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Africa/Global: Overcoming the Shadow Economy

AfricaFocus Bulletin
November 28, 2016 (161128)
(Reposted from sources cited below)

Editor's Note

"Knowledge of beneficial ownership of companies and bank accounts is fundamental, both to ensure taxation and also to prevent and prosecute crime and the money laundering that so often is associated with it. ... Corporations, trusts, and foundations are creations of the state--and as such, they have no inalienable rights. They are created to facilitate societal welfare, and to ensure that they do so, they need to be globally regulated--regulated in ways which ensure full knowledge of beneficial ownership and full compliance with all tax laws." - Joseph Stiglitz, in testimony to European Parliament Panama Papers inquiry

Joseph Stiglitz and Mark Pieth decided to research and write their report on the policy implications of the Panama Papers, after resigning from the commission set up by the government of Panama on the issue. Their protest was against the failure of Panama to agree to publication of its own report, and that government's lack of will to engage in a transparent investigation.

The Stiglitz-Pieth report has been hailed as a clear roadmap for global policy action on tax havens and illicit financial flows. Recognition of the need for such action has been growing rapidly around the world, fueled by exposures such as the Panama Papers and a host of other similar smaller exposés. But the authors stress that the road ahead will be difficult because of entrenched opposition. It will be made even more difficult by recent political developments favoring forces hostile to financial transparency and friendly to tax evasion and kleptocracy, most significantly the U.S. presidential election.

Nevertheless, it is clear that the demands for curbing the drain of wealth into secret jurisdictions will continue, and that this is an essential front in movements for social justice and human rights. Lives saved or lost depend on how much can be "clawed back" from this global kleptocratic system to invest in urgent human needs, including health and education. On this front, Africa has provided an example worth wider global recognition and emulation, in a multitrack mobilization to "stop the bleeding," involving international and national government officials, civil society networks, investigative journalists, accounting and legal professionals, and others.

This AfricaFocus Bulletin contains brief excerpts from testimony by Stiglitz to the European Parliament on his key conclusions.

The full 25-page report is available at http://library.fes.de/pdf-files/iez/12922.pdf

However, the bulk of this AfricaFocus Bulletin consists of a guide to priority resources on illicit financial flows and the Stop the Bleeding Africa campaign, including short videos, articles, reports, and more. This was compiled by Chris Root for the US-Africa Network and is also available on the USAN website: http://www.usafricanetwork.org

Other key resources written as part of USAN's support for the Stop the Bleeding campaign include:

"Top 10 Questions About Illicit Financial Flows and Africa," prepared by Anita Plummer (http://tinyurl.com/zz4xr53)
and "From #BlackLivesMatter to #StopTheBleeding Africa," written by Emily Williams and William Minter for Praxis (http://www.kzoo.edu/praxis), available at http://www.africafocus.org/docs16/iff1609.php

For previous AfricaFocus Bulletin's on illicit financial flows and related issues, visit http://www.africafocus.org/intro-iff.php

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Announcement for those attending the African Studies Association conference in Washington, DC, December 1-3, 2016

Your AfricaFocus editor will be on two roundtable discussions:

  • Friday December 2, from 1:00–2:30pm
    "The Panama Papers and Stop the Bleeding Africa: Implications for US-Africa Relations"
    Group Discussion (new format for AfricaNow! session)
    Chaired by Bill Fletcher, Jr., and including Imani Countess, Anita Plummer, Emily Williams, and me
    Location: Maryland A

and

  • Saturday, December 3, from 8:30-10:15 am
    Roundtable: "Digital Tools of Dissent: Black Youth, Social Media and Social Justice" (Sponsored by the Association of Concerned Africa Scholars)
    Chaired by Anita Plummer, with presentations by Msia Kibona-Clark, Phiwokuhle Nmyando, James Pope, Emily Williams, plus me as a discussant.
    Location: Delaware A

++++++++++++++++++++++end editor's note+++++++++++++++++

European Parliament, 2014-2019

Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion

Exchange of views with Professor Joseph E. Stiglitz

Wednesday, 16 November 2016

[Excerpts. Full transcript at http://tinyurl.com/zz4ytq7]

In our report, Overcoming the Shadow Economy, Mark Pieth and I present foundational principles for all countries in setting nationally appropriate regulations. The intention of our Report was not to present concrete legislative proposals, but rather to show the magnitude of the task before the international community, and to argue that the international community needs to take a comprehensive approach, going well beyond those embodied in standard practices today. I will now explain these principles and a more detailed set of recommendations can be found in the Shadow Economy report.

  1. Secrecy has to be attacked globally--offshore and onshore. There can be no places to hide.
  2. The collection and exchange of information related to taxation, ownership, and illicit activities is a shared global responsibility.
  3. While the traditional gatekeepers of this information are financial institutions, addressing secrecy effectively will mean tackling the entire industry that facilitates secrecy--including the legal firms that have played a pivotal role in the creation of the web of corporations.
  4. Knowledge of beneficial ownership of companies and bank accounts is fundamental, both to ensure taxation and also to prevent and prosecute crime and the money laundering that so often is associated with it.
  5. Tax preferences are a privilege and not a right. Tax free zones provide opportunities for money laundering, and those operating in such zones should be held to a high standard.
  6. Corporations, trusts, and foundations are creations of the state--and as such, they have no inalienable rights. They are created to facilitate societal welfare, and to ensure that they do so, they need to be globally regulated--regulated in ways which ensure full knowledge of beneficial ownership and full compliance with all tax laws.
  7. Complexity contributes to lack of transparency. Those seeking secrecy understand this, and create complex webs of corporations and trusts, to make it more difficult for enforcement agencies to trace flows of illicit funds and to identify the true beneficiaries of illicit activities. This has two implications: (a) The international community should do what it can to impede the creation and maintenance of these complex webs; and (b) to effectively fight for transparency--to detect true beneficial ownership-- requires resources beyond those available to enforcement agencies. In our Report, we suggest concrete ways that this may be done.
  8. Transparency is a global public good, requiring global efforts. To facilitate these efforts, every country must maintain publicly searchable registries of the beneficial owners of each corporation, trust, foundation, or other entity. But even if such searchable registries are not made fully publicly accessible, they should be accessible by law enforcement agencies.
  9. These financial centers (both onshore and offshore) are creations of globalization--and should not be allowed to engage in regulatory and tax arbitrage. Doing so undermines the positive effects of globalization. If secrecy-havens serve as centers for tax avoidance and evasion or in any way facilitate corruption or illicit activities, they are acting as parasites, and should be cut off from the global financial community.
  10. What matters is not just passing laws and regulations, but enforcement. In the report, we elaborate on specific recommendations for legislative action, but emphasize that merely passing laws is insufficient.

...

While the United States preach about the vices of the offshore centers, within their own borders there are pockets of secrecy where these bad practices continue. Although the United States recently adopted a Treasury rule (FinCEN) requiring financial operators to report the beneficial owner(s) of legal entity customers by 11 May 2018, this reporting is to government authorities only and no personal knowledge is necessary to verify the identity of the beneficial owner, only documentation. Additionally, the United States has yet to implement country-by-country reporting. There is a bill in Congress that requires this reporting through disclosures to the Securities and Exchange Commission, but it is still strongly opposed by business. And now with President Trump in office, the future of that bill is highly uncertain.

Having said this, though, the major players--US and EU countries-- are key in tipping the balance toward transparency. These countries can effectively force others to comply with their standards, simply by threatening to cut off access to their financial system. And in fact, many in the United States have been calling for the government to break off all connections with jurisdictions not conforming to the global standards (even secrecy jurisdictions within their own territories), effectively shutting down all secrecy-havens. There is a widely shared perspective that these havens only exist because the United States and Europe have looked the other way--influenced by their own one percent. These major players have yet to pull the trigger, partly due to the delay in putting their own houses in order.


Resources about Illicit Financial Flows from Africa US-Africa Network

http://www.usafricanetwork.org / http://tinyurl.com/jsyg8el

[Compiled September 2016]

Tax Justice Network Africa, "Tax evasion" VIDEO 6 minutes https://www.youtube.com/watch?v=0PtNeR03PmQ
Talk by Alvin Mosioma, founding Director of Tax Justice NetworkAfrica: "More resources are flowing out of African countries than are flowing in… These are deliberate economic designs… We need to do something about it." March 2014.

The Panama Papers: Victims of Offshore VIDEO 4 minutes https://panamapapers.icij.org/video/
Short case studies of bribery, arms deals, tax evasion, financial fraud, and sex trafficking revealed in the Panama Papers. Corporate taxes lost to Uganda exceed the country's health budget (starts at 2:06 in video). By International Consortium of Investigative Journalists.

The Power of Tax VIDEO 3.5 minute
https://www.youtube.com/watch?v=ijtOErKjPMg
The case of Zambia Sugar shows how companies avoid paying taxes and the impact this has on the Zambian government and people. By ActionAid International. July 4, 2013.

Stop the Bleeding campaign theme song VIDEO 4 minutes https://www.youtube.com/watch?v=_nDPKiWSTXI
Winner of 2016 Honesty Oscar for Best Song. Featured Artists: Livesoul, Synik, Pauline & The Kids; Credits: Music producer: Cutty Beats (for Legendary Africa); Creative Director: Briggs Bomba; Executive Producer: TrustAfrica

Stop the Bleeding – Africa IFF Campaign Declaration and Call to Action
http://stopthebleedingafrica.org/sign/
The Campaign's statement critiques both illicit financial flows from Africa and methods corporations and individuals use "to illicitly siphon wealth from the continent [that] are perfectly legal yet illegitimate and unjust." The Demands encompass actions needed by both international institutions and African governments.

More Resources

1. Overview: The problem of illicit financial flows from Africa

Stop the Bleeding – Curbing Illicit Capital Flows VIDEO 16-minute https://www.youtube.com/watch?v=lenH1SaOcIA
A summary of the findings of the High Level Panel report by several members of that panel. The video also highlights the significance of African civil society organizations working on this issue. By United Nations Economic Commission for Africa.

The Panama Papers – What They Mean And Why They Are Important For Africa
http://www.taxjusticeafrica.net/en/2016/06/2487/
By Jason Braganza, Tax Justice Network-Africa Deputy Executive Director, June 6, 2016.

Poverty Amidst Plenty: How Africans Are Robbed Of Benefits Of Mineral Wealth
http://tinyurl.com/z5uobfc
By Kwesi W. Obeng, Tax Justice Network-Africa Policy Lead in charge of Tax and Extractives, June 23, 2016.

Report of the High Level Panel on Illicit Financial Flows from Africa REPORT
http://tinyurl.com/pxocw2z
Report of Commission chaired by Thabo Mbeki, commissioned by the African Union/United Nations Economic Commission on Africa Conference of Ministers of Finance, Planning and Economic Development, February 2015.(126 pages)

Viewing #SwissLeaks through a Different Lens http://tinyurl.com/hw8tarc
A project of Financial Transparency Coalition and Christian Aid. The significance of illicit flow of money from Africa secretly deposited in offshore banks, considered as a proportion of Gross Domestic Product (GDP).

Measuring Corruption in Africa: The International Dimension Matters http://tinyurl.com/hb2gcwd
By United Nations Economic Commission for Africa, April 15, 2016.(124 pages)

Corporate Tax is a Feminist Matter
http://tinyurl.com/jury7l2
By Maria Hengeveld. September 12, 2016

2. Cases of illicit financial flows from Africa

Zambian miners paying more tax than mining company AUDIO PODCAST 5 minutes
https://youtu.be/uDo42IzCoSs

Continent of Secrets: Uncovering Africa's Offshore Empires GAME http://tinyurl.com/jaro779
An online game about corporate profits from Africa going to offshore tax havens revealed by the Panama Papers. Hovering over each country shows examples.

International Consortium of Investigative Journalists (ICIJ) Panama Papers Project
https://panamapapers.icij.org/
Browse for reports on revelations from the Panama Papers about illicit financial flows from Africa involving oil and gas, diamonds, other natural resources, and safari operators.

Finance Uncovered
http://www.financeuncovered.org/home-1/blog/
Blog contains reporting on Africa about global financial flows, especially such issues as tax abuse, corruption, and money laundering.

A Few Examples of Illicit Financial Flows cited in AfricaFocus Bulletins, 2013-2015
http://www.africafocus.org/docs15/iff1507.php

Examples compiled by AfricaFocus, including Lonmin in South Africa,Philia (oil) in Congo (Brazzaville), mining companies in Sierra Leone, Swiss oil trading companies, Equatorial Guinea, South African diamonds, Nigerian oil, Zambia and the cost of tax avoidance, trade mis-invoicing, fisheries and forests, and tax havens.

Liberia/Global: Financial Secrecy at Work http://www.africafocus.org/docs16/iff1606.php

South Africa: Disappearing Diamond Revenue http://www.africafocus.org/docs14/dia1406.php

Africa/Global: Accounting Tricks with Coca-Cola http://www.africafocus.org/docs16/coke1602.php

Africa: Tax Tricks, Mobile Phones, and Beer http://www.africafocus.org/docs15/td1510.php

The West African Giveaway: Use & Abuse of Corporate Tax Incentives in ECOWAS REPORT
http://tinyurl.com/pqu9x9e
By ActionAid International and Tax Justice Network-Africa, August 2015.(20 pages)

3. The international politics of stopping illicit capital flows

Making Violence Visible: From #BlackLivesMatter to #StoptheBleeding Africa
http://www.kzoo.edu/praxis/making-violence-visible/
By Emily Williams and William Minter. Published by PraxisCenter, September 20, 2016.

One year after Addis Ababa, rich countries blocking UN from working on tax, again
http://tinyurl.com/gvw252f
By Pooja Rangaprasad, Policy Coordinator for the Financial Transparency Coalition (FTC), and Christian Freymeyer, FTC's Press & Digital Media Officer. July 21, 2016

Why It Really Matters and The Hypocrisy of Immediate Reciprocity http://www.swissleaksreviewed.org/#why-it-matters
A project of Financial Transparency Coalition and Christian Aid

Interview with Clark Gascoigne of the FACT Coalition by Sonali Kolhatkar VIDEO 17 minutes
https://vimeo.com/180932643
Gascoigne discusses the issue of tax havens, with the example of the Apple corporation tax payments to Ireland, and the loss of taxes in the U.S. due to tax havens. September 2016.

The Shape of Battle to Come: Illicit Financial Flows (IFFs) from Africa SLIDESHOW
http://tinyurl.com/jspfnfa
[Click on first presentation to download slideshow.]
By Dereje Alemayehu, Chair of the Global Alliance for Tax Justice, August 2015.

4. Organizations working on tax justice in Africa and elsewhere

Tax Justice Network Africa
http://www.taxjusticeafrica.net/en/home/
A network of 29 members in 16 African countries established in 2007 and a member of the Global Alliance for Tax Justice Facebook: https://www.facebook.com/TaxJusticeNetworkAfrica/

Stop the Bleeding
http://stopthebleedingafrica.org/
Campaign of six African-based civil society organizations to end illicit financial flows from Africa
Facebook: https://www.facebook.com/StoptheBleedingAfrica Campaign song video:
https://www.youtube.com/watch?v=_nDPKiWSTXI

FACT Coalition
http://thefactcoalition.org/
Washington, D.C.-based coalition lobbying and researching about tax evasion and avoidance, incorporation transparency, and anti-money laundering issues in the United States. Facebook: https://www.facebook.com/FACTCoalition Subscribe to listserv: http://tinyurl.com/huxd7s8

Global Alliance for Tax Justice
http://www.globaltaxjustice.org/
Facebook: https://www.facebook.com/globaltaxjustice

Financial Transparency Coalition
https://financialtransparency.org/issues/ Facebook: https://www.facebook.com/FinancialTransparencyCoalition

5. Other sources covering illicit financial flows and Africa

Africa Focus: Illicit Financial Flows and Tax Justice http://www.africafocus.org/intro-iff.php
Links to Africa Focus bulletins with coverage of this issue; approximately monthly bulletins, beginning in June 2015.

Tax Justice Network – Africa
http://www.taxjusticeafrica.net/

Global Financial Integrity
http://www.gfintegrity.org/

6. Background readings

Special issue of Association of Concerned Africa Scholars Bulletin, "Africa's Capital Losses: What Can Be Done?," Fall 2012(62 pages) http://concernedafricascholars.org/bulletin/issue87/, particularly:

"Plundering a Continent" by Raymond Baker http://tinyurl.com/hw9zckr

"Rich Presidents of Poor Nations: Capital Flight from Resource-Rich Countries in Africa " by Léonce Ndikumana and James K. Boyce http://tinyurl.com/zaad6kq

"The Benefits of Country-by-Country Reporting" by Richard Murphy http://tinyurl.com/gpsfn4o

Secret Offshore Deals Deprive Africa of Billions in Natural Resource Dollars
http://tinyurl.com/jn5tuvu
By Will Fitzgibbon July 25, 2016. The Panama Papers show politicians and mining, oil and gas interests benefit from secrecy and dubious multimillion dollar transfers.

Still racing towards the bottom? Corporate tax Incentives in East Africa
http://tinyurl.com/hthr9dj
By ActionAid International and Tax Justice Network-Africa, June 2016.

The Looting Machine: Warlords, Oligarchs, Corporations, Smugglers, and the Theft of Africa's Wealth BOOK
by Tom Burgis. London: William Collins, 2015. http://amzn.to/2gsbAEw
For understanding how the connections between Africa and the international partners in the system of illicit financial flows work, this book should be your first stop.

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens BOOK
By Nicholas Shaxson. New York, NY: Palgrave Macmillan, 2011. http://treasureislands.org/the-book/
An overview in very readable language. 2011. Prologue and part of chapter 1 can be read for free on Google books.

Top Ten Books on Illicit Financial Flows, Tax Justice, and Africa http://www.africafocus.org/iff-books.php
The ten best books on this subject selected by William Minter, editor of AfricaFocus.

Acronyms and Abbreviations about Illicit Financial Flows http://tinyurl.com/zqlshk5


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to subscribe or unsubscribe to the bulletin, or to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org


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