Oligarchy

Thanks to the Pandora Papers, I haven’t got round to writing about the Global Tax Deal yet, which is bad because I’m two weeks late, but also good because it has allowed some of the confusion to abate and for me to get a bit of a sense of what everyone’s signed up to.

In case you too have been distracted by other priorities, the Deal is designed to stop the pernicious “race to the bottom” dynamic, in which countries have competed for multinationals’ attentions by lowering taxes. It establishes a floor of 15% below which taxes won’t fall (for big companies). It also ensures the biggest companies pay more of their taxes where they earn money, rather than where they report profits.

It’s encouraging, but don’t breathe out just yet. There’s still a lot of obstacles to circumvent before we can say whether it will re-empower democracies in their decades-long retreat before the oligarchs that control the world’s biggest companies.

• “Prior efforts at international tax reconciliation by the League of Nations, the United Nations and the OECD have taken the form of voluntary guidelines and model treaties. Even those multilateral projects took years to conclude,” writes former Bulgarian finance minister and senior World Bank official Simeon Djankov in this admirably clear blog post.

The problem is that the underlying dynamic that drove the race to the bottom has not disappeared: (almost) everyone wants companies to pay more in taxes, but (almost) everyone also wants money for their own treasury, and not a different country’s. The tension between these two desires is why all previous efforts to update international taxation policy have failed.

The Tax Justice Network has been fighting hard to make sure the poorer countries get better treatment from the new deal than the last one, since there is concern that rich countries (members of the Organization for Economic Cooperation and Development, or OECD) and corporations will stitch up an arrangement in their mutual interests, to the exclusion of the people who need the money most of all. The Tax Justice Network’s assessment is damning. Most of the additional tax raised will go to the United States, and too few big companies will be covered.

• “It’s no wonder that Ireland and other havens have embraced the deal, especially after obtaining various concessions. As it stands, it will neither curb profit shifting effectively, nor provide substantial revenues to more than a handful of OECD member countries. Everyone else has been left out – especially lower-income countries which lose the greatest share of their current tax revenues to corporate tax abuse,” said Tax Justice Network Chief Executive Alex Cobham.

Of course this may all be entirely moot if the Senate refuses to ratify the deal which, since even climate change isn’t a sufficiently large crisis to persuade even Democrats to do something that isn’t in their constituents’ direct financial interests, is very much not a given. Republicans want the changes to form part of a whole new treaty. Since that would require a two-thirds majority in the Senate to pass (i.e., it wouldn’t), it would mean they get to stop any change happening at all, which apparently is pretty much all they’re for these days

Oxfam may be right to savage the deal as “a mockery of fairness”.

• “The world is experiencing the largest increase in poverty in decades and a massive explosion in inequality but this deal will do little or nothing to halt either. Instead, it is already being seen by some wealthy nations as an excuse to cut domestic corporate tax rates, risking a new race to the bottom,” said Susana Ruiz, the aid charity’s tax policy lead. “Calling this deal ‘historic’ is hypocritical and does not hold up to even the most minor scrutiny.”

However, if even this deal is too ambitious to get through, then there’s a risk that we’re letting the perfect become the enemy of the kind-of-okay by objecting to it. If something that is already skewed in favor of the U.S. Treasury and big American companies isn’t good enough for Congress, then presumably something more ambitious wouldn’t be. So, we’ll be stuck with the race to the bottom for the foreseeable future; unless individual countries give up on the whole process and implement more of their own Digital Services Taxes, of course.

ON THE BRIGHT SIDE

Is the situation around South Dakotan trusts as bad as everyone has been making it out to be, asks Alexis Leonidis, who says there are good reasons to think many of the state’s most exotic innovations would not survive a legal challenge.

• “Those with billions or even hundreds of millions may be willing to roll the dice with INGs or dynasty trusts in South Dakota or elsewhere, because they think the tax savings and ability to preserve their wealth for future generations outweigh potential impending changes. For those with fewer zeroes, going to such great lengths may just not be worth the hassle anymore,” she writes.

This is all very heartening, or would be, if there wasn’t a slight flaw in the argument. The potential legal challenges she lists are all from tax authorities in New York, California, or other high tax states. Yay for that obviously, but that doesn’t help the tax authorities in any of the world’s 194 other countries, who are unlikely to be helped by “House Democrats” riding to the rescue (see six paragraphs ago), and who would still be at the mercy of South Dakota’s ideas.

Could we end up with a system where the tax tricks for sale in America’s tax havens are only available to non-Americans? Yes, of course. Almost all tax havens have, at one time or another, tried to make sure their harmful practices are only available to foreigners, but –thanks to pressure from Washington and Brussels – few have got away with it for long.

Who’s going to bully South Dakota into behaving better, however?

NON-TRANSPARENT

I enjoyed this article by Gary Kalman about what the United States should do to respond to the revelations in the Pandora Papers.

• “In a recent interview with a reporter from Swiss public radio, I was asked if these stories reveal a certain hypocrisy when U.S. officials and bankers lecture the Swiss about financial secrecy. The Biden administration, the U.S. Congress and the entire U.S. financial services industry should be embarrassed that such a question can even be plausibly asked,” he wrote.

Kalman, in case you don’t know him, is director of the U.S. office of Transparency International, and the former executive director of the FACT coalition. On reading that piece though, I did find myself idly wondering why TI’s U.S. office is called an “office” and not a “chapter”, as branches in other countries are, and I rather wish I hadn’t, since it led me down a rabbit hole I was happy not knowing about.

Apparently, Transparency International “disaccredited” its U.S. chapter in 2017 owing to differences in “philosophies, strategies, and priorities,” but finding out exactly what those issues were is a bit tricky, since all links related to the ex-chapter’s ex-website now redirect instead to a gambling site called “Casino With Bonus,” which has lots of tips for winning at games of chance, but no information about the domain’s former tenants. The ex-chapter is now called the Coalition For Integrity, whose website hosts a press release of its own announcing the split, but which is no more informative than the umbrella body’s statement as to the reasons for it (“TI is pursuing a fundamentally different strategy and approach to combatting bribery and corruption than that being followed by TI-USA”). Parsing the various documents for clues is a bit like trying to work out whether John or Paul was responsible for the demise of The Beatles.

Contemporary news reports (like this and this) were a bit mean about TI-USA, and suggested it had got too close to the corporations it was supposed to be monitoring. I have no idea if that’s true, though it is a little hard to imagine other chapters of the organization giving awards to companies like Pepsi, Coca-Cola and General Electric.

Does it matter? Possibly not, but it’s not setting a very good example of transparency that we don’t know.

QUESTIONS

We held a Coda Live event last week to talk about the Pandora Papers, and I didn’t manage to get through all the questions you asked in the hour we’d allotted. So, I’ve decided to have a go at answering a couple here.

Peter Meedom asked: One of the reasons why corruption slides down the agenda for politicians is the failure to understand how corruption/illicit financial flows sit at the very heart of many of the great issues of today, i.e., climate change, environmental degradation, autocracy/oligarchy, failing democracies, increased inequality etc. What can be done to foster better understanding of the way in which corruption/illicit financial flows interlink with these issues?

This is a central issue, and I’ve been talking to lots of people about it in the last two of three weeks. Almost everyone I spoke to kept coming back to how great it would be if we had a kleptocracy-focused celebrity, like David Attenborough for climate change or Princess Diana for landmines, who would make headlines just by opening their mouth.

So, I suppose the next point is –in the absence of a celebrity (if anyone knows one though, please see what you can do…) – how do we encourage talk about kleptocracy, oligarchy, illicit finance and related issues? I can’t think of a better way of doing that than trying to tell compelling stories and hoping people who hear those stories will pass them on. If enough people pass those stories on and come to understand that dirty money lies behind so many of the most pressing problems facing the world, then we’ll have succeeded.

For good stories to be told, however, we need to make sure good articles and books get published; and good TV shows and podcasts get made. So, please keep subscribing to the media outlets that do the best work.

Aimee McKinney asked: So, given this revelation of the harm South Dakota et al are doing globally, isn’t this harm also driving terrorism/retribution? Do terrorists ever state this as their reason – while also benefiting from it? If so, where’s the media explaining this to us?

Corruption is a double-edged sword for terrorism, in that it cuts usefully in two directions. Firstly, corruption helps terrorists: corrupt officials make ordinary citizens so angry they are more likely to support or – in extreme cases – even join terrorist groups. Such groups, from the Taliban in Afghanistan to Boku Haram in Nigeria, often justify their actions as campaigns against corrupt central authorities. Secondly, corruption harms the people fighting terrorists: it undermines the authorities’ ability to fight back, by sapping them of resources and morale, and undermining their ability to act.

I think one reason why journalists haven’t traditionally been very good at explaining this is we only really talk about terrorism when there’s been an attack. And when something unjustifiable – like a suicide bombing, or hijacking, or mass kidnapping – has happened, it is grotesque to talk about why. It feels like you’re justifying the action, and no one wants to do that, even if you are not justifying it, but instead trying to explain the conditions that allowed the terrorist group to come into existence in the first place.

The time to talk about how corruption helps terrorism is between atrocities. However, during those periods, most editors aren’t sufficiently interested in terrorists to want to publish articles about them. So, the answer is to encourage media organizations to stay on the story after other journalists have left, and to investigate phenomena before they’ve turned into crises.

WHAT I’M READING

I’m a John Le Carré completist, so I had the new novel pre-ordered on my Kindle. My assessment – having read about two-thirds of it – is that it’s not his best but still better than those by his competitors. He was a genius and, if you’re not careful, one day I’ll bore you with the story of how I once met him.