Recently, I sat down to talk with John Christensen of the Tax Justice Network, to talk about his organisation and what it does. Topics as wide ranging as state subsidies of corporations and the role of the OECD as “a think tank dominated by the rich countries” were discussed. We got into some of the major work the organisation has done over the years, including the Price of Offshore, the Financial Secrecy Index, International Accountancy standards and more recently, automatic information sharing. I learned alot, including that, if I wanted to set up a shady company of which I wanted no record, I didn’t have to go far: Wyoming is apparently a booming secrecy jurisdiction, part of the new American Wild West. The interview is about an hour in length. Sorry for the bad sound quality, hadn’t quite got the settings right.
Spirit: So, I’m talking today with John Christiansen, the director of the TJN about his work that he does with this group. A British friend of mine always says that he “doesn’t know what they do but knows that they always exist in the background”. We’ll try to find out what it is you do. Can you tell us when TJN was founded and about what you were doing at the time, and provide us with a bit of context?
John Christensen: Sure. Strictly, TJN was launched in 2003. It was launched in Britain, but it was from the start an international organisation. There were many people from many countries, especially European countries involved in the launch. The launch followed a meeting in Florence in October… or maybe November, November 2002, in Florence Italy, where a group of professionals, researchers and activists got together at the European Social Forum to discuss the whole issue of tax havens, tax evasion and tax avoidance and the role of tax in development processes. And at that meeting we decided to form TJN which was just a network of interested people, both researchers and activists. My own background in this is I am an economist, an investigating economist, and I have spent almost the entire past 35 years looking at tax havens, looking at their role in the globalized economy.
Spirit: But you yourself were working for an investment bank in Jersey, right?
John Christensen: Right, first of all, let me say I am a Jerseyman. I worked in Jersey, grew up in Jersey. Yes, I did work in offshore finance, not in an investment bank. I worked for one of the big accounting firms in their trust and company administration division. The company was Deloitte… is now called Deloitte & Touche, was then called Touche & Ross. Let me add that I am not a poacher turned gamekeeper. I went back to Jersey in 85-86 to investigate how tax havens operate. I had previously been working with an organisation called Oxfam, and there was a small group within Oxfam who were particularly interested in capital flight, tax evasion, tax flight, corruption and embezzlement and its impact on development processes. I was part of that group, which met at the school of Oriental and African studies in London in the late 1970s. So, for me going back to Jersey in 1985-6 and working there, I had worked there for many years, was a useful way of investigating how tax havens operate.
Spirit: And you tried to convince the Jersey government to diversify the economy and to support things like tourism as opposed to just banking, finance…
John Christensen: The top line, literally the top line of my job description, because after I left Touche I was head-hunted whilst at Touch Ross to join the government economic adviser’s office, and later to head the office, read something like “to maintain a balanced and diversified economy”. And, since the economy included a fairly large tourism sector, light manufacture, agriculture, horticulture as well as offshore finance, I spent quite alot of my time warning the government their policies which were very heavily favoring the rapid growth of offshore banking and offshore financial services were harming the other sectors. The inflationary impacts particularly in the labor markets and the real estate markets were crowding out the other sectors. So, I saw this as my job to protect these sectors from the inflationary pressure form the financial sector.
Spirit: Did they listen?
John Christensen: No! (laugh) In fact they did not. Regrettably, their attitude was very much one… a corporate attitude, a profit maximization. They would talk in terms of Jersey, PLC, that offshore was the quickest and easiest way of maximizing economic growth, and that, bay and large, they weren’t interested in the other sectors.
Spirit: Sounds like they were reading Greg Mankiw.
John Christensen: Yeah, yeah, exactly (laughs)
Spirit: Maybe not a good sign. So, switching gears: I guess someone, an innocent bystander, would ask, “well, what the hell is tax justice , and why is it important in the first place?”
John Christensen: I suppose tax justice is a challenge. For many of us, why we created TJN, we were looking at a broader, much broader issue, to do with economic justice and with economic sustainability, and we saw tax as playing a very important role in both. But, the general discourse of the last 40 years has excluded tax. Tax has been presented as a very bad thing. And the general drift has been to lower taxes, particularly taxes on capital, and by stealth to increase taxes… indirect taxes and taxes on labor, which has had a massive impact on not only employment creation, but also on wealth distribution over the last 40 years So, we wanted to put issues like inequality, environmental degradation, social sustainability and so on onto the agenda, arguing that tax plays a very very important role in the development of outcomes. If we were serious about wanting to overcome too much reliance on hydrocarbons, we would’ve introduced a carbon tax globally 30 years ago. That was one of the issues we wanted to tackle. We began by looking at tax havens, because in many respects this was an easy way to draw attention to the way in which tax regimes have been politically shaped by frankly political laziness and lack of political will to rewrite the rules frankly to put an end to tax havens. So that was out first line of attack. And our line of attack was to look at the rule-maker, which is the OECD, and target them as being responsible for the way the rules for taxing multinational companies in world of globalized finance are completely unfit for purpose.
Spirit: And they, I guess have since responded to some of your work. I’ve heard it cited on numerous occasions by OECD functionaries, of course famously in 2012.
John Christensen: Yeah, it’s true that they have responded. Initially, their response was rather dismissive, or rather, publicly, their response was rather dismissive They tended to talk in terms — when we’d highlighted tax avoidance and tax evasion — they’d talk about “a few bad apples”. But I think the publicity given to the top end case studies, the Googles, the Amazons, the Apples, those case studies convinced a very large proportion of the public that there was a systemic issue, and the public was forced to respond. At the same time, we’d been working very hard with our colleagues in Africa, Latin America and Asia to argue that the OECD’s processes for information exchange between countries were not only weak and inadequate, but were almost purposefully weak and inadequate. In other words, they were crafted to be ineffective, and therefore we’ve put alot of campaigning pressure on the OECD to strengthen its game by moving away from tax information exchange agreements based on their “on request” model to global multilateral automatic exchange process And that’s been… we’ve been successful. Just three years ago the OECD, senior OECD officials told me that automatic information exchange sharing was unlikely to happen within at least the next decade. The following year, the G20 instructed OECD to go ahead and start preparing the global protocol for making automatic global information exchange the global standard. So we’ve had success there. We’ve also had success — and I think this has been because the public has been very supportive — in demanding that multinational companies are much more transparent in their accounting processes. Here we came forward with a very specific demand, which is an international reporting standard for country by country reporting. And that seems to have attracted a great deal of support from the public, from development NGOs and also from some politicians. So, I think a part of our success lies in the fact that whilst we are critical… very critical indeed of the current global order, we do come aboard with some specific and very carefully crafted policy measures, which the public can understand.
Spirit: So what exactly are international accounting standards, and how would they differ from what exists today?
John Christensen: At the high level, all countries need to have international accounting standards, because we’re dealing now with a global economy where fewer than500 companies dominate not just world trade, but dominate the economy. And investors need accounting standards to assure that they understand the information presented to them by the large companies, but also tax authorities, journalists and other parties — including civil society — need to have acct standards which enable them to understand what companies are doing in their countries. And this is where we enter into a sort of Alice in Wonderland, because international accounting standards, most people would reasonably have thought were standards prepared and agreed by governments.
Spirit: Sure, “we have the International Accounting Standards Board. “Isn’t that what they do?” someone might say.
John Christensen: Yes, but the IASB is a private company! And they set the standards which by and large are taken into EU law and taken further, because many countries around the world automatically adopt the EU financial reporting standards, which are in almost their entirety devised by the IASB, a company! And, a company that is extremely untransparent in its own operations: based in Delaware, or rather registered in Delaware, based in London Spirit: Laugh John Christensen: Exactly, this is an Alice in Wonderland world we’re talking about here, and largely dominated by multinational companies and their acct firms. So this is not in any way an intergovernmental body setting the rules, and we have been very concerned about the general drift over the last thirty years toward a less transparent and less user friendly accounting experience.
Spirit: And what has been the reception of that work. You mentioned it a little bit.
John Christensen: I think initially it was one of dismissal. In other words, you will never have an international accounting standard for country by country reporting. The initial dismissal has shifted towards one of consent, unwilling consent, but consent nonetheless. There has been some success in the USA, where the Dodd-Frank bill includes a form of country by country, project by project acct standard applicable to the extractive sectors. And the EU is moving forward with its own transparency provision. But, there is a real danger that intense lobbying will lead to a very watered down version of what we consider to be a proper country by country accounting standard. Particularly around the reporting on tax. For that reason, at this stage, I think the jury is still out on whether we’ll see any major successes, or whether we’ll get a provision that’s so weak as too be to all intents an purposes ineffective.
Spirit: Seems to be a general symptom at present, the problem of watered down policies that themselves don’t get passed because of the information deficit. I guess we’ll keep our fingers crossed…
John Christensen: Well we monitor. We (that is TJN) have a specific response [inaudible] for monitoring what’s going on on the automatic i exchange side. As with all networks, we tend to share the work with partner organisations. On the country by country reporting side there is a constant monitoring and advocacy being done both at Brussels and on the OECD level. So, rather that relying on just keeping our fingers crossed, we are carefully monitoring, we are intervening where we think there’s a watering down process going on. One of the advantages we have is that, because we are seen as an expert-led network, we tend to be the “go-to” organisation for journalists wanting to cover these sorts of stories. If the G20 claims to have succeeded one policy measure or another, journalists will be looking to us to comment on whether they’ve genuinely succeeded, or whether they’ve come up with a window dressing exercise.
Spirit: In that regard, I actually have a question I was going to save for later, but I guess I’ll go ahead and ask that now. I was going to ask about TJN’s run-in with Pascal St. Amans. This is the fellow that reported that “developing countries have no desire for automatic information sharing“. Can you just talk about who he is, and what TJN produced in response to this assertion?
John Christensen: Let me begin by saying that I’ve known Pascal for many years, for over a decade, and I knew his predecessor, a guy called Jeffrey Owens long before that, so I’d known Jeffrey Owens and Pascal for a very long period, coming on to 15 years for the case of Jeffrey Owens. Pascal heads the Tax affairs dept of the OECD, in other words, the organisation that sets the rules in this area. Jeffrey Owens was his predecessor. Just as a bit of a preface, let me just hang up a bit of a question: which is, who is the OECD, and why do they set the rules? They’re not a properly constituted intergovernmental body involving all governments around the world, They are, actually a think tank based in Paris representing only the richest 35 countries. And yet they’ve taken upon themselves the task for setting up the rules for international tax cooperation, and for international tax matters more generally. That’s quite an extraordinary amount of power to have. I just want to flag up this question: why do they have this power? What is their legitimacy in this area? I can answer that one, or I’ll give you my opinion if you wish, or…
John Christensen: …I’ll move on to Pascal St. Amans, and the question you asked. Pascal and his team are currently engaged by the G20 countries, the finance ministers of the G20 countries, to produce a standard, a global standard, for automatic information exchange, which is regarded as the most effective way of tackling cross border tax evasion. We’ve been saying for a long time that actually, it should be the UN tax committee, which has the power to produce such standards, because that committee is representative of UN countries, or, rather, it should be. And UN countries are obviously broader than OECD countries: all countries of the world are members of the UN. That would make it more legitimate, and any standard would therefore be more representative of the interests of Non-OECD countries. And let me say as an aside: most of the tax havens of the world are very closely associated to the OECD countries. So, we see the OECD has a long track record of protecting the interests of their member states and of the tax havens related to the member states: British tax havens, Swiss tax havens, obviously, and American tax havens are all represented by the OECD, and their standard-setting has generally been every poor. Mr St. Amans assertion that developing countries are “not interested” in automatic exchange flies in the face of my own discussions with officials from developing countries, particularly Africa, but also Latin American and Asians countries, who for many years have been saying “well actually, we would like to have automatic information exchange. We don’t want it to be too cumbersome, we don’t want it to be too expensive, but we see this as a crucial way, a crucial tool, for tackling the tax evasion and corruption by our elites. And this hints at the problem here. Because if you talk to the political and business elites in many countries, not just in developing countries, but also developed countries, they’re not particularly interested din tackling tax evasion because they are themselves guilty of it. And the last thing they want are effective tools for tackling tax evasion. So, it depends who you talk to. If you talk to some politicians in any country, some will say “oh yes, we’re in favor of automatic information exchange”, others will say “no, we’re not in favor”. It’s a divided picture, but by and large the powerful elites who control many countries are not in favor of automatic information exchange because they, their families, their sponsors, their funding organisations, etc. are all engaged in cross border tax evasion, and for the same reasons that turkeys don’t generally vote for Christmas, they’re not likely to support automatic information exchange, because they know it’s likely to be much more effective in tackling tax evasion and the use of tax havens.
Spirit: Specifically in response to the St. Amans comment, you all produced a report which showed overwhelming support among these nations, the various developing nations as you said of Africa, Latin America, etc., not only that they had interest, but that they supported it.
John Christensen: Well, I wouldn’t use the word “overwhelming”. I think I need to be a bit nuanced here, because for one reason or another, we didn’t have an overwhelming response to our questionnaire. And one of the reasons that we didn’t have an overwhelming response to our questionnaire was because the OECD’s “Global Forums” was at the time was also issuing their own questionnaire. And they sent out– apparently they sent out a message to the countries they were in contact with saying “well, we don’t want to overburden you, so we suggest you don’t reply to the TJN questionnaire”. They didn’t support us. Now, what’s interesting here is the person who headed up that questionnaire and the relevant section of the Global Forum is a person called Colin Powell who is –
John Christensen: Yeah, not the Colin Powell, not him, Colin Powell was my former boss in Jersey. He was the chief advisor to the government of Jersey, the architect of Jersey’s tax haven, and currently the international ambassador to jersey’s tax haven efforts. It does raise the question: what on earth is a person like that doing in such an influential role within the OECD’s Global Forum process, and why are they trying to block our questionnaire? Anyway, that’s an aside, but I think it’s very typical of the OECD, it fairly epitomizes the problems I have with the OECD, that you find that tax havens have managed to embed their senior people right at the heart of the OECD processes time and time and time again. And Pascal, I think he’s a man of perfect integrity and honor. I think he genuinely wants to take action; the fact that he’s working within the OECD, which, as I explained earlier, has interests, special interests in this area, and has shown in the past that it’s very unwilling to take action against tax havens, because so many of its member states are politically and economically tied to the world’s leading tax havens. The fact that they’ve allowed the fox to basically take over the chicken coop tells you why I and TJN generally regard the OECD as not suited to this process. In our report, which you can download from our website, we looked at the interests of developing country officials, and the report pretty much concurred with what we had anecdotally, and the report was the survey we did, the personal survey. It confirmed what we’d heard anecdotally from many developing country officials, which is, yes they do want to have automatic information exchange. They don’t want it to immediately require reciprocity of treatment. They are concerned that they need help to build their capacity to handle the amount of data involved. But by and large they regard automatic information exchange as the most effective tool to tackle cross border tax evasion.
Spirit: Sure, but most of these countries they don’t have the infrastructure to immediately produce the data, if you will, and that’s one argument, if I’m not mistaken, against this mutual OECD model that would require reciprocity: if I request information from Switzerland, and I am, say, Mozambique, I would also have to produce the equivalent information. And, if I don’t have the infrastructure, if I don’t have the tax information — that’s a huge amount of data — and if I don’t have computer databases, trained experts to sift through that data, then I’m out on a loop!
John Christensen: That is the argument put forward by many people. Look: at a practically level down here on planet Earth, I would make a number of comments. Comment number one: the very fact that the OECD and others say there is a huge amount of data involved confirms there is a huge amount of cross border tax evasion going on. If we were just talking about a handful of people we wouldn’t be talking about so much data, but we’re talking about thousands of people, in fact hundreds of thousands, possibly millions globally. But, take a country like Nigeria: we’d be talking about potentially tens of thousands of offshore accounts held by Nigerian citizens. It is a huge amount of data. So it’s confirmation of the fact that we have a major problem on our hands, which is impacting negatively on the development processes. How to handle that huge amount of data? Well, first of all, it doesn’t need to be such a huge amount of data. You know, the data, which could be securely encrypted and shared, automatically, could just be name, passport number, place of residence, this person has an account at the following bank. In fact, if it was on an Excel spreadsheet, it could be no more than ten fields per person. All that’s required is something to trigger off an investigation by the tax authorities in the countries concerned. Now, the second point I would make is that whilst there are probably many Nigerians with offshore accounts in Switzerland, it’s very hard to concede there are many Swiss people with offshore accounts in Nigeria. So this issue of reciprocity is a curious demand right from the word “go”. We’re in favor of reciprocity, but we say that it needs to be… developing countries, or non-OECD countries need to be given time, maybe 3-5 years, to build the system so that they can engage in reciprocity. But, to begin with, surely it’s more important that Nigerian tax authorities have information about Nigerian citizens have information about offshore tax accounts in Switzerland, rather than the other way around, because it’s reasonable to assume there aren’t many Swiss people who have offshore accounts in Legos.
John Christensen: It’s a fair argument. The third thing is, and this a practical matter. I don’t know how much you’ve traveled into Africa or Asia, but your first encounter in almost every single case, your first encounter with those countries will involve automatic information exchange. Because on arrival at the border you hand over your passport, and your passport will be swiped using advanced American technology, and the border control officers will have access to your Interpol records. That is automatic information exchange. The idea that it is technically beyond the capacity of developing countries to handle automatic information exchange is patronizing and condescending. And we’ve said that publicly to ministers here in Britain and elsewhere who’ve made that argument. Actually, they can handle the technologies perfectly well. One of the main problems is that the OECD has singularly failed to simplify the technical needs; above all they’ve failed to arrive at a protocol for what’s called a tax payer ID number, TIN so that we have a global TIN which would facilitate automatic information exchange. Interestingly, where there’s political will to arrive at a global protocol, as was done with passports, this was done immediately. In other words, when the Americans wanted to have a global protocol for unique passport numbers which would allow for the border control systems to be used that I referred to, then within a matter of months, they’d arrived at the necessary protocol. It all boils down to political will, or in the case of tax evasion, the lack of political will to do anything serious about it. And this, I’m sorry, it falls down to nothing short of power. The rich and the powerful are the tax evaders and they are protecting their interests here.
Spirit: And, I suppose the real mafia doesn’t have as deep pockets as the pin-stripe mafia.
John Christensen: Correct (laughs). Dead right.
Spirit: Before we get into the financial secrecy index, I was just going to ask, where the 20-30$ trillion number comes from? So, money that is not in jurisdictions where it belongs, that is sifting out…
John Christensen: If you Google “The Price of Offshore”, it will bring you to the relevant documents, which include the methodology. “The Price of Offshore” is a report which published estimates produced for us by a NY based very specialist org called the Sag Harbor Group and they specialize in tracking offshore wealth, they’ve been doing this since the 170s. Specifically, Jim Henry, an economist who used to work for McKenzie, he’s been researching theses estimates for many years. At the beginning of 2011, January 2011, I went to NY and commissioned Jim to update figures we’d initially produced in 2005. The reason I’d wanted them updated was that we had a sense that after 2005 there was an acceleration of private wealth moving offshore, particularly after the financial crash. And we also knew that our original estimates from 2005 had some very very major gaps, and it was therefore a massive underestimation. So, I commissioned Jim because I thought he would give us a closer estimate, but I said “produce a range”, a low end range”, which he came out at 21$ trillion “and a top end range”, 32$ trillion — just for financial assets held offshore.
John Christensen: If you look up the Price of Offshore as I said, the whole report will give you a detailed view of the methodology. We didn’t just use one single estimate. We commissioned Jim to triangulate, in other words, use three different, in fact, he used more, but at least three different methods for estimation, and he also did an extensive semi-structured interviewing amongst banks and financial pros.
Spirit: And the banks disclosed? Are these the big Wall st. London banks?
John Christensen: Well, the banks certainly disclose a certain amount of information which is available from their records. As far as the semistructured interview is concerned, some were happy — off the record — to participate, others weren’t, as I understand it. Many bankers were quite happy to participate off the record. Obviously, you get some limited information from the Bank of International Settlements, unfortunately the Bank of International Settlements does not disclose all the info it has available to it, which meant that. which means that Jim Henry, as it he said it, we were “engaged in an exercise in night vision”, we’re “basically stumbling around in the dark”. My own view, by the way, is the real volume of wealth held offshore is considerably higher. Particularly, since we were only looking at financial assets we weren’t looking at non-financial assets, and an astonishing amount of non-financial assets, including real estate, jets, cars –
Spirit: Expensive paintings…
John Christensen: Expensive paintings, and other works of art, etc. etc. are all owned through offshore structures. So, my view is that Jim Henry’s estimate is an underestimate. Even as an estimate, it doesn’t include large bills in circulation. And by large bills, I’m talking about $100 bills, €500 notes — huge amounts, hundreds of billions of which, if not trillions, are strangely out there in circulation, but are not being used regularly in shops. So what are they being used for?
Spirit: Maybe paying the barber.
John Christensen: (laughs) Yeah, yeah, yeah. I always pay my barber with a €500 note. (laughs) Seriously, there is an issue because the sums involved are colossal. But it does raise the question about why are these notes being issued, and what purpose do they serve. Because if you went into most shops with a €500 note, they probably wouldn’t accept it.
Spirit: No, they probably have that amount of money on site. So, what is the financial secrecy index, and what is financial secrecy, or what is financial transparency?
John Christensen: Here we are looking in particular, at laws, regulations, and behaviors, of different jurisdictions, relating to the provision of some kind or other of financial secrecy. And financial secrecy can be provided in all sorts of ways. The most obvious, of course, is banking secrecy. But there are many other ways at arriving at similar forms of secrecy. For example, some jurisdictions don’t have banking secrecy laws, that is, laws that make it a crime to reveal account information from a particular bank, but they do have effective codes, which, for example, don’t require banks to collect all the information that might be needed to meet automatic information exchange provisions, and by doing that effectively they are providing a veil of secrecy because if you don’t have the information needed to make automatic information exchange practicable, then to all intents and purposes you have banking secrecy. You cannot share information because you’re not obtaining the information, and you’re effectively providing a secrecy service. So, the secrecy index is an attempt to look at the way in which jurisdictions around the world provide a veil of secrecy which might enable criminal activity including tax evasion. It looks at company registration details, whether there is a requirement to register ownership information, real ownership information. It looks at the way in which some jurisdictions provide facilities for trusts, which are used in very secretive ways or foundations or Anstalt. It looks at provisions for requiring companies to report annually and what they are reporting annually. It looks at their track record of compliance with international anti- money laundering requirements, etc. etc. And what it does is it attempts to rank these countries, not only in terms of how secretive they are, and it does this by awarding each country a secrecy score based upon these very objective criteria, but it also uses a scale weight to give some idea to how large an offshore financial sector this country has. And the reason it does that is because in the past much discussion on tax havens has tended to focus on the obscure little islands in the middle of the Caribbean, or in the Pacific, and it hasn’t looked at the big players. We wanted to draw attention to the big players, the USA, the UK, Germany, Switzerland, because these are the really big operators here, and so we used IMF data, trade data on share of the global market for offshore financial services to arrive at a scale weight. And by marrying the two, that is marrying the secrecy score to the scale wight we arrive at a ranking. And what this ranking has achieved is it has shifted the attention away from these small islands in the sun towards the role of th really really big players, that is, the US, UK, Luxemburg, Switzerland, and put them into the forefront. Needless to say, they don’t like it at all, but I think most people who know about this subject would accept that our index more accurately describes what’s happening, and how it’s happening.
Spirit: Sure, they might accept it, but it is a little surprising, even to myself, to see the US as #6, Germany as #8. I guess your prior discussion explained a lot of the reason. I’m guessing a lot of the reason is the scale. These are just very large economies, and even if their secrecy is nowhere near that of the Cayman Islands or Bermuda, I guess you wouldn’t need a lot of it in order to get pretty high on the list. Is that how they get there? And, to tie another question in, is the U.S. and Germany where alot of this 27$ trillion are housed?
John Christensen: Yes, the U.S. is a big player, and the biggest player of all, of course, is the UK, because if you look at the world of tax havens you’ll see a very large number of small islands which fly the Union flag, you know, because they’re British. And that’s not a coincidence. It’s because the British, in my opinion, since 1956 — and 1956 was the end of the empire, but it was also when the city of London effectively launched the Euro-market, or the Euro-dollar market, or the Euro-bond market. In other words, when the first major post war offshore market was launched in ’56, the British effectively started to carve our a really important advantage for the city of London by making the city of London an offshore financial center. But, in the case of the US, amongst experts it’s long been known that Nevada, Wyoming, Delaware, Florida, Texas and various other states are actually pretty Wild West territories when it comes to registering companies, registering offshore vehicles of one kind or another. I could give you one anecdote after another particularly from discussions with company formation agencies…
Spirit: Well, give us one, maybe!
John Christensen: …in Nevada. Well, interesting: traveling through the states quite a few years ago I met this guy, and I was talking about Nevada, and he says “No, no, no, no! Nevada is for amateurs”. He said “if you really want to go to get down and dirty and be very secretive, come to Wyoming.” So I looked at his website, which was frankly extraordinarily open in saying what you can and cannot do. But, for less than $100 I could register a company in Wyoming: no questions asked, no passport details, nothing whatsoever, no reporting requirements whatsoever, and do whatever I wished to with that company, and the kill it off, and there’d be no record on any level of what that company was or who sat behind it. That’s what I mean by real wild West territory.
Spirit: Sounds like a good deal.
John Christensen: Very good deal. Probably about the best deal you can get in the world. Even the Seychelles charges more than that.
Spirit: Is secrecy correlated with inequality? There’s been alot of talk lately on inequality in income and even wealth because of Piketty’s book.
John Christensen: First of all, I’d like to make a general point about Gini coefficients, which are the generally agreed and used measure of income and wealth inequality. When we published — we publish a newsletter called Tax Justice Focus, one in June 2012, I think, on inequality. Amongst others, Piketty was a contributor. The first point we made in the opening article was the Gini coefficients massively underestimate the scale of inequality around the world. And that’s because, across the board, every measure discounts the wealth of the ultra high net wealth and high net wealth individuals — there is a distinction between the two, so both [of these[ are excluded, and all offshore wealth is excluded. So that 32$ trillion we were discussing there doesn’t even figure. So the situation, as we argue in the opening article, is actually much much worse. We have no idea, the general public has no idea how unequal the world has become, because the really wealthy people, the 0,1% have actually hidden most of their wealth offshore. But the outcome of this is simple. If we don’t tax wealth. and by and large, wealth is no longer taxed , and if the ultra high income earners are not being taxed, who is being taxed? Well actually, it’s lower income people and the poor. If you look at the trend over the last 40 years, it’s been to cut tax on wealth and income, increase taxes on labor and consumption (through VAT, for example). All of [this] has been ultimately regressive, and [inaudible] almost every country around the world has deepened inequality.
Spirit: Sure, it’s now the largest tax source in Germany.
John Christensen: VAT?
John Christensen: And, I think — this is what I find is really regrettable, and this is being realized more amongst economists, though I and other economists have been saying this for years, the result of this is to slow down growth, because it’s not the ultra high net wealth individuals who are going to spend, create sufficient demand to spend ourselves out of recession. VATs are particularly regressive in their impact on the poorest households, so it’s affecting both poverty and inequality. But it’s also negatively shaping the way in which development occurs.
Spirit: It’s definitely a serious problem. A moment ago, I was just going to mention in passing that Emmanuel Saez and others have mentioned how difficult to get their hands, get one’s hands actual information on the wealth of the richest and so that in many cases — you know, they don’t actually respond to survey — they actually rely on things like Forbe’s.
John Christensen: Saez co-authored the article in this edition of Tax Justice Focus. If you look at their article, and they’ve been saying this for a very long time. The problem with using Forbe’s, and other “rich surveys”, first of all the really rich do not disclose the true extent of their wealth, because, in practice, they tend to hold their wealth in very sophisticated legal structures, including trusts, and in the case of a trust, they can legitimately say “well we don’t actually own that wealth. We might benefit from it, but it belongs to the trust.”
Spirit: Sure, so that Hillary Clinton can say that as they were leaving the White House they were “almost broke”.
John Christensen: Yeah, yeah, yeah. It’s a very specious argument, but the end result is — the World Bank has confirmed this: we’ve had quite a few discussions with senior officials at the world bank about this — we have a very restricted understanding of ow much wealth is out there. And it’s massively underestimated in the case of ultra high net wealth individuals. And, I think Forbe’s massively underestimates it as well.
Spirit: What is the future for information sharing, with the outlook for the OECD thing being not so bright? Is there anything remotely positive on the plate to look forward to?
John Christensen: Yeah, I’m actually quite optimistic, I think that the OECD will gradually, bit by bit we’ll see the emergence of an effective automatic information exchange standard. I think that demand is rising. I think politically the mood ids shifting. Within Africa, there is a shifting focus from corruption by officials to also look at the offshore dimension of corruption, the extensive embezzlement and fraud which leads to money going offshore, [inaudible] huge tax evasion. Pressure is mounting from many countries around the world for automatic information exchange. I think it’s just a matter of time. And the OECD will come up with some standard. And gradually, within the next ten years, I expect that that standard will be enhanced, and a real goalstander will emerge from it.
John Christensen: So I’m honestly optimistic. I think we’ve seen the preview/draft of the document the OECD will be providing to G20 later this year. It doesn’t go as far as we wish. We are critical of it, but there are still some areas where we think progress is being made, and we also think pressure within the EU to update their savings tax directive is leading to a gradual improvement of the automatic information exchange program. And of course we have [inaudible] as well. So, it is emerging in one form or another as the global standard, and that’s progress.
Spirit: They say the road to heaven leads through Sinai… Speaking of information sharing, how do you get your information out? You mentioned your newsletter. And, could you tell us a little about the Taxcast and where the idea came from, and whose behind it?
John Christensen: You probably know that TJN is a global network. We don’t actually have offices anywhere, we work virtually, and so dissemination is through some form of social media, whether it’s our website or our blog or the Taxcast or Twitter, we get information out. We regularly commission expert reports which we publish. And when we publish those reports, we put them out to journalists. Now, there are alot of journalists who are interested in this subject, so we tend to have alot of journalists who are interested and who will report on our stories. We generally have a good reputation for the accuracy of our info, and also for the balance of our analysis and commentary. But we also give quite colorful quotes which always helps journalists. Can I also add that one of our big programs is to train journalists in elicit financial flows? We run a training course with the center for investigative journalism here in London and that has massively increased the increased to journalists of this whole subject. So, journalists play a key part. The Taxcast was conceived by the current producer, a former BBC producer called Naomi Fowler. The idea is simply, to produce a 20 minute monthly podcast which can be provided free of charge to radio stations around the world and can be downloaded free of charge as a podcast. We wanted to do several things: but above all, we wanted to overcome the idea that tax is a necessarily dull, technocratic subject. So, we wanted to have an approach which is easily understandable, which is reasonably colorful, looks at the issues on a national as well as international level, and which is topical. And, I think, by and large, Naomi’s been very successful in achieving that. The global coverage is quite extraordinary. I mean, in the last 25 months, we’ve seen a huge pickup in listernership, it’s — downloads are well above average for most programs. The number of radio stations — largely local commercial radio stations that picked up on the taxcast and broadcast it has been really quite unexpectedly large. So, it’s a success story. In the case of some of our longer investigations, we will work with particular journalists, select a journalist and work with that journalist to develop that story, to investigate the story, to check the story, validate its sources and so on, and then assist with its publication. So, we use a variety of different media, and we work with the media in a variety of different ways.
Spirit: Great, well about the colorful language that you guys produce: I was convinced by Prem Sikka that accountants were God’s chosen because they were responsible for chaos, and without chaos, there would be nothing else!
John Christensen: (laughs) Well, Prem’s one of my great mentors, he’s a great friend. He is regularly repeating to my that “our task is to make the familiar unfamiliar”, and in that sense I think we are quite successful, because we are challenging a very strongly developed orthodoxy, and trying to turn it on its head. And the only way you can do that is by developing a different language.
Spirit: I think that’s true. So, in closing, what is next on the organisation’s agenda?
John Christensen: Good questions! That’s a very good question. Well, we’re already launched. In midyear 2013, we had a roundtable of our entire team, the only time our entire team has ever met. It was in early July last year. They met around the table here to discuss our next steps. We knew that we’d already moved a long way forward on automatic information exchange, on country by country reporting, on requiring public disclosure information, in other words, many of the key “asks” that we had laid out when we launched were on the G20 agenda. So what next? Well, the next thing to do, as far as we’re concerned, is to broaden ourselves and our focus thematically, and engage new communities. All we can do is to open up thematic discussions and hope that related organizations will pick up on that. So, for example, we’ve recently — early July — held a colloquium at McGill University in Canada to talk about tax justice and human rights, and to open up a human rights dimension to the whole tax justice issue. When you stop and think about it for longer than 10 seconds, then you’ll see it’s a bit of a “no-brainer” issue. Of course there’s a human rights dimension to tax rights, because you cannot deliver on human rights commitments to education, or to shelter, or to security, or to improve water without a great deal of financial resource. At the same time, if a company’s avoiding taxes, it is depriving citizens of their human rights. And if a country like Switzerland is using its laws to undermine the tax regimes of other countries, then it is depriving them purposefully, knowingly and deliberately of their tax regimes and their ability to meet their human rights needs. So we want to open up a human rights dimension to this. And we want to bring big organisations like Amnesty International and Human Rights Watcg and others to engage on these issues. We also want to engage, we want to open up a global discussion on the whole issue of what we call “tax wars” , and others call tax competition. We think that tax competition is — in economic terms — complete nonsense. It’s more accurately described as tax wars. It’s using your tax regime to undermine the tax regimes of other countries.
Spirit: It’s a race to the bottom.
John Christensen: It’s the race to the bottom. And I always point out that the bottom is not zero! The bottom is negative tax territory. There is no end to the ability of capital to extract subsidies of one kind or another. So, it doesn’t end with companies paying no tax, it ends with companies receiving massive subsidies and subventions of one kind or another to invest in a country . And that is not capitalism, that is something else entirely, and that is the reality of the current world.
Spirit: Having grown up in the southern US, or at least having spent alot of time there, I am well aware of that sort of — whatever you call it — neo-feudalism. There is always a great rejoicing and celebration in the local newspaper when, say Mercedes or Airbus or some other big company opens up a factory that employs at most 5,000, but more likely 3,000 or less people. And they usually get huge tax breaks, upwards of billions. [This] in a state that is one of the biggest recipients of federal money, so they get more than they pay out in taxes.
John Christensen: That’s absolutely — in fact, one of my colleagues in the network, his name his Greg LeRoy, who is with a US not-for profit [Good Jobs First], has investigated exactly that kind of corporate subsidy in the race to the bottom between states in the US. I’ve got a couple of books of his on my shelf. Greg is a great researcher, and it’s a great organisation. They’ve done a good job. We see similar happening in Brazil, in fact, many federated states you see similar processes, and it’s happening within Europe as well. But as you see, the race to the bottom takes you into negative territory. Those are two of our things. We’re also seeing some really interesting things like the development of a “Women for Tax Justice” movement, which, I think will help to explore in different countries the gender dimensions of tax policies and tax injustices. In other words, we’re beginning to see a really exciting widening and deepening of the tax justice debate.
Spirit: That sounds wonderful.
John Christensen: What’s not to like.
Spirit: Well, people always say that accountancy and these sorts of things: taxes, it’s boring. You have this stereotypical image of your father the week before tax day, crunching numbers, a bottle of aspirin. It doesn’t have a good rep, like the Civil Rights struggle, these sorts of things. I guess it seems to me from what you’re telling me to be getting to the point where people are starting to understand that these things are inextricably intertwined, things like human and civil rights, and the ability for a country to elicit the amount of moneys required to basically finance roads and schools and electricity and so on.
John Christensen: Yeah, in fact, I’d go beyond that. I’m going to make two extraordinary assertions. Assertion number one is that tax is the lifeblood of democracy. You cannot run a democracy without tax. Or rather, the democracy that you’d run without tax would be a rather hollow democracy. Because a democracy which doesn’t have resources to fulfill health and education and other service needs, to provide proper security services, police and likewise border control… all of that costs a great deal of money. There’s a lot of ways in which governments could raise it. It could raise it through debt, which would get expensive after awhile. Or it could raise it through simply printing money which tends to be inflationary. Or it could raise it through fair tax policy, progressive taxation. More importantly, taxes bind citizens and state together, because when you pay taxes you’re going to be more interested in how your money being spent. And, I’m not the first person to observe that states which don’t rely upon a broad taxation base, but which tend to rely on oil and gas revenues tend to be more autocratic states. Think of the oil principalities, the Emirates in the Middle East, Saudi Arabia, all the corrupted oil states of North and West Africa. They generally speaking are not democracies. In other words, tax is a fundamental part of democratic state-building. That’s my first assertion. Second, an even more extraordinary assertion: that tax is one of the most extraordinary social inventions that humankind has come up with. It’s the way in which we all get together to pool resources to provide ourselves with roads, and security services and fresh water and all the rest of it. And, as an invention, it’s an extraordinary invention.