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Corruption and tax-dodging ‘rampant’, urgent reforms needed
by UN News, ICIJ, World Inequality Lab, agencies
12:38am 1st Jul, 2020
24 Sep. 2020 (UN News)
Tax abuse, money laundering and corruption, plague the global financial system, a high-level UN panel reported on Thursday, launching an interim report that underscores the need for urgent reforms to achieve the 2030 Global Goals (SDGs).
“Corruption and tax avoidance are rampant. Too many banks are in cahoots and too many Governments are stuck in the past”, said Dalia Grybauskaitė, co-chair of the High-Level Panel on International Financial Accountability, Transparency and Integrity to Achieve the 2030 Development Agenda (FACTI Panel) and a former president of Lithuania. “We’re all being robbed, especially the world’s poor”, she added.
As Governments debate the problem and solutions, the world’s poor are being drained by taxes, corruption and financial crime.
According to the FACTI report, diverted resources that could be used for the poor include $500 billion in Governments losses annually from profit-shifting enterprises; $7 trillion in private wealth hidden in haven countries – with 10 per cent of world GDP held offshore; and some $1.6 trillion in money laundering each year.
The panel underlined that Governments must do more to tackle tax abuse and corruption in global finance.
The report spells out that global finance controls have not kept pace with a globalized, digitalized world and that criminals have exploited the pandemic as Governments relaxed controls to speed up healthcare and social protection.
“Our weakness in tackling corruption and financial crime has been further exposed by COVID-19”, said FACTI co-chair and ex-Prime Minister of Niger Ibrahim Mayaki.
“Resources to stop the spread, keep people alive and put food on tables are instead lost to corruption and abuse”, he attested.
The FACTI Panel called for a more coherent and equitable approach to international tax cooperation, including taxing the digital economy and more balanced cooperation on settling disputes.
Sharpened inequalties
Speaking at the report launch, General Assembly President Volkan Bozkir agreed that illicit financial flows greatly diminish resources for investment in sustainable development and public service delivery.
He pointed out that a lack of transparency and accountability “sharpen inequalities and erode human rights”, leaving women, children, poor and vulnerable populations to suffer most.
“These issues are particularly challenging when you consider our efforts to recover from COVID-19, and our 10-year challenge to achieve the SDGs [Sustainable Development Goals]”, he said.
“The pandemic has further exposed and underscored the systemic challenges, such as those in the report, that delay or impede our ability to deliver”.
The UN Assembly president underscored the need to strengthen collective efforts to enhance financial accountability, transparency and integrity as being “critical to accelerating action and financing the SDGs”.
Mr. Bozkir cited illicit financial flows as “a prominent example” of a global challenge that requires multilateral solutions. “Creating a global economic system characterized by financial accountability, transparency, and integrity will bring enormous benefits to efforts to achieve the SDGs – all the more pressing under the shadow of COVID-19”, he concluded.
Munir Akram, President of the United Nations Economic and Social Council called adequate financing “the key” to addressing the three simultaneous global challenges of COVID-19, the realization of the 2030 Agenda and climate change.
24 September 2020
Tax abuse, money laundering and corruption plague global finance: Financial integrity panel says reforms urgent for sustainable development.
Governments must do more to tackle tax abuse and corruption in global finance, says a panel of former heads of state and government, past central bank governors, business and civil society leaders and prominent academics.
The findings come in an interim report published by the High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel), established by the 74th President of the UN General Assembly and the 75th President of the UN Economic and Social Council.
The report says governments can’t agree on the problem or the solution, while resources that could help the world’s poor are being drained by tax abuse, corruption and financial crime. Estimates include:
• $500 billion losses to governments each year from profit-shifting enterprises;
• $7 trillion in private wealth hidden in haven countries, with 10% of world GDP held offshore;
• Money laundering of around $1.6 trillion per year, or 2.7% of global GDP.
Global finance controls haven’t kept pace with a globalized, digitalized world. The FinCen Files involving $2 trillion of transactions revealed this week how some of the biggest banks have allowed criminals to move dirty money around the world. They are the latest reports from investigative journalists showing the system to regulate dirty money has major gaps.
“Corruption and tax avoidance are rampant. Too many banks are in cahoots and too many governments are stuck in the past. We’re all being robbed, especially the world’s poor,” said Dr. Dalia Grybauskaitė, FACTI co-chair and former president of Lithuania.
“Trust in the finance system is essential to tackle big issues like poverty, climate change and COVID-19. Instead we get dithering and delay bordering on complicity,” she said.
Criminals have exploited the pandemic, says the report, as governments relaxed controls to speed up healthcare and social protection. “Our weakness in tackling corruption and financial crime has been further exposed by the COVID-19,” said Dr. Ibrahim Mayaki, FACTI co-chair and ex-prime minister of Niger. “Resources to stop the spread, keep people alive and put food on tables are instead lost to corruption and abuse,” he said.
The FACTI Panel calls for a more coherent and equitable approach to international tax cooperation, including taxing the digital economy, and more balanced cooperation on settling disputes.
* Access the report:
Sep. 2020
Global banks defy U.S. crackdowns by serving oligarchs, criminals and terrorists, report from the International Consortium of Investigative Journalists.
Secret U.S. government documents reveal that JPMorgan Chase, HSBC and other big banks have defied money laundering crackdowns by moving staggering sums of illicit cash for shadowy characters and criminal networks that have spread chaos and undermined democracy around the world.
The records show that five global banks — JPMorgan, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon — kept profiting from powerful and dangerous players even after U.S. authorities fined these financial institutions for earlier failures to stem flows of dirty money.
U.S. agencies responsible for enforcing money laundering laws rarely prosecute megabanks that break the law, and the actions authorities do take barely ripple the flood of plundered money that washes through the international financial system.
In some cases the banks kept moving illicit funds even after U.S. officials warned them they’d face criminal prosecutions if they didn’t stop doing business with mobsters, fraudsters or corrupt regimes.
JPMorgan, the largest bank based in the United States, moved money for people and companies tied to the massive looting of public funds in Malaysia, Venezuela and Ukraine, the leaked documents reveal.
The bank moved more than $1 billion for the fugitive financier behind Malaysia’s 1MDB scandal, the records show, and more than $2 million for a young energy mogul’s company that has been accused of cheating Venezuela’s government and helping cause electrical blackouts that crippled large parts of the country.
JPMorgan also processed more than $50 million in payments over a decade, the records show, for Paul Manafort, the former campaign manager for President Donald Trump. The bank shuttled at least $6.9 million in Manafort transactions in the 14 months after he resigned from the campaign amid a swirl of money laundering and corruption allegations spawning from his work with a pro-Russian political party in Ukraine.
Tainted transactions continued to surge through accounts at JPMorgan despite the bank’s promises to improve its money laundering controls as part of settlements it reached with U.S. authorities in 2011, 2013 and 2014.
In response to questions for this story, JPMorgan said it was legally prohibited from discussing clients or transactions. It said it has taken a “leadership role” in pursuing “proactive intelligence-led investigations” and developing “innovative techniques to help combat financial crime.”
HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon also continued to wave through suspect payments despite similar promises to government authorities, the secret documents show.
The leaked documents, known as the FinCEN Files, include more than 2,100 suspicious activity reports filed by banks and other financial firms with the U.S. Department of Treasury’s Financial Crimes Enforcement Network. The agency, known in shorthand as FinCEN, is an intelligence unit at the heart of the global system to fight money laundering.
BuzzFeed News obtained the records and shared them with the International Consortium of Investigative Journalists. ICIJ organized a team of more than 400 journalists from 110 news organizations in 88 countries to investigate the world of banks and money laundering.
In all, an ICIJ analysis found, the documents identify more than $2 trillion in transactions between 1999 and 2017 that were flagged by financial institutions’ internal compliance officers as possible money laundering or other criminal activity — including $514 billion at JPMorgan and $1.3 trillion at Deutsche Bank.
Suspicious activity reports reflect the concerns of watchdogs within banks and are not necessarily evidence of criminal conduct or other wrongdoing.
Though a vast amount, the $2 trillion in suspicious transactions identified within this set of documents is just a drop in a far larger flood of dirty money gushing through banks around the world. The FinCEN Files represent less than 0.02% of the more than 12 million suspicious activity reports that financial institutions filed with FinCEN between 2011 and 2017.
FinCEN and its parent, the Treasury Department, did not answer a series of questions sent last month by ICIJ and its partners. FinCEN told BuzzFeed News that it does not comment on the “existence or non-existence” of specific suspicious activity reports, sometimes known as SARs. Days before the release of the investigation by ICIJ and its partners, FinCEN announced that it was seeking public comments on ways to improve the U.S.’s anti-money laundering system.
The cache of suspicious activity reports — along with hundreds of spreadsheets filled with names, dates and figures — flag bank clients in more than 170 countries who were identified as being involved in potentially illicit transactions.
Along with sifting through the FinCEN Files, ICIJ and its media partners obtained more than 17,600 other records from insiders and whistleblowers, court files, freedom-of-information requests and other sources. The team interviewed hundreds of people, including financial crime experts, law enforcement officials and crime victims.
According to BuzzFeed News, some of the secret records were requested as part of U.S. congressional investigations into Russian interference in the 2016 U.S. presidential election. Others were gathered by FinCEN following requests from law enforcement agencies, BuzzFeed said.
The FinCEN Files offer unprecedented insight into a secret world of international banking, anonymous clients and, in many cases, financial crime.
They show banks blindly moving cash through their accounts for people they can’t identify, failing to report transactions with all the hallmarks of money laundering until years after the fact, even doing business with clients enmeshed in financial frauds and public corruption scandals.
Authorities in the U.S., who play a leading role in the global battle against money laundering, have ordered big banks to reform their practices, fined them hundreds of millions and even billions of dollars, and held threats of criminal charges over them as part of so-called deferred prosecution agreements.
A 16-month investigation by ICIJ and its reporting partners shows that these headline-making tactics haven’t worked. Big banks continue to play a central role in moving money tied to corruption, fraud, organized crime and terrorism.
“By utterly failing to prevent large-scale corrupt transactions, financial institutions have abandoned their roles as front-line defenses against money laundering,” Paul Pelletier, a former senior U.S. Justice Department official and financial crimes prosecutor, told ICIJ.
He said banks know that “they operate in a system that is largely toothless.”
Five of the banks that appear most often in the FinCEN Files — Deutsche Bank, Bank of New York Mellon, Standard Chartered, JPMorgan and HSBC — repeatedly violated their official promises of good behavior, the secret records show.
* Access the full report:
July 2020
The Missing Profits of Nations by Thomas Torslov, Ludvig Wier, Gabriel Zucman - World Inequality Lab
Between 1985 and 2018, the global average statutory corporate tax rate has fallen by about half, from 49% to 24%. One reason for this decline is international tax competition.
In this paper, Thomas Torslov, Ludvig Wier and Gabriel Zucman explore the extent to which globalization and tax competition are redistributing profits across nations. They analyze how the location of corporate profits would change if all countries adopted the same effective corporate tax rate, keeping global profits and investment constant.
To do so, they exploit new macroeconomic data known as foreign affiliates statistics. As a result, the authors find that profits would increase by about 15% in high-tax European Union countries and 10% in the United States.
These results can be used to quantify the tax revenues that individual countries could gain under different corporate tax reform scenarios, and to quantify the revenue implications of a formulary apportionment system.
Close to 40% of multinational profits are shifted to tax havens globally;
European Union countries appear to be the tax competition largest losers: about 35% of the shifted profits come from E.U. (non-haven) countries, close to 30% from developing countries, and about 25% from the United States;
Profitability in Local vs. Foreign Firms: foreign firms are more profitable than local firms in tax havens, and local firms are more profitable in high-tax countries;
U.S. multinationals are the main “shifters”: about half of all the shifted profits ultimately accrue to U.S. parents, while about 30% accrue to E.U. parents;
Profit shifting reduces the corporate tax revenue of the European Union by around 20%. Globally, the tax revenue loss is around 10%;
The havens that collect the largest amount of revenue appear to be those that impose the lowest tax rate on foreign profits: the revenue-maximizing tax rate appears to be less than 5%.
As an example, Ireland has a 5% corporate tax rate and generates much more revenue than non-haven countries.
Policy conclusions:
Cutting corporate tax rates is less likely to generate quick positive effects on wages than textbook economic models suggest. For wages to rise, factors of production that complement labor need to increase. This can happen fast if tangible capital flows from abroad, less so if it is mostly paper profits that move across borders.
Profit shifting reduces the effective rates paid by multinationals compared to local firms, which could affect competition.
Profit shifting also reduces the taxes paid by the wealthy, as ownership of these firms is concentrated. This might call for offsetting changes in individual income taxation, or changes in the way multinational companies are taxed.
Apr. 2020
Shoring up our public services starts with fighting tax avoidance and tax evasion more aggressively, by Scilla Alecci for the International Consortium of Investigative Journalists.
As emergency coronavirus medical and social programs lay bare economic and social deficiencies around the world, experts are calling for a more forceful tax response to the crisis.
They said the dramatic spike in jobless claims combined with the vast additional burden on health systems should be a tax call-to-arms for governments internationally.
The pandemic has highlighted global reliance on digital and pharmaceutical behemoths, and at the same time should shine a spotlight on their tax behavior, said Rasmus Corlin Christensen, a researcher with the International Centre for Tax and Development.
'Digital giants [and other companies] have been exploiting the international tax system, using its legal opportunities to reduce their tax burden and design their business model around minimizing their tax bill', Christensen told the International Consortium of Investigative Journalists. 'There is this mismatch between the important role that they play in our society and their tax behavior'.
Now that governments are facing an economic meltdown, they are confronted with a reality that many economists and tax justice advocates have been warning about for a long time: more than $800 billion in lost tax revenues, annually.
In 2016, the ICIJ-led Panama Papers investigation exposed the offshore financial dealings of politicians, companies and criminals, helping governments recover at least $1.2 billion in fines and back taxes by April 2019. But trillions of dollars remain hidden offshore.
Gabriel Zucman, an economist at the University of California, Berkeley, told ICIJ one of the clear lessons of the current economic dislocation was: Tax havens are at the heart of the financial and budgetary crisis.
Each year, he estimates, 40% of multinational profits are shifted to tax havens and 8% of personal wealth is stashed offshore.
As past ICIJ investigations revealed, some of those multinationals include tech companies like Facebook, Uber and Amazon that have become vital links across the world, as it scrambles to deal with the viral outbreak through mass quarantines.
The list continues with Apple, which said it's producing protective gear for medical workers, medtech companies like Medtronic, which produces ventilators, and Johnson & Johnson, which is working on a vaccine in partnership with a U.S. state agency.
Experts say the paradox of the current crisis is that the revenue lost due to the actions of tax havens, and these and other corporate giants, could have been used to save lives and keep entire economies afloat as governments responded to the crisis.
Zucman said if there was one lesson we could take from the current economic crisis, it was: 'Shoring up our public services starts with fighting tax avoidance and tax evasion more aggressively'.
'When countries like Luxembourg offer tailored tax deals to multinational companies, when the British Virgin Islands enables money launderers to create anonymous companies for a penny, and Switzerland keeps the wealth of corrupt elites out of sight in its coffers', Zucman said, 'they all steal the revenue of foreign nations'.
Developing countries are particularly vulnerable to such a system, with yearly tax losses estimated at around $200 billion, a figure roughly equivalent to the amount the United Nations predicts they will lose due to the coronavirus pandemic.
While often rich in natural resources, those nations routinely see their precious commodities extracted by multinationals that shift profits out to their offshore shell companies and deprive the source country of much-needed tax revenue.
Last year, ICIJ's Mauritius Leaks investigation revealed how many corporations and wealthy individuals exploit so-called tax treaties to essentially divert tax revenue from poor nations back to their coffers. While legal, tax treaties often become a way to avoid paying tax in developing countries, which may not be able to compete with the incentives offered by tax havens like Mauritius and others.
'Sustainable, robust public responses to shocks require administrative capacity and tax resources', Christensen said. 'Tax avoidance and global tax competition, more broadly, strain the ability of countries to raise those resources'.
To level the playing field, member states of the Organisation for Economic Co-operation and Development (OECD) have been working on reforming the global tax system, which was set up in a pre-internet era.
The plan would include new ways of taxing digital companies and reallocating some of their profits to the countries where they have customers - often different from their business address or the subsidiary holding their intellectual property. (Think, for instance, of social media, e-commerce or mobile banking companies that may be incorporated in Europe but make lots of profits in developing countries.)
The OECD plan would also call for a minimum global effective tax rate for multinationals, making it harder to move profits around and cut their tax bills. The result is estimated to be an additional $100 billion of revenue a year, Christensen said.
However, many important details, such as the minimum tax rate, are yet to be decided. And, in a tragic turn of events, the negotiations - which could benefit the countries whose economies are being badly hit by the coronavirus - may stall because of the pandemic.
To mitigate COVID-19's impact on global economies, some experts have also suggested more effective reforms targeting wealthy individuals and tax evasion.
'Tax systems play another crucial role in that economic question at the heart of this crisis', wrote Tax Justice Network's Nicholas Shaxson, also the author of 'Treasure Islands: Tax havens and the Men who Stole the World'.
'Now is the time to push hard for tax justice', he added, calling for a strong fiscal stimulus which will lead to poor and vulnerable people paying less and rich people and strong, profitable corporations paying more.
The outbreak and the ensuing lockdown have disproportionately hit the most vulnerable, as high-income earners can continue to work from home or use their wealth to weather the shock, according to a recent study by Zucman, Camille Landais and Emmanuel Saez.
Solidarity is the best strategy, the economists wrote in the report which focuses on Europe and its tax system. However, past crises have shown that more long-term reforms are necessary to create a sustainable system that lasts long after the emergency is over.
A time-limited wealth tax on Europe's 1%, they explained, could generate a large amount of tax revenue while preserving wealth for the rest of the population.
Globally, bold measures are also needed to enforce laws against tax evasion, which causes an increased tax burden and an unequal distribution of such burden.
Take for example, Italy, which has the world's highest number of COVID-19-related deaths and recently announced a $28 billion plan to rescue the virus-hit economy. The country has a 30% evasion rate and, in 2016, it lost $118.5 billion to tax dodging and underreporting, according to the latest government estimates.
'The taxes that are evaded have to be compensated for by higher taxes on the law-abiding', Zucman told ICIJ or else they translate into less public goods and services for the rest of us - such as less access to health care.

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