2010 April » Tax Research UK

Corruption fight needs independence

Cayman, Corruption Comments Off

Apr 192010

cayCompass.com :: Letters to the Editor: Corruption fight needs independence .

A good letter in cayCompass.com saying (in essence):

A study of corruption fighting organisations worldwide reveals that, to be successful, the Anti-Corruption Commission has to be an Independent Commission Against Corruption, reporting its findings directly to and accountable to the people and to the Legislative Assembly. As examples see www.icac.org.hk and www.icac.nsw.gov.au

Unfortunately, the Cayman Islands Anti-Corruption Commission is NOT independent, which is now the worldwide-accepted best practice.

Independence and separation of powers are integral and necessary parts of good governance systems established to investigate and fight corruption and to work towards truly good governance systems for the benefit of the population as a whole and not to protect just the usual crooked “chosen few” with the right political connections from prosecution.

Without independent watch dog commissions, outside of the direct UK and Cayman Islands political and civil service control, it is impossible to avoid the inevitable conflict of interest within the UK and Cayman Islands governance systems and to safeguard separation of powers.

Cayman’s Anti-Corruption Commission is totally directed and controlled by the UK Government’s instructions via directions from the FCO to the Governor.

The UK Government has demonstrated that they can no longer be trusted to follow the principles of the Rule of Law. The UK Government/BAE/Saudi Arabia corrupt bribery case exposed that whenever the UK’s interests are at risk then the UK has and will in the future violate laws to achieve objectives deemed to be in the UK’s “best interests”. See www.controlbae.org

As the UK Governance system cannot be trusted to be honest, the Commission must be made into a modern Independent Commission against Corruption not under the control of the UK or local politicians or civil servants. Compliance with the fundamental principles of the Rule of Law must be an unwavering standard for Cayman Islands governance.

Legislators do the right thing for our Islands; make the Anti-Corruption independent. Let them get on with the job unfettered.

It’s shameful that this can fairly be said of the UK.

It’s shameful that Cayman has not sought the highest standard of approach when adopting its new law.

Both need to take action, now.

Unless we make balance sheets reflect reality then financial reform is not going to work

Accounting, Banking 8 Responses »

Apr 192010

Watch the video:

Then read the article:

In sum, Congress should mandate that companies report all of their assets and liabilities. Companies that omit material assets and liabilities from their balance sheets should be subject to civil liability in the same way companies generally have been exposed to private rights of action for material misstatements. This is not a radical proposition: it is precisely what Congress did in 1933 and 1934, in response to that era’s financial crisis.
At first blush, the off-balance sheet problem might seem unfathomably complicated, and perhaps that is why some people in government did not include reforms directed at this problem as part of the “Plan A” approach to financial reform. But average people understand what liabilities are, and they know what can happen if people are permitted to lie about their debts. Market capitalism requires transparency, or it will not function properly. That is not a controversial proposition. And it is why requiring disclosure of off-balance sheet transactions is a crucial part of “Plan B.”

It only takes a few simple questions for the average person to understand how much trouble off-balance sheet accounting can cause. Here are a few: What if the next time you wanted to borrow money you didn’t have to list most of your debts? What if Congress let you keep your credit card bills and mortgage liabilities hidden from view? If you could hide your debts, how much would you borrow? What would you do with that borrowed money? How much risk would you take? The answers do not require knowledge of rocket science. Common sense tells us that if we let people hide their debts, they will borrow more than they should, at the wrong times, for the wrong reasons.

Simply put, our biggest banks have been hiding their debts. Even after the recent crisis, they continue to hide them, now more than ever. Most people and business include all of their liabilities on their financial statements. Banks should, too.

Then note what one of the authors had to say in the FT today:

[T]he [Goldman Sachs]case demonstrates a more effective way to police bankers, because Wall Street cannot outrun a judge. That simple point has been part of Anglo-American common law jurisprudence for centuries. The US judge Oliver Wendell Holmes advised that the law was a prediction about what a judge would do. If bankers consider only whether they are complying with specific legal rules, they will create “alegal” transactions – deals that fit the letter of the law but violate its spirit. But they cannot be certain about how a judge might assess their conduct. That worry, not a rule, is what will make bankers tell clients about the presence of a fox.

What he’s suggesting is a General Anti-Avoidance Principle for accounting. And as he then argues:

More generally, the suit against Goldman gives Congress a way forward for financial reforms. For example, the credit rating agencies, which rated Abacus 2007-AC1 triple A, were not named as defendants. Nor was Paulson, which issued a statement denying wrongdoing. These are important omissions, especially that of the rating agencies, which should worry about what a judge may say. Congress could ensure that they will by eliminating the protections that have shielded them from liability.

Congress could also use the threat of litigation to reform derivatives and off-balance sheet transactions. As currently drafted, the new law would do nothing about recently publicised accounting abuses at Lehman Brothers and other banks. The banks’ inaccurate financial statements have generated howls of protest but no successful litigation.

Lynn Turner, the former SEC chief accountant, and I have published a paper* explaining how Congress could reform this area with one simple paragraph requiring that financial statements reflect reality.

The reality he asks for is this:

Companies must include swaps on their balance sheets.
Companies must record all assets and liabilities of Variable Interest Entities (VIEs), in amounts based on the most likely outcome given current information.
Companies must report asset financings on the balance sheet (not as “sales”).
Congress should adopt a legislative standard requiring such disclosures (mere “guidance” from the accounting industry is not enough).
Companies that fail to disclose material facts should face civil liability.

Of course it may not be enough by itself to stop all abuse – country-by-country reporting would help that too – but it would help massively.

Assume the combined might of the accounting, legal and banking professions will be opposed – as they are to country-by-country reporting.

Which is precisely why we need such reform.

These guys are the abusers.

They are the fraudsters in he sense that they use deceit to secure advantage – even if the deceit is not illegal at present. .

They are the people who need to be brought to book.

Now.

Goldman thinks fraud charge ‘political’ – and they’re right – it was

Banking, Ethics 1 Response »

Apr 192010

FT.com / Comment – Goldman versus the regulators.

These paragraphs are very telling:

Goldman’s executives could barely hide their anger at the way the regulators had handled the situation. They said the probe into the CDO the bank arranged for Paulson had begun nearly two years ago and the last time Goldman had heard from regulators was in July.

Goldman executives hint that the SEC’s apparent unwillingness to enter into settlement talks before making the charges public, which is customary especially in high-profile cases, and the timing of the announcement, had more to do with politics than regulation.

So the bank wanted a nice cosy settlement, out of the public eye to let them hide their fraud.

No way.

And the bank thought that they deserved specal case treatment for committing an alleged massive fraud.

No way.

But that’s not all. Goldman Sachs are guilty of unknown known thinking. They seem to think that regulation, created by government on the basis of its democratic mandate is for the benefit of the bank – not for society at large, and that therefore it is not political. It is very obvious that this thinking is wrong – but they have thought to the contrary for so long, and have been allowed to do so for so long, that they now think this is the case.

No way.

It’s time for all banks in all jurisdictions to realise they are regulated for the public good, not their good. And those two things are not the same.

Regulation is essential for the public good.

Transparency is essential for the public good.

Accountability is essential for the public good.

Reliable accounts are essential for the public good.

Auditors who audit are essential for the public good.

The enforcement of the rules of limited liability – and the unlimiting of liability for those who abuse it, is essential for the public good.

Paying tax in the right place at the right time (and the use of a tax haven in this case was no doubt in part designed to avoid some taxes) is essential in the public interest.

Honesty is essential in the public interest.

All have to be tackled by competent politicians.

There’s much more to be said on this. This is the debate for the next few years.

And the banks have to lose it and society has to win it. Or there will be no more society. It’s as blunt as that.

Bankers’ pay drives rise in inequality

Banking, Economics, Ethics 1 Response »

Apr 192010

FT.com / UK / Economy & Trade – London drives rise in pay inequality.

Bankers’ bonuses and pay at the top end of the financial services industry have driven Britain’s rising inequ ality over the past decade, new research from the London School of Economics shows.

It could be said that this is a statement of the bleeding obvious.

And it could be asked why we needed research to prove this.

But there are bankers, economists and Tories out there who deny this very obvious reality.

So let’s face the facts that have been denied – what Fintan O’Toole has called the “unknown knowns”. Donald Rumsfeld referred to known knowns, known unknowns and unknown unknowns. O’Toole cleverly adds unknown knowns – those things to which a blind eye is turned. This blindness was the foundation of the economy pre 2008. For those on the Right it still is.

The denial of inequality caused by neoliberal economic policies is an unknown known to those who promoted those policies.

The Goldman Sachs CDO was, of course, offshore

Banking, Corruption, Secrecy jurisdictions Comments Off

Apr 192010

FT.com / Comment / Opinion – Wall Street beware: the lawyers are coming.

As the FT notes regarding the alleged fraud by Goldman Sachs:

Goldman has denied the charges, which it said were unfounded “in law and in fact”. It will argue that investors were sophisticated and assumed the risks in exchange for higher returns. It will wave a lengthy prospectus and a 66-page pitch book, which disclaimed liability and disclosed a Cayman Islands special purpose issuer, an exchange listing and centrally clearing.

My emphasis added.

The point has been little picked up so far, and yet is obvious. Golodman sought opacity for their deal. They got it, in Cayman.

As ever when one gets near fraud and corruption facilitated by a lack of transparency one finds a tax haven / secrecy jurisdiction at its heart.

Tax is not, of course the issue here. Secrecy is. And we have to shatter secrecy jurisdictions for good to overcome this problem. Accommodation with corruption is not an option. These places are set up to facilitate corruption. They have to go.

NB: Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

Reuters analysis-OECD crackdown on tax havens seen lacking teeth

OECD, Secrecy jurisdictions, Tax Havens, Tax Justice Network 2 Responses »

Apr 192010

ANALYSIS-OECD crackdown on tax havens seen lacking teeth 13:48 Hours ago.

A good summary by Reuters of the current differences between the OECD and the Tax Justice Network – “a respected and independent advocacy group”.

Former J.P.Morgan Managing Director backs financial transactions tax

Transaction Taxes, TUC Comments Off

Apr 192010

Former J.P.Morgan Managing Director backs financial transactions tax | ToUChstone blog: A public policy blog from the TUC.

Who says bankers don’t back financial transaction taxes? The TUC notes:

John Fullerton is former managing director of J P Morgan, the Wall Street investment bank, and he has said to a meeting:

“I am here to express my support for a Financial Transaction Tax.”

His reasoning is in the TUC blog.

And it’s all consistent with all we’ve been saying.

Time for the G20 to tackle illicit financial flows

Development, Transparency Comments Off

Apr 192010

I’m delighted Tax Research was part of a massive global coalition of civil society organisations with a shared focus on corrupt practices that called last week on the G-20 countries, in advance of their global summit meeting this year in Toronto, Canada, to tackle the issue of illicit financial flows.

Call for G-20 action to tackle illicit financial flows

We, the undersigned civil society organisations, urge the Group of Twenty Countries (G20) to:
- recognise the link between illicit outflows of capital from developing countries, absorption of those resources by tax havens and secrecy jurisdictions, and the adverse impact those flows have on poverty alleviation and economic development;
- call on the Financial Action Task Force to amend its recommendations 33, 34, and VIII to provide that the beneficial ownership of all companies, trusts, foundations and charities be made a matter of public record;
- reiterate the need for all jurisdictions to help recover the proceeds of bribery, embezzlement and other forms of corruption, and in particular to call on states to increase resources to investigate and prosecute corruption cases; to encourage the use of both criminal and non-conviction based asset forfeiture methods, and to provide coordinated, timely and effective mutual legal assistance, as promised by the G8 Justice and Home Affairs Ministerial Declaration of 11 May 2004;
- instruct the International Accounting Standards Board to recommend that all multinational corporations report their income and taxes paid on a country by country basis; and
- call on the OECD to create and promote a single multilateral agreement for effective tax information exchange between all jurisdictions.

14 April 2010

Signatory organisations:-

Christian Aid International
EITI – NGO’s for Extractive Industries Transparency Azerbaijan
Commonwealth Human Rights Initiative International
Transparency International Azerbaijan
Global Alliance Against Trafficking in Women International
Bahrain Transparency Society
Global Witness International Bangladesh
NGO Network for Radio and Communication Bangladesh
International Council of Women International
BRAC University Bangladesh
International Trade Union Confederation
Voice Bangladesh
Islamic Relief Worldwide International
Credcentre Benin
La Strada International
Club-Journalists against corruption Bulgaria
Public Services International
Buddhsim and Society Development Association Cambodia
Tax Justice Network International
Pact Cambodia
Tearfund International
Cameroonian League for Human Rights
Tiri International Federation of Environmental and Ecological Diversity for
Agricultural Revampment and Human Rights (FEEDAR & HR) Cameroon
Transparency International – Secretariat
Global Network for Good Governance Cameroon
UNICORN – Global Unions Anti-corruption Network
Humanus International Cameroon
SNAPAP Algeria
Research Alliance for Development Cameroon
Asociacion Civil por la Igualdad y la Justicia Argentina
Canadians For Accountability Canada
Fundacion Mujeres en Igualdad Argentina
FAIR (Federal Accountability Initiative for Reform) Canada
Grupo de Mujeres de la Argentina
Foro de VIH Mujeres y Familia
Argentina Transparency International
Poder Ciudadano Argentina
Chile Transparente
Transparency International Armenia
Partnership for Social Development Croatia
Oziveni Czech Republic
Transparency in Nigeria
Ibis Denmark
Women Environment & Development Network (WEDEN) Nigeria
AICO- Arab Organization for International Cooperation
Women in Publishing (WIP) Nigeria
Arab Thought Forum Egypt
Women’s Right to Education Programme (WREP) Nigeria
Center for Egyptian Women’s Legal Assistance Egypt
Zero Corruption Coalition Nigeria
Participatory Development Program (PDP) Egypt
Attac Norway
Fundacion Nacional para el Desarrollo (FUNDE) El Salvador
Norwegian Church Aid Norway
Youth Education Forum F.Y. Republic of Macedonia
DISCOVER Pakistan Foundation
Open Society Institute F.Y. Republic of Macedonia
GINI -Governance Institutions Network International Pakistan
Transparency Zero Corruption F.Y. Republic of Macedonia
PILDAT – Pakistan Institute of Legislative Development & Transparency
Transparentnost Macedonia
Society for the Empowerment of People-STEP Pakistan
CCFD-Terre Solidaire France
Transparency International Pakistan
Helio International France AMAN
Transparency International Palestine
Plate Forme Paradis Fiscaux et Judiciaires France
Grupo de Trabajo Contra la Corrupcion (GTCC) / Work Group against Corruption Peru
Sherpa France
National Human Rights Coordination Body Peru
Transparency International France
Proetica Peru
NGO ArtIdea Georgia Business for Integrity 2020 Philippines
TRACC – Georgia
Global watch Philippines
The Johanniter Germany Public Services Labor Independent Confederation (PSLINK) Philippines
Transparency International Germany
Transparency and Accountability Network Philippines
Ghana Integrity Initiative
Transparency International Philippines
Centre for European Constitutional Law Greece
Ummah Fi Salam Philippines
Accion Ciudadana Guatemala
Asociatia Romana pentru Transparenta Romania
Stat View International
Guinea Trade Union
Elie Radu Romania
Afrikaplatform Hungary
Transparency International Russia
Civil Society Development Foundation Hungary
Transparency International Rwanda
Foundation for Development of Democratic Rights Hungary
Forum Civil Senegal
K-Monitor Hungary
REPAOC Senegal
National Confederation of Hungarian Trade Unions Hungary
Africa Youth for Peace and Development Sierra Leone
Centre for Applied Sociology India
Youth Partnership for Peace and Development Sierra Leone
Gram Bharati Samiti India
Open Society Foundation (OSF) Slovakia
The National Center For Peace & Development India
Transparency International Slovakia
Transparency International India
Integriteta-association for ethics in public service Slovenia
Indonesia Corruption Watch
Transparency International Solomon Islands
LEIP Indonesia
Human Rights Trust of Southern Africa South Africa
National Law Reform Consortium Indonesia
Institute for Security Studies (ISS) South Africa
Partnership for Governance Reform / Kemitraan Indonesia
T.F.A.C (The Fight Against Corruption ) South Africa
Telapak Indonesia Heungsadan
(Young Korean Academy) Transparency Movement South Korea
Transparency International Indonesia
K-Pact Council South Korea
Iraqi Center For Transparency and Corruption Iraq
Transparency International Korea South Korea
Kurdistan Anti Corruption Network Iraq
Transparency International Sri Lanka
Dochas Ireland
Transparency International Sweden
Transparency International Ireland
Basel Institute on Governance – ICAR Switzerland
OMETZ Israel
Transparency International Switzerland
Campagna per la Riforma della Banca Mondiale (CRBM) Italy
Uniting Church in Australia Synod of Victoria and Tasmania
AfricCOG – Africa Centre for Open Governance Kenya
Transparency International Chinese Taipei Taiwan
Bunge la Mwananchi Kenya
Luta Hamutuk Institute Timor Leste
Kenya tuitakayo: Citizens’ Coalition for Constitutional Culture
Transparency Institute Trinidad and Tobago
Transparency International Kenya
Transparency International Uganda
Kuwait Transparency
Water Governance Institute Uganda
Public Investigation Bureau Latvia
Association for Accountancy and Business Affairs United Kingdom
Actions for Genuine Democratic Alternatives (AGENDA) Liberia
Partnership for Transparency Fund United Kingdom
Center for Transparency & Accountability Liberia
Protimos United Kingdom
Transparency International Lithuania
Rights & Accountability in Development (RAID)
Transparency Zero Corruption Macedonia
Tax Research UK United Kingdom
Baholalao Integrity Safeguard Committee Madagascar
The Corner House United Kingdom
Centre for Public Policy Studies Malaysia
The office of Lord Brennan, UK United Kingdom
Libertad en accion Mexico
Trades Union Congress (TUK) United Kingdom
Transparencia Mexicana Mexico
Transparency International United Kingdom
MANS Montenegro
War on Want United Kingdom
Etica y Transparencia Nicaragua
World Wildlife Fund United Kingdom
Association Nig?©rienne de Lutte contre la Corruption (ANLC) Niger A
merican Bar Association Rule of Law Initiative United States
African Network for Environment and Economic Justice (ANEEJ) Nigeria
Financial Intelligence Council United States
African Youth Empowerment Nigeria
Hills Program on Governance United States
Blossom Nigeria Project Nigeria
Project on Organizing Development Education and Research United States
Equity Advocates Nigeria
The Jus Semper Global Alliance United States
Grass Root Anti-Corruption Awareness Network Initiative Nigeria
Transparency International USA
Independent Advocacy Project (IAP) Nigeria
Observatorio Hannah Arendt Venezuela
Moms Club International Nigeria
Provea Venezuela
Nigeria Labour Congress Nigeria
Transparencia Venezuela
NPA Nigeria
Citizens Forum Zambia
Publish What You Pay/NEITI Nigeria Transparency International Zambia
Save Earth Nigeria
Socio-Economic Rights & Accountability Project (SERAP) Nigeria

0.7%

Development Comments Off

Apr 192010

Development aid per se is not my goal.

The relief of poverty is.

Aid is a step on that way.

Ending illicit financial flows, closing down tax havens, stopping the corporate abuse of the developing world, ensuring there is tax compliance so that the right amount of tax (but no more) is paid in the right place at the right time happens, all these will make a post aid world. That’s something we owe developing countries. That’s why I concentrate on them.

But in the meantime aid matters:

And the fact that the Tories want to abuse aid by describing military assistance as aid and the promotion of (failed) privatisation as aid is just sickening, as was noted in the Observer yesterday:

As practitioners in the field of international development, we write to challenge the claims that there is a consensus between the parties when it comes to tackling global poverty.

Take the issue of promises on aid. The welcome shift in Conservative policy to back the 0.7% promise in 2005 has been much vaunted by David Cameron, but despite repeated requests they have refused clearly to commit to ensure aid is not diverted for other purposes. Their commitment to the 0.7% target risks looking like political positioning rather than a serious commitment to tackling global poverty.

As concerning as how much the Conservatives will actually spend on tackling global poverty is how they suggest spending it. Access to basic services like health and education are basic rights. Conservative proposals to distribute vouchers for private schools in slums, to create an X-Factor-style competition to decide who gets aid, and a shift to private provision of healthcare, look like crude attempts to export failed ideological or populist policies, against the advice of leading practitioners and aid charities.

Though we would much like there to be, there is no consensus on this issue. Instead, there is a serious choice about whether and how Britain should help the world’s poorest people.

Richard Bennett CBE

Former chair, Make Poverty History

Dr Ann Pettifor

Co-founder, Jubilee 2000

Lord Joffe

Former chair, Oxfam GB