Billions of euros intended for projects in developing countries routed through the world's most secretive financial centres
New Eurodad report investigates private sector support by European Development Finance Institutions
Tuesday November 4th
Billions of euros intended for projects in developing countries are being routed through tax havens and are shrouded in secrecy, according to a new report released today (Tuesday November 4th).
The report, Going Offshore, examines support given to private sector companies by Europe’s biggest Development Finance Institutions (DFIs) and the International Finance Corporation (IFC) – the World Bank’s lending arm. It finds that a huge amount of support is going to companies that use the world’s most secretive jurisdictions, often referred to as “tax havens”, even though these jurisdictions allow businesses to avoid paying taxes and to remain unaccountable for their actions.
Report author Mathieu Vervynckt, Policy Analyst at the European Network on Debt and Development (Eurodad), said: “Developing countries lose hundreds of billions of euros every year through tax avoidance and evasion by companies. It therefore seems very contradictory for DFIs – whose mandate is to promote development and end poverty – to route so much support through notoriously secretive financial centres that maintain these practices. In doing so, bilateral and multilateral DFIs are essentially providing income and legitimacy to the offshore industry.”
Regarding national European DFIs, the report finds that:
- At the end of 2013, two thirds (118 out of 157) of fund investments made by the CDC Group Plc – the UK’s DFI – went through jurisdictions that feature in the top 20 of Tax Justice Network’s Financial Secrecy Index (FSI). Between 2000 and 2013, these funds received a total of $3.8 billion (€3 bn) in original CDC commitments, including $553 million (€435m) in 2013 alone.
- As of 4 June 2014, the Belgian Investment Company for Developing Countries (BIO) was involved in a total of 42 investment funds, 30 of which were domiciled in jurisdictions that feature in the FSI’s top 20. These investments amounted to $207 million (€163m).
- At the end of 2013, Norway’s Norfund had 46 out of a total of 165 active investments that were channelled through jurisdictions that appear on the FSI’s top 20. These investments amounted to $339 million (€267).
- Of the 46 investment projects involving German DFI Deutsche Investitions- und Entwicklungsgesellschaft (DEG), as of 31 December 2012 at least seven were structured through major jurisdictions such as the Cayman Islands, St Kitts and Nevis and British Virgin Islands.
Multilateral DFIs, such as the standard-setting IFC, are also routing investments through tax havens. For example, between 2009 and 2013, the IFC supported financial intermediaries registered in tax havens listed in the top 20 jurisdictions listed under the FSI, amounting to $2.2 billion (€1.7bn).
The European Investment Bank (EIB), on the other hand, does not even disclose the countries where the companies it invests in are domiciled. Due to the Bank’s lack of transparency about its operations it is very difficult to judge the extent of its support for companies that use tax havens.
Most DFIs have standards governing their use of tax havens, but they are often difficult to access. DFIs are also highly dependent on ratings put forward by the OECD to determine their standards. Criteria put forward by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, mostly focus on banking secrecy instead of corporate tax dodging and country by country reporting. Many developing countries, who suffer due to tax havens, also lack a seat at the Forum’s decision-making table.
Mathieu Vervynckt added: “We are urging these institutions to stop supporting companies that use tax havens and make sure that details of all operations are open to the public. After all, DFIs are public institutions with a development mandate, so it’s only right to demand that they should be accountable to the taxpayers that pay for them and the people in the developing countries that they are supposed to help.”
Notes to editors:
- A full copy of Eurodad’s report: Going Offshore – How development finance institutions support companies using the world's most secretive financial centres can be downloaded at www.eurodad.org/goingoffshore.
Eurodad is urging DFIs to:
In addition, national governments must support:
- Only invest in companies and funds that are willing to publicly disclose information about their owners and report back to the DFI their financial accounts on a country by country basis. Ultimately, the data should be placed in the public domain.
- DFIs should ensure that the funds in which they invest are registered in the country of operation or, if not, explain why a third jurisdiction is preferred.
- DFIs should make their current and future standards easily accessible for all citizens. This means that standards should be available on their respective websites and on request, as well as being translated into the official languages of the targeted developing countries.
- An intergovernmental tax body under the auspices of the United Nations with the aim of ensuring that developing countries can participate equally in the global reform of existing international tax rules. This forum should take over the role currently played by the OECD to become the main forum for international cooperation in tax matters and related transparency issues.
Read the German press release here. Read the UK press release here.