LONDON (TrustLaw) – Corruption experts focus too much on bribe-demanding public officials and the countries they work in and not enough on the companies and countries that supply and harbor illicit funds, resulting in a perception that graft is largely a problem in developing countries, John Christensen director of the Tax Justice Network said.
This focus on bribery has fuelled racist perceptions of corruption while not enough attention is focused on the role of tax havens or countries with secret jurisdictions and the role they play in fuelling graft.
Christensen, a development economist and former economic adviser to the UK and Jersey governments, spoke to TrustLaw about why corruption is more than just bribery, how the corruption debate fuels racism and why Switzerland is not as corruption free as some might think.
What does the issue of taxation have to do with corruption?
Debates around corruption in the last 20 or so years have been shaped in ways that I find very unhelpful. Basically, corruption has become almost synonymous with bribery and bribery with corruption. So that when people think about corruption they don’t think of anything other than bribery. And typically, they’re talking about bribery of public officials. If we look at the Corruption Perceptions Index (CPI), which is Transparency International’s (TI) main tool, it is largely assessing perceptions of corruption based around the idea that bribe paying is a major problem for developing countries and that public sector officials in developing countries are by and large corrupted.
We come at it from a very different angle. We say that corruption involves anything that undermines the integrity of the laws, the institutions and the systems of any country or indeed any body.
Do you agree with TI that bribery is at least a part of the corruption problem?
There’s no question about that. But what they’ve done, by focusing upon only one part of the equation, they’ve shaped a debate which in some respects, in my estimation, fuels perceptions of racism; in other words, corruption is by and large an issue with a black face.
Whilst the most corrupt countries in the world, according to the CPI, are largely African, Latin American or Asian, look at the top end, the least corrupt countries according to their index, and you’ll see that over half of them are in fact secrecy jurisdictions or tax havens. What does this tell us about the politics of the corruption debate? It tells us that we’re looking through a particular prism; when actually if you want to look at the supply side of corruption, tax havens are a very major part of the supply side.
Tax evasion involves theft of public property, which are public revenues. Tax avoidance involves depriving the public revenues which they have a legitimate claim over.
Do you differentiate between tax avoidance and tax evasion?
It’s a very grey area! The difference, I think, is best described by (former British politician) Denis Healy’s definition of ‘it’s the width of a prison wall.’ The point about tax avoidance is that it invariably involves us taking actions that are not sanctioned by the government, in other words, it’s anti-democratic. Tax avoidance means exploiting loopholes which the government does not expressly wish you to have. Therefore, tax avoidance is corrupting because it’s undermining the systems, in this case the tax systems, put in place on behalf of the public. When you take this kind of approach to it you are radically shifting the debate around corruption.
Is Switzerland more corrupt than it appears to be in the CPI?
We have produced a new index called The Financial Secrecy Index which looks at corruption from a very different angle. Switzerland, which comes near the top of the Corruption Perceptions Index -as one of the least corrupt countries in the world- actually came out top of our index last year (as one of the most secretive).
What our index does is it combines two things: It combines an assessment of transparency using 15 different indicators along with the scale of operation. The reason we do that is because frankly, it wouldn’t be enormously helpful to the world to know that Nauru is the least transparent, most secretive place in the world. So what we wanted to do is arrive at a way of assessing secrecy, that is judicial secrecy, regulatory practices and so on and at the same time weighting according to scale of operation.
How should pressure be brought to bear on these financially secretive countries?
Transparency, transparency, transparency is the answer. For example, let’s look at strengthening cross-border information flows between tax authorities to tackle tax evasion. Automatic information exchange is the gold standard. From a legal point of view, any law that deters rather than detects crime has got to be preferable and the reason that automatic information exchange is preferable is precisely because it has a very strong deterrent effect. The European Union already has automatic information exchange in practice within the union.
What does that mean on a practical level?
It works as follows: John Christensen, resident of Buckinghamshire opens an account in France at BNP Paribas at a branch somewhere in Paris. That branch automatically and immediately informs the French authorities and the French authorities automatically and immediately share that information with HM Revenue and Customs (in the UK).
Presumably because Switzerland is not part of the EU, they’re not part of that agreement?
That’s exactly the issue and the reason why we’re beating Switzerland up left, right and centre. They are blocking and because they’re blocking, Austria and Luxembourg, even though they are members of the European Union are not applying automatic information exchange. And my own island of Jersey has done exactly the same. They say ‘we’ll jump when Switzerland jumps,’ confident with the idea that Switzerland will refuse for the foreseeable future.
Are there any national or international anti-corruption campaigns that encompass your definition of corruption?
The World Bank hasn’t thus far taken on our agenda in its totality. The Financial Action Taskforce (FATF) is certainly moving in our direction. Interestingly and importantly the FATF is under pressure now to require as part of its anti-money laundering drive full disclosure of what are called ultimate beneficial owners.
Is there a lot of opposition to the FATF proposals?
Yes, it tends to be behind the scenes but the banking sector generally lobbies against it, law firms are lobbying against it.
What are the arguments of those opposed to this agenda?
Very often it falls back on privacy, client confidentiality, legal privilege and so on. In the case of Switzerland, they always fall back on this privacy issue. They say our clients need to be protected because they’re living in regimes where, if this information was disclosed, they would be put at risk. I find that an extraordinary argument because by and large, the clients who are actually using these places are normally not the ones who’ve been exposed to high human rights risks, they’re the other end of the spectrum, they’re the ones who propose the risks rather than incur the risks.
Do you sympathise with small Caribbean islands who say, ‘look, you take this advantage away from us and we have nothing’?
None whatsoever and Jersey is in exactly the same position. The reason is as follows: First of all, if you go to these small islands, you’ll find that the people who benefit are not actually the islanders. The indigenous islanders have found their industries crowded out by the financial services sector. Jersey is a fantastic case study of this. Average house prices in Jersey, which over here (in the UK), would cost about 160,000 pounds ($253,000) now are over 500,000 ($791,000) pounds. So they have become victims of what’s called crowding out. Their previous industries have been pretty much destroyed and cannot compete. So actually they end up being victims of financial services rather than benefitting enormously from it.
It’s not that I don’t have sympathy but if they were able to gradually push back against financial services, bring down their cost base, they would be able to attract other investment or in some cases, I’m afraid, some of these places are not viable, you’ve got to be frank about it. Some places simply do not have comparative advantage.
(Editing by Astrid Zweynert)