Oligarchs hide billions in shell companies. Here's how we stop them

The Panama Papers have helped tax authorities recover over $500m around the world. Property registries could ensure that even more is recovered

Frederik Obermaier and Bastian Obermayer in The Guardian 

 

According to Navi Pillay, the former UN high commissioner for human rights, ‘The money stolen through corruption every year is enough to feed the world’s hungry 80 times over.’ Photograph: Arnulfo Franco/AP


Two years ago we published the Panama Papers after an anonymous source provided 2.6 terabytes of internal data from the dubious Panamanian law firm of Mossack Fonseca. We shared the data with 400 journalists worldwide and together revealed how the wealthy and powerful use shell companies to hide their assets. Such companies are exploited by dictators, drug cartels, mafia clans, fraudsters, weapons dealers and regimes like North Korea and Iran to hide their shady business transactions.


As a consequence, Sigmundur Davíð Gunnlaugsson, the prime minister of Iceland, resigned. Pakistani prime minister Nawaz Sharif did the same, and in the United Kingdom even David Cameron’s father was implicated. So far, the Panama Papers have helped tax authorities around the world to recover more than $500m in unpaid taxes and penalties. It could be far more if lawmakers finally take action.

After publishing the Panama Papers, we have heard a lot of promises from politicians around the world. They have talked about the need for transparency, and while the discussion is warm, the details are complicated: a multilateral exchange of information and stronger anti-money laundering regulations are as difficult to implement and control as they sound.

But why bother? There is a far less bureaucratic and more powerful measure: public beneficial ownership registries. Databases in which citizens can easily access and explore the owners of companies. Not the nominee director, not the fake shareholder – the real owner. The person at the center of the matryoshka-like corporate structures, or, as experts refer to them: the ultimate beneficial owner of a company.

A database of actual owners would enable companies to check with whom they are actually doing business with. It would enable activists, journalists and skeptical citizens to investigate the individuals running dubious companies which earn millions in alleged “consulting contracts”, which are in many cases nothing more than concealed payments of corruption money. It would also give prosecutors the opportunity to follow dark money without having to rely on nerve-racking, time-consuming legal maneuvers with foreign governments.

Searchable by company and by individual names, it would enable investigators to see if Dictator X or Autocrat Y owns companies in Country Z. Combined with a public property register, it would narrow, if not close, loopholes which allow oligarchs and their relatives to betray their own citizens and stash plundered money across the globe.

Creating beneficial ownership registries will not be easy. Recently, the UK House of Lords rejected an attempt to force overseas territories under British control to create said registries. And in the United States, where some states make it more difficult to vote than to start a company, there has yet to be any reasonable public discussion about creating these transparent registries, making America a willing accomplice in global corruption. The treasury department in 2015 estimated that approximately $300bn in illicit proceeds are generated in the US per year!

Critics of public beneficial ownership registries often say that exposing company owners could put them in danger of blackmail or even kidnapping. However, no data supports such claims and there will likely never be any. As it is, the financial elite often surround themselves with the symbols and spoils of wealth, such as big cars, yachts and villas. There is no desire to hide their treasure; in fact, they often flaunt it.

Corruption is a scourge. It hits the poor first and hits them hard. Whole continents are plundered, the proceeds of human trafficking are laundered, wars are financed and violent religious extremism is supported.

The word “corruption” comes from the Latin “corrumpere”, which can mean “to destroy”. Corruption destroys democracy. Corruption costs citizens extraordinary amounts of money. According to estimates, corruption consumes more than 5% of the global gross domestic product.

Developing regions lose more than 10 times the money they receive in foreign aid to illicit financial schemes. Without corruption and the shell companies that make it possible, there might be no need for aid to Africa or Asia. Most importantly, corruption kills. According to Navi Pillay, the former United Nations high commissioner for human rights, “The money stolen through corruption every year is enough to feed the world’s hungry 80 times over”.

As Louis Brandeis, the late associate justice of the supreme court of the United States, once pointed out sunlight is the best disinfectant. Hence let the sunshine in! Lawmakers must make public beneficial ownership registries a priority to ensure that institutions remain transparent and democratic.

There is no legitimate reason to allow individuals to own anonymous companies or to help new “entrepreneurs” to create them. Lava Jato in Brazil, the Fifa scandal and nearly every other major corruption case have involved opaque company structures created to bribe, receive bribes or to hide dirty money.

Financial crimes rely on exploiting anonymous companies and trusts, and secrecy jurisdictions like the British Virgin Islands, the Cayman Islands and the states of Delaware and Nevada are partners in those crimes. They must be held accountable.

Waiting for a global solution means waiting a long time, if not forever. The only way to draw the corporate curtain back and expose corruption is for lawmakers to work in the public interest and create public beneficial ownership registries and public property registries now. The more countries that adopt these measures, the less places dictators, human traffickers, weapons dealers and oligarchs can hide.

Lawmakers that claim to stand against corruption should do so by fighting for these kinds of registries now, or forever hold their peace.

The French are right: tear up public debt – most of it is illegitimate anyway

Debt audits show that austerity is politically motivated to favour social elites. Is a new working-class internationalism in the air?

• 
• • Razmig Keucheyan
  • theguardian.com, Monday 9 June 2014 17.17 BST

Contracts for Chilean student loans worth $500m go up in flames – the 'imaginative auditing' of the artist Francisco Tapia, commonly known as Papas Fritas (Fried Potatoes). Photograph: David von Blohn/REX

As history has shown, France is capable of the best and the worst, and often in short periods of time.

On the day following Marine Le Pen's Front National victory in the European elections, however, France made a decisive contribution to the reinvention of a radical politics for the 21st century. On that day, the committee for a citizen's audit on the public debt issued a 30-page report on French public debt, its origins and evolution in the past decades. The report was written by a group of experts in public finances under the coordination of Michel Husson, one of France's finest critical economists. Its conclusion is straightforward: 60% of French public debt is illegitimate.

Anyone who has read a newspaper in recent years knows how important debt is to contemporary politics. As David Graeber among others has shown, we live in debtocracies, not democracies. Debt, rather than popular will, is the governing principle of our societies, through the devastating austerity policies implemented in the name of debt reduction. Debt was also a triggering cause of the most innovative social movements in recent years, the Occupy movement.

If it were shown that public debts were somehow illegitimate, that citizens had a right to demand a moratorium – and even the cancellation of part of these debts – the political implications would be huge. It is hard to think of an event that would transform social life as profoundly and rapidly as the emancipation of societies from the constraints of debt. And yet this is precisely what the French report aims to do.

The audit is part of a wider movement of popular debt audits in more than 18 countries.Ecuador and Brazil have had theirs, the former at the initiative of Rafael Correa's government, the latter organised by civil society. European social movements have also put in place debt audits, especially in countries hardly hit by the sovereign debt crisis, such as Greece and Spain. In Tunisia, the post-revolutionary government declared the debt taken out during Ben Ali's dictatorship an "odious" debt: one that served to enrich the clique in power, rather than improving the living conditions of the people.

The report on French debt contains several key findings. Primarily, the rise in the state's debt in the past decades cannot be explained by an increase in public spending. The neoliberal argument in favour of austerity policies claims that debt is due to unreasonable public spending levels; that societies in general, and popular classes in particular, live above their means.

This is plain false. In the past 30 years, from 1978 to 2012 more precisely, French public spending has in fact decreased by two GDP points. What, then, explains the rise in public debt? First, a fall in the tax revenues of the state. Massive tax reductions for the wealthy and big corporations have been carried out since 1980. In line with the neoliberal mantra, the purpose of these reductions was to favour investment and employment. Well, unemployment is at its highest today, whereas tax revenues have decreased by five points of GDP.

The second factor is the increase in interest rates, especially in the 1990s. This increase favoured creditors and speculators, to the detriment of debtors. Instead of borrowing on financial markets at prohibitive interest rates, had the state financed itself by appealing to household savings and banks, and borrowed at historically normal rates, the public debt would be inferior to current levels by 29 GDP points.

Tax reductions for the wealthy and interest rates increases are political decisions. What the audit shows is that public deficits do not just grow naturally out of the normal course of social life. They are deliberately inflicted on society by the dominant classes, to legitimise austerity policies that will allow the transfer of value from the working classes to the wealthy ones.

 A sit-in called by Occupy France at La Défense business district in Paris. Photograph: Afp/AFP/Getty Images

A stunning finding of the report is that no one actually knows who holds the French debt. To finance its debt, the French state, like any other state, issues bonds, which are bought by a set of authorised banks. These banks then sell the bonds on the global financial markets. Who owns these titles is one of the world's best kept secrets. The state pays interests to the holders, so technically it could know who owns them. Yet a legally organised ignorance forbids the disclosure of the identity of the bond holders.

This deliberate organisation of ignorance – agnotology – in neoliberal economies intentionally renders the state powerless, even when it could have the means to know and act. This is what permits tax evasion in its various forms – which last year cost about €50bn to European societies, and €17bn to France alone.

Hence, the audit on the debt concludes, some 60% of the French public debt is illegitimate.

An illegitimate debt is one that grew in the service of private interests, and not the well being of the people. Therefore the French people have a right to demand a moratorium on the payment of the debt, and the cancellation of at least part of it. There is precedent for this: in 2008 Ecuador declared 70% of its debt illegitimate.

The nascent global movement for debt audits may well contain the seeds of a new internationalism – an internationalism for today – in the working classes throughout the world. This is, among other things, a consequence of financialisation. Thus debt audits might provide a fertile ground for renewed forms of international mobilisations and solidarity.

This new internationalism could start with three easy steps.

1) Debt audits in all countries

The crucial point is to demonstrate, as the French audit did, that debt is a political construction, that it doesn't just happen to societies when they supposedly live above their means. This is what justifies calling it illegitimate, and may lead to cancellation procedures. Audits on private debts are also possible, as the Chilean artist Francisco Tapia has recently shown by auditing student loans in an imaginative way.

2) The disclosure of the identity of debt holders

A directory of creditors at national and international levels could be assembled. Not only would such a directory help fight tax evasion, it would also reveal that while the living conditions of the majority are worsening, a small group of individuals and financial institutions has consistently taken advantage of high levels of public indebtedness. Hence, it would reveal the political nature of debt.

3) The socialisation of the banking system

The state should cease to borrow on financial markets, instead financing itself through households and banks at reasonable and controllable interest rates. The banks themselves should be put under the supervision of citizens' committees, hence rendering the audit on the debt permanent. In short, debt should be democratised. This, of course, is the harder part, where elements of socialism are introduced at the very core of the system. Yet, to counter the tyranny of debt on every aspect of our lives, there is no alternative.

IPL can't duck the F(FIXING) word

by Sharda Ugra in Cricinfo

On Wednesday night, Lalit Modi complained about how the TV channel that showed the sting operation and put certain information "in the public domain" was "totally misleading". He felt for the viewers, the fans and the sporting fraternity, he said, because the sting had no proof. 

Quite the contrary. What India TV's "Operation IPL" proved beyond doubt was that India's young domestic cricketers, those who drift away from centrestage, are quite happy to pocket any extra cash that the delusional or foolish may want to shell out.

If caught they will either be reprimanded - like Ravindra Jadeja or Manish Pandey - or be consigned to the some outer darkness like the suspended five players will possibly be. And that will be that.

What the India TV programme did not prove on camera was that any of the players stung on tape had either willingly accepted cash on camera and then bowled a no-ball, or "spot-fixed" as promised. That is not to say that does not happen - it just didn't show up on tape.

The IPL, set up to imitate the franchise model of American sport, is actually a very cosy family business. The owners are, for the majority, in this largely for individual and corporate mileage. They owe their original loyalty to the BCCI, which continues to play patriarch. It is why they are protected and if players are caught being invited to break rules, they are the ones who get punished. This is not to say that players are poor lambs being seduced by cash but everyone knows the difference between being the guy receiving the pay cheque and the guy actually signing it.

In leagues where rules matter, teams are punished - however powerful they may be. In 2006, Juventus of Turin, historically one of the richest and most powerful football clubs in Europe, were found guilty of rigging games with four other teams and stripped of back-to-back Serie A titles, relegated to Serie B, booted out of the UEFA Champions League and forced to play three home matches without any fans.

The National Rugby League in Australia has fined four teams more than US$165,000 for breaching the salary cap in 2012. A fifth team has just lost an appeal over a US$185,000 salary cap fine from 2010.

Sometimes it's not what the club itself does; earlier this month, football clubs AC Milan and Inter Milan had to pay 20,000 euros and 10,000 euros for insulting banners seen among their fans during a local derby as well as one that racially abused a player.

During a 2011 NFL lockout, three teams including the Tampa Bay Buccaneers received six figure fines - $250,000 was found to be the Buccaneers' fine - for breaking the rule that no players could be contacted during the lockout period. By this yardstick, Mumbai Indians should have been fined along with Jadeja but weren't. Over the last few years the players get flung the rule-books and the franchises offering extra frills are treated with respect.

If Ravi Sawani discovers that the black money being talked of casually by the suspended five was actually paid out, will any of the teams be punished? A sports law expert, Vidushpat Singhania, has said that for any code or investigation to actually matter, it had to be completely spelt out and it needed to have teeth. That is how the partnership between the ICC and Interpol is said to work. It is how the US anti-doping agency was able to ensure that Balco went to court and Marion Jones went to jail. If the BCCI is serious about its anti-corruption code, it must have the government, the cops and the courts on its side. The first problem with this, though, is that the BCCI has long avoided public scrutiny.

Modi, in that interview, spoke warmly of his "close", "great" and "best friends" who had "supported" his league in its early days, buying up franchises, and with whom he said was always "impartial".

Everyone involved with the league knows there are some franchises who can be a bit bendy with the rules because they are allowed to be, and there is another that is not required to bend rules because it cannot be argued with.

	Rules have been changed as the IPL has gone along: without warning, the retention clause was brought in, as opposed to all players going back into a public auction

It is why the addition of two teams in 2010 became so problematic - the new entrants came from outside the circle of friends and the flexibility of the IPL's rules was not about to be explained to them.

Rules have been changed as the IPL has gone along: without warning, the retention clause was brought in, as opposed to all players going back into a public auction. This helped some of the key "icons" stay with teams that could offer them rich pickings.

Then came the "secret" bid to help solve dead-heat tie-breaks during an auction. The most public 

secret of that new rule was the fact that whoever had the most cash would get the player they wanted and anything beyond $2m would remain unmentioned and be given to the BCCI as a bit of a sweetener.

Franchises will always talk about what it actually costs to get the best domestic talent into their side. There are many stories about offers that players couldn't refuse: extra cash or "jobs" as euphemistic extras, cars, owners criss-crossing the country in chartered planes to speak to the most desirable domestic players …

The Rs 30 lakh salary cap for non-India players began with noble intentions. It was the BCCI's attempt to try to keep domestic cricketers interested in playing all formats, to ensure that Twenty20 cricket does not become what it has - the one form of cricket that every kid wants to play - and the IPL contract the one legal but still flexible document everyone wants to grab.

Now Rs 30 lakhs in India is a more than decent income in itself - and more so for someone in his 20s. It puts the player in the top 1% of the Indian salary bracket, alongside the Ambani brothers, Sonia Gandhi and Shah Rukh Khan. According to the National Council of Applied Economic Research, any household earning an annual income of Rs 12.5 lakh (1% or less than 1% of the population) are India's "affluent or rich."

Yet the figure is a victim of its environment - and of the messages cricketers get. Some franchises are willing to offer more to ensure that they have at least four half-good domestic players once they have filled their quota of four foreigners and local "stars" in the playing XI.

The IPL's ecosystem grumbles that 'market forces' should come into play over salary caps. It will imply that market forces will put in more cash with the overseas buys and less with the Indian players, which would be fine if this were not an event that required teams have seven Indians in their playing XI.

The India TV sting operation will end up being misleading only if the IPL allows it to be. What the sting operation has revealed again is that some of the IPL's most influential stakeholders are willing to go the extra mile to get players they believe they need. The players, who cannot understand what the word 'enough' means, are just willing to bargain long and hard.

If the franchises are not pulled up or reined in, another sting operation in a few years' time will just offer up another round of suspensions.

Sharda Ugra is senior editor at ESPNcricinfo

------

Why do the IPL franchises get away with it

by Harsha Bhogle in cricinfo

The India TV "sting" this week, where players were caught on camera allegedly attempting to negotiate more lucrative IPL deals for themselves, was, I'm afraid, tame and misleading. There were some issues there that deserved airing, but they were concealed by the theatrical, incessant self-promotion of the TV channel in question. Cricket needs to be careful of those who write film-style dialogues and those who over-dramatise. 

And so, in a typically Pavlovian response, far too many people are screaming match-fixing. Or its cousin, spot-fixing. The greater issue in this sting - if you were patient enough to get to it - was the realisation that many players get paid more than they are entitled to. And that because there is a ceiling on how much uncapped domestic players can earn, there are some naughty money transfers going on.

It is a practice that has been whispered about, occasionally loudly talked about, for a long time now; especially in the days before IPL 4. With a limited number of capped Indian players in the auction, there was a rush to find the best of the rest, and strictly speaking, if one franchise couldn't pay more than another, very few players had strong enough reasons to move. But then, there are many things that are whispered about on the circuit, and just because something is whispered about, it need not necessarily be true. More important, it cannot be proved to be true.

And so the issue of players being paid more than the contracted amount remained a whisper. Now players are saying it happens. The BCCI can look at it two ways. It can disbelieve the players or it can accept what they are saying and launch a serious investigation (which has been done but I do not know what its scope is) though it is very unlikely the board would not have known about it in the first place.

It will be unfortunate if only the players are investigated because you cannot accept money unless someone offers it. If the players are saying they were offered extra money, then it means the franchises were violating IPL rules too. If players are to be punished for accepting money they shouldn't have from franchises, then the franchises should be punished too. In his recommendation in 2010, on the Ravindra Jadeja case, Arun Jaitley suggested as much, and I think his legal acumen and stature can be used to strengthen procedures in the IPL.

Eventually this league belongs as much to the BCCI as to the franchise holders, and if it has to become one of the great sports leagues in the world (and it should not consider a smaller objective), they need to work together to strengthen it. And so, this cannot be buried, it has to be taken as seriously as a corporation would a whistle-blower.

To be fair, the basic principle behind the founding of the IPL was sound: that each franchise has equal resources available to it and so has an equal chance of winning the title. If the transfer of uncapped players favours richer franchises, then the principle on which the IPL was conceived is threatened. And so to take it to the next stage it needs stronger processes, but it needs more openness, for the more transparent an organisation is, the less it can hide wrongdoing. It is also something the fans are entitled to, because without them there is no revenue.

Now to the other danger, which too was known, but which the sting has highlighted. Indian cricket, like the Mumbai film industry, lures many towards it. Some come with the dream of making it big and playing for India for ten or 15 years; some others quickly fall away and seek every opportunity to make a buck in the time they have. It is not wrong but it exposes them to all manner of people. As there are fine and respectable people, there are maggots, too, who prey on the insecurity of young cricketers and lure them onto the path that can only lead to fixing and other crimes. And match-fixing, or spot-fixing, remains the single greatest threat to the continued success of the IPL. This sting, if the videos were ethically edited, confirms that day might already be upon us.

The people who carried out the sting exploited this vulnerability among young cricketers. The only way to protect them from more such vultures is to educate them and provide harsh deterrents. Ironically, though, such stings seem to have become the only way of exposing loopholes. Maybe a law passed by the government making match-fixing a criminal offence will help.

In many industries, corporations are free to run their business as they want but are answerable to a higher entity. For its own good, the IPL needs to have a higher entity, one that seeks no political or monetary gain, to question its functioning. This entity could be self-appointed, and there are many champions of corporate governance with a track record of integrity who will be happy to serve on it. The IPL will thus become a stronger, more rigorous organisation, and in becoming so, will benefit Indian cricket enormously.

 

Harsha Bhogle commentates on the IPL and other cricket, and is a television presenter and writer.