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.
Deloitte
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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