Tax Justice Network

Financial Policy Forum: a hidden nugget

2009-11-27T03:57:00.000-08:00

Put together by people who know what they are talking about, this website is well worth a visit.

Note the dates on the briefs and reports: these warnings were issued long before the great economic crisis (and, we were reminded yesterday, it might be W-shaped or worse.) The section on special reports and briefs petered out in late 2006, seemingly because almost nobody was interested in that sort of thing in those heady days.

Still, it has some excellent primers on derivatives and other complex, dangerous things, and there is a little bit of more recent material here.

The OECD's programme is failing

2009-11-27T02:58:00.000-08:00

We have already blogged extensively about the OECD's failures in many areas with respect to secrecy jurisdictions (tax havens.) In fact, we have a super-blog on the OECD which links to most of our other blogs on the subject.

We've relied quite heavily this morning on the Tax Research blog: here's another one, and it's an important post - short, and worth reading in full. It does some data mining on the OECD's Tax Information Exchange Agreements (TIEAs), and highlights things that TJN has been saying for some time, such as the fact that secrecy jurisdictions are signing agreements with each other, so as to vault over the OECD's pitifully low bar on TIEAs:

"66 of the 180 TIEAs are between secrecy jurisdictions . . . these ‘non-compliant’ secrecy jurisdictions listed by the OECD in April 2009 have been seeking to become ‘internationally compliant’ by signing TIEAs with each other."

(The OECD's own list of jurisdictions, including some older ones, is here.) And, crucially:

"The rate of 66 out of 180 may not sound worrying, but it is. 67 of the remaining agreements are with Nordic states. Now I’m not chastising those Nordic states, but when 28 of all agreements are with the Faroe Island, Greenland and Iceland the standard is obviously wrong."

But perhaps most damningly of all, this club of rich countries has created a list that has this kind of problem:

"The absentees from the list (are) very notable: India, China, Japan, Brazil, most of Africa, almost all developing countries. When will they get a deal from states that are willingly, knowingly and very deliberately abusing this new standard to sign deals with each other so that the people who need information to enforce their tax laws will not receive it?"

We have called the OECD white list a whitewash. The numbers tell us that we were right to do so.

Hong Kong: a stink in the fragrant port

2009-11-27T02:19:00.000-08:00

From the Korea Times:

Hong Kong is one of the most beautiful cities in the world with its name meaning "fragrant port," but there is a smelly part of the city ― the tax evasion base for Koreans. . . Brokers in Hong Kong have provided schemes for offshore tax evasion. They even provide customer-specialized schemes on how to hide corporate and slush funds in the tax haven," Park Yun-jun, assistant commissioner of the National Tax Service (NTS) said."

And of course:

"The official admitted that many cases occurred in the city, but there was a limit to investigations because Hong Kong refuses to exchange information on taxation with Korea."

Hong Kong: fragrant or stinking? You decide.

2009-11-27T02:02:00.000-08:00

From the Huffington Post:

"In the war on drugs the most powerful ammunition law enforcement has is information. Whoever calls the shots is usually the same person who sits atop the money pyramid and while law enforcement may know who these persons are, they have a much more difficult time proving guilt and securing convictions.

Much of the blame for this lies in the calamitous state of justice and rule of law in Mexico. The rest though, lies squarely with the United States, which for far too long has maintained a dangerously laissez-faire attitude about what is permissible conduct in its domestic financial practices.

One such practice is company formation. . . . these U.S. corporate entities serve as fiscal engines for some of society's worst crimes"

Read on.

TJN has just visited the offices of what is probably the largest of these company formation agents. An extraordinary place. We'll bring you more on this in due course.

Walker: Recommendation 15: deleted

2009-11-27T01:55:00.000-08:00

Intriguing.

Austria attacks channel island trusts

2009-11-27T01:47:00.000-08:00

As International Adviser notes:

"Ahead of December 2’s ECOFIN meeting of European finance ministers, at which political support for changes to the EU Savings Directive will be sought, Josef Pröll (Austria's finance minister) is said to have demanded action against trusts, and singled out the Channel Islands in particular for being responsible for helping mask the identity of settlors – those who set up the trusts – and therefore evade taxes."

When it comes to secrecy, Austria is a fine one to talk. But we don't disagree with Pröll here. Trusts are vastly important, and in many cases vastly pernicious. Read more about trusts here. And read more about Austria's Treuhands here.

Hat tip: Tax Research

Share of workforce in financial services in tax havens

2009-11-27T01:43:00.000-08:00

The Mapping the Faultlines project has a new report looking at the share of each secrecy jurisdiction's workforce working in financial services. As the report notes:

A high proportion of people working in financial services in the overall economic activity of a country is likely to indicate the existence of considerable political influence by the financial services industry on the government of the jurisdiction. . . . the more reliant a territory is upon a particular economic activity the more deferential it is likely to be to the demands of that sector. Such influence can undermine democratic decision making processes, can facilitate corruption, in the case of financial services can create a strong orientation towards the needs of those outside the territory who would not normally be the prime concern of its government, and can be (but we stress, is not always) conducive to a criminogenic environment.

NB due to an absence of cross-country comparable data, several jurisdictions, notably the United States, are not part of this survey. See more here.

The G20: a club of gate crashers and insiders' intrigues?

2009-11-27T01:27:00.000-08:00

The G20 has, as we have previously blogged, produced exceedingly flimsy, and in some cases quite appalling, responses to issues like tax havens (secrecy jurisdictions) and illicit flows. Now we have a good article in the FT explaining some unfortunate things that go on:

"Spain, the world’s ninth largest economy, was left out, but it barged into the Washington summit last November. Holland just decided to join, and no one stopped it. After all, its economy is much larger than that of Argentina, a G20 member. An international community based on the principle of gate-crashing deserves no respect."

We don't have any particular objection to any of these countries' participation in G20 meetings, but the process does look dubious. And there is more:

"Nor does the G20 possess agreed rules of governance. At the London summit last April, complaints abounded that actual decisions were based on the intrigues of the leading insiders, excluding at least half the G20 countries. That is the natural outcome if aggressive political leaders are let loose without rules."

Indeed. The G20 can play a role. But treat it with caution and skepticism.

Just like haven? Why does the European Investment Bank route its funding through tax havens?

2009-11-26T04:05:00.000-08:00

The Commonwealth: a jamboree of corruption

2009-11-26T00:34:00.000-08:00

In a Guardian article titled A jamboree of repression, Tom Porteous, director of Human Rights Watch, raises concerns about the failure amongst Commonwealth countries to "muster the collective political will to uphold its core values of political freedom and respect for human rights" and concludes that the Commonwealth has become a 'haven for human rights abusers.'

Porteous supports his case by highlighting recent actions by governments in Sri Lanka, Pakistan, Bangladesh, Kenya, Cameroon, Uganda and Gambia, all of which have engaged in repressive actions against their citizens without any sign of disapproval or action by the Commonwealth. As the article notes:

"Its secretariat fails to push or fund its human rights unit as a viable mechanism to encourage its members to comply with international standards; neither the secretary-general nor the diplomats of leading member states make a serious effort to get the Commonwealth to act collectively at the UN and elsewhere to champion human rights."

This is important and Porteous argues his case robustly but with the appropriate degree of diplomacy. Tax Justice Network would like to come at this issue from another angle: the Commonwealth is also a haven for the majority of the world's secrecy jurisdictions (generally known as tax havens).

Far from taking action to curtail their harmful practices (and let's not forget that many of the victims of secrecy jurisdictions are the ordinary people of Commonwealth member states) the Commonwealth secretariat actively participates in organisations lobbying on their behalf. This includes the International Trade and Investment Organisation, the latter having been created specifically to counter the efforts by the OECD to counter harmful tax competition. The Commonwealth's involvement in this organisation, and its lobbying efforts on behalf of secrecy jurisdictions more generally, is nothing short of scandalous.

Time after time, TJN's observers at UN events have witnessed Commonwealth member states actively engaged in blocking international efforts to strengthen cooperation in tackling corrupt tax practices. Such behaviour is wholly inconsistent with the idea, recently expressed by Lord Howell, former chair of the British parliament's foreign affairs committe, that the Commonwealth has a role to play as an "ideal soft power network" for the 21st Century.

Britain and the collection of states and dependencies formerly known as the British Empire, are collectively responsible for around one-third of the global market in cross-border financial services. A significant part of this cross-border trade involves illicit flows, largely routed through structures created in secrecy jurisdictions. These illicits flows devastate the efforts of countries aiming to achieve self-reliance and tackle poverty. There is a direct link between the corrupt practices of secrecy jurisdictions and the human rights abuses in the countries of origin of the illicit funds. In this respect the Commonwealth has a major role to play in engaging constructively with its members to address their shortcomings and take action to diversify their economies away from dependence on secretive offshore financial services.

Secrecy has no useful role in the modern world of globalised financial markets. The activities of secrecy jurisdictions are harmful to the vast majority of countries and people. They encourage and facilitate corrupt practices. They support the kleptocrats and business elites who abuse human rights and undermine undermine respect for democracy and the rule of law. Their activities are incompatible with the core values of the human rights agenda. The Commonwealth must urgently get its own house into order.

The dogs that haven't barked

2009-11-25T23:08:00.000-08:00

Another day, another report into the financial crisis by a banking industry insider.

Sir David Walker's report, published today, is the third in a series of reports to the British government into the banking crisis that literally brought financial capitalism crashing down in the Autumn of 2008. Walker is a City grandee, a former Treasury and International Monetary Fund official, a former regulator and director of the Bank of England, and a former chairman of the investment bank Morgan Stanley. In other words, the epitomy of what the British like to call "a safe pair of hands" [Brit-speak for someone who can be counted on to avoid doing anything that might alter the status quo].

Try as you might, you will find no trace of Walker having at any stage in the years building up to the crash raised an alarm about the structural deficiencies in the financial architecture. He is not alone in this: Walker's lack of insight was shared by almost the entire community of "talent" that is the financial services industry, including the majority of board directors, risk managers, credit rating agencies, financial journalists, fund managers, regulators, auditors, and last but not least politicians like London Mayor Boris Johnson who continue to fail to see that what is good for bankers is not necessarily good for the public interest.

David Walker's lack of prescience in foreseeing the financial crisis is reflected in his report, which can only be described as weak, weak, weak. Commissioned by British Chancellor of the Exchequer Alistair Darling, the Walker report follows earlier reports by Sir Win Bischoff - former chair of failed Citigroup - and by Robert Wigley, chair of the European division of Merrill Lynch. The former report was commissioned by Alistair Darling, the latter by Boris Johnson. All of these reports can be characterised as distractions, the latter in particular being nothing more than a public relations exercise for and on behalf of banking interests.

Boris Johnson's agenda was to retain the "competitiveness" of the City of London. Readers familiar with financial Newspeak will know that the word "competitiveness" used in the context financial services, has no relation to the word "competitiveness" as applied to the world of microeconomics. Bankers do not compete by charging lower fees or providing better service to their customers: instead they compete by pushing governments for lax regulation and tax breaks. Decades of regulatory degradation and market distorting tax subsidies, have led to a situation which encourages excessive debt leveraging, regulatory arbitrage and tax avoidance. Don't take our word for it: here is what the IMF reported in a little explored report they issued in June 2009. Needless to say, none of the banking grandees asked to report on the crisis have so much as even referred to the IMF's concerns, let alone called for a broader investigation into the issues raised by the IMF.

The Walker report is merely a distraction and a wasted opportunity. It epitomises so much of what is wrong with contemporary politics: rather than address the fundamentals -look out guys, there's another iceberg ahead - an insider is appointed to check the layout of the deck furniture. In our opinion, this failure of political will to properly investigate the roots of the crisis, addressing amongst other issues the conclusions of the IMF report on debt bias and other fiscal distortions, makes another crisis almost inevitable.

Readers looking for a more incisive explanation of the crisis, and some trenchant recommendations for the way forward, are advised to ignore the Walker / Wigley / Bischoff reports and head straight for the dog which has barked, which you will find here.

In place of cuts

2009-11-24T01:51:00.000-08:00

In Shock Doctrine, Naomi Klein notes how Milton Friedman of the University of Chicago and his powerful followers pursued a stealthy strategy of exploiting the confusion caused by economic and social crises to push through radical programmes that would ordinarily be totally unacceptable to the majority of people.

As Friedman observed:

"Only a crisis - actual or perceived - produces real change. When that crisis occurs, the actions taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable."

As we all know, the free-market ideology preached by Friedman and his colleagues provided the intellectual underpinnings for the de-regulated financial markets that crashed and burned in 2007/08. Even Alan Greenspan, the ultimate disciple of the free-market faith, has recanted. But the strategy of using moments of crisis to push forward with radical free-market policies remains live and operational.

The opening lines of a new report by Compass captures well the sense of disbelief that the free-marketeers, far from standing back for a few, much needed, years of reflection, have brazenly diverted attention from their own shortcomings and are pushing an agenda for cutting the public deficit that would be nothing short of folly if any elected government actually tried to implement it:

"Inexplicably Britain has moved from a credit crunch and an economic recession caused in large part by the excesses of bankers to a public expenditure and public services crisis. Those at the top have been bailed out by the public, while those at the bottom will have pay and benefits frozen and services cut. We simply cannot allow this to happen."

The Compass report, co-authored by TJN's Richard Murphy, makes the case lucidly for a radically different fiscal strategy to that currently being proposed by the main political parties in Britain. Instead of cuts to public services it lays out a series of nine key policy proposals (see below) that would raise additional revenue for the UK Exchequer while also increasing the fairness of a tax system that has becoming increasingly unjust and complex over the past three decades.

According to the authors, their proposals would raise additional revenue amounting to approximately £47 billion over the next 4 years. This money could contribute to financing a major green investment programme, which is exactly what it is needed to counter the appalling prospect of rising unemployment and increased poverty that will undoubtedly flow from the orthodox policy prescriptions of the tax cutters and de-regulators.

Furthermore, the nine proposals (including the suggestions that the Trident nuclear programme be scrapped, and that the use of off-balance sheet borrowings by government under the ludicrously expensive Private Finance Initiative be abolished) are wholly consistent with our vision of social justice. As the authors note:

"Crucially, the cumulative impact of these reforms helps the bottom 90% of income earners as only those who can afford it, the top 10%, are asked to contribute more."

In a society as unequal and divided as Britain, we have no problem with the idea that the top ten per cent should contribute more to the public good.

Here are the report's key proposals:

1. Introduce a 50% Income Tax band for gross incomes above £100,000. This raises £4.7 billion compared with the current (2009/10) tax system, or an extra £2.3 billion compared with introducing this band at £150,000 as proposed by the Chancellor.

2. Uncap National Insurance Contributions (NICs) such that they are paid at 11% all the way up the income scale (although pensioners would continue to be exempt); make NICs payable on investment income. This results in further revenue of £9.1 billion.

3. In addition to (1) above, introduce minimum tax rates of 40% and 50% on incomes of above £100,000 and £150,000 respectively; these raise an additional £14.9 billion.

4. Introduce a special lower tax band of 10% below the poverty line (below £13,500 per annum), while restoring the ‘basic rate’ to 22%. This costs £11.5 billion.

5. Increase the tax payable (higher multipliers) for houses in Council Tax bands E through H (while awaiting a thorough overhaul of property valuation and local authority taxation) raising a further £1.7 billion.

6. Minimise personal and corporate tax avoidance by requiring tax havens to disclose information fully and changing the definition of ‘tax residence’; these two reforms are estimated minimally to yield £10 billion.

7. Introduce a Financial Transactions Tax (FTT) at a rate of 0.1%, applicable to all transactions. This would raise a further £4.2 billion.

8. Immediately scrap a number of government spending programmes (including ID cards, Trident, new aircraft carriers, PFI schemes), reforms totalling £15.1 billion.

9. Urge that all current small limited companies be re-registered as limited liability partnerships to simplify their administration and reduce opportunities for tax avoidance.

The message to political leaders is clear. Pace Milton Friedman (see above), here are some new ideas. They're good: far, far better than the cuts proposed by the free-marketeers who caused this mess in the first place. Now implement them.

Swiss judgement targets the pinstripe infrastructure of crime

2009-11-23T11:01:00.000-08:00

A judgement by Swiss judge Yves Aeschlimann looks set to cast another shadow over the cosy world of lawyers, bankers, accountants et al who operate from secrecy jurisdictions to provide support services to dodgy clients.

The Financial Times reports that M. Aeschlimann, a magistrate in Geneva, has fined an unnamed Monaco-based intermediary who helped Abba Abacha, son of the former dictator of Nigeria, to launder his gains from "participation in a criminal organisation." In addition to the fine, the intermediary has also been ordered to pay SFr10 million (€6.6 million)- the value of fees charged for acting as a fence to Mr Abacha jnr. - to the canton of Geneva.

According to the FT, this move "marks a further step in international efforts to tackle theft by corrupt rulers by going after intermediaries as well as principals."

Switzerland is gaining itself a reputation for taking a lead in tracking down and repatriating embezzled funds. This latest move will set a legal precedent that should cast a chill in the bones of a wide range of intermediaries, including lawyers, trustees, fiduciaries, investment companies, accountants, and bankers who until now have been all too willing to act the 'wilfully blind professional' in return for massive fees and charges.

The FT also reports that another financier accused of helping Gen Abacha to launder cash through the British Channel Island of Jersey has been arrested and is expected to stand trial.

Goodbye Millenium Goals?

2009-11-23T00:13:00.000-08:00

This new report by Jakob Vestergaard and Martin Højland of the Danish Institute for International Studies examines claims about the magnitude of illicit financial flows from developing countries and concludes that tackling these flows is a crucial part of the poverty alleviation agenda.

In their starkly worded opening section the authors note:

If the UN Millenium Development Goals are to be reached by 2015, development aid needs to be tripled - which is most unlikely. Instead, countries should unite in a concerted mulitlateral effort to combat illiict financial flows: for every dollar poor countries receive in development assistance, more than eight dollars are illegally transferred back to rich countries, most of it in order to avoid local taxation. Effectively combating these illicit financial flows would generate more financial resources for development than foreign aid is likely to ever do - and help build a sustainable tax base in developing countries for the benefit of future development efforts.

This single paragraph lays bare the core of the development problem which TJN has been highlighting since our launch in 2003. Until such time as effective measures are taken to combat the abusive practices that both encourage and facilitate illicit financial flows, efforts to generate sustainable societies and economies in poorer countries are doomed to failure.

Vestergaard and Højland's policy recommendations are also very much aligned with the TJN policy agenda:

1. Developed countries should immediately and consistently assist developing countries in combating tax evasion practices by multinational companies;

2. Country-by-country reporting should hence be compulsory for all multinational corporations to increase transparency on sales, profits and taxes paid in all the jurisdictions where they operate;

3. Tax authorities in all countries should enhance their exchange of information in a joint effort to combat tax evasion;

4. Donors should fund capacity building for tax collection in developing countries so as to establish a foundation for independent financing of future development efforts.

Good to see that this agenda is taking root.

Thank havens for new taxes

2009-11-20T04:39:00.000-08:00

The Our Taxes, Our Lives campaign group is organising another event in the UK Parliament on Wednesday 25th November 2009. This event features Richard Wilkinson (one of the authors of the enormously important The Spirit Level), Kate Green from Child Poverty Action Group, and a certain Richard Murphy.

Now here are a few random facts that we might expect to form the basis of their discussion:

* Britain has proportionally more children in poverty than most rich countries;

* Relative to comparable countries in the European Union, inequality is far starker in Britain and the number of pensioners and children living in poverty is higher today than in the 1970s;

* Britain is estimated to lose around £18.5 billion a year because of tax evasion via secrecy jurisdictions;

* Exactly one half of all secrecy jurisdictions have political ties to Britain;

It doesn't take a rocket scientist to put these factors together and conclude that we'd all be a great deal better off if Britain kicked its tax haven habit and redistributed some of the proceeds towards tackling poverty.

Here are the details of the event on the 25th:

INVITATION

Meeting hosted by David Drew, MP

Wednesday November 25, 2009
7.00 – 9.00
Wilson Room, Portcullis House

Premiere of 2nd YouTube film
--------------
Dysfunctional societies: why inequality matters

Richard Wilkinson
Emeritus Professor of Social Epidemiology
and co-author of “The Spirit Level”
--------------
The UK's Child Poverty Challenge

Kate Green, OBE
Chief Executive,Child Poverty Action Group
---------------
Thank havens for new taxes

Richard Murphy
Director of Tax Research UK
--------------

Portcullis House is on the Embankment, just round the corner from
Westminster Underground station. Allow 15 minutes to get through security

A public message from the Ministry for Peace

2009-11-20T02:09:00.000-08:00

The ministry for peace has produced a short video on how secrecy jurisdictions harm ordinary people in Britain.

Nice to see Sir Humphrey being brought out of retirement to carry on the crucial task of bamboozling politicians and thwarting progress.

To watch the video press the contact below. To read more about the Our taxes our lives initiative launched in 2009 by ministry for peace and its partners, press here

Offshore Watch and so on

2009-11-19T10:36:00.001-08:00

Every now and then it's worth posting a reminder - for those who are hungry for more stories beyond the TJN blog, there's usually a good selection over at Offshore Watch. And, of course, Tax Research, the Task Force blog, Global Financial Integrity, and many more here (please alert us if you think there are others we should highlight; this last page hasn't been updated for a while.)

As mentioned, TJN blogging will be a bit lighter for a week or so, for travel reasons.

http://www.taxresearch.org.uk/Blog/2009/11/19/the-isle-of-man-deal-was-too-good-to-continue-because-it-as-a-subsidy/

2009-11-19T09:06:00.000-08:00

The Isle of Man has been directly, but secretly, subsidised by the United Kingdom, allowing it to pursue its tax haven activities. TJN senior adviser Richard Murphy exposed this charade. Now, as Manx radio reports, things are changing. Read more here.

Postscript: TJN blogging may be a bit lighter in the next few days, for travel reasons.

Cry Havoc - why mercenaries love tax havens

2009-11-19T01:24:00.000-08:00

From the FT this morning:

"Authorities in Pretoria are investigating reports that South African mercenaries are operating illegally in the West African state of Guinea, training and equipping militias loyal to the military junta there. Ayanda Ntsaluba, South Africa’s director-general of international relations and co-operation, told journalists the mercenaries appeared to be working for a company “operating largely through Dubai”

Why Dubai? We have a one-word answer: secrecy. Dubai is a secrecy jurisdiction. Our Mapping the Faultlines project gave it an opacity score of 92%, one of the worst. Why do mercenaries love tax havens? Obviously, they want to hide what they are doing. And Guinea's situation is very, very nasty.

"Since Guinean soldiers opened fire on opposition demonstrators in September, killing 150 of them according to human rights groups, the country has been on a knife edge. International concern is mounting that an outbreak of violence could spill into the fragile neighbouring states of Sierra Leone, Liberia and Ivory Coast, all of which are recovering from civil war."

This use of secrecy jurisdictions by those in the business of killing happens as a matter of routine. Just off the top of our heads: take the very recent case of Delaware being fingered as hosting business for the notorious arms trafficker Victor Bout. There is the Simon Mann-Equatorial Guinea connection, featuring Guernsey and other tax havens which fought for the privacy of their client who sought to take over a small African country. This blogger has met several mercenaries in the field in Africa, who make no bones about their routine use of tax havens to conduct their business behind the scenes.

It isn't pretty. The tax havens are steeped in blood.

Why the US-Swiss-UBS deal is such a travesty

2009-11-19T01:10:00.000-08:00

We have already blogged statements by Carl Levin, expressing deep disappointment with the details of the UBS-US-Swiss deal; and a response from GFI. If some of the details may have seemed difficult to get to grips with, this brief video involving Jack Blum, Chairman of TJN-USA, puts the whole thing in wide perspective, in clear and simple terms. Part of the transcript (of Jack talking - Jesselyn Radack is worth listening too) is provided below.

Blum:

"(Tax havens and tax evasion is) not new. What's new is how easy it became because of the web and the extraordinary sales efforts of large numbers of international financial institutions. . . It typically doesn't require a lot of machination by the individual. There are sales people for these banks, some as we know from the UBS case plied the U.S. vigorously looking for customers. Once they find the customer they set up all the necessary machinery to move the money out of the country and hide it offshore. UBS got caught and we saw the machinery in operation and they held these events: yacht races, art festivals, and they'd bring their salesmen to connect with very rich people.

UBS itself said we're talking about $20bn in assets on which they were earning fees of $200m a year. And the irony of all this is that they made more money over the years involved than they paid in fines. So they were net ahead on this business. The further irony is that the amesty was so set up so that it only looked back six years; some of these customers had been doing it for 20 years and had never paid tax on the money originally earned that went into the account. They came out net ahead after paying penalties and (?) taxes on the past six years."

(On UBS' role in the financial crisis:)

"The really surprising part of his story is that while this was going on, the Federal Reserve bailed out UBS! UBS was in the hole $86bn on bad dealing in US mortgage backed securities. UBS went to the Swiss National Bank and said unless we get a big pile of money - in this case i think it was $50bn or more - we're out of business. The Swiss then came to the Fed and said we need dollars to take care of UBS' problem. The Fed said 'no problem, we'll give you a swap line, unlimited, at the current exchange rate.' That bailed out UBS. No conditions, no turnover of the 52,000 names. Here we are, one central bank to another - at the minimum they should have said '52,000 names - or you can go to the dustbin of banking history.'"

There you have it. It's nothing short of a scandal.

But watch the whole thing: there's more in there, such as the U.S.' shabby treatment of whistleblowers.

TJN-USA in The American Interest

2009-11-19T00:41:00.001-08:00

The latest edition of The American Interest has a long and important article called Bank Shots, which consists of a long interview with Jack Blum, chairman of TJN-USA.

The article is subscription-only but the preliminaries pose this question:

"Liechtenstein reports having 161 billion in Swiss francs (equal to about $158 billion at current rates) on deposit in 2006. The Bahamas reportedly has about $200 billion in deposits. By contrast, the Cayman Islands boasted that it had over $1.9 trillion on deposit as of September 2007. . . . Total deposits in the Caymans now amount to four times the total deposits in all the banks in New York City.

Now, most Americans, I think, would be amazed at numbers like these, despite having become a bit jaded by the large bailout sums disbursed over the past year or two. How did these numbers get so large? Is this an old problem that has lately gotten much worse, and if so why?"

Blum replies:

"There’s no way to make sense of the offshore problem without getting your head around the numbers you mentioned. And those numbers leave out financial assets held by corporations and trusts. Trying to understand the role of offshore secrecy and regulatory havens in the financial crisis is like the problem a doctor has treating a metabolic disease with multiple symptoms. Diabetes, for instance, causes high cholesterol, high blood pressure and all sorts of other problems. You can treat several symptoms and still not cure the disease.

Similarly, there are plenty of discrete aspects of the meltdown to talk about and many possible treatments for symptoms, but offshore is at the heart of this metabolic disorder. Its roots reach back decades, in bankers’ attempts to escape regulation and taxation and make banking a highly profitable growth business that mimics the industrial economy."

TJN has (obviously) seen the full article but this blogger doesn't have it to hand right now; suffice to say that it's very worth getting hold of if you can.

New study: regressive state taxes in the U.S.

2009-11-18T00:44:00.001-08:00

The Institute on Taxation and Economic Policy (ITEP) in the United States has just published Who Pays, a comprehensive analysis of taxes in all fifty states, which concludes that

"The harsh reality is that most states require their poor and middle-income taxpayers to pay the most taxes as a share of income; middle- and low-income non-elderly families pay much higher shares of their income in state and local taxes than do the very well-off."

And it adds:

"Ten states-Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada, and Alabama-are particularly regressive. These "Terrible Ten" states ask poor families-those in the bottom 20% of the income scale-to pay almost six times as much of their earnings in taxes as do the wealthy. Middle income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families. 'Virtually every state has a regressive tax system," noted Gardner. "But these ten states stand out for the extraordinary degree to which they have shifted the cost of funding public investments to their very poorest residents.'"

The study does not mention tax competition but there can be no doubt at all that it is at play, wreaking terrible effects.

McIntyre proposes an alternative information exchange model

2009-11-18T00:44:00.000-08:00

Michael McIntyre, a leading U.S. tax expert who recently testified how automatic information exchange is becoming the emerging global standard, has now made available on his website an excellent and detailed article entitled How to End the Charade of Information Exchange, which he published in Tax Notes on October 26, highlighting the deep flaws in current information exchange schemes and proposing a way forward.

Among other things, McIntyre says:

"One of the key tools for combating tax haven abuses is supposed to be an effective exchange of information. The G-20 countries, at their April 2009 meeting, declared that countries that refuse to meet the international standard for effective information exchange would be blacklisted and subject to sanctions. So far, the blacklist has been a sad joke. The OECD also has a gray list, and that list is also a joke."

It is always good to have knowledgeable individuals speak truth to power. He continues, with biting humour, to examine the OECD's model Tax Information Exchange Agreement (TIEA):

"The view is widely held that the OECD TIEA is ineffective — not nothing, but not much. Tax haven countries that agree to this ineffective TIEA are provided with an undeserved patina of respectability. They have been eager to sign up, and most have done so. . . I do not mean to condemn the G-20 and the OECD for promoting a TIEA with limited effectiveness. In international politics, brazen hypocrisy is sometimes a useful tool for good."

Pre-empting the latest flurry of reports on the agreement between the U.S. and Switzerland, he notes:

"I believe that the agreement is nearly useless as a device for ferreting out a significant number of American tax cheats operating out of Switzerland."

But along with the opinions, there is real meat buried in this article. Notably, in Appendix A, he has prepared his own model TIEA, and in Appendix B, he provides a detailed comparison between his TIEA and the OECD's model TIEA.

There is so much good stuff in here: we can do no better than to urge you to read it.

Tax builds a habitat-Archbishop

2009-11-18T00:17:00.001-08:00

From the Archbishop of Canterbury:

“We should be thinking about taxation neither as an unreasonable burden on enterprise nor as a simple mechanism of redistribution but as a potentially sophisticated tool for long-term economy — housekeeping. Taxation builds a habitat — already, quite properly, through state welfare provision, but potentially in other less familiar ways.”

Well said.

GFI: Further Steps Needed in Crackdown

2009-11-17T23:45:00.000-08:00

Following the excellent statement of Senator Levin on the US-UBS-Switzerland deal, Global Financial Integrity has prepared its own statement. Click here.

Levin and others are also well aware of, and campaign against, the open doors that the U.S. shows to dirty money from around the world. Two recent stories about super-wealthy Teodoro Nguema Obiang (Teodorín) of Equatorial Guinea (whom this blogger, as it happens, met in person at one of his homesteads in Bata) are worth reading, from this point of view. The first, from Ken Silverstein of Harper's magazine - the journalist who properly broke open the Equatorial Guinea-US connection for a worldwide audience - is worth reading. It cites former Senate Counsel Jack Blum, chair of TJN-USA, as asking why the US isn't plugging this particular inflow of dirty money:

“The least they could do is cut off his shopping privileges by denying him entry into the United States,” he said. “Where the hell is the U.S. government?”

For connoisseurs of Equatorial Guinea, the New York Times followed Silverstein's article with this:

"federal law enforcement officials believe that “most if not all” of his wealth comes from corruption related to the extensive oil and gas reserves"

And Global Witness has produced a new report on Equatorial Guinea, here. And, in a separate but related U.S. matter that hints at why the U.S. continues to hold its doors open to dirty money, there is also this:

"While Congress has debated legislation to reform Wall Street, the financial services industry has showered members of the Senate and House banking committees with about two and a half times as much money, on average, as other members of Congress, according to a new Public Citizen report."