Today’s Top Stories from GFI: Russia’s offshore cash switches seas in search of a new tax haven

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Tax Havens

Russia’s offshore cash switches seas in search of a new tax haven
Quartz, August 21, 2013

By Tim Fernholz

The distance between the Mediterranean and the Caribbean isn’t so great when it comes to offshore finance.

The former is the site of Cyprus, Russia’s offshore tax haven of choice until its financial system collapsed and this spring’s European bailout of Cyprus included a heavy levy on deposits. Other European governments weren’t interested in bailing out Russia’s tax evaders. The latter is the home of the British Virgin Islands, which appears to have replaced Cyprus as the host of Russia’s offshore money.

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Premier: BVI to Comply With US Tax Evasion Law
Associated Press, August 21, 2013

By David McFadden

The British Virgin Islands’ leader said Tuesday that the Caribbean territory with a major offshore financial sector has started talks with the U.S. Treasury to comply with a law designed to crack down on offshore tax evasion.

The territory of roughly 30,000 people near Puerto Rico is one of the world’s top offshore trust jurisdictions and the nominal home to more than 500,000 companies. It provides incorporation registries so global businesses can claim they are based on the islands and effectively sidestep taxes in countries where their work is performed.

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Corruption

China Casts Bo Trial as Victory for Xi’s Anti-Graft Campaign
Bloomberg News, August 19, 2013

Former Politburo member Bo Xilai’s trial in the provincial city of Jinan this week is the most prominent in a series of graft cases at the heart of Chinese President Xi Jinping’s bid to cement control with a promise to clean up the Communist Party.

Bo, charged with bribery as well as abuse of power in the death of a British businessman, will face trial Aug. 22, the Xinhua News Agency said Aug. 18. He’ll join a line of punished officials including a minister who steered contracts to associates, court judges removed for hiring prostitutes and a township cadre fired for spending $32,000 on his daughter’s wedding banquet.

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FCPA

JPMorgan Hit By U.S. Bribery Probe Into Chinese Hiring: Report
Reuters, August 18, 2013

U.S. authorities have opened an investigation into whether JPMorgan Chase & Co hired the children of powerful Chinese officials to help it win business in China, according to the New York Times.

Investment banks have a long history of employing the children of China’s politically connected. While close ties to top government officials is a boon to any banking franchise across the world, it’s especially beneficial in China, where relationships and personal connections play a critical role in business decisions.

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Country-by-Country Reporting

Governing the Resource Curse: Advancing Transparency
Council of Foreign Relations (blog), August 15, 2013

By Alexandra Kerr

Ahead of the G8 summit this June, economist Paul Collier remarked that “instead of preaching to poor countries or promising to double aid, which we never did anyway, the idea now is… to put [our] own house in order, in ways that are good for us and also good for Africa.” Prefacing the summit’s strong focus on transparency, Collier’s statement touches on a recent series of international actions that shift the approach to solving the problem of corruption in the extractives industry.

Where countries with natural resource abundance have often been scrutinized for failure to turn their endowments into sustained wealth for their populations, the onus is now on the companies that partner with these states to extract natural resources, to instigate change. Consequently, a new paradigm is emerging wherein the extractives industry is increasingly accountable for its financial transactions—which, in remaining largely ungoverned, have contributed significantly to the “resource curse.” At the heart of this shift, transparency is taking center stage.

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How Should Multinationals Be Taxed?
Forbes (blog), August 21, 2013

By Chris Howellis

G20 leaders will commit themselves to bringing greater fairness to global tax arrangements at their annual summit meeting in Saint Petersburg on 5-6 September. But just how far and how fast they will be able to change a system that has become riddled with distortions is still open to doubt.

Governments want to reform international tax rules that enable multinationals to avoid taxes by booking profits earned on “intangibles” through low-tax or no-tax jurisdictions, but reaching agreement on changes may prove difficult.

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Special report: Is the government’s crackdown on tax avoidance ‘toothless’ or will it revolutionise business?
EDP 24, August 21, 2013

By Ben Woods

The current controversy surrounding global tax planning is met with a shoulder shrug by some sections of the business world who see it as clever accounting, rather than an immoral malpractice.

And there is strong argument that lays the blame for rampant tax avoidance at the door of the government who has the ultimate power to enforce stricter tax measures and recoup more money for the UK’s coffers.

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Money Laundering

Cabinet: Bills approved to strengthen anti-moneylaundering framework
Cyprus Mail, August 21, 2013

The Cabinet on Tuesday approved bills that will strengthen the island’s anti-money laundering (AML) framework further and increase financial transparency.

One of the bills concerns the creation of a registry of trust registries, which will be kept by the relevant supervisory authorities.

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Kazakhstan might join FATF
Central Asia Online, August 16, 2013

By Guimira Isakova

Kazakhstan could soon be joining a powerful group dedicated to fighting money laundering and terror financing.

Membership in the global Financial Action Task Force (FATF) has become a possibility, the Finance Ministry Financial Monitoring Committee reported in a statement. Conferees at a June 17-21 FATF meeting in Oslo selected Kazakhstan as one of 12 countries worthy of detailed consideration for full membership.

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Ex-Mexican cartel chief Eduardo Arellano Felix jailed for 15 years for money laundering
AFP, August 20, 2013

A former high-ranking leader of a Mexican drug cartel has been sentenced in the United States to 15 years in prison after pleading guilty to money laundering.

Eduardo Arellano Felix was the former number two of the powerful Tijuana narcotics gang based across the border from San Diego.

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Global Financial Integrity (GFI) promotes national and multilateral policies, safeguards, and agreements aimed at curtailing the cross-border flow of illegal money. In putting forward solutions, facilitating strategic partnerships, and conducting groundbreaking research, GFI is leading the way in efforts to curtail illicit financial flows and enhance global development and security.