Tax havens shielding companies responsible for deforestation and overfishing

Money channelled through secretive tax havens has been used to fuel deforestation in the Amazon and illegal fishing around the world, racking up a heavy environmental toll but leaving few ways for businesses to be held to account.

Billions of pounds worth of finance has travelled through countries internationally recognised as tax havens, and has been traced by researchers to activities that contribute to environmental destruction, such as growing soy and beef in deforested areas of the Amazon, and expanding a network of largely unregulated fishing vessels operating under “flags of convenience”.

The amounts traced are likely to be just a fraction of the total amount channelled through tax havens that ends up funding environmentally destructive behaviour, according to Beatrice Crona, co-author of a report published today in the journal Nature Ecology and Evolution

Victor Galaz, of the Stockholm Resilience Centre at Stockholm University and lead author of the study, added: “The use of tax havens is not only a sociopolitical and economic challenge, but also an environmental one. While the use of tax haven jurisdictions is not illegal, financial secrecy hampers the ability to analyse how financial flows affect economic activities on the ground, and their environmental impacts.”

The study found that more than two-thirds of foreign capital directed to Brazil’s soy and beef sectors between 2000 and 2011, as recorded by the Central Bank of Brazil, was channelled through tax havens. Soy and beef farming have been associated with deforestation in the Amazon.

During the period studied, almost $27bn of foreign capital was transferred to key companies within these sectors, and of this about $18.4bn came through tax havens, with the Cayman Islands most commonly used.

Crona, executive director of the Global Economic Dynamics and the Biosphere programme at the Royal Swedish Academy of Sciences, said the availability of the data from Brazil’s central bank for the period in question was unusual, and shone a brief light into what is likely to be a much greater global business.

Green campaigners called on governments to make finance flows more transparent. “This is dirty money, used for fuelling illegal activities that are driving the global environmental crisis,” said Elaine Gilligan, international campaigner at Friends of the Earth. “Aggressive tax evasion deprives communities of funds needed for a range of measures, among them environmental protections that play a part in fighting climate chaos.”

Action was overdue, she said. “It’s clear the UK government can do a lot to fix this. For a start, they should support international efforts to end tax havens and follow through their commitment to greater transparency in British overseas territories.”

Andrea Marandino, sustainable finance manager at WWF, added that companies could also play a role. “Nature is facing unprecedented threats as we continue to take more resources from the world’s richest natural areas. Tax havens make it very difficult to track international flows of capital and that means there is no accountability,” she said. “If we are to secure a future for areas like the Amazon, we need to see greater corporate transparency and traceability of flows of capital around the world that fund the destruction of nature.”

On the oceans, about 70% of vessels that have been implicated in illegal, unreported or unregulated fishing were registered in tax havens, according to the study’s findings. The ownership of fishing vessels has long been of interest to campaigners, because of the vast differences that exist in the monitoring and regulation of fishing in various jurisdictions. Complex webs of ownership allow catches to be traded, landed and in some cases disposed of outside the regulations that are supposed to prevent overfishing.

Tony Long, chief executive of Global Fishing Watch, said: “[The paper] adds to the growing evidence illustrating the criminal and shady practices providing cover for illegal, unreported and unregulated [IUU] fishing. An international focus on flags of convenience and their insufficient diligence in monitoring their flagged vessels is long overdue.”

Vessel owners can use “flags of convenience” to disguise their activities or make them harder to track, by registering their vessel under a jurisdiction that has lax regulation on shipping. The massive overlap between vessels known to be operating in IUU fishing and flying flags of convenience from acknowledged tax havens shows the extent of the problem, the authors of the Nature study said.

Long called for transparency in vessel movements, licensing, catch documentation and the disclosure of the true owners of all fishing vessels. “Without this, these unscrupulous operators will extract everything they can from our ocean, to line their own pockets with money at the expense of sustainable ocean resources,” he said.

The secrecy that companies enjoy from their business in tax havens is used primarily for reducing their tax payments, by transferring money among jurisdictions to take advantage of low tax rates. Some of the methods used and companies involved have been highlighted in recent years by revelations in the so-called Panama Papers and the Paradise Papers, covered extensively by the Guardian.

But the lack of transparency also enables those wishing to do so to hide their environmentally destructive activities, said the researchers in the Nature study. They called for the UN to examine how such money funds environmental harm.

Opening up tax havens to scrutiny by regulators and the public would be unpopular with the thousands of companies, many of them household names, that take advantage of their existence and lax regulation.

Many companies pride themselves on their high environmental standards, but still channel funds through tax havens to reduce their tax payments, which is estimated to cost governments $200bn a year in lost tax revenues. Once money has passed into tax havens, there is little way of finding out how and where it has been used.

The Nature paper does not name individual companies, though some were questioned as part of the research.

Fiona Harvey 

This article first appeared on the Guardian

edie is part of the Guardian Environment Network


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