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VIRTEU
ROUNDTABLE DISCUSSION SERIES
Institutional Corruption and Avoidance of Taxation (Transcripts)

Please find below the integral transcripts of the fourth session of the VIRTEU Roundtable Discussion Series, which focused on "Institutional Corruption and Avoidance of Taxation" that was held on the 12th of March 2021. The event was organized by VIRTEU Special Adviser Prof. Diane Ring, who is Interim Dean and Professor of Law, Boston College Law School at Boston College Law School, and the project Principal Investigator, Dr. Costantino Grasso, who is Associate Professor of Law at Manchester Law School.

The session enjoyed the participation of Prof. Brandon L. Garret, who is L. Neil Williams Professor of Law at Duke University School of Law and Director of the Wilson Center for Science and Justice; Prof. Prem Nath Sikka, who is Member of the United Kingdom House of Lords and Emeritus Professor of Accounting at the University of Essex; and John Christensen, who is Director and Founder of the global Tax Justice Network and VIRTEU Impact Expert and Partner.

Transcripts edited by Benedetta Zanolla.

Suggested Citation

APA: [Speaker's surname, initial(s)] (2021, March 12). VIRTEU Roundtable "Institutional Corruption and Avoidance of Taxation". Video recording at [00:00]. Retrieved from https://www.corporatecrime.co.uk/virteu-institutional-corruption.

 

HARVARD: [Speaker's surname, initial(s)] (2021) VIRTEU Roundtable "Institutional Corruption and Avoidance of Taxation"[Online]. Video recording at [00:00]. Available at: https://www.corporatecrime.co.uk/virteu-institutional-corruption.

OSCOLA: [Speaker's name and surname] ‘VIRTEU Roundtable "Institutional Corruption and Avoidance of Taxation"’. (Corporate Crime Observatory, 12 March 2021), Video recording at [00:00], <https://www.corporatecrime.co.uk/virteu-institutional-corruption>.

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Costantino Grasso:

Hello and welcome to our fourth and final session of the VIRTEU roundtable discussion series. I’m Dr. Costantino Grasso and in my capacity as Principal Investigator of VIRTEU, which is an EU funded project aiming at exploring the interconnections between fraud and corrupt practices in the area of taxation, I have the honor to welcome you and open the today's session, entitled “Institutional Corruption and Avoidance of Taxation”. First of all, please allow me to thank our distinguished guests Professor Brandon Garrett, Professor Prem Sikka and John Christensen. If I ever thought about bringing together a dream team to discuss this topic, I would have chosen exactly this one. It is a real honor to have you with us today. We'd also like to give a special thank you to the chair of the roundtable session, our Special Advisor Professor Diane Ring, and to all the other members of the VIRTEU research team, Dr. Lorenzo Pasculli, Stephen Holden and Engin Erken and to Professor Stuart MacLennan, who is Associate Professor of Tax Law at Coventry Law School. Last but not least, I would like to thank all the members of the audience who have decided to stay with us today and be part of this fascinating discussion...

[...]

Costantino Grasso:

... I’m now delighted to offer some opening remarks and a brief introduction to the topic that will be discussed today. Over the course of the last two months, we have participated in a fantastic journey during our roundtable sessions, exploring the intimate interconnections between tax crimes and corruption. In that regard, I would like to thank most sincerely our Special Adviser Professor Diane Ring, who has organized the event and brilliantly chaired all of our sessions. She has contributed significantly to the success of this scientific event and her commitment and guidance have been inspiring for all of us. The roundtables have allowed us to gather valuable knowledge from several jurisdictions within and outside the border of the European Union and significantly enriched our research perspectives thanks to a marked multidisciplinary approach. From these fascinating discussions, as well as from the research activities conducted by the core research team, it has clearly emerged that the intimate interconnections between tax crimes and corruption are not restricted to the phenomenon of bribery, which corresponds to the corrupt payment, receipt or solicitation of a private favor for an official action. Although the scenarios where a bribe is paid by a tax debtor to a representative of the tax administration or the tax police are surely relevant and deserve our full attention, it appears that they represent only a fraction of the problem and most likely, not the most significant one. This is because corruption is a multifaceted and pervasive criminal phenomenon that has the power to infect every aspect of our society. And that, as Kofi Annan brilliantly affirmed in the foreword of the United Nations Convention against corruption, “it undermines democracy and the rule of law, leads to violations of human rights, distorts markets and erodes the quality of life”. Unfortunately, both at the national and international level, we have constantly experienced a general reluctance to expand the legal notion of corruption, so to allow it to encompass – for instance – unethical practices aimed at unduly influencing the political process or the way in which the public administration operates. As Professor Peter Aldridge emphasized in his article focused on the adoption of the UK Bribery Act 2010, which is one of the most advanced pieces of legislation in the area of anti-corruption, the legislature lost a crucial opportunity where he decided not to criminalize three main forms of corruption which have never been criminal under English Law: nepotism, asynchronous exchanges and unreciprocated but corrupt doing of favors. The area of taxation appears particularly vulnerable to such forms of insidious interference. And this is surely not surprising, because of the wealth and power of the players that may profit from them. Such an over-emphasis on bribery is unfortunately an ongoing trend. In the 2018 Report, jointly adapted by the OECD and the World Bank and focused on the cooperation between tax authorities and anti-corruption authorities, it is expressly acknowledged that although tax crimes and corruption are commonly viewed as distinct crimes, they are often intrinsically linked. However, the report still focuses on a notion of corruption that has been constrained to direct bribes paid to tax officials. It appears that this limited view not only fails to look at the wider picture, but naturally diverse the attention from the unethical and potentially legal practices perpetrated in the most developed countries where the occurrences of payment of direct bribes are much less common. If we take into consideration that recent studies – such as the ones behind the Corporate Tax Haven Index developed by our impact partner Tax Justice Network – show how the world's greatest enablers of corporate tax abuses are located in the global north, rather than in the global south, it clearly emerged how such a limited approach raises serious doubts as to its suitability to address the burning issue of the interconnections between tax crimes and corruption. As a result, at VIRTEU we have decided to explore these interconnections adopting a broader approach and taking into consideration how conflicts of interest may generate corrupt practices that adversely affect the taxation system as a whole. In that regard, we have identified three different dimensions that emerge as relevant for our research. At the higher level, we could include the harmful practices adopted by nation states competing against each other through preferential tax regimes or sweetheart deals. Here, the main question seems to be to what extent such questionable choices are the result of a legitimate political decision, rather than what Joel Bakan brilliantly defined as the pathological pursuit of corporate profit and power? Turning our attention to the national level, the most relevant questions here seem to be how unethical lobbying practices and the role of corporate power in politics may distort the decision-making process in our democracies and in particular, adversely affect the area of anti-tax evasion? This is a burning issue that appears to be largely neglected by jurists; however, sociologists, criminologists, representatives of the civil society and politicians are increasingly turning their attention to it and this demonstrates the crucial importance of a multi-disciplinary approach to the matter. In that regard, the words written by Sheldon Whitehouse, the United States Senator for Rhode Island, in his book Captured of 2017, appear emblematic. Corporation of vast, wealth and remorseless staying power have moved into art politics to seize for themselves advantages that can be seized only by control over government. In our analysis we have identified several potential consequences of such an undue influence on the political decision-making process that deserve to be thoroughly investigated. The adoption of a necessary level of complexity in regulation, the practice of limiting the scope of decriminalization of illicit conducts to evident fraudulent tax evasion practices, keeping out unethical and aggressive tax avoidance ones, the continued reluctance to adopt effective transparency regimes, the adoption of legal instruments favorable to tax evaders – such as tax amnesties and negotiated resolutions. It was only a few days ago that Professor Sikka highlighted during a debate at the House of Lords how a culture of cover-up, which appears deeply institutionalized in the United Kingdom, has emboldened banks and foster the perpetration of economic crime. Finally, corruption may adversely affect the nationally anti-evasion practices, even where adequate regulations are present. These appear to be the most subtle, obscure and underestimated effects of the interconnections between tax crimes and corrupt practices. Their consequences may consist in direct attempts to frustrate the enforcement of anti-tax division rules, for instance, limiting the resources, independence, competence and powers of the enforcement authorities or agencies or in backroom deals, based on conflicts of interest generated by the economic and social interdependence of the members of the ruling elite, which are amplified and sustained through revolving door practices and asymmetric exchange of favors. At VIRTEU, we are perfectly aware of the significant challenges that the adoption of a notion of corruption, broad enough to encompass all the unethical practices I’ve mentioned so far, poses from both a methodological and a practical perspective. But we are also aware that only by adopting such an approach we could explore how corrupt practices actually interfere with the adoption and implementation of anti-tax evasion strategies. Our research has highlighted the inherent risks of adopting an approach based on legal positivism and the formal conception of the rule of law. Where a government underfunds, or does not grant sufficient independency or powers to an anti-corruption authority in order to towards its investigative powers or frustrate its efforts to fight corruption, such a decision appears to go beyond a mere political choice. This especially where we take into consideration that, quoting Professor Garrett, a corporate persecution is a battle between David and Goliath, where prosecutors may well play the role of David. When decisions like that are taken, it is possible to argue that they represent a distortion of our democratic system in that they violate the basic values of fairness, justice and equality that should characterize our societies. These are basic values that appear to be the most adequate external limits that can be used to safeguard our democracies against fraudulent and corrupt practices in the area of taxation. We are conscious that this research approach potentially raises more questions than it answers, but at the same time, we are aware of the crucial importance of identifying and asking the right questions – especially the ones that are rarely asked – and to try to reflect on what the possible solutions to such burning issues could be. We're also aware of the challenges related to competitive disadvantage that a virtuous state may face where a firmer approach to corporate punishment is adopted. Everybody agrees that the best solution in the area of corporate taxation should be adopted at the global level, but we also know that in an era of class of civilizations, reaching such a consensus remains a chimera. In such a scenario, the presence of a supranational check and of supranational institutions that are inherently more resistant to undue influences and may watch over the application of the rule of law, appears to be of crucial importance. The work of the European Union Parliament, which has recently adopted the Directive of Whistleblower Protection, and of the European Anti-Fraud Office, which has funded this very project, are emblematic of that. For all these reasons, we look forward to hearing what promises to be a fascinating discussion focusing on institutional corruption and avoidance of taxation. So, I’m now delighted to give the floor to our Special Adviser, Professor Diane Ring, who is Associate Dean of Faculty, Professor of Law and the Dr. Thomas Carney Distinguished Scholar at Boston College Law. She will be the chair of our roundtable session. Diane, the floor is yours.

[13:17] Diane Ring:

Thank you. We are eager to get started. What I thought I would do first is just do a little bit more of an introduction of our panel, because we are so excited to have them with us and then provide just a little bit of an outline of the plan for this session. So, we have – as Costa mentioned – with us Brandon Garrett, the L. Neil Williams Professor of Law at Duke University School of Law, he’s Director of the Wilson Center for Science and Justice. We're then delighted to have also Prem Nath Sikka, Member of the United Kingdom House of Lords, also Emeritus Professor of Accounting at the University of Essex. And John Christensen, Director and Founder of the Global Tax Justice Network – I think we're all very familiar with – and also a VIRTEU Impact Scholar and Partner. That's our roundtable. As costa said, we are just thrilled to get started on this. What we're going to do is have the roundtable session run for about 40 minutes, after that we'll close that portion down and open it up to questions from the attendees. And what I encourage you to do, if you are listening and you have a question, write it in the chat and let us know, that way Costa can keep a cue and have a sense of the questions as they're coming in. When we actually get to the Q&A portion, what we'll do is we will turn off the recording when we ask you to ask your question – so, you asking your question will not be recorded – then we'll turn the recording back on, I will summarize your question very succinctly and we'll move right into a discussion of that question. We'll have the Q&A for about 30 minutes and then we're going to turn it over for the summation to Engin Erken and that will close out our final and fourth roundtable. All right. Costa provided what I thought was a nice road map for how to organize our discussion a little bit, there's much there. And I thought maybe we would actually start at the top, in the sense of the global level and just briefly – I don't think this will be the bulk of our conversation – but briefly speak to state-to-state level corruption, where we see these kinds of issues. And I sometimes use the phrase corrupting – corrupting activities, corrupting forces – again, to try to signal that corruption is something quite a bit broader than generally understood. I think my first question to all of you would be if you have any comments, examples on where we see this force at the state-to-state, the international level. And I open it up for whoever would like to jump in.

 

John Christensen:

Well, I’d be very happy to jump in if I may. First of all, thanks for the introduction and Costa, for this very broad, wide-ranging discussion about – I use the term corrupt practices by the way Diane, because I think that there are so many practices that we need to identify as corrupting. At the highest level, internationally, I think one of the most corrupting issues that we face is the way in which the really powerful players, particularly in the world of financial services – and I’m talking here particularly about the United Kingdom and the United States, which dominate the Financial Secrecy Index in particular – they are part of the rule-making process, and that rule-making in an area of taxation and corporate behavior has been handed over to the Organization for Economic Cooperation and Development, which is of course the think tank of the rich countries, they set the rules. And it's no surprise to anybody I think to know the rules don't work, but particularly they don't work in the interest of the global south, because they were always geared to the interests of what are called the capital exporting countries. And that is an example of the highest level of corruption, the ability to set rules which favor some parties, interestingly in this case parties that are the most powerful countries in the world. But I’d like to add another dimension to this geography of corruption, and that dimension relates to this whole idea that nation-states should compete with one another, or against one another, to attract capital. At the core of globalization and financial market deregulation and liberalization was this idea that nation-states should compete against one another to attract capital and the nature of that competition takes the form of deregulation and de-taxing and tax incentives. This is an incredibly corrupting idea in itself, because it corrupts the very idea of democracy and the ability of a nation-state to establish its own tax systems and its own regulatory and to protect its own citizens from financial market deregulation. So, I think the core of this idea of nation-state competitiveness and nation-states competing one against the other has completely corrupted the way in which global trade and investment happens. There's a starter.

 

Brandon Garrett:

I think it's also helpful to focus more narrowly on anti-corruption law and legal rules surrounding payment of bribes to government officials in order to – for a corporation or someone else – extract benefits in the market. And then, in terms of tax crimes, non-payment of taxes, sheltering assets from taxes, often money laundering offences, if we're just looking at types of financial crimes or associated with both, since if money is going to places illegally, there may be violations of rules surrounding transfer of money between countries. And so, anytime there's a dark money problem, there may be bribe payments, there may be avoidance of taxes and there may be money laundering issues. And all three of those are separate families of criminal offences in many countries, although many countries for example, did not have foreign bribery crimes until the OECD stepped in and until the mid 90s it wasn't necessarily considered corrupt, because many countries permitted it – it was tax deductible to pay bribes in other countries. There may have been a domestic bribery prohibition, but not a foreign bribery prohibition. That has very much changed over the past couple of decades and more countries now do prohibit bribing agents in other countries. But again, tracking where corporate money goes involves regulation and compliance – a lot of systems – and money's going to places illegally, there may be money laundering, there may be a non-payment of taxes and there may be bribery components to it. In terms of interactions between countries, the whole anti-form bribery regime began out of treaties between nations and OECD. Certainly although, for example, in the U.S. we had anti-foreign bribery criminal laws in place post-Watergate since the 1970s, but they weren't enforced against corporations until other countries signed on to these treaties and it seemed fair to U.S. prosecutors to hold another country accountable when they also had a law prohibiting foreign bribery. And you didn't have cases like the Siemens case in Germany, until Germany also passed a law prohibiting it in the 1980s and 90s, when Siemens could report its foreign bribes on its books, that wasn't considered a criminal in Germany and U.S. prosecutors had a harder time deciding to hold them accountable for crimes in the U.S. that were inconsistent with national law in Germany. One concern though, across borders in the area of tax crimes, is that certainly different countries can have different tax rules, they can have different criteria for who pays taxes and how much and that's fine, that's national level law. But if a country is facilitating tax avoidance and tax non-payment in other countries, that all of a sudden creates a direct conflict between nations. I think there's no better example of that than in the conflicts between the United States and Switzerland, where United States and Swiss law directly conflicted and Swiss banks had long been promoting tax fraud and concealing income from the United States authorities. Ultimately, that resulted in the prosecutions of 80 plus Swiss banks and an entire program for settling those prosecutions and we can talk more about how enforcement actually works in these areas, but I think that's a wonderful example of just outright conflicts between United States and Swiss law, which was ultimately resolved through some diplomacy and some criminal prosecutions.

 

Prem Sikka:

Well, maybe I'll step in. Thank you very much for organizing this event and it's really great to be here. I suppose we can look at the issues about corruption, bribery at a structural level, as well as the individual level. But first I think we have a deep structural problem, which is that what we call bribery corrupt practices in a sense are incubated at home, at school, at universities, in the workplace, where we encourage young children onwards people to become intoxicated with private accumulation of wealth, material goods. I got 10 toys and you only got one, am I not a better child? And that continues, young adults come to university all full of ideas about improving life, they all want to see their parents and grandparents with a good health care, clean air to breathe, clean water, affordable housing, decent pension, clean streets, they come to the business school and by the time they leave, all that's been driven out of their heads and it's all about maximizing shareholder wealth. And practically almost all of financial reporting is devoted to reporting to speculators – they call them shareholders – the shareholding duration in the listed companies is so short that effectively what people are serving is really the interests of speculators. And indeed, in the last decade or so, if you look at big capital markets like the UK and U.S., you will find hardly any new finances raised. And even when it is raised, it is far less than what has been extracted through companies in dividends and share buybacks. So, the stock market is essentially a wealth extractor and that is what we have the whole world of universities devoted to serving. So, that is a problem. At the structural level, people, some colleagues here just now talked about how money flushes around, but it flushes around in many different ways. You only have to look at the register of interests of the legislators of the UK House of Commons, House of Lords and in other countries, and you will see how many legislators are on the payroll of big corporations. And be often in a bidding for them, speaking for them; anything else is simply driven out. So, we have a whole problem with our legislative system and I think what we call a corruption bureaucracy, a corruption and bribery is in a sense written into this and we often don't really know much about what goes on. Corporations affect the lives of people more than perhaps anything else these days, but there is no freedom of information law which enables me to learn what corporations are doing to me. I don't even know what they put into various products, food, drink, medicine, which I actually take. They're actually controlling our lives in many ways and we are often struggling in terms of trying to get some accountability. Tax havens were mentioned, just a brief comment. The feeling is that the states or governments must hit back against tax havens, but actually we have a very peculiar case in Britain, where the government is actually building up tax havens. A good example from last week or two, is that we have a Financial Services Bill going through parliament which has a section dealing with Gibraltar. Now, Gibraltar is listed in the top 30 of the corporate tax haven abuses published by Tax Justice Network this week. So, what is the UK government proposing? That any company based in Gibraltar can sell any kind of financial service in the UK. Gibraltar companies already account for about 20% of the UK motor insurance market at least. So, what the government proposal means is that a company, which may well be just a post box in Gibraltar, can sell insurance and other financial services in the UK. The customers are in the UK, profits are in the UK, the sales are in the UK, but sales and profits will be booked in Gibraltar. And Gibraltar law is that if a company makes profits in other countries they can be booked there, but they're not liable to any tax. So, there you have it. The government is actually facilitating profit shifting and expansion of tax havens. Why is it doing that? Because big financial services company want it. So, some of us asked in parliament: could the government tell us what is the size of this profit shifting? How much tax revenue would the UK really lose? And the answer is there is no assessment and the government simply brushes aside these things, because there is – as I said earlier – really an inbuilt lobby, which it's calling for these things and they just get it. So, party, political donations, jobs for legislators, consultancies are buying this and I think that is a much bigger problem than many people actually realize. So, I'll give some more examples later on.

 

Diane Ring:

That really brings us nicely into – there's so much to discuss at every level, but I think that really does bring us to the state level. And the broadly framed question of lobbying and influence and what that looks like and the different forms it takes, what are the implications. If any of you like to speak to these issues, thinking about the lobbying, thinking about regulatory capture, where do we see that happening? How is that happening? I open it to you all.

 

[29:30] Prem Sikka:

Should I start again? Okay. I'll just say it briefly. I think lobbying is important, but to my mind, a bigger issue should be the cognitive capture, the psychological standardizing of the key policy makers. They effectively become like puppets; they don't actually have to be asked to do anything, they just serve their masters’ interests. So, I would say that is actually an issue. And then, people are sold all tales and they are persuaded to believe them. Let me just give you one example, I’ve been an accountant for most of my working life. Now, everybody is told we have an independent audit of companies; I can't think of even one example ever where a company has had an independent audit, which is supposed to be a bulwark against corrupt practices, supposed to be facilitating public accountability. So, what happens? Company directors invites tenders for audit which is a beauty parade and there is no way an auditor would be hired if somebody comes in with a pitch to say by the way, I find your financial reporting practices and transparency practices unacceptable, I’m really going to impose a new tougher standard and how about hiring me? There is no way. So, auditors are not hired on that basis. Even worse, because the companies hire and pay the auditors. And so, auditors – some people say are watchdogs and I always say they are really puppies and lap dogs, they're never really been watchdogs – and then we find there is virtually no public revelation about how many hours the auditor spent on the job, what was the composition of the audit team, what key questions they asked, what is in the tender. And it is only through scandals such as BHS – where I was an advisor to a parliamentary committee – that we learned that PriceWaterhouse, who are auditing BHS, had prepared a time budget and that time budget included only two hours to be spent on the job by the audit partner. And the audit team was under the control of somebody with only one year's post-qualification experience, but none of that is ever revealed. So, I’m just giving examples of how we have fraudulent structures which actually are supposed to comfort people, but actually when you scratch the surface there is no substance to them. To me, that itself is a big part of the corruption that is all around us. And we need to talk about it and explore it and facilitate emancipation significant change.

 

Brandon Garrett:

I think another example of that – it's in a way a UK example, but it's an U.S. and global example – was in the case of HSBC, where regulators in the U.S., including the comptroller currency, basically they're auditing surrounding money laundering issues consisted of paper auditing, where they would look to see whether an international bank had a compliance division that was tasked to look at money laundering stuff. But they didn't actually review any of the records, they didn't review suspicious activity reports or any of the documentation that was produced by a bank. And therefore, money laundering was going on and sanctions, violations and several other financial crimes were going on at a grand scale across HSBC's operations really all around the world. It was a hornet's nest of money going to all the wrong places in the world. And when there was a congressional inquiry in the U.S., they kept asking where were the regulators? And they looked at the paper procedures and didn't actually audit. But talking about the question of capture, it wasn't an accident that many of these key regulators were defanged or ineffectual. It's been a long-standing fact and scandal of U.S. politics that – our topic is tax crimes and tax fraud and tax corruption – the Internal Revenue Service in the United States has been horribly deprived of even minimal resources to do enforcement. And we have many hundreds of billions of dollars per year tax cap – as they call in the U.S. – there's something like 400 billion dollars a year, just an enormous amount of money. And the IRS has proclaimed, year after year, that they can't really meaningfully audit seriously wealthy individuals, even ones who don't file tax returns. Just egregious tax non-compliance cannot meaningfully be investigated, it's much easier to investigate someone who is fairly poor and doesn't attach a required document or something like that. But to actually audit complex behavior by wealthy individuals and corporations, the Internal Revenue Service really doesn't have the enforcement resources to do it and they don't. When you look at the stories of some of these major corruption-related corporate prosecutions, as ineffectual as the Internal Revenue Service is in the United States, a lot of the big global corporate corruption cases have been brought by prosecutors in the United States, because the Department of Justice in the United States has a lot of resources and they have some FBI agents and they bring global investigations. And it's somewhat of an embarrassment that many of the most important cases that involve a lot of conduct that's outside the United States are brought by United States prosecutors. And even some of the countries that have passed anti-corruption legislation, it's often been because it's been embarrassing that the German companies or the French companies have paid so many billion dollars in fines to United States prosecutors, they would rather some of those fines be paid to their domestic prosecutors. But even if, for better or for worse, the United States is often the global enforcer in anti-corruption cases brought against corporations, enforcement resources are really lacking in the United States; and we're the standard bearers. So, that bodes quite poorly for efforts to enhance EU standards and other standards in the world, where just so many of these countries have provisions on the books, but no meaningful enforcement apparatus.

 

John Christensen:

Brandon, if I may. First of all, thanks for bringing up the example of HSBC, which is one of my real bêtes noires. I made a film called “HSBC: The Gangsters of Finance”. One of the things that absolutely appalled me about the investigation of HSBC's money laundering activities in the United States was the fact that the British Chancellor of the Exchequer and the British Prime Minister went to Washington, urgently to lobby on behalf of HSBC to prevent the DOJ from going ahead with the prosecution.

 

Brandon Garrett:

We didn't hear about some of that until years later, it did not emerge right away.

 

John Christensen:

This bank was too big to fail, too big to jail and was about it too big to tax as well. This is an appalling case of corporate capture. And it makes me think of what Prem was saying about this cognitive capture, the idea that we have to go out and fight on behalf of these criminal banks to protect them from prosecution is appalling and the corruption at the highest level. But it ties into what Diane was talking about in the earlier question about this nation-state competitiveness and we have to go out there as states, our states go out to protect our national champions. And HSBC is of course, a key champion of the British economy, so our politicians have to go out and champion them. But what Prem said earlier about cognitive capture and the extent to which politicians and media – journalists and others – are captured by a set of ideas, reminded me of something which happened just ahead of the great financial crisis. I was invited to speak on BBC's morning program, Radio 4 Today program, because Prem and I and a few others had been signaling the imminence of a financial crisis. And I went in there and they brought in as a discussant a lobbyist who said that far from there being a crisis which the state should intervene, he said that the state needs to do everything possible to protect the City of London from financial regulation and from tax, in order to protect its competitiveness. And at that stage I said, the City of London has a very weak compliance record, but most importantly, it has some of the highest fee levels in the world. And for an economist, if the City of London wants to compete globally, it should compete by lowering its fees and improving the quality of its services. That's the way in which competition happens in a market economy. In other words, the banks should lower their fees, the law firms should lower their fees. And this struck the BBC presenter – I'll name him, is John Humphrys – as such an appalling and idiotic idea, he said no, that's not the way that competition works. We have to help our companies to compete by deregulating and by not enforcing compliance. Well, the rest is history; a few months later the City of London almost totally collapsed. But this cognitive capture lies at the level of economics as well, this idea that states should help companies to compete by deregulating and by giving them special tax treatments and by turning a blind eye to their money laundering practices. In the case of HSBC, frankly, is corrupting the global economy at the highest level.

 

Diane Ring:

I was thinking about two particular themes that come out so far in this discussion and just a little bit of how you see that in the U.S. play out regularly in some of the debates, some of it it's slightly positive and much of it not, obviously. In terms of the cognitive capture, one of the threads of discussion in the U.S. about digital taxes and the effort by some of the major U.S. corporations to put the digital tax problem as a number one on the agenda, was a way of framing it as a national problem – U.S. companies being targeted and therefore, bad for the U.S. And it was very much a way of framing it, but we also saw people push back and say hold it, is this any different than a sales tax in that country? And you wouldn't be able to get us so engaged on that and worked up. And so, what's really going on versus how is it being framed and being sold to the legislatures? The other thing I wanted to just comment briefly on was complexity – because that had come up both in Costa's remarks a little bit and then just now – because obviously, complexity starts with the legislature, it starts with the drafting of laws, works into the administrative level and lots of reasons obviously for it. But one of the real implications – certainly at least in the U.S. – is who is easy to audit and who isn't and Brandon got it at this before. And I think partnership tax – in the U.S. again – is a great example, it's an immensely complicated regime for quite a number of reasons, not disconnected to what taxpayers want, but as a result, it's really challenging for the Internal Revenue Service to meaningfully audit, to have sufficient resources, skilled personnel, to dive into what are among the most complex returns we have. And so, you can just see it all weave together. But some of this has already brought us to I thought what would be just our next focus for a moment is a little bit more about the enforcement level and where we see some of these forces play in, whether we're thinking about settlement agreements or amnesty or – even as Brandon mentioned earlier – literally constraining enforcement through constraining dollars. If you don't have staff, you don't have personnel, it doesn't even matter what the law says, you won't enforce. And so, just to speak to that for a little bit if you'd like.

 

Brandon Garrett:

That's certainly been a story in the UK, where the UK Bribery Law was adopted, and you'd think they're adopting a U.S. approach with more options, more flexibility for enforcers, maybe they'll start bringing in a lot of major corporate cases, like we've had in the U.S. And instead, it's been a trickle of a handful of cases and there's always the concern that the Serious Fraud Office didn't really have the wherewithal – even if there's some good people there – to bring cases at scale. And we've seen some of the same in other countries where they brought a handful of cases under new anti-corruption statutes and often these statutes are pretty well thought out and a lot of work went into thinking about their provisions, often there are laws that are actually much better explained and set out and clear and have better processes than in the U.S., where we have broad criminal statutes and vague Department of Justice’s guidelines. All sorts of problems with the U.S. approach and I worry about it being exported. But maybe the most important thing to export is just the enforcement resources, but maybe that's just comparative U.S. wealth. And it's maybe one of the few upsides to a U.S. system, where just there's a lot of money for prosecution; we're the home of mass incarceration. Prosecutors have plenty of funds, there's plenty of staff, as compared with other government agencies. There are lots of good things about wealthy countries spending their money on things aside from prosecutors, but it does mean that in the U.S. we have seriously talented prosecutors who have financial crimes experience and the like. Now, there's also a lucrative side benefit, which is that if you have experience doing serious financial crimes cases in the U.S., that can give you really good private side employment opportunities as a lawyer. I actually see that revolving door as a really positive thing in terms of attracting really good people who want to bring big cases against corporations. You don't have that kind of turnover or culture in enforcement offices in other countries. And there are a lot of good reasons to be worried about a revolving door, but in terms of attracting people who understand complicated financial transactions and will then earn a lot more money doing that in the private sector, it's not necessarily a bad thing. But it would be looked at with horror in most countries, I think for some good reason. The actual people who do the work and who then make a lot of money when they leave the work in the U.S., people see that as corrupt, I see it as having some real benefits; but I do understand the concern.

Prem Sikka:

Okay, I'll follow Brandon. I think there will probably never be enough resources in any country to go after big corporations. Bear in mind many corporations have a bigger sales revenue than the GDP of many nations as well. I think we, in a sense, go to look for other ways to supplement whatever else we do; and one of these is to opt for transparency and openness. We are busy fighting corporations about tax avoidance. So, one of the things I’ve argued for a long time, why not require corporations to publicly file their tax returns together with any advice they receive of that tax? That means they will have to file details publicly about all the correspondence they had with lawyers and accountants about how to dodge taxes. So, there is a potential that can actually turn every citizen into an auditor. Now, somebody might scoff at it and might say look, what do ordinary people know about these things? Well, actually they know quite a lot, because these so-called technical experts have very rarely alerted people to tax avoidance or corporate frauds or anything. Often, it's been determined by journalists and individuals who have exposed that. So, that is one thing. Second is, I think we should also look at the way the regulatory bodies are structured. When you look at the regulatory bodies, typically they're under the control of corporate grantees coming through revolving doors which swing both ways, because they also go back to corporations after a stint at a regulatory body, and they know who exactly to serve. And we are often told that we must get experts who have the technical know-how and if you think about it, what does technical know-how do? It has the potential to reduce your world views, reduce your vision, reduce your concerns, because pretty soon you become occupied about what is technically correct. But if you strip away the word technical, ask yourself where exactly do these techniques come from? Well, all techniques are constituted by politics and interests; there is absolutely nothing natural about them. So, there is a built-in capture into the regulatory system. And the way to breach that – and I floated an amendment in parliament yesterday, which had some support – my argument was that each regulatory body – though yesterday we were only looking at the financial conduct authority and the prudential regulatory authority – that each regulatory body should have a supervisory board made up of stakeholders to watch over the executive boards running the regulatory bodies. So, there can be a diversity of views and interests and that would make it much harder for the executive boards as it were to continue to run with fairly narrow vision or nakedly defend the interests of the industry. So, in other words, we could democratize the regulatory structures. I hear very little talk of that. Of course, in the U.S. you have had some very notable individuals who really gone after wrongdoing and Robert Morgenthau comes to mind, dealing with a lot of corporate frauds in the New York State, and Jack Blum, who was the adviser to the Foreign Affairs Committee over the BCCI frauds. And indeed, it is only after the U.S. revelations that the Bank of England decided that in the UK there was not a hiding place and they better do something and they shut it down. So, I would suggest that we really need to look at the kind of changes we can make; in other words, make it very difficult for individuals, organizations, engaging in corrupt practices to hide. And that is transparency and democracy. And also make it easier for citizens to bring a lawsuit for wrongdoing; at the moment in the UK, that is almost impossible and you've got to be very rich to do it.

 

John Christensen:

Prem, I want to take issue. And obviously, there will never be enough resources around tackling all of this. But if we look for example at the UK and the under-resourcing of some of the key agencies and think about Companies House, the registry of companies, which apparently it's a public register, but the information, whenever I look at Companies House, I realize that it's deficient, it's so weak in terms of standards, the information is out of date or incorrect and so on. But it's not just Companies House, it's also the Financial Conduct Authority, the Serious Fraud Office; there is quite clearly a comprehensive under-resourcing of key agencies and I do not think that that is accidental, I think it has happened as a part of a deliberate process of undermining compliance and enforcement. I think that if we look at what's happened in too many – particularly the tax havens – jurisdictions which we investigate at the Tax Justice Network, what you see is a lot of window dressing, they adopt anti-money laundering legislation onto their statute book, but they put no resource into it, so that any compliance and enforcement is tokenistic. We talked a lot about regulatory capture; I also think that we should be looking at judicial capture as well. And what brings this to mind is that I’ve been working for the last few weeks on a very interesting leak that comes out of Jersey – everyone knows that I’m connected with Jersey – but a leak has come out of Jersey and it turns out that this leak, which happened years ago, something like 350 000 legal documents came out of a trust and company administration business and were handed to the police. And the police and the Attorney General and the judiciary in Jersey chose to do nothing whatsoever with it. In fact, the prosecutions that have happened around this case, have happened in the United States. And then when we looked more deeply at this particular case – and I’ve got a call with a New Zealand journalist coming up immediately after this session this evening, I’m talking to a journalist in New Zealand about this – when we started looking at it, we found that the trust and company administration business had worked for many years with a particular law firm in Jersey called Ogier. And Ogier is one of the of so-called “Offshore Magic Circle companies”. And it turns out that a senior partner of Ogier was also the Head of the Jersey police federation at the time the Jersey police force decided to do nothing to investigate. And it turns out that the Attorney General was a senior partner also of this law firm Ogier and he chose to do nothing about it. And it turns out that the island's senior judge and bailiff was also a senior partner of the same law firm Ogier, that was involved in so many of these scandals being revealed by this leak. So, I think that we need to slightly broaden out the discussion to also consider the idea of judicial capture, because my impression is that many of the smaller offshore secrecy jurisdictions and tax havens that we investigate at the Tax Justice Network, are as prone to judicial capture as they are to regulatory capture.

 

Diane Ring:

John, I think your comments, as well as those of Prem and Brandon – we're not going to have time to explore – but they're leading to other ways of thinking about relationships and revolving doors. I was thinking of describing it as revolving roles; you don't actually leave, you just shift what you're focused on at any one moment, you play multiple roles, you have multiple incentives. And what are the kinds of conflicts of interest and what you're identifying, there are just a lot of ways in which this plays out. And also, the issue of independence – interdependence I should say. How incentives and goals among various players can and do a line. Again, separate from a formal revolving door – which I think of as truly you are the regulator in this field, then you go back and turn out to be the advisor in the field and back and forth – that's just one sliver. There are many other ways in which you can have multiple relationships or interdependence and we won't be able to get into it all, but I just want to lay out that I think the threads of what you all have been saying have been leading to that. We have just a few minutes before I want to turn to our question and answer, but I think that will also be a time for us to further explore many of these issues. But I thought we should at least just take a moment to speak a little bit more about where we would go – and Prem you've already been doing that, you outlined some of your prior recommendations about transparency for corporations with respect to their tax returns about regulatory body structure. But I just wanted to give you all another opportunity. If you had the ear of really interested citizens, a special corporation who's suddenly really taking you seriously, members of your government – what would you point them towards as some suggestions? Particularly – and I'll raise this as the counter – when they will get pushed back to say if we do these things just within our country, just within our regulatory enforcement, we will be at a competitive disadvantage, our businesses will fail to do well. And this is a thread that we've had earlier, but I just want to lay it out there. So, I turn it over to you all.

 

John Christensen:

Well, can I kick that one off by picking up on your last comment there? Because for something like 30/40 years, we've been listening to frankly this nonsense about nation-state competitiveness. We as a nation-state compete with other nation-states; no, we don't. We should be cooperating with them, particularly in trying to tackle corruption. We should be cooperating with them in a race to the top, not to the bottom; we should be actually promoting better regulation and better enforcement and so on, because that will actually create better markets and better market conditions. So, the very idea of competitiveness in this area is a nonsense to begin with. But it's a toxic nonsense which also harms the states. And I'll take particularly this case of UK and its so-called goose that lays the golden egg, which is the City of London. In order to help the City of London compete, we must deregulate, we must tax them lower, we must do everything to help them to compete; that is such a such a nonsense, it's hard. But it's a nonsense that also harms the UK economy, because the City of London it's not a creative sector, it's an extractive sector, it's extracting wealth from not just the rest of the world, but also from the UK economy itself. It's harming the UK economy.

 

Brandon Garrett:

With Brexit that won't be a problem, now that there is no more economy in the City of London, right?

 

John Christensen:

Yes, I am not sure if you've seen today's trade figures, but they are disastrous, Brandon. Brexit is now coming to true focus.

 

Brandon Garrett:

I did see.

 

John Christensen:

But the idea that the best thing we can do to compete globally is to deregulate, not enforce compliance and not tackle and enforce against criminal activity is seriously deluded. We should be doing the exact opposite. And that is the best way of helping to improve productivity, to strengthen innovation and so on. But the very idea of nation-state competitiveness what nations competing against one another in this sphere needs to be challenged from the start.

 

John Christensen:

One way that some tricky prosecutors in the U.S. thought about this to try to intensify the race of the top and take advantage of companies’ own desire to come out ahead of their competitors, really came from Department of Justice lawyers in the U.S. that were familiar with anti-mafia work and serious efforts to weed out corruption in mafia infiltrated industries, like the Garment District in New York and the like. And some of that influenced the development of this anti-cartel approach in antitrust, where the idea is you incentivize what we call in the U.S. snitching or informing. And so, companies may benefit from themselves paying bribes or themselves fixing prices with their competitors or themselves hiding money from tax authorities. But if their competitors are doing it too, it's not so much of a competitive advantage anymore. And so, how can they do better by doing clean business? Well, they only really do better by doing clean business, if they turn in their competitors and know that something bad will happen to their competitors. Or even, if they are continuing to do unclean business, if they get some amnesty by saying okay, we paid bribes, but so did these other people. And often, if they're jointly bidding on a deal or jointly using the same tax advisor, they will know very well what their competitors are doing and will have great evidence that they can share with prosecutors. And U.S. prosecutors have really leveraged that in ways that are really clever, because even with comparatively more resources, no Federal Prosecutor's Office in the U.S. really has the resources to go after all these different tax havens and tax shelters. In the Swiss banking cases, they couldn't prosecute 83 banks on their own really; they said if you don't turn yourselves in or turn in your colleagues, it won't be good for you and we are coming. And using a company's own selfish motives to incentivize turncoat and snitching type behavior among largest corporations, genius. And that's something that can be done, to use corporate competitiveness and selfishness to promote clean business.

 

Diane Ring:

Prem, did you want to offer a comment?

 

Prem Sikka:

Yes, sure. The interesting thing is this notion of competitiveness is not used to improve the distribution of income or wealth or better rights for workers or homes for homeless people. It is a very weird primitive neoclassical economics kind of approach. And we have had this dialogue in parliament again this week; and when anybody suggested improvements in public accountability, the response from some members of parliament is well, that will increase the cost. And I did have to point out to somebody that there's nothing more costly than status quo. Just ask somebody who's been a victim of a financial fraud or been cheated in in some other way. But the problem is a lot of these people who talk about these things, don't make a distinction between public and private costs; they only think about the private costs and not the public costs. But the irony is, if all businesses behave, you will actually have less regulatory costs. But the fact is that they don't behave; therefore, that is why we need lots of regulatory bodies and structures. And indeed, I had a dialogue which was not in parliament, just online with somebody, and somebody said we need a tax cut; and I first of all, I wonder what that means. And then I said: actually, you can have it. All you need to do is improve the distribution of income and therefore, there would be less mental health problems or less problems arising out of people living in poor housing. They can all have decent food and therefore, they will not be asking for social security benefits; so, how about improving the distribution of income? I’m afraid that I didn't get anywhere; I didn't expect to. But in other words, there's a very different perspective on how you can reduce some regulatory costs, but that is not what they were willing to do. I think what John and Brandon were saying, in a sense, what we are up against is rampant corporate power. Corporations dominate every part of our life, but they also are creating diseases, whether they are related to tobacco, thalidomide, obesity, adulterated food. And they're simply not held accountable for it at all. Shareholders sit back, receive dividends, run from one company to another, those dividends may well come out of unethical and even illegal practices which bring death and destruction to many, but shareholders can't be touched, they're utterly immune from this. So, again, we have to look at the very model of corporation, which itself encourages the practices which we are unhappy about. And we need to look for alternatives to corporations, even where we have corporations, we should be democratizing them. And that's why I mentioned right at the beginning, is there any reason why giant corporations should not be subjected to freedom of information laws? After all, they are experimenting every day on all of us; don't we have a right to know what they are doing to us? And it is hard to find politicians who would actually subscribe to that. But of course, if I get a chance, I will raise that thing in British Parliament; I’m sure it will go down like a lead balloon, but some things are worth floating and I will try to do that.

 

Diane Ring:

Thank you. I will have to close out this part right now, but as I said, I know that the Q&A will provide again more opportunity to flesh out these issues. As we go to the Q&A, let me just make three points about how we'll proceed. I have a list of people and I will say your name and then, when it's your turn, we will turn off the recording when you ask your question, so you won't be recorded. I will ask you to state your name and your affiliation and also if you're part of the VIRTEU project and then, you can ask your question. Once you're done, we'll turn the recording back on, I will quickly restate that very briefly and then we will open it up for comments from our panelists in response. Not everyone has to answer everything, I know we have quite a number of questions, we'll try to at least get through them a bit. So, I think we're ready to begin. We've just had a question regarding the new UK Investigatory Act – that's my quick summaries as a non-UK person – that provides immunity for those who've been otherwise pre-authorized to work in behalf of pursue various interests of the UK government or the UK, including economic well-being of the country. And the question is whether or not that kind of very broad immunity will in fact lead individuals with that protection just effectively squash efforts at others to challenge tax avoidance, to challenge corruption, perhaps to destroy documents – all in pursuit of economic well-being.

 

Prem Sikka:

Should I start? Well, thank you Stephen, it's a very interesting question. In my view, the Covert Human Intelligence Sources Bill is the worst legislation which anybody could ever develop. Just to give a brief background, basically the UK law for last 200 years has been that a state official may do something, whatever they think is in the public interest. Let's just think about an extreme example; say a policeman finds an armed terrorist on London Bridge, on the spur of the moment has to take action, there is no time to consult anybody, shoots the terrorists. Now, what do you do? Well, the position is you then have a hearing, you take the evidence, you examine the circumstances and then you decide whether the action was appropriate. But all that is being actually overturned. So, under the CHIS Bill, as it is called, there can be state or non-state actors of any age who can be authorized to commit; that is, they’re authorized in advance to commit criminal acts, whether it is murder, rape, torture – nothing is marred. They can be authorized, as long as there is a clause in the bill – off the top of my head I think it is Clause 5 – which says as long as that is in the interest or that is the UK economic interest and also in the national security interest. So, if you happen to be an innocent victim of this premeditated act, there is no restitution, because it's already authorized. Nobody will be telling you that it is authorized, other than some key individuals within the organizations and possibly ministers who would know about this. So, Freedom of Information Law would not secure that information for you, even though I have always argued we never really had freedom of information law in the UK. At best, we only had a possible right of access to information, because we don't really know what information is actually held. We don't have a list, so we can only guess what may be there and ask about this. Now, the government's argument is that this is really vital. I was not convinced in any parliamentary debate that that was vital and I voted against the act; I also voted for a number of amendments which were tabled to protect the innocent victims, but the government rejected them. So, basically it is a huge erosion; you will feel this in your everyday life, your phone can be tapped without any court order, a person can now come to your door, has the appropriate ID and says I want to search your premises. If you say no, you are committing a criminal offence. These operators don't actually need a court order to do these things to you. This is a huge erosion of people's civil rights, threat to human rights. Of course, many other governments, many other countries, are also facing similar concerns about security threats and issues about well-being. For example, you can look at Canada, U.S. – they don't have a similar law. The UK is actually charting a completely new territory; and that is very dangerous. Will it really help to deal with corrupt practices? Well, that was one of the things the government argued that the need to send in undercover agents – do they really need to commit murder, torture, rape and other and other things in order to uncover corruption? Or do we need some other approaches? Like I talked about some examples I gave earlier. I think it is a moment of profound danger to the rights that we may enjoy and not already enjoy some of them.

 

John Christensen:

Stephen, if I could just add to what Prem said, I agree with everything that Prem said. Speaking now from a civil society perspective, as Chair of Tax Justice Network, but also as someone who works a lot with investigative journalists, it concerns me enormously that we will not have access, we will not know what state agencies are doing, we cannot ask questions about what state agencies are doing. Apparently on the public behalf, it concerns me also more broadly that in the UK – and I’m sure this is happening elsewhere – there is a deterioration of the conditions within which civil society can operate. A climate where apparently to combat this great accountability and transparency NGOs are finding themselves increasingly under pressure to not ask awkward questions. And this has reached the stage where we, at Tax Justice Network, are having to very seriously consider the idea of relocating our corporate registration out of the UK, because we are concerned that increasingly the boundaries within which we can operate are being quite carefully trimmed to reduce the space within which we can operate. And I see this law as potentially one part of that reducing this space within which civil society and journalists can operate.

 

Diane Ring:

Thank you. Now, our recording will go off. I'll just restate the question for our recording. As we think about the relationship between the global south and the global north, with attention to the fact that the global south faces issues with a lack of capacity, but we find flows going to the global north – financial flows – finding a safe haven; given regulatory capture, how do we move forward on that? I’ll open it up to you too.

 

John Christensen:

If I can begin, because I like optimism and certainly, we at Tax Justice Network always like to come forward with solutions, but these are very much green shoots. I think I’d point you in the direction, Aviola, of an organization called Tax Inspectors Without Borders, which is a joint UNDP-OECD project. But if you dig deep, you'll find it originates from Tax Justice Network, it came out of a proposal I put to a government summit meeting in 2011 to build capacity for tax authorities and enforcement agencies in the global south by sharing best practice and by bringing in – very often on a south-south cooperation basis – really highly experienced tax inspectors, tax specialists and tax investigators to work with tax authorities across the global south. If you look at their website, you find that by far this has been an enormous success story, not just in terms of helping global south countries to raise additional revenue and to build that tax enforcement capacity, but also in pushing back against the very corrupted corporate culture, which for many decades is just assumed that the tax authorities are going to be so weak they can't handle transformers pricing and other complex tax avoidance matters. And that culture is changing fast. But I’d like to see this international cooperation extended to also strengthen judicial authorities and enforcement authorities, because I think that there are weaknesses there as well, not just in the tax area, but in anti-money laundering areas and so on. But I think there there's a green shoot there. And another green shoot I’d like to point out is the United Nations FACTI Panel just this month – well, sorry last month actually – agreed a whole program of reforms which I think will, in the course of the coming decade, massively strengthen transparency arrangements, cooperation arrangements and will, I hope, lead to a rewriting of the international rules for taxing multinational companies, which I hope will curtail a great deal of tax avoidance by powerful multinationals.

 

Prem Sikka:

I’ll step in there. Thank you for a very interesting question. And like John, I’m always optimistic and I think civil society organizations – as Tax Justice Network has demonstrated – can do quite a lot. And indeed, it has been a pivotal movement in sensitizing people to the issues about tax avoidance, tax evasion, tax havens and putting forward ideas or reforms, some of which are now being accepted as though they are common sensical things to do by the powers to be. So, that is very important. I think global south also needs to join forces and develop their common interests. In relation to tax, the weaknesses of the transfer pricing rules have often been highlighted by countries like India, Brazil, South Africa, which in a sense is forcing the OECD to rethink some of those issues. As an accountant, I’m always troubled by why global south wants to use western accounting ideas. When western companies prepare financial statements, as I said earlier, they're primarily aimed at speculators in capital markets. But when you go to many developing countries, firstly, thankfully, you don't have such deep capital markets, lots of businesses are family controlled and you also have lots of other problems around employment, encouraging investment in R&D, public investment in productive assets and so on. There is no accounting rule in the western world which promotes it. I’ve always argued, whenever I’ve spoken to any conference from Africa, Asia, I’ve encouraged them to get together and develop their own accounting standards, which give visibility to local problems and deal with them, rather than saying here is what happens in the western world. We have what they call international financial reporting standards, they are issued by International Accounting Standards Board, which is a subsidiary – if you like – of the IFRS foundation, which is registered in Delaware. And the sole reason for being in Delaware is so that it can avoid taxes on all corporate contributions and other revenues that it generates. That's a hell of a credential for an organization supposed to be pushing boundaries of corporate accountability. So, my encouragement would be really for these countries to get together – they do have a lot in common – and form common alliances and do what is good for the people in their own countries.

 

Diane Ring:

Great. Our next question comes from someone who's having a little bit of an audio difficulty, so I’m going to read the question. All right. And it regards the exchange of favors and interdependence of members of the elite in academia, in the judicial sector, in the corporate sector and the political environment. So, just to comment really on what that network and a little bit of the interdependence that we mentioned before – how that figures in to what we're seeing?

 

John Christensen:

Well, Prem, I was expecting you to kick off, but maybe I will.

 

Prem Sikka:

Okay, I'll kick off. I think there are certainly major issues here. There was a journalist who worked for a major UK newspaper – Daily Telegraph, the Telegraph – and he actually resigned, because he was constantly told not to run any negative stories about HSBC. Because HSBC advertised a lot and the newspaper was not really very keen on losing possibly that advertising account. There are lots of accountancy magazines, even online now – and then yes, the years they were in print – they are really run by what some people say professional accountancy bodies, I always like to call them trade associations, which annoys them a lot and that's good. So, they were run by and owned by accountancy trade associations, they very rarely ran anything critical about big accounting firms or the auditing industry. Their notion of criticism was on technical grounds, not on any sociological, philosophical grounds, but just on technical issues. And that again, in a sense, shows how some of these alliances run. And it would be interesting research for someone to look at the debates. For example, we just been discussing the Financial Services Bill in parliament, look at the speakers and see those who are close to the finance industry or what actually they have to say. And you will find most of them busy defending the indefensible. So, certainly in a sense some of these problems have been highlighted by Noah Chomsky in his very famous book “Manufacturing Consent” long time ago, but you can actually observe them in everyday discourse. I watched lower the world of accounting for a long time, I won't bore you with some of the details, but over the years all kinds of concessions have been given to accounting firms which have made it much harder for the victims of auditor negligence to sue the audit firm. And in most cases, would you find the ministers who given away these concessions upon leaving office end up working for those accounting firms as consultants. They're not really hired because of their accounting skills, they're hired because of their political maneuvering getting access to key policy makers, senior civil servants and others. So, there is a lot of that. And what I’ve always argued is, being a legislator – especially in the House of Commons is a full-time job – they get paid very nicely, there is no way they should be allowed to do consultancy for anybody else. And often the response is yes, but I need to talk to business, otherwise I can't contribute effectively to parliament. My response is please, by all means talk, any money you collect let us create a new foundation for democracy and it all ends up there, so that you don't personally receive a penny. And of course, they would not really be keen on that. Certainly, there are those kinds of networks. And I think to come back to my earlier message that the state we find ourselves in is really there, because of the corrupt political philosophies and institutional structures that we have. They're all man-made, there is nothing natural or inevitable about them, there is no invisible hand, it is a visible hand of social interests which has created them and therefore, we can change them. All our predecessors have shown how things can be changed; we can change them too.

 

John Christensen:

Thanks, Prem. Can I just add another dimension to this speaking now as someone who worked both in the UK and in the Jersey Civil Service – I ran a department; I was a very senior adviser to government acting as a civil servant. It has concerned me enormously, in the last few decades, to watch the independence of the civil service which has in the past attracted some really superb independent professional people. Watching that independence being eroded at the highest level of bringing in special advisors from the big law firms, from the big accounting firms, from banks and other industries coming in and nakedly promoting the interests of their employers – in other words the Big Four accounting firms and so on – with very little idea of what constitutes a public interest and absolutely no interest in promoting public interest. And it has concerned me enormously also to see the extent to which politicians look to those people to advise, because they think that whatever is good for the Big Four accounting firms and their clients, is going to be good for the country and the citizens as a whole. And I think the erosion of the civil service neutrality and independence has played a key part in undermining the process of good government in this country. That's another dimension; I think it's another form of corruption of democracy when you don't have an independent civil service able to look at laws from all sides and determine and advise on what is good for the country as a whole, rather than good for powerful corporations.

 

Diane Ring:

I know we have quite a number of questions in the queue, we really have time – we've already gone over – for one more. We'll take the recording off. The question was asking about the private-public partnerships that we see and the idea that they're supposed to assist in anti-corruption and anti-tax evasion efforts to really be part of the solution. But the question is whether those private-public partnerships may actually be either creating a problem or part of the problem. So, I will turn it over to Prem and John.

 

John Christensen:

Well, I’m going to come in.

 

Prem Sikka:

Okay, well maybe I'll go. John, you have a go.

 

John Christensen:

What I was going to say, Donato, thanks for the question, I’ve certainly been involved in a number of public – looking at and advising on – a number of PPPs; and you know what? I’ve come to the conclusion – and I think I felt that right from the start, a great deal of skepticism about them – but my conclusion is absolutely they are part of the problem, they are not part of the solution. There's a lack of accountability. I remember the first major partnership that I looked at, the contracting process ran to hundreds and hundreds of pages and it's absolutely clear that at some stage, when these things start to roll out, there was going to be massive litigation. And in that particular case proved to be exactly the case, massive litigation ensued and inevitably. The private partner won, because the contracts had been skewed in their interest. I think it's undermined accountability, it's undermined the requirement that our politicians actually make decisions and take responsibility. I feel very strongly that in the majority of the cases that I’ve looked at, they have neither delivered value for money, nor have they delivered on the promise that they would cut back on corruption.

 

Prem Sikka:

Well, thank you, John. It's a very interesting question, so thank you, Donato. A question in a week when the public accounts committee – which is a committee of UK Parliament – published a report saying how the government spent 37 billion pounds on test and trace, paying some private consultants up to 7000 pounds a day. And at the end, the government can't even show that any of that made any discernible difference to the UK's handling of the Covid pandemic. Because a lot of contract details were not published, we don't know much about it, we don't know where the money went, we don't even know if we got value for money. There are all kinds of issues raised about accountability as well. We have a public-private altitude; our partnership is operating in many different ways. If you are to look at the board of HMRC – which is UK's tax authority – you will find lots of individuals from major corporations and accountancy firms over the years who sit on that board or at least have come from private organizations. And HMRC has not been very successful for dealing with tax avoidance by large companies. There are not many cases where they have actually taken any of these to the courts, despite revelations by Panama Papers and Paradise Papers and Jersey Leaks and many others. Within the HMRC, there is also something called General Anti-Abuse Rule. So, there is a panel called GAAR Panel, it is almost entirely made up of individuals from law firms and accounting firms and corporations who actually either have defended tax avoidance or promoted tax avoidance schemes. And again, another none of the GAAR rulings relate to any large business and you wonder why. There is that kind of an issue. So, that suggests public-private is very difficult and I agree with John that it is part of the problem. And you can see that at a bigger scale when we have, for example, something called a code of corporate governance, which is the voluntary thing. Now you and I, even if we park on the wrong side of the road, well we face the might of the law; and the general principle of law is comply or else. But now we have a state within a state which is for corporations. So, we have no new central enforcer of company law in the UK, there is no such regulator, but there is a voluntary compliance with this corporate code. And if you feel that you have any grievance, you can't really go to the courts and say well, your honor, this business has violated something and damaged my rights. The first question would be which laws have been violated? There is no law, this is a voluntary agreement. That does not really do anything. And the way the corporate governance code was devised, you would find hard push to find any line which says pay a decent wage, do not engage in bribery, do not engage in corruption, be transparent about tax avoidance, don't exploit workers – all those things utterly taken out and marginalized. If anything, problems of corporate governance have been multiplied, because this code and the government's acquiescence to that has actually emboldened corporations to commit criminal acts, knowing that there is no real enforcement of any kind. So, personally I favor public model, but with the empowerment of stakeholders, so that they have the power to call misbehaving corporations to account. And at the moment we don't really have that in the UK.

 

Diane Ring:

All right. I’m – unfortunately, as I said – going to have to close it off now. But I would really like to thank our three guests today, Brandon Garrett, Prem Sikka and John Christensen. I know that I and I’m sure all of the attendees have found this to be an immensely valuable discussion; a bit depressing, but immensely valuable. What I’d like to do now is turn it over to Engin Erken for a summation to really pull this all together so that as we leave, we have it wrapped together in our head. On to you, Engin.

 

Engin Erken:

Thank you very much, Professor Ring. As Professor Ring has already mentioned, my name is Engin Erken and I am a Postgraduate Researcher at the Centre for Financial and Corporate Integrity at Coventry University. I am also a Research Associate on the VIRTEU project. I am undertaking a PhD with a primary focus on money-laundering predicate crimes, including corruption and tax offences. So, this has been an extremely interesting and fascinating discussion for me. Firstly, I would like to thank all of the fantastic panelists, Professor Garrett, Professor Sikka and Mr. Christensen, who is Director and Founder of the Global Tax Justice Network, which is one of our impact partners. Thanks also to our Chair Professor Ring, to Dr. Grasso, Dr. Pasculli, Dr. MacLennan and all the audience for attending this roundtable session. Today we have focused on different forms of corruption, including traditional bribery and indirect corruption, along with more structural institutional issues that could be framed as conflict of interest relating to the state-corporate nexus, lobbying practices in terms of undue corporate influence on the political process and tax regulation and the enforcement aspect of the phenomenon regarding tax prosecutions of corporations and backroom deals. Firstly, the panel discussed unfair competition practices between states and the role that corruption plays in relation to such nation approach to taxation. If you look at the state-corporate nexus, we can see that the relationship between them is not healthy, rather it's a corrupt environment. Professor Garrett raised competitive disadvantages between jurisdictions. Mr. Christensen stated that competitive advantage is a completely toxic nonsense and is all about promoting competition between states; he added that hosting a huge privileged financial sector only benefits a tiny minority and does not benefit the economy as a whole. He underlined the supply side of corrupt practices and emphasized the role of tax havens and enablers. Professor Garrett mentioned that the states who operate in tax havens also protect them politically. Professor Sikka referred to the unhealth connection between states and corporations as a systematic problem, as the authorities that we expect to deal with it are also the ones who are part of it. He mentioned that it's a never-ending struggle to overcome and emphasize the role of education and the necessity for a revolution of the human consciousness to address the predicament. We also discussed lobbying issues and talked about how national tax policies are affected by the undue influence of and forceful pressure from wealth corporations, resulting in an environment where aggressive tax avoidance practices are allowed. Professor Garrett stated that the annual tax gap in United States is approximately 400 billion dollars. Lobbying is a matter of conflict of interest and in this sense, Mr. Christensen highlighted the necessity of reframing the concept of corruption. He stated that power shapes the corruption discourse and considering the practices undertaken by enables and multinational enterprises, bribery was a dominant part of it. However, bribe taking constitutes a miniscule issue compared to tax evasion and tax avoidance. In other words, corrupt practices go beyond giving and taking bribes. Lastly, we discussed the difficulties relating to enforcement practices. The conflicts of tax legislation, the lack of skills and competencies of the relevant authorities and the unwillingness to prosecute big corporations, resulting in affecting tackling mechanisms. Such corporations always look for agreement opportunities to resolve legal disputes on tax matters; and when there is an agreement, it is not transparent. Rather, it is in the form of backroom deals. Professor Garrett and Mr. Christensen highlighted that this also involves revolving the relationships between the various parties, as in the case where high-level prosecutors become defenders of big firms. In this context, Professor Sikka raised issues about transparency, openness and how regulatory bodies are structured, reinforcement of which seemed to be the best strategy for tackling the phenomenon efficiently. In the Q&A session, we covered extremely salient issues. There were many fascinating questions, but due to the limited time at our disposal, I'll focus on a few of them. There was a question on state secrecy and, in particular, have a recent bill of the UK government – namely the Covert Human Intelligence Sources Bill – may advice and affect taxation practices, considering it offers criminal immunity for certain parties. Professor Sikka mentioned his concerns about the legal instrument by referring to it as a diverse kind of legislation; he added that if it becomes an act, nobody will be able to sue anybody due to the privileges it introduces. Another interesting question was on the effects of public-private partnerships; and panelists emphasized, amongst others, the importance of transparency and accountability in this context. Once again, it was a fruitful and fascinating discussion and many thanks everyone for your contributions. Thank you.

 

Diane Ring:

Engin, thank you very much for that summation. After today's discussion, I can see that there's so much work for you and your colleagues at the Centre for Financial and Corporate Integrity. That really brings us to the close of our four roundtables. I would like to thank all those who have been joining us for these sessions and of course, today's panel participants. We very much appreciate your attention to these issues, thank you.

 

Prem Sikka:

Thank you.

 

John Christensen:

Thank you.

 

Prem Sikka:

Bye bye.

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