13th June 2007, Transnational Institute / TJNederland

The Long and Winding Road

John ChristensenDirector, TJN International Secretariat

“The Tax Justice Network agenda is a direct threat to America’s

economic interests. The U.S. is a tax haven, and

this policy has helped attract trillions of

dollars of job-creating capital to

America’s economy. The left-wing groups

participating in today’s briefing believe that foreign

governments should have the right to tax income earned by

non-residents in America and other low tax jurisdictions – a

policy that is fundamentally inconsistent with President Bush’s

tax reform agenda.”

Grover Norquist, President7th April 2005

The ProblemThe deliberate and illicit disguised expatriation of money by those resident or taxable within the country of origin. Tax evasion is often the motive for capital flight.

For each dollar of aid that goes into Africa, at least five dollars flows out under the table. The time has come to confront the tax haven monster.

“”

30th May 2007

In the belly of the beast:

insider trading

market rigging

avoiding disclosure of conflicts of interest

illicit arms trading

illicit political donations

contract kickbacks

bribery

fraudulent trading and tax evasion

“living of lax regulation”

Wall Street Journal17th September 1996

The openness of tax havens

to proceeds from crime,

corruption, and tax dodging

might explain why flows of

capital have been from South

to North, from the poor

nations of the world

to the wealthy ones,

rather than the other way

round, as economic theory

would predict.

“

”

Who owes what to whom?

Despite the massive debt incurred in the past, Sub-Saharan Africa is a net creditor to the rest of the world in the sense that external assets (i.e. the stock of flight capital) exceeds external liabilities (i.e. external debt).

The stock of capital flight from SSA (estimated at $274 billion including interest earnings) was equivalent to 145 per cent of the total debt owed by the countries in the mid-1990s.

Boyce, J.K. and Ndikumana, L. (2005)

$billions

/ year

High

Low High Low

Criminal 549 331 238 169

Bribery, etc

50 30 40 20

Commercial

1000

700 500 350

Total 1599

1061 778 539

GlobalDeveloping and

transitional economies

“Any survey of the main

uses of offshore funds

would have to conclude

that low tax is not the

main benefit at all; the

real attraction is their

total confidentiality.

This makes them perfect

places to lodge capital

in flight from tax,

politics or the law.”

Financial Times

“Protected Cell companies have - in concert with other entities - been used to construct what has been called "an impenetrable wall" against creditors and prying eyes. Whilst these claims can only be tested by time, this novel use of a PCC for asset protection and financial privacy is an interesting approach and a valuable piece of intellectual property.”

Country rank

Tax haven countries

2006 CPI score

5 Singapore 9.4

7 Switzerland 9.1

9 Netherlands 8.7

11 Luxembourg / UK 8.6

15 Hong Kong 8.3

16 Germany 8.0

18 Ireland 7.4

20 Belgium / USA 7.3

24 Barbados 6.7

26 Macau 6.6

28 Malta 6.4

31 U.A.E.(Bahrain/Dubai/RAS)

6.2

Country rank

African countries

2006 CPI score

156 Chad / DCR / Sudan

2.0

155 Cote d’Ivoire / Equatorial Guinea

2.1

142 Angola / Congo Kenya /Nigeria / Sierra Leone

2.2

138 Cameroon / Niger 2.3

130 Burundi / CAR / Ethiopia / Togo

2.4

the geography of corruptionTransparency International’s Corruption Perceptions Index: 2006

Perceptions of corruption need to be re-evaluated

The role of facilitators and their professional organisations needs to be scrutinised

The role of tax havens as a supply side stimulant of corruption needs to be recognised

Banking secrecy and non-disclosure of beneficial ownership should be a criteria for comparator rankings

Capital flight and tax evasion need to be included in anti money-laundering programmes

The role of accounting standards in creating a framework for corporate transparency needs greater scrutiny.

tackling the corruption interface