Money laundering and politicalcorruption in Marbella, Gibraltarand LiechtensteinIn April the Spanish government took the unprecedented step of dissolvingthe town council in Marbella. The town’s mayor and several officials, lawyersand businessmen are implicated in a multi-million euro corruption scandal.Juan Hdez.Vigueras explains how this mafia-style activity in the Costa delSol is part of a web of corruption linked to tax havens.
In March 2005 OperationBallena Blanca (White Whale), a
police operation to combat thelaundering of profits from drugtrafficking, concluded with severalarrests and the seizure of prop-erty in the resort town of Mar-bella in southern Spain. Just oneyear later, political corruptionuncovered there by the recentlyset up Anti-Fraud Office forcedthe Zapatero government to dis-solve Marbella’s town council. Acaretaker administration will runthe town until the next local elec-tions.
Operation Ballena BlancaOperation Ballena Blanca, the larg-est police operation against thelaundering of drug money thatEurope had seen(according toSpanish news-paper El País),exposed a mafia-style web ofmore than onethousand shellcompanies,linked to realestate investments and tax ex-empt status companies in Gibral-
tar. These were linked to othercompanies across Spain as well as inthe United States and Canada.Some of the companies involvedwere linked with the troubled oilfirm Yukos, which belongs to theGibraltar-based Group Menatep.
Just a few details from the case givesome idea of its scale and impor-tance. As well as the seizure of 251houses and hundreds of millions ofeuros in bank accounts, severalplanes and 42 luxury cars (RollsRoyce, Ferrari, Porsche…), thejudge running the operation prose-cuted several lawyers and threenotaries accused of various crimesincluding money laundering and fal-sifying public documents.
For the first time in Spain’s history,notaries – a pro-fession that haslong enjoyed aprivileged pos-ition in society –were arrested andprosecuted. Nota-ries, like lawyers,are legally obliged
to inform the authorities of anysuspicions they have regarding
the quarterly newsletter of the
second quarter 2006 volume 2 number 2
Political corruptionuncovered in Marbellaforced the governmentto dissolve the towncouncil.
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money laundering. But in 2002 only12 such reports were submittedand by 2004 the figure had fallen tojust six, according to the SEPBLACReport.
Despite being public officials, nota-ries legally earn their fees directlyfrom private and corporate clients.In real estate transactions in Spain,it is fairly common practice for no-taries to record a lower price thanactually paid by the buyer in orderto reduce the amount of tax due.The Zapatero government has triedto do away with this practice, butwith insufficiently tough measures.
Marbella council dissolvedIn April 2006 fraud investigationsled to the arrest of Marbella’smayor Marisol Yagüe along withseveral town councillors and onehigh-ranking council official, JuanRoca, who had accumulated a for-tune estimated at tens of millions ofeuros. The media has reportedRoca’s flashy display of wealth toinclude a Miró painting hanging inthe bathroom of one of his homes,helicopters, thoroughbred horsesand numerous properties. Accord-ing to published information, thisamassed fortune was largely theproduct of commissions (kickbacks)Roca earned from granting buildinglicenses for land officially protectedfrom development.
For years the regional governmentof Andalucia had been trying to putan end to the corrupt practices inMarbella. For 15 years the townwas governed by a small‘independent’ right-wing party, theGIL (Grupo Independiente Liberal).The GIL’s late leader, Jesús Gil, whoenjoyed the support of sheikhs, theRussian mafia and the internationaljet set, was convicted for financialoffences involving his presidency offootball club Atlético Madrid.
But with the latest scandals, Mar-bella’s residents had had enough.At the end of March, about 10,000people turned out onto the town’sstreets to protest against corrup-tion. In April, following the arrest ofMarbella’s mayor together with sev-eral town officials, the Zapaterogovernment ordered the towncouncil to be dissolved and put acaretaker administration in to runthe town until the next local elec-tions in the middle of 2007.
Corruption and offshoreMany of the activities uncoveredduring the recent investigationshave shown how political corrup-tion and money laundering are inti-mately linked. And while corruptionand money laundering know noborders, democratic governmentsare constrained by national bounda-ries. Three issues in particular havebeen highlighted:
• These days, political corruptionstemming from financial crime al-ways has an international dimen-sion.• Money laundering and corruptionalways appear to be linked with oneor more tax havens (mainly Gibral-tar in the case of Marbella).•The globalisation of financial mar-kets has left some – albeit limited –space for nation states to act. Buteven citizen pressure does not ap-pear to be enough to convince na-tional governments to take suffi-ciently tough measures.
According to police information, alaw firm in Marbella arranged theincorporation and registration oftax-exempt status companies inGibraltar with nominee directorsincluded. In 2001, Gibraltar commit-ted to co-operate with the OECDto end harmful tax practices by2005. Yet in 2005, Gibraltar
Political corruptionand money launderingare intimately linked.
Beautiful laundrette? Gibraltar town where much of the Costa del Sol’s dirty money gets ‘washed’. Photo: Jenny Fowler
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reached agreement with the newlyappointed European Commissionfor the continuation of the exemptstatus company until it gets phasedout at the end of 2010. This despitethe fact that the existence of thisregime violates EU competitionpolicy (the state aid rule).
The identification of the real own-ers of Gibraltar-based companies isalso complicated because the lawallows for the director of a com-pany to be not only a person butalso another company (corporatedirector) which could, in turn, beregistered in another tax haven. Somore than one year on from theend of Operation Ballena Blanca, thejudicial investigations to determinethose responsible are obstructed bylack of co-operation.
Tangled web of corruptionRecent news reports hint at theextent of political wrongdoing inMarbella over the last few years,with lawyers and financiers withconnections in Liechtenstein owninglocal real estate businesses. TheSpanish newspaper El Mundoclaimed that British multi-millionaireand Marbella resident and land-owner Judah Binstock (who hasbeen the subject of a public prose-cutor’s office investigation) manageda vote of no confidence against theprevious mayor of Marbella, JulianMuñoz (who has also been investi-gated), in order to protect his inter-ests. The ousting of Muñoz gaveway for the election of the now-disgraced Yagüe. Binstock countedamong his acquaintances the lawyerEngelbert Schreiber, who was ac-cused by the USA of laundering al-Qaeda money in Liechtensteinwhere he has his office.
Juan Hdez. Vigueras is the author ofthe 368 page book Los ParaísosFiscales: Cómo los centros offshoresocavan las democracias. (Tax Havens:how offshore centres underminedemocracy).
Letter from the USARaymond Baker has been on a thirty-city tourwith his book on illicit money and corruption.Here he shares some of his experiences.
Over the last few months, Capi-talism’s Achilles Heel has taken
me all over the United States aswell as to England and Europe. Ithought I’d hit the jackpot when,driving in the Midwest, I saw a road-side advertisement that said, “OilLeases for Sale.” Imagine my disap-pointment with the phone num-ber—1 800 DRY HOLE. Earlier inthe Southwest, my attention wasriveted when I saw an official high-way sign cautioning, “State peniten-tiary 10 miles ahead. Do not pick uphitchhikers!” I knew I was in Bushcountry at my first speaking engage-ment in Texas. A gentleman askedme, “How do we convince ouryoung people that everything theUnited States is doing around theworld is right?” With a very longpause and a deadly serious counte-nance, I replied, “That’s . . a . .really . . tough . . question.”
I spoke mainly to foreign policy or-ganisations, business groups, andstudents. The foreign policy typesclearly understood my message andreacted extraordinarily well. Busi-ness groups were generally sympa-thetic. One person in San Franciscotried unsuccessfully to put up a spir-ited argument for the status quo.Some undergraduates had a bit ofdifficulty grasping the issues, butgraduate school and law studentsgot the points quickly.
Every audience was stunned by theloopholes in US anti-money laun-dering law. While it is illegal tobring into the United States pro-ceeds generated abroad from drugs,corruption, and terrorism, it is legalto bring in the proceeds of racket-eering, handling stolen property,counterfeiting, contraband, slavetrading, alien smuggling, trafficking inwomen, environmental crimes, taxevasion, and more. In my book, thefirst tipping point I call for is closingthese loopholes in US law. In Marchof this year, Senator Charles
Grassley (R-Iowa) Chairman of theSenate Finance Committee and anendorser on the back of my book,submitted a bill that would shutdown every one of these holes,making foreign proceeds subject toexactly the same restrictions asdomestic proceeds.
Two years ago my colleague Jenni-fer Nordin predicted that the mes-sages contained in Capitalism’s Achil-les Heel would likely resonate bet-ter in Europe than in the UnitedStates. After several talks and mediaappearances in London and on theContinent, I would say that thisproved correct. The highlight of allmy experiences was a speech andQ&A at the Royal Society of Arts inLondon, chaired by Lord DanielBrennan, head of the Caux RoundTable of global business leaders.With a lengthy format, I includedcomments on the way we have per-verted the original underpinnings ofcapitalism laid out by Adam Smithand embraced instead the “greatestgood for the greatest number” es-poused by Jeremy Bentham. En-couragingly, no one rose to Ben-tham’s defence. Perhaps capitalismis ready to bury the gross distor-tions of recent decades and moveinto a more just future. At leastthat’s what keeps many of us think-ing, working, hoping.
Raymond Baker is the author ofCapitalism’s Achilles Heel: Dirty Moneyand How to Renew the Free-MarketSystem. He is a Guest Scholar at theBrookings Institution and a SeniorFellow at the Center for InternationalPolicy.
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Ruangkrai Leekitwattana wasonce an official in Thailand’s
Office of the Auditor-General(OAG). And he noticed somethingfishy about share transactionsamong members of Thai Prime Min-ister Thaksin Shinawatra’s family.
Thaksin’s share dealings had alreadybeen in the limelight when he be-came Prime Minister in 2001 and hisdeclaration of assets was challengedby the National Counter Corrup-tion Commission. They chargedthat he had hidden assets by trans-ferring huge blocks of shares in hisfamily’s corporate empire to hismaid, driver and gardener (whomade that year’s list of top Thaishare owners). Thaksin escapedpunishment after a bizarre ruling bythe constitutional court: sevenvoted guilty, four not guilty and foursaid “I don’t think we should behearing this case”.
Shin Corp: a family affairThaksin was Thailand’s richest manthrough his Shin Corporation stableof companies dealing in mobilephones, satellites and property. Heand his wife, Pojaman, had repeat-edly given shares, or ‘sold’ them atbelow-market prices, to their chil-dren and other family members,many of whom were office holdersin their companies.
The share transaction that Ru-angkrai had spotted was 4.5 millionShin shares, originally belonging toPojaman. In 2002 they were trans-ferred as a ‘gift’ from the Thaksinfamily’s maid to Pojaman’s adoptedbrother, Bhanapot Damapong.(Bhanapot later acquired another26.82 million shares at a book valueof 10 baht (US25c) apiece directfrom Pojaman as another ‘gift’.) Sec-tion 40(4) of the Tax Code saysthat the buyer in such cases incurs
The tax sins of Prime MinisterThaksinEarlier this year thousands of Thai people took to the streets accusing PrimeMinisterThaksin of corruption and demanding his resignation. In April he wasforced to dissolve parliament. Chanida Chanyapate and Alec Bamford unravelthe complex story of Thailand’s political crisis, showing how Thaksin and hisfamily abused their position for personal gain.
no profit until the shares are laterre-sold. Tax becomes payable onlythen. Phaitoon Phongkesorn, Dep-uty Director General of the Reve-nue Department, was adamant inclaiming that there was no tax to bepaid on these transactions, sincethey were a ‘wedding present’ fromone sibling to another. Except thatBhanapot had been married foryears.
Ruangkrai left the OAG and took ajob as an accountant with the Bang-kok Expressway Company. He gothis dad to buy some shares andthen ‘gift’ them to him at 10 bahtper share when the market pricewas 21 baht. He was duly billed bythe Revenue Department for21,000 baht (US$525) tax on capitalgains he hadn’t yet realised.
A quick word here on taxation ofshares in Thailand. As a measure topromote investment, individuals(but not corporations) are exemptfrom tax on capital gains from sharesales on the exchange. Deals madeoutside the exchange, such as the‘gifts’ we are looking at, are notexempt, nor are dividends or otherincome from shares. Stock optionsto executives, directors, employeesor advisers are also taxable. Notethat this does not promote the effi-cient allocation of capital but rather
a casino mentality that churnsshares in the hope of quick gains.
Ruangkrai took his case to the Sen-ate Anti-Corruption Committee.There seemed to be a clear case ofdiscrimination. The Senate agreedand demanded that the RevenueDepartment bill Bhanapot for 47billion baht (US$117.7m) in tax. TheDepartment agreed that the caseswere equivalent, but instead choseto give Ruangkrai his 21,000 bahtback. Since Ruangkrai had asked theRevenue Department to tax Bana-phot rather than return his tax pay-ment, this became the first time inhistory that the Revenue Depart-ment had repaid a taxpayer withoutthe taxpayer asking for the money.
As a Department official com-mented at the time, every case isunique. And some are clearly moreunique than others.
Ample RichBhanapot eventually sold his Shinshares on 23 January this year aspart of what is known in Thailand asthe Deal of the Century. The Shin-watra-Damapong family sold alltheir Shin shares, amounting to 49per cent of the corporation’s capi-tal, to Temasek, a holding companycontrolled by the Singaporean gov-ernment and run by Ho Ching, thewife of Singaporean Prime MinisterLee Hsien Loong.
The family earned 73.4 billion bahton the deal (US$1.8 billion). Andpaid no tax. Bhanapot walked awaywith about 19.9 billion baht (US$0.5billion), but the biggest beneficiarieswere Thaksin’s son, Panthongtaeand eldest daughter, Pinthongta.Since they were selling shares thathad previously been gifted to them,common sense, and most Thais,reckoned they were now liable for
Thailand’s top taxexpert concocted acomplex web of dealsinvolving an offshoreholding company withthe splendid name ofAmple Rich.
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And there, as far as the compliantauthorities are concerned, the mat-ter rests. But reality is much richer.
Protests force a generalelectionThe huge tax break earned by theShinawatra family sparked streetprotests that culminated in Thaksincalling a snap general election onApril 2. This was so badly misman-aged by the Election Commission ofThailand in favour of Thaksin’s partythat the courts eventually annulledthe results. The Election Commis-sioners were the subject of courtsuits, pressure from the palace anddaily vituperation from the media.In the middle of this, the embattledchief Commissioner decided to takea holiday in Australia. The press gothold of the passenger list. Sitting inthe next seat, both there and back,was Phaitoon, the Deputy DG ofthe Revenue Department who hadbeen so vehement in defendingThaksin’s tax-free status. A com-plete coincidence, claimed bothparties.
But there is a happy ending. Amongthe many questionable shenanigansof the Thaksin administration, onewas to find, two years after the fact,a minor irregularity in the appoint-ment of Jaruvan Maintaka as Audi-tor General. In those two years shehad been getting far too interestedin corruption in the construction ofBangkok’s new airport. She wassuspended, but she carried on. Herpay was stopped, but she carriedon. Eventually they changed thelocks on her office and chose hersuccessor. But this needed Royalapproval, which wasn’t forthcoming.Eventually, they gave up and Jaruvanwas allowed back in her office. Oneof her first acts was to offerRuangkrai his old job back.
Chanida Chanyapate is a senior asso-ciate with Focus on the Global Southin Bangkok. Alec Bamford is a writerand development activist based inBangkok.
the tax they escaped when theyacquired the shares. Not so, de-clared the tax collectors. Since theshares had been sold on the stockexchange by individuals, they wereexempt from capital gains tax.
The outcry was loud and strong.The Finance Minster was accused ofacting as the Prime Minister’s per-sonal tax advisor. This was in factquite unnecessary since he had al-ready engaged the country’s top taxexpert, Suvarn Valaisathien, whohad concocted a complex web ofdeals involving an offshore holdingcompany with the splendid name ofAmple Rich, registered in the Brit-ish Virgin Islands. With the help ofSuvarn’s ‘explanations’, the trailquickly became so tangled that thefinest legal minds in the countrywere hard pressed to figure outwho had done what and with whatand to whom. The Securities andExchange Commission eventuallyfound Thaksin’s son guilty of minorinfractions of disclosure rules andfined him six million baht(US$150,000).
Enron - why the convictions wereimportantIn May, a jury inTexas found two former chief executives of bankrupt energycorporation Enron guilty on several counts of fraud and conspiracy.RichardMurphy looks at what this means for corporate governance and argues fortougher measures to curb offshore.
The financial world heaved acollective sigh of relief when
Kenneth Lay and Jeffrey Skillingwere found guilty for involvementin the downfall of Enron. Thecharges ranged from conspiracy andfraud, to making false statementsand insider trading in the case ofSkilling alone. But it is important tosee why there was such relief, andwhere things move from here.
It would have been disastrous forthe development of corporate gov-ernance if the two had been found
not guilty. The Sarbanes Oxleystructure put in place since Enronwould have been proven unneces-sary, and far too many people havetoo much invested in that systemfor a not guilty verdict to have beenanything but a disaster. So, a serioussetback was avoided by these con-victions, even though ultimatelythese systems will not stop thosedetermined to commit fraud.
More importantly, though, the trialwas a benchmark. Senior executiveswere held to account for their ac-
tions and were found to be respon-sible for them. That was vital. Any-thing otherwise would have sentout all the wrong signals.
More than that though, the trial wasby jury. Lay and Skilling were notfound guilty by a professional bodyor a regulatory board hearing; theywere found guilty in a criminalcourt. And despite the complexityof the numerous charges and thelength of the trial, the jury wasasked to determine guilt on thebasis of a simple test – did the de-
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The scandal that culminated in the trial of Lay and Skilling has its roots inthe suspect financial and accounting methods Enron had been using foryears. During the 1990s Enron became a byword for innovative financingstrategies. In 2000 Enron’s share price hit an all-time high and, by thetime of its collapse, the company was the seventh largest in the USA. Butit later came to light that Enron had used offshore special purpose vehi-cles to borrow huge sums of money through derivatives deals, to hidemillions of dollars of the company’s debt and to vastly inflate profits.Here is how the scandal unfolded:
Enron: a failure of corporate governance
October 2001 Enron reports huge losses and writes down share-holders’ equity by US$1.2 billion.
The US securities and exchange commission begins afraud investigation and the price of Enron’s shares dropsdramatically.
December 2001 Enron files for bankruptcy.Enron employees lose their jobs and life savings andthousands more are affected through pension plansholding Enron shares.
July 2002 The Sarbanes-Oxley bill is introduced in the USA inresponse to corporate scandals such as Enron and UStelecoms company Worldcom. The new law introducestighter regulation and enhanced disclosure for publicly-owned companies.
August 2002 Former Enron auditor Arthur Anderson surrenders itslicense to practice in the USA.
January 2004 Former Enron finance chief Andrew Fastow pleads guiltyand testifies that former chief executives Kenneth Layand Jeffrey Skilling had encouraged him to commit fraud.
May 2006 Lay and Skilling are convicted of conspiracy and fraud.Sentencing will take place in September 2006.
fendants know that their actionswere wrong? That is not a technicaltest. It is an ethical test. And thejury convicted on that basis.
This is an important victory for tworeasons. In some countries therehas been an over-emphasis on bas-ing fraud and corporate malfeasancecases on the basis of technical evi-dence. This has allowed defendants’lawyers the opportunity to presenttechnical defences, extended thelength (and cost) of trials, and led toclaims that juries cannot understandthese issues. The Enron case pro-vides a useful lesson. The jury were,of course, presented with evidenceof wrongdoing in breach of the law.That is essential to secure a convic-tion. But by including conspiracycharges it was possible to ask ques-tions about Lay’s and Skilling’s moti-vation and intention in undertakingthose transactions i.e. did they in-tend to break the law? By doing thisthe issue became comprehensible,because technicalities, whilst stillsignificant, are of much lower im-portance. This also reduces theprospect of a successful appeal onthe basis of a technicality.
It is this test that I find most impor-tant about the Enron trial. It seemsto say technical compliance with thelaw is not enough to act as a de-fence: you must have been activelyseeking to comply with it as well.And of course, that is what we haveargued for some time in the area oftax. It is good to see it being re-flected in this case.
So where next? That’s hard to say,unless you are Lay or Skilling as Iexpect them to spend some time inprison. My guess is this. First, thiscase will reinvigorate the shock-
waves driving enhanced compliancein the USA. The convictions willremind those in Europe who arguefor lower states of regulatorychecking that those processes areput in place for a purpose. Andrather like the impact of the col-lapse of Andersen and the fines onKPMG and trial of KPMG partners,this will act as a sharp warning tothose considering wrongdoing.
But will that be enough to changethe culture of the corporate worldso that such practices cease? Sadly,I doubt it. Change does not comefrom the fear of prosecution, itcomes from the belief that goodpractices produce better outcomes.
As yet not enough has been doneto stop people believing that off-shore, secrecy and tax avoidancepay. Until that is changed anotherEnron is inevitable, no matter howmuch regulation is in place, and off-shore will remain a cancer in thecorporate world as it was at Enron.
So the prosecution is welcome. Achanged attitude to offshore fromthose governments that continue totolerate it, including the USA,would be even more welcome.
Richard Murphy is Director of TaxResearch LLP.
Not enough has beendone to stop peoplebelieving thatoffshore, secrecy andtax avoidance pay.
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Corruption and the role of tax havensCorruption is a global problem and it has risen in scale in recent decades.But our perceptions of corruption are largely shaped by Northern attitudesand media, and have consequently been distorted to fit an agenda which is
insulting and harmful to the South, writes John Christensen.
Transparency International has played a lead role inshaping the global campaign to counter corruption
and has highlighted the huge cost to business of doingbusiness in countries where bribe taking is regarded asthe norm. Africa in particular has come under theTransparency International spotlight, accounting foralmost half of the bottom 20 per cent of the TI 2005Corruption Perceptions Index (CPI). Famously, Chad,a small land-bound state which has recently joined theranks of the hydrocarbon exporting economies, wasranked as the most corrupt country in 2005. Nigeriaheld that illustrious position for many years, but nowcomes sixth from the bottom, scoring a mere 1.9 on anindex which ranges between 10 (highly clean) to 0(highly corrupt). Small won-der then that US and Euro-pean politicians feel entitled tolecture African leaders on theneed to get their house inorder. But before doing thisthey should turn the spotlightthrough 180 degrees and takea closer look at the other endof the corruption spectrum.
Only one African country,Botswana, is ranked amongstthe least corrupt 20 per centof the CPI for 2005. Almostall the remainder are OECDstates. And 40 per cent of thecountries ranked as least cor-rupt according to Transpar-ency International’s vision ofthe world are tax havens, in-cluding major centres such asSingapore (ranked 5th overall),Switzerland (7th), United King-dom (11th), Luxembourg(13th), Hong Kong (15th), USA(17th), and Belgium and Ireland(jointly 19th). For good measureBarbados and Malta, both tax
havens, rank 24th and 25th respectively. Iceland, also atax haven though only a minor player, ranked as leastcorrupt country in 2005.
In focussing on the ‘demand side’ of ‘petty’ corruption,i.e. the extortion of bribes by public officials, as the mainindicator of corruption, TI has played a key role in dis-torting public perceptions of corruption thereby rein-forcing negative images of Africa whilst distracting fromthe higher level corruption of major companies and gov-ernments from the North. This is not to downplay theharm caused to Africa by bribery, but the steady growthof petty corruption in recent decades has at least in partbeen driven by IMF and World Bank conditionality
which pegs civil service sala-ries at an arbitrary percentageof wholly inadequate govern-ment budgets. However, asRaymond Baker has so con-vincingly demonstrated inCapitalism’s Achilles Heel, brib-ery represents only around 10per cent of the massive dirtymoney flow out of developingcountries, with proceeds ofcrime and illicit commercialtransactions being of fargreater importance. By wid-ening the definition of corrup-tion to include embezzlement,larceny and crimes involvingillicit commercial transactionsused for facilitating capitalflight and tax evasion, we gaina far more complete pictureof corrupt practices in action,and of the importance of the‘supply side’ in encouragingand facilitating global corrup-tion.
According to the recentlypublished report of the Africa
The City of London. International banks playa key role in establishing and maintainingthe offshore financial systems which enabledirty money to flow from South to Northwith relative ease and impunity.Photo: Paul Jackson
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All Party Parliamentary Group (AAPPG) of the UK gov-ernment, the supply side covers both the persons andinstitutions offering the bribes, and – crucially – the fi-nancial systems which launder the proceeds of corrup-tion. Companies from the industrialised countries havebeen guilty of offering bribes to secure contracts andspecial treatments, including tax incentives, and fre-quently this happens even when bribes have not beensolicited. But more importantly, international banks andother financial intermediaries have played the key rolein establishing and maintaining the offshore financial sys-tems which enable dirty money to flow from South toNorth with relative ease and impunity. According toBaker, illicit commercial transactions involving mispric-ing, abusive transfer pricing, and fake transactions, ac-count for approximately 65 per cent of cross borderdirty money flows originating from developing and tran-sitional economies. In the case of Africa:
“As much as 60% of trade transactions into orout of Africa are estimated to be mispriced by anaverage of 11%, which translates into annual capi-tal flight in excess of $10 billion. Fake transac-tions are estimated to account for a further$150-200 billion.”Tax Justice Network in written evidence to theAAPPG, quoting from Capitalism’s Achilles Heel(2005).
The vast majority of this illicit trade is laundered via taxhavens linked to the international banking system, and itgenerally remains offshore to be managed by the pleth-ora of banking businesses (largely from the North) of-fering wealth management services to their high net-worth clients. With 2005 seeing record growth in thenumbers of people in Africa and Latin America withliquid assets exceeding US$1 million, largely on the backof surging commodity prices, it is not surprising that theoffshore financial services industry turns a blind eye towhat the AAPPG report describes as ‘rampant klepto-mania’.
Like many who have studied corruption in Africa, I haveconcluded that the problem is largely stimulated by thesupply side. The ease with which proceeds of crime andillicit commercial activities can be laundered into secretbank accounts and offshore companies owned by off-shore trusts inevitably encourages criminal behaviourand protects it from investigation. Working with cor-porate investigators and journalists covering majorcrimes in Africa and elsewhere in the South, I havenoted how investigations have almost invariably led toaccounts held in Switzerland, Luxembourg, the BritishCrown Dependencies, the Cayman or similar tax ha-vens. This is typically where the investigations haveended, because, despite all the international conventionsput in place in recent years, these offshore territoriesdo not cooperate with legitimate investigations and re-fuse to publicly disclose even basic information aboutownership or basic financial accounts. This determina-tion to protect secrecy, even in the light of massive evi-dence of abuse, suggests that western governments arestill not serious about wanting to remedy endemic cor-ruption, despite ample evidence of its inevitably harmfulsocial and economic consequences. As one witness toldthe Parliamentary Group during the course of its en-quiry:
“With one hand, the West has pointed the fingerat corrupt African leaders, with its other hand, itsbankers, lawyers, accountants, art dealers, healthauthorities, universities, estate agents and embas-sies have been actively or passively encouragingwealth out of Africa into the West’s economies.”Dr Patrick Darling in written evidence to theAAPPG.
The Other Side of the Coin: the UK and Corruption in Africa,AAPPG, March 2006, available online at:
www.africaappg.org.uk
The UK Government and corruptionJohn Christensen
The UK Government responseto the report on corruption by
the Africa All Party ParliamentaryGroup, The Other Side of the Coin,was generally positive but failed toadequately address the concernsexpressed to the Group by TJNrepresentatives.
On the plus side the Governmentappointed Hilary Benn, Secretary ofState for International Developmentto tackle international corruptionand coordinate policy coherenceacross UK Government depart-ments. The Government also com-mitted to working with interna-tional partners to establish a review
of international safeguards againsttrade mispricing and capital flight,but fell short of making explicitcommitments to TJN’s proposal tointroduce mandatory price-relatedsignatures from buyers and sellersfor all cross-border transactionsexceeding approximately€15,500(£10,000) in value.
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The Government committed toestablishing a police task force tofocus on bribery and money laun-dering issues. Details of exact linesof responsibility will not be pub-lished until later this year, but it islikely that the Economic and Spe-cialist Crimes Unit of London’sMetropolitan force will focus onmoney laundering issues.
On the minus side, however, in re-ply to the AAPPG’s proposal fordisclosure of beneficial ownership
of companies, the Governmentclaimed that any requirement todisclose beneficial ownership“would be legislatively impracticaland impossible to enforce”, butwould be ineffective in combatingcorruption “since criminals wouldeither not disclose their identity orensure they did not own, directlyor indirectly, the shell companiesthey were controlling.” This re-sponse is wholly inadequate andsuggests that the UK Governmentremains committed to supporting
the tax evasion industry which op-erates at the core of the City ofLondon.
John Christensen directs the TJNInternational Secretariat.
The full text of the Government’sresponse to the AAPPG report isavailable on the news section of theTJN website:www.taxjustice.net
A code of conduct for banksTJN believes a code of conduct for banks is urgently needed. Lucy Komisarproposes some initial ideas on what this code might look like and invitesfeedback from TJF readers.
International banks are the institu-tions that facilitate the global tax
evasion system. Most of the sub-sidiaries in the world’s tax havensare not run by fly-by-night opera-tors that nobody’s ever heard of.Those shifty ‘shady folks in sunnyplaces’. Sure, there are some ofthose. But most offshore banks arethe subsidiaries of the world’s ma-jor ‘reputable’ financial institutions,directed by the fellows who wearArmani suits and are accepted inthe best of company.
The Tax Justice Network agreed atits May meeting in Athens to estab-lish codes of conduct for banks andcompanies that should be adoptedinternationally. Here is a suggestionof what we might consider whenwe draw up the code for banks.Readers are invited to commentand add their own ideas so that wecan come up with standards onwhich to campaign.
The heart of the matter, of course,is the offshore bank and corpo-rate secrecy system. That’s wherebanks hide the money of tax evad-ers, drug and arms traffickers, dicta-tors, terrorists, corrupt officials,corporate fraudsters and the like.
So, we make these demands. Someof them are based on the fact that‘offshore’, in the day of computersand internet, is often a convenientfiction. Accounts ‘exist’ whereverthe banks say they exist, even if theactual management is handled bystaff sitting in offices in Hong Kong,Frankfurt, Paris, London or NewYork.
Banks must abjure offshore se-crecy by making account informa-tion in all their locations available tolaw enforcers and civil court plain-tiffs seeking information for criminalor civil cases. If offshore venuesprotest that this violates the law,the banks must contest the rulingsand, if necessary, close those off-shore subsidiaries.
Banks must not use subsidiaries inoffshore secrecy jurisdictions asregistries or booking vehicles for
transactions arranged and managedfrom onshore.
Onshore staff must not manage(by computer or otherwise) ac-counts registered offshore and thentell law enforcers, civil complainantsor other legitimate investigatorsthat the records are offshore andnot accessible.
Banks must not open correspon-dent accounts for banks that oper-ate under offshore secrecy rules.
Banks must stop advertising andpromotions aimed at wealthy clientsthat use language about ‘tax plan-ning’ or other euphemisms to selltax evasion.
Banks must not advise or helpclients move their money into ac-counts abroad, through privatebanks or other special services, forthe purpose of evading taxes. Theyshould supply to home countriesinformation about the accounts ofthose countries’ residents set upabroad.
Banks must not set up shell com-panies for clients that do not havereal functions other than the secretmovement of money. They must
‘Offshore’, in the dayof computers andinternet, is often aconvenient fiction.
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not sell ready-to-go ‘off the shelf’companies for immediate use forsuch purposes. They must not setup companies whose owners arekept secret from law enforcementor civil plaintiffs. They must notsupply their own staff as sham di-rectors for offshore companies.
Banks must never register ac-counts or companies in false names,straw men or the names of theowner’s lawyer, accountant orother representative. They mustprint and mail regular statements tothe owners of all accounts to theirhomes countries. They must notengage in surreptitious behaviour tohelp clients hide their banking activi-ties from home authorities.
Banks must not engage in‘structured finance’ when that is aeuphemism for deceiving investorsand the public about a client’s finan-cial situation or when it is used toenable a company to evade taxes.
Banks must not set up shell com-panies that are used as facades toengage in fraudulent operations orotherwise ‘cook the books’ as Citi-group and JP Morgan Chase did forEnron in order to give Enron loansdisguised as profits.
Onshore staff must not manage(by computer or otherwise) ac-counts registered offshore and thenfail to allocate the profits to the realplaces of management. They mustdeclare profits where they areearned, that is, where accounts areactually handled. They must not usetransfer pricing or ‘head office fees’to move profits to lower tax juris-dictions.
Banks must not engage in busi-ness the only purpose of which is toreduce their taxes in some jurisdic-tions.
Banks must not keep double ac-counting systems that allow profitsto be allocated to subsidiaries orindividuals without that appearingon the official books of the banks intheir home countries.
Banks must maintain transparencyabout their own taxes by makingthem public. This would includepre-tax profits, levels of current anddeferred tax, opening and closingtax liabilities, and payment of differ-ent types of tax including on‘capital’ and ‘people.’
The key to banks’ behaviour mustbe transparency, public accountabil-ity and a decisive rejection of taxevasion.
Lucy Komisar is a New York basedinvestigative journalist.
Comments and suggestions on thecode of conduct for banks arewelcome.
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Capital flight and tax evasion ascorruptionThe International Financial Institutions should include capital flight and taxevasion in their definition of corruption and the IMF should focus on theseissues, argues David Spencer.
An investor, an individual or a company resident incountry A, makes a bank deposit or other interest
bearing investment in country B. Country B is in manycases an onshore financial centre or an offshore financialcentre. Country B does not tax the investor on the in-come on such investment. Further, country B has banksecrecy or other confidentiality laws, which means thatit is unlikely that country B will inform country A of theinvestor’s investment in country B.
What is the likely result? The investor does not declareto the tax authorities in country A, his/her/its countryof residence, the income on the investment in countryB. That is capital flight, and tax evasion in country A bythe investor.
Capital flight and the resulting tax evasion is corruption,both private sector corruption and public sector cor-ruption.
It is private sector corruption bythe investor who evades taxes incountry A, his/her/its country ofresidence. The investor is ille-gally diverting for his/her/itsprivate use, funds, tax revenue,that belong to the public sectorin country A.
But it is also public sector cor-ruption by the government incountry B. This is because thegovernment in country B pro-vides bank secrecy and otherconfidential treatment which it knows facilitates capitalflight from other countries and tax evasion in thoseother countries (country A). Governments in onshoreand offshore financial centres provide bank secrecy andother confidentiality treatment, knowing that because ofthat bank secrecy and other confidentiality laws, foreignpersons (individuals and companies) will make invest-ments in those financial centres, and not declare thoseinvestments in their countries of residence. In effect, thegovernments of those onshore and offshore financialcentres are knowingly facilitating and encouraging capitalflight and tax evasion, that is, knowingly facilitating cor-ruption.
In March 2005, the Tax Justice Network published abriefing paper, The Price of Offshore, which estimated
that the amount of funds held by individuals in offshoreand onshore tax havens, and undeclared in the countryof residence, is approximately US$11.5 trillion. Thisestimates capital flight from all countries, and not onlycapital flight from developing countries. The briefingpaper also estimated that the annual income on theseassets, and the tax revenue lost on the undeclared anduntaxed funds, could be approximately US$860 billionand US$255 billion, respectively. The latter figure ap-proximates the annual funds needed under the UN’sMillennium Development Goals.
Corruption has become a major issue.
Transparency International initiated and spearheadedthe campaign against corruption and for transparency.Publish What You Pay and the Extractive IndustriesTransparency Initiative have focused on the extractive
industries, arguing for greater trans-parency, in order to brake, andbreak, corruptive practices withregard to payments to governmentswith extractive industries. TheWorld Bank and the InternationalMonetary Fund (IMF) have joinedthe process, concerned about cor-ruption in World Bank and IMFprojects and programmes, and ingeneral. And in December 2005,the United Nations ConventionAgainst Corruption (UN Conven-tion) came into force. The UNConvention does not explicitly de-fine corruption, but does refer to
both public sector corruption and private sector cor-ruption, (Articles 12,13, and 21-24), the laundering ofproceeds of crime and concealment.
On February 18, 2006 representatives of the AfricanDevelopment Bank, the Asian Development Bank, theInter-American Development Bank, the European In-vestment Bank, the European Bank for Reconstructionand Development, the IMF and the World Bank(International Financial Institutions) “reached an un-precedented consensus on the broad polices and prac-tices necessary to address both internal and externalproblems of corruption:”
“The leaders agreed on the need to standardizetheir definition of corruption, to improve the
Governments in financialcentres that provide banksecrecy and otherconfidentially treatment areknowingly facilitating andencouraging capital flightand tax evasion - that is,knowingly facilitatingcorruption.
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consistency of their investigative rules and proce-dures, to strengthen information sharing, and toassure compliance and enforcement actions takenby one institution are supported by all others.The leaders established a task force to report tothem bi-monthly on progress made to develop auniform Framework for Preventing and Combat-ing Fraud and Corruption with the goal of con-cluding an agreement by the September AnnualMeetings of the World Bank Group and the IMF.
“The leaders also agreed to work together todevelop concrete proposals to assist countriesover the longer term in strengthening their ca-pacity to combat corruption and to improve co-operation with civil society and other stake-holders and institutions such as the press andjudiciary with the goal to enhance transparencyand accountability”.Heads of MDBs Joint Statement on Corruption.Washington DC. February 18, 2006
In their efforts against corruption, the International Fi-nancial Institutions should include in the definition ofcorruption, capital flight and the resulting tax evasion,and should confront this issue. The IMF has the primaryresponsibility of monitoring and surveillance of interna-tional financial centres (both onshore and offshore).Therefore, the IMF should focus on this aspect of cor-ruption.
David Spencer is a practicing attorney in New York,specialising in tax law and banking law.
Reviews and new research
Gaétan BretonFaire payer les pauvres:Éléments pour une FiscalitéProgressiste(Let the Poor Pay: Elements ofa Progressive Fiscal System)Lux Éditeur, 2005
As you may gather from the title,Faire Payer les Pauvres deals with theerosion of the progressivity of in-come tax in the Province of Qué-bec and in Canada generally.
Gaétan Breton, a professor of ac-counting at the Université du Qué-bec à Montréal, describes the proc-ess as gradual, starting after WorldWar II and accelerating in the1980s. As in other OECD coun-tries, this has been done throughthe reduction of the number of taxbrackets, an increase in the ratespaid by middle- and lower-incomewage earners, a reduction of therates paid by the rich, and a shift ofthe tax burden from corporationsto individual salaried taxpayers. Inparallel to the decreased progres-
sivity of the income tax structure,the State has increasingly come torely on regressive taxes as a reve-nue source.
The author describes the ideologi-cal background driving the transfor-mation of the fiscal systems, whichincludes the promotion of inequalityas a means of increasing productiv-ity and scare tactics involving a dis-torted depiction of public debt. Inaddition to his description of theways in which the Canadian andQuebec tax regimes have been per-verted so as to make the less afflu-ent pay for the running of the gov-ernment apparatus, for the rem-nants of social programmes, and forthe gifts to the business communityby way of subsidies and low interestloans (some of which never get tobe reimbursed), the author alsodeals with the other ways in whichthe poor and the lower-middle classget to pay for the resulting accumu-lation of wealth by the few.
Breton’s treatment of the fiscal is-sues is informed by his awareness ofthe distorted accounting underpin-nings of the gross national product(GNP), of the failure of markets totreat natural resources as finite, andof the omission in the GNP of ac-tivities which are not priced – whileincluding destruction, waste and thecosts of remedying disasters as inte-gral components of the GNP. Butthe main thrust of the book is fiscaljustice, emphasizing the social impli-cations of taxation and the need fora tax system to be fair and struc-tured and implemented so as toredistribute wealth. A guaranteedminimum income scheme does notattract universal support from allprogressives, but Gaétan Bretonmakes a good case for it. He alsofavours a generally more activesocio-economic role for the state.
Raymond Favreau
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Greg Le RoyThe Great American JobsScam: Corporate tax dodgingand the myth of job creationBerrett-Koehler Publishers, 2005
The Tax Dodgers Are Coming!The Tax Dodgers Are Coming!
Fans of Catch-22 will recall MajorMajor’s father as “a long-limbedfarmer, a God-fearing, freedom lov-ing, law-abiding rugged individualistwho held that federal aid to anyonebut farmers’ was creeping social-ism”. Well US variant socialism hasshifted a long, long way since JosephHeller wrote this in 1955, and wel-fare for big business has become aprominent feature of the US econ-omy. The corporate subsidy systemis now so embedded, and so deeplydistortive of the free market sys-tem, that it largely boils down to anupside down welfare state gearedto further enriching the rich at theexpense of middle- and lower-income earners.
According to Le Roy’s researchalmost every large US corporationhas received tax breaks and subsi-
dies to create jobs. In many casesthe jobs already existed, or wouldhave been created anyway, orsomehow were simply not createdeven though subsidies were paid.On average US states grant morethan 30 subsidies, including prop-erty tax abatements, sales and ex-cise duty exemptions, low interestloans, loan guarantees, traininggrants, income tax credits, and soon and so forth. Subsidy packagesroutinely exceed US$100,000 forevery job created, diverting publicfunds away from investment in edu-cation and infrastructure whichwould probably create more viablejobs in the longer term.
Subsidies are big business in them-selves. US$50 billion a year is dis-bursed through a variety of publicoffices, spawning a mirror industryof consultants to advise on how toapply for subsidies; how to subsidyshop by playing one state off againstanother; and even how to buy andsell economic development taxcredits.
And what benefits do the public
derive from all this jiggery-pokery?Little or none is the answer. Whilststates compete blindly against oneanother to attract capital, realwages have stagnated or fallen,healthcare has become less afford-able, pensions have shrunk in valueand public infrastructure has drasti-cally deteriorated. All in the nameof a corrupted version of competi-tion which pits state against state ina wholly unproductive race to thebottom.
Founder and director of Good JobsFirst (www.goodjobsfirst.org), GregLe Roy has authored a witty cri-tique of the economics of corporatewelfarism in the United States. Andwhere the United States leads oth-ers are sure to follow. Le Roy’score arguments about the role oftax competition in reducing publicwelfare apply equally to other conti-nents, not least Europe, where cor-rupt pork barrel politics also fa-vours the rich at the taxpayer’s ex-pense.
John Christensen
Campaigns and TJN newsRaising the TJN profile
During the second quarter of 2006TJN representatives held meetingswith a variety of inter-governmentalorganisations and the BrettonWoods Institutions to introducethe Network and establish workingrelationships.
In April, John Christensen and Rich-ard Murphy met with Michel Aujeanand his team from the DG Tax andCustoms Union of the EuropeanCommission to discuss the SavingsTax Directive and concerns aboutthe tax policies of the British
Crown Dependencies. Later thatmonth John Christensen took partin a panel discussion at an ECOSOC
side event organised by the Frie-drich Ebert Stiftung in New York.
Speaking alongside John Williamson(Institute for International Econom-ics) and Ricardo Ffrench-Davis(ECLAC), John proposed a varietyof measures to tackle poverty bycurbing capital flight and tax eva-sion. TJN was subsequently invitedby the ECOSOC Secretariat to or-ganise a side event at the forthcom-ing Substantive Session which isbeing held in July in Geneva.Lucy Komisar and Larry Bridwell
(TJN-USA) at the UN in New York.
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Athens meetings marksnext steps for TJNJohn Christensen
Three years after its launch, TJNtook two major steps forward atthe annual Council and Open Meet-ings held in Athens in early May.First, after 18 months of consulta-tion and discussion, the Counciladopted a new Constitution to re-flect the Network’s increasinglyglobalised scope and activities. Sec-ond, participants at the Open Meet-ing agreed to support a shift fromthe past emphasis upon networkbuilding towards giving equal prior-ity to high-level advocacy work, thisshift being reflected in the forma-tion of teams to focus on the majorinternational financial institutionsand inter-governmental organisa-tions.
The new TJN Constitution adoptedby the TJN annual Council Meetingin Athens on 2 May 2006, is basedupon the formation of a Belgianregistered International Not ForProfit Association (InternationalAssociation Sans But Lucratif) whichis now in the process of being regis-tered with the Belgian authorities.The Constitution lays out the ac-countability structure for the globalnetwork, placing overall power inthe Tax Justice Council, and out-lines the role, composition andpowers of the International SteeringCommittees, the Board of Direc-tors and the Scientific Council.
After agreeing the English, Dutchand French versions of the newConstitution, the Council ratifiedthe membership of the FounderMembers of the new Associationand elected Sven Giegold, FrançoisGobbe and Bruno Gurtner to serveas interim Board Directors pendingfinal ratification of the Constitutionby the Belgian Authorities. A per-manent Board of Directors will beelected at the 2007 Council Meet-ing scheduled to be held in Nairobi,Kenya, in January 2007. The full textof the TJN Constitution and theMinutes of the Council Meeting inAthens, are available for download
from the homepage of the TJNwebsite (www.taxjustice.net).
The purpose of the Open Meetingin Athens was to review overallstrategy of the Network at the in-ternational level and to agree stra-tegic objectives for the next 18months. After reviewing progresson major projects in hand, includingpreparations for the launch of TaxJustice for Africa in 2007, the Meet-ing discussed priorities under fourprincipal headings: network building,advocacy, campaign work and re-search.
Until this year network building hasbeen given highest priority, but theconsensus view of the Meeting wasthat TJN has gained sufficient criti-cal mass to be able to devote moreresource to high level advocacywork. On the proposal of BrunoGurtner, the Meeting agreed tocreate specialised teams includingsenior advisers to TJN, which willfocus on the following institutions(team contacts in brackets):
• UN ECOSOC Committee of Ex-perts on International Cooperationin Tax Matters (TJN contact: DavidSpencer)
• International Monetary Fund (TJNcontact: TJN-USA Secretariat)
• World Bank (TJN contact: TJN-USA Secretariat)
• OECD (TJN contact: Bruno Gurt-ner)
• European Commission (TJN con-tact: International Secretariat)
• The South Centre (TJN contact:International Secretariat)
Meetings have been held with all ofthese institutions during the past sixmonths and TJN is already widelyrecognised as representative of civilsociety’s interests in tax policy mat-ters relating to harmful tax prac-tices.
The Minutes of the Open Meetingin Athens on 2/3 May 2006 areavailable on request to the Interna-tional Secretariat:[email protected]
Madrid conference onglobalisation, tax havensand poor countriesJuan Hdez. Vigueras
On 25 and 26 May a conference onGlobalisation, Tax Havens and PoorCountries took place in the EscuelaJulián Besteiro of the UGT (UnionGeneral de Trabajadores or GeneralWorkers’ Union) in Madrid. Theevent was organised by Attac andEconomistas sin Fronteras, and spon-sored by the Spanish Secretariat ofState for International Cooperation(SECI).
The conference drew attention tothe devastating impact of tax havenson poor countries. Speakers in-cluded: the Director General ofSECI; Arcadi Oliveres, professor ofeconomics at Barcelona University;Juan Hdez. Vigueras, TJN steeringcommittee member; John Christen-sen, director of the TJN Interna-tional Secretariat; Sven Giegold,TJN steering committee member;Bernard Cassen, ex-director of LeMonde Diplomatique; and Attac Spainmembers Ricardo Gª Zaldívar ySoledad Milán.
Conference participants stated thatmuch higher tax revenues will beneeded in order to meet the glob-ally adopted targets to reduce pov-erty by 2015 contained in the UN’sMillennium Development Goals(MDGs). TJN estimates that theamount of funds held by wealthyindividuals in tax havens globallycould generate additional tax reve-nues of US$255 billion per year –enough to finance the MDGs.
Ricardo Gª Zaldívar speaking atthe Madrid conference.
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July 1Finland’s EU Presidency begins.
July 6-7Workshop at Essex University, UK:Tax, poverty and finance fordevelopment. Organised jointly bythe Association for Accountancy &Business Affairs and TJN.
July 6-7Ministerial conference of the Lead-ing Group on Solidarity Levies toFund Development, Brasilia, Brazil.Lucy Komisar (TJN-USA) andDavid Hillman (Stamp Out Pov-erty) to represent TJN.
July 15-17G8 Meeting, St Petersburg, Russia.
July 24Side event ‘International Coopera-tion on Tax Matters’ at the Sub-stantive Session of the Economicand Social Council. Organised bythe Financing for DevelopmentOffice/DESA and TJN.
August 30 - September 1Royal Geographical Society annualconference, London, UK.Key theme: The geography of cor-ruption. Guest speaker: JohnChristensen (TJN).
September 19-20IMF and World Bank Annual Meet-ings, Singapore.
October 17Global White Band Day.
October 19 - 22Nordic Social Forum, Oslo, Nor-way. TJN to launch its code ofconduct on tax policy for business.
November 15-18International Anti-CorruptionConference (IACC), GuatemalaCity and Antigua, Guatemala.Organised by the IACC Counciland Transparency International.
DecemberFirst conference of State Parties tothe United Nations ConventionAgainst Corruption, Jordan.
Calendar 2006The launch of the NordicTax Justice Network
Nordic TJN wants Nordiccountries to highlight taxresponsibilityJorma Penttinen
The Nordic social model, renownedglobally as a positive developmentstrategy, is not compatible withharmful tax practices. Therefore taxactivists in Norway, Sweden andFinland decided to form a NordicTax Justice Network (NTJN) topromote good tax practices.
The launching event took place inOslo, on 10 June, where tax activ-ists spent three days formulatingthe role of NTJN. John Christensenfrom TJN’s International Secretariatoffered ideas on how the Nordiccountries could approach the de-bate on coherent development pol-icy, and how Nordic companiescould take their tax behaviour intoaccount when creating corporatesocial responsibility (CSR) policies.
The Nordic tax model is based ontransparency and redistribution, andon financing universal public goodsand high quality services. Thismodel has strengthened social co-hesion, welfare and economic com-petitiveness.
The Nordic countries thus have anexcellent opportunity to take anactive role in international coopera-tion and work with key institutions
(OECD, EU, UN) to tackle cross-border tax avoidance and evasion,and to resist tax competition. Justrecently the Nordic finance minis-ters decided to have common Nor-dic treaties on exchange of informa-tion with some 30 tax haven juris-dictions. This is, of course, a feebleattempt to curb tax haven activities,but it shows that there is a com-mon will to act on these issues.
Some Nordic companies have astrong sense of social responsibility,even though tax matters have tradi-tionally been ignored. Nordic TJNplans to have a dialogue with thebusiness community and createpositive CSR recommendations inwhich corporations’ responsibilitiescover their whole impact on a soci-ety. No Nordic country would ap-prove of a company that doesn’tpay taxes but in developing coun-tries big companies can, in manycases, operate virtually tax free.
The Nordic Tax Justice Networkexpects tackling harmful tax prac-tices to be brought in to the inter-national arenas as a top priority.This can effectively be done throughNordic co-operation. The Nordiccountries have a great opportunity,and responsibility, to promote sus-tainable global social and economicdevelopment.
The network will also work on na-tional basis, pressing each of thecountries involved – at the momentFinland, Norway and Sweden – toadapt the best tax practices andlegislative innovations from eachother.
Nordic TJN’s website can be foundat: www.taxjustice.net/nordic
A portable tax haven.Campaigners in Oslo take abreak during the launch ofNordic TJN.
