A new commission appointed by Norway will investigate ways of putting a stop to the huge flows of money into tax havens. Tax evasion and corruption are believed to cost poor countries at least 50 billion dollars a year.
The commission, launched last week, includes Eva Joly, a special advisor on corruption for the Norwegian development agency Norad who headed the famous investigation into corruption at French oil company Elf as an investigatory judge, as well as experts in the fields of international economics, anti-corruption, fund management, and development policy.
Tax havens are places that have created special tax rules that allow operators such as companies to pay little or no taxes. The tax havens can be very secretive, making them attractive for operators that want to avoid paying taxes to their home countries, as well as for those that want to hide away money gained through corruption.
Among the areas that have been labelled as tax havens are Andorra, Monaco, Gibraltar, Jersey, the Cayman Islands, Luxembourg, the Netherlands, as well as some parts of the financial system in London.
"I am very proud of this commission and I think it is very important that it has been appointed, because there is quite a high level of confusion surrounding the damaging effects of tax havens," Joly, who is also part of an anti-corruption working group at the World Bank, said.
"I believe that the damaging effects are quite large, as the tax havens have made it possible to hide illegal money flows in structures that are exclusively intended to interfere with the sovereignty of other countries by impacting on processes in those countries. This means that on the Cayman Islands, for instance, they have built a system that is not intended for use on the Cayman Islands, but for companies that have been established in other places."
According to a 2000 estimate by Oxfam International, tax havens rob developing countries of at least 50 billion dollars a year in revenues. The organisation stressed that this was a conservative estimate. Even more worryingly, Joly believes that money flows to the tax havens are increasing.
"When they were first created and they were only used by the few, other economies could handle the burden, but the use of tax havens has increased continually, and I think that it has become a danger not only for developing countries, but also for the liberal, globalised economy," said Joly.
For instance, Germany claims that it loses about 46 billion dollars a year to tax havens. In the U.S., where the estimated figure is 100 billion dollars, Democratic presidential hopeful Barak Obama has signed onto a Tax Haven Abuse Act.
Joly points out that many also believe that the main reason for the current dramatic rise in oil prices is not inadequate supply, but commodity market speculation by operators who may hide in tax havens. The leading commodities regulator in the U.S., the Commodities Future Trading Commission (CFTC), has launched a probe.
"The CFTC freely admits that it cannot do its job because many of the operators are hiding in the tax havens," Joly said.
"But we will be looking at developing countries, and the hypothesis is that we are cancelling out part of our development aid by making it possible to hide away money in the tax havens." Joly notes that it has been estimated that for every dollar invested in development projects in poor countries, the countries lose ten dollars to the tax havens.
As well as looking at ways to prevent the loss of money from poor countries to the tax havens, the commission will try to provide more definite facts and figures relating to losses that can be used by policy makers in the future, as most current estimates are very uncertain.
"We hope to be able to put a spotlight on the issue and to be a little more precise about the damaging effects than has been possible until now. The idea is that if we can prove just how damaging these tax haven activities are, then our development policies will have to change," said Joly.
"Norway has already made a start on that -- Norad works a lot on helping countries help themselves by teaching them to become better negotiators, to negotiate better mining contracts, and so on. For me that is the aid of the future -- to ensure that developing countries are able to retain more of their resources, although that will of course not solve the development challenge by itself. Most of these countries also have serious challenges relating to the fair distribution of those resources."
The head of the commission, Professor Guttorm Schjelderup from the Norwegian School of Economics and Business Administration, warns that estimates of money flows to the tax havens will always be beleaguered by a degree of uncertainty.
"The tax havens have been constructed in such a way as to prevent transparency. This does not mean that we won't be able to look at the consequences for developing countries, but it will never be possible to map accurately the exact amount of dollars and cents, to put it that way," he told IPS.
The commission will meet for the first time in August, and is scheduled to submit its recommendations to Norway's minister for the environment and international development Erik Solheim next summer.