Blog the Debt

Real Life Thriller: How the Son of a Dictator Launders Millions

Jubilee USA Network — Thu, 16 May 2013 09:30:00 -0400

By: Amber Przybysz

How does the son of an autocratic president earning less than $7,000 a month[i] afford Michael Jackson memorabilia, a Malibu home, a private jet and a 2011 Ferrari?[ii] The answer: anonymous shell companies. Lax money laundering laws in the U.S. have allowed corrupt dictators and their families to hide assets - assets that do not rightfully belong to them.

Teodorin Obiang, son of the long-ruling president of Equatorial Guinea, has come under heightened scrutiny for his lavish lifestyle sustained by weakly enforced laws in the West.[iii] Teodorin allegedly used anonymous shell companies by the names of “Beautiful Vision, Inc.,” “Unlimited Horizon, Inc.,” “Sweetwater Malibu, LLC” and “Sweet Pink, Inc.” to launder money into the US - money that should have been used for development and to fight poverty in Equatorial Guinea.[iv] Various arms of the U.S. government have been investigating the alleged millions of dollars that Teodorin spent, with the U.S. Department of Justice recently attempting to seize the property.[v] To put this into perspective, the complaint[vi] alleges that Teodorin spent over $300 million between 2004 and 2011, which is over twice the country’s combined annual health and education budgets.[vii]

Equatorial Guinea ranks near the bottom of the UN human development index, with less than half of the population having access to clean water and 20% of children dying before the age of five.[viii] While the country has a fast-growing economy due to the recent discovery of oil, the earnings are allegedly stolen by the ruling elite, marking it as one of the most corrupt nations in the world.[ix] In a country where 77% of the population lives below the poverty line, corrupt leaders must be stopped from plundering state money that is so desperately needed to provide basic needs for its people.[x] Money that is siphoned off to anonymous accounts in foreign countries could otherwise be used to build roads and schools or provide medicine and clean drinking water.

All hope of stopping such activity is not lost, though. As legal measures taken against Teodorin in both the U.S. and France suggest,[xi] there is a push to put a stop to corrupt dictatorships that continue to deprive their people of necessities. Anonymous shell companies that facilitate money laundering are a global problem, but one that can be stopped by closing loopholes in existing laws. The U.S. can take the lead in ending anonymous shell companies here at home and pushing for an international standard that requires companies to disclose the actual owner which would enable law enforcement to pursue criminal activity associated with the company,[xii] putting a stop to criminals using shell companies for personal gains including political elites stealing from their people.

[i] Stefanie Ostfeld, “Dictators’ Riches Are Stolen at Home, But Banked in the West,” Freedom House Blog. September 18, 2012. http://www.freedomhouse.org/blog/dictators%E2%80%99-riches-are-stolen-home-banked-west

[ii] Global Witness, Complaint, June 11, 2012. http://www.globalwitness.org/sites/default/files/library/Second%20Amended%20Complaint%206.11.12.pdf

[iii] Stefanie Ostfeld, “Dicators’ Riches Are Stolen at Home, But Banked in the West,” Freedom House Blog. September 18, 2012. http://www.freedomhouse.org/blog/dictators%E2%80%99-riches-are-stolen-home-banked-west

[iv] Joseph Kraus and Stefanie Ostfeld, “A bill to end secrecy surrounding shell companies,” The Hill, November 1, 2012. http://thehill.com/blogs/congress-blog/economy-a-budget/265401-a-bill-to-end-secrecy-surrounding-shell-companies

[v] Stefanie Ostfeld, “Dictators’ Riches Are Stolen at Home, But Banked in the West,” Freedom House Blog. September 18, 2012. http://www.freedomhouse.org/blog/dictators%E2%80%99-riches-are-stolen-home-banked-west

[vi] Global Witness, Complaint, June 11, 2012. http://www.globalwitness.org/sites/default/files/library/Second%20Amended%20Complaint%206.11.12.pdf

[vii] Stefanie Ostfeld, “Dictators’ Riches Are Stolen at Home, But Banked in the West,” Freedom House Blog. September 18, 2012. http://www.freedomhouse.org/blog/dictators%E2%80%99-riches-are-stolen-home-banked-west

[viii] BBC News, “Equatorial Guinea profile,” June 14, 2012. http://www.bbc.co.uk/news/world-africa-13317174

[ix] BBC News, “Equatorial Guinea profile,” June 14, 2012. http://www.bbc.co.uk/news/world-africa-13317174

[x] Stefanie Ostfeld, “Dictators’ Riches Are Stolen at Home, But Banked in the West,” Freedom House Blog. September 18, 2012. http://www.freedomhouse.org/blog/dictators%E2%80%99-riches-are-stolen-home-banked-west

[xi] Vivienne Walt, “Teodorin Obiang: The Dictator’s Son with a Malibu Mansion and a Warrant for His Arrest,” Time, July 16, 2012. http://world.time.com/2012/07/16/teodorin-obiang-the-dictators-son-with-a-malibu-mansion-and-a-warrant-for-his-arrest/

[xii] Joseph Kraus and Stefanie Ostfeld, “A bill to end secrecy surrounding shell companies,” The Hill, November 1, 2012. http://thehill.com/blogs/congress-blog/economy-a-budget/265401-a-bill-to-end-secrecy-surrounding-shell-companies

Jubilee Meets with Senator Levin

Jubilee USA Network — Tue, 14 May 2013 09:30:00 -0400

By: Rickard Ekstedt

On April 30, Jubilee USA, along with partner organizations of the FACT Coalition, met with US Senator Carl Levin (D-MI). Jubilee has worked and continues to work closely with Senator Levin on legislation to curb tax havens and close corporate tax loopholes.

Ahead of the sequester, Jubilee worked with Senator Levin to introduce the Cut Unjustified Tax Loopholes Act (S. 2075). This legislation would end loopholes that a small percentage of corporations use to avoid paying taxes. In the last Congress, Senator Levin introduced the Stop Tax Haven Abuse Act (S. 1346) to curb the use of tax avoidance in both the developing and developed world. Subsequent amendments of this legislation passed the Senate in 2012.

Recently in March, Jubilee worked with Senator Levin to pass the bipartisan Levin-Hatch Amendment 708 to the Senate Budget Resolution. This Amendment moves forward our work on curbing corporate tax avoidance and stopping corporate offshore tax loopholes. The passage is part of a global movement to ensure that corporations don’t take funds that should aid the vulnerable.

Earlier this year, Senator Levin announced that he is retiring and will not seek reelection in 2014. For the next two years he said that he wants to make ending tax avoidance schemes a priority:

“Are we going to continue to lose revenues to these gimmicks, these tax-avoidance schemes which corporations use basically to avoid paying taxes?” Senator Levin asked. “That’s got to end, and there’s a lot at stake here, and that’s what I'm putting a lot of time in. And frankly ... this is one of the reasons that I have decided that I’m not going to spend the next two years campaigning; I’m going to spend the next two years fighting for things that I believe in, including ending these tax-avoidance schemes which are robbing our Treasury of the funds needed for these very important programs.”[i]

[i] NPR, “Retiring Carl Levin Says He Wants To Leave The Senate Fighting”, March 13, 2013. http://www.npr.org/blogs/itsallpolitics/2013/03/13/174128734/retiring-carl-levin-says-he-wants-to-leave-the-senate-fighting

The Stop Tax Haven Abuse Act: Critical to Helping Global Poor

Jubilee USA Network — Fri, 10 May 2013 09:30:00 -0400

By: Rickard Ekstedt

On April 15, Representative Lloyd Doggett introduced the Stop Tax Haven Abuse Act. The legislation will close offshore tax loopholes and require country-by-country reporting of offshore corporate tax payments. This reporting is critical to curbing illicit financial flows, a systemic cause of poverty.

Between 2000 and 2008, 6.5 trillion dollars left the developing world completely untaxed. If this money had been taxed modestly, we wouldn't be facing a global debt crisis and there would be better access to food in the poorest countries.

Send a letter to your Representative and urge them to cosponsor the Stop Tax Haven Abuse Act (H.R.1554) to help curb this behavior that perpetuates the cycle of poverty around the globe.

Read Jubilee USA's statement below:

FOR IMMEDIATE RELEASE

April 12, 2013

Representative Doggett Introduces Stop Tax Haven Abuse Act on Tax Day

Act Will Protect Global Poor: Curbs Use of Tax Havens and Requires Country-by-Country Reporting

WASHINGTON, DC - On Monday, April 15 (Tax Day), Representative Lloyd Doggett (D-TX) introduces the Stop Tax Haven Abuse Act. This legislation closes offshore tax loopholes and requires country-by-country reporting of corporate tax payments to both developed and developing nations. This reporting is critical to curbing illicit financial flows, a systemic cause of poverty.

Eric LeCompte, Executive Director of Jubilee USA Network, a religious antipoverty organization, releases the following statement:

“On Tax Day, the religious community couldn't be more pleased with Congressman Doggett and his vital legislation that protects poor people inside and outside our borders. His legislation means that corporations can't rob billions of dollars from poor people across the globe.

“A critical piece of the legislation is country-by-country reporting of corporate payments to governments. Reporting at this level sheds light on the tax dodging that hurts all of us.

“It’s pretty amazing. A few years ago no one talked about tax havens, let alone how corporate tax avoidance constitutes a theft from the poor. But now as people of faith call for the end of these offshore abuses, we are joining voices across the political spectrum with people who detest this corporate behavior from The Occupy Movement to The Tea Party.”

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Jubilee USA Network is an alliance of more than 75 US organizations, 250 faith communities and 50 Jubilee global partners working. Jubilee's mission is to build an economy that serves, protects and promotes participation of the most vulnerable. Jubilee USA has won critical global financial reforms and more than $130 billion in debt relief to benefit the world's poorest people. www.jubileeusa.org

Curtailing Illicit Financial Flows a Human Rights Imperative

Jubilee USA Network — Wed, 08 May 2013 09:30:00 -0400

By: Raymond W. Baker, Global Financial Integrity

WASHINGTON - Illicit financial flows are a key issue impacting economic justice and human rights. They stifle domestic resource mobilisation, undermine government accountability and stability, and fuel economic inequality. For many decades, the human rights movement focused its programs and campaigns on civil and political rights. Experts and policymakers are now working to include issues of economic justice. This is the lens through which we in the development community should view the issue of illicit flows. While 1.2 billion people struggle to survive on $1.25 per day, we estimate that $859 billion drained illicitly out of developing countries in 2010.

Domestic resource mobilisation is seen as a key component of future development efforts, but nations cannot mobilise what they cannot capture, and they cannot capture what they cannot see. Many businesses and individuals have created complex financial structures, including shell corporations, fake foundations, and anonymous trusts, to move and hide their assets and disguise their identity from government officials. Many businesses use these structures to evade and aggressively avoid taxes through trade mispricing and abusive transfer pricing, which allow them to reduce their tax bills by surreptitiously shifting significant portions of their profits out of the countries in which they are earned, creating a competitive disadvantage for other businesses that play by the rules. Global Financial Integrity’s research shows that over half of illicit financial flows are the result of trade mispricing. With governments unable to accurately tax this income, less money is available for infrastructure development and the provision of critical services, including education and healthcare.

Illicit financial flows hamper government accountability and stability by facilitating kickbacks, bribery, and other forms of grand corruption. When elites can sign opaque contracts, hide money, and transfer illicit funds abroad, every infrastructure project, aid program, and day-to-day basic service becomes more costly and less efficient. Civil society struggles to act as a watchdog as public officials can easily keep its members in the dark. This leads to more distrust in government, which leads to more corruption and inefficiency, creating a negative feedback loop.

Finally, these complex mechanisms of the shadow financial system that support illicit financial outflows favor the richest individuals and the largest businesses, which places a greater burden on the poor and the middle class. When governments cannot capture the tax revenues and customs duties which the laws say they are due, they may make up the difference by relying more heavily on VAT and taxes on small businesses and lower- and middle-income families. This imbalance, combined with the damage to services from reduced domestic resource mobilization, is a major driving force behind the high rates of economic inequality in so many developing countries.

This is not a formula for successful poverty alleviation, for promoting strong democracies, for encouraging sustainable environmental practices, for maximizing economic growth, or for improving the welfare of the billions of people living in developing countries. Global financial and economic transparency is badly needed, and this is indeed a human rights issue.

In December 2009 GFI, together with Dr. Thomas Pogge, hosted a conference at Yale University bringing together for the first time key decision makers in the human rights community with key members of the financial transparency community. The result of this conference was the “New Haven Declaration on Human Rights and Financial Integrity,” which recognizes that, “human rights and international financial integrity are intimately linked.” Signatories to the New Haven Declaration include Oxfam, Human Rights Watch and Amnesty International, among many others.

The next step is to put this intellectual connection into practice. The key to curtailing illicit financial flows is transparency. We can accomplish much at an international policy level, especially among OECD member countries. The G8, led this year by UK Prime Minister David Cameron, and the Nordic Countries, are championing crucial transparency mechanisms: automatic exchange of tax information across borders; public registries of beneficial ownership; country-by-country reporting by multinationals of sales, profits, taxes paid, and staff levels; harmonising predicate offenses for money-laundering, including tax evasion; and cracking down on trade mispricing and abusive transfer pricing. Ultimately, it is civil society organisations, government officials, media, and academics in developing countries that can push for the greatest changes at the national level.

Expanding the notion of human rights and economic justice to include illicit financial flows will strengthen–not weaken or dilute—the overall campaign for global development. Nations cannot reach their full potential so long as the abuses and externalities of illicit financial outflows continue. If a government or company wants to call itself a champion of human rights, curtailing illicit outflows needs to be high on its agenda.

Raymond W. Baker is director of Global Financial Integrity, a Washington-based research and advocacy organization, and author of “Capitalism's Achilles Heel: Dirty Money and How to Renew the Free-Market System.”

Originally published by the Thomson Reuters Foundation.

Jubilee Speaks on Floor of United Nations

Jubilee USA Network — Mon, 06 May 2013 08:30:00 -0400

Eric LeCompte speaks about vulture funds at UN Meetings

By: Bryant Lewis

On April 23, 2013, Jubilee USA’s Executive Director, Eric LeCompte spoke on the floor of the United Nations Economic and Social Council (ECOSOC). Eric spoke on the floor of the United Nations about vulture funds and the implications of the landmark case between NML Capital and the country of Argentina on the world’s poorest people. Every country, investor and international institution in the room echoed Eric’s comments. Read his comments below.

Thank you for the opportunity to address the floor. In particular I wanted to share my appreciation for today’s distinguished panelists and wish to echo their views. Its amazing to hear the consensus that has emerged from investors, countries and international financial institutions that we should be concerned with vulture funds and how the behavior of these hedge funds offer further evidence for the creation of a sovereign debt resolution process.

In particular I am grateful to the government of the United States for filing a friend-of-the-court brief, amicus brief, in the Argentina case because of the belief of the US government that the outcome of this legal proceeding could undermine access to credit, debt swaps and debt relief processes for the poorest countries.

In terms of how these vulture funds offer further evidence for the creation of a debt resolution process, on behalf of civil society, we believe that the process must include the following components:

- specifically, and this pertains to vulture funds, the process must include all creditors and all types of lenders

- the arbitration process must be fair and neutral

- finally, the resolution structure must be able to determine the validity and legitimacy of loans and debt

Again, I am grateful for this opportunity to address you and share the feelings of civil society on these crucial issues.

-Eric LeCompte, Jubilee USA Network Executive Director