does the son of an autocratic president earning less than $7,000 a month[i]
afford Michael Jackson memorabilia, a Malibu home, a private jet and a 2011
Ferrari?[ii] The answer: anonymous shell companies. Lax
money laundering laws in the U.S. have allowed corrupt dictators and their
families to hide assets - assets that do not rightfully belong to them.
On April 30, Jubilee USA, along with partner organizations
of the FACT Coalition, met with US Senator Carl Levin (D-MI). Jubilee has worked and continues to work closely
with Senator Levin on legislation to curb tax havens and close corporate tax
On April 15,
Representative Lloyd Doggett introduced the Stop Tax Haven Abuse Act. The
legislation will close offshore tax loopholes and require country-by-country
reporting of offshore corporate tax payments. This reporting is critical to
curbing illicit financial flows, a systemic cause of poverty.
WASHINGTON - Illicit financial flows are a key issue impacting economic justice and human rights. They stifle domestic resource mobilisation, undermine government accountability and stability, and fuel economic inequality. For many decades, the human rights movement focused its programs and campaigns on civil and political rights. Experts and policymakers are now working to include issues of economic justice. This is the lens through which we in the development community should view the issue of illicit flows. While 1.2 billion people struggle to survive on $1.25 per day, we estimate that $859 billion drained illicitly out of developing countries in 2010.
Domestic resource mobilisation is seen as a key component of future development efforts, but nations cannot mobilise what they cannot capture, and they cannot capture what they cannot see. Many businesses and individuals have created complex financial structures, including shell corporations, fake foundations, and anonymous trusts, to move and hide their assets and disguise their identity from government officials. Many businesses use these structures to evade and aggressively avoid taxes through trade mispricing and abusive transfer pricing, which allow them to reduce their tax bills by surreptitiously shifting significant portions of their profits out of the countries in which they are earned, creating a competitive disadvantage for other businesses that play by the rules. Global Financial Integrity’s research shows that over half of illicit financial flows are the result of trade mispricing. With governments unable to accurately tax this income, less money is available for infrastructure development and the provision of critical services, including education and healthcare.
Illicit financial flows hamper government accountability and stability by facilitating kickbacks, bribery, and other forms of grand corruption. When elites can sign opaque contracts, hide money, and transfer illicit funds abroad, every infrastructure project, aid program, and day-to-day basic service becomes more costly and less efficient. Civil society struggles to act as a watchdog as public officials can easily keep its members in the dark. This leads to more distrust in government, which leads to more corruption and inefficiency, creating a negative feedback loop.
Finally, these complex mechanisms of the shadow financial system that support illicit financial outflows favor the richest individuals and the largest businesses, which places a greater burden on the poor and the middle class. When governments cannot capture the tax revenues and customs duties which the laws say they are due, they may make up the difference by relying more heavily on VAT and taxes on small businesses and lower- and middle-income families. This imbalance, combined with the damage to services from reduced domestic resource mobilization, is a major driving force behind the high rates of economic inequality in so many developing countries.
This is not a formula for successful poverty alleviation, for promoting strong democracies, for encouraging sustainable environmental practices, for maximizing economic growth, or for improving the welfare of the billions of people living in developing countries. Global financial and economic transparency is badly needed, and this is indeed a human rights issue.
In December 2009 GFI, together with Dr. Thomas Pogge, hosted a conference at Yale University bringing together for the first time key decision makers in the human rights community with key members of the financial transparency community. The result of this conference was the “New Haven Declaration on Human Rights and Financial Integrity,” which recognizes that, “human rights and international financial integrity are intimately linked.” Signatories to the New Haven Declaration include Oxfam, Human Rights Watch and Amnesty International, among many others.
The next step is to put this intellectual connection into practice. The key to curtailing illicit financial flows is transparency. We can accomplish much at an international policy level, especially among OECD member countries. The G8, led this year by UK Prime Minister David Cameron, and the Nordic Countries, are championing crucial transparency mechanisms: automatic exchange of tax information across borders; public registries of beneficial ownership; country-by-country reporting by multinationals of sales, profits, taxes paid, and staff levels; harmonising predicate offenses for money-laundering, including tax evasion; and cracking down on trade mispricing and abusive transfer pricing. Ultimately, it is civil society organisations, government officials, media, and academics in developing countries that can push for the greatest changes at the national level.
Expanding the notion of human rights and economic justice to include illicit financial flows will strengthen–not weaken or dilute—the overall campaign for global development. Nations cannot reach their full potential so long as the abuses and externalities of illicit financial outflows continue. If a government or company wants to call itself a champion of human rights, curtailing illicit outflows needs to be high on its agenda.
Eric LeCompte speaks about vulture funds at UN Meetings
By: Bryant Lewis
On April 23, 2013, Jubilee USA’s Executive Director, Eric
LeCompte spoke on the floor of the United Nations Economic and Social Council
(ECOSOC). Eric spoke on the floor of the
United Nations about vulture funds and the implications of the landmark case
between NML Capital and the country of Argentina on the world’s poorest
people. Every country, investor and international institution in the room
echoed Eric’s comments. Read his
When I arrived on
my first day at Jubilee USA as the Development and Executive Associate, I never
imagined all the amazing experiences I would have. Any given day, an assignment led me to meet extraordinary
people. One day I was less than 15 feet
from Senator John McCain and another day I was discussing legislation to a
Senator’s legislative aide. But most of
all, I was an active part of the Jubilee movement where every day I advocated
for people around the world who need help the most.
Did you know that estimates put one-third of the world's GDP in tax havens? That's roughly the total of the US and European Union countries combined. Learn about how tax havens work, who benefits and who is stuck picking up the tab in this great infographic:
NML Capital is a subsidiary of hedge fund Elliott Management, owned by billionaire Paul Singer (pictured above)
By: Rickard Ekstedt
Holdout creditor, NML Capital, rejected
Argentina’s court-ordered payment plan on April 19, 2013. The payment plan would have given holdout
creditors virtually the same deal that 92 percent of creditors took in 2005 and
2010 debt swaps. Read Jubilee USA’s
statement below on how Argentina’s payment plan protects the global poor. This is the next step in the landmark case - a
ruling by judges in the US 2nd Circuit Court of Appeals is imminent.
The International Monetary Fund (IMF) has been known for promoting austerity measures since the 1980s - which makes their latest move baffling. The IMF lowered growth projections for the United States noting the cause as austerity budget cuts. They also lowered previous Euro-zone and global economic growth projections. Read Jubilee USA's response below.