Transnational Organized Crime - Analyses of a Global Challenge to Democracy

Transnational organized crime interferes with the everyday lives of more and more people - and represents a serious threat to democracy. By now, organized crime has become an inherent feature of economic globalization, and the fine line between the legal and illegal operation of business networks is blurred. Additionally, few experts could claim to have comprehensive knowledge and understanding of the laws and regulations governing the international flow of trade, and hence of the borderline towards criminal transactions.
This book offers contributions from 12 countries around the world authored by 25 experts from a wide range of academic disciplines, representatives from civil society organizations and private industry, journalists, as well as activists. Recognizing the complexity of the issue, this publication provides a cross cultural and multi-disciplinary analysis of transnational organized crime including a historical approach from different regional and cultural contexts.

Heinrich-Böll-Stiftung and Regine Schönenberg (eds.)
Transnational Organized Crime
Analyses of a Global Challenge to Democracy
transcript Verlag, Bielefeld 2013, 308 pages, € 24.80
ISBN 978-3-8376-2495-3

Ordering address: Heinrich-Böll-Stiftung, Schumannstr. 8, 10117 Berlin, Tel. 030-285340, Fax: 030-28534109, E-mail: buchversand@boell.deInternet: www.boell.de






From , WEED:

The between German Social Democrats (SPD) and Christian Democrats has been concluded. As far as the Financial Transaction Tax (FTT) is concerned, the relevant part reads (in my translation):
"We want to implement rapidly a broad based financial transaction tax in the framework of the Enhanced Cooperation Procedure in the EU. Such a tax should include preferably all financial instruments, in particular shares, bonds, investment certificates, currency transactions as well as derivatives. The tax should be designed in a way, which prevents tax avoidance. The effects of the tax on pensions, small investors and the real economy have to be assessed and negative consequences should be avoided, while undesired business models should be pushed back."
(Page 64).

As a first assessment I would say that the following points are positive:
1. they have now explicitly included currency transactions,
2. they want rapid implementation,
3. they address the avoidance issue,
4. they mention explicitly the regulatory dimension of the FTT ("undesired business models").

What could be problematic:
1. the mentioning of pensions and small savers points at issues, where they might compromise and accept exemptions,
2. the issue of use of revenues, which had been included in the draft of the sub working group on development has been kicked out in the final round (as we had expected).

Further procedure:
The agreement is not yet definitively adopted. The SPD will carry out a referendum among their members, which will be finished on December 12th. So things will be settled definitively only around December 15th.

Although there is quite a skeptical attitude among SPD members, they will in the end probably adopt the agreement.

The willingness of Berlin, to go ahead with the FTT is also underlined by a from Schäuble:
"The German government position continues to press for a introduction of the financial-transaction tax soon,” the ministry said today in an e-mailed comment to Bloomberg. “We continue to aim for a broad base combined with a low tax rate.”
For those who read German, the full text of the coalition agreement (185 pages) can be downloaded .

Update 2014: for information on tax justice and the finance sector see .






The Hill
Reporting on Revenue Watch Institute’s 

e Financial Times
The west has a duty to ensure the region benefits from its resources, writes Paul Collier

s Business Daily

AllAfrica

Washington Post

South China Morning Post
British Virgin Islands gets city's help in opening Asia-Pacific HQ to deal with central banks and regulators from Singapore to Japan

South China Morning Post

Página 12 (In Spanish)
Hat tip: Jorge Gaggero

The Moscow Times
Some very interesting observations, including a quote from an E&Y partner: "You cannot simply take a Cyprus company and replace it like a piece of Lego in Luxembourg. You would need to use several jurisdictions, with several layers of holding companies in order to achieve a cascading system of tax distributions."

European Voice
Sven Giegold, a German Green MEP, called the outcome “shameless obstructionism” by Luxembourg and Austria.

Sydney Morning Herald

Reuters
Why, for example, has the IRS been so indulgent of big, flagrantly partisan tax-exempt groups that have spent hundreds of millions of tax-exempt dollars to influence the last two elections, in clear violation of IRS rules?

? NPR

s Politico

The Independent
Internet giants on back foot after shopping giant admitted it receives more in government grants than it pays in UK corporate tax

The Guardian

Tax Research UK

UK Uncut

Tax Research UK
See also the  in The Telegraph






For a long time we and many of our colleagues in the tax justice movement have been calling for public registries to be set up containing beneficial ownership for all companies, trusts and foundations, and their like.

We thought we would share part of an e-mail this morning from Robert Palmer of Global Witness, an NGO that has played a pivotal role in this crucial area.
"We've seen real support growing behind the idea of public registers - from businesses, law enforcement and even the banks themselves."
For examples, he cites Simon Walker, head of the UK's Institute of Directors, a large business lobby groups, who has come out in favour of public registers of beneficial ownership, .

The head of the British Bankers Association has also about the need for registers, though he’s less clear on whether they should be public.

The head of tax for the Confederation of British Industry, the most powerful UK business group, Will Morris, that having such a register was a “no-brainer” - and his personal preference was to make it available to the public.
A from businesses calling on the UK government to adopt public registers of beneficial ownership attracted 23,000 signatures so far.

And then of course there's Britain's Prime Minister :
"I hope G8 Leaders will consider publishing national Action Plans by June that set out concrete steps that their governments will take to achieve this – including, for example, by enhancing the availability of beneficial ownership information through central public company registries."
Many others in other countries support such an idea. See, for example, Frank Knapp's in Washington, D.C. supporting the idea, or , from the Manhattan District Attorney.

See also , via the World Economic Forum, (courtesy of Joe Stead and Robert Palmer)

Elsewhere, the European Banking Federation has stated () that it regards public registries as “imperative if credit and financial institutions are expected to discharge their obligations concerning Beneficial Ownership identification” under the EU's Anti Money Laundering (AML) legislation."
 
As Global Witness' Palmer notes, timing is crucial on this, since the European Union is currently debating how to deal with the problem of hidden company ownership as part of the discussions around the revision of its anti-money laundering directive.

Public registries with beneficial ownership information: this is clearly an idea whose time is coming. Why not just get on with it?






Reuters
Transparency Europe launch for a clampdown on tax havens, demanding a "truth commission" to investigate Switzerland's role in corruption and tax evasion.

e BVI News
They also say they are not a secrecy jurisdiction, quite a common claim as described

South China Morning Post
BVI eager to forge closer ties with Hong Kong and China






Bloomberg
See also: Forbes

Les Echos (In French). The blacklist is . France blacklisted them because they wouldn't satisfactorily comply with French laws.

Reuters. This is a big deal, especially in light of .

Americans for Financial Reform. Public support remains the greatest hope.

e Al Jazeera
"Vulture funds" seeking payment from Argentina have won a major court victory, setting a dangerous precedent.

The Financial Express

India Brief

RAPSI
International Adviser

Tax-News
Just how much use will this be? And, behind the times - see and .

 Financial Times (paywall)

Institute for Policy Studies

Financial Times (paywall)
See also comment on

The Hill

Thomson Reuters
"If the Thomson Reuters Foundation advanced finance and governance course were a trending topic on Twitter, the key words would be ‘Tax Havens’, ‘Tax Avoidance’, ‘Multinationals’ and the majestic continent of Africa."

The Wall Street Journal

France 24 / AP






Transparency International EU have issued an important statement:
EU leaders must end financial secrecy
In three steps, the European Council can end financial secrecy and take decisive action on corruption and tax evasio

Brussels, 21 May 2013 – EU leaders meeting tomorrow have an opportunity to end the financial secrecy that facilitates corruption and tax evasion. As many cases of proven corruption have shown, anonymous shell companies and other opaque legal structures based in secrecy jurisdictions are the favoured vehicles to hide illicit financial gain. Finding out who ultimately profits from these legal structures - the question of beneficial ownership - is central to efforts to close down this avenue for ill-gotten gain.

Building on recent international developments, EU Member States can help stop the flow of corrupt funds with three simple steps:
  • Unanimously agree to the proposed reforms of the EU Savings Tax Directive [1]. The proposed reforms would address major loopholes in the legislation, for example by obliging trustees and directors of shell companies to collect and transmit information on the beneficial owners of these legal entities. 
  • Agree that automatic exchange of financial information should be the global ‘gold standard’. Corruption and tax evasion are not just problems in the EU. Developing countries suffered $586 billion per year in illicit outflows in the first decade of this century [2]. EU leaders should recognise their obligations to citizens in the developing world by committing to a global, multilateral system for the automatic exchange of financial information, based on the model that 10 EU countries have agreed to pilot [3]. EU legislation should also reflect this commitment. 
  • Agree to mandatory public registers of beneficial owners. To help banks and other financial institutions do their work properly, EU leaders should agree to revisions of EU anti-money laundering legislation that would require Member States to establish and update public registers of beneficial owners of companies and other legal entities. Today, information on beneficial ownership is provided by business registers in only four EU Member States (Estonia, Italy, Romania & Slovenia).
“At a time when citizens are going through the toughest economic crisis in years, EU leaders have an opportunity to clamp down on illicit financial flows”, said Carl Dolan, Senior EU Policy Officer at the Transparency International EU Office. “Effective action has been prevented before by Member States putting narrow national interests before doing the right thing. It is time to end the squabbling over perceived competitive advantage and recognise that by facilitating corruption everyone loses”.

Transparency International has also demanded action from G8 and G20 governments against financial secrecy in order to prevent corruption and illicit financial flows.

[end]
 
Notes to editors:
[1] The 2003 Savings Tax Directive requires EU Member States (as well as Andorra, Liechtenstein, Monaco, San Marino and Switzerland) to automatically exchange information on bank accounts held by residents of these countries. Exemptions were granted to Belgium, Luxembourg and Austria. Proposed amendments to the Directive would require banks and other financial institutions to establish whether the beneficial owner of certain entities or legal arrangements established in secrecy jurisdictions are EU residents or residents of the participating countries. It would also require legal entities such as companies and trusts to automatically transmit information about their beneficial owners to competent authorities in EU member states. The amendments also address loopholes relating to the beneficial owners of certain financial instruments such as investment funds.

[2] A has estimated that developing countries lost at least $586 billion per year in illicit outflows between 2001 and 2010.

[3] In April 2013, Belgium, Czech Republic, France, Germany, Italy, Netherlands, Poland, Romania, Spain and UK agreed to a pilot multinational initiative for reciprocal exchange of tax information. The pilot initiative will be based on a model agreed with the U.S. government following the passage of the Foreign Account Tax Compliance Act (FATCA). FATCA requires non-US financial institutions to report directly to the Inland Revenue Service (IRS) information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.



Media Contacts:

Carl Dolan, Senior EU Policy Officer (Private Sector Policies)
T: +32 (0)2 23 58 603
M: +32 (0)488 563 435
E: Brussels@transparency.org

Benjamin NorsworthyEU Policy Officer (Anti-Money Laundering)
T: +32 (0) 2 23 58 645
E: bnorsworthy@transparency.org







From Commonwealth publishing:
An e-book by the acclaimed economist Ann Pettifor, Just Money: How We Can Break the Despotic Power of Finance. In it she explores the role of credit in the economy and its relationship with the money supply. She goes on to set out a set of policies to bring the economy back under substantial democratic control. 
This is not, strictly speaking, a core tax justice issue. But we have recently been doing a lot of work on the political economy of financial centres - not least with our Finance Curse analysis. "Breaking the power of finance" is certainly something that interests us.

Available (only, for the time being).

(Update April 2014: For more information on the Finance Curse see )






Yesterday we looking at a New York Times editorial entitled , exposing many of the numerous fallacies and misunderstandings at the base of it. Forgive us for going on about this, but it is important.

Now Citizens for Tax Justice in the U.S. has produced , which complements ours and adds several more important points. It starts like this:
Another year, another campaign to give even bigger breaks to corporations and claim that this will create jobs. In 2014, the campaign opened with a January 5 op-ed by Laurence Kotlikoff in the New York Times titled, “Abolish the Corporate Income Tax.”
And it is a campaign: in the United States, the United Kingdom - everywhere, really. It's based on ideology, not practical realities. A U.S.-based correspondent to TJN, with many connections in U.S. tax circles, added in an e-mail yesterday:
"Larry is a leading right-wing Boston U economist who is otherwise best known as a former Reagan Council of Econ advisor and a deficit hawk. He means well, but he is generally clueless when it comes to the Real World. Unfortunately his piece is only the latest in a crescendo of right wing voices calling for abolition in the US. And the idea is gaining traction in business circles."
Our arguments yesterday - and CTJ's arguments to follow - illustrate that if you support the abolition of the corporate income tax you either have no idea what you are talking about, or you are a shill. We can't think of another explanation (apart from where you are a mix of both.)

Our correspondent reminded us, as we suggested yesterday:
Such a move by the world's largest economy would badly hurt developing countries like Argentina that count on corporate income taxes and MNCs for a large share of their revenue base. It would dramatically accelerate global tax competition -- the race to the bottom. 
(We at TJN have decided to stop using the term 'tax competition' and instead use the more accurate term 'tax wars' - which is what we are talking about here. Occasionally, if we do use the more common term, we will put 'competition' in quote marks.)

Back to CTJ. Their article continues by explaining, as we did, how the corporate income tax serves as an essential backstop to the personal income tax.
"First, the personal income tax would have an enormous loophole for the rich if we didn’t also have a corporate income tax. A business that is structured as a corporation can hold onto its profits for years before paying them out to its shareholders, who only then (if ever) will pay personal income tax on the income. With no corporate income tax, high-income people could create shell corporations to indefinitely defer paying individual income taxes on much of their income.

Second, even when corporate profits are paid out (as stock dividends), only a third are paid to individuals rather than to tax-exempt entities not subject to the personal income tax. In other words, if not for the corporate income tax, most corporate profits would never be taxed."
Crucial points. They then expand on our point about tax 'incidence':
"The corporate income tax is ultimately borne by shareholders and therefore is a very progressive tax, which means repealing it would result in a less progressive tax system.

This last point deserves emphasis. Proponents of corporate tax breaks argue that in the long-term the tax is actually borne by labor — by workers who ultimately suffer lower wages or unemployment because the corporate tax allegedly pushes investment (and thus jobs) offshore. But most experts who have examined the question believe that investment is not entirely mobile in this way and that the vast majority of the corporate tax is borne by the owners of capital (owners of corporate stocks and business assets), who mostly have high incomes. This makes the corporate tax a very progressive tax.

For example, the Department of the Treasury concludes that 82 percent of the corporate tax is borne by the owners of capital. As a result, the richest one percent of Americans pay 43 percent of the tax, and the richest 5 percent pay 58 percent of the tax."
And then they make another argument that we didn't make.
"Kotlikoff argues that our corporate income tax chases investment out of the U.S. and his simplistic answer is to repeal the tax altogether. He writes that, “To avoid our federal corporate tax, they [corporations] can, and often do, move their operations and jobs abroad,” and cites the well-known case of Apple booking profits offshore.

But Apple is a perfect example of a corporation that does not actually move many jobs offshore but rather is engaging in accounting gimmicks to make its U.S. profits appear to be generated in offshore tax havens. These gimmicks take advantage of the rule allowing American corporations to “defer” (delay indefinitely) paying U.S. corporate income taxes on the profits they claim to earn abroad. Lawmakers will end these abuses when they see that voters’ anger over corporate tax loopholes is even more powerful than the corporate lobby."
And, as we also mentioned:
"Kotlikoff has constructed a computer model that purports to prove that the economy would benefit greatly from cuts in the corporate income tax. But any such model relies on assumptions about how corporations would respond to changes in tax policy. Economists have a link between lower corporate taxes and economic growth over the past several decades that would justify the assumptions Kotlikoff uses."
And let's not forget something else that that last report CTJ cites mentions:

"The Corporate Income Tax raises a significant amount of revenue for the federal government—$242.3 billion in fiscal 2012, or almost 10 percent of total federal revenues. However, the corporate income tax is less important now than in the 1950s, when it accounted for about 30 percent of total revenues."

Our last blog cited a range of reasons why we need the corporate income tax - and why, in fact, it is a particularly precious tax. CTJ also has its own overlapping, but different, list. It's . And it's well worth reading.

A final note: back to our correspondent, who makes a rather sobering observation:
"Some of us are taking the international corporate income tax for granted, and are trying to improve it -- by, for example,  refining the OECD's recent attempts to fix digital tax regimes and the the arms-length pricing approach to international corporate taxation, or by pursuing longer term objectives like  country by country reporting or  formulary apportionment.

These are worthy long term objectives.   But let us not forget that they PRESUME that countries still have corporate income tax regimes to enforce in the first place. So it is time to take seriously this latest very aggressive strategy by  the US Right and respond to it vocally."
And let's not forget: this doesn't just affect the United States. This affects everyone in the whole world. And it's potentially a very, very dangerous move that would have horrific effects on income and wealth economy, rent-seeking and much more. This campaign must be stopped.

Update April 2014: for information on corporate tax see .








Source: Flickr/Attac France
This article is the first in a series of five articles published by Open Democracy's UK-focused website, . These five articles form a series called , and they are drawn from our recently published edition of .

The first article in this series, which OurKingdom published on Monday, is entitled . It is written by TJN blogger Nicholas Shaxson, author of and of another book on financial centres and tax havens, .

We paste the full article below. We will publish the remaining four articles in this series next week.
The resource curse, or the paradox of poverty from plenty
By Nicholas Shaxson

Is finance like crude oil? Countries rich in minerals are often poverty-stricken, corrupt and violent. A relatively small rent-seeking elite captures vast wealth while the dominant sector crowds out the rest of the economy. The parallels with countries ‘blessed’ with powerful financial sectors are becoming too obvious to ignore.

While serving as the Reuters correspondent in oil-rich Angola in the mid 1990s, I wondered how such a ‘rich’ country could suffer such poverty. The shortest answer at the time was ‘War’. Angola’s conflict had many causes, but without the diamonds to fuel rebel leader Jonas Savimbi’s army, not to mention the government’s offshore oilfields, it would have been less bloody, and shorter.

As I arrived in Angola in 1993 a British academic, Richard Auty, was putting a name to a then poorly-understood phenomenon: what is now widely known as the ‘Resource Curse’. Countries that depend heavily on natural resources like oil or diamonds often perform worse than their resource-poor peers in terms of human development, governance and long-term economic growth. Studies by renowned economists such as Jeffrey Sachs, Paul Collier, Terry Lynn Karl, Joseph Stiglitz and many others have now established the Resource Curse in the academic literature, and in the public mind too.

A weak version of this Curse, which few would disagree with, holds that resource-dependent countries tend to be bad at harnessing those resources to benefit their populations. The windfalls are squandered. A stronger version is more surprising: natural resources tend to make matters even worse than if they had been left in the ground, leading to higher rates of conflict, more corruption, steeper inequality, deeper absolute poverty, more authoritarian government, and lower long-term economic growth. I am in no doubt that the stronger version of the curse applied to Angola on all these metrics when I lived there.

To be fair, the wider cross-country evidence here is more complicated. Some countries like Norway that already have good governance in place before resources are discovered seem to fare relatively well – but being rich first is no guarantee of success either. Michael Edwardes, the former chairman of ailing British car manufacturer British Leyland, spoke of this with some prescience in 1980, following the OPEC oil price shocks: “If the cabinet does not have the wit and imagination to reconcile our industrial needs with the fact of North Sea oil, they would do better to leave the bloody stuff in the ground.” Even if some rich countries can suffer from mineral windfalls, it is poor, badly governed countries that tend to suffer the most.  The picture also varies with the global commodity price cycles: things look particularly bad during troughs in these cycles – as in the mid 1990s – and look less bad, at least on the surface, in the boom years.

How do we explain this ‘curse?’ The explanations fall into three main categories. First is the so-called “Dutch Disease.” Large export revenues from oil, say, cause the real exchange rate to appreciate: that is, either the local currency gets stronger against other currencies, or local price levels rise, or both. Either way, this makes local manufactures or agriculture more expensive in foreign-currency terms, and so they lose competitiveness and wither. Much higher salaries in the dominant sector also suck the best skills and talent out of other sectors, out of government, and out of civil society, to the detriment of all. Overall, the booming natural resource sector ‘crowds out’ these other sectors, as happened when many oil producers saw devastating falls in agricultural output during the 1970s oil price booms.

Finance-dependent economies, it turns out, suffer a rather similar Dutch Disease-like phenomenon, as large financial services export revenues in places like the United Kingdom or the tax haven of Jersey raise the cost of housing, of hiring educated professionals, and the general cost of living. A Bank for International Settlements (BIS) study last year found that finance-dependent economies tend to grow more slowly over time than more balanced ones, and noted that, by way of partial explanation, ’finance literally bids rocket scientists away from the satellite industry’. My short Finance Curse e-book, co-authored with John Christensen, provides plenty of detail on this.

A second standard explanation for the Resource Curse is revenue volatility. Booms and busts in world commodity prices and revenues can destabilise the economies of countries that depend on them, further worsening the crowding-out of alternative sectors. Gyrations in the world oil price – from below $10/barrel in the late 1990s to well over $100 within 10 years – have played havoc with budgeting in many oil-dependent countries, often with terrible effects on economic and political stability and broad governance. Those alternative sectors that were crowded-out during the booms aren’t easily rebuilt when the bust comes: it is a ratchet effect. Again, there are close parallels with the financial sector, a source of great volatility, as the latest global financial crisis shows. Britain’s industrial base, decimated by (among many other things) over-dependence on the financial sector, is proving slow to recover, post-boom.

The third category for explaining the Resource Curse – the biggest, most problematic, and the most complex – falls under the headline ‘governance’.

Why do natural resources tend to make governments more wasteful, corrupt, and authoritarian?

A big part of the answer lies in the fact that minerals in the ground provide unproductive economic ‘rents’: easy, unearned money. As the Polish writer Ryszard Kapuscinski so brilliantly put it:

"Oil is a resource that anaesthetises thought, blurs vision, corrupts. Oil is a fairy tale and, like every fairy tale, it is a bit of a lie. It does not replace thinking or wisdom."

When easy rents are available, rulers lose interest in the difficult challenges of state-building, or the need for a skilled, educated workforce, and instead spend their energies competing with each other for access to a slice of the mineral ‘cake’. While those neglected sectors wither, this competition among ‘godfathers’ can lead to overt conflict, particularly in ethnically diverse societies, but it can also lead to great corruption as each player or faction in a government knows that if it does not act fast to snaffle a particular mineral-sourced financial flow, another faction will. This is the recipe for an unseemly, corrupting scramble.

The financial sector, likewise, contains a multitude of potential sources of easy ‘rents’. A secrecy law, for instance, has long been a source of rents for Swiss bankers, who haven’t needed to do much else apart from watch the money roll in. More grandly, the network of British-linked secrecy jurisdictions scattered around the world, serving as ‘feeders’ for all kinds of questionable and dirty money into the City of London, is another big source of rents for the financial sector. Financial players’ special access to information is another. Martin Berkeley, a former British banker, described one mechanism deployed by his bank as it sought to sell its customers dodgy derivatives:

"On their client database they had in big letters written ‘Client Has Screens’ - meaning the client actually knows what the markets are doing: these tricks couldn’t be played on them."

The Libor scandal provides another example of rent-seeking. One might reasonably also make a comparison between owning an oil well and having – as the banking system does – the ability to create money. Yet there is a difference too: rising credit creation – and the growing private debts that accompany it – generate fees for the financial sector that are extracted not from under the ground, as with oil, but from debtors, taxpayers and others: from the population itself.

Another source of the trouble in resource-rich states is that when rulers have easy rents available, they don’t need their citizens so much to raise tax revenues. This top-down flow of money undermines the ‘no taxation without representation’ bargain that has underpinned the rise of modern, accountable states through the rise of a social contract based on bargaining around tax, and through the role that tax-gathering plays in stimulating the construction of effective state institutions. If the citizens complain, those resource rents pay for the armed force necessary to keep a lid on protests.

In economies dependent on finance we don’t see the same kind of crude, swaggering petro-authoritarianism of Vladimir Putin’s Russia or José Eduardo dos Santos’ Angola. But we do see some surprisingly repressive responses to criticisms of the financial sector and the finance-dominated establishment, particularly in small tax havens like Jersey, as Mike Dun’s article in this edition – along with the main Finance Curse e-book and my book Treasure Islands – repeatedly illustrate.

All these processes – the economic crowding-out of alternative economic sectors such as agriculture or tourism, plus the ‘capture’ of rulers and government by the dominant mineral sector, who become apathetic to the challenges posed by trying to stimulate other sectors – add up to a mortal threat not just to democracy, but also to the long-term prospects for a vibrant economy. Since Angola’s long civil war ended 11 years ago, politicians have routinely called for a ‘diversification’ of the economy and a ‘rebalancing’ away from dependence on oil. The fact that petroleum still makes up over 97 percent of exports and contributes to 60 percent of GDP, is testament to the difficulty even the most well-meaning reformer faces. Similarly, calls for ‘rebalancing’ away from excessive dependence on the financial sector have tumbled from the mouths of politicians in the United Kingdom and Jersey. But these calls will prove equally empty if they do not actively work to shrink and contain the financial sector.

Update: for more on the Finance Curse see , and for all editions of Tax Justice Focus see .







We are delighted to report that EU bodies have agreed a new regime for transparency in the extractive industries. From a correspondent in Washington, via e-mail:
"The relevant representatives of the European Parliament, Council and Commission have agreed a compromise text of the EU Accounting and Transparency Directives which, taken together, will create the EU equivalent to, which goes beyond, Dodd-Frank Section 1504 (the law that requires all oil, gas and mining companies that have to report to the SEC to disclose all payments over $100,000 that they make to any government anywhere in the world).

The EU legislation goes beyond the US version by including logging companies as well as large, privately held companies.  This is a massive victory because there were a lot of details being discussed that could have watered down the law in the EU, but those efforts were thwarted."
A long list of comments from interested parties is available .

A background note from explains more:

Reaction to EU agreement on transparency of extractive industries

BRUSSELS, 9 April. Today the European Commission, the European Parliament and the Council of the EU agreed a compromise text on transparency of extractive industries. The text will be adopted by the Parliament and the Council in the coming months.

If passed, this law will oblige EU-listed and non-listed big oil, gas, mining firms and the logging industry to declare payments they make in resource-rich nations.

In response to today’s developments,

Catherine Olier, Oxfam’s EU development expert, said:
“It’s excellent news that the EU is moving towards a law that will help ordinary people harness the natural resource wealth of their countries to be lifted out of poverty. But EU politicians today could have taken a bolder stance against tax evasion and corruption by including other sectors such as telecommunications or construction. Strikingly, poor countries lose more to tax dodging than they receive in aid each year.”  
Øygunn Sundsbø Brynildsen, senior policy officer at Eurodad, the European Network on Debt and Development, said:
“Despite today’s promising progress, there is still a long way to go to have EU legislation that properly fights tax dodging. While it is very important to know how much companies pay to governments, this figure alone does not give a clear picture of whether they pay their fair share of taxes. Multinationals will continue plundering developing countries until they are obliged to report information such as sales volumes, assets, staffing and profits. The currently negotiated EU banking sector reform is an example to follow in this regard.”
Although welcoming the Directive, Oxfam and Eurodad have mixed feelings about the deal:

POSITIVE
We strongly welcome the proposal because it is a huge step in the fight against corruption. If the legislation is finally adopted by the EU:

It will help citizens in resource-rich countries like Nigeria and the Democratic Republic of Congo to hold governments to account for their use of natural resource revenues and make sure that these benefit the many and not just the few.

It will oblige companies in the extractive and forestry sectors to disclose the payments they make to governments in all countries at project level - as opposed to reporting at government level only- and without any exemptions. The latter has been a contentious issue in negotiations as companies claimed that in some countries they would have to break national criminal laws which prohibit the disclosure of such information. However, such laws do not exist and companies couldn’t come up with any examples and EU member states finally agreed to remove that exemption which would have been a massive loophole.

NEGATIVE
On the other hand, the proposal failed to:

Include other sectors beyond extractive and forestry such as telecommunications and construction which would widen corporate accountability and help both developing countries and EU member states better combat tax evasion and avoidance. In October 2012 the European Parliament’s Legal Affairs committee voted in favour of expanding the reporting requirements to the telecommunications, construction and banking sector.
Require companies to report on additional financing information such as production or sales volumes, numbers of employees and profits. Such basic accounting information that are already available to companies would allow to identify potential cases of tax dodging.

For more information and comments, contact:
Oxfam: Angela Corbalan on + 32 (0) 473 56 22 60 or angela.corbalan@oxfaminternational.org

Eurodad: Øygunn Sundsbø Brynildsen on + 32 (0) 2894 46 44 or obrynildsen@eurodad.org
The Directives still have to approved by the European Parliament’s Legal Affairs Committee (likely in May) and then by the full sitting European Parliament (likely in June) before the laws can be said to have been formally adopted.  This process is expected to go smoothly.

For those who are not aware, after a European Directive has been adopted, it has to be transposed into each Member State’s national laws and they have some room to amend or modify bits of the requirements (but never to a lesser extent than required by the Directive), which can take some time.  This is in contrast to a European Regulation, which must be taken as is into a Member State’s legal code. 







The prevailing international tax rules and practices are more and more undermining the ability of governments in the Global South and the North to compel corporations and wealthy individuals to pay their fair share of taxes. Multinationals and wealthy individuals continue to dodge taxes with impunity, while tax competition has led to reduced tax burdens on corporations and financial wealth. As a result ordinary people carry a disproportionately heavy burden of taxes and social services lack adequate resources to meet the needs of citizens. The public are made to pay for a crisis they are not responsible for. The implementation of austerity measures which aggravate poverty and inequality everywhere make the need for tax justice as urgent as ever.

Social and economic justice now and future sustainability are possible only: 
·  when tax dodging by multinationals and wealthy individuals is stopped;
·  when race to the bottom tax competition between countries is ended and replaced by multilateral tax cooperation;
·  when governments raise revenue through redistributive and progressive taxation and are held accountable for the provision of quality social services to their citizens.

Continuing the tradition of the World Social Forum which, at the WSF in Port Alegre in 2002, issued a “Universal Declaration on the right to tax justice as a component part of social justice”, we demand the following to promote tax justice across the whole world: 
a) country by country reporting by multinationals;
b) automatic information exchange between jurisdictions;
c) public registers of beneficial ownership;
d) redistributive and progressive domestic tax policies;
e) alternatives to transfer pricing rules by the OECD which serve all countries;
f) an end to tax haven secrecy  – the major facilitator of tax dodging;
g) rigorous regulation of the finance sector including the imposition of a Financial Transaction Tax (FTT);
h) legitimate international governance to facilitate multilateral cooperation in tax matters.

To promote the tax justice agenda we commit ourselves:
a)     To continue and strengthen our advocacy and campaign to influence decision makers to implement policies to achieve tax justice. We are encouraged by initial successes in this regard, such as the recent decision of the French Parliament (and further endorsed by the European Parliament) to enforce country by country reporting by French and European banks; the introduction of a Financial Transaction Tax as a result of global campaign in 11 European countries; the successful campaign of French activists to get 18 out of 22 departments to declare their territories tax haven free and similar campaigns for tax haven free cities in the Nordic countries.
b)    To enhance our efforts to mobilise citizens and create strong social movements locally and globally to force governments and multinationals to end tax dodging and  implement policies to achieve tax justice. The evidence based campaigns to expose the pillage of developing countries by multinationals in individual countries (such a the campaign of Zambian citizens against Glencore); the successful campaign for “Justicia Fiscal” in the Dominical Republic for an increase in education budget raised by fair tax, are inspiring achievements on which we build our future work.

The new Global Alliance for Tax Justice can serve as a platform to coordinate and create global synergy for
advocacy and campaigns and citizen mobilisation for tax justice.


1.  Global Alliance for Tax Justice

2.    ActionAid International

3.    Oxfam International

4.    Public Services International

5.    Christian Aid UK/RI

6.    Tax Justice Network-Africa

7.    Eurodad

8.    War on Want

9.    CIDSE

10.  CCFD -Terre Solidaire

11.  SOLIDAR

12.  UBUNTU - World Forum of Civil Society Networks

13.  The Trades Union Congress (TUC) Great Britain

14.  Europeans for Financial Reform Coalition

15.  Secours Catholique - Caritas France

16.  Attac Norway

17.  Global Policy Forum

18.  ETUC: European Trade Union Confederation

19.  European Citizens’ Initiative “Water is a human right!”

20.  Equity and Justice Working Group Bangladesh (EquityBD)

21.  Tax Justice Network

22.  Tax Research UK

23.  CNCD - 11.11.11, Centre national de coopération au développement (Belguim)

24.  ATTAC Spain






Do you care about stamping out corruption, money laundering and tax dodging? The Financial Transparency Coalition (formerly the Task Force on Financial Integrity and Economic Development) is looking for a dynamic individual, with a proven track record of achieving policy change, and ‘intelligence’ of the EU/Brussels environment and structure. This is an exciting opportunity to lead EU advocacy on an influential advocacy campaign to curb illicit financial flows. Further information about the Coalition can be found at .

The next 18 months present important opportunities to influence EU legislation: The EU is now in a process to update its anti-money laundering directive, including by taking steps to increase transparency over the ownership of companies. Moreover the European Commission has launched an action plan to crack down on tax evasion and avoidance. There is also movement on the long stalled revision to the savings tax directive, which provides an opportunity to push for further steps automatic exchange of information.

This position involves leading the Coalition’s advocacy towards the EU. The successful candidate will lead an advocacy campaign towards the European Union’s review of the Anti-Money Laundering Directive (75%), and the Coalition’s advocacy towards the EU on other Coalition related areas (25%)

Key responsibilities:
  • Carry out advocacy towards the EU institutions to influence the Anti-Money Laundering Directive
  • Develop and maintain relationships with key European Commission staff, Cabinet members, Members of the European Parliament and Permanent Representative offices, NGOs, journalists and other private sector stakeholders relevant to the success of the campaign
  • Coordinate a NGO coalition working to influence the Anti-Money Laundering Directive
  • Revise and lead the implementation of the coalition’s advocacy strategy
  • Energise and coordinate  strategic thinking  on automatic information exchange (AIE),
  • Develop an AIE action plan, including identifying realistic targets and key ‘actors’ to help drive the  work forward
  • Prepare advocacy notes and frequent updates for coalition members
  • Write compelling advocacy materials for lobbying and the media
  • Be prepared to travel on short notice, if necessary
  • Other activities that are required to fulfil the role
Required qualifications/experience
  • Excellent understanding of the EU co-legislative processes
  • Advocacy experience within the EU
  • Ability to help non-governmental organisations work together to achieve common aims
  • Strong English written and verbal communications skills
  • Excellent interpersonal skills
  • Ability to understand and articulate the Coalition’s issues
  • Ability to work independently and on own initiative
Desirable experience:
  • Knowledge of one or more EU languages other than English
  • A background in anti-money laundering, anti-tax evasion or anti-corruption efforts
  • Competence in an advocacy role with institutions at a high level
  • Office and reporting: The advocacy lead will be hosted by the European Network on Debt and Development (Eurodad) in Brussels, and work closely with a policy team of Coalition members in Europe and the Coalition Manager in Washington DC.
Contract details:

18 months full-time contract with a possibility of extension, depending on performance and funding. There is a probation period of 3 months. Gross yearly salary of € 46,145 –€ 48,025, depending on experience. In addition there is a package of benefits including daily meal vouchers, hospitalisation insurance, travel insurance and contribution to pension plan.

Application instructions:
Please carefully read the key responsibilities and requirements, and the instructions below. We have designed these instructions to reduce the administrative burden on our teams so we can devote more time to our vital work. Therefore, we regret that we will ONLY accept applications that respect these instructions and will exclude applicants who submit general cover letters.

Send your CV (two pages maximum) with a cover letter of 2 pages or less in English. This cover letter should:
  • be properly formatted, clearly and concisely written, and set out why you match the above job description.
  • describe a concrete experience you had of designing and implementing an advocacy strategy to influence an EU process, preferably a co-legislative process. Please make sure you set out the steps or phases you went through, and how you tried to ensure a successful outcome.
Send your cover letter and CV:

a)     By e-mail only to apply@financialtaskforce.org Please format the subject line as “job application advocacy lead”.

b)     Please give the two files the following names: Surname_CV  and Surname_Cover [so if Peter Bloggs applied for a job we would expect files with the following names: Bloggs_CV and Bloggs_Cover]

Application deadline:

9 June before midnight Brussels time.

We will not be able to reply to all candidates. If you have not heard from us by 24 June, this means your application has been unsuccessful.

About the Financial Transparency Coalition:
The Coalition is a consortium of research and advocacy organisations and governments, Coalition members work together to implement the following five measures that would benefit the poor in developing nations and stabilise financial institutions in developed nations:

  • Curtailment of mispricing in trade imports and exports;
  • Country-by-country accounting of sales, profits, and taxes paid by multinational corporations;
  • Confirmation of beneficial ownership in all banking and securities accounts;
  • Automatic cross-border exchange of tax information on personal and business accounts;
  • Harmonization of predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries.
  • Six non-profit organisations are represented in the Coordinating Committee (CoCom) of the Coalition: Christian Aid, Eurodad, Global Financial Integrity/Center for International Policy, Global Witness, Tax Justice Network and Transparency International.






Tax Research UK. What has happened is potentially very serious. The one silver lining is that the parallel and different "Fatca" process is making good running, and that things remain very fluid and unpredictable. Many journalists have misread these European developments in glass-half-full fashion, with headlines such as "." No, this particular glass, and it's a big one, looks rather empty right now. Also see, for instance, France 24/AFP

Reuters

The Australian

Bloomberg

South China Morning Post
Singapore, EU moves to boost transparency may boost city's allure for global tax cheats

la nacion (In Spanish)
Hat tip: Jorge Gaggero

Reuters

e Business Report

Business Recorder

MSN

Reuters

Compass Cayman
On the story of Australian, British, and U.S. tax authorities cooperating on investigating a large cache of information on complex offshore structures used to conceal assets.

ICIJ

NUPGE

The New York Times

Association of Certified Financial Crime Specialists.

Tax-News

Bloomberg

Rowans-blog

Channel TV
Guernsey's government has unveiled a ten point plan to try and prove it's .

zero hedge

The Washington Spectator

Islands Business
"What may kill offshore banking is the realisation that it does very little to benefit host nations."

The Economist

Common Dreams

The Big Picture






We've just written a identifying Luxembourg's latest secrecy facility, and we have the rash of ongoing scandals that continue to expose the rottenness and conflicts of interest at the heart of the Eurozone's biggest and most aggressive secrecy jurisdiction.

Now, from the :
The head of ProtInvest, an investor-protection group, has sent a letter to Michel Barnier, an EU commissioner, in which he criticised Mr Frieden’s move to appoint his senior adviser Sarah Khabirpour to the board of the CSSF, the country’s financial regulator. The letter pointed out Ms Khabirpour also sits on the board of Banque International a Luxembourg, one of the country’s biggest banks, and is a director of the Luxembourg Stock Exchange – both institutions the CSSF regulates.
If you were looking for a case of the fox guarding the henhouse, you would be hard pressed to find a clearer case. This is a very clear case of state 'capture' - one of the central elements of offshore tax havens that we have identified in a range of publications, most recently in our short . Today's FT spells out state capture in Luxembourg:
"Ms Khabirpour’s multiple jobs showcase the cosy relationships that tie Luxembourg’s business community, which centres largely on fund management, to its regulators and political leaders, suggests Fred Reinertz, ProtInvest’s president."
Our for Luxembourg published for the 2011 , which will be updated in a few weeks with plenty of new and juicy details, cites this email to TJN from a former Luxembourg businessman:
“One very important aspect of the Luxembourg financial centre is the absolutely scandalous discrepancy between the texts of the law, and their application in everyday judicial life. . . . while international pressure managed to force Luxembourg to adapt stricter legal constraints to the financial activities under its jurisdiction, looking into the lack of judicial application of said constraints becomes even more important.
. . .
Unlike in larger countries, there is no such thing as an independent representation of any civil interests in a tiny country like Luxembourg. You just don’t make it in this country unless you’ve proven your absolute loyalty to the system in place, including being ok (if not more) with all of its malpractices.”
This is just the latest in a long line of Luxembourg offshore scandals, which date back to the days of the fraudster Bernie Cornfeld, the tale of BCCI, arguably the most corrupt bank in world history, and running through to more recent episodes such as the (originals , and , and the European bond scandal last year, which was
"Both the investors in the Petercam bond fund and the Madoff fund investors are scathing in their criticism of the CSSF. They argue that the regulator rubber-stamped the funds and turned a blind eye to subsequent problems.
And that's just a taster of the rottenness. There is long series of complaints, containing the following:
"To all of you out there who consider depositing money in a Luxembourg based bank, who consider working in Luxembourg, who consider establishing a company in Luxembourg or who consider dealing with Luxembourg in any way, and to all of you who feel its in violation with your inner compass entering into anything that involves deception, cheating or stealing from other human beings; STAY AWAY from this country."  
We don't know the facts of this case, nor do we have a good grasp of the case outlined by our email correspondent outlined above. But it does seem that wherever you turn in Luxembourg, scandal is not far away.

Update: for more on the Finance Curse, see .









The New York Times
Europe’s effort to crack down on tax havens gained momentum during the weekend as the number of countries agreeing to share more bank information doubled.

swissinfo
See also

The Guardian

Diario Progresista (In Spanish)

alternatives-economiques

el diario (In Spanish)

ICIJ

ICIJ

ICIJ

n ICIJ

s The Sydney Morning Herald
Crocodile Dundee actor Paul Hogan may have settled his tax case with Australian authorities but he is accusing his once-trusted tax adviser of absconding with $US34 million ($32.3 million) he helped Hogan hide in offshore tax havens.

Tax-News
"Some people make the mistake of thinking that a complex avoidance scheme backed by a senior lawyer is safe from HMRC's challenge. That would be a big mistake, as this outcome proves."

e DealB%k

The New York Times
Op ed by Joseph Stiglitz

Quartz

Wirtschafts Blatt (In German)






From the , our quote of the day (in bold), one in an occasional series:
Whoever controls the Bank of Cyprus controls the island,” said Andreas Marangos, a Limassol lawyer whose clients include many Russians.
We mention this for two reasons. First, the story itself is interesting. The first three paragraphs give the flavour:
"When European leaders engineered a harsh bailout deal for this tiny Mediterranean nation in March, they cheered the end of an economic model fueled by a flood of cash from Russia. Wealthy Russians with money in Cyprus’s sickly banks lost billions.

But the Russians, though badly bruised, are now in a position to get something that has previously eluded even Moscow’s most audacious oligarchs: control of a so-called systemic financial institution in the European Union.

“They wanted to throw out the Russians but in the end, they delivered our main bank to the Russians,” said the Cypriot president, Nicos Anastasiades, in a June interview."
The story isn't quite as simple as these paragraphs suggest, of course: among other things, the "Russian" ownership stake seems to be fairly dispersed, at least at this point. But there's another issue we want to point to, which is the main point of this blog. It's that this provides yet another example of the extreme forms of 'state capture' which we have seen, again and again, in small islands with large financial sectors: tax havens. The NYT story continues:
"Despite its wobbly condition, the Bank of Cyprus still holds a uniquely influential position in the economic and political affairs of a sun-swept nation that sits on potentially large reserves of natural gas and straddles strategic fault lines between East and West.

President Anastasiades, in a June letter to the European Central Bank that pleaded for help to keep the Bank of Cyprus afloat, described it as a “mega-systemic bank” that, if it failed, could bring down the entire Cypriot economy. With 5,700 employees and around half of all the island’s deposits, it dwarfs its rivals and reaches into every corner of the country."
Particularly thanks to David Officer and Yiouli Taki at the University of Nicosia, we already had plenty of information of the "capture" of Cyprus by the offshore financial services sector - see and and . This blog is a reminder, and a confirmation, of one of the most important political-economic phenomena in the modern global economy.

Let's not forget, whoever has this kind of influence will be able to change the laws, to turn Cyprus into whatever kind of tax haven or secrecy jurisdiction that they want.

Much more on this broad issue in and in our .






Tax Research UK
See also our recent blog . See also: The Guardian, The Independent, This is Money, Bloomberg Businessweek For reporting by Nick Shaxson on murky dealings involving the UK property market see and .

Think Africa Press

TRACE

Buenos Aires Herald

The Irish Times

Reuters

FACT Coalition

Citizens for Tax Justice

The Hindu

(paywall)
See also: The Irish Times "Latest accounts show jump in royalty payments to Cayman-owned company"



The New Zealand Herald

Tax-News

Financial Secrecy Media Monitor

The Wall Street Journal
See also: New York Times

UPI






Continuing a series of blogs on the , today we bring you the story of Luxembourg, which is ranked at second position on the index.

The Luxembourg financial centre: history and background

Overview

Luxembourg is one of the world’s most important secrecy jurisdictions. Sandwiched between Germany, France and Belgium at the heart of Europe, this tiny constitutional monarchy has a population of just over half a million – making it relatively easy for the financial sector to exert a strong degree of ‘capture’ over the political system, the media and even the zeitgeist of the entire Duchy. With commuters from across the border making up of the workforce, and foreigners making up of the working population, Luxembourg always had a strong international orientation, which fits its fast-developing ‘offshore’ character.

Faced with European Union efforts to curtail tax evasion, Luxembourg works actively and aggressively to defend financial secrecy. Alongside its secrecy offerings it has many other ‘offshore’ offerings: it is a prolific source of tax loopholes for transnational corporations and wealthy individuals, and it offers a wide range of opportunities in the area of lax financial regulation.

Its history as a financial centre stems from three main developments: first, tax-free facilities for non-resident corporations, dating from 1929; second, the emergence of offshore Eurodollar and ‘Eurobond’ activity in the 1960s, attracted by Luxembourg’s regulatory laxity and tax-free status; and third, tight secrecy rules, first enshrined in the Banking Law of 1981. Breaking secrecy laws in a prison sentence. Luxembourg’s secrecy score of 67 is fully deserved, indeed its role as an active political spoiler of European efforts to promote financial transparency – a role that is not reflected in our data – suggests that our index may underplay the damage inflicted on other countries by Luxembourg’s financial sector.

Underpinning the financial sector, as with its competitor Switzerland and other financial centres, is the country’s political stability, its neutrality, and its location at the heart of Europe, both geographically and politically: it was a f of the European Union. Its stability is bolstered further by the fact that politics has been dominated for the past half-century by a right-wing political party, the Chrëschtlesch Sozial Vollekspartei (CSV) which has strongly supported financial secrecy and the financial centre’s ‘offshore’ orientation. Like Ireland, another competitor for global financial services, Luxembourg not only provides most of the offerings of ‘traditional’ tax havens like the Cayman Islands but its membership of the European Union and its wide range of gives it better access to European and international markets than is available to more peripheral tax havens.

Luxembourg offers a wide range of international and offshore services, grouped into five ‘’: wealth management; asset management & investment funds; international loans; insurance; and structured finance. Outside what might traditionally be regarded as the financial sector, it also runs a lucrative line in hosting holding companies of transnational corporations, principally to help them avoid (and evade) tax. It is also strenuously seeking to build up an industry based on , and in October 2012 achieved a further fillip when a group of major Chinese banks the (very lightly regulated) London markets in favour of the even less regulated Luxembourg.

In general terms, Luxembourg has sought to tailor specific legislation in sector after sector through a “light-touch”, tax-light, rather secretive ‘offshore’ model, with a historically heavy emphasis on “keeping assets based in Luxembourg secret from national tax authorities,” as a top Luxembourg regulator . In this approach, Luxembourg has been highly successful: Luxembourg for Finance, its promotional body, Luxembourg is the
 “second largest investment fund centre in the world after the United States, the premier captive reinsurance market in the European Union and the premier private banking centre in the Eurozone.” 
It prides itself on being a fast mover in setting up new legislation: it claims to be the first country to define a clear legal framework for e-commerce, leading giants such as Amazon, Ebay and Skype to set up their European headquarters there, setting the stage for future tax avoidance controversies.

Luxembourg is home to alternative, specialised and venture capital investment funds, international pension funds, covered bond issuing banks, securitisation vehicles and many family wealth management companies; the country has a of the global private banking industry, about a quarter the size of Switzerland’s, boasting publicly of the sector’s ‘’. Its investment funds industry has assets under management worth over , as well as 140 banks with some in assets under management in 2011. The Luxembourg stock exchange is the biggest in Europe for the listing of international bonds, with over 40 percent of the total, and despite being landlocked, Luxembourg even has a shipping registry.

Banking secrecy is based significantly on the privileged nature of professional lawyer-client relationships, rather than classic Swiss-styled banking secrecy; however other forms of secrecy are provided. In September 2013 Luxembourg was on the verge of approving a new Private Foundations law (see TJN’s post ) that would create powerful new secrecy facilities for wealthy individuals – a move that has added three full points to Luxembourg’s secrecy score. It is also r a major high-security warehouse to help clients store assets such as paintings, gold bars or bearer bonds with minimal or no disclosure to foreign tax authorities. Complementing all these offshore facilities, Luxembourg is also a major haven for transnational corporations, actively helping them carry out transfer pricing and other abuses through the provision of multiple and deliberately crafted tax loopholes.

Hosting large tax-evading and other criminal assets from around the world, Luxembourg has historically flown under the radar, attracting far less criticism than Switzerland. Luxembourg has a well resourced lobbying network that has actively sought to undermine criticism of its role as a secrecy jurisdiction, with repeated claims that it is ‘not a tax haven’ and sometimes somewhat repressive moves against its few domestic critics. TJN’s director John Christensen has called Luxembourg the “Death Star” of financial secrecy inside Europe because of its , in close political partnership with Switzerland and Austria, in fighting against information-sharing schemes in Europe.

History

Although Luxembourg today rivals Switzerland in size and scope as a European secrecy jurisdiction, the origins of its financial sector are far younger. Emerging as a neutral and partly independent (impoverished) nation only in 1867, Luxembourg did not gain its own independent ruling family until 1890. Rapid economic growth for much of the early part of the 20th Century was based on large iron ore deposits and the emergence of a strong iron and steel industry.

In 1929 Luxembourg took its first steps as an offshore financial centre with a new regime for holding companies, under which transnational corporations could establish ‘holding company’ subsidiaries in Luxembourg (set up purely to own assets elsewhere) that would be exempt from income and capital gains tax. Although justified as a way to help transnational corporations avoid getting taxed twice (once in their ‘home’ country and then again in the country where they were investing,) in reality they were used increasingly to achieve double non-taxation: that is, to escape tax in both countries.

In the 1960s, the Luxembourg financial industry began to take off properly. The big milestone – a top Luxembourg financier suggested this was Luxembourg’s financial “Big Bang” – was the launch in July 1963 of the world’s first ever offshore Eurobond (for the Italian motorways company Autostrade.) Though the deal itself was mostly hammered together in the City of London, it was listed on the Luxembourg stock exchange: partly for tax reasons, and partly due to Luxembourg’s regulatory laxity (for example, the bond issue did not even require a prospectus). By the year’s end there were already 93 bonds listed there (and four decades later, that figure had grown to about 20,000.) The Eurobond markets are a central pillar of the larger today.

Eurobonds were bearer bonds: classic tax evasion and secrecy instruments because no withholding tax was charged, and whoever physically held them in their hands was entitled to the income and capital. The Euromarkets got a large boost  when U.S. President Johnson, worried about Vietnam-era deficits, tried to restrain U.S. companies from sending capital abroad to invest overseas: in response, U.S. corporate giants started seeking funding from Euromarket centres such as Luxembourg for their non-U.S. investments.

Meanwhile, Luxembourg banks enjoyed a growing stream of individual customers from neighbouring Germany, Belgium and France: a steady flow of middle-class or wealthier citizens from those countries who would present their bonds and attached coupons at local banks and be paid in cash, no questions asked. Beth Krall, a banker who worked in a Luxembourg bank’s back office in the Eurodollar boom years, gave a flavour () of those times:
‘We were dealing with those “Belgian dentists” who keep bonds under the mattresses,’ Krall remembers. ‘Sometimes they all came in at once – what we called the coupon bus would arrive. They came from Belgium, Germany, the Netherlands, filling the lobby, spilling out the door, getting angry, waving their coupons and getting their cheques.’ The vaults held, among other things, enveloppes scellées (sealed envelopes) relating to ‘Henwees’ – HNWIs or high net worth individuals. ‘We didn’t know what the hell was in there,’ she said. ‘The private bankers and relationship managers put those things in there – we never had an inkling.’
Clients increasingly came from further afield too: American banks, along with German and Swedish ones (and others) rapidly moved in. Parallel to the Eurobond markets, Luxembourg widened its spectrum of activities to private banking and investment funds in particular.

Luxembourg’s regulatory laxity, tolerance of bearer bonds, secrecy and tax-free benefits has attracted significant criminality over the years. It was no coincidence that the global fraudster Bernie Cornfield his first mutual fund in Luxembourg in 1962. Later, the Bank of Credit and Commerce International (BCCI), widely regarded as the most corrupt bank in history, incorporated itself jointly in Luxembourg and Cayman, (with headquarters in London.) Each centre provided the tax-free status and required lack of scrutiny – allowing BCCI to get involved in the financing of terrorism, drugs smuggling, slavery, tax evasion, fraud, racketeering and much more. In March 2010, newspapers reported that Luxembourg hosted US$4 billion in assets for North Korean leader Kim Jong-Il, which were shifted there after Swiss banks tightened up procedures. As the Telegraph newspaper :
“Mr Kim’s operatives then withdrew the money - in cash, in order not to leave a paper trail - and transferred it to banks in Luxembourg. The money is the profits from impoverished North Korea selling its nuclear and missile technology, dealing in narcotics, insurance fraud, the use of forced labour in its vast gulag system, and the counterfeiting of foreign currency.”
Luxembourg For Finance, the financial industry’s lobbying arm, told TJN in an interview in 2011 that that particular report was entirely false.

Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), is riddled with conflicts of interest. As the IMF in 2011,
“The current legal framework does not sufficiently guarantee the full operational independence of the CSSF; the CSSF is placed under the direct authority of the Minister; its missions include the “orderly expansion” of Luxembourg’s financial center; its general policy and budget are decided by a Board whose members are all appointed by the government upon proposals from supervised entities and the Minister.” 
In September 2013, an investor-protection group called Protinvest sent a letter to EU Commissioner Michel Barnier, highlighting the conflicts of interest. As summarised by the :
"The head of ProtInvest, an investor-protection group, has sent a letter to Michel Barnier, an EU commissioner, in which he criticised Mr Frieden’s move to appoint his senior adviser Sarah Khabirpour to the board of the CSSF, the country’s financial regulator. The letter pointed out Ms Khabirpour also sits on the board of Banque International a Luxembourg, one of the country’s biggest banks, and is a director of the Luxembourg Stock Exchange – both institutions the CSSF regulates. 
Ms Khabirpour’s multiple jobs showcase the cosy relationships that tie Luxembourg’s business community, which centres largely on fund management, to its regulators and political leaders."
Partly as a consequence of the financial sector’s heavy influence on supervision, Luxembourg has also been implicated in major global frauds, and its regulators are often assailed for apparently deliberately turning a blind eye to them, in an effort to attract funds. A searing by Deminor, on behalf of 2,500 investors defrauded by Bernie Madoff, was coruscating in its attack on Luxembourg’s regulatory laxity, concluding that auditors had turned a blind eye, the authorities had turned a blind eye, Luxembourg financial institutions had lent their credibility to fraudsters by serving as little more than ‘letter box companies’ – and that ‘none of these institutions has been held accountable to date.’ Later, a May 2013 Financial Times story entitled reported that groups of investors were campaigning to highlight what they call the ‘lax and selective supervision of Luxembourg-listed funds’, and quotes a fund consultant as saying that regulatory lapses are on the rise in Luxembourg, amid fierce competition in laxity with Dublin in particular (see more ).

Europe’s “Death Star” of financial secrecy

In contrast to the systemic global importance of Luxembourg's financial system, the Luxembourg's anti-money laundering regime by the Financial Action Task Force in 2010 was devastating. Out of 49 assessed criteria, only one has been rated as compliant, nine as largely compliant, 30 as partially compliant, and nine as non-compliant. Our has various other examples of failings in the Luxembourg’s supervisory apparatus: many of them deliberately crafted as part of the jurisdiction’s see-no-evil offshore model.

What is more, the European Union has for some years been trying to boost financial transparency through its Savings Tax Directive, under which member states (and other participants) automatically share information with each other on certain types of cross-border income, or withhold tax. The Directive is full of holes, but work is underway to plug them. Under the Directive, nearly all EU members have agreed to the gold standard of “automatic information exchange”, under the savings tax directive - but EU members Luxembourg and Austria have refused. Most importantly, the Directive is subject to a series of powerful Amendments, still awaiting approval, which will close the most egregious loopholes and would be expected to bring large amounts of income accruing to European taxpayers into the appropriate tax net. But Luxembourg – in alliance with Austria and Switzerland – is engaged in a to sabotage progress on these Amendments: Switzerland says it will not yield on secrecy unless Luxembourg and others do; meanwhile Luxembourg has cited bilateral with the UK, which politically undermine the directive, as a reason for blocking further progress. Read more about this dance of the secrecy jurisdictions .
Luxembourg premier Jean-Claude Juncker has publicly his preference for European financial policies to be conducted only in ‘secret, dark debates’. In discussions about progress in Europe on transparency, he has notably , in a testament to Luxembourg’s skilful use of delaying tactics to prevent transparency: “I look forward to many years of fascinating and fundamental discussions.”

Mouldy political governance, repression of critics

Like many small secrecy jurisdictions, Luxembourg has poor political governance related to financial sector policies – even though broadly it is a social democratic state with fairly strong redistributive policies locally. The Luxembourg analyst Jérome Turquey “an insulated culture that systematically excludes any information that could contradict its reigning picture of reality,” adding that “dishonest professionals fail to be pushed out of business, in large part because of Luxembourg’s small size where ‘everybody knows everyone else’ – and this creates conflicts of interest." The conflict between financial sector governance and wider political governance is consistent with a pattern common in offshore centres, where financial actors require governance of the financial sector to be ring-fenced against domestic politics, and thus rather immune to appropriate reform, all under the financiers’ threat of ‘don’t tax or regulate us too much or we will run away to Geneva / London / Hong Kong.’ (This broad phenomenon of ‘country capture’ by financial services, common in many financially-dependent economies, is documented painstakingly in the e-book, .)

Luxembourg has at times proven to be quite harsh when its financial sector is criticised. The local media only rarely dares speak out against finance or financial secrecy, and numerous examples exist of the repression of alternative views. For example, in October 2008 Arlette Chabot, information director for French TV station France 2, had to write a to Luxembourg after airing a programme (which was admittedly rather short on specifics) critical of its financial secrecy. In July 2009, when a group of non-governmental organisations (NGOs), the , published a report in July 2009 critical of Luxembourg’s status as a secrecy jurisdiction, and pointing out a deep conflict with its foreign aid policies, the response was ferocious. Prime Minister Jean-Claude Juncker in a long lambasted it as a ‘primitive study’ and told the NGOs that they should refrain from criticising the financial sector; the Cercle was forced to withdraw the study within a week. (The Luxembourg Bankers’ Association cited ‘inaccuracies’ in the report yet has so far failed to offer correct statistics when challenged to do so.) The German NGO WEED has made the study available .

Perhaps the best known victim of Luxembourg’s approach is Denis Robert, a French journalist whose 2001 book Revelation$ about the Luxembourg-based clearing house Clearstream, alleging its role in facilitating money-laundering and flows of dirty money, led to him being subjected to almost sixty lawsuits in French, Belgian and Luxembourg courts.1 Later, in August 2011, the Wall St. Journal that a group of nearly 1,000 U.S. victims of terrorism were suing Clearstream for helping Iran move money connected to the 1983 bombing of a U.S. Marine Corps barracks in Beirut.

In a testament to Luxembourg’s willingness to accommodate financial interests in whatever they want – a classic feature of any secrecy jurisdiction – the Luxembourg Bankers’ Association (ABBL) boasts that one of Luxembourg’s core “easy access to decision-makers; limited red tape.” The authoritative Progressive Tax Blog
“It is well known jibe within the industry that favourable low-tax deals with the Luxembourg tax authorities can be reached over dinner (Michelin starred of course.)” 
A Luxembourg-based correspondent added these striking words, sent to us by email:
“One very important aspect of the Luxembourg financial centre is the absolutely scandalous discrepancy between the texts of the law, and their application in everyday judicial life. . . . while international pressure managed to force Luxembourg to adapt stricter legal constraints to the financial activities under its jurisdiction, looking into the lack of judicial application of said constraints becomes even more important. 
. . . Unlike in larger countries, there is no such thing as an independent representation of any civil interests in a tiny country like Luxembourg. You just don’t make it in this country unless you’ve proven your absolute loyalty to the system in place, including being ok (if not more) with all of its malpractices.”
Other extraordinary allegations against Luxembourg's system are available, such as , whose allegations we cannot verify but which do clearly raise uncomfortable questions. 
All of this is, again, closely consistent with our .

Read more:

- This 2007 , looking at Luxembourg’s lobbying in defence of special tax privileges enjoyed by the likes of iTunes, Skype, eBay, AOL, Amazon and other big Internet companies, provides an example of its role (and to see a photo of itunes’ massive European holding company, illustrating its ‘letter box’ nature, click .)

- For a technical description of how Luxembourg is used to escape tax, see the Progressive Tax Blog’s of the UK’s Vodafone case.

-
 






Frans Weekers
We have for being a particularly important tax haven for multinational companies. As, increasingly, have many others in , the , and elsewhere. We how some developing countries have been kicking back at some of the abuses that have been perpetrated upon them with the help of the Netherlands and other tax havens.

We are now delighted to see a Financial Times interview Netherlands’ deputy finance minister, Frans Weekers, making an admission that his government is uncomfortable with, and perhaps even ashamed of, the Netherlands' role in this pernicious trade. The Financial Times
"A proposal by the Netherlands to renegotiate its tax treaties with 23 least-developed countries marks a turning point for a country that has until now deflected accusations that it is a key player in tax avoidance by multinational corporations.

The initiative, which comes as the G20 meeting in St. Petersburg is putting tax harmonisation issues high on the agenda, is the most concrete move yet by the Netherlands to address the criticisms. Tax justice advocates say the country’s network of treaties with over 90 countries makes it a nexus for tax avoidance, allowing multinationals to reroute their profits through Dutch “letterbox companies” that do no real business in the Netherlands and exist largely for tax purposes."
This comes in the context and the spirit of today's , which includes a statement that:
"We call on member countries to examine how our own domestic laws contribute to BEPS [TJN: Base Erosion and Profit Shifting, OECD-speak for corporate tax dodging] and to ensure that international and our own tax rules do not allow or encourage multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions."
There is, of course, far less to the Dutch plans than Weekers' words would perhaps suggest. The FT article describes an official Dutch report presented last week, which seeks to insert new anti-fraud provisions in their tax treaties with the 23 countries; will pass on information to tax authorities in developing countries; and will 'crack down' on letterbox companies with no genuine substance behind them. The article also cites our excellent Dutch NGO colleagues at as saying, among other things, that new demands for letterbox companies to have 'substance' will be too easy to comply with.

In a brief email to TJN, Lee Sheppard of Tax Analysts spoke of the Dutch
"promises to put more 'substance' in shell companies MNCs [Multinational Corporations] use. Turns out the "substance" ain't gonna be much."
(For those interested, more details on this lack of substance in the Annex below.)

Despite this disappointment in the detail -- as is so often the case with shiny-looking tax justice-styled reforms, or world leaders' statements on these kinds of issues -- the broad new public statement by the Dutch authorities is welcome. The headline announcement is politically significant, and an official admission that the tax justice movement, in the Netherlands and elsewhere, has had a point all along.

Today's blogger remembers a tax justice meeting in Amsterdam a few years ago when a top Dutch tax official gave a horribly patronising presentation, seeking to pooh-pooh by SOMO pointing out the damage that the Netherlands was transmitting globally through these practices. But, as the FT report continues, this attitude is changing:
“Over the past 10 years the trend has been for the number of letterbox companies in the Netherlands to keep growing. I want to turn that trend around,” Mr Weekers said. “I see the Netherlands being portrayed in a bad light. I don’t want to be portrayed in a bad light.
The Dutch move stems from a government-commissioned report over the summer which, for the first time, agreed with tax-justice groups that developing countries miss out on substantial tax revenues because of their treaties with the Netherlands.”
Here is a clear and public admission by the Netherlands government that this tax haven activity is causing great harm around the world. Or, to put it more succinctly, .

Which, of course, immediately raises the next question: why stop at 23 countries? And why stop at these limited measures?

The logic points inexorably in one direction: the Netherlands should work towards rolling up this whole sordid industry and starting to compete on the basis of genuine business activity.

We urge other nations engaged in this shameful trade - such as Ireland, Luxembourg, Switzerland, Belgium, the United Kingdom and others - to take note.

For those with a Financial Times subscription, there is a whole lot more in the

Update from SOMO, via e-mail:
"Next week there will be a Round Table, organised by the Dutch Parliament about national tax policies in order for them to gain more insights on the matter. Tax Justice Network Netherlands as well as SOMO will participate as speakers, a.k.a. spokespersons for a fair tax system."
Annex update: a Dutch correspondent sent us this commentary on the relative lack of substance, via e-mail:
"About the substance demands: the government does not propose to raise or increase the substance demands, they only want to expand the group of companies that have to comply with them. Right now, only companies applying for a tax ruling (Advance Pricing Agreement or Advance Tax Ruling) have to meet the requirements. This will change so that all companies that function as a vehicle for channeling through royalty and interest payments (so called "schakelvennootschapen" which would be literally translated into "linking companies") have to meet these requirements.

The problem is, as you already pointed out in the blog, that the substance requirements are much too easy to comply with. The government, in their reaction published last Friday, actually said that it carried out a random sample and found that most "linking companies" already comply with the requirements. Requirements include things like: at least half of board members have to live or be "officially situated" in the Netherlands, they need to have "the necessary professional knowledge to carry out their tasks", the (important) management decisions need to be taken in the Netherlands, the company needs to have an address situated in the Netherlands, and the company needs to have equity that is "fitting for the activities it carries out". 

As you can see, all requirements are fairly easy to fulfill and open for interpretation. The government, however, stated that - based on research published earlier this summer - there's no point in raising the requirements by for example asking for a number of employees, since this will lose all effect if companies find a way of hiring personnel without increasing their real economic activity. The mailbox companies indeed already do the same with recruiting board members: trust offices offer companies to find Dutch board members, which are persons that are member of numerous boards at the same time.

So the Dutch governement, by saying that they do not raise substance requirements "since that will have no effect", combined with finding that almost all companies concerned already meet the existing requirements, are seemingly taking a kind of useless measure to obligate all "linking companies"  to comply with current requirements. It seems an empty measure really." 






TJN this morning publishes a short new book entitled The Finance Curse: how oversized financial centres attack democracy and corrupt economies. It's an important new publication of ours, which we'll be referring back to on several occasions.

The book, co-authored by TJN's Director John Christensen and Nicholas Shaxson, is available . It is also available on the Kindle e-reader, for a nominal fee, .

This book emerges from our long-running work on tax havens, and differs from much of the work that we've done in the past. Our work on tax havens has generally focused on the global impact of tax havens or secrecy jurisdictions: that is, the impact that one haven has on the citizens of other countries, elsewhere. The Finance Curse, by contrast, looks at the domestic impacts of hosting an oversized financial centre. We find that finance is beneficial to an economy up to a point, but once it grows too large a range of harms start to emerge. Much of the damage, and the underlying processes at work, are similar to those found with a Resource Curse that afflicts many countries that are overly dependent on natural resources.

The graph here (click to enlarge it) provides a taster illustrating just one of many aspects of the issue. The press release is pasted below.


The Finance Curse


How oversized financial centres attack democracy and corrupt economies
A resource curse casts a shadow over certain mineral- and oil-rich nations damaging their economic growth and development.  Now a new e-book by Nicholas Shaxson, author of the acclaimed Treasure Islands, and John Christensen, Director of the Tax Justice Network, shows that countries with oversized financial services suffer similar fates.

As the resource curse stalks Nigeria, Angola and the Democratic Republic of Congo; so a finance curse has captured the UK, Cyprus and Jersey.

The new work argues oversized finance sectors harm their host countries by, among other things:
  • weakening long term growth and development;
  • acting like cuckoos crowding out productive, sustainable industrial sectors;
  • exaggerating and routinely overstating their economic contribution to gain distorting tax subsidies, lax financial regulation and influence crucial political decisions;
     
  • playing a key role in creating a “spider's web” of tax havens;
     
  • capturing whole political systems, in some cases leading to authoritarianism; and
     
  • generating and extracting unproductive and harmful economic ‘rents’.
For decades, the expansion of a country’s financial sector was widely thought to benefit its economy. But The Finance Curse presents the first comprehensive analysis of the many harms that flow from hosting oversized financial centres.

Symptoms of the Finance Curse
Despite the trillions flowing into and through the City of London and Wall Street, Britain and the U.S. perform worse in inequality, infant mortality and poverty than Germany, Sweden, Canada and most of their rich peers.

Several new studies from the IMF and Bank for International Settlements show when finance gets too big – such as when credit to the private sector reaches 100% of GDP or more – growth suffers. The U.S Ireland, the UK, Spain and Portugal and Cyprus, all hit hard by the financial crisis, were all close to or above 200%.

Claims that the UK’s finance sector contributes over £63bn in tax annually are wildly exaggerated and disingenuous. The true figure policymakers should reflect on is at most £20bn, and could be as low as £2.7bn.

Likewise, policymakers must disregard claims the UK finance sector employs two million people. The relevant figure is a fraction of that. Against these smaller gross ‘contributions’ are a host of tax losses, not only from the bailouts. The true net tax ‘contribution’ of  finance in the UK is negative.

The near total ‘capture’ of politics in small island states lead to authoritarian tendencies that aggressively scapegoat dissenters. The British tax haven of Jersey, as one former minister puts it, is run by a “gangster regime” and a “crypto-feudal oligarchy captured by the international offshore banking industry.” In the UK, critics of the City establishment are subtly ostracised, and financial law enforcement is strongly discouraged.

Finance has severely worsened imbalances between regions in Britain, with the “metropolitanisation of gains and the nationalisation of losses.” The financial lobby’s insistence on new transport infrastructure focused on London means more money is spent lengthening platforms at one London train station than on all the upgrades to Manchester’s rail network and the all-important link to Liverpool.

In Jersey, where finance makes up over 50% of GDP, finance has decimated other industrial sectors and dramatically increased inequality. House prices grew by a stunning 29% annually in the 25 years to 2010. In Cyprus, well over 40% of all student enrolments feed its tax haven sector.

In larger jurisdictions like Britain or the U.S these issues are clouded by background noise from large, complex democracies. But in small financial centres and tax havens like Jersey or the Cayman islands, the Finance Curse is much easier to understand because finance is more dominant, and the issues are easier to spot. Tax havens therefore carry strong lessons – and warnings – for Britain and the United States in particular.

As the well-remunerated finance sector recruits ever more graduates, in technical disciplines in the United States, there has been a steep decline in science, mathematics, engineering and technology – and a reduction in “entrepreneurial intentions” among skilled workers.

The “financialisation” of large parts of the British economy has undermined business stability, productivity and employment prospects for large sections of the workforce, creating an ever-deepening economic trap that will be hard to escape.

Quotes   

John Christensen, director of the Tax Justice Network, said:
"The economic collapse in Cyprus highlighted how the Finance Curse hollows out the domestic economy of small islands and corrupts their entire political systems.  I’ve seen exactly the same processes at work in my former home of Jersey.

Alarmingly, the City of London is having similar effects on Britain. The Finance Curse presents a clear and present danger to social and economic development."
Nicholas Shaxson, author of Treasure Islands, said:
"After spending 14 years living in and studying the Resource Curse in oil-rich countries in Africa, I was astonished to find the very same things happening in rich countries with big financial centres.

Having an oversized financial centre in your neighbourhood is a bit like striking oil. It may well bring lots of money. But it will bring huge problems. And the evidence is overwhelming: too much finance is bad for you. Britain, the United States and many other countries need to shrink their financial centres dramatically.

This goes way beyond the damage caused by the latest global financial and economic crisis. Once our politicians understand this, they will see that they can tax and regulate our financial sectors appropriately, with no loss of ‘competitiveness’ - even if other countries don't.

When the financiers cry: ‘We will run away to Geneva or Hong Kong’ then that is to be welcomed. For if they do so, the financial sector will shrink and many benefits are likely to ensue."
For further comments, please contact:
Nicholas Shaxson: +41 79 477 10 70 shaxson (at) gmail.com
John Christensen: + 44 (0) 7979 868 302 john (at) taxjustice.net
Nick Mathiason: +44 (0) 77 99 348 619 nmathiason (at) financialtaskforce.org

For Online News Media - free standalone Finance Curse Podcast
 

Finance Curse Podcast available for easy download free and reposting to accompany your Finance Curse web coverage . Produced by the Tax Justice Network's @Naomi_Fowler

Podcast Summary
A big finance sector is good for an economy - isn't it? Actually, no.

In this Tax Justice Network podcast we discuss the Finance Curse - how an oversized financial sector can weaken growth, slow the economy, erode democracy, foster corruption and increase inequality. Produced by @Naomi_Fowler

For monthly Taxcasts go to www.tackletaxhavens.com/taxcast



[i] Nicholas Shaxson is author of Poisoned Wells, a book about the Resource Curse based on 14 years’ research in West Africa; and also author of Treasure Islands, a book about tax havens and financial centres.

John Christensen is the former economic adviser to the British Crown Dependency of Jersey, a pre-eminent British tax haven. He is now the director of the Tax Justice Network.










Nasdaq / Motley Fool

The Wall Street Journal

Financial Times (paywall)

Financial Secrecy Media Monitor
See also our recent blog

Financial Secrecy Media Monitor

Think Africa Press

iExpat

Institutional Investor
Points out that global coordination is needed to avoid a "war of tax regimes".

The Telegraph

Pacific Standard







swissinfo.ch's rolling coverage and analysis on the investigation

Reuters

Agence France Presse
Austria is ready to discuss exchanging more data in an effort to tackle international tax evasion, but banking secrecy will remain in place, the chancellor said Monday following sharp EU criticism

Deutsche Welle
"Luxembourg operates fully within the law. We are not a tax haven." Utter nonsense, as expected from this white-listed hotbed of dirty money.

The Guardian
Chancellor and PM warned by Save the Children to introduce greater transparency prior to G8

Huffington Post

Tax-News

el Periódico de Cataluña (In Spanish)

e The Washington Post
In this animation, see how investors can create companies and trusts in offshore jurisdictions, where an estimated one-third of the world’s worth resides.

Der Spiegel

Prague Daily Monitor







ICIJ

TaxProf Blog

4-Traders

Tax-News
Standard and Poor's has maintained Liechtenstein's triple A rating ... while describing the financial industry, consisting mostly of asset managers, regional banks, and trusts, as a "contingent fiscal liability". See a recent example of views on S&P rating integrity .

The Guardian
Prem Sikka observes that the government's sense of morality is to appoint foxes to guard the henhouse, and asks: who is safeguarding the interests of the ordinary people?

European Parliament News

Business World

The Economic Times

e Tax Research UK
Financial Secrecy Media Monitor

Financial Times (paywall)
"Treasury chief secretary said as much as £100m could be raised by stopping partners classifying part of their earnings as eligible for corporation tax, which is half the level of income tax.

The Hill
Citizens for Tax Justice



The Guardian

swissinfo

naked capitalism






Tax-News


Global flower industry giant found breaking the law in Kenya

The Nation
Hat tip:

Tax-News
More on the theme of

swissinfo

naharnet

TJN Germany Blog (In German)

e TJN Germany Blog (In German)

Huffington Post

 Bloomberg

The Washington Post

 Corporate Watch

The Independent

Global Witness

l Global Witness



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ul { list-style-type: none; margin: 0; padding: 0; overflow: hidden; background-color: #333; } li { float: left; } li a { display: block; color: white; text-align: center; padding: 14px 16px; text-decoration: none; } li a:hover:not(.active) { background-color: #111; } .active { background-color: #4CAF50; } DMCA report abuse Home Todas Pastas Auto Post sitemap Blog "Sem Imagens" oLink xxx New book - Transnational Organized Crime Transnational Organized Crime - Analyses of a Global Challenge to DemocracyTransnational organized crime interferes with the everyday lives of more and more people - and represents a serious threat to democracy. By now, organized crime has become an inherent feature of economic globalization, and the fine line between the legal and illegal operation of business networks is blurred. Additionally, few experts could claim to have comprehensive knowledge and understanding of the laws and regulations governing the international flow of trade, and hence of the borderline towards criminal transactions.This book offers contributions from 12 countries around the world authored by 25 experts from a wide range of academic disciplines, representatives from civil society organizations and private industry, journalists, as well as activists. Recognizing the complexity of the issue, this publication provides a cross cultural and multi-disciplinary analysis of transnational organized crime including a historical approach from different regional and cultural contexts. Heinrich-Böll-Stiftung and Regine Schönenberg (eds.)Transnational Organized CrimeAnalyses of a Global Challenge to Democracy transcript Verlag, Bielefeld 2013, 308 pages, € 24.80ISBN 978-3-8376-2495-3Ordering address: Heinrich-Böll-Stiftung, Schumannstr. 8, 10117 Berlin, Tel. 030-285340, Fax: 030-28534109, E-mail: buchversand@boell.deInternet: www.boell.deGermany's likely new coalition goes for financial transaction tax From Peter Wahl, WEED: The coalition treaty between German Social Democrats (SPD) and Christian Democrats has been concluded. As far as the Financial Transaction Tax (FTT) is concerned, the relevant part reads (in my translation): "We want to implement rapidly a broad based financial transaction tax in the framework of the Enhanced Cooperation Procedure in the EU. Such a tax should include preferably all financial instruments, in particular shares, bonds, investment certificates, currency transactions as well as derivatives. The tax should be designed in a way, which prevents tax avoidance. The effects of the tax on pensions, small investors and the real economy have to be assessed and negative consequences should be avoided, while undesired business models should be pushed back." (Page 64).As a first assessment I would say that the following points are positive:1. they have now explicitly included currency transactions,2. they want rapid implementation,3. they address the avoidance issue,4. they mention explicitly the regulatory dimension of the FTT ("undesired business models").What could be problematic:1. the mentioning of pensions and small savers points at issues, where they might compromise and accept exemptions,2. the issue of use of revenues, which had been included in the draft of the sub working group on development has been kicked out in the final round (as we had expected).Further procedure:The agreement is not yet definitively adopted. The SPD will carry out a referendum among their members, which will be finished on December 12th. So things will be settled definitively only around December 15th.Although there is quite a skeptical attitude among SPD members, they will in the end probably adopt the agreement. The willingness of Berlin, to go ahead with the FTT is also underlined by a recent statement from Schäuble: "The German government position continues to press for a introduction of the financial-transaction tax soon,” the ministry said today in an e-mailed comment to Bloomberg. “We continue to aim for a broad base combined with a low tax rate.”For those who read German, the full text of the coalition agreement (185 pages) can be downloaded here.Update 2014: for information on tax justice and the finance sector see here.Links May 16 Report: Corruption, mismanagement plagues energy-rich nations The HillReporting on Revenue Watch Institute’s  “Resource Governance Index”How we can help African nations to extract fair value Financial TimesThe west has a duty to ensure the region benefits from its resources, writes Paul CollierAfrica Progress Panel lauds Kenya’s decision to introduce mining taxes Business DailyTanzania: Govt Wants More Cash From Mining Firms AllAfricaArgentine tax amnesty plan: A lifeline for a shaky peso or a magnet for organized crime Washington PostBVI tax haven picks Hong Kong for drive into Asia South China Morning PostBritish Virgin Islands gets city's help in opening Asia-Pacific HQ to deal with central banks and regulators from Singapore to JapanOffshore tax havens like Hong Kong contribute to poverty, says ActionAid South China Morning PostHavens that are not going away Página 12 (In Spanish)Hat tip: Jorge GaggeroHavens Retain Allure For Firms Seeking Flexibility Offshore The Moscow TimesSome very interesting observations, including a quote from an E&Y partner: "You cannot simply take a Cyprus company and replace it like a piece of Lego in Luxembourg. You would need to use several jurisdictions, with several layers of holding companies in order to achieve a cascading system of tax distributions."Austria and Luxembourg hold out against tougher tax rules European VoiceSven Giegold, a German Green MEP, called the outcome “shameless obstructionism” by Luxembourg and Austria.Australia: Big banks enjoying hefty offshore deductions Sydney Morning HeraldU.S.: What the IRS should be scrutinizing ReutersWhy, for example, has the IRS been so indulgent of big, flagrantly partisan tax-exempt groups that have spent hundreds of millions of tax-exempt dollars to influence the last two elections, in clear violation of IRS rules?Who Hides Money Outside The Country? NPRApple target of Senate hearing on offshore taxes Politico'I think you do evil': MPs confront Google over 'devious', 'calculated' attempt to avoid UK tax - the day after Amazon's own revelations The IndependentInternet giants on back foot after shopping giant admitted it receives more in government grants than it pays in UK corporate taxFresh questions for Amazon over pittance it pays in tax The GuardianStarbucks’ cheque for £20 million is not in the post Tax Research UKUK Uncut legal case exposes political embarrassment behind Goldman’s tax deal UK UncutThe UK Gold – a new film on tax avoidance – premiere on 25 June Tax Research UKSee also the write-up in The TelegraphPublic registries on companies, trusts: an idea whose time has come For a long time we and many of our colleagues in the tax justice movement have been calling for public registries to be set up containing beneficial ownership for all companies, trusts and foundations, and their like. We thought we would share part of an e-mail this morning from Robert Palmer of Global Witness, an NGO that has played a pivotal role in this crucial area. "We've seen real support growing behind the idea of public registers - from businesses, law enforcement and even the banks themselves."For examples, he cites Simon Walker, head of the UK's Institute of Directors, a large business lobby groups, who has come out in favour of public registers of beneficial ownership, here.The head of the British Bankers Association has also spoken publicly about the need for registers, though he’s less clear on whether they should be public.The head of tax for the Confederation of British Industry, the most powerful UK business group, Will Morris, has stated that having such a register was a “no-brainer” - and his personal preference was to make it available to the public.A public Avaaz petition from businesses calling on the UK government to adopt public registers of beneficial ownership attracted 23,000 signatures so far.And then of course there's Britain's Prime Minister David Cameron:"I hope G8 Leaders will consider publishing national Action Plans by June that set out concrete steps that their governments will take to achieve this – including, for example, by enhancing the availability of beneficial ownership information through central public company registries."Many others in other countries support such an idea. See, for example, Frank Knapp's article in The Hill in Washington, D.C. supporting the idea, or this, from the Manhattan District Attorney.See also this, via the World Economic Forum, (courtesy of Joe Stead and Robert Palmer)Elsewhere, the European Banking Federation has stated (p6) that it regards public registries as “imperative if credit and financial institutions are expected to discharge their obligations concerning Beneficial Ownership identification” under the EU's Anti Money Laundering (AML) legislation."  As Global Witness' Palmer notes, timing is crucial on this, since the European Union is currently debating how to deal with the problem of hidden company ownership as part of the discussions around the revision of its anti-money laundering directive. Public registries with beneficial ownership information: this is clearly an idea whose time is coming. Why not just get on with it?Links Apr 12 Online petition in Europe challenges tax havens ReutersTransparency Europe launch petition on Change.org for a clampdown on tax havens, demanding a "truth commission" to investigate Switzerland's role in corruption and tax evasion. BVI admits to ‘isolated’ leak of financial services information, launches probe BVI NewsThey also say they are not a secrecy jurisdiction, quite a common claim as described hereTax haven to set up Asia headquarters in Hong Kong South China Morning PostBVI eager to forge closer ties with Hong Kong and ChinaRelease of offshore records draws worldwide response ICIJSee reactions and responses to the release of stories by the ICIJ and its media partnersWho Uses the Offshore World ICIJNigeria - #Offshoreleaks: President Jonathan’s adviser, ex-oil minister linked to secret offshore firms Premium TimesOffshore Bank Accounts Of Corrupt Ghanaian Politicians & Public Officials GhanaWebAustria defies EU pressure to lift bank secrecy ReutersAustria finance minister turns heat on UK 'tax evasion' The GuardianUK: KPMG cannot be put in charge of the hen house, let alone HMRC and financial regulation Tax Research UKHow to set up an offshore company in 10 minutes Transparency InternationalThe trouble with tax havens Ottawa CitizenBanks Resorting to Old Tricks to Reduce Capital Levels naked capitalismSwiss minister apologizes to victims of forced welfare ReutersLinks Aug 29 Swiss Agree on Program for Banks to Settle U.S. Dispute BloombergSee also: U.S. And Swiss Reach Deal On Evaders---More Guilty Pleas Over Offshore Accounts ForbesJersey, Bermuda and BVI on new official French tax haven blacklist Les Echos (In French). The blacklist is here. France blacklisted them because they wouldn't satisfactorily comply with French laws. Pakistan reports big rise in tax revenues as reforms kick in Reuters. This is a big deal, especially in light of this.Nearly Five Years After the Financial Meltdown, Support for Wall Street Reform Remains Strong Americans for Financial Reform. Public support remains the greatest hope.Argentina: Where vultures dare Al Jazeera"Vulture funds" seeking payment from Argentina have won a major court victory, setting a dangerous precedent.Bangladesh: Transfer pricing law to be enforced from June next The Financial ExpressIndia Drafts Safe Harbor Policy to Reduce Transfer Pricing Disputes India BriefRussia: Companies may be obliged to provide information on offshore status RAPSIOffshore centres give ground to onshore: BCG report International AdviserIsle of Man Signs Tax Agreement With Switzerland Tax-NewsJust how much use will this be? And, behind the times - see here and here.Amazon takes tax fight to Supreme Court Financial Times (paywall)Executive Excess 2013: Bailed Out, Booted, and Busted Institute for Policy StudiesShake-up looms in Singapore banking, wealth managers warn Financial Times (paywall)See also comment on Tax Research UKTime to end the dangerous shell game The HillWhat really happens when journalists meet Thomson Reuters"If the Thomson Reuters Foundation advanced finance and governance course were a trending topic on Twitter, the key words would be ‘Tax Havens’, ‘Tax Avoidance’, ‘Multinationals’ and the majestic continent of Africa."Notenstein Emerges From Dark Shadow of Wegelin Bank The Wall Street JournalLiechtenstein bank reports US tax deal hits profits France 24 / APTransparency International: EU leaders must end financial secrecy Transparency International EU have issued an important statement:EU leaders must end financial secrecy In three steps, the European Council can end financial secrecy and take decisive action on corruption and tax evasio Brussels, 21 May 2013 – EU leaders meeting tomorrow have an opportunity to end the financial secrecy that facilitates corruption and tax evasion. As many cases of proven corruption have shown, anonymous shell companies and other opaque legal structures based in secrecy jurisdictions are the favoured vehicles to hide illicit financial gain. Finding out who ultimately profits from these legal structures - the question of beneficial ownership - is central to efforts to close down this avenue for ill-gotten gain.Building on recent international developments, EU Member States can help stop the flow of corrupt funds with three simple steps: Unanimously agree to the proposed reforms of the EU Savings Tax Directive [1]. The proposed reforms would address major loopholes in the legislation, for example by obliging trustees and directors of shell companies to collect and transmit information on the beneficial owners of these legal entities. Agree that automatic exchange of financial information should be the global ‘gold standard’. Corruption and tax evasion are not just problems in the EU. Developing countries suffered $586 billion per year in illicit outflows in the first decade of this century [2]. EU leaders should recognise their obligations to citizens in the developing world by committing to a global, multilateral system for the automatic exchange of financial information, based on the model that 10 EU countries have agreed to pilot [3]. EU legislation should also reflect this commitment. Agree to mandatory public registers of beneficial owners. To help banks and other financial institutions do their work properly, EU leaders should agree to revisions of EU anti-money laundering legislation that would require Member States to establish and update public registers of beneficial owners of companies and other legal entities. Today, information on beneficial ownership is provided by business registers in only four EU Member States (Estonia, Italy, Romania & Slovenia). “At a time when citizens are going through the toughest economic crisis in years, EU leaders have an opportunity to clamp down on illicit financial flows”, said Carl Dolan, Senior EU Policy Officer at the Transparency International EU Office. “Effective action has been prevented before by Member States putting narrow national interests before doing the right thing. It is time to end the squabbling over perceived competitive advantage and recognise that by facilitating corruption everyone loses”. Transparency International has also demanded action from G8 and G20 governments against financial secrecy in order to prevent corruption and illicit financial flows.[end]  Notes to editors:[1] The 2003 Savings Tax Directive requires EU Member States (as well as Andorra, Liechtenstein, Monaco, San Marino and Switzerland) to automatically exchange information on bank accounts held by residents of these countries. Exemptions were granted to Belgium, Luxembourg and Austria. Proposed amendments to the Directive would require banks and other financial institutions to establish whether the beneficial owner of certain entities or legal arrangements established in secrecy jurisdictions are EU residents or residents of the participating countries. It would also require legal entities such as companies and trusts to automatically transmit information about their beneficial owners to competent authorities in EU member states. The amendments also address loopholes relating to the beneficial owners of certain financial instruments such as investment funds.[2] A report by Global Financial Integrity has estimated that developing countries lost at least $586 billion per year in illicit outflows between 2001 and 2010.[3] In April 2013, Belgium, Czech Republic, France, Germany, Italy, Netherlands, Poland, Romania, Spain and UK agreed to a pilot multinational initiative for reciprocal exchange of tax information. The pilot initiative will be based on a model agreed with the U.S. government following the passage of the Foreign Account Tax Compliance Act (FATCA). FATCA requires non-US financial institutions to report directly to the Inland Revenue Service (IRS) information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Media Contacts:Carl Dolan, Senior EU Policy Officer (Private Sector Policies)T: +32 (0)2 23 58 603M: +32 (0)488 563 435E: Brussels@transparency.orgBenjamin NorsworthyEU Policy Officer (Anti-Money Laundering)T: +32 (0) 2 23 58 645E: bnorsworthy@transparency.orgJust Money: how society can break the power of finance From Commonwealth publishing:An e-book by the acclaimed economist Ann Pettifor, Just Money: How We Can Break the Despotic Power of Finance. In it she explores the role of credit in the economy and its relationship with the money supply. She goes on to set out a set of policies to bring the economy back under substantial democratic control. This is not, strictly speaking, a core tax justice issue. But we have recently been doing a lot of work on the political economy of financial centres - not least with our Finance Curse analysis. "Breaking the power of finance" is certainly something that interests us.Available here (only, for the time being).(Update April 2014: For more information on the Finance Curse see here)Time to abolish the corporate tax? Part 2: Only fools or shills would agree Yesterday we posted a blog looking at a New York Times editorial entitled Abolish the Corporate Income Tax, exposing many of the numerous fallacies and misunderstandings at the base of it. Forgive us for going on about this, but it is important.Now Citizens for Tax Justice in the U.S. has produced an article of their own, which complements ours and adds several more important points. It starts like this:Another year, another campaign to give even bigger breaks to corporations and claim that this will create jobs. In 2014, the campaign opened with a January 5 op-ed by Laurence Kotlikoff in the New York Times titled, “Abolish the Corporate Income Tax.” And it is a campaign: in the United States, the United Kingdom - everywhere, really. It's based on ideology, not practical realities. A U.S.-based correspondent to TJN, with many connections in U.S. tax circles, added in an e-mail yesterday:"Larry is a leading right-wing Boston U economist who is otherwise best known as a former Reagan Council of Econ advisor and a deficit hawk. He means well, but he is generally clueless when it comes to the Real World. Unfortunately his piece is only the latest in a crescendo of right wing voices calling for abolition in the US. And the idea is gaining traction in business circles."Our arguments yesterday - and CTJ's arguments to follow - illustrate that if you support the abolition of the corporate income tax you either have no idea what you are talking about, or you are a shill. We can't think of another explanation (apart from where you are a mix of both.)Our correspondent reminded us, as we suggested yesterday:Such a move by the world's largest economy would badly hurt developing countries like Argentina that count on corporate income taxes and MNCs for a large share of their revenue base. It would dramatically accelerate global tax competition -- the race to the bottom. (We at TJN have decided to stop using the term 'tax competition' and instead use the more accurate term 'tax wars' - which is what we are talking about here. Occasionally, if we do use the more common term, we will put 'competition' in quote marks.)Back to CTJ. Their article continues by explaining, as we did, how the corporate income tax serves as an essential backstop to the personal income tax."First, the personal income tax would have an enormous loophole for the rich if we didn’t also have a corporate income tax. A business that is structured as a corporation can hold onto its profits for years before paying them out to its shareholders, who only then (if ever) will pay personal income tax on the income. With no corporate income tax, high-income people could create shell corporations to indefinitely defer paying individual income taxes on much of their income.Second, even when corporate profits are paid out (as stock dividends), only a third are paid to individuals rather than to tax-exempt entities not subject to the personal income tax. In other words, if not for the corporate income tax, most corporate profits would never be taxed."Crucial points. They then expand on our point about tax 'incidence':"The corporate income tax is ultimately borne by shareholders and therefore is a very progressive tax, which means repealing it would result in a less progressive tax system.This last point deserves emphasis. Proponents of corporate tax breaks argue that in the long-term the tax is actually borne by labor — by workers who ultimately suffer lower wages or unemployment because the corporate tax allegedly pushes investment (and thus jobs) offshore. But most experts who have examined the question believe that investment is not entirely mobile in this way and that the vast majority of the corporate tax is borne by the owners of capital (owners of corporate stocks and business assets), who mostly have high incomes. This makes the corporate tax a very progressive tax.For example, the Department of the Treasury concludes that 82 percent of the corporate tax is borne by the owners of capital. As a result, the richest one percent of Americans pay 43 percent of the tax, and the richest 5 percent pay 58 percent of the tax."And then they make another argument that we didn't make."Kotlikoff argues that our corporate income tax chases investment out of the U.S. and his simplistic answer is to repeal the tax altogether. He writes that, “To avoid our federal corporate tax, they [corporations] can, and often do, move their operations and jobs abroad,” and cites the well-known case of Apple booking profits offshore.But Apple is a perfect example of a corporation that does not actually move many jobs offshore but rather is engaging in accounting gimmicks to make its U.S. profits appear to be generated in offshore tax havens. These gimmicks take advantage of the rule allowing American corporations to “defer” (delay indefinitely) paying U.S. corporate income taxes on the profits they claim to earn abroad. Lawmakers will end these abuses when they see that voters’ anger over corporate tax loopholes is even more powerful than the corporate lobby."And, as we also mentioned:"Kotlikoff has constructed a computer model that purports to prove that the economy would benefit greatly from cuts in the corporate income tax. But any such model relies on assumptions about how corporations would respond to changes in tax policy. Economists have failed to demonstrate a link between lower corporate taxes and economic growth over the past several decades that would justify the assumptions Kotlikoff uses."And let's not forget something else that that last report CTJ cites mentions:"The Corporate Income Tax raises a significant amount of revenue for the federal government—$242.3 billion in fiscal 2012, or almost 10 percent of total federal revenues. However, the corporate income tax is less important now than in the 1950s, when it accounted for about 30 percent of total revenues."Our last blog cited a range of reasons why we need the corporate income tax - and why, in fact, it is a particularly precious tax. CTJ also has its own overlapping, but different, list. It's here. And it's well worth reading.A final note: back to our correspondent, who makes a rather sobering observation:"Some of us are taking the international corporate income tax for granted, and are trying to improve it -- by, for example,  refining the OECD's recent attempts to fix digital tax regimes and the the arms-length pricing approach to international corporate taxation, or by pursuing longer term objectives like  country by country reporting or  formulary apportionment. These are worthy long term objectives.   But let us not forget that they PRESUME that countries still have corporate income tax regimes to enforce in the first place. So it is time to take seriously this latest very aggressive strategy by  the US Right and respond to it vocally." And let's not forget: this doesn't just affect the United States. This affects everyone in the whole world. And it's potentially a very, very dangerous move that would have horrific effects on income and wealth economy, rent-seeking and much more. This campaign must be stopped.Update April 2014: for information on corporate tax see here.Is finance like crude oil? The resource curse, or the paradox of poverty from plenty Source: Flickr/Attac FranceThis article is the first in a series of five articles published by Open Democracy's UK-focused website, OurKingdom. These five articles form a series called Finance Curse, and they are drawn from our recently published edition of Tax Justice Focus - the Finance Curse edition.The first article in this series, which OurKingdom published on Monday, is entitled The resource curse, or the paradox of poverty from plenty. It is written by TJN blogger Nicholas Shaxson, author of a book on the Resource Curse and of another book on financial centres and tax havens, Treasure Islands. We paste the full article below. We will publish the remaining four articles in this series next week.The resource curse, or the paradox of poverty from plentyBy Nicholas ShaxsonIs finance like crude oil? Countries rich in minerals are often poverty-stricken, corrupt and violent. A relatively small rent-seeking elite captures vast wealth while the dominant sector crowds out the rest of the economy. The parallels with countries ‘blessed’ with powerful financial sectors are becoming too obvious to ignore.While serving as the Reuters correspondent in oil-rich Angola in the mid 1990s, I wondered how such a ‘rich’ country could suffer such poverty. The shortest answer at the time was ‘War’. Angola’s conflict had many causes, but without the diamonds to fuel rebel leader Jonas Savimbi’s army, not to mention the government’s offshore oilfields, it would have been less bloody, and shorter. As I arrived in Angola in 1993 a British academic, Richard Auty, was putting a name to a then poorly-understood phenomenon: what is now widely known as the ‘Resource Curse’. Countries that depend heavily on natural resources like oil or diamonds often perform worse than their resource-poor peers in terms of human development, governance and long-term economic growth. Studies by renowned economists such as Jeffrey Sachs, Paul Collier, Terry Lynn Karl, Joseph Stiglitz and many others have now established the Resource Curse in the academic literature, and in the public mind too.A weak version of this Curse, which few would disagree with, holds that resource-dependent countries tend to be bad at harnessing those resources to benefit their populations. The windfalls are squandered. A stronger version is more surprising: natural resources tend to make matters even worse than if they had been left in the ground, leading to higher rates of conflict, more corruption, steeper inequality, deeper absolute poverty, more authoritarian government, and lower long-term economic growth. I am in no doubt that the stronger version of the curse applied to Angola on all these metrics when I lived there. To be fair, the wider cross-country evidence here is more complicated. Some countries like Norway that already have good governance in place before resources are discovered seem to fare relatively well – but being rich first is no guarantee of success either. Michael Edwardes, the former chairman of ailing British car manufacturer British Leyland, spoke of this with some prescience in 1980, following the OPEC oil price shocks: “If the cabinet does not have the wit and imagination to reconcile our industrial needs with the fact of North Sea oil, they would do better to leave the bloody stuff in the ground.” Even if some rich countries can suffer from mineral windfalls, it is poor, badly governed countries that tend to suffer the most.  The picture also varies with the global commodity price cycles: things look particularly bad during troughs in these cycles – as in the mid 1990s – and look less bad, at least on the surface, in the boom years. How do we explain this ‘curse?’ The explanations fall into three main categories. First is the so-called “Dutch Disease.” Large export revenues from oil, say, cause the real exchange rate to appreciate: that is, either the local currency gets stronger against other currencies, or local price levels rise, or both. Either way, this makes local manufactures or agriculture more expensive in foreign-currency terms, and so they lose competitiveness and wither. Much higher salaries in the dominant sector also suck the best skills and talent out of other sectors, out of government, and out of civil society, to the detriment of all. Overall, the booming natural resource sector ‘crowds out’ these other sectors, as happened when many oil producers saw devastating falls in agricultural output during the 1970s oil price booms. Finance-dependent economies, it turns out, suffer a rather similar Dutch Disease-like phenomenon, as large financial services export revenues in places like the United Kingdom or the tax haven of Jersey raise the cost of housing, of hiring educated professionals, and the general cost of living. A Bank for International Settlements (BIS) study last year found that finance-dependent economies tend to grow more slowly over time than more balanced ones, and noted that, by way of partial explanation, ’finance literally bids rocket scientists away from the satellite industry’. My short Finance Curse e-book, co-authored with John Christensen, provides plenty of detail on this.A second standard explanation for the Resource Curse is revenue volatility. Booms and busts in world commodity prices and revenues can destabilise the economies of countries that depend on them, further worsening the crowding-out of alternative sectors. Gyrations in the world oil price – from below $10/barrel in the late 1990s to well over $100 within 10 years – have played havoc with budgeting in many oil-dependent countries, often with terrible effects on economic and political stability and broad governance. Those alternative sectors that were crowded-out during the booms aren’t easily rebuilt when the bust comes: it is a ratchet effect. Again, there are close parallels with the financial sector, a source of great volatility, as the latest global financial crisis shows. Britain’s industrial base, decimated by (among many other things) over-dependence on the financial sector, is proving slow to recover, post-boom.The third category for explaining the Resource Curse – the biggest, most problematic, and the most complex – falls under the headline ‘governance’. Why do natural resources tend to make governments more wasteful, corrupt, and authoritarian?A big part of the answer lies in the fact that minerals in the ground provide unproductive economic ‘rents’: easy, unearned money. As the Polish writer Ryszard Kapuscinski so brilliantly put it:"Oil is a resource that anaesthetises thought, blurs vision, corrupts. Oil is a fairy tale and, like every fairy tale, it is a bit of a lie. It does not replace thinking or wisdom." When easy rents are available, rulers lose interest in the difficult challenges of state-building, or the need for a skilled, educated workforce, and instead spend their energies competing with each other for access to a slice of the mineral ‘cake’. While those neglected sectors wither, this competition among ‘godfathers’ can lead to overt conflict, particularly in ethnically diverse societies, but it can also lead to great corruption as each player or faction in a government knows that if it does not act fast to snaffle a particular mineral-sourced financial flow, another faction will. This is the recipe for an unseemly, corrupting scramble.The financial sector, likewise, contains a multitude of potential sources of easy ‘rents’. A secrecy law, for instance, has long been a source of rents for Swiss bankers, who haven’t needed to do much else apart from watch the money roll in. More grandly, the network of British-linked secrecy jurisdictions scattered around the world, serving as ‘feeders’ for all kinds of questionable and dirty money into the City of London, is another big source of rents for the financial sector. Financial players’ special access to information is another. Martin Berkeley, a former British banker, described one mechanism deployed by his bank as it sought to sell its customers dodgy derivatives: "On their client database they had in big letters written ‘Client Has Screens’ - meaning the client actually knows what the markets are doing: these tricks couldn’t be played on them."The Libor scandal provides another example of rent-seeking. One might reasonably also make a comparison between owning an oil well and having – as the banking system does – the ability to create money. Yet there is a difference too: rising credit creation – and the growing private debts that accompany it – generate fees for the financial sector that are extracted not from under the ground, as with oil, but from debtors, taxpayers and others: from the population itself.Another source of the trouble in resource-rich states is that when rulers have easy rents available, they don’t need their citizens so much to raise tax revenues. This top-down flow of money undermines the ‘no taxation without representation’ bargain that has underpinned the rise of modern, accountable states through the rise of a social contract based on bargaining around tax, and through the role that tax-gathering plays in stimulating the construction of effective state institutions. If the citizens complain, those resource rents pay for the armed force necessary to keep a lid on protests.In economies dependent on finance we don’t see the same kind of crude, swaggering petro-authoritarianism of Vladimir Putin’s Russia or José Eduardo dos Santos’ Angola. But we do see some surprisingly repressive responses to criticisms of the financial sector and the finance-dominated establishment, particularly in small tax havens like Jersey, as Mike Dun’s article in this edition – along with the main Finance Curse e-book and my book Treasure Islands – repeatedly illustrate. All these processes – the economic crowding-out of alternative economic sectors such as agriculture or tourism, plus the ‘capture’ of rulers and government by the dominant mineral sector, who become apathetic to the challenges posed by trying to stimulate other sectors – add up to a mortal threat not just to democracy, but also to the long-term prospects for a vibrant economy. Since Angola’s long civil war ended 11 years ago, politicians have routinely called for a ‘diversification’ of the economy and a ‘rebalancing’ away from dependence on oil. The fact that petroleum still makes up over 97 percent of exports and contributes to 60 percent of GDP, is testament to the difficulty even the most well-meaning reformer faces. Similarly, calls for ‘rebalancing’ away from excessive dependence on the financial sector have tumbled from the mouths of politicians in the United Kingdom and Jersey. But these calls will prove equally empty if they do not actively work to shrink and contain the financial sector.Update: for more on the Finance Curse see here, and for all editions of Tax Justice Focus see here.A big win for campaigners: EU agreement on transparency of extractive industries We are delighted to report that EU bodies have agreed a new regime for transparency in the extractive industries. From a correspondent in Washington, via e-mail:"The relevant representatives of the European Parliament, Council and Commission have agreed a compromise text of the EU Accounting and Transparency Directives which, taken together, will create the EU equivalent to, which goes beyond, Dodd-Frank Section 1504 (the law that requires all oil, gas and mining companies that have to report to the SEC to disclose all payments over $100,000 that they make to any government anywhere in the world).The EU legislation goes beyond the US version by including logging companies as well as large, privately held companies.  This is a massive victory because there were a lot of details being discussed that could have watered down the law in the EU, but those efforts were thwarted."A long list of comments from interested parties is available here. A background note from Eurodad explains more:Reaction to EU agreement on transparency of extractive industriesBRUSSELS, 9 April. Today the European Commission, the European Parliament and the Council of the EU agreed a compromise text on transparency of extractive industries. The text will be adopted by the Parliament and the Council in the coming months. If passed, this law will oblige EU-listed and non-listed big oil, gas, mining firms and the logging industry to declare payments they make in resource-rich nations. In response to today’s developments,Catherine Olier, Oxfam’s EU development expert, said: “It’s excellent news that the EU is moving towards a law that will help ordinary people harness the natural resource wealth of their countries to be lifted out of poverty. But EU politicians today could have taken a bolder stance against tax evasion and corruption by including other sectors such as telecommunications or construction. Strikingly, poor countries lose more to tax dodging than they receive in aid each year.”   Øygunn Sundsbø Brynildsen, senior policy officer at Eurodad, the European Network on Debt and Development, said:“Despite today’s promising progress, there is still a long way to go to have EU legislation that properly fights tax dodging. While it is very important to know how much companies pay to governments, this figure alone does not give a clear picture of whether they pay their fair share of taxes. Multinationals will continue plundering developing countries until they are obliged to report information such as sales volumes, assets, staffing and profits. The currently negotiated EU banking sector reform is an example to follow in this regard.”Although welcoming the Directive, Oxfam and Eurodad have mixed feelings about the deal: POSITIVE We strongly welcome the proposal because it is a huge step in the fight against corruption. If the legislation is finally adopted by the EU: It will help citizens in resource-rich countries like Nigeria and the Democratic Republic of Congo to hold governments to account for their use of natural resource revenues and make sure that these benefit the many and not just the few. It will oblige companies in the extractive and forestry sectors to disclose the payments they make to governments in all countries at project level - as opposed to reporting at government level only- and without any exemptions. The latter has been a contentious issue in negotiations as companies claimed that in some countries they would have to break national criminal laws which prohibit the disclosure of such information. However, such laws do not exist and companies couldn’t come up with any examples and EU member states finally agreed to remove that exemption which would have been a massive loophole. NEGATIVE On the other hand, the proposal failed to: Include other sectors beyond extractive and forestry such as telecommunications and construction which would widen corporate accountability and help both developing countries and EU member states better combat tax evasion and avoidance. In October 2012 the European Parliament’s Legal Affairs committee voted in favour of expanding the reporting requirements to the telecommunications, construction and banking sector. Require companies to report on additional financing information such as production or sales volumes, numbers of employees and profits. Such basic accounting information that are already available to companies would allow to identify potential cases of tax dodging. For more information and comments, contact:Oxfam: Angela Corbalan on + 32 (0) 473 56 22 60 or angela.corbalan@oxfaminternational.orgEurodad: Øygunn Sundsbø Brynildsen on + 32 (0) 2894 46 44 or obrynildsen@eurodad.orgThe Directives still have to approved by the European Parliament’s Legal Affairs Committee (likely in May) and then by the full sitting European Parliament (likely in June) before the laws can be said to have been formally adopted.  This process is expected to go smoothly.For those who are not aware, after a European Directive has been adopted, it has to be transposed into each Member State’s national laws and they have some room to amend or modify bits of the requirements (but never to a lesser extent than required by the Directive), which can take some time.  This is in contrast to a European Regulation, which must be taken as is into a Member State’s legal code.  World Forum Declaration on Tax Justice, Tunis, March 2013 The prevailing international tax rules and practices are more and more undermining the ability of governments in the Global South and the North to compel corporations and wealthy individuals to pay their fair share of taxes. Multinationals and wealthy individuals continue to dodge taxes with impunity, while tax competition has led to reduced tax burdens on corporations and financial wealth. As a result ordinary people carry a disproportionately heavy burden of taxes and social services lack adequate resources to meet the needs of citizens. The public are made to pay for a crisis they are not responsible for. The implementation of austerity measures which aggravate poverty and inequality everywhere make the need for tax justice as urgent as ever. Social and economic justice now and future sustainability are possible only: ·  when tax dodging by multinationals and wealthy individuals is stopped; ·  when race to the bottom tax competition between countries is ended and replaced by multilateral tax cooperation;·  when governments raise revenue through redistributive and progressive taxation and are held accountable for the provision of quality social services to their citizens.Continuing the tradition of the World Social Forum which, at the WSF in Port Alegre in 2002, issued a “Universal Declaration on the right to tax justice as a component part of social justice”, we demand the following to promote tax justice across the whole world: a) country by country reporting by multinationals; b) automatic information exchange between jurisdictions; c) public registers of beneficial ownership;d) redistributive and progressive domestic tax policies; e) alternatives to transfer pricing rules by the OECD which serve all countries; f) an end to tax haven secrecy  – the major facilitator of tax dodging; g) rigorous regulation of the finance sector including the imposition of a Financial Transaction Tax (FTT); h) legitimate international governance to facilitate multilateral cooperation in tax matters. To promote the tax justice agenda we commit ourselves:a)     To continue and strengthen our advocacy and campaign to influence decision makers to implement policies to achieve tax justice. We are encouraged by initial successes in this regard, such as the recent decision of the French Parliament (and further endorsed by the European Parliament) to enforce country by country reporting by French and European banks; the introduction of a Financial Transaction Tax as a result of global campaign in 11 European countries; the successful campaign of French activists to get 18 out of 22 departments to declare their territories tax haven free and similar campaigns for tax haven free cities in the Nordic countries. b)    To enhance our efforts to mobilise citizens and create strong social movements locally and globally to force governments and multinationals to end tax dodging and  implement policies to achieve tax justice. The evidence based campaigns to expose the pillage of developing countries by multinationals in individual countries (such a the campaign of Zambian citizens against Glencore); the successful campaign for “Justicia Fiscal” in the Dominical Republic for an increase in education budget raised by fair tax, are inspiring achievements on which we build our future work.The new Global Alliance for Tax Justice can serve as a platform to coordinate and create global synergy for advocacy and campaigns and citizen mobilisation for tax justice. 1.  Global Alliance for Tax Justice2.    ActionAid International3.    Oxfam International 4.    Public Services International5.    Christian Aid UK/RI 6.    Tax Justice Network-Africa 7.    Eurodad 8.    War on Want 9.    CIDSE10.  CCFD -Terre Solidaire11.  SOLIDAR 12.  UBUNTU - World Forum of Civil Society Networks13.  The Trades Union Congress (TUC) Great Britain14.  Europeans for Financial Reform Coalition15.  Secours Catholique - Caritas France 16.  Attac Norway17.  Global Policy Forum18.  ETUC: European Trade Union Confederation 19.  European Citizens’ Initiative “Water is a human right!”20.  Equity and Justice Working Group Bangladesh (EquityBD)21.  Tax Justice Network22.  Tax Research UK 23.  CNCD - 11.11.11, Centre national de coopération au développement (Belguim)24.  ATTAC Spain Job Posting: EU Advocacy Lead Of The Financial Transparency Coalition Do you care about stamping out corruption, money laundering and tax dodging? The Financial Transparency Coalition (formerly the Task Force on Financial Integrity and Economic Development) is looking for a dynamic individual, with a proven track record of achieving policy change, and ‘intelligence’ of the EU/Brussels environment and structure. This is an exciting opportunity to lead EU advocacy on an influential advocacy campaign to curb illicit financial flows. Further information about the Coalition can be found at www.financialtaskforce.org.The next 18 months present important opportunities to influence EU legislation: The EU is now in a process to update its anti-money laundering directive, including by taking steps to increase transparency over the ownership of companies. Moreover the European Commission has launched an action plan to crack down on tax evasion and avoidance. There is also movement on the long stalled revision to the savings tax directive, which provides an opportunity to push for further steps automatic exchange of information.This position involves leading the Coalition’s advocacy towards the EU. The successful candidate will lead an advocacy campaign towards the European Union’s review of the Anti-Money Laundering Directive (75%), and the Coalition’s advocacy towards the EU on other Coalition related areas (25%)Key responsibilities:Carry out advocacy towards the EU institutions to influence the Anti-Money Laundering DirectiveDevelop and maintain relationships with key European Commission staff, Cabinet members, Members of the European Parliament and Permanent Representative offices, NGOs, journalists and other private sector stakeholders relevant to the success of the campaignCoordinate a NGO coalition working to influence the Anti-Money Laundering DirectiveRevise and lead the implementation of the coalition’s advocacy strategyEnergise and coordinate  strategic thinking  on automatic information exchange (AIE),Develop an AIE action plan, including identifying realistic targets and key ‘actors’ to help drive the  work forwardPrepare advocacy notes and frequent updates for coalition membersWrite compelling advocacy materials for lobbying and the mediaBe prepared to travel on short notice, if necessaryOther activities that are required to fulfil the role Required qualifications/experienceExcellent understanding of the EU co-legislative processesAdvocacy experience within the EUAbility to help non-governmental organisations work together to achieve common aimsStrong English written and verbal communications skillsExcellent interpersonal skillsAbility to understand and articulate the Coalition’s issuesAbility to work independently and on own initiativeDesirable experience:Knowledge of one or more EU languages other than EnglishA background in anti-money laundering, anti-tax evasion or anti-corruption effortsCompetence in an advocacy role with institutions at a high levelOffice and reporting: The advocacy lead will be hosted by the European Network on Debt and Development (Eurodad) in Brussels, and work closely with a policy team of Coalition members in Europe and the Coalition Manager in Washington DC.Contract details:18 months full-time contract with a possibility of extension, depending on performance and funding. There is a probation period of 3 months. Gross yearly salary of € 46,145 –€ 48,025, depending on experience. In addition there is a package of benefits including daily meal vouchers, hospitalisation insurance, travel insurance and contribution to pension plan.Application instructions:Please carefully read the key responsibilities and requirements, and the instructions below. We have designed these instructions to reduce the administrative burden on our teams so we can devote more time to our vital work. Therefore, we regret that we will ONLY accept applications that respect these instructions and will exclude applicants who submit general cover letters.Send your CV (two pages maximum) with a cover letter of 2 pages or less in English. This cover letter should:be properly formatted, clearly and concisely written, and set out why you match the above job description.describe a concrete experience you had of designing and implementing an advocacy strategy to influence an EU process, preferably a co-legislative process. Please make sure you set out the steps or phases you went through, and how you tried to ensure a successful outcome.Send your cover letter and CV:a)     By e-mail only to apply@financialtaskforce.org Please format the subject line as “job application advocacy lead”.b)     Please give the two files the following names: Surname_CV  and Surname_Cover [so if Peter Bloggs applied for a job we would expect files with the following names: Bloggs_CV and Bloggs_Cover]Application deadline:9 June before midnight Brussels time.We will not be able to reply to all candidates. If you have not heard from us by 24 June, this means your application has been unsuccessful.About the Financial Transparency Coalition:The Coalition is a consortium of research and advocacy organisations and governments, Coalition members work together to implement the following five measures that would benefit the poor in developing nations and stabilise financial institutions in developed nations:Curtailment of mispricing in trade imports and exports;Country-by-country accounting of sales, profits, and taxes paid by multinational corporations;Confirmation of beneficial ownership in all banking and securities accounts;Automatic cross-border exchange of tax information on personal and business accounts;Harmonization of predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries.Six non-profit organisations are represented in the Coordinating Committee (CoCom) of the Coalition: Christian Aid, Eurodad, Global Financial Integrity/Center for International Policy, Global Witness, Tax Justice Network and Transparency International.Links May 15 Luxembourg and Austria go out of their way to help tax crime Tax Research UK. What has happened is potentially very serious. The one silver lining is that the parallel and different "Fatca" process is making good running, and that things remain very fluid and unpredictable. Many journalists have misread these European developments in glass-half-full fashion, with headlines such as "EU moves to close tax loopholes." No, this particular glass, and it's a big one, looks rather empty right now. Also see, for instance, EU keeps tax-hunt momentum, even as resistance firms France 24/AFPAustralia to lead G20 corporate tax evasion clampdown ReutersExtra $68m for Australian Tax Office to tackle trust abuse The AustralianSingapore to Agree With U.S. on Sharing Bank Account Data BloombergHong Kong in line for surge in illicit fund inflows South China Morning PostSingapore, EU moves to boost transparency may boost city's allure for global tax cheatsTax havens yield to pressure for greater transparency la nacion (In Spanish)Hat tip: Jorge GaggeroAfrica's "lift-off" held back by illicit finance drain: AfDB ReutersTax evasion remains a risk, says South African Revenue Service Business ReportTax evasion in Pakistan: A critical analysis Business RecorderLatin America tax revenue cut by evasion, write-offs: IADB MSNInsight: Bank documents portray Cyprus as Russia's favorite haven ReutersCayman key target in UK tax evasion investigation Compass CaymanOn the story of Australian, British, and U.S. tax authorities cooperating on investigating a large cache of information on complex offshore structures used to conceal assets.Release of Offshore Records Draws Worldwide Response ICIJCanadian money in tax havens at all-time high NUPGEGreek Crackdown on Tax Evasion Yields Little Revenue The New York TimesAs FATCA spreads globally, ACFCS poll shows compliance duties are all over the map Association of Certified Financial Crime Specialists.NZ To Address FATCA Compliance Cost Concerns Tax-NewsSwiss Neue Privat Bank Cooperating With U.S. Justice Department Probe BloombergThe City of London and the Offshore sector - The Enemy Within Rowans-blogGuernsey publishes tax transparency chart Channel TVGuernsey's government has unveiled a ten point plan to try and prove it's not a tax haven.Visualizing The World's Tax Havens zero hedgeTax Havens and the Return of the Pirates The Washington SpectatorTax haven tsunami Islands Business"What may kill offshore banking is the realisation that it does very little to benefit host nations."A memo to the world’s dictators - Subject: Asset protection and regime change. From: Mirkwood Capital To: High-net-worth rulers The EconomistU.S.: Tax Rates Down, Havens Thriving: Corporations Win, Workers Pay Common DreamsTop Economists and Financial Experts Say We Must Break Up the Giant Banks The Big PictureProtinvest scandal exposes state capture and finance curse in tax haven Luxembourg We've just written a fair-sized blog identifying Luxembourg's latest secrecy facility, and we have long noted the rash of ongoing scandals that continue to expose the rottenness and conflicts of interest at the heart of the Eurozone's biggest and most aggressive secrecy jurisdiction.Now, from the Financial Times:The head of ProtInvest, an investor-protection group, has sent a letter to Michel Barnier, an EU commissioner, in which he criticised Mr Frieden’s move to appoint his senior adviser Sarah Khabirpour to the board of the CSSF, the country’s financial regulator. The letter pointed out Ms Khabirpour also sits on the board of Banque International a Luxembourg, one of the country’s biggest banks, and is a director of the Luxembourg Stock Exchange – both institutions the CSSF regulates.If you were looking for a case of the fox guarding the henhouse, you would be hard pressed to find a clearer case. This is a very clear case of state 'capture' - one of the central elements of offshore tax havens that we have identified in a range of publications, most recently in our short Finance Curse e-book. Today's FT spells out state capture in Luxembourg:"Ms Khabirpour’s multiple jobs showcase the cosy relationships that tie Luxembourg’s business community, which centres largely on fund management, to its regulators and political leaders, suggests Fred Reinertz, ProtInvest’s president."Our narrative report for Luxembourg published for the 2011 Financial Secrecy Index, which will be updated in a few weeks with plenty of new and juicy details, cites this email to TJN from a former Luxembourg businessman:“One very important aspect of the Luxembourg financial centre is the absolutely scandalous discrepancy between the texts of the law, and their application in everyday judicial life. . . . while international pressure managed to force Luxembourg to adapt stricter legal constraints to the financial activities under its jurisdiction, looking into the lack of judicial application of said constraints becomes even more important.. . . Unlike in larger countries, there is no such thing as an independent representation of any civil interests in a tiny country like Luxembourg. You just don’t make it in this country unless you’ve proven your absolute loyalty to the system in place, including being ok (if not more) with all of its malpractices.”This is just the latest in a long line of Luxembourg offshore scandals, which date back to the days of the fraudster Bernie Cornfeld, the tale of BCCI, arguably the most corrupt bank in world history, and running through to more recent episodes such as the Bernie Madoff scandal (originals here, here and here, and the European bond scandal last year, which was summarised:"Both the investors in the Petercam bond fund and the Madoff fund investors are scathing in their criticism of the CSSF. They argue that the regulator rubber-stamped the funds and turned a blind eye to subsequent problems.And that's just a taster of the rottenness. There is plenty more, such as this long series of complaints, containing the following:"To all of you out there who consider depositing money in a Luxembourg based bank, who consider working in Luxembourg, who consider establishing a company in Luxembourg or who consider dealing with Luxembourg in any way, and to all of you who feel its in violation with your inner compass entering into anything that involves deception, cheating or stealing from other human beings; STAY AWAY from this country."   We don't know the facts of this case, nor do we have a good grasp of the case outlined by our email correspondent outlined above. But it does seem that wherever you turn in Luxembourg, scandal is not far away.Update: for more on the Finance Curse, see here.Links Apr 15 Support Grows for European Effort to Fight Tax Havens The New York TimesEurope’s effort to crack down on tax havens gained momentum during the weekend as the number of countries agreeing to share more bank information doubled.Switzerland under siege as tax row escalates swissinfoSee also Swiss dig in heelsAngela Merkel urges David Cameron to crack down on tax havens The GuardianPortugal and evaders Diario Progresista (In Spanish)France takes the fight to tax havens alternatives-economiquesHSBC Switzerland Whistleblower Hervé Falciani in the the high court in Spain el diario (In Spanish)Bank Owned by Paraguay’s Leading Presidential Candidate Linked to Tax Haven ICIJSwiss Bank Pushed Offshore Middleman to Skip Anti-Money Laundering Checks for Wealthy Clients ICIJIndia Says It Will Investigate Offshore Leaks Revelations ICIJSecret Files Reveal Rothschild’s Offshore Domain ICIJHogan chases his financial adviser and stolen millions The Sydney Morning HeraldCrocodile Dundee actor Paul Hogan may have settled his tax case with Australian authorities but he is accusing his once-trusted tax adviser of absconding with $US34 million ($32.3 million) he helped Hogan hide in offshore tax havens.Tax Barrister Loses Case Against HMRC Tax-News"Some people make the mistake of thinking that a complex avoidance scheme backed by a senior lawyer is safe from HMRC's challenge. That would be a big mistake, as this outcome proves."Ex-KPMG Partner Is Charged in Insider Case DealB%kA Tax System Stacked Against the 99 Percent The New York TimesOp ed by Joseph StiglitzThe biggest banks say the biggest banks aren’t worth investing in, and regulation’s to blame QuartzBritish Tax Havens are hard to tame Wirtschafts Blatt (In German)Quote of the day: Cyprus and state capture From the New York Times, our quote of the day (in bold), one in an occasional series:“Whoever controls the Bank of Cyprus controls the island,” said Andreas Marangos, a Limassol lawyer whose clients include many Russians.We mention this for two reasons. First, the story itself is interesting. The first three paragraphs give the flavour:"When European leaders engineered a harsh bailout deal for this tiny Mediterranean nation in March, they cheered the end of an economic model fueled by a flood of cash from Russia. Wealthy Russians with money in Cyprus’s sickly banks lost billions.But the Russians, though badly bruised, are now in a position to get something that has previously eluded even Moscow’s most audacious oligarchs: control of a so-called systemic financial institution in the European Union.“They wanted to throw out the Russians but in the end, they delivered our main bank to the Russians,” said the Cypriot president, Nicos Anastasiades, in a June interview."The story isn't quite as simple as these paragraphs suggest, of course: among other things, the "Russian" ownership stake seems to be fairly dispersed, at least at this point. But there's another issue we want to point to, which is the main point of this blog. It's that this provides yet another example of the extreme forms of 'state capture' which we have seen, again and again, in small islands with large financial sectors: tax havens. The NYT story continues:"Despite its wobbly condition, the Bank of Cyprus still holds a uniquely influential position in the economic and political affairs of a sun-swept nation that sits on potentially large reserves of natural gas and straddles strategic fault lines between East and West.President Anastasiades, in a June letter to the European Central Bank that pleaded for help to keep the Bank of Cyprus afloat, described it as a “mega-systemic bank” that, if it failed, could bring down the entire Cypriot economy. With 5,700 employees and around half of all the island’s deposits, it dwarfs its rivals and reaches into every corner of the country."Particularly thanks to David Officer and Yiouli Taki at the University of Nicosia, we already had plenty of information of the "capture" of Cyprus by the offshore financial services sector - see here and here and here. This blog is a reminder, and a confirmation, of one of the most important political-economic phenomena in the modern global economy.Let's not forget, whoever has this kind of influence will be able to change the laws, to turn Cyprus into whatever kind of tax haven or secrecy jurisdiction that they want.Much more on this broad issue in Treasure Islands and in our Finance Curse e-book.Links Dec 6 The Swiss tax agreement – £3.2 billion in a year has suddenly become £1.4 billion, at best Tax Research UKSee also our recent blog British tax authorities discover that Swiss banking is secret. See also: UK Chancellor's £9bn tax avoidance claims met with scepticism by campaigners The Guardian, Treasury takes aim at murky hedge funds in £3bn tax avoidance crackdown The Independent, Banks engaging in aggressive tax avoidance could be named and shamed This is Money, UK Chancellor Osborne to Tax Capital Gains on Home Sales by Non-Residents Bloomberg Businessweek For reporting by Nick Shaxson on murky dealings involving the UK property market see here and here.From Taxes to Illicit Flows: Mobilising Domestic Resources through Development Cooperation Think Africa PressCloser than they appear: African mines, Canadian responsibility & global transparency TRACEThe wormholes of the world economy - The secrets of the vaults Buenos Aires HeraldSwiss banks delay participation in plan to settle tax evasion The Irish TimesU.S. IRS not fully ready for law against offshore tax evasion -watchdog ReutersU.S.: Letter of Support: Replace the Sequester by Closing Corporate Tax Loopholes FACT CoalitionSupreme Court Won't Rule on New York's "Amazon Law" Citizens for Tax JusticePwC’s alleged irregularities under Supreme Court scanner The Hindu‘Double Irish’ limits Facebook’s tax bill to €1.9m in Ireland Financial Times (paywall)See also: Facebook paid €1.9m in Irish tax on €1.7bn turnover The Irish Times "Latest accounts show jump in royalty payments to Cayman-owned company"TJN Germany Blog LinksG20 global tax debate vital for New Zealand The New Zealand HeraldFrench Court Validates Most Of Anti-Tax Fraud Law Tax-NewsGuernsey news: Plans to make Bitcoins, compliments from Shanghai and e-gaming regulation agreement with Malta Financial Secrecy Media MonitorChina: Bitcoin Isn’t a Real Currency The Wall Street JournalSee also: China Restricts Banks’ Use of Bitcoin New York TimesBerlusconi says community service for tax fraud conviction beneath him UPIHow Luxembourg became a secrecy jurisdiction Continuing a series of blogs on the 2013 Financial Secrecy Index, today we bring you the story of Luxembourg, which is ranked at second position on the index.The Luxembourg financial centre: history and backgroundOverviewLuxembourg is one of the world’s most important secrecy jurisdictions. Sandwiched between Germany, France and Belgium at the heart of Europe, this tiny constitutional monarchy has a population of just over half a million – making it relatively easy for the financial sector to exert a strong degree of ‘capture’ over the political system, the media and even the zeitgeist of the entire Duchy. With commuters from across the border making up nearly 45 percent of the workforce, and foreigners making up over 70 percent of the working population, Luxembourg always had a strong international orientation, which fits its fast-developing ‘offshore’ character.Faced with European Union efforts to curtail tax evasion, Luxembourg works actively and aggressively to defend financial secrecy. Alongside its secrecy offerings it has many other ‘offshore’ offerings: it is a prolific source of tax loopholes for transnational corporations and wealthy individuals, and it offers a wide range of opportunities in the area of lax financial regulation.Its history as a financial centre stems from three main developments: first, tax-free facilities for non-resident corporations, dating from 1929; second, the emergence of offshore Eurodollar and ‘Eurobond’ activity in the 1960s, attracted by Luxembourg’s regulatory laxity and tax-free status; and third, tight secrecy rules, first enshrined in the Banking Law of 1981. Breaking secrecy laws can result in a prison sentence. Luxembourg’s secrecy score of 67 is fully deserved, indeed its role as an active political spoiler of European efforts to promote financial transparency – a role that is not reflected in our data – suggests that our index may underplay the damage inflicted on other countries by Luxembourg’s financial sector.Underpinning the financial sector, as with its competitor Switzerland and other financial centres, is the country’s political stability, its neutrality, and its location at the heart of Europe, both geographically and politically: it was a founder member of the European Union. Its stability is bolstered further by the fact that politics has been dominated for the past half-century by a right-wing political party, the Chrëschtlesch Sozial Vollekspartei (CSV) which has strongly supported financial secrecy and the financial centre’s ‘offshore’ orientation. Like Ireland, another competitor for global financial services, Luxembourg not only provides most of the offerings of ‘traditional’ tax havens like the Cayman Islands but its membership of the European Union and its wide range of tax treaties gives it better access to European and international markets than is available to more peripheral tax havens.Luxembourg offers a wide range of international and offshore services, grouped into five ‘strategic pillars’: wealth management; asset management & investment funds; international loans; insurance; and structured finance. Outside what might traditionally be regarded as the financial sector, it also runs a lucrative line in hosting holding companies of transnational corporations, principally to help them avoid (and evade) tax. It is also strenuously seeking to build up an industry based on Islamic finance, and in October 2012 achieved a further fillip when a group of major Chinese banks said they were departing the (very lightly regulated) London markets in favour of the even less regulated Luxembourg.In general terms, Luxembourg has sought to tailor specific legislation in sector after sector through a “light-touch”, tax-light, rather secretive ‘offshore’ model, with a historically heavy emphasis on “keeping assets based in Luxembourg secret from national tax authorities,” as a top Luxembourg regulator explains. In this approach, Luxembourg has been highly successful: in the words of Luxembourg for Finance, its promotional body, Luxembourg is the “second largest investment fund centre in the world after the United States, the premier captive reinsurance market in the European Union and the premier private banking centre in the Eurozone.” It prides itself on being a fast mover in setting up new legislation: it claims to be the first country to define a clear legal framework for e-commerce, leading giants such as Amazon, Ebay and Skype to set up their European headquarters there, setting the stage for future tax avoidance controversies.Luxembourg is home to alternative, specialised and venture capital investment funds, international pension funds, covered bond issuing banks, securitisation vehicles and many family wealth management companies; the country has a six percent share of the global private banking industry, about a quarter the size of Switzerland’s, boasting publicly of the sector’s ‘complete discretion’. Its investment funds industry has assets under management worth over $2.5 trillion, as well as 140 banks with some $800 billion in assets under management in 2011. The Luxembourg stock exchange is the biggest in Europe for the listing of international bonds, with over 40 percent of the total, and despite being landlocked, Luxembourg even has a shipping registry.Banking secrecy is based significantly on the privileged nature of professional lawyer-client relationships, rather than classic Swiss-styled banking secrecy; however other forms of secrecy are provided. In September 2013 Luxembourg was on the verge of approving a new Private Foundations law (see TJN’s post here) that would create powerful new secrecy facilities for wealthy individuals – a move that has added three full points to Luxembourg’s secrecy score. It is also reportedly setting up a major high-security warehouse to help clients store assets such as paintings, gold bars or bearer bonds with minimal or no disclosure to foreign tax authorities. Complementing all these offshore facilities, Luxembourg is also a major haven for transnational corporations, actively helping them carry out transfer pricing and other abuses through the provision of multiple and deliberately crafted tax loopholes.Hosting large tax-evading and other criminal assets from around the world, Luxembourg has historically flown under the radar, attracting far less criticism than Switzerland. Luxembourg has a well resourced lobbying network that has actively sought to undermine criticism of its role as a secrecy jurisdiction, with repeated claims that it is ‘not a tax haven’ and sometimes somewhat repressive moves against its few domestic critics. TJN’s director John Christensen has called Luxembourg the “Death Star” of financial secrecy inside Europe because of its leading role, in close political partnership with Switzerland and Austria, in fighting against information-sharing schemes in Europe.HistoryAlthough Luxembourg today rivals Switzerland in size and scope as a European secrecy jurisdiction, the origins of its financial sector are far younger. Emerging as a neutral and partly independent (impoverished) nation only in 1867, Luxembourg did not gain its own independent ruling family until 1890. Rapid economic growth for much of the early part of the 20th Century was based on large iron ore deposits and the emergence of a strong iron and steel industry.In 1929 Luxembourg took its first steps as an offshore financial centre with a new regime for holding companies, under which transnational corporations could establish ‘holding company’ subsidiaries in Luxembourg (set up purely to own assets elsewhere) that would be exempt from income and capital gains tax. Although justified as a way to help transnational corporations avoid getting taxed twice (once in their ‘home’ country and then again in the country where they were investing,) in reality they were used increasingly to achieve double non-taxation: that is, to escape tax in both countries.In the 1960s, the Luxembourg financial industry began to take off properly. The big milestone – a top Luxembourg financier suggested this was Luxembourg’s financial “Big Bang” – was the launch in July 1963 of the world’s first ever offshore Eurobond (for the Italian motorways company Autostrade.) Though the deal itself was mostly hammered together in the City of London, it was listed on the Luxembourg stock exchange: partly for tax reasons, and partly due to Luxembourg’s regulatory laxity (for example, the bond issue did not even require a prospectus). By the year’s end there were already 93 bonds listed there (and four decades later, that figure had grown to about 20,000.) The Eurobond markets are a central pillar of the larger Euromarkets today.Eurobonds were bearer bonds: classic tax evasion and secrecy instruments because no withholding tax was charged, and whoever physically held them in their hands was entitled to the income and capital. The Euromarkets got a large boost in 1965 when U.S. President Johnson, worried about Vietnam-era deficits, tried to restrain U.S. companies from sending capital abroad to invest overseas: in response, U.S. corporate giants started seeking funding from Euromarket centres such as Luxembourg for their non-U.S. investments.Meanwhile, Luxembourg banks enjoyed a growing stream of individual customers from neighbouring Germany, Belgium and France: a steady flow of middle-class or wealthier citizens from those countries who would present their bonds and attached coupons at local banks and be paid in cash, no questions asked. Beth Krall, a banker who worked in a Luxembourg bank’s back office in the Eurodollar boom years, gave a flavour (Treasure Islands p216) of those times:‘We were dealing with those “Belgian dentists” who keep bonds under the mattresses,’ Krall remembers. ‘Sometimes they all came in at once – what we called the coupon bus would arrive. They came from Belgium, Germany, the Netherlands, filling the lobby, spilling out the door, getting angry, waving their coupons and getting their cheques.’ The vaults held, among other things, enveloppes scellées (sealed envelopes) relating to ‘Henwees’ – HNWIs or high net worth individuals. ‘We didn’t know what the hell was in there,’ she said. ‘The private bankers and relationship managers put those things in there – we never had an inkling.’Clients increasingly came from further afield too: American banks, along with German and Swedish ones (and others) rapidly moved in. Parallel to the Eurobond markets, Luxembourg widened its spectrum of activities to private banking and investment funds in particular.Luxembourg’s regulatory laxity, tolerance of bearer bonds, secrecy and tax-free benefits has attracted significant criminality over the years. It was no coincidence that the global fraudster Bernie Cornfield established his first mutual fund in Luxembourg in 1962. Later, the Bank of Credit and Commerce International (BCCI), widely regarded as the most corrupt bank in history, incorporated itself jointly in Luxembourg and Cayman, (with headquarters in London.) Each centre provided the tax-free status and required lack of scrutiny – allowing BCCI to get involved in the financing of terrorism, drugs smuggling, slavery, tax evasion, fraud, racketeering and much more. In March 2010, newspapers reported that Luxembourg hosted US$4 billion in assets for North Korean leader Kim Jong-Il, which were shifted there after Swiss banks tightened up procedures. As the Telegraph newspaper reported:“Mr Kim’s operatives then withdrew the money - in cash, in order not to leave a paper trail - and transferred it to banks in Luxembourg. The money is the profits from impoverished North Korea selling its nuclear and missile technology, dealing in narcotics, insurance fraud, the use of forced labour in its vast gulag system, and the counterfeiting of foreign currency.”Luxembourg For Finance, the financial industry’s lobbying arm, told TJN in an interview in 2011 that that particular report was entirely false.Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), is riddled with conflicts of interest. As the IMF politely reported in 2011,“The current legal framework does not sufficiently guarantee the full operational independence of the CSSF; the CSSF is placed under the direct authority of the Minister; its missions include the “orderly expansion” of Luxembourg’s financial center; its general policy and budget are decided by a Board whose members are all appointed by the government upon proposals from supervised entities and the Minister.” In September 2013, an investor-protection group called Protinvest sent a letter to EU Commissioner Michel Barnier, highlighting the conflicts of interest. As summarised by the Financial Times:"The head of ProtInvest, an investor-protection group, has sent a letter to Michel Barnier, an EU commissioner, in which he criticised Mr Frieden’s move to appoint his senior adviser Sarah Khabirpour to the board of the CSSF, the country’s financial regulator. The letter pointed out Ms Khabirpour also sits on the board of Banque International a Luxembourg, one of the country’s biggest banks, and is a director of the Luxembourg Stock Exchange – both institutions the CSSF regulates. Ms Khabirpour’s multiple jobs showcase the cosy relationships that tie Luxembourg’s business community, which centres largely on fund management, to its regulators and political leaders."Partly as a consequence of the financial sector’s heavy influence on supervision, Luxembourg has also been implicated in major global frauds, and its regulators are often assailed for apparently deliberately turning a blind eye to them, in an effort to attract funds. A searing December 2011 letter by Deminor, on behalf of 2,500 investors defrauded by Bernie Madoff, was coruscating in its attack on Luxembourg’s regulatory laxity, concluding that auditors had turned a blind eye, the authorities had turned a blind eye, Luxembourg financial institutions had lent their credibility to fraudsters by serving as little more than ‘letter box companies’ – and that ‘none of these institutions has been held accountable to date.’ Later, a May 2013 Financial Times story entitled ‘Lax’ Luxembourg fund rules attacked reported that groups of investors were campaigning to highlight what they call the ‘lax and selective supervision of Luxembourg-listed funds’, and quotes a fund consultant as saying that regulatory lapses are on the rise in Luxembourg, amid fierce competition in laxity with Dublin in particular (see more here).Europe’s “Death Star” of financial secrecyIn contrast to the systemic global importance of Luxembourg's financial system, the assessment of Luxembourg's anti-money laundering regime by the Financial Action Task Force in 2010 was devastating. Out of 49 assessed criteria, only one has been rated as compliant, nine as largely compliant, 30 as partially compliant, and nine as non-compliant. Our database report has various other examples of failings in the Luxembourg’s supervisory apparatus: many of them deliberately crafted as part of the jurisdiction’s see-no-evil offshore model.What is more, the European Union has for some years been trying to boost financial transparency through its Savings Tax Directive, under which member states (and other participants) automatically share information with each other on certain types of cross-border income, or withhold tax. The Directive is full of holes, but work is underway to plug them. Under the Directive, nearly all EU members have agreed to the gold standard of “automatic information exchange”, under the savings tax directive - but EU members Luxembourg and Austria have refused. Most importantly, the Directive is subject to a series of powerful Amendments, still awaiting approval, which will close the most egregious loopholes and would be expected to bring large amounts of income accruing to European taxpayers into the appropriate tax net. But Luxembourg – in alliance with Austria and Switzerland – is engaged in a complex political dance to sabotage progress on these Amendments: Switzerland says it will not yield on secrecy unless Luxembourg and others do; meanwhile Luxembourg has cited bilateral Swiss deals with the UK, which politically undermine the directive, as a reason for blocking further progress. Read more about this dance of the secrecy jurisdictions here.Luxembourg premier Jean-Claude Juncker has publicly expressed his preference for European financial policies to be conducted only in ‘secret, dark debates’. In discussions about progress in Europe on transparency, he has notably said, in a testament to Luxembourg’s skilful use of delaying tactics to prevent transparency: “I look forward to many years of fascinating and fundamental discussions.”Mouldy political governance, repression of criticsLike many small secrecy jurisdictions, Luxembourg has poor political governance related to financial sector policies – even though broadly it is a social democratic state with fairly strong redistributive policies locally. The Luxembourg analyst Jérome Turquey describes “an insulated culture that systematically excludes any information that could contradict its reigning picture of reality,” adding that “dishonest professionals fail to be pushed out of business, in large part because of Luxembourg’s small size where ‘everybody knows everyone else’ – and this creates conflicts of interest." The conflict between financial sector governance and wider political governance is consistent with a pattern common in offshore centres, where financial actors require governance of the financial sector to be ring-fenced against domestic politics, and thus rather immune to appropriate reform, all under the financiers’ threat of ‘don’t tax or regulate us too much or we will run away to Geneva / London / Hong Kong.’ (This broad phenomenon of ‘country capture’ by financial services, common in many financially-dependent economies, is documented painstakingly in the e-book, The Finance Curse.)Luxembourg has at times proven to be quite harsh when its financial sector is criticised. The local media only rarely dares speak out against finance or financial secrecy, and numerous examples exist of the repression of alternative views. For example, in October 2008 Arlette Chabot, information director for French TV station France 2, had to write a craven apology to Luxembourg after airing a programme (which was admittedly rather short on specifics) critical of its financial secrecy. In July 2009, when a group of non-governmental organisations (NGOs), the Cercle de Coopération, published a report in July 2009 critical of Luxembourg’s status as a secrecy jurisdiction, and pointing out a deep conflict with its foreign aid policies, the response was ferocious. Prime Minister Jean-Claude Juncker in a long speech lambasted it as a ‘primitive study’ and told the NGOs that they should refrain from criticising the financial sector; the Cercle was forced to withdraw the study within a week. (The Luxembourg Bankers’ Association cited ‘inaccuracies’ in the report yet has so far failed to offer correct statistics when challenged to do so.) The German NGO WEED has made the study available here.Perhaps the best known victim of Luxembourg’s approach is Denis Robert, a French journalist whose 2001 book Revelation$ about the Luxembourg-based clearing house Clearstream, alleging its role in facilitating money-laundering and flows of dirty money, led to him being subjected to almost sixty lawsuits in French, Belgian and Luxembourg courts.1 Later, in August 2011, the Wall St. Journal reported that a group of nearly 1,000 U.S. victims of terrorism were suing Clearstream for helping Iran move money connected to the 1983 bombing of a U.S. Marine Corps barracks in Beirut.In a testament to Luxembourg’s willingness to accommodate financial interests in whatever they want – a classic feature of any secrecy jurisdiction – the Luxembourg Bankers’ Association (ABBL) boasts that one of Luxembourg’s core strengths is “easy access to decision-makers; limited red tape.” The authoritative Progressive Tax Blog added: “It is well known jibe within the industry that favourable low-tax deals with the Luxembourg tax authorities can be reached over dinner (Michelin starred of course.)” A Luxembourg-based correspondent added these striking words, sent to us by email:“One very important aspect of the Luxembourg financial centre is the absolutely scandalous discrepancy between the texts of the law, and their application in everyday judicial life. . . . while international pressure managed to force Luxembourg to adapt stricter legal constraints to the financial activities under its jurisdiction, looking into the lack of judicial application of said constraints becomes even more important. . . . Unlike in larger countries, there is no such thing as an independent representation of any civil interests in a tiny country like Luxembourg. You just don’t make it in this country unless you’ve proven your absolute loyalty to the system in place, including being ok (if not more) with all of its malpractices.”Other extraordinary allegations against Luxembourg's system are available, such as this one, whose allegations we cannot verify but which do clearly raise uncomfortable questions. All of this is, again, closely consistent with our Finance Curse analysis.Read more:- This 2007 New York Times story, looking at Luxembourg’s lobbying in defence of special tax privileges enjoyed by the likes of iTunes, Skype, eBay, AOL, Amazon and other big Internet companies, provides an example of its role (and to see a photo of itunes’ massive European holding company, illustrating its ‘letter box’ nature, click here.)- For a technical description of how Luxembourg is used to escape tax, see the Progressive Tax Blog’s exploration of the UK’s Vodafone case.- Fragen aus entwicklungspolitischer Sicht, Cercle de Coopération a.s.b.l., July 23, 2009 Netherlands officially admits shame in being a tax haven, pledges limited reforms Frans WeekersWe have long criticised the Netherlands for being a particularly important tax haven for multinational companies. As, increasingly, have many others in Europe, the United States, and elsewhere. We recently noted, too, how some developing countries have been kicking back at some of the abuses that have been perpetrated upon them with the help of the Netherlands and other tax havens. We are now delighted to see a Financial Times interview Netherlands’ deputy finance minister, Frans Weekers, making an admission that his government is uncomfortable with, and perhaps even ashamed of, the Netherlands' role in this pernicious trade. The Financial Times reports:"A proposal by the Netherlands to renegotiate its tax treaties with 23 least-developed countries marks a turning point for a country that has until now deflected accusations that it is a key player in tax avoidance by multinational corporations.The initiative, which comes as the G20 meeting in St. Petersburg is putting tax harmonisation issues high on the agenda, is the most concrete move yet by the Netherlands to address the criticisms. Tax justice advocates say the country’s network of treaties with over 90 countries makes it a nexus for tax avoidance, allowing multinationals to reroute their profits through Dutch “letterbox companies” that do no real business in the Netherlands and exist largely for tax purposes."This comes in the context and the spirit of today's G20 leaders' declaration, which includes a statement that:"We call on member countries to examine how our own domestic laws contribute to BEPS [TJN: Base Erosion and Profit Shifting, OECD-speak for corporate tax dodging] and to ensure that international and our own tax rules do not allow or encourage multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions."There is, of course, far less to the Dutch plans than Weekers' words would perhaps suggest. The FT article describes an official Dutch report presented last week, which seeks to insert new anti-fraud provisions in their tax treaties with the 23 countries; will pass on information to tax authorities in developing countries; and will 'crack down' on letterbox companies with no genuine substance behind them. The article also cites our excellent Dutch NGO colleagues at SOMO as saying, among other things, that new demands for letterbox companies to have 'substance' will be too easy to comply with. In a brief email to TJN, Lee Sheppard of Tax Analysts spoke of the Dutch"promises to put more 'substance' in shell companies MNCs [Multinational Corporations] use. Turns out the "substance" ain't gonna be much."(For those interested, more details on this lack of substance in the Annex below.)Despite this disappointment in the detail -- as is so often the case with shiny-looking tax justice-styled reforms, or world leaders' statements on these kinds of issues -- the broad new public statement by the Dutch authorities is welcome. The headline announcement is politically significant, and an official admission that the tax justice movement, in the Netherlands and elsewhere, has had a point all along. Today's blogger remembers a tax justice meeting in Amsterdam a few years ago when a top Dutch tax official gave a horribly patronising presentation, seeking to pooh-pooh a seminal report by SOMO pointing out the damage that the Netherlands was transmitting globally through these practices. But, as the FT report continues, this attitude is changing:“Over the past 10 years the trend has been for the number of letterbox companies in the Netherlands to keep growing. I want to turn that trend around,” Mr Weekers said. “I see the Netherlands being portrayed in a bad light. I don’t want to be portrayed in a bad light. The Dutch move stems from a government-commissioned report over the summer which, for the first time, agreed with tax-justice groups that developing countries miss out on substantial tax revenues because of their treaties with the Netherlands.” Here is a clear and public admission by the Netherlands government that this tax haven activity is causing great harm around the world. Or, to put it more succinctly, Tax Havens Cause Poverty.Which, of course, immediately raises the next question: why stop at 23 countries? And why stop at these limited measures?The logic points inexorably in one direction: the Netherlands should work towards rolling up this whole sordid industry and starting to compete on the basis of genuine business activity.We urge other nations engaged in this shameful trade - such as Ireland, Luxembourg, Switzerland, Belgium, the United Kingdom and others - to take note.For those with a Financial Times subscription, there is a whole lot more in the FT story.Update from SOMO, via e-mail:"Next week there will be a Round Table, organised by the Dutch Parliament about national tax policies in order for them to gain more insights on the matter. Tax Justice Network Netherlands as well as SOMO will participate as speakers, a.k.a. spokespersons for a fair tax system."Annex update: a Dutch correspondent sent us this commentary on the relative lack of substance, via e-mail:"About the substance demands: the government does not propose to raise or increase the substance demands, they only want to expand the group of companies that have to comply with them. Right now, only companies applying for a tax ruling (Advance Pricing Agreement or Advance Tax Ruling) have to meet the requirements. This will change so that all companies that function as a vehicle for channeling through royalty and interest payments (so called "schakelvennootschapen" which would be literally translated into "linking companies") have to meet these requirements. The problem is, as you already pointed out in the blog, that the substance requirements are much too easy to comply with. The government, in their reaction published last Friday, actually said that it carried out a random sample and found that most "linking companies" already comply with the requirements. Requirements include things like: at least half of board members have to live or be "officially situated" in the Netherlands, they need to have "the necessary professional knowledge to carry out their tasks", the (important) management decisions need to be taken in the Netherlands, the company needs to have an address situated in the Netherlands, and the company needs to have equity that is "fitting for the activities it carries out".  As you can see, all requirements are fairly easy to fulfill and open for interpretation. The government, however, stated that - based on research published earlier this summer - there's no point in raising the requirements by for example asking for a number of employees, since this will lose all effect if companies find a way of hiring personnel without increasing their real economic activity. The mailbox companies indeed already do the same with recruiting board members: trust offices offer companies to find Dutch board members, which are persons that are member of numerous boards at the same time. So the Dutch governement, by saying that they do not raise substance requirements "since that will have no effect", combined with finding that almost all companies concerned already meet the existing requirements, are seemingly taking a kind of useless measure to obligate all "linking companies"  to comply with current requirements. It seems an empty measure really."  The Finance curse - new TJN book TJN this morning publishes a short new book entitled The Finance Curse: how oversized financial centres attack democracy and corrupt economies. It's an important new publication of ours, which we'll be referring back to on several occasions.The book, co-authored by TJN's Director John Christensen and Nicholas Shaxson, is available for free here, in pdf format. It is also available on the Kindle e-reader, for a nominal fee, here. This book emerges from our long-running work on tax havens, and differs from much of the work that we've done in the past. Our work on tax havens has generally focused on the global impact of tax havens or secrecy jurisdictions: that is, the impact that one haven has on the citizens of other countries, elsewhere. The Finance Curse, by contrast, looks at the domestic impacts of hosting an oversized financial centre. We find that finance is beneficial to an economy up to a point, but once it grows too large a range of harms start to emerge. Much of the damage, and the underlying processes at work, are similar to those found with a Resource Curse that afflicts many countries that are overly dependent on natural resources.The graph here (click to enlarge it) provides a taster illustrating just one of many aspects of the issue. The press release is pasted below.The Finance CurseHow oversized financial centres attack democracy and corrupt economiesA resource curse casts a shadow over certain mineral- and oil-rich nations damaging their economic growth and development.  Now a new e-book by Nicholas Shaxson, author of the acclaimed Treasure Islands, and John Christensen, Director of the Tax Justice Network, shows that countries with oversized financial services suffer similar fates.As the resource curse stalks Nigeria, Angola and the Democratic Republic of Congo; so a finance curse has captured the UK, Cyprus and Jersey.The new work argues oversized finance sectors harm their host countries by, among other things:weakening long term growth and development;acting like cuckoos crowding out productive, sustainable industrial sectors;exaggerating and routinely overstating their economic contribution to gain distorting tax subsidies, lax financial regulation and influence crucial political decisions; playing a key role in creating a “spider's web” of tax havens; capturing whole political systems, in some cases leading to authoritarianism; and generating and extracting unproductive and harmful economic ‘rents’.For decades, the expansion of a country’s financial sector was widely thought to benefit its economy. But The Finance Curse presents the first comprehensive analysis of the many harms that flow from hosting oversized financial centres.Symptoms of the Finance Curse Despite the trillions flowing into and through the City of London and Wall Street, Britain and the U.S. perform worse in inequality, infant mortality and poverty than Germany, Sweden, Canada and most of their rich peers.Several new studies from the IMF and Bank for International Settlements show when finance gets too big – such as when credit to the private sector reaches 100% of GDP or more – growth suffers. The U.S Ireland, the UK, Spain and Portugal and Cyprus, all hit hard by the financial crisis, were all close to or above 200%.Claims that the UK’s finance sector contributes over £63bn in tax annually are wildly exaggerated and disingenuous. The true figure policymakers should reflect on is at most £20bn, and could be as low as £2.7bn.Likewise, policymakers must disregard claims the UK finance sector employs two million people. The relevant figure is a fraction of that. Against these smaller gross ‘contributions’ are a host of tax losses, not only from the bailouts. The true net tax ‘contribution’ of  finance in the UK is negative.The near total ‘capture’ of politics in small island states lead to authoritarian tendencies that aggressively scapegoat dissenters. The British tax haven of Jersey, as one former minister puts it, is run by a “gangster regime” and a “crypto-feudal oligarchy captured by the international offshore banking industry.” In the UK, critics of the City establishment are subtly ostracised, and financial law enforcement is strongly discouraged.Finance has severely worsened imbalances between regions in Britain, with the “metropolitanisation of gains and the nationalisation of losses.” The financial lobby’s insistence on new transport infrastructure focused on London means more money is spent lengthening platforms at one London train station than on all the upgrades to Manchester’s rail network and the all-important link to Liverpool. In Jersey, where finance makes up over 50% of GDP, finance has decimated other industrial sectors and dramatically increased inequality. House prices grew by a stunning 29% annually in the 25 years to 2010. In Cyprus, well over 40% of all student enrolments feed its tax haven sector.In larger jurisdictions like Britain or the U.S these issues are clouded by background noise from large, complex democracies. But in small financial centres and tax havens like Jersey or the Cayman islands, the Finance Curse is much easier to understand because finance is more dominant, and the issues are easier to spot. Tax havens therefore carry strong lessons – and warnings – for Britain and the United States in particular.As the well-remunerated finance sector recruits ever more graduates, in technical disciplines in the United States, there has been a steep decline in science, mathematics, engineering and technology – and a reduction in “entrepreneurial intentions” among skilled workers.The “financialisation” of large parts of the British economy has undermined business stability, productivity and employment prospects for large sections of the workforce, creating an ever-deepening economic trap that will be hard to escape.Quotes   John Christensen, director of the Tax Justice Network, said:"The economic collapse in Cyprus highlighted how the Finance Curse hollows out the domestic economy of small islands and corrupts their entire political systems.  I’ve seen exactly the same processes at work in my former home of Jersey.Alarmingly, the City of London is having similar effects on Britain. The Finance Curse presents a clear and present danger to social and economic development."Nicholas Shaxson, author of Treasure Islands, said:"After spending 14 years living in and studying the Resource Curse in oil-rich countries in Africa, I was astonished to find the very same things happening in rich countries with big financial centres.Having an oversized financial centre in your neighbourhood is a bit like striking oil. It may well bring lots of money. But it will bring huge problems. And the evidence is overwhelming: too much finance is bad for you. Britain, the United States and many other countries need to shrink their financial centres dramatically.This goes way beyond the damage caused by the latest global financial and economic crisis. Once our politicians understand this, they will see that they can tax and regulate our financial sectors appropriately, with no loss of ‘competitiveness’ - even if other countries don't.When the financiers cry: ‘We will run away to Geneva or Hong Kong’ then that is to be welcomed. For if they do so, the financial sector will shrink and many benefits are likely to ensue."For further comments, please contact:Nicholas Shaxson: +41 79 477 10 70 shaxson (at) gmail.comJohn Christensen: + 44 (0) 7979 868 302 john (at) taxjustice.netNick Mathiason: +44 (0) 77 99 348 619 nmathiason (at) financialtaskforce.orgFor Online News Media - free standalone Finance Curse Podcast  Finance Curse Podcast available for easy download free and reposting to accompany your Finance Curse web coverage here. Produced by the Tax Justice Network's @Naomi_FowlerPodcast SummaryA big finance sector is good for an economy - isn't it? Actually, no. In this Tax Justice Network podcast we discuss the Finance Curse - how an oversized financial sector can weaken growth, slow the economy, erode democracy, foster corruption and increase inequality. Produced by @Naomi_Fowler For monthly Taxcasts go to www.tackletaxhavens.com/taxcastFinance Curse Podcast[i] Nicholas Shaxson is author of Poisoned Wells, a book about the Resource Curse based on 14 years’ research in West Africa; and also author of Treasure Islands, a book about tax havens and financial centres.John Christensen is the former economic adviser to the British Crown Dependency of Jersey, a pre-eminent British tax haven. He is now the director of the Tax Justice Network.Links Sep 23 The resource curse, or the paradox of poverty from plenty Open DemocracyArticle by Nicholas Shaxson - see also our post earlier today on the new issue of Tax Justice Focus: The Finance Curse and see the e-book here, and our Finance Curse page here. AP Interview: Paraguay’s millionaire president takes aim at tax evasion, eyes Chilean model The Washington PostCosta Rica To Introduce Transfer Pricing Regulations Tax-NewsForeign aid: transparency will help African nations prosper The Guardian / The ObserverWhy Does A Canadian Company Pay Its Taxes to Switzerland? Huffington PostBy Dennis Howlett of Canadians for Tax FairnessTax Avoidance by SAP costs Germany 17 million euros - reform efforts are still unsuccessful Tax Justice Network Germany (In German)Tax Evasion Isn't Just for Beanie-Baby Billionaires Anymore Nasdaq / Motley FoolOffshore Accounts: No Place to Hide? The Wall Street JournalGoogle and Facebook face tougher EU tax and privacy rules Financial Times (paywall)Luxembourg: When secrecy backfires Financial Secrecy Media MonitorSee also our recent blog Tax haven Luxembourg sets up yet another secrecy facility for ownerless assetsCyprus news: Finance Minister says Russian business “instrumental in the development of Cypriot economy” Financial Secrecy Media MonitorWhy a Multimillion Dollar Clock Might Mean Time is Up for Francafrique Think Africa PressFATCA’s ruining our business, moan tax havens iExpatWorld Bank's Top Economist Picks A Fight With Inequality Institutional InvestorPoints out that global coordination is needed to avoid a "war of tax regimes".Britain and France to square up over Google data tax The TelegraphWhy Bitcoin Regulation Isn’t a Crackdown Pacific StandardLinks Apr 9 Tax havens unveiled - Investigation reveals massive offshore networkswissinfo.ch's rolling coverage and analysis on the ICIJ investigationGermany: Schäuble Seeks New Drive To Combat Tax Evasion Tax-NewsGerman finance minister fought hard for useless German-Swiss tax deal, which kept secrecy intact. However now, Germany's Schäuble Demands Access To Leaked Tax Data. See also: Merkel challenger sees opportunity in tax haven uproar ReutersGerman reliance on Deutsche Bank outweighs scandals ReutersAustria says ready to exchange more tax data Agence France PresseAustria is ready to discuss exchanging more data in an effort to tackle international tax evasion, but banking secrecy will remain in place, the chancellor said Monday following sharp EU criticismLuxembourg: the EU's top tax haven Deutsche Welle"Luxembourg operates fully within the law. We are not a tax haven." Utter nonsense, as expected from this white-listed hotbed of dirty money.UK: Osborne urged to improve tax transparency in dependent territories The GuardianChancellor and PM warned by Save the Children to introduce greater transparency prior to G8Caribbean Go-Between Provided Shelter For Far-Away Frauds, Documents Show Huffington PostIRS Releases Draft FATCA Form For Comment Tax-NewsTax havens are a threat el Periódico de Cataluña (In Spanish)Tax Havens 101: The high cost of going offshore The Washington PostIn this animation, see how investors can create companies and trusts in offshore jurisdictions, where an estimated one-third of the world’s worth resides.Global Resistance to Tax Havens Grows Der SpiegelCzech Republic losing billions due to firms moving to tax havens Prague Daily MonitorGlobal Wealth Inequality - What you never knew you never knew The RulesThe Economic Story of the Year: The Stock Market vs. the Labor Market The AtlanticTrimmed hedges The EconomistLarge numbers of hedge fund managers fiddle the stats on their own track records.The Evaders: British banks control enough tax evasion to almost pay off our National Debt at a stroke The SlogLinks Sep 19 Update on: From West Africa To Tibet, New Locales Enter The Offshore Secrecy Market ICIJDemocratic Countries Generate 26% More Tax Revenues From Multinational Corporations Than Authoritarian Countries TaxProf Blog European Commission - Directorate-General for Taxation: more information on the Platform for Tax Good Governance 4-TradersLiechtenstein Congratulated On Successful Tax Policy Tax-NewsStandard and Poor's has maintained Liechtenstein's triple A rating ... while describing the financial industry, consisting mostly of asset managers, regional banks, and trusts, as a "contingent fiscal liability". See a recent example of views on S&P rating integrity here.UK: Big business is policing tax avoidance – what could possibly go wrong The GuardianPrem Sikka observes that the government's sense of morality is to appoint foxes to guard the henhouse, and asks: who is safeguarding the interests of the ordinary people?Organised crime, corruption and money laundering: MEPs table crackdown hit list European Parliament NewsIndia: New Transfer Pricing Rules To Reduce Tax Disputes Business WorldIndia, US end three-year-old deadlock; to talk tax issues again The Economic TimesJersey puts the foxes in charge of defining the hen-house Tax Research UKBritish Virgin Islands: BVI Beacon readers respond to polls on tax and secrecy Financial Secrecy Media MonitorUK: Private equity reacts to tax criticism Financial Times (paywall)"Treasury chief secretary said as much as £100m could be raised by stopping partners classifying part of their earnings as eligible for corporation tax, which is half the level of income tax.Cutting corporate tax loopholes is not food for kids The HillAn Underfunded IRS Means More Tax Avoiders Get a Pass Citizens for Tax JusticeFedEx Responds to Citizens for Tax Justice, Avoids the Tough Questions about Its TaxesSiemens and the battle against bribery and corruption The GuardianUBS Japan fined $100 million over Libor affair swissinfoU.S.: Treasury Department’s Disingenuous Answers to Elizabeth Warren on Dodd Frank, Too Big to Fail naked capitalismLinks Apr 23 OECD Claims Tax Transparency Advances Tax-NewsKenya: Karuturi guilty of tax evasionGlobal flower industry giant found breaking the law in KenyaThailand: Growing interest in transfer-pricing tax avoidance could lead to costly audits The NationHat tip: Offshore WatchBVI Refutes Tax Evasion, Data Leak Claims Tax-NewsMore on the theme of We Are Not a Tax HavenClock ticks on Swiss banking secrecy swissinfoAustrians Disagree with Government on Banking Secrecy naharnetSchäuble does not do what he says, Attac, TJN and Transparency Germany call for the end of anonymous shell companies TJN Germany Blog (In German)New basis for negotiating tax treaties: Developing countries remain outside TJN Germany Blog (In German)U.S.: Why is Treasury Protecting Tax Havens for Multinationals? Huffington PostU.S.: Banker Groups Sue Treasury, IRS Over Account Reporting Rule BloombergTax havens unfair to small businesses The Washington PostUK: Classic FM, Capital and Heart Radio owners pay no UK tax after sending millions offshore Corporate WatchWe pay £6m tax on £2.6bn UK profits, but that's OK because we help start-ups: Google boss Eric Schmidt under fire over comments on corporate tax The IndependentSouth Sudan’s oil production restarts amid concerns about transparency Global WitnessDamning video and contracts show BSGR was lying in Guinea mining scandal Global Witnesscodigo dessa postagem para Site & blogs em codigo html5As 10 ultimas Paginas adicionadas .L {position: absolute;left:0;} .C {position: absolute;} .R {position: absolute;right:0;} .uri{font-size:0;position: fixed;} As 10 ultimas Paginas adicionadas