[DEBATE] : (Fwd) Sharife on tax havens

[Patrick Bond]

*http://experts.foreignpolicy.com/posts/2009/05/11/africas_missing_billions

*

*Tax havens are at the heart of the corruption that is sucking the 
continent dry.*

/By Khadija Sharife/

When we hear the words "rogue state," we tend to think of the Burmas and 
Guineas of the world - countries ruled by despotic leaders who oppress 
their people through militarized rule. We don't tend to imagine bucolic 
mountain pastures populated by cud-chewing cattle, or pristine lakefront 
cities teeming with international businessmen in smartly pressed, 
charcoal-gray suits.

Maybe the comparison is a little over the top. But one could nonetheless 
make a strong case that Switzerland - or, for that matter, Britain, home 
to more than a quarter of the world's tax havens -- belongs in the 
category of countries whose unwillingness to follow international norms 
has harmful spillover effects around the world.

Take Africa, whose poverty is often portrayed as the inevitable product 
of history and geography. Africa has immense natural riches; they've 
just been sucked dry by wealthy individuals and multinationals who rely 
on countries with lax tax regulations and excessive traditions of 
secrecy to disguise the full extent of their earnings. In other words, 
Jersey, the Cayman Islands, and other tax havens and offshore financial 
centers are at the heart of Africa's resource curse.

The numbers are staggering. Each year, more than $1 trillion exits 
developing countries, and more than $140 billion of comes from Africa. 
That's almost four times as much as the continent gets in official 
development aid. Sub-Saharan Africa may be the world's poorest region, 
but it's also its leading net creditor.

The key players in this shadow economy are corporations. Globally, more 
than 60 percent of capital flight comes from multinationals operating in 
resource-rich regions. Here's how it works: Instead of declaring profits 
where they earn them, companies use a mechanism called transfer pricing, 
wherein internal corporate revenues are "moved" from one part of a 
company to another. Each year, African countries lose billions in tax 
revenue to home countries or tax havens as a result. Meanwhile, 
instruments such as "tax competition" designed in theory to attract 
foreign direct investment, are primarily utilized in practice by 
corporations seeking to exploit finite natural resources.

African officials, of course, are often complicit in this organized 
theft. Equatorial Guinea stores $2 billion worth of oil revenue 
offshore, according to the IMF, some of which was likely used to buy the 
$35 million Malibu mansion purchased by the country's president in 2006. 
Still, compared with the scale of capital flight, the infamous 
corruption of African officials is pennies, amounting to just 3 to 5 
percent of the billions exiting Africa.

Watchdog groups like Transparency International (TI), self-described as 
the ‘leading global organization devoted to combating corruption,' have 
yet to hold tax havens account for the pernicious impact they have on 
the developing world. Switzerland, the recipient of one third of global 
capital flight, ranks fifth-best in the world on TI's latest Corruption 
Perception Index.

Nor are wealthy countries adequately focused on the problem. The G-20's 
London summit, which saw British Prime Minister Gordon Brown boldly 
declare, "The era of banking secrecy is over," was a good start. But 
G-20 leaders, focused on tax evasion in their countries, failed to 
notice that the developing world loses an estimated $385 billion to tax 
abuse annually*. *They failed to call for country-by-country reporting 
or mandatory automatic exchanges of information about where corporate 
profits are going. Nor were there any calls to recover and return the 
estimated $11.5 trillion currently stashed in tax havens dotting the 
globe. Instead, the G-20 countries proposed bilateral tax arrangements 
related to "suspected" tax evasion, and this, on "request" only. Good 
luck getting complicit African governments to turn on their 
multinational partners.

For Africa, the era of banking secrecy is far from over.

/Khadija Sharife is an investigative journalist, researcher with the Tax 
Justice Network and a visiting scholar at the Center for Civil Society 
in South Africa./