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.