But in order to change this status quo, legislators need to close the loopholes that allow companies to drive down their effective tax rates far below the official rate. This needs to happen. There are far too many corporate tax loopholes—which are deductions, credits, and other tax expenditures that benefit certain activities—and they often result in very different marginal tax rates for different companies who conduct very similar business activities. It is these loopholes which allow corporations to pay an average rate of 12%, even though the statutory rate is 35%. It is these loopholes that allowed the 100 largest U.S. multinational corporations to pay about $16 billion of U.S. tax on approximately $700 billion of foreign active earnings in 2004 – an effective tax rate of about 2.3%.We must close these loopholes to align the effective corporate tax rate with the official rate.
And I am pleased to say that only a few short weeks after President Obama’s address, Senator Carl Levin and Senator Kent Conrad have introduced a bill, to accomplish just what the President said we should. The bill, called Cut Unjustified Tax Loopholes Act or CUT Loopholes, would slice these loopholes by:
[Preventing] companies run from the United States from claiming foreign status and dodging U.S. taxes on their foreign income (§103) by treating foreign corporations that are publicly traded or have gross assets of $50 million or more and whose management and control occur primarily in the United States as U.S. domestic corporations for income tax purposes.
[Requiring] annual country-by-country reporting (§111) by SEC-registered corporations on employees, sales, financing, tax obligations, and tax payments.
[Strengthening] John Doe summons (§115) by streamlining the process used by the IRS to issue summons to a class of persons, such as the clients of an offshore bank, accounting firm, or law firm, while strengthening court oversight.
[Strengthening] penalties (§§121-122) on tax shelter promoters and those who aid and abet tax evasion by increasing the maximum fine to 150% of any ill-gotten gains.
As Raymond Baker, Director of GFI, recently noted, the bill would eliminate “incentives to send money and jobs overseas; help level the playing field between small businesses and multinational corporations; increase information and transparency for corporate investors; and strengthen law enforcement and tax collection abilities.”
According to the Joint Committee on Taxation and the Office of Management and Budget, the CUT Loopholes Act would reduce the deficit by at least $155 billion over the next decade with $130 billion of that reduction being attributable to the bill’s offshore tax provisions.
The question of whether or not this important piece of legislation will pass does not come down to the will of Americans. Americans are already on board. According to the Des Moines Register’s Iowa Caucus Poll, 87% of individuals surveyed said corporate tax loopholes should be closed so that every U.S. business pays some taxes. Likewise, according to an independent poll 91% of small businesses agree that U.S. multinational corporations’ use of accounting loopholes to shift their U.S. profits to their offshore subsidiaries to avoid taxes is a problem.
As we know, Senator Carl Levin is no stranger to these issues. He has a long legislative history of promoting transparency and financial integrity. This bill adds yet another critical piece to his record. The President, likewise, has also supported similar legislation during his own career in the Senate. That, put together with his comments during the State of the Union, we can likely count on his support.
Since small businesses, average Americans, and the President of the United States are seem to be on board, the decision comes down to the remaining 98 members of the Senate, the 435 members of the House of Representatives and, of course, the multinational corporations, who—I’m willing to bet—all have a strong opinion. And I’m also willing to bet they’re going to work pretty hard to hold onto that loophole-ridden 2.3% effective rate. I say: let’s have that discussion. We’ve got a lot more going for us on this side.
]]>Marking the end of the Year of the Forest, the Annual Transparency Report published by a coalition of NGOs working across Europe, Africa and Latin America assesses the amount of information available to citizens in seven forest-rich tropical countries (Cameroon, the Democratic Republic of Congo, Ecuador, Ghana, Guatemala, Liberia and Peru). The report includes measures of how governments deal with threats from mining and agricultural plantations, the way in which deals are done and whether forest-dependent communities have enough say over how their forests are being managed. It finds that governmental commitments to improve transparency in the forest sector are not being acted on.
“The rights of people living in the forest can only be effectively protected if laws, policies and other basic information such as logging contracts and concession maps are widely available to them,” said Joseph Bobia, of Réseau Ressources Naturelles, a forest campaign group based in the Democratic Republic of Congo. “Governments need to provide this information in a timely and transparent way. Only this way will civil society be able to hold them to account.”
Governments have announced a range of commitments to improve transparency over forest sector management. These include: better and earlier public consultation, public disclosure of key documents, and support to small landowners to protect their forests. In addition, four of the seven forest-rich countries covered in the report now have Freedom of Information laws that include commitments to providing information on forest sector management. Worryingly however, very few of these commitments are being acted on and in the case of the freedom of information laws, not one forest authority is meeting its obligations.
“These additional commitments currently amount to no more than statements of intent,” said David Young, forest campaigner at Global Witness. “More and better information must be published immediately. Until this happens, forest-dependent communities cannot know whether their forests are being managed in their interests, or those of a select few.”
The report also raises concerns that commercial interests for land, mining, oil and agricultural plantations are still taking precedent over the need to protect forests and the communities that depend on them. All too often government bodies compete to strike a deal with a favoured investor, rather than working together in the interests of preserving forests.
“With only 20 percent intact natural forest remaining globally, it is vital that governments manage forests in the public interest,” continued Young. “Local civil society are fighting hard to extract better commitments from their governments, and have shown determination and imagination in doing so. But while there have been some improvements, not one forest authority has made a wholehearted change towards more openness. What do they have to hide?”
ENDS
For more information, please contact:
Notes to editors:
[1] The Annual Forest Sector Transparency Report card is published as an interactive database at www.foresttransparency.info. Global Witness has been working on forest transparency and illegal logging for over 15 years. Read more about our work on forests atwww.globalwitness.org/forests
[2] The United Nations Year of the Forest 2011 closing ceremony takes place on 9 February 2012. See http://www.un.org/en/events/
[3] There were some improvements in six countries:
[4] The report card is part of Global Witness’ Making the Forest Sector Transparent project, funded by the UK Department for International Development Governance and Transparency Fund, http://www.dfid.gov.uk/
Taken together, our fresh analysis provides no clear black or white recommendation to any interested party as to whether or not it is a good idea to push for and ratify this Convention.
The introduction notes:
4. The Convention embodies various legal improvements over Tax Information Exchange Agreements (TIEAs). Its multilateral nature is an important improvement over the bilateral processes that dominate the field of cross-border information exchange. It is also much broader than TIEAs: it provides differing mechanisms for exchanging information (‘on request’, ‘spontaneous’ and ‘automatic’ information exchange) and allows for joint tax audits of multinational corporations. This may be particularly useful for developing countries struggling to untangle complex multi-jurisdictional tax structures.
5. The Convention nonetheless has major weaknesses: secrecy jurisdictions face little or no incentive to adhere to it, and it is unclear whether the Convention will require secrecy jurisdictions to obtain the information that needs to be exchanged. Current signatories (let alone those that have actually ratified it; see Annex A) exclude secrecy jurisdictions such as Switzerland, Luxembourg and the Cayman Islands. In addition, there are no mechanisms for assessing how well the Convention is performing in practice*, and consequently no evidence as to how well it performs.
These risks are particularly relevant for developing countries deciding whether to commit scarce resources to it. Furthermore, unlike recent guidance issued by the UN, there is no provision to allow wealthier countries to bear more of the costs involved in complying with the Convention. The Convention also fails to refer to the UN as an appropriate forum for advancing international tax cooperation and instead jealously guards this role for the OECD and for parties to the Convention.
Read more here.
This paper will be permanently available on our “Information Exchange” webpage and on our “Briefing Papers” page.
The drafting of this briefing was a team effort and the author wishes to thank Eurodad, Martin Hearson (Action Aid), Sarah Knott, David McNair (Christian Aid), Sol Picciotto, Nicholas Shaxson, and David Spencer for valuable contributions.
* Such a mechanism is hardly ever available in the context of international conventions/treaties and represents a major obstacle in creating effective international cooperation. Such mechanisms should be developed.
After an intense investigation by the IRS, the United States Department of Justice (DOJ) pursued both criminal and civil charges against the giant Swiss bank. Federal prosecutors dropped criminal charges eighteen months later, however, after the bank admitted to fraud and conspiracy, paid a $780 million fine, and satisfied DOJ prosecutors that it had dismantled its offshore banking operations.
In August 2009, UBS agreed to a settlement with DOJ on the civil charges and as part of the deal, offered to hand over the names of 4,450 tax evading Americans to the IRS. For a moment, it looked like the Swiss government—in a grasping act of self-preservation—would step in and forbid UBS from handing over the names. But at the last minute, the two houses of Swiss Parliament agreed to stick to the deal.
The historic vote laid the groundwork for more legal action by the United States against several other Swiss banks—likely what the Swiss had feared. These included Credit Suisse, Switzerland’s second largest bank, and HSBC, which is based in London, but has extensive Swiss operations under its Private Bank. There are now at least eleven Swiss banks under criminal investigation by the Justice Department’s tax division.
But DOJ’s approach and tone has shifted in recent months. Early last week, for the first time ever, “U.S. authorities have charged a bank rather than individuals with helping Americans evade taxes.” The bank was Wegelin & Co.; it is Switzerland’s oldest private bank. According to the indictment filed last week, Wegelin helped Americans evade U.S. taxes on more than $1.2 billion in assets and after DOJ’s prosecution of UBS, “deliberately set out” to capture its counterpart’s lost cross-boarder illegal banking business.
Bryan Skarlatos, an attorney with Kostelanetz & Fink in New York, noted the indictment ”shows the [United States] is willing to go after Swiss banks themselves if they don’t turn over names of U.S. taxpayers who are account holders.” It also puts pressure on the Swiss government to agree to a settlement involving all Swiss banks.
In many ways, Swiss banks have born the largest share of DOJ scrutiny on tax evasion. The reason for that is relatively clear—Switzerland holds nearly one-third of the estimated $7 trillion in global wealth kept offshore.
But what about the other two-thirds? Switzerland is not the only place in the world to hide tax-evading money. Some spooked depositors are sending it somewhere even more secretive, like Singapore, Hong Kong, and the United Arab Emirates. So should—and by extension—when should the DOJ pursue banks in other jurisdictions as aggressively as it has in Switzerland?
Prosecutors are already investigating banks in Asian jurisdictions. None have seen the level of DOJ involvement with Switzerland, but that doesn’t mean they’re safe. Nor should they be. As long as these banks continue to aid American citizens violate American laws, they should be held accountable. While Switzerland may hold a bulk of the world’s offshore tax-evading deposits, if DOJ pursues only the Swiss, they risk pushing the deposits to other, more secretive havens. So the answer is yes: DOJ should pursue tax evaders in other countries. And they should probably do it soon.
]]>WASHINGTON, DC – Global Financial Integrity (GFI) today applauded the introduction of a bill, which would close several major tax loopholes and curtail abusive tax haven secrecy.
The Cut Unjustified Tax (CUT) Loopholes Act, which was introduced in the U.S. Senate today by Senators Carl Levin (D-MI) and Kent Conrad (D-ND), contains several provisions to permanently close offshore tax loopholes, raise revenue, and increase transparency and accountability for multinational enterprises.
“Enactment of the CUT Loopholes Act would be a huge step forward,” said Raymond Baker, director of GFI. “It would scrap several egregious offshore tax loopholes—eliminating incentives to send money and jobs overseas, help level the playing field between small businesses and multinational corporations, increase information and transparency for corporate investors, and strengthen law enforcement and tax collection abilities.”
According to the Joint Committee on Taxation and the Office of Management and Budget, the CUT Loopholes Act would reduce the deficit by at least $155 billion over the next decade with $130 billion of that reduction being attributable to the bill’s offshore tax provisions.
Significant provisions of the legislation would:
GFI was particularly pleased to note the section on country-by-country reporting.
“The country-by-country reporting provision adds a layer of pro-investment, best practices accountability to this bill,” said Mr. Baker. “For investors, the more information available about a company’s business practices and balance sheets, the better. This reporting requirement would also help anti-corruption and economic development efforts in developing countries by creating more transparency with respect to whether a multinational is contributing to the tax base of the developing countries in which it operates, or whether it is engaging clever accounting tricks to move that money to tax havens.”
A full summary of the legislation can be found here.
###
Notes to Editors:
Contact:
Clark Gascoigne
+1 202 293 0740 ext. 222
cgascoigne@gfintegrity.org
Global Financial Integrity
WASHINGTON, DC – Global Financial Integrity (GFI) today applauded the introduction of a bill, which would close several major tax loopholes and curtail abusive tax haven secrecy.
The Cut Unjustified Tax (CUT) Loopholes Act, which was introduced in the U.S. Senate today by Senators Carl Levin (D-MI) and Kent Conrad (D-ND), contains several provisions to permanently close offshore tax loopholes, raise revenue, and increase transparency and accountability for multinational enterprises.
“Enactment of the CUT Loopholes Act would be a huge step forward,” said Raymond Baker, director of GFI. “It would scrap several egregious offshore tax loopholes—eliminating incentives to send money and jobs overseas, help level the playing field between small businesses and multinational corporations, increase information and transparency for corporate investors, and strengthen law enforcement and tax collection abilities.”
According to the Joint Committee on Taxation and the Office of Management and Budget, the CUT Loopholes Act would reduce the deficit by at least $155 billion over the next decade with $130 billion of that reduction being attributable to the bill’s offshore tax provisions.
Significant provisions of the legislation would:
GFI was particularly pleased to note the section on country-by-country reporting.
“The country-by-country reporting provision adds a layer of pro-investment, best practices accountability to this bill,” said Mr. Baker. “For investors, the more information available about a company’s business practices and balance sheets, the better. This reporting requirement would also help anti-corruption and economic development efforts in developing countries by creating more transparency with respect to whether a multinational is contributing to the tax base of the developing countries in which it operates, or whether it is engaging clever accounting tricks to move that money to tax havens.”
A full summary of the legislation can be found here.
###
Notes to Editors:
Contact:
Clark Gascoigne
+1 202 293 0740 ext. 222
cgascoigne@gfintegrity.org
__________
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.
]]>Police raids highlight Italy’s fight against tax evasion
Reuters, February 6, 2012
US tax evasion hangs over Swiss banks
The Financial Times, February 5, 2012
Swiss bank Julius Baer cautious about outcome of US tax evasion probe
The Associated Press, February 6, 2012
United tax evasion defences start to crumble
Swiss Info, February 5, 2012
The offshore banking nightmare
Canadian Lawyer, February Issue, 2012
OSCE meeting on anti-money laundering and countering terrorism in Vienna
The Financial (Georgia), February 6, 2012
Govt probing money laundering allegation
The Daily Star (Malaysia), February 5, 2012
Lawyer: Hedge Funds Must Heed Foreign Corrupt Practices Act
FINalternatives, February 6, 2012
Congress, BJP misleading public on black money issue: Mayawati
PTI, February 6, 2012
Fighting corruption in emerging markets is surpassingly difficult. It involves displacing those with malign power. It cannot be initiated and led by outsiders. Corruption pervades and distorts society in nations like Russia and China where the U.S. has great interests. It was a primary cause of the popular uprisings in the Middle East and elsewhere. It remains a huge issue in the emerging markets of Africa and Asia and, especially in failed and failing states. It is a pervasive obstacle to legitimate and transparent economic globalization. And it undermines a key goal of current counter-insurgency military strategy — the building of a civil society.
At the core of these problems is bribery of public officials, and officials’ extortion and misappropriation of funds. In the last 20 years, there has been growing recognition that corruption of this sort has a widespread and insidious impact. It distorts markets and competition; breeds anger, cynicism and discontent among citizens; stymies the rule of law; corrodes the integrity of the private sector; and impairs development and poverty reduction. Bribery, extortion, and misappropriation also help perpetuate failed and failing states — and sectors of other states — that are incubators of terrorism, the narcotics trade, money laundering, human trafficking, counterfeiting, piracy and other kind of global crime.
Heinman goes on to list what he says the U.S. can do to help: continue to support international anti-bribery conventions such as the Foreign Corrupt Practices Act, apply contemporary counter-insurgency theories in places like Afghanistan, and promote development in a subtle, auxiliary role that offers support in the form of aid, advise, and limited action.
I take issue with nothing that Heinman writes. He does a great job writing about an important topic Unlike so many mainstream commentators, Heinman sees the importance of the United States in helping to solve problems of corruption in the developing world. Too often, opinion leaders seem to believe that corruption is an unsolvable problem, or that the United States can do very little to change things. What I do believe is that Heinman missed a critical component in the fight against corruption, one that is very much accomplishable by the United States. The U.S. needs to stop actively facilitating corruption by maintaining an opaque, easily-laundered financial system.
Corrupt governance in the developing world is, at it’s heart, a financial problem. Corrupt public officials siphon money away from the state, stash it in bank accounts, and spend it on their own consumption. The U.S. contributes in two ways: by allowing for the creation of anonymous corporations, which are easily used by corrupt officials to hide money and business deals, and by functioning as an offshore tax haven for non-residents. Both represent profitable actions for a small number of Americans and corporations, but are highly counterproductive to U.S. foreign policy.
In many ways, the financial system inside the United States resembles that of secrecy jurisdictions like the Cayman Islands. However, unlike in tax havens such as the Cayman Islands, U.S. banks, accounts, and corporations have an inherent air of credibility — it is a whole lot easier to claim plausibile deniability when dealing with a shady-looking corporation from Delaware or Nevada than when dealing with one from the Cayman Islands or Bermuda. We should eliminate anonymous corporations, and stop allowing our banks to hide illicit non-resident alien deposits with no threat of scrutiny.
Bringing financial transparency to the United States would not eliminate worldwide corruption, nor would it make laundering millions of corrupt, illicit dollars impossible. However, it would raise the cost of corruption. It would force corrupt officials to have to take riskier bets in order to benefit from their crimes. They would have to hire more accountants, jump through more hoops to launder their money, and look over their shoulder more often for the threat of law enforcement. Furthermore, action by the United States on this kind of financial transparency would go a long way toward pushing other powerful nations to do the same, tightening the world’s grip around tax havens, secrecy jurisdictions, and their customers.
As Heinman points out, corruption is an economic and security problem. The United States has a clear national interest in creating a climate where the developing world can establish stable, transparent, and safe economies. As a result, the opaque U.S. financial system clearly undermines our foreign policy goals. However, there is also a moral problem here. By actively facilitating corruption, the United States is complicit in the consequences.
]]>US indicts Swiss bank on tax charges
Money Life, February 3, 2012
Can America Lead the World’s Fight Against Corruption?
The Atlantic, February 3, 2012
India PM Manmohan Singh: ‘Long way to go’ on corruption
BBC News, February 3, 2012
Manmohan Singh promises systemic response to reduce corruption
Truth Dive, February 3, 2012
S’pore to step up efforts to prevent money laundering
Channel News Asia, February 3, 2012
Zambia probes ex-leader’s wife for money laundering
Reuters, February 3, 2012
Institute of Chartered Accountants of India preparing report on Indian black money in foreign banks
PTI, February 2, 2012
‘Terrorists using black money’
The Nation (Pakistan), January 28, 2012
Obama’s tax code gambit
The Los Angeles Times (Editorial), February 2, 2012
In October of last year the U.S. Department of Justice (DoJ) unsealed an asset forfeiture claim against many of Obiang’s U.S. held assets, including a $38 million Gulfstream private jet, a $35 million Malibu mansion, a Ferrari, and dozens of pieces of memorabilia of pop singer none other than Michael Jackson, which are worth about $2 million. Authorites seized many of these items, although they still haven’t been able to get custody of the plane. The DoJ filing claims Obiang derived the assets from “the misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official.”
Given Obiang’s salary of $82,000 as Equatorial Guinea’s Minister of Forestry, it seems rather unlikely that the funds could have come from anywhere else. Obiang himself has vaguely—and insultingly—explained “I have been very lucky in business…and I like to live well.” His lawyers, who are perhaps a bit more astute, have claimed he “was granted a 20-year concession to harvest timber in the country in the mid-1990s and that made him a ‘very wealthy man’ by 2005 when he bought most of the assets.” I’d like to see the data on those numbers.
Here are some facts. Equatorial Guinea is a coastal Middle African nation that is simultaneously one of the continent’s smallest and wealthiest countries, in large part because it holds Africa’s largest oil reserves. Yet the country’s enormous wealth is concentrated in the hands of the government and the ruling elite. As a result over 75% of the population lives below $2 per day, 35% of its citizens do not live past the age of 40, and nearly 60% do not have access to safe drinking water.
It is laudable that the DoJ and the Obama administration have taken such a hard line with Obiang. As Raymond Baker, director of Global Financial Integrity, has pointed out “[T]he United States is sending the message that it will no longer harbor the illicit assets of corrupt foreign officials.” I’m quite sure Obiang, and kleptocrats across the world, heard DoJ’s message very loudly and very clearly when officials seized $70.8 million in real and personal property.
But unfortunately the seizure does not address some of the systemic deficiencies in the international—and indeed, even the U.S.—systems that allow foreign officials to hide and launder the proceeds of corruption. The deficiencies in the international system are many. Some are broad and enormously complex, like international energy markets, which of themselves encourage corruption through opacity and politics. Some analysts suspect the U.S. government ignored corruption in Equatorial Guinea for so long because “Chevron, Marathon Oil and Noble Energy have substantial interests in Equatorial Guinea, onshore and off.” Other deficiencies include financial opacity in offshore jurisdictions, which facilitate money laundering, and the failure of our own banks to perform due diligence when handling the assets of foreign leaders.[1]
As Mark Vlasic, a law professor at Georgetown University, and the former head of operations of the World Bank’s Stolen Asset Recovery Initiative, has pointed out: “Grand corruption isn’t just a local problem, it’s an international one, and oftentimes involves multiple jurisdictions.” I hope Obiang can continue to be a lesson to us. If any good has come of all this, it’s that his high-profile corruption case has exposed the severe limitations of our international system. But it is the people of Equatorial Guinea who continue to pay the price of the world’s collective failure.
[1] Take this case. In the mid-1990s Riggs National Bank opened and handled 60 accounts for Obiang and his family members. The bank handled six cash deposits to the president’s account, totaling $11.5 million. The senior Riggs official overseeing Obiang’s account even hauled suitcases stuffed with cash into the bank for deposit. At no point did this bank file a Suspicious Activities Report, as required by law. Finally, in 2004, a Senate panel caught on and Riggs Bank was fined more than $25 million for its crimes and several of the bank’s directors were criminally prosecuted.
Despite the fact the State Department is legally obligated to deny visas to foreign officials for whom there is credible evidence of corruption, Obiang’s family continued to travel freely to theUnited Statesfor nearly two decades.