Why multilateral and global institutions can matter

1
Why multilateral and global institutions can
matter

• Risks of relying only on country-by-country or
  regional approaches
  

2
Three points

• My focus African Oil, Resource Curse Financial
  flows are international. Country-by-country
  approaches fail. (Not only oil.)
  
• Tax havens are fundamental.
• Multilateral institutions can be allies on
  transparency.

3
Global, not national problems

• Three examples
• Angola - Gaydamak
• Elf Affair
• Transparency Internationals CPI

4
Example 1 Angola

• 2m bpd by the end of this year
• 30bn budget for 2007
• (compares with 30bn OECD countries aid to
  sub-Saharan Africa)
  
• Unicef Under-5 mortality 260/1000 second worst
  in world
  
• More generally Resource Curse Nigeria, etc.
  etc.
  
• Governance, transparency key

5
Example Angolas Russian debt dealers

• 5bn debt from Cold War era Debt rescheduled
• Businessmen Arcadi Gaydamak, Pierre Falcone
  inserted themselves into this deal
  
• 750m flowed from Geneva into mysterious
  accounts Luxembourg, Cyprus, Moscow, Amsterdam,
  etc.
  
• Swiss investigating magistrate called this
  criminal organisation, but case was dropped.
  
• The money disappeared into the interstices
  between states.
  
• Judges got little co-operation

6
Oil transparency Campaign

• Global Witness transparency campaigns evolved
  first out of Angola
  
• Led to Publish What You Pay (PWYP), Extractive
  Industries Transparency Initiative (EITI)
  
• Global Witness, IMF/Wbank, broadly aligned on
  Angola transparency

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Example 2 The Elf Affair

• Magistrates (Paris, Geneva) from 1994 uncovered
  African oil as offshore source of slush money
  
• For bribing African and other leaders
  (20-60c/barrel)
  
• For financing / supporting
• French and European political parties
• French foreign policy assignments
• French companies overseas
• French intelligence domestic and foreign
• Personal corruption

8
The Elf System

• Elf Gabon / African oil central
• Military relationships / mercenaries
• Freemasonry and secret societies link French and
  African politics
  
• Money through international banks and tax havens
  
  
• Other oil countries e.g. Congo, Angola
• Africans could only see a part of it, never the
  whole.
  
• African oil corrupted politics around the world
  e.g. France, Biafra, Taiwan, Germany, Spain,
  Uzbekistan, Venezuela, etc. etc. - all involved.
  
• French investigators didnt get co-operation from
  many jurisdictions - notably London.
  

9
Country by country approaches could EITI tackle
the Elf Affair?

• No Separating African oil corruption from French
  corruption misses the point. Elf Affair was
  transnational, via tax havens. Splitting flows
  internationally is key to secrecy.Result
  Africans are corrupt, we are not.
• Eva Joly (Norway), investigating magistrate in
  the Elf Affair
  
• The magistrates are like sheriffs in the
  spaghetti westerns who watch the bandits
  celebrate on the other side of the Rio Grande. .
  . they taunt usand there is nothing we can do.
• Dealing with tax havens phase two in the
  corruption debate
  

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Was the Elf Affair unique?

• No think Britain, United States, Saudi Arabia.
• Oil-based, transnational character, tax havens,
  secrecy, Strategic, underpinned by military
  relationship, corrupting democracy in the west
  
• Elf System is the only one ever broken open by
  forces of law order.
  
• Not just oil-related entire international
  financial system is fragmented.
  
• Countries compete to suck capital out of each
  other, leading to secrecy, tax havens,
  inequality.
  
• Poor, badly governed countries most vulnerable
• One country cannot take a lead global,
  multilateral approach needed
  

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Example 3 Corruption surveys

• Transparency Internationals CPI more than half
  of cleanest 20 in CPI are tax havens.
  
• CPI 2007 Switzerland is seventh cleanest
  (BPI Switzerland is cleanest)
  
• Reflects demand side of corruption. Ignores
  supply side (international financial
  infrastructure is ignored)
  
• Result of country-by-country approach Africans
  are corrupt, West is not
  
• Global approach would change everything

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Nature of problem?

• Countries/financial centres e.g. London compete
  to suck capital out of each other.
  
• Poor countries weakest result is financial flows
  South-North. Capital flight
  
• Public debts, private assets offshore. E.g.
  Africa
  
• Elites escape responsibilities, others pay
• Free-rider problem - only global co-operation
  works. Multilateral approach.
  
• Biggest tax havens not small islands but
  Switzerland, London, New York

13
Magnitude of problem?

• Tax Justice Network 11.5 trillion offshore-
  leading to losses of 255bn annually - c/w MDG
  efforts
  
• World Bank - StAR The cross-border flow of the
  global proceeds from criminal activities,
  corruption, and tax evasion is estimated at
  between 1 trillion and 1.6 trillion per year.
• Raymond Baker/GFIP for every 1 that we have
  been generously handing out across the top of the
  table (in aid), we in the West have been taking
  back some 10 of illicit money under the table.
  More analysis, better analysis in the future may
  make this a narrower picture or make it a wider
  picture. But no analysis will make this a pretty
  picture.

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Why has the tax haven/tax issue not been tackled?

• Complex, hard to understand
• Secrecy hard to study, blind spots
• Economics and tax - unattractive for many
• Public/private interface - confusing
• Huge vested interests (companies/countries)
• Narrow focus on money-laundering, bribery
• Somebody elses problem spaceship
• Focus on aid (north-south) and not on (bigger)
  leakages (south-north)
  
• Tax haven problem falls between rich-world and
  poor-world campaigns
  
• All poor excuses. This is the missing link in
  development debates, democracy debates.

15
Role of multilaterals?

• World Bank waking up StAR Initiative 2007
• The traditional focus of the international
  development community has been on addressing
  corruption and weak governance within the
  developing countries themselves, this approach
  ignores the other side of the equation stolen
  assets are often hidden in the financial centers
  of developed countries.
• Global cooperation is needed to ensure that new
  financial havens do not replace the existing ones
  and developing countries receive the legal
  support they need.
• IMF ROSCs could be changed to reflect financial
  transparency e.g. London, Manhattan as tax
  havens.
  
• IMF 2002 Monterrey FFD Initiative IMF, OECD,
  World Bank propose to facilitate increased
  cooperation on tax matters among governments and
  international organizations by establishing a
  dialogue to share good practices and pursue
  common objectives in improving the functioning of
  national tax systems.

16
A role for Civil Society?

• International tax policies formulated by tax
  experts who are
  
• Beholden to vested interests, companies
• Focus on technical issues, less on politics or
  democracy
  
• Civil society has been almost absent till
  recently
  
• Multilaterals are essential civil society needs
  to focus their attention
  
• Governments have vested interests, e.g. Britains
  financial services 10 of GDP. Conflict with
  development policy.
  
• Civil society is more pure
• Multilaterals e.g. World Bank has explicit
  development mission
  

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In the IMFs words

• Developing countries must be able to raise the
  revenues required to finance the services
  demanded by their citizens and the infrastructure
  (physical and social) that will enable them to
  move out of poverty. Taxation will play the key
  role in this revenue mobilization. Perhaps the
  greatest challenge facing these countries is to
  improve the effectiveness of their tax
  administrations.
• In this context, the increasing globalization of
  the economy is relevant both for developed and
  developing countries. The constraints that it
  places on countries' ability to set and enforce
  their own taxes are felt increasingly keenly.
• www.imf.org/external/np/fad/itd/2002/031302.htm

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THE END