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Of Anti Money Laundering Policy FATF Challenges of Europe-the Strength of Soft Power Inclusion and Exclusion in Contemporary European Societies Soft Power to Make Citizens Fulfill Their Duty to Pay Taxes by Prof. Dr. Brigitte Unger Utrecht University School of Economics, the Netherlands Director, Economic and Social Institute WSI, Germany International (post) graduate course, Inter University Center Dubrovnik, Croatia April 16-20 2012 1 Terminology: Soft Law versus Soft Power Wieger Bakker, Nye‘s concept of Hard Power (military, economic threat) versus Soft Power (voluntary committment) Frans van Waarden, Hard State Power (military force, jail) versus Soft State Power (naming and shaming, blaming)- EU, ECJ, ECB Hard Law (laws, EU-Directives…) versus Soft Law..not legally binding norms, e.g. Financial Action Task Force 40 plus 9 Recommendations, UN Resolutions, EU "codes of conduct", "guidelines", "communications” ‘voluntary‘ committment The Third European Soft Power • The European Central Bank (ECB) is the institution of the European Union (EU) that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt, Germany. • The current President of the ECB is Mario Draghi, former governor of the Bank of Italy. • ECB has stock capital of 5 billion euro which is held by the national central banks of the member states as shareholders. ESFS and ESM • ESFS On 9 May 2010, the 27 member states of the European Union agreed to incorporate the European Financial Stability Facility, guarantees 780 bill Euro, lending capacity of 440 bill Euro. • ESM In July 2012 permanent Rescue Mechanism, the European Stability Mechanism an intergovernmental organisation under public international law will be located in Luxembourg Another 500 billion Euro…. Critics: Board of ESM is under no parliamentary control ECB Board of Governors plus 17 Central Banker 1. Soft Power to Make Citizens Fulfill Their Duty to Pay Taxes Citizens have Rights and Duties EU Treaties (of Rome, Maastricht, Lissabon) only talk about EU CITIZENS‘ RIGHTS… • general right of non-discrimination • free movement and residence in Member States • right to vote • right to petition in European Parliament CITIZENS‘ DUTIES • obey the law • defend the nation • pay taxes The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing. Jean-Baptiste Colbert French Minister of Finance 1619-1683 1. The Duty to Pay Taxes is unpopular There is no such thing as a good tax Sir Winston Churchill, UK Prime Minister and Nobel Prize Winner Literature 1953 The income tax has made more liars out of the American people than golf has. Will Rogers, American Actor in the 1930ies The income tax created more criminals than any other single act of government. Barry Goldwater, US Senator (1909-1998) Taxes are the price we pay for a civilized society Oliver Wendell Holmes 1841-1935 Judge of the Supreme Court 2. The Dwarf Revenue of the EU-25 2006 in mio Euro . GNI-based own resource: 70,132.1 (approx 65%) At the moment capped at 1.23% of total GNI of the EU VAT-based own resource: 17,206.2 (approx 16%) Traditional own resources: (TOR) 15,028.3 (approx 14%) Mainly import duties Total other: 6,056.5 (approx 6%) under spent funding, interest on late payments… Total EU Revenue = 108 billion Euro (Dutch Tax Revenue =130 billion in 2011) 2. Taxes in Percent of GDP in the EU in 2008 Austria 42.8 Germany 39.3 Malta 34.5 Belgium 44.3 Greece 32.6 Netherla 39.1 nds Bulgaria 33.3 Hungary 40.4 OECD 34.8 Cyprus 39.2 Iceland 36.7 Poland 34.3 Czech 36.1 Ireland 29.3 Portugal 36.7 Rep Denmark 48.2 Italy 42.8 Romania 28.0 Estonia 32.2 Latvia 28.9 Slovakia 29.1 Finland 43.1 Lithuania 30.3 Slovenia 37.3 France 42.8 Luxemb 35.6 Sweden 47.1 UK 37.3 US 24.0 Arab Emi 1.1 3. The Freedom not to Pay Taxes in the Member Countries? The four freedoms in the EU guarantee free movement of goods, services, labour and capital. Does this also include the freedom not to pay taxes? 2 ways of not paying taxes: Tax Avoidance…legal way not to pay taxes Tax Evasion ….illegal way not to pay taxes 3. CORPORATE TAX RATES FALL IN OECD MEMBER STATES 60 50 40 30 20 Corporate Tax Rate TaxCorporate 10 0 1982 1987 1992 1997 2002 2007 13 4. Reasons for the Decline in Tax Revenues Since the liberalization of capital movements in the early 1980ies, financial markets took off. 16 4. Extreme inequality of income distribution creates a new elite, a club of billionaires Previously 1: 2000 An emperor had approximately 2.000 times as much as his subordonates. Today: 1 : 1 000 000 Hedgefunds manager John Paulson. In July 2006 he founded a hedge fund with the sole strategy to bet on the collapse of the real estate market. In 2007 his Fund increased by 590%. John earned in this year 3,7 billion US dollar. Some other billionaires try to buy an apple 4. Income differential to the 3rd world GDP per capita, constant 2000 US$, high vs low income countries 3500 3000 2500 2000 1500 GDP per Capita per GDP 1000 500 0 1980 1985 1990 1995 2000 2005 2010 Time Source: World Development Indicators, 2009 Low Income High Income (divided by 10) 19 4. Inequality – falling wage shares in developed countries 20 4. New old problem Rising unemployment rates 4. Unemployment Rates in Europe Rose Unemployment rate Austria Belgium Cyprus 25 Finland France 20 Germany Greece 15 Ireland Italy 10 Luxembourg % labour force labour % Malta Netherlands 5 Portugal Slovak Republic 0 Slovenia 2008 2009 2010 Spain Source: IMF 1. Public debt in percent of GDP till 2014 in Europe - Estimates 160% 140% 120% 100% 2014 80% 2009 60% 40% 20% 0% Staatsschuldalspercentage van het BBP Italië België Finland Ierland Spanje Frankrijk Portugal Zweden Oostenrijk Duitsland Nederland Griekenland Noorwegen Denenmarken Verenigd Koninkrijk Public Debt Problems as a Consequence of the Financial Crisis Schweiz Österreich Quelle: APK Vorsorgekasse Volkswirtschaftliches Referat Interest Rate Spreads on Long Term Public Debt Obligations II. "Große Rezession" I. Finanzkrise III. Weltweite Erholung aber Phase Ia. Phase Ib. Phase IIa. Phase Ilb. EU-Schuldenkrise & Liquiditäts- Solvenz- Vertrauens- Globale weltweite krise krise krise Wirtschaftskrise Währungsschwankungen Konjunktur Interbankmarkt Aufschläge aufAktienmarkt 10 jährige deutsche Staatsanleihen in Basispunkten 2000 4000 1800 3600 1600 3200 1400 2800 1200 2400 1000 2000 800 1600 600 1200 400 800 200 400 0 0 jan-07 apr-07 jul-07 okt-07 jan-08 apr-08 jul-08 okt-08 jan-09 apr-09 jul-09 okt-09 jan-10 apr-10 jul-10 okt-10 jan-11 apr-11 jul-11 okt-11 jan-12 Österreich Belgien Spanien Frankreich Irland Italien Niederlande Portugal Finnland Griechenland (re Achse) Quelle: OeNB, Thomson Reuters. Krugman, P. (2008) Nach Bush – Das Ende der Neokonservativen und die Stunde der Demokraten, Campus, Frankfurt Fitoussi, J.-P./Stiglitz, J. E. (2009) The Ways Out of the Crisis and the Building of a More Cohesive World, OFCE Document de travail, 17. 26 Postdemocracy, The Non Death of Neoliberalism Elite does not pay its taxes anymore. Non democratic organizations – EU-Commission, ECJ, ECB decide on European politics = Post Democracy (W. Streeck). EU-Commission – austerity packages /‚sustainability‘ ECJ makes judgements to guarantee the 4 freedoms that interfere with national labour law (F. Scharpf) ECB gives money to Greek banks…no citizens involved (W. Streeck) Epistemic Communities (F. van Waarden) rule instead of European Parliament, Council of Europe. Explains why Neoliberalism isn‘t dead (Colin Crouch) Soft Power to Collect Taxes? - Blacklisting OECD List of Tax Havens in 2000 28 G-20 London Summit 2 April 2009 tax haven blacklist (New OECD list) four tiers for complying with international tax standard: 1. Those that have substantially implemented the standard (includes most countries but China still excludes Hongkong and Macao). 2. Tax havens that have committed to – but not yet fully implemented – the standard (includes Montserrat, Nauru, Niue, Panama, and Vanuatu) 3. Financial centres that have committed to – but not yet fully implemented – the standard (includes Guatemala, Costa Rica and Uruguay). 4. Those that have not committed to the standard (an empty category) Country Blacklists are Made under Pressure of Nations who Pay for International Organizations When the G-20 commissioned the OECD to make the tax haven list, this was like sending the fox to guard the hen-house NO EUROPEAN COUNTRY ON THE OECD LIST!! NO RICH COUNTRY ON THE LIST!! BUT Pressure from US! Since 2010 Tax Evasion as Part of Money Laundering in FATF Recommendations (=Soft Law) UN Office on Drugs and Crime 1 Mei 2006 http://www.unodc.org/unodc/money_laundering _cycle.html 31 The Regulator(s) of Anti Money Laundering Policy FATF The Financial Action Task Force since 1989 Leading Global Player Soft Law with 40 Recommendations plus 9 on Terrorist Financing Country Assessments and Blacklisting Other Regulators: EU 3rd Anti Money Laundering Directive, hard law but passive regulation 32 Tax Evasion becomes part of AML and Combating Terrorism Financing Combat The 40 plus 9 Recommendations • Ratification of UN Conventions • Implementation of Anti Money Laundering Law • Establishment of a Financial Intelligence Unit • Number of Reports of Suspicious Transactions • Banks, real estate, car dealers, lawyers..have to file a suspicious transaction report STR to the Financial Intelligence Unit • The Financial Intelligence Unit analyzes the report and forwards it to Law Enforcement Agencies 2.
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