New analysis reveals connections between tax havens and resource degradation in both the Amazon rainforest and global fisheries. The study, published in Nature Ecology and Evolution, reveals that 70% of the known vessels involved in illegal, unreported and unregulated (IUU) fishing are, or have been, flagged under a tax haven jurisdiction.It also shows that on average 68% of all investigated foreign capital to sectors associated with deforestation of the Amazon rainforest between the years 2000-2011, was transferred through tax havens.
The release of the “Paradise Papers” and “Panama Papers” made it painstakingly clear that tax havens can cause a number of negative political, economic and social impacts. Now a team of researchers from GEDB and Stockholm Resilience Centre (SRC) have published the first study showing how tax havens underpin economic activities that potentially cause serious global environmental impacts.
"Our analysis shows that the use of tax havens is not only a socio-political and economic challenge, but also an environmental one. However, financial secrecy hampers the ability to analyse how financial flows affect economic activities on the ground, and their environmental impacts," says Victor Galaz, lead author of the new study.
The new study is part of an on-going research project called “Earth System Finance: New perspectives on financial markets and sustainability”. It is led by GEDB and SRC, in partnership with Future Earth.
The team of authors also includes SRC/GEDB colleagues Beatrice Crona, Alice Dauriach, Jean-Baptiste Jouffray and Henrik Österblom, as well as Jan Fichtner from the University of Amsterdam.
Taxing the global commons
Most previous analyses of the environmental impacts of tax havens have been done by investigative journalists focusing on a few locations. The new study, on the other hand, takes a more systematic approach to analyse how tax havens influence the sustainability of the ocean and the Amazon rainforest as two key examples of global environmental commons.
"The absence of a more systemic view is not surprising considering the chronic lack of data resulting from the financial opaqueness created by the use of these jurisdictions," says co-author Beatrice Crona, GEDB executive director.
This lack of transparency hides how tax havens can play a key role in facilitating the degradation of environmental commons that are crucial for both people and planet at global scales.
From Cayman Islands to the Amazon
The paper includes the first quantification of foreign capital that flows into the beef and soy producing sectors operating in the Brazilian Amazon – two sectors linked to deforestation. The analysis is based on data from the Central Bank of Brazil.
"Our analysis shows that a total of USD 26.9 billion of foreign capital was transferred to these sectors between October 2000 and August 2011. Of this capital, about USD 18.4 billion was transferred from tax haven jurisdictions," they write.
The Cayman Islands turned out to be the largest transfer jurisdiction for foreign capital to the key companies operating in the Brazilian Amazon. The well-known tax haven provides three benefits to investors: legal efficiency, tax-minimization and secrecy.
The new study also includes a systematic analysis of tax havens’ role in Illegal, Unregulated and Unreported (IUU) fishing activities around the world, made by combining multiple datasets on fishing vessels and flag information, e.g. FAO Fishing Vessel Finder, data from Regional Fisheries Management Organizations and Interpol.
It revealed that 70% of the vessels found to carry out, or support, IUU fishing and for which flag information is available, are, or have been, flagged under a tax haven jurisdiction, in particular Belize and Panama.
Many of these tax havens are also so called flags of convenience (FOC) states, countries with limited monitoring and enforcement capacity that do not prosecute if the ships on their register are involved in illegal activities.
In conclusion, the new study, shows it is high time to put tax havens on the global sustainability agenda.
“The lack of clearly established causal links between tax havens, and global environmental change should not deter from further investigations,” as the authors put it.
They suggest three issues which they believe should be central in future research efforts and governance of tax havens:
(1) The loss of tax revenue caused by tax havens should be considered as indirect subsidies to economic activities, sometimes with negative impacts on global commons;
(2) Leading international fora and organizations, like UN Environment, should assess the environmental costs of these subsidies;
(3) The international community should view tax evasion as not only a socio-political problem, but also as an environmental one.
Galaz, V., B. Crona, A. Dauriach, J-B. Jouffray, H. Österblom and J. Fichtner. 2018. Tax havens and global environmental degradation. Nature Ecology and Evolution (Perspective). https://doi.org/10.1038/s41559-018-0497-3