Monday, July 02, 2007

Norway promises a new era in tax haven politics

Raymond Baker, who is author of the groundbreaking book Capitalism’s Achilles Heel, as well as a guest scholar at the Brookings Institution, and Director of the Global Financial Integrity (GFI ) programme at the Center for International Policy, held a remarkably successful conference in Washington on June 28. It was attended by many influential people, including Daniel Kaufman, director of Global Programs at the World Bank; Eva Joly, the investigating magistate who broke open the “Elf Affair” in Paris – Europe’s biggest corruption investigation since the Second World War; Moises Naim, editor of the respected Foreign Policy magazine; Jack Blum, the lawyer who among other things exposed the Lockheed-Martin scandal in the 1970s and led the investigations into the spectacularly corrupt Bank of Credit and Commerce International (BCCI,) and Eric le Boucher, International editor, Le Monde.

Apart from a misfortune of timing – on the same day, Rodrigo de Rato announced his resignation as IMF managing director, meaning journalists had to leave the event to cover that instead – the conference appears to have achieved its main aim: to get the International Financial Institutions (the World Bank and the IMF) to measure global dirty money at last. It is quite astonishing that they have not done so to date. At the conference, a representative from the Norwegian government announced two crucial initiatives. First, Norway has indicated its intention to commission and pay for a World Bank report on illicit financial flows – notably the all-important tax-evading money that always gets missed out of traditional measures. This is, at last, what is needed. Second, Norway has said it would like to create a global task force to investigate tax havens and approaches to tackling the problem. GFI and the Tax Justice Network, among others, would be official advisors to this second initiative, which Norway is promoting under the auspices of the countries involved in the Leading Group on Solidarity Levies to Fund Development.

This alone would have been good enough. But at the conference, many influential people lent powerful support to the agenda that TJN and GFI are setting.

“We have to build real global institutions,” said Herman Wijffels, a World Bank executive director. “We don’t have global institutions. We have multilateral institutions dominated by nation states and by the interests of nation states. I have come to the conclusion that we need to turn the World Bank into a real global institution. The calling of these institutions – the World Bank and the IMF – is to protect the global financial system. We are not there today – that is where we have to go. We are in a global, interdependent system. We are in it together. This is the basic step in consciousness we have to take in the 21st Century. (Incoming World Bank head Robert) Zoellick has to take the World Bank to the next level, explicitly including the element of illicit financial flows in this equation.”

Eva Joly went further. “The idea that we can fight corruption without closing down tax havens is illusory,” she said, then pointed out one possible theoretical approach. “If the US decided that tax havens no longer havce access to financial markets – they are dead.” She was followed by Moises Naim, who pointed out that many of the world’s biggest tax havens are islands: one, he said, is called Manhattan, and another is called Great Britain.

The high-profile lawyer Jack Blum, who is also a senior advisor to TJN, highlighted one of the key problems. “There is no global agreement that allows the compulsion of testimony across borders,” he said. “We have the fragmentation of law enforcement . . . we have specialists who find ways to create new entities and mix-and-match jurisdictions, who make it all more fragmented. We have no way of finding – or doing – anything. . . . The United States encourages money to move in by not enquiring who you are.”

Perhaps the most arresting talk was given by Raymond Baker. “'For the first time in 200 years we have an integrated global structure in the Square Mile and Manhattan whose basic purpose is to shift money from the poor to the rich,” he said. Among other things, Baker has noticed the peculiar failure of economics to pay attention to some of the most important issues. “We just don’t see what we don’t model,” he said, referring to the work of the economist Paul Krugman, who famously remarked on "the remarkable extent to which the methodology of economics creates blind spots." Baker estimates that $1.0-1.6 trillion in annual dirty money flows, around half of which flows out of developing and transitional economies. For every dollar of foreign aid flowing to poor countries on top of the table, ten dollars flows back out again under the table. This is, as the UK’s Observer newspaper put it in a report on the event, the elephant in the room. “Cracking down on tax havens and the evasion of taxes by some of the world's biggest companies is seen as the 'missing link' in the poverty alleviation agenda.”

Baker has been fighting hard to get the World Bank to measure these numbers. “Better analysis might narrow this picture,” he said. “Or it might widen the picture. But no analysis will make this a pretty picture.”

Read the conference report here, an analysis in French in Le Monde here, and Baker's introductory talk here.

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