resistance from vested interests. This blogger, for example, had a friendly but unrewarding discussion in Doha with a very senior US official – this was the absolute fag-end period of the Bush Administration – who vehemently opposed measures to strengthen tax information exchange agreements.

The paper also explores the institutional weaknesses that hamper the development of a broader, non-technocratic, debate on tax development. As the authors note:

“Most politicians, journalists, activists or social scientists do not have the expertise to politicise FfD-relevant tax issues, and are simply not aware of what is going on. Those who have the expertise (ministries of finance and international organisations, banks and other private financial institutions, big corporations, consultancy firms, the financial press) are most of the time not mandated or have other interests. This barrier poses a fundamental democratic deficit with regard to the whole financial sector. Developing countries are at an even larger disadvantage. Because of its complex and abstract character, until recently NGOs found tax not suitable for campaigns either. Tax was simply not a popular topic to talk about.”

Which, of course, is where TJN stepped in to popularise tax and rally civil society around a set of progressive policies which, from the outset, were carefully targeted at weak spots in the globalised financial markets – corporate tax evasion and avoidance, trade mispricing, tax havens and the whole apparatus of financial secrecy which make a mockery of the intellectual arguments made in favour of cross-border financial flows.

You can obtain copies of the paper from here.

It’s your turn

Ann Hollingshead — Wed, 03 Mar 2010 18:29:33 +0000

If you’ve read any of my blog posts, you know a thing or two about illicit financial flows, development, and tax havens.

I’ve told you about how developing countries lose US$1 trillion a year to illicit financial flows, which is more than what the developing world spends on health care and 500 times what the World Bank spends on emergency food aid. I’ve shown how banking secrecy feeds into the problem of corruption, as dictators like Teodoro Obiang are able to steal hundreds of millions of dollars from their people and then are able to hide it in American banks.

I’ve illustrated how greedy multinationals can use trade mispricing to sell tweezers for $4,896 and razor blades for $113, shift profits to tax havens or developed countries, evade their taxes, and leave developing country governments out to dry. I’ve shown how those flows of money reduce the growth potential of developing countries by diverting domestic savings away from investment.

I’ve presented examples of how that loss of money can affect developing country governments, like Thailand, Moldova, Mali, and Costa Rica, each of which has a government struggling to eradicate disease, improve education, and lift thousands out of poverty. But their efforts are hampered by a shortage of funds and mountains of public debt, which only make these countries more dependent on aid, thereby fueling a never ending vicious cycle. Yet if each of these countries—and so many more— were able to reclaim the lost tax revenue due to trade mispricing, they would have a drastically improved situation.

I’ve revealed the damaging effects of abusive transfer pricing, with companies such as Citigroup and Morgan Stanley, who relied on the American government’s pocket book in their time of need, but still maintain hundreds of subsidiaries in tax havens. I’ve told you that the American government loses $100 billion a year to tax evasion as a direct result of tax havens, and that in 2004 American corporations paid an effective tax of just 2.3% on profits. I’ve shown how tax havens like the Cayman Islands contributed to the 2008 financial crisis, by incorporating hedge funds and investment banks and then failing to regulate their operations and risky financial instruments.

I’ve finally demonstrated how banking secrecy can erode our national security, as Iran uses its co-conspirator, Venezuela, and tax havens like Panama to deposit money in Manhattan—money which can then be used to pay for banned missile and nuclear materials.

Click here to view the embedded video.

Banking secrecy is dangerous. It erodes development. It contributes to global financial instability. It exacerbates income inequality. It worsens our budget deficit. It makes developing economies more aid dependent. It compromises international security. Over the last year I have shown you all of these things.

So now I’m going to ask you do something. Watch our web ad and then sign the G20 transparency petition to fight poverty, protect human rights, and demand transparency in international banking. It’s your turn to lend your voice to change. And it’s our chance to make a difference.

Wednesday’s News Digest

Clark Gascoigne — Wed, 03 Mar 2010 17:36:44 +0000

Swiss private banking: An industry in denial?
Financial Times, March 3, 2010

Editorial: Closing secret accounts
JoongAng Daily, March 04, 2010

Editorial: Tracing Tax Evaders: Korea Seeks to Get Banking Information From Switzerland
The Korea Times, March 04, 2010

Israel’s Foreign Minister Questioned by Police
Suspicions Lieberman Coerced Israeli Diplomat Into Handing Over Secret Documents
ABC News, March 3, 2010

Corruption costs Greek economy $1 bln a year – watchdog
Reuters, March 2, 2010

Chinese official caught as diary of wine and women leaked online
The Times of London, March 3, 2010

France urges Russia’s Medvedev to battle corruption
Reuters, March 2, 2010

Two Years In, Old Ills Still Norm for Kenyan Government
Voice of America, March 2, 2010

Building Afghanistan’s Financial System
Voice of America, Editorial, March 3, 2010

Corruption and diplomacy
The Jakarta Post, March 3, 2010

Jonathan Forwards Money Laundering Bill to Senate
This Day, March 3. 2010

Fastweb Founder Denies Role in Fraud
The Wall Street Journal, March 3, 2010

Mexico, a hub for money laundering, still the main foreign supplier of drugs to the U.S.
BNO News, March 3rd, 2010

Swiss Going Back to School to Learn OECD Rules

Clark Gascoigne — Wed, 03 Mar 2010 15:31:55 +0000

World Radio Switzerland is airing an interesting segment on the future of banking secrecy in Switzerland:

Caught in the storm surrounding banking secrecy, some feel they’ve caught a glimpse of a brighter future. Among them is a group of tax and financial experts who’ve come together to set up Switzerland’s first masters programme in international tax law at the University of Neuchatel. When the storm has blown over, they say, we’ll be playing by OECD tax rules. Bankers, lawyers, tax advisors, many have enrolled to learn those rules. Reporter Lucas Chambers went to join them for a day:

Check it out below: http://worldradio.ch/wrs/bm~doc/20100303_trusts.mp3

GFI Web Video: Who Suffers?

Task Force — Tue, 02 Mar 2010 16:34:27 +0000

Developing countries are currently losing US$1 trillion dollars annually – 10 times the amount they receive in foreign aid. We can change this. Tell the G20 – the world’s economic leaders – to create transparency in the international financial system. Sign the petition at www.G20Transparency.com.

Tuesday’s Top Stories

EJ Fagan — Tue, 02 Mar 2010 16:25:29 +0000

U.S. Ups Criticism, Pressure On Kenya
The Wall Street Journal, March 2, 2010

Italian Cabinet approves corruption crackdown
The Associated Press, March 1, 2010

Iraq VP slams corruption, urges a vote for ‘change’
AFP, March 1, 2010

Guatemala fires minister for alleged corruption
The Associated Press, March 1, 2010

Vontobel Evaluating Ops For US Offshore Clients
Dow Jones Newswire, March 2, 2010

Swiss lawmakers threaten to haul Germany to the world court for purchasing data on tax evaders
The Associated Press, March 2, 2010

US tells India to tighten regulation to curb money laundering
The Hindu, March 2, 2010

Fastweb Founder Questioned By Judge In Money Laundering Probe
Dow Jones Newswire, March 2, 2010

BAE Systems pleads guilty in fraud conspiracy case
Bloomberg News, March 1, 2010

Gome China Unit Indicted for Bribery at Beijing Court
Bloomberg News, March 1, 2010