Democracy Lab

A Small Victory in the War on Corruption

This week's G8 Summit brought some small but crucial successes in the effort to cut down on illicit financial flows.

The civil war in Syria overshadowed coverage of this week's G8 Summit in Northern Ireland. Yet that wasn't the only item on the world leaders' to-do list. Little noticed by reporters, the summit ended up producing some small but important advances in the global fight against corruption. British Prime Minister David Cameron pushed hard to convince his colleagues of the virtues of his transparency agenda, which he believes will foster global prosperity by curtailing tax evasion by multinational companies and the use of so-called "offshore centers" by businesses, corrupt officials, and organized crime. Although both the G8 and the G20 have toyed with an anti-corruption agenda for the last three years, the measures proposed by Cameron add up to a much more specific attack on the financial and legal mechanisms that facilitate corruption and tax evasion. Cameron received modest support from some countries, such as the United States and France, and somewhat more muted backing from Germany, Japan, and Italy. Russia resisted some of the measures -- which is important, since it's taking over the G8 Chair in July and is installed as Chair of the G20 for all of this year. But the outcome was sufficient to create a credible base for future action. 

Cameron's program concentrates on four measures: an end to secrecy surrounding the true ownership of companies; the introduction of a register that includes all relevant data on corporate ownership; automatic access across frontiers to all taxes paid in a specific jurisdiction; and a tax regime that would see all companies trading internationally pay their taxes wherever profits are generated.

This package is intended to help countries recover much of the rightful tax revenue that they're currently losing, and which goes instead to the offshore centers  integral to tax avoidance and evasion schemes. Part of the problem is that the current definition of an offshore center is broad, and actually has as much to do with legal structures as with location. (Indeed, the City of London is frequently referred to as "offshore" in current analyses.)

Why now? Transparency International, Global Financial Integrity, the Tax Justice Network, and Global Witness have been calling for curbs on offshore centers for some years now. Mounting losses from tax evasion have recently given the issue a big boost in some G8 states, notably France, Britain, and the United States. In the United States, the fact that profits earned on an international basis can be "parked" in the Cayman Islands, where corporate tax is negligible, has cost the U.S. Treasury at least $500 billion. British and French companies have avoided paying comparable amounts. Anti-corruption measures have had a hard time making headway against offshore tax havens, which now enable the fruits of corruption to be held in multiple layers of shell companies and trusts that have proved very difficult for investigators to penetrate.

Thanks in part to intensive lobbying by NGOs such as ONE and analytical work by Professor Paul Collier of Oxford University, Cameron had recently become convinced that he should make the corruption issue central to Britain's chairmanship of the G8. Despite the potential for resistance from the corporate sector, he is now arguing that measures aimed at solving these problems will be good for business and its reputation. Risking a confrontation with the quasi-independent chief ministers of the Crown dependencies of the Channel Islands and the Overseas Territories of the Caribbean, Cameron forced them to acquiesce to an agreement on the swapping of tax-related information at a meeting in Downing Street two days before the summit.

What do these measures really mean? First, beneficial ownership. Secrecy surrounding corporate ownership holds in many jurisdictions. In several U.S. states there is no requirement to identify shareholders in company registers. One measure proposed by this G8 meeting would end such secrecy, whatever its legal form, and reveal the real and beneficial owners of the share capital in question. This would be invaluable -- both to countries defrauded by corruption and to tax authorities that may find themselves searching through what may be more than a hundred subsidiaries. At this summit Britain offered to reform its Companies Act to reflect this, but failed to persuade the others to make a binding commitment. Obama, apparently, merely promised to press Congress to consider the issue.

Second, the corporate register. In the version proposed by the British government, from now on registers will have to record all information relevant to corporate ownership, including the beneficial ownership data produced as a result of the reform mentioned above. The British position was that this register should ultimately be international and open to the public. Others, notably Russia and Canada, did not support this position. 

Third, reporting on global taxes paid. The reform proposed by Cameron calls for a regime under which corporate taxes by mining companies -- in Tanzania, let's say -- would be accessible to the tax authorities in both offshore centers and the company's home country. (Some pilot projects based on just such a mechanism are already running in four G8 countries. Canada, Japan, Russia, and the U.S. have yet to participate). Under the proposals, companies would also have to publish accounts of the taxes they've paid in all countries in which they have sales.

This mirrors the requirement under the U.S. Dodd-Frank Act for "project-by-project" reporting, a stipulation that was also adopted by the European Parliament earlier this month and which member states are all supposed to adopt within a two-year time frame. This innovation -- pushed for heavily by civil society -- would enable the public to track information from each investment made by extractive industries as opposed to recording the total value at national level. (The European Union has recently proposed that this requirement should now extend to multinationals outside the extractives sector.) Given that few businesses like the idea, and considering that Dodd-Frank is under fire from many quarters in the United States, the requirement is likely to remain contentious. The question of whether project-level reporting should be available to the public, and not only to revenue authorities, is even more so. The OECD is working on this issue, and is scheduled to launch its proposals to the G20, under the Russian chairmanship, in July. 

Missing from this G8 package is a clearer focus on what Raymond Baker of Global Financial Integrity (GFI) has christened "mispricing": transactions in which exports or imports are made at prices that facilitate the transfer of unjustified profits to offshore centers. GFI has shown that such transactions are responsible for more than $1.3 trillion escaping from Africa between 1980 and 2009. It's imperative that this issue is addressed along with the others, and the G20 has a nominal commitment to doing so.

As I've noted before, 2013 always stood a good chance of being the year in which the international framework on corporate and banking secrecy, project-by-project reporting, and the status of offshore centers became recognized as critical to building a fairer world. By mid-year the members of the G8 have taken important, though unequal, steps to that end. The question now is whether President Vladimir Putin as Chair of both the G20 and the G8 will go the further miles that are so badly needed.

Matt Cardy/Getty Images

Democracy Lab

Burma's Fallen Idol

Her country is in crisis. But human rights heroine Aung San Suu Kyi isn't giving Burma the leadership it needs.

Years ago, during a brief break in Aung San Suu Kyi's long years of detention, a fellow congressional staffer and I visited Burma's democracy leader at her lakeside home in Rangoon. It was the late 1990s, not quite 10 years after her party the National League for Democracy (NLD) and its ethnic allies won a smashing victory over the ruling junta's party in a parliamentary election. Soon after our meeting, the generals cut her off from the world again. It would be more than another 10 years before she emerged from house arrest.

My colleague, unlike me, said he did not embrace an American policy closely tied to Aung San Suu Kyi, her views on sanctions (she was strongly in favor), and her determination to see the NLD's electoral victory respected. Anyway, he said, democracy just brings another set of problems.

"I'd like to have those problems," Aung San Suu Kyi replied.

Now she does -- and her response to them, particularly the surge in anti-Muslim bigotry and violence, has tarnished her image abroad while raising concerns about the future of Burma's tentative political reform. 

One year ago, riots, arson and murder targeted Rohingya Muslims in Rakhine (Arakan) state after three men from the community raped and murdered a Buddhist woman. This mainly spontaneous violence was followed, according to Human Rights Watch, by a more orchestrated campaign in October. Since then, religious violence has spread across Burma, targeting Muslims more integrated and less vulnerable than the Rohingya, a population that has endured longstanding discrimination. A report by Physicians for Human Rights describes a March pogrom in Meiktila, in central Burma, in which 100 people died and armed groups destroyed homes and mosques. 

On June 20, 12 of Aung San Suu Kyi's fellow Nobel Peace Prize laureates issued a statement calling upon the Burmese government to prevent violence against Muslims and other ethnic minorities. 

Given the Buddhist teachings of compassion and non-violence, Burma seems an unlikely, even inhospitable place for bigotry and racial hatred. In fact, however, experts fear that the anti-Muslim prejudice is deeply rooted there. "Buddhist kings drew their legitimacy from their institutional support for the monkhood and from a cosmology that presented the well-being of the Buddhist community as an indicator of the strength of the nation," writes Matthew J. Walton, a scholar at George Washington University. "Thus, threats to Buddhism also function as threats to the nation."

After Yugoslavia and Iraq, we are no longer shocked when long-suppressed religious and ethnic conflicts complicate democratic change. The problem is not only that these fault lines exist, but also that quite often they are accepted as innate human phenomena. In Indonesia, as President Suharto was faltering, some policymakers were quick to suggest that Indonesia's ethnic and sectarian divisions made Suharto's authoritarianism a better option than a democratic transition. "'Amok' is a Malay word" some tutted at the time, although in the event, Indonesia never experienced the instability and blood-letting so many predicted.

Among the instigators of the anti-Muslim campaign is U Wirathu, a radical, Mandalay-based monk, who has shot to prominence for his racist sermons, calls for anti-Muslim laws, and association with the "969 campaign," which urges boycotts of Muslim businesses. The number 969 refers to important components of Buddhism and, according to Walton, may serve as "a symbolic counter to the number 786, a numerological shorthand for Islam used among some Muslims in Asian countries."

The response from the prominent pro-democracy figures has ranged from weak to worse. Aung San Suu Kyi seems to speak about human rights abroad, and about her admiration for Burma's army abroad. On a visit to Burma last August, expecting a youth's idealism on race, I ventured my surprise at this to a young activist in his early 30s. Instead, he said he too had ugly things to say about the Rohingya. (I didn't pursue it.) The Human Rights Watch report was challenged by prominent members of the 88 Generation Students Group, which Human Rights Watch has spent years supporting. One of them, Min Zaya, called the report "an insult to the nation." Another young dissident told me that he held more tolerant views, but expressed respect for U Wirathu's religious stature.

While Aung San Suu Kyi and her fellow democrats have hung back, some monks have stepped forward. "I deeply denounce these religious, racial and commercial conflicts with no exceptions," the revered monk Sitagu Sayadaw told an audience in Rangoon on March 30, 2013. "I firmly believe other religious denominations share the same concept, and no god prescribed conflict of any kind." Ashin Issariya, a religious leader who enjoys considerable respect for his prominent role in the 2007 protests against the military junta, belongs to a network of monks and monasteries that provided aid and shelter for displaced Muslims. In the past few days, a conclave of monks has met to reject the violence and shunted aside U Wirathu's proposal to outlaw inter-religious marriages.

The euphoria that comes with the beginnings of freedom and democracy are bound to give way to frustration and cynicism as the problems suppressed and festering under dictatorial rule come to the surface. I recall reading that after his release from a Burmese jail, a political prisoner expressed a yearning to return to prison, just for a few days, to regain the clarity of purpose that enabled him to survive.

During her years of struggle, Aung San Suu Kyi was awarded prizes named for human rights heroes the world over: the Sakharov prize, the Wallenberg prize, the Gandhi prize. In 1991 she also won the Nobel Peace Prize, though she was unable to go to Oslo to receive it. When she finally picked it up last year, she spoke movingly of the "oneness of humanity," and how she had passed her time in isolation reflecting on the Burmese concept of peace, describing it as a "beneficial coolness that comes when a fire is extinguished."

It would be good to hear Aung San Suu Kyi give a speech like this again. She may judge that the realities of her political situation require something else. I believe the opposite is true.

Today, Burma needs a Tolerance Prize. How sad to think that, if such a prize existed, Aung San Suu Kyi would not even be on the shortlist.

Ye Aung Thu/AFP/Getty Images