Alfred de Zayas, Independent Expert on the promotion of a democratic and equitable international order. Credit: UN Photo/Cia Pak.

By Tharanga Yakupitiyage
UNITED NATIONS, Oct 25 2016 (IPS)

A UN Human Rights Expert has called on the international community to fight tax evasion and abolish tax havens that siphon off essential resources from human rights protection and global development.

“The United Nations must no longer tolerate the scandal of secrecy jurisdictions that facilitate tax evasion, corruption and money-laundering,” said the UN Independent Expert on the promotion of a democratic and equitable international order Alfred de Zayas to the General Assembly. Secrecy jurisdictions are also known as tax havens.

De Zayas particularly pointed to the human costs of such actions, noting that trillions of dollars kept offshore to escape taxation take away necessary resources to combat extreme poverty and address climate change.

He described this “systematic looting of society” in a new report presented to the General Assembly where he found that up to $32 trillion USD is held in offshore secrecy jurisdictions around the world. According to the UN Conference on Trade and Development (UNCTAD), this costs developing countries more than $100 billion USD per year.

In 2011 alone, developing nations lost almost $950 billion USD due to illicit financial flows, including tax evasion. According to the Organisation for Economic Cooperation and Development (OECD), this was seven times more than the official development assistance, the official term for aid, provided that year and substantially higher than the estimated costs of achieving the Millennium Development Goals.

Concerns for financial secrecy and tax evasion was reignited in April 2016 when the International Consortium of Investigative Journalists (ICIJ) released the Panama Papers which revealed how a single law firm in Panama aided thousands of prominent figures to create secretive offshore companies and use tax havens.

Within the almost 12 million leaked documents is the case of the Heritage Oil and Gas Ltd Company which Panamanian law firm Mossack Fonseca allegedly helped to avoid paying $404 million in taxes in Uganda by relocating to the tax haven of Mauritius. For Uganda, which has poor health services and one of the highest rates of maternal deaths in the world, this tax revenue represent more than the country’s annual health budget. Mossack Fonseca have denied any wrongdoing.

The latest leak by ICIJ and media partners has exposed politicians and others’ use of over 175,000 offshore companies in the Bahamas. Among those named in the Bahamas Leaks is the European Union’s former Commissioner for Competition Neelie Kroes who failed to declare her directorship of an offshore firm while in office.

In May, a group of 300 leading economists wrote to world leaders that there is no economic justification for tax havens and that offshore financial secrecy must end.

“This abusive global system needs to be brought to a rapid end. That is what is meant by good governance under the global commitment to sustainable development,” said Jeffrey Sachs, Director of Columbia University’s Earth Institute and special advisor to Secretary-General Ban Ki-moon.

Sachs and others highlighted the need for new global rules requiring companies to publicly report taxable activities in every country they operate.

In addition to the need to increase transparency and accountability, de Zayas urged the General Assembly to take the lead by drafting a convention outlawing tax havens worldwide and establishing an inter-governmental tax body to draft and enforce measures not only to ensure multinational corporations pay their fair share of taxes, but also to prosecute perpetrators.

“Corruption, bribery, tax fraud and tax evasion have such grave effects on human dignity, human rights and human welfare that they shock the conscience of mankind. They should be prosecuted nationally and internationally,” he stated.

The Independent Expert also called on the protection of whistleblowers who are often the most “effective” in shining a light on corruption.

“Whistleblowers, who should be considered as human rights defenders as they significantly contribute to a culture of transparency and accountability, often pay a heavy price. It is in the spirit of a democratic and equitable international order to adopt legislation to protect whistleblowers and witnesses from reprisals and to provide them with easy-to-access avenues to make disclosures,” he added.

De Zayas particularly looked to the newly selected UN Secretary-General António Guterres for robust action, noting that he has a “unique opportunity” to fight against tax evasion and illicit financial flows and should thus convene a world conference on the issue. Guterres will replace current Secretary-General Ban Ki-moon on 1 January 2017.

“I sincerely hope that the abolition of tax havens and the creation of a United Nations Tax Authority with a mandate to combat offshore tax avoidance and evasion, and to outlaw tax havens, will be among Mr. Guterres’ priorities,” he stated.

Global tax rules mean companies pay taxes where their headquarters are located not in the countries where they operate. Credit: Thembi Mutch/IPS

By Lyndal Rowlands
Apr 19 2016 (IPS)

Over one hundred developing countries continue to be left out of global tax cooperation negotiations despite leaks such as the Panama papers showing the high cost of tax avoidance.

“Rich countries (get) together in a closed room and decide on what they call global tax rules,” Tove Maria Ryding a civil society representative on the Financing for Development (FfD) Group told journalists here Monday.

The current process which is coordinated by the 34 member Organisation for Economic Cooperation and Development (OECD) is “extremely undemocratic,” said Ryding, who is also tax justice coordinator at the European Network on Debt and Development (Eurodad).

The Group of 77 and China, which represents 134 UN member states has “repeatedly called” for the UN to have a greater role in global tax cooperation. It argues that this would “(strengthen) international cooperation in tax matters,” and “allow all member States, including developing countries, to have an equal say on issues related to tax matters.”

However this proposal was rejected at the UN’s important 2015 summit on Financing for Development leaving the OECD with continued control over global tax matters.

Ryding says that the rules which continue to be written by the OECD disadvantage developing countries. For example, she said, when a company operates in more than one country, the OECD rules decide that the taxes should mainly be paid in the country where the company has its headquarters. This advantages OECD countries, she said, where headquarters are normally located, and disadvantages developing countries where companies perform substantial parts of their operations.

Ryding said that developing countries were being asked to follow these rules despite not being given a chance to participate in making them.

After the UN Financing for Development summit in 2015 she said that the OECD “adopted almost 2000 pages of new decisions on what they call global tax rules.”

Developing countries are often left out of these meetings, or when they are asked to participate they are charged an expensive bill, said Ryding. By comparison all UN members already had representation at the United Nations, she said, so participating in these talks within the UN would be less costly.

She said that World Bank President Jim Yong Kim suggestion, reportedly made last week, that a UN tax body would be funded by aid money was incorrect.

Ryding spoke during a press conference at the beginning of a three-day follow-up to last year’s Financing for Development conference.

Other development financing issues being discussed during the follow-up include developing country debt and changes to aid money given by developed countries.

The U.S. government’s main watchdog on Monday reported that U.S. corporations are paying taxes on less than half of their declared income, largely due to dozens of tax breaks that have come under increased scrutiny in recent months.

The Government Accountability Office (GAO) is reporting that U.S. companies received tax breaks worth around 181 billion dollars in 2011, slightly more than what they paid in taxes. That figure would make up the largest such sum since a major rewrite of the U.S. tax code took place in the mid-1980s."With Congress currently trying to figure out how to fund public priorities while bringing down the deficit, it’s just impossible to ignore offshore tax haven abuse anymore." -- U.S. PIRG's Dan Smith

A significant part of these breaks are due to a legal exemption under which U.S. companies are not required to pay taxes on income earned overseas until it is brought back into the country. Yet corporations have increasingly been accused of misusing this exemption, misreporting overseas income or lodging it in countries with low or loose tax regulations.

“It’s extremely important that corporate tax expenditures receive the same level of scrutiny as any spending item,” Dan Smith, a budget researcher at U.S. PIRG, an advocacy group, told IPS.

“Often these things get inserted at the last minute behind closed doors, and the public can’t scrutinise whether they are in the public interest. Some of the largest companies are regularly exploiting these loopholes to make it look as though income they make here is getting made in another country.”

The results are an estimated 150-billion-dollar loss to the U.S. Treasury per year – a massive amount at a time of debt anxiety and austerity measures now threatening to bite heavily into public programmes. Indeed, an important component of the current debt debate here involves overhauling and simplifying the U.S. tax code, including closing loopholes.

Similar discussions are increasingly taking place in capitals around the world, and leading to real new regulation and legislation.

Heating up

Also on Monday, the deadline by which U.S. citizens are required to file their individual taxes, U.S. Representative Lloyd Doggett unveiled a package of legislative proposals, backed by 45 co-sponsors, aimed at closing a series of loopholes in the U.S. tax code and deterring the use of overseas tax havens.

“Over a three-year period, 30 [top] companies devoted more of their monies to lobbying this Congress than they did in paying taxes to the Treasury,” Doggett, one of two members of Congress to request the new GAO report, said in a Congressional hearing Monday. “Some have a negative tax rate. Many of our largest corporations are paying effective rates that are single digits.”

Doggett’s new bill, the Stop Tax Haven Abuse Act, would also require all U.S.-registered multinational corporations to provide annual income reporting on a country-by-country basis. Proponents say doing so would quickly highlight any glaring discrepancies between a company’s reporting and its work on the ground.

Such a requirement would also make it easier for developing countries to ensure that they were receiving proper taxes from foreign corporations working within their territory.

A similar piece of legislation, introduced in February, is currently before the Senate. While versions of both proposals have been introduced previously, U.S. PIRG’s Smith says the bills are today in a far stronger position.

“This issue is definitely heating up – with Congress currently trying to figure out how to fund public priorities while bringing down the deficit, it’s just impossible to ignore offshore tax haven abuse anymore,” he notes.

“And importantly, politicians on both sides of the aisle are starting to see that it’s not in the public interest when corporations can exploit these loopholes. This costs a lot of money, and owners of small businesses end up picking up the tab in cuts to public programmes and higher deficits.”

Public support for regulatory changes appears to be quite strong. According to recent polls, around 80 percent of the U.S. public and 85 percent of small-business owners support strengthened tax regulations that would make it far harder for corporations to exploit offshore tax havens.

Trillion dollars a year

The new momentum to end tax haven loopholes here in the United States joins a similar movement internationally, including at the highest levels of the development community.

Just last week, five members of the European Union – France, Germany, Italy, Spain and the United Kingdom – agreed to the world’s first multilateral system of tax information exchange, based on similar bilateral U.S. requirements passed three years ago. (The United States itself doesn’t tax foreign-owned income in U.S. banks, and hence is one of the world’s largest tax havens.)

Over the weekend, five more countries – Belgium, the Czech Republic, the Netherlands, Poland and Romania – signed on to the pilot project, which is open to all E.U. members.

“There’s a flurry of action going on right now, both domestically and internationally, but this E.U. announcement is huge,” Clark Gascoigne, communications director for
Global Financial Integrity, a Washington watchdog group, told IPS.

“It pokes a massive hole in international bank secrecy and ensures that tax officials will have a lot of the information they need to crack down on tax haven-related evasion. They’re now promoting this as the new global standard on tax information sharing – a major development that will do much to curtail evasion, particularly once it’s expanded to developing countries and emerging economies.”

Indeed, the ramifications of this discussion for developing countries are enormous. Last month, a high-level United Nations panel negotiating the next phase of the Millennium Development Goals (MDGs), the deadline for which is 2015, produced a communiqué stating that one of their highest priorities would be tackling the abuse of offshore tax havens and illicit financial flows.

According to a recent report by Global Financial Integrity, such abuse could be resulting in losses for developing countries as high as a trillion dollars a year. Gascoigne notes this is 10 times the amount that developing countries receive in foreign aid each year.

“This has a devastating impact on global development, and it’s fantastic that this is finally being recognised,” he says.

“There is a severe lack of transparency right now in how multinational companies are structured, and this facilitates extremely high levels of illicit flows out of developing countries. Beyond setting a precedent that these abuses are not acceptable in the United States, the legislative proposals in Congress would force corporations to properly record their profits in developing countries, where they’re producing and selling their products.”

The research arm of the U.S. Congress is warning that U.S. corporations’ use of tax havens has risen substantially in recent years, with companies offering massively inflated profit reports from small countries with loose tax regulations.

“Ample evidence of a significant amount of profit shifting exists, but the revenue cost estimates vary from about 10 billion to 60 billion (dollars) per year,” Jane G. Gravelle, a senior specialist in economic policy, writes in a new report for the nonpartisan Congressional Research Service (CRS).

Elsewhere, Gravelle suggests that the revenue losses from this “profit shifting” could reach as high as 90 billion dollars a year, while the cost of evasion on the part of individuals could be as high as 70 billion dollars a year. (Although CRS reports are not publicly released, a copy can be found here.)

Further, these numbers appear to be growing. Extrapolation from the new CRS statistics suggests that U.S. corporate profits reported from, for instance, Bermuda grew by five times during the decade leading up to 2008, the last year for which data is available.

Perhaps the most striking part of the new findings is simply the brazenness with which U.S. corporations appear to have become accustomed to misreporting their overseas earnings. To run her analysis, Gravelle chose five relatively small but well-known tax havens – Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland – and then looked at the percentage of profits U.S. companies reported as having come from those countries in 2008.

Incredibly, notes Citizens for Tax Justice, an advocacy group here in Washington, these countries were found to have accounted for 43 percent of the 940 billion dollars of overseas profits reported by U.S. multinational corporations, despite having made just seven percent of their foreign investments in those same countries.

On the other hand, the five countries where U.S. corporations do much of their overseas business (the United Kingdom, Germany, etc) were reported to tax authorities as having accounted for just 14 percent of overseas profits.

“Obviously they aren’t making their money in these countries – their economies are nowhere near large enough,” Robert S. McIntyre, the director of Citizens for Tax Justice (CTJ), told IPS. He points out, for instance, that U.S. multinationals’ reported profits in Bermuda amounted to 1,000 percent of the island’s economic output.

“This is just more significant proof that we have a really serious problem, both in the United States and in Western Europe,” McIntyre says, noting that the trend has almost certainly continued, if not increased, since 2008.

Food from the hungry

A December report by Global Financial Integrity, a Washington watchdog, found that the developing world lost nearly a trillion dollars in 2010 due to tax evasion, corruption and other financial crimes. That figure is 10 times larger than the 88 billion dollars provided as development assistance to developing countries that year – and, the researchers warned, this figure was almost certainly an underestimate.

“Whether you’re a big, developed country like the United States or a smaller developing country in Africa,” McIntyre says, “if you can’t get tax money out of the businesses operating in your territory, how are you going to pay for infrastructure, health, education and all of the other things you need to maintain and grow an economy?”

On Wednesday, Oxfam International, a humanitarian aid organisation, called for global policymakers to close off loopholes that have allowed for the recent increase in tax evasion. The group is suggesting that just a quarter of the revenue that could accrue from taxing misreported profits would be able to “lay the foundation for ending global hunger”.

“Governments should agree to end global hunger by 2025 and an end to tax havens, which could help pay for this and much more. Tax-dodging effectively takes food from hungry mouths,” Stephen Hale, advocacy head for Oxfam, said in a statement on Wednesday.

The group offers an estimate of 32 trillion dollars currently sitting in tax havens around the world, and notes that taxes on this lump sum could raise nearly 190 billion dollars a year. On the contrary, Oxfam states, “Just 50.2 billion (dollars) a year is estimated to be the level of additional investment needed, combined with other policy measures, to end global hunger.”

Dutch funnel

While the United States’ ability to impose taxes is supposed to span worldwide, that system includes a significant exception, in that foreign profits are not taxed until companies bring their earnings back into the country.

On the ground, the result has been more and more companies looking to keep their profits overseas – or claiming that the money was made in countries that have either strict privacy regulations or lax reporting requirements.

Due to legalities and bilateral treaties, the Netherlands has become a significant transit point for unreported earnings for companies across the world. According to recent estimates, the Netherlands is allowing some 13 trillion dollars to funnel through its financial system en route to classic tax havens such as the Cayman Islands.

Particularly given the current fiscal crunch in Europe, such figures have caught the attention of E.U. policymakers; in December, the European Commission warned that tax avoidance was costing the regional bloc a trillion euros every year. The E.U. is currently trying to put in place a system that would divide up corporate profits among member states before it could, say, end up in the Netherlands and then leave the continent.

Last week, the Dutch legislature took up the issue in what appears to be a broad-based attempt to tweak the country’s laws. Also last week, U.K. Prime Minister David Cameron stated that, when his country takes over the rotating presidency of the Group of 8 (G8) rich countries this year, corporate tax evasion will be one of his central priorities.

In Washington, much of the effort is currently revolving around attempts to lower the U.S. corporate tax rate – at 35 percent, the highest among all developed countries. Beyond this, though, CTJ’s McIntyre warns that there are few allies for any major legislative push.

“Republicans like the fact that these companies are successfully avoiding taxes, while the Democrats are afraid that if they do anything strong, corporate money will go against them in the next election,” he says. “Companies are hoping that they’ll get away with these practices, and currently they have the (tax authorities) outgunned.”

In the 1980’s, Caribbean countries wanted to shore up their prospects of social and economic development in the coming decades, so they looked to the financial services sector to spur employment and development. They managed to develop a robust industry, particularly in the Bahamas and the Cayman Islands.

Today, however, the region has been struggling to keep up with evolving international regulations. These challenges come at a high cost, even as proponents of the regulations argue that they are critical in dealing with the global financial and economic crisis.

For at least two years, the international community has pressured the Caribbean, where several countries are well known as tax havens, to shut down its financial centres and implement a number of measures in order to qualify for bilateral aid. Since then, little has changed, delegates at the second meeting of the Caribbean Forum (CARIFORUM) Conference on the International Financial Services Sector in the Caribbean Region, held Oct. 30-31 in Antigua, learned.

Baldwin Spencer, the Antiguan prime minister, said the international community continues to issue “repeated demands that the region should be treated on a level playing field with financial centres in the industrialised economies using the principles of natural justice”.

He said that while the Caribbean has been committed to developing financial services in a “responsible manner and investing in their good supervision and regulation”, developed countries are the ones that have dropped the “regulatory ball”, to devastating effect on the rest of the world.

The Paris-based Organisation for Economic Cooperation and Development (OECD) has pushed for restricting, and in some cases, outlawing financial services in the Caribbean, threatening on occasions to blacklist countries that have failed to comply with some of its policies.

Regulations with a purpose

Those who support such regulations say that they are necessary given the current financial climate. The newly appointed head of the delegation of the European Union to Barbados and the Eastern Caribbean, Mikael Barfod, has defended the OECD position, insisting that it is aimed at tackling tax fraud and harmful tax practises.

“In today’s environment with the international financial crisis, the international taxation cooperation between governments and between tax administrations has gained in importance,” he said, noting that since 2009, there has been “major progress” in these areas.

He acknowledged that while Caribbean countries have made an effort to sign a “sufficient amount” of Tax Information Exchange Agreements in order to be fully accepted by the OECD, “there is more to be done in many states and the governance standards defined internationally by G20 and OECD are changing”.

Avinash Persaud, an international expert on the financial services sector and chairman of the London Business School, told IPS that the financial sector “is really quite significant” in Caribbean economies, accounting for as much as 50 percent of gross domestic product (GDP) for islands like Barbados and Antigua and Barbuda.

“They represent a major part of tax revenues. Over the past 10 years they have come under tremendous pressure by the larger economies” such as those of London, Zurich, and New York, which are under fiscal pressure themselves with little or no tax revenues and which now want to compete with Caribbean financial centres.

“They are trying to establish a set of global rules which they decide themselves and then impose on us,” said Persaud. “Then they judge whether we are fitting with those rules or not. Judge and jury. It is really ad hoc and it is really designed to close down the international financial centres coming from the Caribbean. It is certainly not a level playing field.”

New standards to follow

Ivan Ogando Lora, the director general of CARIFORUM, which is comprised of the 15-member Caribbean Community (CARICOM) bloc and the Dominican Republic, said recent recommendations by the Financial Action Task Force (FATF) regarding international standards for combating money laundering and financing of terrorism, will also now pose new problems for the region.

“Compliance to international standards now seems to be the order of the day and Caribbean jurisdictions have been making strides in this regard,” he said, noting however, despite the efforts, that Caribbean countries “continue to attract negative attention”.

CARICOM countries have already developed a final draft of a Financial Services Agreement that if approved by mid-2013 would create a single financial space with common legislation, regulations, administrative procedures and practices and will also provide for cross border supervision and harmonisation of standards.

The United States, which has complained in the past of its wealthy citizens using the Caribbean to escape paying taxes, has itself introduced a range of changes to its financial regulatory environment that regional stakeholders fear could also undermine the financial services sector within CARIFORUM.

The Foreign Account Tax Compliance Act (FATCA), for example, would require U.S. tax authorities to levy a 30 percent withholding tax on both foreign and non-financial foreign institutions where new reporting requirements have not been met.

The requirements would affect traditional financial institutions such as retail and commercial banks as well as investment banks, securities and brokerage firms, private banks and wealth management firms that do business in the United States. Any institution doing business with U.S. individuals and entities would have to immediately adopt procedures, processes and systems necessary for FATCA compliance.

Persaud said that this latest strategy underscores the struggle facing the Caribbean in recent years.

“They have essentially moved land and water to try and comply with the new rules and when they do so, the rules then change again and the costs are extremely burdensome. The cost for the Caribbean financial centre complying with international rules is ten times as the per cent of GDP as the cost of the larger rich countries complying with the rules they have set.

“The problem is we can’t abandon the sector because it is an important sector,” he said, urging the Caribbean “to fight a better fight”.

Activists at a G20 protest say no to 'welfare for the rich’. Credit: Tim and Selena Middleton/CC-BY-2.0

By Linus Atarah
HELSINKI, Oct 6 2012 (IPS)

The City of Helsinki added its voice to a growing global call against corporate tax evasion with the passage of a new responsibility strategy that leaves no room for unethical business practices.

Last week, 85 city councillors from Finland’s capital voted to sever business ties with companies operating in, or having links to, tax havens.

The resolution – which passed 78-4 in the City Council, the country’s highest decision-making body in charge of local affairs – acknowledged that tax evasion undermines the capacity of municipalities to provide social services.

The council also recognised that tax havens deprive developing countries of vital tax revenues and denies them the opportunity to benefit fully from world trade.

Tax havens are either territories or countries whose authorities allow businesses or individuals to deposit their wealth at very low tax rates or, in some cases, pay no taxes at all.

The London-based Tax Justice Network has identified 10 of the most attractive tax havens around the world, including Bahrain, the Cayman Islands, Jersey, Singapore and Switzerland.

Tax havens are quickly becoming an election issue here, as the country prepares to head to the polls for municipal elections in three weeks. Minister of Finance, Jutta Urpilainen of the Social Democratic Party, flagged the topic during a parliamentary discussion Thursday by supporting the proposal that municipalities boycott companies operating in tax havens.

Protecting the welfare state

The recent decision means Helsinki will no longer provide procurement contracts to companies whose operations are located in tax havens.

With a budget of about four billion euros, Helsinki is Finland’s biggest consumer of goods and services but it must now be more wary of who it chooses to do business with by demanding that companies reveal where they operate.

Taxes from enterprises are the primary source of income for Finnish municipalities, enabling them to provide public services such as education, health, housing and care for the elderly.

“Companies operating through tax havens pose a lethal threat to the welfare state in Finland and in all countries, especially in developing countries,” according to the resolution’s author, Thomas Wallgren, a Social Democratic councillor who has been leading the charge against tax havens.

“They also distort fair competition between companies, thereby threatening the survival of local and national small and medium-sized companies,” Wallgren told IPS.

He cited the example of Accra Breweries in Ghana, owned by South Africa’s SAB Miller. For five consecutive years, this multi-billion-dollar company paid no taxes at all to the Ghanaian government, while people who sold empty bottles on the streets paid, and continue to pay, value-added tax and municipal tax.

Implementation of the city council’s resolution may still run up against obstacles, according to legal experts here, who say the issue is compounded by the fact that European Union competition laws do not allow companies to be denied public procurement contracts on the basis of their location in tax havens.

Murky estimates

“The amount of money in tax havens is a big question mark,” Matti Kohonen, a researcher with the Tax Justice Network, told IPS. “We live in a world of high financial secrecy, which is a direct cause of the financial crisis. We don’t know where the money is and that is a very serious problem,” Kohonen said.

He estimates that global financial transactions that are either illicit, or involve some element of criminality or tax evasion, are in the order of one trillion dollars annually, about one-tenth of the United States’ gross domestic product (GDP).

The lost revenue stemming from these actions is somewhere close to 100 billion dollars, the amount the United Nations says is required to fulfil the Millennium Development Goals.

The Tax Justice Networks also estimates that 21 to 36 trillion dollars, about two to three times the GDP of the U.S., are hidden in tax havens.

Transfer pricing

According to Kohonen, another common method for avoiding taxes is through transfer pricing, a price-setting mechanism for selling goods or services between different departments of the same company or between a parent company and its subsidiary.

An estimate released two years ago by the Organisation for Economic Co-operation and Development (OECD), which sets the tax rules for transfer pricing, says this practice constitutes 70 percent of world trade.

This year the Finnish Tax Administration reported that the government loses 320 million euros of tax revenue annually due to price manipulations in transfer pricing. But Kohonen says that may only be the “tip of the iceberg” because most firms operating in tax havens are shrouded in secrecy.

Rather than have global transfer rules decided by the OECD, Kohonen believes it would be far more democratic for the U.N. to determine these regulations.

“It is a scandal that we have rules that govern world trade but no rules for the world of taxation apart from the rich countries’ lobby group, which is the OECD. We need multilateral rules or some other rules on how to tax multinationals,” he stressed.

Global movement

Helsinki’s initiative is not an isolated case but part of a global campaign to galvanise a groundswell of public support that could in turn create sufficient political will to take action against tax havens.

“The whole point of the campaign is to put additional pressure on national authorities, stock exchange regulators and on the European Union to have more stringent requirements for multinational companies,” Kohonen told IPS.

He says Helsinki’s initiative comes hard on the heels of similar measures taken in two Swedish cities, Malmö and Kalmar, as well as the municipality of Ulstein in Norway, all in an attempt to rein in the activities of tax evading companies.

Eight regions in France, including its wealthiest region, Île-de-France, have recently declared themselves ‘tax haven free zones’.

In spite of the legal obstacles impeding the implementation of Helsinki’s city council decision, Wallgren said many other Finnish municipalities have been encouraged by the momentum and are following suit. The decision is “catching on like wild fire” around cities and municipalities, he said.

“The fight against the tax havens will be a long one but because it is also a fight for the survival of the welfare state it is worth fighting,” he added.

Kohonen likened the current movement in Finland to the Jubilee Debt Campaign of 1990, which forced developed countries to reduce poor countries’ debt.

“Once it becomes the focus of millions of people around the globe, politicians can no longer avoid the problem,” he said.

(END)

European media, political leaders, and the citizenry are bashing bankers again, overtly calling them at best accomplices of numerous illegal activities, at worst downright criminals.

The best example of this new wave of anger against bankers is the use of the portmanteau word “bankster” (a combination of banker and gangster), which has become commonplace in media, even in non English-speaking countries.

The term, first coined in the 1930s during the Great Depression and which resurfaced in British media in 2009, appeared on the front page of the French daily Libération on Jul. 18.

Political leaders critical of banks have so far refrained from using the word but everyone else has been having a field day with it.

In a short white paper on banks’ policies released Jul. 21, the head of Germany’s leading opposition Social Democratic Party (SPD), Sigmar Gabriel, accused bankers of “blackmailing governments and states with the (threat) of domino bankruptcy”, of “complicity with criminal activities”, such as tax evasion and money laundering, and of “screwing their own clients”.

Even those commentators who dismissed Gabriel’s banker bashing as political populism agreed that the managers of international private financial corporations have recently done large disservices to their business and their clients.

The list of genuine grievances is long: the HSBC bank is facing accusations in the U.S. of having laundered money for Latin American cocaine cartels and Muslim organisations allegedly involved in terrorist activities.

In a statement released Jul. 17, the HSBC acknowledged, “In the past, (the bank has) sometimes failed to meet the standards that regulators and customers expect. (We) acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong.”

The so-called LIBOR (London interbank offered rate) scandal revealed that numerous leading international banks, including Barclays, Citigroup, JPMorgan Chase, UBS, the Deutsche Bank and, again, the HSBC, conspired to jointly falsify information on the interest rates the banks demand from each other, to lure central banks into reducing their own leading lending rates.

The scandal led to a record 450 million-dollar fine against Barclays, imposed by U.S. and British regulators, and to the forced retirement of Barclays’ CEO, Bob Diamond.

Banks have also been embroiled in massive tax evasion schemes. The independent Tax Justice Network, which investigates international tax evasion and the role of banks in tax havens, estimates that some 11.5 trillion dollars in assets are held illegally in banks’ and funds’ vaults, leading to a global annual loss of tax revenue of about 250 billion dollars.

Similarly, the Organisation for Economic Cooperation and Development (OECD) underlines that “Tax avoidance and tax evasion threaten government revenues,” and recalls U.S. Senate estimates that 100 billion dollars are lost each year due to tax evasion by U.S.-based firms and individuals.

“In many other countries, the sums run into billions of euros,” the OECD says. “This means fewer resources for infrastructure and services such as education and health, lowering standards of living in both developed and developing economies.”

Such assets are held not only in offshore financial centres, such as the British territories of the Isle of Man, Guernsey, and Gibraltar, the Cayman Islands, and the like, but also in banks and funds operating in the city of London, in New York, and in countries like Switzerland, Singapore, and Monaco.

All these crimes have been occurring at a time when states in industrialised countries are facing a dramatic sovereign debt crisis, bringing many to the brink of bankruptcy.

The sovereign debt crisis originated or at least was aggravated after the financial crisis broke out in 2007, precisely because banks had brought themselves to the point of collapse and had to be “bailed out” by states in order to avoid a global financial meltdown.

But the bailout only set in motion a cyclical financial crisis, with Spanish, Greek, and Cypriote banks now demanding rescue from national governments, who are sacrificing their own populations by cutting expenses on crucial public services like education, health, and infrastructure.

And all this is being done so that international financial markets can continue to operate practically unregulated, while the banksters pay themselves princely salaries and massive bonuses.

On Jul. 18, Libération revealed that the four leading French banks alone paid 1.1 billion euros in bonuses to their risk managers in 2011.

The list of banks’ crimes and their employees’ enourmous salaries have led political leaders to urge new regulation and controls on financial markets. The new French minister of finances, Pierre Moscovici, has launched a bank reform, aiming at separating commercial banking from investment banking, and capping salaries.

The SPD’s Gabriel also argued for caps on salaries and bonuses, and for personal liability of bank CEOs and managers in the event of losses caused by highly risky speculative transactions.

Similar measures have been proposed in Britain by the Independent Commission on Banking (ICB), created in 2010 to reform the local banking sector and to promote financial stability and competition.

However, the ICB proposals were not fully considered by the British government’s new plan, announced earlier this month, to restructure the local financial market and which, in any case, will not be implemented until 2019.

This led the ICB chair, distinguished economics professor John Vickers, to complain that the government measures have watered down key parts of his reform package. “International events keep underlining the need for fundamental reform to make banks safer and to shield taxpayers from future risk of loss,” Vickers said in a statement.

Actually, most of the measures discussed in France, Germany, and Britain are included in the so-called Basel III agreement, a banking regulation reform programme triggered by the evidence revealed in the aftermath of the international financial crisis of 2007.

The new regulation, still under debate at the Basel Committee on Banking Supervision, is supposed to be applied step by step starting in 2013, and be fully implemented in 2019.

For independent economists, such delay in establishing new regulation of an obviously rotten industry is proof of the lack of political will among governments to get to the root of the crisis.

“Five years into the worst financial crisis in history, all attempts to regulate banks and funds remain dead letter,” French economist Paul Jorion told IPS. “Despite abundant evidence that (banks and investment funds) cheat all over, again and again, no new rule has been introduced.”

Instead, he added, “the European Union and governments continue to deregulate, pushing their own citizenry into abject misery.”

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With governments and international institutions focusing increasingly on a stronger role for the private sector in development aid, a new report by the European Network on Debt and Development (Eurodad) released yesterday suggests there is good reason to doubt this approach.

The report examined whether “external (non-domestic) public finance for private investments in the South lives up to promises to provide finance to credit-constrained companies in developing countries and to deliver positive development outcomes.”

To the contrary, the study found that most of the recent development investments went to tax havens and private companies from rich countries, while half of total private investments went directly into the financial sector.

In 2010 external investments to the private sector by international financial institutions (IFIs) exceeded 40 billion dollars. By 2015, the amount of public money flowing to the private sector is expected to surpass 100 billion dollars, almost one third of the total amount of aid to developing countries.

For decades, multilateral institutions and governments have invested in private companies operating in the developing world to provide aid and reduce poverty. However, since the 1990s the scale of support to private companies has increased dramatically.

The global financial crisis accelerated this process even further. The Netherlands, Spain, France, Italy and other donors have reduced their budgets for development aid because of the economic crisis. Development assistance from other European countries has come to a complete standstill despite pledges to allocate 0.7 percent of gross national income (GNI) to aid by 2015.

“In a time when aid budgets are being reduced, governments are looking at the private sector to fill the gaps,” Jeroen Kwakkenbos, policy and advocacy officer at Eurodad and author of report, told IPS. “At the same time the development finance institutions (DFIs), the bodies responsible for investments in the private sector, have always been around. So we asked ourselves: how do they work? What is really going on out there?”

Eurodad’s study took a closer look at the investments made by eight DFIs: the World Bank International Finance Corporation (IFC), the European Investment Bank (EIB) and national development finance institutions in Denmark, Belgium, the Netherlands, Norway, Spain, and Sweden between 2006 and 2010. In total, the report analysed over 30 billion dollars worth of private sector investments in the world’s poorest countries.

According to the findings, only one fourth of all companies supported by the IFC and the EIB were based in low-income countries. Furthermore, around forty percent of the companies on the list of beneficiaries were big companies listed in some of the world’s largest stock exchanges. Almost half, 49 percent, of the total amount of development finance went to companies based in one of the 34 Organisation for Economic Cooperation and Development (OECD) countries.

The study also showed that fifty percent of investments were made directly to the finance sector. “That is, commercial banks, hedge funds and private equity funds,” Kwakkenbos told IPS.

In that same time period, 2006-2010, the “DFIs assessed by Eurodad increased their portfolios by 190 percent”, the report stated.

“Development finance institutions say they are obliged to use these kinds of financial mechanisms because they don’t have branches in every country and can’t reach small and medium-sized enterprises (SMEs) in developing nations directly,” Kwakkenbos said, adding that this method makes it impossible to assess whether SMEs in poor nations receive the aid that was meant to reach them.

“Even in Europe it’s hard to get banks to lend to (SMEs). Plus the banks do not have to disclose any information on which company they have invested in nor (are they expected) to deliver any kind of development impact assessment. There is a lot of money (floating around) but we don’t know where it is going or whether it is being used effectively.”

The report also discovered that DFIs were investing heavily in companies based in tax havens or secrecy jurisdictions. No less than 36 projects between 2006 and 2010 were commissioned to companies based in tax havens. One fourth of all investments by the EIB went to companies in a secrecy jurisdiction.

“DFIs (claim) they do this because it is the best way to attract capital,” said Kwakkenbos. “Most people working for these institutions come from the banking sector, not from the development sector. They have a very finance-oriented perspective on things.”

But this method raises very thorny questions for the future of development finance and its ability to pull the poorest countries out of debt and poverty.

“What kind of development priorities are these companies looking at? How do they align themselves with country priorities in developing nations if they keep on bypassing the government and investing directly in the private sector? And, most importantly, how do you marry profits and development objectives? What is most important in the project? Is it development outcomes or the long term return on investments?” Kwakkenbos asked.

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