The great powers– the leading players in the imperialist system– have always required a source for the energy to drive their economic engines. They needed energy resources to build and empower their military might; they needed energy to grow their national economies and power their vessels of trade and transportation. Indeed, their socio-economic systems would have collapsed without ample and available energy sources.

At the dawn of the capitalist industrial era, that source came mainly from coal. Coal powered the machines that grew the productivity of labor to great new heights. It is reasonable to think that only those countries with easy access to coal could then become great capitalist powers.

At the turn of the last century, oil– an abundant, efficient, and easily stored and transported energy source– became essential for the exercise of economic and military might. As modes of transportation became dependent upon petroleum products, an intense rivalry was stoked for access to oil, often found in more remote areas of the world, far removed from the great urban centers of the great capitalist powers. 

At the same time, the great capitalist powers accelerated their drive to dominate the entire world. Lenin and others saw this as a higher stage of capitalist development impelled by the dominance of monopoly capitalism, finance capital, and capital export. 

Access and control of energy resources played an extremely large role in motivating this development, leading to conflict and colonization over the areas offering abundant oil production. 

It could be said that “oil imperialism” was a critical factor in the course of the Second World War: Japan — a country without adequate oil reserves– needed to secure resources to pursue its imperialist mission; likewise, Germany’s eastward turn was prodded by its thirst for Soviet oil.

As the leading imperialist power after WWII, the US had its own adequate petroleum resources, but sought to guarantee that global oil supplies would remain available to its clients in the crusade against Communism. 

After the end of the Cold War, new technologies unleashed huge reservoirs of oil and natural gas in the US. A once-stable international market was consequently disrupted, allowing US producers to reshape, even dominate, the global distribution of oil and natural gas. 

But in the decades to follow the end of the Cold War, those capitalist countries that were the most trusted anti-Communist allies were relying on long-established, existing sources of energy or had turned to convenient, adjacent, transit modes from the energy giant, the now-capitalist Russia.

Europe, for example, had grown increasingly reliant on Soviet oil and gas even before European socialism’s fall. And OPEC’s distribution network and quasi-planned marketing maintained a persistent global stability of price and availability.

From where would the US, undergoing a technological revolution with fracking, take its oil and gas bonanza?

I began to discuss the US shift toward what I called “US oil and gas imperialism” seven years ago (here, here, here, here and here). I wrote in July of 2019: 

US oil and gas imperialism is another feature of the new economic nationalism. With US oil production matching or exceeding every other global producer, and with natural gas extraction growing dramatically, the economic nationalists foresee the US now competing successfully for markets. The conventional explanation of the US aggression against oil-producing states must now be retired. The US is no longer solely obsessed with commanding and dominating existing oil producers– US intervention is not simply about the oil in the way it has been in the past. That is, it is not simply acquiring oil resources that motivates US aggression, but commanding oil markets as well.

Thus, the US is also out to wreck competing oil and gas producers by sanctions, disruptions, and destruction. The US corporations want the markets in order to peddle their own energy resources. The long trail of wrecked, dysfunctional, and economically strangled global oil producers attests to this new motivation and serves US energy corporations well. 

I have been writing often of this shift of US imperial design for over two years. Nothing demonstrates the intent of the new energy imperialism as does the Department of Energy’s recent renaming of US natural gas as “Freedom Gas” and the product as “molecules of freedom.” This silly branding is part of the campaign to win Europe and other gas-dependent markets from Russia and Iran/Qatar. Even though US liquified “freedom gas” is 20% more expensive than Russian gas, the Trump administration bullied Germany’s Angela Merkel to agree to two new LNG terminals in Germany. Her admission that LNG from the US would not break even for at least a decade demonstrates the aggressive face of the new US energy imperialism.

US gas producers have stoked anti-Russia sentiment to draw Poland and the Baltic states into their LNG market nexus. US LNG annual exports to Portugal and Spain grew from a tiny base to nearly 20 and 30 billion cubic feet, respectively, between 2016 and 2017.

And US crude oil exports soared after the crisis in the Straits of Hormuz. US oil shipping nearly doubled in the aftermath of the mysterious “attacks” in the Persian Gulf. President Trump underscored the attractiveness of foregoing the Straits and buying from the US. Rather than taking the “dangerous journey,” Japan and PRChina should be reminded that “the US has just become (by far) the largest producer of energy in the world.” (my emphasis)

Writing in 2019, I was anticipating geopolitical events geared to shifting the natural gas market dramatically in favor of the US. I foresaw the “anti-Russia” push as targeting the natural gas market in Europe and “crisis” in the Middle East as disrupting shipments from traditional Middle East suppliers. Hostility and conflict would be the thumb-on-the-scales to offset the higher price (lower risk) of US liquified natural gas. 

Unlike the Cold War era, where the US postured as a protective shield for safe, durable, and inexpensive energy channels, the post-Cold War US policy places US immediate economic interests above the supposed alliance obligations; without consultation, the US tossed aside its role among its allies as the guarantor of peace and security and is taking on the role of international energy huckster.

In 2022, the US secured a major victory in oil and gas imperialism with the war in Ukraine. As a result of a concerted campaign to destabilize Ukraine, separate it from Russia, and coax it into NATO’s anti-Putin alliance, the US drew Russia into a long, bloody war. The war proved to be a veritable gift for the US and its energy industry. Anti-Russia hysteria provoked the US’s European allies into breaking economic ties with Russia, including the big prize–cutting off Russia’s supplies of natural gas. Seduced by Cold War-like rhetoric and fear-mongering, European countries outdid each other with belligerence, culminating in refusing cheap Russian energy resources. To seal this self-defeating move on the part of US “allies,” the US organized the destruction of crucial Russian pipelines. Left with no alternative to Russian energy, Europe turned to their US “partner.”

US exports of oil to Europe more than doubled between 2021 and today. Likewise, disrupting natural gas distribution has paid off for the US with liquid natural gas (LNG) exports nearly doubling from 2018 to 2022. Quoting The Wall Street Journal:

Russia’s invasion of Ukraine kicked U.S. [LNG] exports into overdrive. Since March 2022, U.S. developers have signed 57 supply agreements representing about 73 million metric tons of LNG annually… more than four times the number of contracts they signed between 2020 and 2021.

Many of these contracts run for 20 years and underpin the construction of terminals that have yet to be built. LNG exports are expected to more than double [again!] from current levels by the end of this decade…

Thus, thanks to the war in Ukraine, US allies had the privilege of incurring the costs of liquefaction, shipping, and building LNG terminals to show their solidarity with the US-instigated war.

Foolishly, European leaders rushed to show their support for the war, even at tremendous cost to their own economies.

Likewise, the unfolding war in the Middle East plays into the hands of the US oil and natural gas imperialists. As the WSJ concedes:

In the longer term, the Red Sea situation could bring more business for U.S. LNG shippers, which are building out export capacity at Gulf Coast facilities and are vying for big contracts with big buyers in Europe, analysts said.

The percentage of LNG tankers set to pass through the Suez Canal has dropped to its lowest point in at least a decade.

But the LNG will be coming from the West, thanks to the beneficence of the US government anticipating the changing energy market!

Paul Hannon and William Boston put it well: “For the second time in three years, a conflict in Europe’s neighborhood is threatening to weaken a struggling economy, while a more robust U.S. is watching from a safe distance.” 

It is indeed an odd ally that takes advantage of the sacrifices that it imposes upon its friends to make. While US capitalism has enjoyed strong growth, thanks to two wars in other lands, its European friends have endured inflation and stagnation. Germany, led by Social Democrats and Greens, has met the US-led call to war with enthusiasm, militarism, and a belligerence unseen since the Second World War. Germany has materially supported Ukraine second only to the US and matched the US’s shuttering of economic relations. Where the US has shown healthy growth for 2023, Germany has fallen into recession, its industrial sector racked by high energy costs and supply shortages– a steep price to pay for following US leadership. “‘The threat of deindustrialization is real,’ said Max Jankowsky, chief executive of GL Giesserei Lossnitz, a 175- year-old foundry in the eastern German state of Saxony.” German Chancellor Olaf Scholz’s popular satisfaction is the lowest for a chancellor since 1997. Germany– the leading power in the European Union, an industrial giant, the world’s fourth largest economy– has been brought to its knees by US oil and gas imperialism. 

The people, and especially the left, need a constant reminder of the material interests behind global imperialism and the mechanism that powers it. Imperialism is not a consequence of bad leadership from Trump, Biden, Johnson, or Modi or their ilk; it is not the product of neoliberalism or any other ideology; it is not the result of a lust for power. In short, imperialism is not a matter of moral choice or competence. Instead, it is an imperative of capitalism in its modern form. It is an expression of the rivalries generated by capitalist competition for markets, resources, and most tellingly, profits. When that competition reaches its greatest intensity, war ensues. 

Some would like to believe that we can break the link between capitalism, exploitation, inequality, poverty, environmental degradation, and war. They aver that a benign capitalism, regulated by enlightened governments, can escape the imperialist system. History shows no such eventuality. People are awakening to the impossibility of “fixing the system.”

The left overlooks this at its peril.

Greg Godels

zzsblogml@gmail.com

https://zzs-blg.blogspot.com/2024/01/oil-natural-gas-and-capitalism.html

Watch on YouTube: https://www.youtube.com/watch?v=F8HaTgpZOxA

By James Thompson

CINCINNATI, OHIO – The National Underground Railroad Freedom Center, nestled between the Bengals’ and Reds’ stadiums in downtown Cincinnati overlooking the Ohio River, is a beacon of hope and progress for working people everywhere. Open since 2004, it is a tribute to those brave people who struggled for freedom and justice against the oppressive system of slavery.

The structure itself is very impressive and the design is symbolic of the winding path to freedom taken by the slaves. It is located at the end of the historic Roebling Suspension Bridge which spans the Ohio River. The Ohio River marked the line separating slavery from freedom during the antebellum period. A beautiful, south-facing glass wall overlooks the Ohio River and Kentucky.

I visited the museum with some pride since I have ancestors who served as conductors on the Underground Railroad in Missouri.

As I entered the exhibition area of the museum after climbing some winding stairs, my attention was seized by two massive textile works. The works are by Aminah Brenda Lynn and illustrate the struggles of the African people on their path to freedom from slavery. The work depicts the struggles against the transatlantic slave trade as well as local struggles in Cincinnati and Columbus, Ohio. Cincinnati and Ripley, Ohio were two of the most important locations in the history of slavery in this country. They were the points at which slaves were shipped to the south and the points through which the slaves had to pass on their journey to Canada, where the exploitive capitalist slavery practices were prohibited.

The next compelling work was a huge mural started by Tom Feelings and completed by Tyrone Geter after Feelings death. From the artist’s statement, “The central image depicts the confinement of an individual in the Mason County Slave Pen. The surrounding images depict the arrival into America, slave auction, family separation, forced coffle marches, and slave labor in the forests of Tennessee and cotton fields of Missipppi. The remaining images provide additional details of the interstate slave trade.”

This work leads to a reconstructed slave pen from Maysville, Kentucky. Owned by John W. Anderson in the early 1830s, it provides a look at the horrific conditions that slaves were forced to endure. There were bars on the windows and slaves were frequently left with no choice but to relieve themselves while shackled in place. It is a clear example of how slavery robbed these brave people of their dignity. John Anderson owned a racing stable and lived a luxurious lifestyle as a result of the profits he extracted from these workers’ labor and the sale of human beings.

Throughout the museum are the images of the leaders of the progressive movement including Paul Robeson, W.E.B. DuBois, Pete Seeger, Nelson Mandela, Martin Luther King, Harriot Tubman, Frederick Douglass, William Lloyd Garrison and many more. Inspirational quotations were also prominently displayed from many of these individuals.

The importance of “courage, cooperation, and perseverance” are stressed in the struggle for freedom.

The multicultural and multiethnic nature of the struggle against slavery was a notable theme through the museum’s exhibitions. The contributions of African-Americans, Anglos, Latinos and Native Americans to this struggle were memorialized.

Several movie theaters helped illustrate the struggle against slavery. One film, “Brothers of the Borderland” was introduced by Oprah Winfrey. It was the story of how two leaders of the Underground Railroad in Ripley, Ohio cooperated to help slaves escape across the Ohio River. John Parker was a former slave who was a successful metal worker and inventor. John Rankin was an Anglo religious leader. In the video, the two worked together to help a woman start her journey to Canada after crossing the Ohio River. The film depicts the terrorism which was used against the slaves and their allies. The slave owners made frequent raids across the Ohio River in an effort to recapture escaped slaves which they viewed as their lost property. They were supported by the laws of the land at the time and anyone assisting an escaped slave was viewed as a thief and was subject to prosecution, even in the North.

It is important to remember the progress we have made in this country to reach a point where we can support this remarkable museum. I think it is also important to remember that in spite of the progress, capitalists have still not relinquished their affinity for slavery. Slavery is still a business practice used around the world and a few individuals are reaping fantastic profits from it. Although union-busting and red baiting are terrorist tactics used against working people in this country, more destructive tactics are used in other countries such as Colombia and Guatemala. Violence and executions in those countries are used against trade unionists and labor leaders in an effort to keep workers in virtual slavery with extremely low wages and little, if any, benefits. Some maintain that these slave-like conditions are not far from our border and if we fail to struggle against the profit-centered corporations, slavery and terrorism could be revived here. Of course, low wage workers in this country now, such as undocumented immigrants, may be hard put to find differences between their lives and those of the slaves south of the Ohio River during the antebellum period.

The fuels of progress are unity and struggle and this marvelous museum exemplifies this concept. When in Cincinnati don’t miss the National Underground Railroad Freedom Center.

For more information, go to http://www.freedomcenter.org/

PHill1917@comcast.net

James Thompson is a psychologist and social justice activist in Houston

http://www.nola.com/opinions/index.ssf/2018/04/still_wandering_the_wilderness.html

Still wandering the wilderness 50 years later | Opinion

Africa/Global: Charting Where They Hide the Money, 1

AfricaFocus Bulletin March 12, 2018 (180312) (Reposted from sources cited below)

Editor’s Note “Switzerland, the United States and the Cayman Islands are the world’s biggest contributors to financial secrecy, according to the latest edition of the Tax Justice Network’s Financial Secrecy Index (FSI). … Kenya, which this year set up its own tax haven in the form of the Nairobi International Financial Centre, is an example of how interests of western financial service lobbyists have successfully lured governments into a race to the bottom. Kenya, which has been assessed for the first time in the 2018 FSI, has an extremely high secrecy score of 80/100.” – Tax Justice Network The FSI for 2018, released by the Tax Justice Network on January 31, is far more than a simple index. It is an in-depth survey as well as ranking of the countries most deeply involved in concealing wealth through offshore financial services. Based on a quantitative measure of the share of such cross-border financial services based in each country, and an in-depth qualitative evaluation of national laws and regulations affecting transparency and secrecy, the FSI provides the indispensable context for investigative journalism exposes of specific cases and advocacy by civil society groups at both national and international levels. In striking contrast to Transparency International “Corruption Perceptions Index (CPI) (https://www.transparency.org/), which rates countries on the basis of observers’ perceptions of the extent of corruption, the FSI focuses on the mechanisms which permit the fruits of corruption and other hidden assets to be concealed. Ironically, Switzerland, Luxembourg, and the Netherlands are ranked as among the least corrupt on the CPI, but they also lead on the FSI as the best places to hide the fruits of corruption, tax evasion, and other crimes. The system that allows this to happen is in fact global, and its distribution by country, by intention, is hard to track. This two-part AfricaFocus contains substantive excerpts from the Financial Secrecy Index reports. This first part (sent out by email and available on-line at http://www.africafocus.org/docs18/fsi1803a.php) excerpts overview analyses from the authors covering the global picture and the African continent. The second part, not sent out by email but available at http://www.africafocus.org/docs18/fsi1803b.php) , provides excerpts from country reports on the United Kingdom, the United States, Kenya, Liberia, South Africa, and Mauritius. Much more extensive data in narrative, database, and graphic formats, is available at http://www.financialsecrecyindex.com For previous AfricaFocus Bulletins on illicit financial flows, tax evasion, and related topics, visit http://www.africafocus.org/intro-iff.php ++++++++++++++++++++++end editor’s note+++++++++++++++++

Financial Secrecy Index 2018

Introduction

https://www.financialsecrecyindex.com/

The Financial Secrecy Index ranks jurisdictions according to their secrecy and the scale of their offshore financial activities. A politically neutral ranking, it is a tool for understanding global financial secrecy, tax havens or secrecy jurisdictions, and illicit financial flows or capital flight.

An estimated $21 to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world. Secrecy jurisdictions – a term we often use as an alternative to the more widely used term tax havens – use secrecy to attract illicit and illegitimate or abusive financial flows.

Illicit cross-border financial flows have been estimated at $1-1.6 trillion per year: dwarfing the US$135 billion or so in global foreign aid. Since the 1970s African countries alone have lost over $1 trillion in capital flight, while combined external debts are less than $200 billion. So Africa is a major net creditor to the world Рbut its assets are in the hands of a wealthy ̩lite, protected by offshore secrecy; while the debts are shouldered by broad African populations.

Yet all rich countries suffer too. For example, European countries like Greece, Italy and Portugal have been brought to their knees partly by decades of tax evasion and state looting via offshore secrecy.

A global industry has developed involving the world’s biggest banks, law practices, accounting firms and specialist providers who design and market secretive offshore structures for their tax- and law-dodging clients. ‘Competition’ between jurisdictions to provide secrecy facilities has, particularly since the era of financial globalisation really took off in the 1980s, become a central feature of global financial markets.

The problems go far beyond tax. In providing secrecy, the offshore world corrupts and distorts markets and investments, shaping them in ways that have nothing to do with efficiency. The secrecy world creates a criminogenic hothouse for multiple evils including fraud, tax cheating, escape from financial regulations, embezzlement, insider dealing, bribery, money laundering, and plenty more. It provides multiple ways for insiders to extract wealth at the expense of societies, creating political impunity and undermining the healthy ‘no taxation without representation’ bargain that has underpinned the growth of accountable modern nation states. Many poorer countries, deprived of tax and haemorrhaging capital into secrecy jurisdictions, rely on foreign aid handouts.

This hurts citizens of rich and poor countries alike.

Switzerland, USA and Cayman top the 2018 Financial Secrecy Index

by George Turner

Tax Justice Network, January 30, 2018

https://www.taxjustice.net/2018/01/30/2018fsi/

Switzerland, the United States and the Cayman Islands are the world’s biggest contributors to financial secrecy, according to the latest edition of the Tax Justice Network’s Financial Secrecy Index (FSI).

The full financial secrecy index can be found online at http://www.financialsecrecyindex.com. There you can find interactive tables and maps of the FSI, as well as download reports on specific countries. A direct link to the table of rankings by country is at http://tinyurl.com/yblxx27e.

Financial secrecy is a key facilitator of financial crime, and illicit financial flows including money laundering, corruption and tax evasion. Jurisdictions who fail to contain it deny citizens elsewhere their human rights and exacerbate global inequality.

The table below shows the top-ranked 54 countries on the FSI. The full interactive table is available here.

Switzerland, the global capital of bank secrecy, retains the worst ranking, and the US has moved up to second. With Bahrain and Lebanon dropping out of the top ten, Guernsey and a new entry in Taiwan has replaced them.

The US’ rise in the FSI 2018 rankings is part of a worrying trend. This is the second time in succession that the USA has risen up the Financial Secrecy Index. In 2013 the States was in 6th place, and in 2015 it took 3rd. In 2015 the country was one of the few to increase its secrecy score. This time the increase in ranking is driven by a huge rise in their share of the market in offshore financial services that wasn’t neutralised by a significant reduction in their secrecy. In total, the share of global offshore financial services taken by the United States rose by 14% between the 2015 and 2018 index from 19.6% to 22.3%.

The United States remains a secrecy jurisdiction as it refuses to take part in international initiatives to share tax information with other countries, and has failed to end anonymous companies and trusts aggressively marketed by some US states. There is now real concern about the damage this promotion of illicit financial flows is doing to the global economy.

Slow progress in the global fight against financial secrecy

The 2015 Index noted several improvements towards global financial transparency following the 2008 financial crisis and the huge budget deficits that it created, where governments around the world sought to reign in tax abuse by its citizens, and by multinational corporations.

Some of those efforts are now starting to bear fruit. Most importantly, countries have now started to exchange information on bank accounts held by foreign citizens in their jurisdictions on an automatic basis.

But this Financial Secrecy Index demonstrates how ten years on from the financial crisis all countries still have a long road ahead of them to improve their performance on financial secrecy. The most transparent country – Slovenia – has a secrecy score of 41.8, out of a total possible score of 100. A score of 0 would represent ideal, competition and market friendly transparency. In other words, if the Financial Secrecy Index were a school exam, Slovenia (the best student) would have barely passed, with less than 60% of the correct “transparency” answers. The worst countries only got close to 10% of the “transparency” questions right (a secrecy score close to 90). Following this analogy, practically all countries would have to repeat the school year.

The top two countries in this year’s FSI are the two that have been most resistant to the key policy of automatic information exchange between tax authorities. The US refuses to take part altogether. Instead, it has set up its own parallel system (FATCA) which seeks information on US citizens abroad, but provides little, if any, data to foreign countries.

The global capital of banking secrecy, Switzerland has delayed the implementation of automatic information exchange, and in 2017 lawmakers attempted to stop it altogether with countries they deemed ‘corrupt’. As the FSI demonstrates, countries like Switzerland are fundamental to the flow of illicit financial funds, such as the proceeds of corruption. Switzerland’s attempts to stop transparency for funds they receive from countries with perceived high levels of corruption will simply make tackling corruption in those countries harder.

After the financial crash further scandals have led to a greater push for more transparency, such as the demand for public registers of company owners. Yet this progress has been difficult, as powerful vested interests working with friendly governments seek to frustrate change. The UK government for example continues to insist on the right of its satellite tax havens to maintain the secrecy of company ownership, and the German government, with others, have sought to impede attempts to make progress on the beneficial ownership issue within the European Union.

Financial secrecy’s impact on human rights

Six out of the Top 10 FSI 2018 countries are either members of the OECD or their dependencies. Another three are Asian tax havens, demonstrating how major economies are driving the market for financial secrecy.

Secrecy jurisdictions are found all over the world. On this map the top ten are shown in blue. An interactive version of the map is available here.

Kenya, which this year set up its own tax haven in the form of the Nairobi International Financial Centre, is an example of how interests of western financial service lobbyists have successfully lured governments into a race to the bottom. Kenya, which has been assessed for the first time in the 2018 FSI, has an extremely high secrecy score of 80/100.

By harboring the ill-gotten gains of kleptocrats and tax evaders, secrecy jurisdictions deprive governments of the resources needed to provide basic social protection, and encourage the looting of natural resources.

This impact of financial secrecy on the abuse of human rights is increasingly recognised globally. Switzerland has been sharply criticised by the United Nations for the damage that its financial secrecy causes to human rights around the world, while a recent statement by the UN Special Rapporteur on Extreme Poverty and Human Rights, highlighted the poverty and inequality suffered by citizens of the United States, in part driven by their government’s desire to become a tax haven. This statement comes at a time when our index shows the country undermining rights elsewhere through its promotion of financial secrecy.

How we created the world’s leading study of financial secrecy

The Financial Secrecy Index is the world’s most comprehensive assessment of the secrecy of financial centres and the impact of that secrecy on global financial flows. The European Commission’s Joint Research Centre provided methodological support for the construction of the index. The study is published every two years and is founded on published, independently verifiable data. In contrast to some so called ‘blacklists’ of tax havens, inclusion in the FSI is not based on political decision making.

Countries are assessed against criteria which include whether companies, trusts and foundations are required to reveal their true owners, whether annual accounts are made available online in open data format, or the extent to which jurisdictions’ rules comply with anti-money laundering standards (FATF’s 40 recommendations).

This year several new indicators have been added to the FSI and existing indicators have been substantially revised to drill deeper into questions around ownership registration and disclosure. A total of 20 Key Financial Secrecy Indicators (KFSI) is used for the measurement of the secrecy score.

In order to create the index, a secrecy score is combined with a figure representing the size of the offshore financial services industry in each country. This is expressed as a percentage of global exports of financial services. The bigger player you are, the more responsibility you have to be transparent.

Beyond of what has been achieved so far by academic or regulatory institutions, the new FSI is the most comprehensive and rigorous assessment of financial secrecy worldwide.

New criteria include checking if a jurisdiction provides for

• A public register of ownership and annual accounts of limited partnerships (KFSI 5);
• A public register of ownership of real estate and a central register of users of freeports for the storage of high value assets (KFSI 4);
• Banking secrecy rules protected by criminal law (risk of prison terms for banking whistleblowers; KFSI 1);
• Public access to tax court verdicts and proceedings, both in criminal and civil tax matters (KFSI 14);
• Mandatory Legal Entity Identifiers for companies created in its territory (KFSI 10);
• Harmful tax residency and citizenship rules (KFSI 12);
• Public access to unilateral tax rulings and robust local filing requirements for Country-By-Country Reports (KFSI 9);
• Unregistered bearer shares for companies & large banknotes (KFSI 15);
• Public statistics on its cross-border financial and economic activities (KFSI 16);
• Mandatory reporting obligations of tax avoidance schemes (KFSI 11).

Africa’s battle against financial secrecy: Financial Secrecy Index

by Rachel Etter-Phoya

Tax Justice Network, February 14, 2018

https://www.taxjustice.net/ – direct URL: http://tinyurl.com/yb7s2txa

How are Switzerland, the United States, and the Caymans working against African efforts to stem the tide of illicit financial flows? They’re among the worst offenders in the Tax Justice Network’s 2018 Financial Secrecy Index.

The index was launched at the end of January 2018 and weights a country’s secrecy score against its global share of financial services. This means that countries that top the rankings have a far higher risk for illicit financial flows running through their systems than countries that may have a higher level of secrecy, but have much smaller-scale financial services. 20 key indicators are used to assess secrecy levels, including banking and tax court secrecy, country-by-country reporting compliance, ownership disclosure rules, and tax administration capacity.

The problem for Africa

Africa remains a net creditor to the world because of illicit financial flows. These flows include money from criminal activity and corruption, tax evasion, avoidance and planning, as well as hidden wealth. So-called foreign aid is dwarfed by the amounts that are leaving the continent. Sub-Saharan African countries lost over USD 1 trillion in capital flight between the 1970s and 2010; external debt was less than one-fifth of this. Financial secrecy is the enabler.

The Paradise Papers was a disturbing reminder of the scale of the problem. 13.4 million documents were leaked from Appleby, a leading British offshore law firm, and Asiaciti, a family-owned trust company, which were investigated by over 90 media partners with the International Consortium of Investigative Journalists.

We learned that Namibians lost potential tax revenues from its fishery resources through a complex corporate arrangement that exploited a double tax treaty signed with Mauritius. Angolans’ sovereign wealth fund was tapped into by a financier who incorporated companies in secrecy jurisdictions for investment projects in which he had a stake. And mining giant Glencore’s nefarious practices in the Democratic Republic of the Congo and in Burkina Faso have also likely reduced the revenue these governments have to spend on vital public services.

South Africa has also had its fair share of challenges with secrecy jurisdictions. The notorious Gupta family along with their politically-exposed associates have been able to hide behind opaque companies to gain questionable access to government contracts. For example, the family is reported to have used shell companies in the United Arab Emirates to move ‘the dubious proceeds of state tenders in South Africa to their collection of shell companies in and around Dubai’. The United Arab Emirates is ranked number nine in the Financial Secrecy Index 2018, with an ‘”ask-noquestions, see-no-evil” approach to commercial transactions, financial regulation and crimes’.

African secrecy jurisdictions on the rise

Financial secrecy has also reared its ugly head on the continent itself. Nine African countries are included in this year’s Financial Secrecy Index:

Kenya found itself in the top 30 countries worldwide with a very high secrecy score (80 out of 100). This may not come as a surprise. The country’s Vision 2030 includes the establishment of the Nairobi International Financial Centre as one of its commitments. Legislation entered into force in September last year to encourage foreign direct investment to be channelled through the East African nation to other countries in the region. Kenya has adopted a model similar to the City of London (the UK having experienced the Finance Curse phenomenon as a result) and continues to increase its network of double tax agreements.

Double tax agreements aim to prevent income being taxed twice. Yet a number of associated risks undermine the collection of tax. The treaties restrict the rights of states to tax foreign investors and owned companies and often do not include adequate automatic exchange of information provisions. Multinationals and sometimes domestic companies may set up an entity in an intermediary country, even when they have no substantive economic activities, to exploit tax treaties in place. This ‘treaty shopping’ enables companies and individuals to pay lower taxes in conduit countries and avoid taxes all together in the countries where activities are taking place.

However, with just 15 tax treaties in force, Kenya has some way to go if it is to compete with one of Africa’s oldest secrecy jurisdictions, Mauritius. In a bid to reduce its reliance on sugar back in the 1970s, this island nation started offering preferential tax terms and exemptions to foreign investors, and similar ones exist today. The country has entered double tax agreements with 43 nations, 16 of which are with African states. Zero-percent capital gains tax has lured many companies to set up shop – with no genuine economic activity – on the island, significantly reducing their tax burden at the expense of other countries, often not paying capital gains tax anywhere. South Africa and India have successfully renegotiated their agreements with Mauritius to be able to collect capital gains and withholding tax. Other African nations, including Lesotho and Zambia, are following suit and renegotiating treaties.

Ghana toyed with setting up an International Financial Services Centre (IFSC) and went as far as granting Barclays Bank Ghana Limited an offshore banking licence in the early 2000s although President John Atta Mills revoked the licence in 2011 to avoid OECD blacklisting. Worringly, it appears the country has plans to revive the IFSC.

Much more can be said about secrecy on the continent. We have prepared narrative reports for eight of the nine African countries included in the Index. Take a look here. Our partner Tax Justice Network Africa also has a blog series on financial secrecy. Part 1 is available here.

Global solutions

Some changes have been made to the global infrastructure to tackle secrecy since TJN launched the first Index in 2009. For example, the OECD is mandated by the G20 to roll out the automatic exchange of information on taxation, but coverage is patchy and some countries, particularly African ones, are missing from the arrangement.

Reform is needed now. Besides individual countries addressing laws and regulations to improve transparency, TJN has identified three major policy responses considering the latest Financial Secrecy Index:

1. Take counter-measures against tax haven USA: the USA ranks second in the Index this year because it has not improved transparency while other countries have acted. The global scale of its financial services has also increased. The USA needs to make it illegal to establish anonymous companies within its borders and it must comply with the standard for automatic exchange of tax information. We have a policy proposal for how to incentive the USA, here.
2. Adopt the Tax Justice Network’s ABCs of tax transparency: all countries must be included in the Automatic exchange of information and aggregate statistics published, all entities must disclose their Beneficial owners and data should be online, free and in open data format for companies, trusts and foundations, and all multinational companies must comply with public Country-by-country reporting.
3. Introduce a UN global convention on tax transparency: ambitious standards should be set, with the ABCs of tax transparency at a minimum, through a global, inclusive process that outlines meaningful sanctions for non-cooperation.

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Confederate ‘monuments were a lie,’ Mitch Landrieu says on ’60 Minutes’

Without the success of the October Revolution of 1917, a century ago this week, there would have been no USSR to provide sanctuary, training, and arms to anticolonial activists, liberation movements and postcolonial African governments. The dismantling of apartheid would have been far costlier and bloodier.
Africa and the world owe an historic debt to the USSR and the emancipatory dream upon which it was founded, the first national government founded on such vision since the Haitian revolution a century earlier.