Why Britain is still the world's money laundering centre

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From Rowan Bosworth-Davies, a voice of authority on financial crime, commenting on the excellent offshore investigations by the International Consortium of Investigative Journalists, together with the Guardian and the BBC:

All in all, it was a very grubby tale of greed and as blatant a piece of criminal law-breaking as you could expect. In one scene, a corporate services provider proposed that he would invite a local bank officer to come to a meeting in his offices to meet the purported launderer, and complete the banking formalities. Easier than going to the bank, was how he put it.
What made it all so acutely depressing was that there was no evidence that HMRC had ever prosecuted any of the corporate services providers under their supervision, for any breaches of the Money laundering Regulations, or indeed for straight-forward money laundering itself.

And then some colourful but apt further commentary:

The real problem in all of this is that the Money Laundering Regulations have never been properly policed, and never effectively enforced. That is where the answer to money laundering interdiction lies, in the enforcement of the Regs, but why will no-one, absolutely fucking no-one, step up and take the lead on this?

Bosworth-Davies, a former detective with many years' experience fighting financial crimes, notes that the UK's Financial Services Authority (FSA)

"have consistently refused to accept their Parliamentary responsibilities to enforce the Money Laundering law within the financial sector. HMRC cover another sector, and other agencies have input, but absolutely nothing gets done, and eventually the industry realises that there is no point bothering with a compliance regime because no-one enforces it.
I have been forced to come to the conclusion that Government does not really want the AML [Anti Money Laundering] laws to be enforced - they cannot do so, because they spend such little time and effort insisting on enforcement. . . . in practice, just keeping their noses out of the issue, for fear that too much regulation and compliance with international laws might mean putting off some of the slew of dirty money that is constantly flowing around the world looking for a safe haven, from coming to the UK."

For anyone who has even just dipped into Treasure Islands, they will see how true this is. This is the business model.

"we might as well fill our coffers with the profits from the drug trade and other people's tax evasion, and as long as we pay lip-service to the FATF guidelines, and make sure that we don't get put on some nasty blacklist (which we won't because we make sure we are well-represented at FATF meetings), and as long as we keep pointing the finger of non-compliance at Iran or Pakistan or wherever, we will get away with it."

So very unpleasantly true. And there is much more in there, well worth reading.

See our earlier blog on the issue, here.

Unpicking the illogic in Switzerland's "White Money" strategy

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Switzerland, now recognising that its poisonous "Rubik" spoiler strategy to protect financial secrecy is dying, has rapidly swiveled its position, and its politicians and bankers are now pushing hard for what is being calling a "White Money" (Weissgeld) strategy to try and persuade other countries to go easy on the secrecy that it provides (the strategy isn't new, but the renewed emphasis seems to be, on our interpretation). The clear and regular message now is 'don't worry about our secrecy: we're going to take care of this ourselves.' Trust us.

Now who could argue against a "White Money" strategy for Swiss banks? Not us, certainly. Unless, of course, that label is merely a fig leaf: a dose of reassuring Alpine spin layered over a world of business as usual.

So which is it? Alpine spin, or real change?

Start with this headline from a Swiss online newspaper, which reflects the thrust of a number of articles currently out there. Tax evaders become pariahs for Credit Suisse. The mighty Swiss bank is going to be turning away tax evaders from its doors, apparently:

Credit Suisse does not intend to allow tax evaders to remain on as clients, he stressed. If potential clients refuse to report their assets to the tax authorities in their countries, "the bank will clearly tell them that it does not want their business," Rohner said, adding that the bank would also ask existing clients to leave if they did not declare their assets.

It sounds good, but consider the first problem. What happens when the "client" is, say, a Liechtenstein foundation or a (more Anglo-Saxon-style) discretionary trust? Under Swiss rules, there is literally no beneficial owner at all for these structures. Germans who stash money in these things -- which are bread and butter structures for the tax evasion industry -- place themselves firmly outside the scope of legislation that is supposed to relate to Germans. These assets are not, from the Swiss banks' perspective, "German." They are, to be precise, legally "ownerless", even if ultimately some Germans have the power to enjoy the income. (For a further explanation of the slippery nature of these structures, see Section 3.1 here). So if this money has no owner, who is going to declare it to their tax authority? Nobody: ownerless money doesn't have a home tax authority. That is, of course, the whole point.

But one can go a lot further than this.

Consider how, exactly, the Swiss banks are supposed to refuse tax evaders (who haven't made their assets 'ownerless' as above.) Look at this, from Suddeutsche Zeitung (translated here):

"Not all banks go so far. Especially smaller private banks are balking at a self-declaration, and they are supported by the Swiss Bankers Association. According to the trade association, this system [self declaration] does not exist anywhere else in the world. It also offers no guarantee against new black money. If someone is prepared to deceive their own tax offices, then it will not be hard for them to lie to the bank. The banks have to take the information provided by their customers at face value: they cannot, may not and should not check the declarations."

That bit in bold is key. And this brings us to the following wonderful piece of logic.
Take a European tax evader with assets in a Swiss bank. Under the European Savings Tax Directive, they have two options: either they submit to the 'declaration' option whereby information about their income will be transmitted automatically to the home country's tax evader, or they choose the 'withholding tax' option, where tax is withheld but their identity is kept secret from their home tax authorities.

Consider each option in turn. First, if the client opts for 'declaration' under the current system, then the 'self declaration' described by Credit Suisse is quite pointless. They are already declaring.
As for the 'withholding' option, consider this. What client is going to want to declare their income to their home tax authorities (and hence be taxed) - then get the Swiss bank to withhold taxes on it? What ever would the point of that be? If you choose the information exchange option, you don't get the taxes withheld.  So you would certainly not do this for tax reasons, and you would not do it for non-tax confidentiality reasons either: the client has already declared that they have broken confidentiality by self-declaring.

To conclude: if you see Switzerland subsequently handing over any money to Germany from this withholding tax option, you will know that the white money strategy is a hoax.
So what ever could the point of this white money strategy be?

Not a whitewash, surely!

If Switzerland were serious about having 'white money' in its banks, the solution would be very simple indeed: sign up for full automatic information exchange under the EU Savings Tax Directive.
And why not renounce banking secrecy while they are at it? Then we can start talking about white money.

John Kay in the FT supports unitary taxation

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Following Prof. Sol Picciotto's and Nicholas Shaxson's comment piece in the Financial Times, the newspaper's regular columnist John Kay has followed it up with some commentary of his own.

Among other things, he takes to task the notion that tax competition is good:

There is an argument that low rates of corporation tax are one enticement a business friendly government can use to attract economic activity from other jurisdictions, and that such tax competition is beneficial. I am not sure this argument is very strong – the outcome is a beggar-my-neighbour process in which the winning country’s gain is necessarily smaller than its rival’s loss.

He then looks at the case of U.S. states which successfully implement what he calls 'profit apportionment' - a much nicer and more instructive term than the tax profession's term 'formulary apportionment - noting how lobbying by British multinationals in particular helped constrain the use of unitary taxation.

"Instead of attempting to estimate what fraction of a company’s total profit was earned in California and what amount in Wyoming, apportionment states taxed corporations on a share of their aggregate US profits corresponding to the share of their total US activity that took place in the state."

And his brief conclusion:

"Well conceived apportionment is the best – perhaps only – answer to the problem presented by multiple company tax jurisdictions."

Quite so. 

Calls for reform of Britain's 'last rotten borough'

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Latest news: The Guardian has just posted this article with more details about those attending today's event.

An extraordinary coalition of activists, business leaders and politicians meets in London today to call for comprehensive reform of the City of London Corporation.  The newly created City Reform Group wants to radically overhaul the electoral processes of what is widely known as Britain's last rotten borough. CRG also requires a far higher standard of transparency of the Corporation's opaque and somewhat sinister finances, above all the so-called 'City Cash', which looks to outsiders like a slush fund for dodgy lobbying.



For those unfamilar with the political arrangements of Britain's state within a state, the City of London Corporation has survived for over a millenia, resisting each and every attempt at political reform, and using its financial and military muscle (yes, it still has its own militia and police force) to protect its special interests.

Behind the veneer of medeival pageantry and grotesque flummery, however, lies a powerful set of vested interests, which sees its role as projecting an economic model of de-regulated finance and economic liberalism across the world.  Read Ingrid Hauge Johansen's exposé of the extraordinary activities of the City's Lord Mayor, who carries the flag for this failed economic model to all corners of the globe.

For a wider exploration of the City's historical background and unaccountable powers read the penultimate chapter of Nick Shaxson's fascinating book, Treasure Islands: Tax Havens and the Men Who Stole the World.  If you have any doubts about the malignant power of the City and its political wing, this book will dispel them.

The newly formed City Reform Group, which meets today at Spitalfields in the City centre, plans to push for reform from within the Corporation by securing pledges from candidates for the Corporation elections in March 2013 to promote a wide series of reforms.

TJN supports the CRG's calls for reform, indeed we have been publicly calling for reform for several years and debated the need for reform with senior Corporation officials on the steps of Saint Paul's Cathedral.  But we won't be holding our breath: too many of the voters (which includes banks and other financial businesses) have a vested interest in the status quo, and history tells us that the Corporation is perfectly capable of outliving those who oppose it. Reform won't come from within; it will need to be imposed by Parliament.

Britain's leading aid agencies unite to tackle tax havens

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The Guardian is carrying the following letter in today's edition:

• The Guardian's investigation into offshore secrecy highlights a significant problem that is global in its impact. Developing countries lose vital resources for development through illicit capital flight, to such an extent that Africa is actually a net creditor to the rest of the world. Ending financial secrecy to expose corruption and tax dodging that hurts the poorest countries is a vital step in changing this reality: and that action must be global. We need a new international agreement to end the corporate anonymity and tax haven secrecy you have revealed. The prime minister has promised action at the G8, and our organisations will be working together next year to help make this happen. We are long overdue an end to the secrecy that denies resources to those in hunger and poverty.
Brendan Cox Director of policy and advocacy, Save the Children
Christine Allen Director of policy and public affairs, Christian Aid
Neil Thorns Director of advocacy, Cafod
Max Lawson Head of policy and advocacy, Oxfam
Paul Cook Advocacy director, Tearfund
Beverley Duckworth Policy, advocacy and campaigns director, Action Aid
Mariana Merelo Lobo Director of operations, Action Against Hunger UK
Glen Tarman Head of policy and advocacy, Bond
Adrian Lovett Europe executive director, One
Sol Oyuela Senior UK political adviser, Christian Aid

TJN is thrilled to have such a widely based support.  Will the Prime Minister now get with the programme?

Links Nov 28

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The UK's approach has attracted many post-Soviet billionaires, including some on the run Guardian
Nov 27 - Continuing the Offshore Secrets series (blogged here), noting that use of BVI entities to disguise Russian movement of funds into Britain appears to be widespread. See also, highlighting the New Zealand connection: At Least Half of the 21,500 Companies Revealed by the Guardian/ICIJ Offshore Investigation Have Connections With Rogue Agent GT Group naked capitalism

Treasury to crack down on UK’s offshore tax havens BVI news
Nov 26 - Interesting to read, in the British Virgin Islands press, this story on "Radical plans to force the UK’s tax havens to reveal the names behind hidden companies, account holders and trusts have been drawn up by the Treasury."

See also:
UK clampdown on ‘tax havens’? Isle of Man Today
Nov 28 - "Another dark cloud is looming on the horizon for the island’s finance sector with the UK poised to introduce more regulation aimed at clamping down on tax avoidance."

Indebted Caribbean tax havens look to tax foreign investors The Christian Science Monitor
Nov 26 - Industry analysts say new fees and taxes could bring in needed money to a region where some debts are near that of Greece. But could they scare off investors?

Tax avoidance: time for a FairTax logo to reward the good guys Guardian
Nov 27 - "HM Revenue & Customs will never name and shame tax avoiders so what about a FairTrade-style labelling system to reward those who can pay and will pay."

CEO Council Demands Cuts To Poor, Elderly While Reaping Billions In Government Contracts, Tax Breaks Huffington Post
Nov 25 - More on a story linked previously. "The companies represented by executives working with the Campaign To Fix The Debt have received trillions in federal war contracts, subsidies and bailouts, as well as specialized tax breaks and loopholes that virtually eliminate the companies' tax bills."

We have the power to change the rules Al Jazeera
Nov 28 - On how "Tax havens are are allowing a "tiny global elite" to "extract trillions of dollars" from rich and poor countries alike." And expressing beautifully: "Frederick Douglass, a leader of the 19th century abolitionist movement which brought an end to slavery, once said, 'Power concedes nothing without a demand'. If we want to change rules that have been written by the few and for the few, we must look outside existing power structures to the power of the many. We know from history that when people demand their rights, they can move mountains and change whole systems. Right now, there is a special moment of opportunity."

Two-thirds of millionaires left Britain to avoid 50p tax rate.

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Or at least that's the headline in the UK's Telegraph newspaper. The Telegraph is often a very good newspaper, and this story is clearly going to get a lot of attention.

But this time, it has completely misunderstood the data.

Read this comprehensive demolition of the Telegraph story by TJN's Senior Adviser, aptly entitled The Telegraph’s claim that all the rich have run away because of 50p tax is completely bogus.

Did it not occur to this journalist that if most of Britain's rich people had left the country overnight, someone might have noticed?

Links Nov 29

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UK May Plan FATCA-Style Regime For Dependencies Tax-News
Nov 29 - "Britain’s overseas territories, including the Crown Dependencies, the British Virgin Islands and the Cayman Islands, are expected to meet UK Government officials imminently to discuss the possibility of their exchanging more information with the UK, in the wake of a report that the UK is seeking to impose its own version of the US Foreign Account Tax Compliance Act on them."

Shipwreck in tax dispute - now sustainable solutions are in demand TJN Germany Blog
Nov 24 - Bringing you the press release of our colleagues from Alliance Sud and the Berne Declaration on the collapse of the Swiss/German tax deal.

Monti Cool On Italo-Swiss Tax Agreement Tax-News
Nov 29 - "Following recent indications by both governments that the tax treaty currently being negotiated between Italy and Switzerland could be ready by the end of this year, the Italian Premier Mario Monti and the Undersecretary for the Economy Vieri Ceriani have underlined that the talks still have some way to go ... any suggestion that Italian depositors in Switzerland should remain anonymous could be a sticking point."

Prosecutors raid German UniCredit unit in tax probe Reuters
Nov 29 - "State prosecutors raided the Munich offices of UniCredit SpA's [Italian banking group] German unit HVB as part of a tax evasion probe relating to share deals several years ago."

Italian tax probe says Google failed to declare £240m income Telegraph
Nov 28 - "Google's Italian arm has failed to declare income of €240m and pay VAT of €96m, according to a probe by Italian tax authorities, which the technology giant strongly denies."

See also:
Google Joins Apple in Drawing French Tax Collectors’ Ire Bloomberg
Nov 27 - "In what may be Europe’s first such effort, President Francois Hollande’s government says it will look into changing laws next year that will block the ability of online companies to pay levies on French earnings in European countries with lower tax rates.”

Buffett Says U.S. Businesses Haven’t Been Hurt by Taxes Bloomberg
Nov 28 - Warren Buffett said "Corporate taxes have not been a problem for corporate America ... The biggest beneficiary of reductions in tax rates in the last 30 or 40 years has been corporations, and the biggest increase has been in the payroll tax."

Secrecy for Sale: Inside the Global Offshore Money Maze - Nominee Directors Linked to Intelligence, Military ICIJ
Nov 28 - "A number of so-called nominee directors of companies registered in the British Virgin Islands (BVI) have connections to military or intelligence activities, an investigation has revealed."

Offshore secrets: government refuses to act on disclosures Guardian
Nov 28 - "UK Land Registry allows buyers to conceal identities by recording anonymous offshore entity as the purchaser."

Tax and the offshore industry: when bad money drives out good Guardian
Nov - "The stories that have been turned up in the course of the Guardian's investigation this week into Britain's offshore tax-avoidance industry have been jaw-dropping sometimes, but they underline one point: tax avoidance may well be an issue that nearly all developed countries are now trying to tackle – but Britain is at the extremes of the business of financial chicanery."

Inside Job - How crooks set up the largest bank in Afghanistan & then robbed it for almost $1 billion Global Witness
Nov 18 - ”Which banks accepted corrupt money from Kabul Bank shareholders or politically exposed persons? What measures did they take to assure themselves that the funds were not the proceeds of corruption? The answers to these questions are necessary to understand why so much corrupt money was able to flood the international financial system, to facilitate the recovery of stolen assets, and to ensure that it doesn’t happen again.”

South Sudan’s new laws offer a blueprint for a transparent oil sector Global Witness
Nov 29 - "Building a transparent and accountable oil sector in South Sudan will require serious political engagement from the government, major capacity building, and consistent implementation of the blueprint set out in the new legislation."

Rahm's real fight

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As I write this, the Illinois Supreme Court has ruled that they will hear the case that will determine if Rahm Emanuel, the former Illinois Congressman and White House Chief of Staff, can run for Mayor of Chicago. The ruling also has halted all ballots being printed until they make a final determination.

The issue is whether Emanuel has truly established residency to run for the office. There is a law that says a person running for mayor in an Illinois municipality must be resident of that municipality for one year before the election. There is also another law that says a person voting in any Illinois election must establish residency for one year prior to the election, unless said person is called into service for the United States of America.

Emanuel has a home in Chicago, for he was the Congressman for Illinois' 5th District from 2003 to 2009. Ironically, he replaced Rod Blagojevich in Congress. In January of 2009, he became the Chief of Staff for President Obama. He resigned in October of 2010 to run for mayor of his hometown.

Emanuel contends that he meets the residency requirement to be a voter in the upcoming election, thus making him a qualified elector, and therefore a qualified candidate for mayor. He claims that his service as Chief of Staff qualifies for the service to the United States exemption. The Chicago Board of Elections agreed with that premise and qualified him as a candidate.

However, that ruling was challenged to the Illinois Appellate Court and that court overturned their ruling. Unfortunately, I agree with the Appellate Court and I believe the Illinois Supreme Court will also. The problem for Emanuel is that while he may qualify as a voter for the election, the law concerning the qualifications as a candidate are clear and distinct. The fact that he has not been a resident of the state for one year prior to the election, and that absence is documented, Rahm Emanuel is not qualified to run for Mayor of Chicago.

It is a shame because he was the leading candidate going into the February 22nd primary. He campaigned on a positive vision for the city and was not only well-funded, but well-organized also. The main beneficiary of Emanuel leaving the race will more likely be former U.S. Senator Carol Moseley Braun, who has also campaigned as a healer, not a divider.

If the Illinois Supreme Court rules otherwise it will be a surprise, but it is a tough fight that Emanuel has to engage in and in the long run, it will bring some clarity to Chicago politics, which would be a rare, but welcome, moment indeed.

My thoughts on Mississippi's Nov. Initiatives

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As usual, while most Mississippi voters are focused on individuals seeking the various statewide, legislative and county offices, many may not be aware that there are three initiatives on the ballot as well that will impact their lives greatly. Below is my take on those initiatives and where I stand on them. I will start with Initiative #31: Should government be prohibited from taking private property by eminent domain and then transferring it to other persons? Initiative #31 would amend the Mississippi Constitution to prohibit state and local government from taking private property by eminent domain and then conveying it to other persons or private businesses for a period of 10 years after acquisition. Exceptions from the prohibition include drainage and levee facilities, roads, bridges, ports, airports, common carriers, and utilities. The prohibition would not apply in certain situations, including public nuisance, structures unfit for human habitation, or abandoned property. During my time in the Mississippi House of Representatives, this issue showed its importance as we were trying to figure out how to get Nissan to locate their new plant in Canton. We committed millions of dollars in infrastructure development which included the use of eminent domain to make that happen. Eminent domain, which is the attainment of private property for public use, in that regard was a positive because it was used for public projects but it was clear it was beneficial for a private economic development interest. This initiative will clarify in the Mississippi Constitution that eminent domain is only supposed to be used for public projects. It will prohibit eminent domain to be used, for example, to acquire land for the building of a strip mall, factory or an office building. The Farm Bureau has taken the lead in pushing this initiative because any expansion of eminent domain for private economic development would immediately threaten the largest group of landowners in the state, our farmers. I will vote YES on this initiative. Initiative #27: Should the Mississippi Constitution be amended to require a person to submit government issued photo identification in order to vote? Initiative #27 would amend the Mississippi Constitution to require voters to submit a government issued photo identification before being allowed to vote; provides that any voter lacking government issued photo identification may obtain photo identification without charge from the Mississippi Department of Public Safety; and exempts certain residents of state-licensed care facilities and religious objectors from being required to show photo identification in order to vote. One of the most emotional days during my tenure in the Legislature was when we had to take a vote on making Voter ID mandatory, so much so that I wrote a column about it in the Jackson Free Press. Every member spoke on the floor and expressed their feelings, either in support or opposition, and afterwards many of us became closer, despite competing political philosophies. Needless to say this is an emotional issue to members of the African-American community that remember poll taxes and questions like how many bubbles are there in a bar of soap. Voter ID seems like a practical, innocuous argument to preserve the integrity of the voting process. However, it has been used to suppress voter turnout for certain groups in other states. In Tennessee, a 96-year-old Black woman was denied the right to vote recently because she did not have a driver's license. In Florida, college students cannot use their college IDs, even if they attend state universities. The author of the initiative, Sen. Joey Fillingane (R-Lamar County), organized the initiative drive after killing the Voter ID bill passed by the House in the Senate. His argument was that there needed to be a "clean" Voter ID bill, without provisions that would have allowed early voting, same-day registration and restoring the suffrage of first-time felons once they have served out their sentence. It is questionable whether the US Department of Justice will approve a Constitutional Amendment that requires Voter ID for all voters, but it is very possible. It is the only initiative that has a cost attached to it. It is estimated that the initiative, if passed, could cost as much as $1.5 million from the Department of Public Safety budget. Obviously the proponents of the measure do not feel strongly enough to convince the state's 82 Circuit Clerks to provide photos on the voter registration cards they provide in their respective counties. I will vote NO on this initiative. Initiative #26: Should the term “person” be defined to include every human being from the moment of fertilization, cloning, or the equivalent thereof? Initiative #26 would amend the Mississippi Constitution to define the word “person” or “persons”, as those terms are used in Article III of the state constitution, to include every human being from the moment of fertilization, cloning, or the functional equivalent thereof. I am considered a pro-life politician. I was endorsed by Pro-Life Mississippi when I served in the House. I am opposed to abortion, an emergency medical procedure, being used as a form of birth/population control. I am a strong proponent of adoption and a former abstinence-only counselor. I voted for the House Bill that banned abortions in this state, but I was also the author of the amendment in that same bill that allowed exceptions for rape, incest and the health of the mother. As a Christian, I believe life begins at conception and that God has predestined our lives before our existence on this earth begins. However, I have also made the argument that the US Constitution and the Mississippi Constitution are not the 67th and 68th books of the Holy Bible. To redefine "person/persons" in Article III of the Mississippi Constitution would effectively ban abortions in this state, but how broad of a swath will this provision cut? Medical professionals are divided on whether the initiative would prevent in vitro fertilization and outlaw forms of conventional birth control. Would family planning activities be possibly outlawed? Would the exceptions of rape, incest and the health of the mother be considered? Here is another scenario that has not be broached: Say an immigrant couple from El Salvador comes to Mississippi without proper documentation. The wife becomes pregnant in Mississippi and then they are caught. At that point, the deportation process begins. If the personhood initiative is passed, does that fetus, which would be considered a person in the Mississippi Constitution have the right to stay, thus preventing the mother from being deported? If the Federal Government is successful in deporting the mother, can the child come back and petition for US Citizenship based on the notion it was conceived in Mississippi and was considered a person by that state's Constitution? This initiative has failed twice in Colorado, but will be introduced in four other states. The Mississippi initiative supporters' strategy is for this initiative to be challenged and struck down in the Federal Courts, moved up in the Federal docket to the Supreme Court of the United States, thus forcing them to re-visit the Roe v. Wade decision. I consider this an extreme action based on a constitutionally extreme political philosophy. I will vote NO on this initiative. Those are my positions. Research these initiatives for yourself and then cast your vote on November 8th.

Rahm's real fight

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As I write this, the Illinois Supreme Court has ruled that they will hear the case that will determine if Rahm Emanuel, the former Illinois Congressman and White House Chief of Staff, can run for Mayor of Chicago. The ruling also has halted all ballots being printed until they make a final determination.

The issue is whether Emanuel has truly established residency to run for the office. There is a law that says a person running for mayor in an Illinois municipality must be resident of that municipality for one year before the election. There is also another law that says a person voting in any Illinois election must establish residency for one year prior to the election, unless said person is called into service for the United States of America.

Emanuel has a home in Chicago, for he was the Congressman for Illinois' 5th District from 2003 to 2009. Ironically, he replaced Rod Blagojevich in Congress. In January of 2009, he became the Chief of Staff for President Obama. He resigned in October of 2010 to run for mayor of his hometown.

Emanuel contends that he meets the residency requirement to be a voter in the upcoming election, thus making him a qualified elector, and therefore a qualified candidate for mayor. He claims that his service as Chief of Staff qualifies for the service to the United States exemption. The Chicago Board of Elections agreed with that premise and qualified him as a candidate.

However, that ruling was challenged to the Illinois Appellate Court and that court overturned their ruling. Unfortunately, I agree with the Appellate Court and I believe the Illinois Supreme Court will also. The problem for Emanuel is that while he may qualify as a voter for the election, the law concerning the qualifications as a candidate are clear and distinct. The fact that he has not been a resident of the state for one year prior to the election, and that absence is documented, Rahm Emanuel is not qualified to run for Mayor of Chicago.

It is a shame because he was the leading candidate going into the February 22nd primary. He campaigned on a positive vision for the city and was not only well-funded, but well-organized also. The main beneficiary of Emanuel leaving the race will more likely be former U.S. Senator Carol Moseley Braun, who has also campaigned as a healer, not a divider.

If the Illinois Supreme Court rules otherwise it will be a surprise, but it is a tough fight that Emanuel has to engage in and in the long run, it will bring some clarity to Chicago politics, which would be a rare, but welcome, moment indeed.

My thoughts on Mississippi's Nov. Initiatives

To contact us Click HERE
As usual, while most Mississippi voters are focused on individuals seeking the various statewide, legislative and county offices, many may not be aware that there are three initiatives on the ballot as well that will impact their lives greatly. Below is my take on those initiatives and where I stand on them. I will start with Initiative #31: Should government be prohibited from taking private property by eminent domain and then transferring it to other persons? Initiative #31 would amend the Mississippi Constitution to prohibit state and local government from taking private property by eminent domain and then conveying it to other persons or private businesses for a period of 10 years after acquisition. Exceptions from the prohibition include drainage and levee facilities, roads, bridges, ports, airports, common carriers, and utilities. The prohibition would not apply in certain situations, including public nuisance, structures unfit for human habitation, or abandoned property. During my time in the Mississippi House of Representatives, this issue showed its importance as we were trying to figure out how to get Nissan to locate their new plant in Canton. We committed millions of dollars in infrastructure development which included the use of eminent domain to make that happen. Eminent domain, which is the attainment of private property for public use, in that regard was a positive because it was used for public projects but it was clear it was beneficial for a private economic development interest. This initiative will clarify in the Mississippi Constitution that eminent domain is only supposed to be used for public projects. It will prohibit eminent domain to be used, for example, to acquire land for the building of a strip mall, factory or an office building. The Farm Bureau has taken the lead in pushing this initiative because any expansion of eminent domain for private economic development would immediately threaten the largest group of landowners in the state, our farmers. I will vote YES on this initiative. Initiative #27: Should the Mississippi Constitution be amended to require a person to submit government issued photo identification in order to vote? Initiative #27 would amend the Mississippi Constitution to require voters to submit a government issued photo identification before being allowed to vote; provides that any voter lacking government issued photo identification may obtain photo identification without charge from the Mississippi Department of Public Safety; and exempts certain residents of state-licensed care facilities and religious objectors from being required to show photo identification in order to vote. One of the most emotional days during my tenure in the Legislature was when we had to take a vote on making Voter ID mandatory, so much so that I wrote a column about it in the Jackson Free Press. Every member spoke on the floor and expressed their feelings, either in support or opposition, and afterwards many of us became closer, despite competing political philosophies. Needless to say this is an emotional issue to members of the African-American community that remember poll taxes and questions like how many bubbles are there in a bar of soap. Voter ID seems like a practical, innocuous argument to preserve the integrity of the voting process. However, it has been used to suppress voter turnout for certain groups in other states. In Tennessee, a 96-year-old Black woman was denied the right to vote recently because she did not have a driver's license. In Florida, college students cannot use their college IDs, even if they attend state universities. The author of the initiative, Sen. Joey Fillingane (R-Lamar County), organized the initiative drive after killing the Voter ID bill passed by the House in the Senate. His argument was that there needed to be a "clean" Voter ID bill, without provisions that would have allowed early voting, same-day registration and restoring the suffrage of first-time felons once they have served out their sentence. It is questionable whether the US Department of Justice will approve a Constitutional Amendment that requires Voter ID for all voters, but it is very possible. It is the only initiative that has a cost attached to it. It is estimated that the initiative, if passed, could cost as much as $1.5 million from the Department of Public Safety budget. Obviously the proponents of the measure do not feel strongly enough to convince the state's 82 Circuit Clerks to provide photos on the voter registration cards they provide in their respective counties. I will vote NO on this initiative. Initiative #26: Should the term “person” be defined to include every human being from the moment of fertilization, cloning, or the equivalent thereof? Initiative #26 would amend the Mississippi Constitution to define the word “person” or “persons”, as those terms are used in Article III of the state constitution, to include every human being from the moment of fertilization, cloning, or the functional equivalent thereof. I am considered a pro-life politician. I was endorsed by Pro-Life Mississippi when I served in the House. I am opposed to abortion, an emergency medical procedure, being used as a form of birth/population control. I am a strong proponent of adoption and a former abstinence-only counselor. I voted for the House Bill that banned abortions in this state, but I was also the author of the amendment in that same bill that allowed exceptions for rape, incest and the health of the mother. As a Christian, I believe life begins at conception and that God has predestined our lives before our existence on this earth begins. However, I have also made the argument that the US Constitution and the Mississippi Constitution are not the 67th and 68th books of the Holy Bible. To redefine "person/persons" in Article III of the Mississippi Constitution would effectively ban abortions in this state, but how broad of a swath will this provision cut? Medical professionals are divided on whether the initiative would prevent in vitro fertilization and outlaw forms of conventional birth control. Would family planning activities be possibly outlawed? Would the exceptions of rape, incest and the health of the mother be considered? Here is another scenario that has not be broached: Say an immigrant couple from El Salvador comes to Mississippi without proper documentation. The wife becomes pregnant in Mississippi and then they are caught. At that point, the deportation process begins. If the personhood initiative is passed, does that fetus, which would be considered a person in the Mississippi Constitution have the right to stay, thus preventing the mother from being deported? If the Federal Government is successful in deporting the mother, can the child come back and petition for US Citizenship based on the notion it was conceived in Mississippi and was considered a person by that state's Constitution? This initiative has failed twice in Colorado, but will be introduced in four other states. The Mississippi initiative supporters' strategy is for this initiative to be challenged and struck down in the Federal Courts, moved up in the Federal docket to the Supreme Court of the United States, thus forcing them to re-visit the Roe v. Wade decision. I consider this an extreme action based on a constitutionally extreme political philosophy. I will vote NO on this initiative. Those are my positions. Research these initiatives for yourself and then cast your vote on November 8th.

Quote of the day - UK's HMRC and the Swiss cheese

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The UK's tax authorities, HMRC, need to be feeling deep, deep shame for their willingness effectively to hand over its taxing and law-creating powers to the very multinationals that it is supposed to be taxing.

Now here is another reason why HMRC needs to be ridiculed. A press release that's just come out, saying:

"UK residents with Swiss bank accounts are to be warned that new landmark taxation arrangements are scheduled to come into force on 1 January next year. The new tax agreement between the UK and Switzerland means that account holders must either provide full details to HM Revenue & Customs (HMRC) or pay over a proportion of the money in their account and a future withholding tax.

Exchequer Secretary David Gauke said:

 “The days when hiding money in Switzerland in order to evade tax are over. Burying your head in the sand is no longer an option."

That quote of the day is complete, unadulterated nonsense. Physically burying your head in the sand may not be an option - that is true. Burying your financial affairs in a discretionary trust or insurance wrapper, though, is absolutely an option. As our recent blog explains, the deals: "have been designed to kill moves to greater transparency in Europe." That is the express purpose of the Swiss deals, and Swiss bankers have even explicitly admitted it. And HMRC designed the Swiss agreement that way.

Britain will get next to nothing from its useless Swiss tax deal. Look at this list of killer loopholes, and more.

Another source of deep shame for HMRC, which will most likely soon be standing out on a limb if Germany rejects its own useless Swiss deal, as seems likely.

Africa's Capital Losses: What Can Be Done?

To contact us Click HERE

ACAS Bulletin 87 – Africa’s Capital Losses: What Can Be Done?

Africa’s capital losses from illicit financial flows far outweigh inflows from aid or direct foreign investment. But what can be done?  Guest edited by Léonce Ndikumana and James Boyce, the latest bulletin from the Association of Concerned African Scholars tackles the issue head on, with contributions from a wide variety of leading scholars.

Fall 2012 Edited by William Minter and Timothy Scarnecchia Special Bulletin Editors: Léonce Ndikumana and James Boyce Table of Contents Introduction | pdf William Minter and Timothy Scarnecchia Rich Presidents of Poor Nations: Capital Flight from Resource-Rich Countries in Africa | pdf Léonce Ndikumana and James K. Boyce Macroeconomic Impact of Capital Flows in Sub-Saharan African Countries, 1980-2008 | pdf John Weeks Illicit Financial Flows: A Constraint on Poverty Reduction in Africa | pdf Janvier D. Nkurunziza The Paradox of Capital Flight from a Capital-Starved Continent | pdf Elizabeth Asiedu, John Nana Francois, and Akwasi Nti-Addae Stolen Asset Recovery: The Need for a Global Effort | pdf Hippolyte Fofack Debt Audits and the Repudiation of Odious Debts | pdf James K. Boyce and Léonce Ndikumana The Benefits of Country-by-Country Reporting | pdf Richard Murphy Africa’s Lost Tax Revenue | pdf John Christensen Tax Havens: An Emerging Challenge to Africa’s Development Financing | pdf Nicholas Shaxson Plundering a Continent | pdf Raymond Baker Information Resources on Capital Losses and Related Issues | pdf William Minter Download the entire Bulletin in PDF here: pdf

UK government to take British tax havens to task? Up to a point

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Nov 25: updated to add non-dom loophole.

International Tax Review has just published the following story, which we think is potentially significant, but we'd add several important, even major, caveats: see underneath the story.)

A leaked government document seen by International Tax Review reveals that the UK is planning to impose its own version of the US Foreign Account Tax Compliance Act (FATCA) on its Crown Dependencies and Overseas Territories. The move will deal an almost-fatal blow to tax evasion through the UK’s tax havens.

Responding to an International Development Committee report earlier this week, the government publicly rejected the need for a UK version of FATCA the need for a UK version of FATCA, which would require tax authorities to automatically exchange information relating to UK citizens or corporations.
In private, however, the government has already drafted FATCA legislation which it will impose on its Crown Dependencies and Overseas Territories. These include some of the world’s most notorious tax havens such as the Cayman Islands, the Channel Islands and the Isle of Man.
The draft agreement, seen by International Tax Review, will require the automatic exchange of information for each reportable account of each reporting financial institution. That will include full details of all beneficial owners of the account, including those whose identities might otherwise be hidden by trusts or companies
It will also require the account number, name and identifying number of the reporting financial institution as provided when registering with the IRS for FATCA purposes, and the account balance or value as of the end of the relevant calendar year or other appropriate reporting period or, if the account was closed during such year, immediately before closure.
The move will come as a huge blow to tax havens and companies and individuals hiding money in them. But it is a coup for the Tax Justice Network (TJN), which has long been arguing for automatic information exchange.
“This is a requirement for full, open disclosure,” said the TJN’s Richard Murphy. “It looks through trusts, companies, who owns the assets. It’s full automatic information exchange.”

(Continue reading to see the whole story.)

If this goes ahead as flagged here, it does represent a very significant advance, not least for its embrace of the concept of automatic information exchange. We would add a couple of important, even major, caveats, however.

First, FATCA was originally designed as a unilateral mechanism to protect the fiscal position of the United States from offshore erosion. That is a valuable goal, but that does not help other countries. This looks, on the face of it, to be a similar move: the UK government moving to protect the fiscal position of the United Kingdom. It will do nothing - at least immediately - for developing countries. So this does not signal any end of the 'feeder' relationship that Britain's tax havens have with respect to the City of London, as Treasure Islands outlines in detail.

Second, as usual Britain's "non-domiciled" taxpayers, who pay tax only on their domestically-sourced income, will be exempt from all this. These include the majority of Britain's very wealthiest citizens, so the non-dom loophole is a very large one indeed.

Third, this section will require careful analysis

"That will include full details of all beneficial owners of the account, including those whose identities might otherwise be hidden by trusts or companies."

That sounds good but trusts can be so very slippery - discretionary trusts are a particular case in point - that it is possible that billions or even trillions in assets would remain out of the scope of this. Britain's tax evasion and avoidance industry has made a living out of navigating these complex distinctions. Will this include foundations? (We recently noted, for instance, Guernsey introducing foundations, which "gave a multiplicity of control retention mechanisms over key decisions for the founder while offering a higher level of confidentiality than trusts.") We will remain skeptical for now, but would be delighted to be proved wrong.

Fourth, these jurisdictions will still offer zero percent and low tax rates, and tax exemptions, which even if all this comes to pass will enable a whole cornucopia of abuse, even by British companies.

Fifth, we note this recent UK parliamentary exchange:

We recommend that the Government introduce legislation similar to the relevant section of the US Foreign Account Tax Compliance Act (FATCA), requiring tax authorities automatically to exchange information relating to UK citizens or corporations. The Government should also use its influence (via the OECD Tax and Development Task Force, and similar avenues) to persuade other governments to follow suit. (Paragraph 41)

Disagree. The Government is fully committed to tackling tax evasion and sees transparency and information exchange as key tools but does not regard the introduction of FATCA in the UK as an appropriate means to achieve this. FATCA is unilateral and extraterritorial in its approach and has created significant difficulties for the US as well as affected countries in its implementation. The UK approach is to work in partnership with other governments, including those in developing countries, to increase tax transparency and exchange of information. The Government works closely with the G20, EU and OECD to deliver real progress in international tax transparency and substantially increase levels of information exchange. 

It would seem, however, that the Department for International Development may have been misled on this one.
 
However, even after saying all that, this new initiative behind the scenes could be significant. Change takes place step-by-step and FATCA has been, is, and will continue to be a major factor in the implementation of automatic exchange of information. 

The British government should now throw its weight firmly behind the principle of automatic information exchange, on a multilateral basis, in addition to moving on this apparent Son of Fatca - if that is what it is - as soon as possible.  

Britain's appalling track record in this general area constitutes grounds for severe caution. But that is not to take away from the fact that if this move is genuine, it represents genuine progress. And among other things - as Robert Palmer notes - it does show that Britain remains in a position to require its satellite tax havens to submit to its authority.

Links Nov 26

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Spain: Technology giants, tax dwarves El País
Nov 23 - Apple, Microsoft, Google, Facebook, Yahoo, Ebay and Amazon generated billions of Euros in sales but paid only 25 million Euros to the Treasury in the past three years.

Cayman networks in China Cayman News Service
Nov 23 - On Cayman's representation at a China Offshore Summit. "Besides private-sector firms such as law firms and company formation specialists, jurisdictions in attendance included Cook Islands, Samoa, the Bahamas, Cyprus, and the British Virgin Islands."

“The concept of a withholding tax has failed” swissinfo
Nov 24 - "Most Swiss newspapers have given the last rites to the withholding tax model, following the “no” from the German upper house of parliament to a tax treaty aimed at legalising undeclared assets held by Germans in Swiss banks ... 'The time has come for Plan B,' reckoned Le Temps in Geneva, adding that this officially didn’t exist."

If you thought tax evasion was insignificant think again – managing it represents 6 – 7% of the Swiss economy Tax Research UK
Nov 25 - Commenting on the Austria and UK governments continuing to support the Rubik agreements.

Swiss probe $139M SNC-Lavalin laundering case CBC
Nov 25 - The case involves a network of Swiss bank accounts and BVI companies with lone directors. "SNC-Lavalin knowingly allowed and condoned the use of millions of dollars to fund lobbyists in the Middle East to get lucrative contracts with major leaders of some countries, particularly in Libya," the suit claims.

Kodi Katika Afrika ATAF
Link to the newsletter Kodi Katika Afrika (meaning 'Tax in Africa' in Swahili), which we have linked before. Latest issue is Nov 20.

Africa Lost 1.6 Trillion in Capital Flight and Odious Debt Over Forty Years The Real News
Nov 26 - Featuring new research from new research from one of the authors of Africa's Odious Debts, Léonce Ndikumana.

U.S.: Early Dividend for Wal-Mart Is Latest Move in Tax Tactics NY Times
Nov 19 - "The Walton family, which founded Wal-Mart, could save as much as $180 million in federal income taxes after the huge retailer announced Monday that it would pay out its quarterly dividend on Dec. 27 instead of Jan. 2, as was scheduled."

Inequality is Killing Capitalism Project Syndicate
Nov 21 - Although not a new analysis, this is a good account.

Quote of the day: the City of London’s Good Chaps Treasure Islands
Nov 26 - From Rowan Bosworth-Davies, on the UK’s Financial Services Authority: "They think that by staffing themselves with former civil servants and Bank of England careerists, all of them suffering from the ‘Good Chaps’ syndrome to the core, that they think they can somehow regulate a market full of some of the most evil crooks and wide boys under the sun."

Quote of the day - regulatory competition

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The quote is:

“We often encounter pressure from some sections of the industry that ‘If you don’t do X . . . then we will go somewhere else and Hong Kong will suffer’,” he said. “We always, always take that with a very heavy pinch of salt.”

Who is this Socialist firebrand? None other than Ashley Alder, lead market regulator in the tax haven of Hong Kong. Every now and then, the offshore world can surprise you. 

My thoughts on Mississippi's Nov. Initiatives

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As usual, while most Mississippi voters are focused on individuals seeking the various statewide, legislative and county offices, many may not be aware that there are three initiatives on the ballot as well that will impact their lives greatly. Below is my take on those initiatives and where I stand on them. I will start with Initiative #31: Should government be prohibited from taking private property by eminent domain and then transferring it to other persons? Initiative #31 would amend the Mississippi Constitution to prohibit state and local government from taking private property by eminent domain and then conveying it to other persons or private businesses for a period of 10 years after acquisition. Exceptions from the prohibition include drainage and levee facilities, roads, bridges, ports, airports, common carriers, and utilities. The prohibition would not apply in certain situations, including public nuisance, structures unfit for human habitation, or abandoned property. During my time in the Mississippi House of Representatives, this issue showed its importance as we were trying to figure out how to get Nissan to locate their new plant in Canton. We committed millions of dollars in infrastructure development which included the use of eminent domain to make that happen. Eminent domain, which is the attainment of private property for public use, in that regard was a positive because it was used for public projects but it was clear it was beneficial for a private economic development interest. This initiative will clarify in the Mississippi Constitution that eminent domain is only supposed to be used for public projects. It will prohibit eminent domain to be used, for example, to acquire land for the building of a strip mall, factory or an office building. The Farm Bureau has taken the lead in pushing this initiative because any expansion of eminent domain for private economic development would immediately threaten the largest group of landowners in the state, our farmers. I will vote YES on this initiative. Initiative #27: Should the Mississippi Constitution be amended to require a person to submit government issued photo identification in order to vote? Initiative #27 would amend the Mississippi Constitution to require voters to submit a government issued photo identification before being allowed to vote; provides that any voter lacking government issued photo identification may obtain photo identification without charge from the Mississippi Department of Public Safety; and exempts certain residents of state-licensed care facilities and religious objectors from being required to show photo identification in order to vote. One of the most emotional days during my tenure in the Legislature was when we had to take a vote on making Voter ID mandatory, so much so that I wrote a column about it in the Jackson Free Press. Every member spoke on the floor and expressed their feelings, either in support or opposition, and afterwards many of us became closer, despite competing political philosophies. Needless to say this is an emotional issue to members of the African-American community that remember poll taxes and questions like how many bubbles are there in a bar of soap. Voter ID seems like a practical, innocuous argument to preserve the integrity of the voting process. However, it has been used to suppress voter turnout for certain groups in other states. In Tennessee, a 96-year-old Black woman was denied the right to vote recently because she did not have a driver's license. In Florida, college students cannot use their college IDs, even if they attend state universities. The author of the initiative, Sen. Joey Fillingane (R-Lamar County), organized the initiative drive after killing the Voter ID bill passed by the House in the Senate. His argument was that there needed to be a "clean" Voter ID bill, without provisions that would have allowed early voting, same-day registration and restoring the suffrage of first-time felons once they have served out their sentence. It is questionable whether the US Department of Justice will approve a Constitutional Amendment that requires Voter ID for all voters, but it is very possible. It is the only initiative that has a cost attached to it. It is estimated that the initiative, if passed, could cost as much as $1.5 million from the Department of Public Safety budget. Obviously the proponents of the measure do not feel strongly enough to convince the state's 82 Circuit Clerks to provide photos on the voter registration cards they provide in their respective counties. I will vote NO on this initiative. Initiative #26: Should the term “person” be defined to include every human being from the moment of fertilization, cloning, or the equivalent thereof? Initiative #26 would amend the Mississippi Constitution to define the word “person” or “persons”, as those terms are used in Article III of the state constitution, to include every human being from the moment of fertilization, cloning, or the functional equivalent thereof. I am considered a pro-life politician. I was endorsed by Pro-Life Mississippi when I served in the House. I am opposed to abortion, an emergency medical procedure, being used as a form of birth/population control. I am a strong proponent of adoption and a former abstinence-only counselor. I voted for the House Bill that banned abortions in this state, but I was also the author of the amendment in that same bill that allowed exceptions for rape, incest and the health of the mother. As a Christian, I believe life begins at conception and that God has predestined our lives before our existence on this earth begins. However, I have also made the argument that the US Constitution and the Mississippi Constitution are not the 67th and 68th books of the Holy Bible. To redefine "person/persons" in Article III of the Mississippi Constitution would effectively ban abortions in this state, but how broad of a swath will this provision cut? Medical professionals are divided on whether the initiative would prevent in vitro fertilization and outlaw forms of conventional birth control. Would family planning activities be possibly outlawed? Would the exceptions of rape, incest and the health of the mother be considered? Here is another scenario that has not be broached: Say an immigrant couple from El Salvador comes to Mississippi without proper documentation. The wife becomes pregnant in Mississippi and then they are caught. At that point, the deportation process begins. If the personhood initiative is passed, does that fetus, which would be considered a person in the Mississippi Constitution have the right to stay, thus preventing the mother from being deported? If the Federal Government is successful in deporting the mother, can the child come back and petition for US Citizenship based on the notion it was conceived in Mississippi and was considered a person by that state's Constitution? This initiative has failed twice in Colorado, but will be introduced in four other states. The Mississippi initiative supporters' strategy is for this initiative to be challenged and struck down in the Federal Courts, moved up in the Federal docket to the Supreme Court of the United States, thus forcing them to re-visit the Roe v. Wade decision. I consider this an extreme action based on a constitutionally extreme political philosophy. I will vote NO on this initiative. Those are my positions. Research these initiatives for yourself and then cast your vote on November 8th.

Quote of the day - UK's HMRC and the Swiss cheese

To contact us Click HERE
The UK's tax authorities, HMRC, need to be feeling deep, deep shame for their willingness effectively to hand over its taxing and law-creating powers to the very multinationals that it is supposed to be taxing.

Now here is another reason why HMRC needs to be ridiculed. A press release that's just come out, saying:

"UK residents with Swiss bank accounts are to be warned that new landmark taxation arrangements are scheduled to come into force on 1 January next year. The new tax agreement between the UK and Switzerland means that account holders must either provide full details to HM Revenue & Customs (HMRC) or pay over a proportion of the money in their account and a future withholding tax.

Exchequer Secretary David Gauke said:

 “The days when hiding money in Switzerland in order to evade tax are over. Burying your head in the sand is no longer an option."

That quote of the day is complete, unadulterated nonsense. Physically burying your head in the sand may not be an option - that is true. Burying your financial affairs in a discretionary trust or insurance wrapper, though, is absolutely an option. As our recent blog explains, the deals: "have been designed to kill moves to greater transparency in Europe." That is the express purpose of the Swiss deals, and Swiss bankers have even explicitly admitted it. And HMRC designed the Swiss agreement that way.

Britain will get next to nothing from its useless Swiss tax deal. Look at this list of killer loopholes, and more.

Another source of deep shame for HMRC, which will most likely soon be standing out on a limb if Germany rejects its own useless Swiss deal, as seems likely.

Africa's Capital Losses: What Can Be Done?

To contact us Click HERE

ACAS Bulletin 87 – Africa’s Capital Losses: What Can Be Done?

Africa’s capital losses from illicit financial flows far outweigh inflows from aid or direct foreign investment. But what can be done?  Guest edited by Léonce Ndikumana and James Boyce, the latest bulletin from the Association of Concerned African Scholars tackles the issue head on, with contributions from a wide variety of leading scholars.

Fall 2012 Edited by William Minter and Timothy Scarnecchia Special Bulletin Editors: Léonce Ndikumana and James Boyce Table of Contents Introduction | pdf William Minter and Timothy Scarnecchia Rich Presidents of Poor Nations: Capital Flight from Resource-Rich Countries in Africa | pdf Léonce Ndikumana and James K. Boyce Macroeconomic Impact of Capital Flows in Sub-Saharan African Countries, 1980-2008 | pdf John Weeks Illicit Financial Flows: A Constraint on Poverty Reduction in Africa | pdf Janvier D. Nkurunziza The Paradox of Capital Flight from a Capital-Starved Continent | pdf Elizabeth Asiedu, John Nana Francois, and Akwasi Nti-Addae Stolen Asset Recovery: The Need for a Global Effort | pdf Hippolyte Fofack Debt Audits and the Repudiation of Odious Debts | pdf James K. Boyce and Léonce Ndikumana The Benefits of Country-by-Country Reporting | pdf Richard Murphy Africa’s Lost Tax Revenue | pdf John Christensen Tax Havens: An Emerging Challenge to Africa’s Development Financing | pdf Nicholas Shaxson Plundering a Continent | pdf Raymond Baker Information Resources on Capital Losses and Related Issues | pdf William Minter Download the entire Bulletin in PDF here: pdf

Offshore secrets: new Guardian investigation

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The UK's Guardian newspaper has, together with the BBC's Panorama and the Washington-based International Consortium of Investigative Journalists (ICIJ,) put together a large-scale investigation of the offshore industry and its secrets. Read the opening article, and follow the associated links. None of what in this excellent investigation will surprise readers of Treasure Islands, but it is extremely important to have such an in-depth investigation bolstering our case.

The investigation begins:

The existence of an extraordinary global network of sham company directors, most of them British, can be revealed.

BBC Panorama tonight will show an undercover investigator asking James Turner, of Turner Little in York, to help him hide money stashed in a Swiss bank, and he offers nominee directors in Belize and says:

"They won't even know that they were a director, they just get paid."

That bit in bold is extraordinary, and it seems it's not uncommon either: another company representative explained "that many of its nominees are not even aware of how their names are being used." The investigation finds 21,500 companies through just nominee directors. They find the British Virgin Islands (BVI) particularly troubling - something that TJN has been shouting about for a long time: while Cayman is the first Caribbean jurisdiction most people think of in the context of tax havens, the BVI has not got nearly enough attention. This needs to change, dramatically. The UK appears to have some plans to clean up, but as we've noted, while this appears to be significant we don't have a lot of confidence in its potential for real change.

"This Caribbean territory, which is ultimately controlled by the UK, has sold more than a million anonymously-owned offshore entities since launching itself in 1984 as a tax haven."

We are also delighted to read that a worldwide research effort has been launched this year by the ICIJ. It aims to identify, country by country, thousands of the true owners. 

"We are applying specialist software to crunch through literally hundreds of thousands of offshore entities to look for patterns. We are marrying our findings with old-fashioned shoe leather and interviews from key insiders who can provide further context on this little known and loosely regulated world."

An official from one of the companies approached, in Hertfordshire in the UK, said:

"if we were approached by the Indian tax authorities and they say we believe you are acting for this client and he is doing money laundering, we would give the information. If they said we were acting for this client and they are doing tax evasion, we wouldn't give a monkey's."

 And the subsequent conversation made matters somewhat worse. Another official is described:

"(he) offers his customers "anonymity of the ultimate owners". He tells them: "The prime advantage … is to place the 'management and control' issue firmly outside a high tax jurisdiction." This allows the owners to claim the company is being run from an overseas tax haven, rather than from where they live."

Now read on. This is what the Fourth Estate is for. Gradually, bit by bit, fragments of Britain's "second empire" are being dragged out into the light of day. Why has Britain not reformed this swamp?

"The UK government refuses to step in and make reforms. One reason was candidly spelled out by Michael Foot, a former Bank of England official and Financial Services Authority managing director. He reported to the then Labour chancellor, Alistair Darling, in a Treasury paper published in 2009, saying that to abolish the BVI's secrecy regime "would be likely to result in a loss of business".

It really is as sordid as that. There are of course many other aspects of this we'd like to see covered, for instance:

• they don't talk very much about layering - where nominee directors and shareholders are other shell companies, or trusts. This is an essential component of any "sophisticated" scheme.
• The investigation seems to focus more on nominees being independent service providers or small firms: they (perhaps for reasons of libel management) don't really talk about where nominee directors and shareholders are provided by and within banks & trust companies, wealth management arms of some well-known names. That would make a very interesting area to explore (see more on that in our intermediaries project.)

 Further articles so far:

• BBC's Panorama shows staff admitting nominee directors are often a sham (with associated video)
• Sham directors: the woman running 1,200 companies from a Caribbean rock (with associated video). A focus on Nevis. "If Britain is crying about its tax dollars, that is not really a problem for us," a Nevis official says. And, of course, Britain is just one of many, many countries suffering.
•  The 'Sark Lark' Britons scattered around the world.
• British Virgin Islands, land of sand, sea and secrecy. The world's biggest provider of offshore entities, yet the UK refuses to step in and force it to reform. We have for some time been strongly encouraging journalists to put a spotlight on the BVI. We are delighted to see this scrutiny. "The paperchase can often be costly and almost endless, giving suspects time to empty their accounts and cover their tracks."
• The offshore trick: how BVI 'nominee director' system works. A handy graphic, showing three letters that the nominees send to their clients, included an undated resignation letter, allowing the nominee to duck liability at the drop of a hat; a general power of attorney handing back all control to the client, and the use of couriers to send information. We will post this on our 'mechanics of secrecy' web page.
• Vince Cable promises to investigate offshore sham director industry
  

And the investigation will continue through the week. Read about it here.

UK, France, Germany to supercharge tax avoidance fight?

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TJN's Senior Adviser Sol Picciotto and writer Nicholas Shaxson mentioned this in their Financial Times comment article last week:

George Osborne, the UK chancellor of the exchequer, and his German counterpart Wolfgang Schäuble have said they will engage with the OECD to tackle the problems in international tax.

How serious is this? Well, thanks to The Telegraph, we have more details:

"George Osborne, Wolfgang Schaeuble, the German finance minister, and Pierre Moscovici, the French finance minister, have written to the Organisation for Economic Co-operation & Development (OECD) with a pledge to provide €150,000 (£120,000) each to help stamp out “profit shifting” and ensure major companies pay their fair share of tax."

£360,000 to solve this gigantic, corrupting faultline in global capitalism. That should do it!

Hat tip: Nick Mathiason

Quote of the day - UK's HMRC and the Swiss cheese

To contact us Click HERE
The UK's tax authorities, HMRC, need to be feeling deep, deep shame for their willingness effectively to hand over its taxing and law-creating powers to the very multinationals that it is supposed to be taxing.

Now here is another reason why HMRC needs to be ridiculed. A press release that's just come out, saying:

"UK residents with Swiss bank accounts are to be warned that new landmark taxation arrangements are scheduled to come into force on 1 January next year. The new tax agreement between the UK and Switzerland means that account holders must either provide full details to HM Revenue & Customs (HMRC) or pay over a proportion of the money in their account and a future withholding tax.

Exchequer Secretary David Gauke said:

 “The days when hiding money in Switzerland in order to evade tax are over. Burying your head in the sand is no longer an option."

That quote of the day is complete, unadulterated nonsense. Physically burying your head in the sand may not be an option - that is true. Burying your financial affairs in a discretionary trust or insurance wrapper, though, is absolutely an option. As our recent blog explains, the deals: "have been designed to kill moves to greater transparency in Europe." That is the express purpose of the Swiss deals, and Swiss bankers have even explicitly admitted it. And HMRC designed the Swiss agreement that way.

Britain will get next to nothing from its useless Swiss tax deal. Look at this list of killer loopholes, and more.

Another source of deep shame for HMRC, which will most likely soon be standing out on a limb if Germany rejects its own useless Swiss deal, as seems likely.