Imperialism in New Clothes

Imperialism in PAGE 1 new clothes The problem of global financial secrecy

Rachel Etter-Phoya @mininginmalawi Researcher Tax Justice Network

International Tax Justice Academy Outline 1. What is the role of tax? 2. How does global financial secrecy undermine tax? 3. How can financial secrecy be measured? 4. What can be done to tackle financial secrecy?

What role does tax play?

01 © Tax Justice Network Africa (TJNA) PAGE 4

Source: Cobham, 2005, Taxation policy & development, © Tax Justice Network Africa (TJNA) https://www.taxjustice.net/cms/upload/pdf/OCGG_-_Alex_Cobham_- _Taxation_Policy_and_Development.pdf PAGE 5 Revenue

Fundamental to being able to pay for: • public services • the budget • infrastructure & investment • implementing national development policies, SDGs

Source:© Tax Justice ICTD, 2014,Network The Africa ICTD Government(TJNA) Revenue Dataset, https://opendocs.ids.ac.uk/opendocs/bitstream/handle/123456789/10250/ICTD_WP19.pdf 5 PAGE 6 Revenue

Source: ICTD, 2018, Government Revenue Dataset, available for download here: © Tax Justice Network Africa (TJNA) https://www.wider.unu.edu/project 6 /government-revenue-dataset PAGE 7 Revenue

Source: ICTD, 2014, Tax structures, economic growth and development, https://opendocs.ids.ac.uk/opendocs/bitstream/handle/123456789/10253/ICTD_WP22.pdf

Progressivity – the degree of redistribution • Policy: corporate and personal income tax vs. value added/sales tax • Practice: exemptions, incentives, avoidance, evasion, tax treaties

Progressive tax + Progressive spending = challenge inequality

Health and social problems are worse in more unequal countries ▪ Index – ▪ life expectancy ▪ maths & literacy ▪ infant mortality ▪ Homicides ▪ Imprisonment ▪ teen births ▪ Trust ▪ Obesity ▪ mental illness ▪ social mobility

Source: Pickett & Wilkinson, 2015, Income inequality and health: a © Tax Justice Network Africa (TJNA) causal review, Social Science & Medicine 128: 316-326 9 Repricing PAGE 10 Influence behavior • E.g. increase costs for pollution and greenhouse gas emissions (carbon tax, plastic bag tax)

• Many countries have banned or taxed plastic bags (including over 30 African countries)

• In 22 countries there are levies and fees for customers only, in 20 countries there are levies and fees on manufacturers only, and in 7 countries, both consumers and manufacturers face some for of levy or fee. Source: UNEP, 2018, Legal Limits on Single-Use Plastics and Microplastics: A Global Review of National Laws and Regulations https://wedocs.unep.org/bitstream/handle/20.500.11822/27113/plastics_limits.pdf? sequence=1&isAllowed=y © Tax Justice Network Africa (TJNA) 10 PAGE 11 Representation

• Social contract & state- building • What do you think? • Are states that are more reliant on tax revenue (rather than revenue from extractives) more democratic? • If people do not pay income tax do their expectations of representatives (MPs/councilors) change?

Source: Afrobarometer, 2017, Tax compliance Africans affirm civic duty but lack trust in tax © Tax Justice Network Africa (TJNA) department, https://afrobarometer.org/publications/pp43-tax-compliance-africans-affirm- civic-duty-lack-trust-tax-department 11 PAGE 12 02 How does global financial secrecy undermine tax?

Source: Honest Accounts 2017: How the world profits from Africa’s wealth, https://jubileedebt.org.uk/wp- content/uploads/2017/05/Honest-Accounts-2017-WEB-FINAL.pdf

Ndikumana, Léonce, and James K. Boyce, Capital Flight From Africa: Updated Methodology and New © Tax Justice Network Africa (TJNA) Estimates (June 2018) [accessed 11 May 2020] PAGE 14 Offshore revelations Exposing the rogue offshore finance industry (April 2016) Companies and individuals from 52 of Africa’s 54 countries were in the data

Revealing secrets of the world elite's hidden wealth (November 2017) Elites of 7 African countries were named in the papers Several key companies with operations in Africa (e.g. Glencore)

From the Paradise Papers • Loss of potential tax revenues from Namibia’s fishery resources. • Incorporation of companies in secrecy jurisdictions by an Angolan financier. • Glencore’s nefarious practices in the Democratic Republic of the Congo and in Burkina Faso. • Questionable access to government contracts through opaque companies in South Africa.

The International Consortium of Investigative Journalists found that dos Santos, her husband and their intermediaries built a business empire with more than 400 companies and subsidiaries in 41 countries, including at least 94 in secrecy jurisdictions like Malta, Mauritius and Hong Kong.

Source: ICIJ, 2020, How Africa’s richest woman exploited family ties, shell companies and inside deals to build an empire, https://www.icij.org/investigations/luanda-leaks/how-africas-richest-woman- exploited-family-ties-shell-companies-and-inside-deals-to-build-an- empire/?gclid=Cj0KCQjwuJz3BRDTARIsAMg- HxXDv0VXSetJIZHRlLnhi6I4p3o7TTOCv73RJyG2ho9zVpzwIPKSAUIaAu-IEALw_wcB

““African corruption” is only African as regards its victims, its perpetrators are institutions and individuals from across the globe who are willing to loot without conscience as they watch their offshore accounts grow. At this point, PwC, Boston Consulting and the other consulting management companies mentioned in LuandaLeaks should surely be calling their public relations office, but the truth is, given how much money they have made, they probably don’t care.

Claudia Gastrow writing for Africa is a Country, 2020

© Tax Justice Network Africa (TJNA) Source: Africa is a Country, 20 January 2020, Laundering Isabel dos Santos, https://africasacountry.com/2020/01/laundering-isabel-dos- santos,20 January 2020 PAGE 18 Some key concepts

Financial Secrecy Offshore activities • Refusal to share • Opacity financial information • with legitimate Complexity of the authorities structures • • Bank secrecy Difficulties and divergences in • Corporate secrecy interpreting the Law • Non-cooperation • Weak political support for law enforcement

Illicit Financial Flows • Proceeds of crime or corruption • Tax evasion, tax avoidance and tax planning • Hiding wealth from public agencies, business associates, or © Tax Justice Network Africa (TJNA) family members 18 PAGE 19 Some key concepts: secrecy jurisdictions

Incidence of Tax Haven Listings – On ▪A secrecy jurisdiction is a how many lists (out of eleven maximum) are each of the 91 jurisdiction which provides jurisdictions named? facilities that enable people or

40 30 entities to escape or undermine 30 20 13 the laws, rules and regulations 7 7 6 9 7 10 5 2 3 2 of other jurisdictions elsewhere, 0 Number of Jurisdictions using secrecy as a prime tool.

▪ No international consensus on tax havens

▪ Tax havenry lies on a continuum Source: Palan, Ronen , Murphy, Richard, and Chavagneux, Christian, 2010, Tax Havens: How Globalizations Really Works. © Tax▪ JusticeQuestionable Network Africa (TJNA)tax haven lists (political interference?) Ithaca: Cornell University Press. 19 PAGE 20

How can financial secrecy be measured? 03 © Tax Justice Network Africa (TJNA) PAGE 21 Financial secrecy indicators

• 133 Jurisdictions (17 African countries) • Sources of Data: official and public reports by the OECD, the associated Global Forum, the FATF, the IMF, the IBFD, PwC, Lowtax and Surveys (sent to the Ministries of Finance and the Financial Intelligence Units). • 20 financial secrecy indicators

Source: Tax Justice Network, 2020, Financial Secrecy Index, https://fsi.taxjustice.net/en/ According to worst loophole & Unknown = secrecy © Tax Justice Network Africa (TJNA) 21 PAGE 22 Calculating financial secrecy

Source: Tax Justice Network, 2020, Financial Secrecy Index, https://fsi.taxjustice.net/en/ © Tax Justice Network Africa (TJNA) 22 PAGE 23 Financial Secrecy Index 2020

Financial Secrecy Index Non-cooperative jurisdictions Overall Ratings of the Global for tax purposes Forum Peer Reviews

Ranking Alphabetical order Non-Compliant 1. Cayman Islands American Samoa Guatemala 2. USA Fiji Trinidad & Tobago 3. Switzerland Guam 4. Hong Kong Oman 5. Singapore Samoa 6. Luxembourg Trinidad and Tobago 7. Japan US Virgin Islands 8. Netherlands Vanuatu 9. BVI 10. UAE © Tax Justice(…) Network 133. Africa (TJNA) 24 Financial secrecy vs. corruption perceptionsPAGE 25

Where (global) corruption and illicit financial flows are enabled © Tax Justice NetworkWhere Africa (TJNA) (local) corruption is perceived the most, according to objective measures (not perceptions) 25 to take place the least Financial Secrecy Index 2020 PAGE 26 Rank Jurisdiction ISO-3 ISO-2 FSI Value6 FSI Share7 Secrecy Score4 Global Scale Weight5 1 Cayman Islands CYM KY 1575.19 4.62% 76.08 4.58% 2 United States USA US 1486.96 4.36% 62.89 21.37% 3 Switzerland CHE CH 1402.10 4.11% 74.05 4.12% 4 Hong Kong HKG HK 1035.29 3.04% 66.38 4.44% 5 Singapore SGP SG 1022.12 3.00% 64.98 5.17% 6 Luxembourg LUX LU 849.36 2.49% 55.45 12.36% 7 Japan JPN JP 695.59 2.04% 62.85 2.20% 8 Netherlands NLD NL 682.20 2.00% 67.40 1.11% 9 British Virgin Islands VGB VG 619.14 1.82% 71.30 0.50% 10 United Arab Emirates ARE AE 605.20 1.78% 77.93 0.21% 11 Guernsey GGY GG 564.56 1.66% 70.65 0.41% 12 United Kingdom GBR GB 534.65 1.57% 46.20 15.94% 13 Taiwan TWN TW 507.57 1.49% 65.50 0.59% 14 Germany DEU DE 499.72 1.47% 51.73 4.71% 15 Panama PAN PA 479.51 1.41% 71.88 0.22% 16 Jersey JEY JE 466.81 1.37% 65.53 0.46% 17 Thailand THA TH 448.86 1.32% 73.25 0.15% 18 Malta MLT MT 442.20 1.30% 61.75 0.66% 19 Canada CAN CA 438.38 1.29% 55.84 1.60% 20 Qatar QAT QA 433.05 1.27% 77.00 0.09% 21 South Korea KOR KR 411.06 1.21% 61.58 0.55% 22 Bahamas BHS BS 407.28 1.19% 75.38 0.09% 23 Algeria DZA DZ 400.56 1.17% 79.63 0.05% 24 Kenya KEN KE 398.19 1.17% 75.95 0.08% 25 China CHN CN 397.25 1.17% 59.85 0.64%

Africa Rank Jurisdiction Overall Rank Average of FSI Value2 Average of FSI Share3 Average of Secrecy Score4 Average of Global Scale Weight5 1 Algeria 23 400.56 1.18% 79.63 0.05% 2 Kenya 24 398.19 1.17% 75.95 0.08% 3 Nigeria 34 348.53 1.02% 70.15 0.10% 4 Angola 35 345.45 1.01% 79.73 0.03% 5 Egypt 46 241.93 0.71% 71.38 0.03% 6 Mauritius 51 235.82 0.69% 71.53 0.03% 7 Cameroon 53 229.23 0.67% 71.48 0.02% 8 South Africa 58 218.59 0.64% 56.24 0.19% 9 Morocco 72 157.49 0.46% 67.75 0.01% 10 Tunisia 78 147.48 0.43% 66.48 0.01% 11 Seychelles 95 108.53 0.32% 70.44 0.00% 12 Tanzania 98 100.62 0.30% 70.78 0.00% 13 Rwanda 99 100.47 0.30% 63.00 0.01% 14 Liberia 111 77.59 0.23% 78.24 0.00% 15 Botswana 113 58.37 0.17% 62.24 0.00% 16 Ghana 117 54.47 0.16% 51.70 0.01% 17 Gambia 124 37.72 0.11% 74.88 0.00%

Source: Tax Justice Network, 2020, Financial Secrecy Index, © Tax Justice Network Africa (TJNA) https://fsi.taxjustice.net/en/ 27 04 What can be done to tackle financial secrecy?

Four key areas measured in the Financial Secrecy Index, 1. Beneficial ownership registration 2. Corporate transparency regulation 3. Efficiency of tax and legal regulation 4. International standards and cooperation

• Watch this video as it shows why registering beneficial owners is important as part of ending financial secrecy https://www.youtube.com /watch?v=FyOVMqAIFw8

Source: Ted-Ed, Dec 2015, How exposing anonymous companies could cut down on crime - Global Witness, https://www.youtube.com/watch?v=FyOVMqAIFw8 © Tax Justice Network Africa (TJNA) 30 PAGE 31 1. Beneficial ownership registration

• Address banking secrecy • Have a register for trusts and foundations • Record company and limited partnership ownership • Registration of real estate and valuable asset ownership

Source: Etter-Phoya, Danzi, E. Forthcoming, Jalipa, R. Forthcoming. Beneficial Ownership Transparency in Africa: The state of play in 2020. Tax Justice Network and Tax Justice Network © Tax Justice Network Africa (TJNA) Africa 31 PAGE 32 2. Corporate transparency regulation ▪ Publish company ownership information ▪ Require all companies with limited liability to file accounts and make available online ▪ Require public country- by-country reporting ▪ Corporate tax disclosure ▪ Require a legal entity identifier

© TaxSource: Justice European Network Commission, Africa (TJNA) 2016, Anti-Tax Avoidance Package, 32 https://ec.europa.eu/taxation_customs/business/company-tax/anti-tax-avoidance-package_en PAGE 33 3. Make tax and legal regulation efficient

• Ensure effective tax administration capacity to collect and process data for investigating and taxing people and companies who have means and opportunities to try to escape tax obligations • Apply consistent personal income tax that taxes worldwide income and have strict citizenship and residency laws • Avoid promoting tax evasion by granting unilateral double taxation relief • Promote tax court transparency by ensuring court proceedings in civil and criminal tax matters are public at all times and confidentiality rules (e.g. bank secrecy) cannot be invoked along with making verdicts and judgements public online. • Ensure harmful instruments and structures are not available. • Remove large banknotes in a currency greater than EUR/GBP/USD 200 from circulation • Unregistered bearer shares should not be available • Prohibit Series Limited Liability Companies & Protected Cell Companies • Prevent trusts with flee (or flight) clauses • Make available public statistics relating to international finance, trade, investment and tax © Taxpositions Justice Network Africa (TJNA) 33 PAGE 34 4. International standards and cooperation

• Implement an anti-money laundering regime • Sign the Multilateral Competent Authority Agreement to be able to engage in the automatic exchange of information pursuant to the OECD’s Common Reporting standard and effectively exchange information with other jurisdictions and assist developing countries. • Sign up to and enter effective information exchange relationships • Participate in international transparency commitments (1999 UN International Convention for the Suppression of the Financing of Terrorism, 2003 UN Convention against Corruption) and engage in international judicial cooperation

Automatic exchange of information

Beneficial ownership transparency

Country-by-country reporting

Disclosure to support accountability and compliance, including of tax incentives

Enforcement, including effective resourcing of tax authorities and other relevant agencies

Formulary apportionment and unitary taxation

Global convention & global body

• In writing, describe the top three ways the country can address financial secrecy. • If you are a parliamentarian or other representative, write from this so as to convince the political party or fellow parliamentarians or representatives in your selected country. • If you are a journalist, write this as a short news article for a publication in the country you have chosen. If you do not work in the print press and would prefer to record an audio or video, you are welcome to submit something in this format. • If you are part of civil society, write this as a press release to advocate for change in the country you have chosen. • If you are not part of any of these group, feel free to imagine you are advising the Minister of Finance in the country you have chosen about what needs to be done to address financial secrecy

Detailed sources and explanations

Podcasts English podcast: Podcast em Arabic Podcast: الجباية ببساطة :Francophones: Taxcast Português Impôts et Justice É da sua conta Sociale

https://www.taxjustice.net/category https://www.taxjustice.n https://www.youtube.c https://www.taxjustice.net/ /impots-et-justice-sociale/ et/taxcast/ om/playlist?list=PLPle_ category/%D8%A7%D9%84 vPYGn5wxqIAC37cgl8Z %D8%AC%D8%A8%D8%A7 akW5xcf1t %D9%8A%D8%A9- %D8%A8%D8%A8%D8%B3 © Tax Justice Network Africa (TJNA) %D8%A7%D8%B7%D8%A9/39 PAGE 40

THANK YOU!

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