Treasure Islands - Nicholas Shaxson [135]
But these maneuverings are invisible in corporations’ annual reports. Under current accounting rules corporations can scoop up all their results—profits, borrowings, tax payments, and so on—from several countries and consolidate each into one figure, perhaps broken down by region. So a corporation may publish its profits from, say, Africa, but nobody can unpick those numbers to work out the profits in each country. You can’t find the information anywhere. Trillions of dollars’ worth of cross-border flows simply disappear from view. So a citizen in a country where a multinational operates cannot tell from these reports even whether that corporation operates there, let alone what it does, its level of activity, its profits, its local employment, or its tax payments. As multinationals become ever more complex, this problem just gets worse.
One might think that the main global rule-setter for international accounting standards would be a public international body accountable to democratic governments. It is not. The International Accounting Standards Board (IASB) is a private company financed by the Big Four accountancy firms and global multinationals, headquartered in the City of London, and registered in Delaware.1
Richard Murphy, an accountant arguing for reform of international accounting standards, summarizes the problem as it stands. “A company gets its license to operate in any territory from the government that represents those people. It has a corporate duty to account in return. This is the essence of stewardship and accountability. Instead we have companies pretending they float above all these countries. They don’t.”
If multinationals had to break their financial information down by country and disclose what they do in each place, global markets would immediately become more transparent. A secret trove of information vital to citizens, investors, economists, and governments would come onshore and into view. Country-by-country reporting, as it is known, is already making progress in policymaking circles, particularly for the extractive industries.2 It now needs major support and must be expanded to include all businesses—especially the banks.
Another essential step concerns how governments share information about the local incomes and assets of each others’ citizens. If a person in one country owns an income-generating asset in another country, his or her tax authorities need to know about it. So governments need to share relevant information, subject to appropriate safeguards.
But the dominant standard for exchanging information is the OECD’s “on request” standard: a cheats’ charter whereby a country already has to know what it is looking for before it requests the information from another on a bilateral basis. Developing countries are particularly vulnerable here. The OECD’s standard can be replaced by the far better alternative: automatic information exchange on a multilateral basis, where countries automatically tell each other what their respective taxpayers own and earn. Such a system exists in Europe: It works well and does not leak information (though major loopholes need plugging to defend against the Caymans trusts, Nevada corporations, Liechtenstein foundations, Austrian hidden Treuhands, and various other secrecy facilities that infest the offshore system). Momentum is just starting to build for change here3—and this can now be rolled out worldwide and vigorously supported. Sanctions and blacklists can spur the shift.
As a second major area for reform, we can prioritize the needs of developing countries.
The pattern always seems to be the same. A secrecy jurisdiction comes up with a new abusive offshore structure, and wealthy countries construct defenses against it as best they can. But poor countries, without the relevant expertise, are left wide open to the new drain. In February 2010 Misereor, a German development organization, researched the new information exchange agreements that had been signed between countries after world leaders