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2015: Setting Priorities

Wednesday, 21st January 2015

 

2015: Setting Priorities

 

2015 promises to be an interesting year, what with a looming stock market crash, a U.S. general election, a potential exit from the Eurozone and the possible introduction of quantitative easing (not necessarily in that order).

 

The eruption of the so-called ‘Lux Leaks’ scandal towards the end of 2014 led to a repeated impetus for the introduction of a common consolidated corporate tax base. However, given that any agreement on taxation requires unanimity at the European level, and recognizing that many countries within the Eurozone are struggling financially, one must question whether this has any realistic prospect of being introduced in the near future.

 

Luxembourg has continued to defend itself in the face of global criticism. It claims to follow all international rules and treaties; other countries such as Ireland will also undoubtedly maintain that they too follow the rules. If this is the case, then where does the problem lie? The fact remains that where there is a will to avoid tax, or indeed any other type of obligation, there is always a way. Just as one loophole is closed so another is discovered, or rather ‘created.’ ‘Creative’ tax or asset planning is not a new phenomenon and it will not disappear just because European governments are calling for more transparency. In the same way, the financing of terrorism will not be cut off simply because Know Your Customer rules and anti-money laundering (AML) policies have been introduced almost universally. 

 

This is not to say that we should hang up our collective hats, but as a global community we need to pick our fights at a time of crisis. The threat posed by the so-called Islamic State (IS), or ISIS, and Boko Haram in Nigeria, has been painfully highlighted in the past week. The global community needs to do more than show symbolic solidarity: hard action is needed. The U.S. government’s effort to counter ISIS is focused on "five mutually reinforcing lines of effort," one of which aims to stop ISIS's financing and funding.

 

What can be done to stop the flow of funds to organizations such as ISIS? Insofar as ISIS financing crosses international borders or employs the international financial system, then traditional mechanisms and tools are undoubtedly important part of the armory. However, just as multinationals have been able to employ creative tax planning to avoid traditional tax nets, so too has ISIS been particularly resourceful when it comes to exploiting loopholes. Charitable donations continue to be a significant source of income for the group. Tracing, identifying and most importantly stopping them has proven problematic.

 

According to Newsweek, the proceeds from its sale of looted artefacts has been the second largest source of funding for ISIS. This begs the question: who or what is the market for such goods? Given the unique nature and readily identifiable features of such artefacts, it must be possible to design a system capable of tracking these items. Many are smuggled into Europe via Turkey, Iran, and Syria, then sold on to mostly unidentified or anonymous buyers.

 

The market for such commodities must be stymied. This is not an impossible task: indeed this is a project that has clear prospects of universal acceptance within the Eurozone (unlike the proposal for a common consolidated corporate tax base). If this one source of ISIS funding could be effectively cut off in 2015, then the global community will have achieved something meaningful. With the West waging wars on several fronts at present, it is more important than ever that priorities be set.

Written by Martin Kenney