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Tax Havens: Threat for Public Budgets

by Sven Giegold Monday, Apr. 11, 2016 at 2:29 AM

The common good is abused. The struggle against tax havens is a struggle for the rule of law and democracy. Apple, Google, Amazon, Boeing and GE shift tens of billions to tax havens. According to a 2013 article, one building in Delaware has 285,000 mailbox firms.


Social Justice and Functioning Financial Markets

Call of Civil Society Organizations

[This call of civil society organizations is translated from the German on the Internet.]

The financial crisis has increased in dramatic intensity as societies worldwide are threatened economically and socially by the non-transparency and irregularity of the global financial markets. The largely unregulated development of these markets made the distribution of chances and risks inscrutable. This unregulated development distorts competition and worsens imbalances.

Overstraining market actors and politics was (and still is) desired by many: maximizing profits for invested capital through systematic evasion of national laws and veiling risks and aggregate social costs.

The most important instruments for this business model are the 50+ tax havens worldwide. Although the areas and number of inhabitants are insignificant, a large part of world trade is transacted through them – even if only on paper and not real. They have only one goal – with the lowest tax rates, a strict banking secrecy and lax regulations: enable transactions that violate legal regulations of other countries. Revenues from corruption and criminality, business profits, untaxed private assets and non-transparent financial products should be hidden from public prosecutors and tax- and regulatory authorities.

However the profits of a few, the black capital concealed in tax havens and the supporting banks and financial advisors is only the reverse of the costs that must be shouldered by the majority of the population:

• The money hidden in tax havens is lacking for effective public services and urgently necessary measures against the advancing ecocide. The poor in industrial- and developing countries suffer especially.

• In tax havens, sellers and buyers of corruption and organized crime conceal their financial assets. As places of money-laundering, tax havens support criminality and corruption and are complicit in the suffering.

• The taxes of international corporations and rich private persons reduce public budgets and increase their indebtedness. Raising wage- and consumer taxes to compensate for these losses burden particularly those who are poorer and endanger the social peace.

• Through the cited practices, developing countries fall into increasing dependence on foreign aid and credits. Already today they are losing more through tax fraud via tax havens than they obtain through economic aid to developing countries.

• The transfer and veiling of financial risks through financial constructions with the help of tax oases leads to false business incentives and threaten the functioning of the financial markets. The majority of the population bears the follow-up costs, for example through bailing out the bank system.

As protective zones and hubs for black capital, tax havens threaten the central pillars of a global development that should include everyone. They also have an essential share in the current financial crisis. Therefore the bottom must be knocked out of their business model. That must be an essential element in the search for internationally coordinated answers to the current financial crisis. Otherwise regulations and transparency demands will be circumvented in the future as national tax laws are circumvented today.

Therefore we urge the German government to be concerned in its national legislation and as a member of multilateral institutions and negotiations that

• tax havens become a central theme of the coming international negotiations to master the financial- and economic crisis beginning with the April 2016 meeting of the G20 in London;

• a comprehensive international cooperation in combating tax fraud, misused tax avoidance, corruption and money laundering should be reached through participation of as many states as possible on the plane of the United Nations;

• existing standards on transparency and inter-state tax cooperation should be expanded so effective taxation will be possible. To this end, a binding automatic information exchange must be introduced between national tax authorities;

• a public black list must be established for identifying and sanctioning states and jurisdictions that do not fulfill these standards;

• the accounting of international businesses must be regulated so the specific country disclosure of all data necessary for taxation must make possible an effective taxation;

• developing countries should be supported technically and politically in the struggle against tax fraud, corruption, tracing and returning withdrawn and stolen public funds;

• developing countries that want to exit from the tax haven business should be supported in developing economic alternatives;

• only banks with no business relations to tax havens or who are ready to completely disclose such business relations should receive public support and contracts.

The signatory civil society organizations and groups are engaged in different areas of social life. However the public poverty and the undermining of the foundations of life together concern all our work on national and international planes. A global society needs global solidarity. Global solidarity needs global tax justice. Tax havens undermine this solidarity and justice. Therefore we do our utmost to knock the bottom out of the business model of tax havens through responsible national and international policy. Besides our political support, we offer the competence and expertise from our respective work areas in collaboration.


The Struggle against Tax Havens is a Struggle for the Rule of Law and Democracy

By Sven Giegold

[This article published on April 4, 2016 is translated from the German on the Internet. Sven Giegold is a spokesperson for the Greens in the European Parliament.]

Preventing tax evasion is a matter of democratic cohesion and is not only a question of justice. The Green Euro-statesman Sven Giegold warns in view of the Panama disclosures: populists can instrumentalize the latest disclosures for their purposes.

Bravo! The revelations of the “Panama Papers” are a masterstroke of investigative journalism that crosses borders. The 400 journalists from all over the world deserve our tanks. The research is a mammoth project in the spirit of tax justice and the rule of law. The jou9rnalists cast light on the intrigues of mailbox firms in tax havens whose elixir of life is darkness.

While the work of the journalists is commendable, it is shameful for states to depend on such data leaks in the battle against tax evasion and money laundering. Non-transparency is the enemy of tax justice and simultaneously the business model of law offices like Mossack Fonseca. Such firms created a gigantic mailbox firm industry. The global financial system has become the infrastructure for financial criminality.


Tax evasion to bank accounts in Switzerland and Luxemburg has long been a popular sport. The mailbox firms are a more aggressive form of tax evasion and veiled corruption. Enormous sums and criminal activities are involved. The sheer mass of data from Mossack Fonseca shows the extent of these intrigues. A parallel system was created here through which the rich and powerful evade the constitutional state and their social responsibility. Top politicians deceive people when they talk of the social market economy or when economic elites prattle about the rule of law. The social explosiveness of these revelations is manifest. A breach of trust occurred between those who accept our common rules of the game and their participation in society and those who shirk. Veiling wealth and shifting wealth to tax havens is only rewarding for those who already have too much.

The disclosures can be instrumentalized by populists since the names of political, social and economic elites appear in the “Panama Papers.” Populists like to draw the picture of corrupt elites and the defrauded average citizens to exploit their alleged nearness to the fraudsters for very different purposes. With this theme, they can divide society again.


The answer of the political decision-makers should be clear. Further mistrust toward the political and economic elites can only be prevented with a resolute and credible reaction. But how can politics take action against money laundering and tax havens in the distant Pacific Islands?

Banks must carry out the draining of the tax swamp. Banks mediate the journey of money from the tax havens into the real economy where profits are made. From the US, we know how to counter the complicity of the banks. Banks must certify that they only maintain bank accounts and business relations in which they know the economic beneficiaries. They must pay a fine if they do business with non-transparent firms. In the US, the corresponding law is called the Foreign Account Tax Compliance Act (FATCA). Such sanctions against banks involved in dubious affairs should be introduced on the European plane. One thing is clear. A state by itself is powerless against the global money laundering industry. The offensive against money laundering must be carried out globally and on the European plane. Then it can be successful against the hardened harbors for mailbox firms.


The EU commission president Juncker is now obligated to introduce an action plan against money laundering and mailbox firms. A European FACTA would be a lever for the international acceptance of this plan. Finance minister Schauble used the last great scandals – OffshoreLeaks and LuxLeaks – to bring together a successful coalition of the willing in the G20. He must use he new chance and set himself at the top of an international movement. Germany must use its imminent G20 presidency and make fighting money laundering its priority.


A second important point is the transparency of businesses. Germany and the other EU countries have already committed to a business register. All economic beneficiaries of firms should be enumerated. In the past, the German government acted as a blocker of transparency in the consistent and effective obstruction of this new rule. The German government only gives access to this information to a few persons and institutions. Past research like the “Luxemburg Leaks” shows what journalists and NGOs can contribute to disclosing tax scandals. The “Panama Papers” are not the first disclosure. Finance minister Schauble may not become a transparency obstructor with the business register. The information must be publically transparent so this European guideline can become effective in the struggle against money laundering. Germany should lead here with France and show that Europe despite crises and quarreling can realize concrete improvements in important political fields.


Justice is part of our homework in Germany. Our state has a remarkably bad record in fighting money laundering. In Germany, the local community is often responsible for controlling money laundering. This means local community oversight or even registrars should control money laundering. That is also one reason why our disclosure rate is so miserable. Germany makes black money into a popular goal.

The “Panama Papers” uncover the abuse of the common good. But they could become a stroke of luck if we finally tackle what we slept through for years: an earnestly forged struggle against the global money laundering industry. The significance of this challenge cannot be overemphasized. The central question of justice is raised. Are the same laws and duties in force for everyone or are some allowed to exempt themselves?

Equal treatment and justice are the foundations of an open democratic society. These foundations must be renewed now.


Libby Watson, “Why Are There So Many Anonymous Corporations in Delaware?” 4/8/2016

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