13 th June 2007, Transnational Institute / TJNederland The Long and Winding Road John Christensen Director, 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, President 7 th April 2005

The Problem The 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. “ ” 30 th 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 Journal 17 th 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 HighLowHighLow Criminal Bribery, etc Commerci al Total Global Developing 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 Financial Times - 26 September 2003

“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.” Financial Times - 26 September 2003

Country rank Tax haven countries 2006 CPI score 5Singapore9.4 7Switzerland9.1 9Netherlands8.7 11Luxembourg / UK8.6 15Hong Kong8.3 16Germany8.0 18Ireland7.4 20Belgium / USA7.3 24Barbados6.7 26Macau6.6 28Malta6.4 31U.A.E.(Bahrain/Dub ai/RAS) 6.2 Country rank African countries 2006 CPI score 156Chad / DCR / Sudan Cote d’Ivoire / Equatorial Guinea Angola / Congo Kenya /Nigeria / Sierra Leone Cameroon / Niger Burundi / CAR / Ethiopia / Togo 2.4 the geography of corruption Transparency 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