Saturday, November 23, 2013

Barclays and Deloitte criticised for the way they do business in Africa

Barclays and Deloitte criticised for the way they do business in Africa
If financial service providers really want to be a 'force for good' in Africa, there needs to be more transparency and less promotion of offshore tax havens, writes Toby Quantrill
Guardian Professional, Friday 22 November 2013 10.56 EST 
Ideas about what constitutes corporate responsibility are changing quickly. It is clear that being considered a good corporate citizen is now about much more than philanthropy alone.

Businesses are increasingly challenged, and judged, on the way they run their operations, the strategic decisions they make and the wider impact they have on society. That may mean paying a living wage, certifying their products as Fairtrade or reducing their carbon footprint. Increasingly it means ensuring that they are seen to pay a fair level of tax, as recently acknowledged by Justin King, CEO of Sainsburys.

For those companies that are in a position to significantly influence the business practice of others (and potentially the regulatory framework within which businesses operate) this scrutiny becomes even more intense.

ActionAid's recent campaign relating to Deloitte and Barclays highlights the impact these organisations, and the way they choose to conduct their business, may have in developing countries. Specifically we have highlighted the encouragement they provide to global businesses to set up holding companies in Mauritius to take advantage of advantageous double taxation treaties when investing into Africa. We have also criticised Barclays for proactively offering businesses in Africa the opportunity to move their money offshore.

We believe that financial and professional service providers play a key role in shifting wider business culture and practice. These companies are immensely influential. Deloitte, for example, is reported to be the largest professional services network in the world, while Barclays is now one of the biggest banks in Africa in terms of assets held. Small changes in the way such companies operate, in the type of services and advice they offer and how they market that offering, could make a substantial difference to wider business behaviour and culture. It could also act as a lead for others and, ultimately, open political space for more effective regulation.

Many business insiders might consider what is discussed in these cases to be fairly standard business practice. But it is clear that the public perception of what is an acceptable approach to tax by large companies is changing rapidly, in Africa as much as in the UK. What would previously have been considered "plain vanilla" tax structuring, when revealed and explained, raises many questions in the public mind. And not just about the behaviour of the corporate taxpayer involved, but also about the behaviour of those companies which advise on and enable that behaviour, and the actions of governments that created the opportunities and loopholes being exploited.

Deloitte has stated "we believe strongly that global businesses like ours have both the opportunity and the responsibility to look beyond the bottom line—to understand and shape the broader impact of our operations". Under its new CEO, Antony Jenkins, Barclays has made clear statements about its intention to change, and promised to become a "force for good" in Africa. But the aspects of their behaviour we highlight seem to contradict these statements.

Public opinion is overwhelmingly in favour of multinationals paying their fair share of taxes in poor countries and according to an ActionAid poll in the UK, 57% of Barclays own customers thought it was unacceptable for the bank to provide services that can help large companies reduce their tax bills in developing countries. It is critically important to test publicly whether these companies are able to justify their actions against their own public promises.

One important question that has been raised, as a result of these discussions, is where the appropriate balance lies between encouraging increased investment (through negotiating treaties which offer lower tax rates for foreign investors) and ensuring that developing countries are able to reap the benefits of such investment. Some evidence suggests that in a developing country context, lowering rates tax is unlikely to have any significant effect on levels of investment. On the other hand, increasing tax revenues are critical for development. Not only do they pay for vital services but improved tax revenues have been a critical factor in recent falls in poor countries' dependency on aid. This may be why Rwanda recently terminated and renegotiated its treaty with Mauritius.

As well as changing the way that they offer advice and services, these companies have an opportunity to contribute very directly to increasing the capacity of developing countries to collect taxes effectively. OECD promotes the principle of "cooperative compliance" to guide the relationship between large companies and revenue authorities in the countries where they operate. It requires a proactive approach to sharing information as well as "compliance with the spirit as well as the letter of the law" and a commitment to levels of transparency "above the minimum legal requirement".

The OECD specifically notes that banks have a "unique responsibility" in developing tax systems that are transparent and effective, given the information and expertise they hold. This is highlighted by a recent case in the US, where a federal judge gave the government permission to seek information from a number of major banks on clients suspected of tax evasion. Such legal tools are not so readily available in developing countries, leaving it to banks to make their own decisions on what information they share and what they withhold. This is why Barclays needs to proactively demonstrate its commitment to transparency across African operations, if its promise to become a "force for good" on the continent is to be taken seriously.

Charles F. Wald is a senior adviser for Deloitte LLP, and a director at the Atlantic Council of the United States (think tank).

Note: Patrick J. Durkin is a managing director at Barclays Capital, and a director at the Atlantic Council of the United States (think tank).
James R. Schlesinger is a senior adviser for Barclays Capital, and a director at the Atlantic Council of the United States (think tank).
Open Society Foundations was a funder for the Atlantic Council of the United States (think tank).
George Soros is the founder & chairman for the Open Society Foundations, and the chairman for the Foundation to Promote Open Society.
Foundation to Promote Open Society was a funder for the New America Foundation, and the International Rescue Committee.
Atul A. Gawande is a director at the New America Foundation, and was a fundraiser for the African National Congress.
Judith A. Miscik was a director at the International Rescue Committee, is the senior advisor on geopolitical risk for Barclays Capital, and the president & vice chairman for Kissinger Associates, Inc.
Henry A. Kissinger is the founder of Kissinger Associates, Inc.,
a director at the Atlantic Council of the United States (think tank), a director at the American Friends of Bilderberg (think tank), and a 2008 Bilderberg conference participant (think tank).
Charles F. Wald is a director at the Atlantic Council of the United States (think tank), and a senior adviser for Deloitte LLP.
Patrick J. Durkin is a director at the Atlantic Council of the United States (think tank), and a managing director at Barclays Capital.
James R. Schlesinger is a director at the Atlantic Council of the United States (think tank), and a senior adviser for Barclays Capital.

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