#130 Organised crime and financial secrecy
#129 The making of tax haven Mauritius
#131 Tax Saves Lives
Guests

After 30 years on the run, Italy’s most wanted fugitive Matteo Messina Denaro of the Cosa Nostra has been arrested in Sicily. We look at the costs of organised crime, both economic and societal, the contagion that financial secrecy facilitates, and how to reverse the rot.

Secrecy jurisdictions and tax havens have made it possible for mafiosi to progress from crossing physical borders with bank notes stuffed in suitcases, to being able to pour unlimited amounts of money into the financial system. Dirty money in, ‘clean’ money out. That money destabilises economies and corrupts democracies, while organised crime toxifies societies. The problem is that financial secrecy and tax havens are also the friend of commerce, multinationals and wealthy, powerful people worldwide…

“The mafia is not just a criminal phenomenon linked to money laundering, it’s a political, social and economic phenomenon. They interfere in the political process, they interfere in economic development. Ultimately we need State reform in all its parts. It really requires a fight against entrenched special interests.”
Professor Federico Varese

“Many banks and financial authorities don’t really care about who their customers are as long as they bring money in.”
Journalist, Stefano Vergine

“Some of these criminal organisations have a turnover every year which is basically the size of our economy…it is extremely difficult for journalists to do their job, it’s almost impossible to get clear answers.”
Surgeon, and opinion writer in Malta, Kevin Cassar

Transcript

Naomi: “Hello and welcome to the Taxcast, the Tax Justice Network podcast. We’re all about fixing our economies so they work for all of us. I’m your host, Naomi Fowler. You can find us on most podcast apps. Our website is www.thetaxcast.com You can subscribe to the Taxcast there, or you can email me on [email protected] and I’ll put you on the subscriber’s list. Let me know what you think of the show.

OK, so, on this month’s Taxcast – the friend of organised crime and mafia networks is financial secrecy. Secrecy jurisdictions and tax havens have made it possible for mafias to progress from crossing physical borders with bank notes stuffed in suitcases, to being able to pour unlimited amounts of money into the financial system. Dirty money in, ‘clean’ money out. That money destabilises economies and corrupts democracies, while mafias toxify societies using force and fear. But the problem is that financial secrecy and tax havens are also the friend of commerce, multinationals and very wealthy, powerful people worldwide. That’s why the obvious solution of opening up secrecy jurisdictions is so hard to achieve.

I spend a lot of my time in Sicily, it’s a place that’s been limited for so long by the obsession people outside seem to have with the Sicilian mafia and the Cosa Nostra. Actually, the Cosa Nostra, as it once was, has been in decline for years, there’s been a lot of determination and bravery on the part of some Italian police and investigators. In my local town, the days when the judge had to have 24 hour guards with machine guns outside his house are long over. Actually he got sent to Calabria where the southern Italian mafias have become an even greater threat. Back on the island of Sicily though, something monumental just happened in January 2023:”

[Clips of shouts in the street as Matteo Messina Denaro is arrested, police sirens]

Naomi: “After 30 years on the run, Italy’s most wanted Cosa Nostra fugitive has been arrested. Matteo Messina Denaro boasted he could fill a graveyard with all his victims. You can hear the applause of passers by gathered on the street, some of them trying to hug the policemen, one of them is tearful.”

[Clip of applause from people in the street, and sirens]

Naomi: “Matteo Messina Denaro was sentenced in his absence for murders, including those of anti-mafia judges Giovanni Falcone and Paolo Borsellino in the 90s. That was a real turning point for many Sicilians, it’s a wound that goes deep to this day. Most main squares in Sicily are named after these two judges. In my local town square there’s a huge billboard with a famous photo of the two of them together. Written above it it says ‘citta contro tutte le mafie’ ‘city against all mafias.’ Back to the arrest of Matteo Messina Denaro:”

Professor Varese: “It’s wonderful news that he was arrested. He has been a fugitive for 30 years, he was the last big bosses to be a fugitive.”

Naomi: “This is Professor of Criminology and organised crime expert Federico Varese:”

Professor Varese: “It’s an amazing achievement, it was not easy to arrest him. The net was closing on him. People close to him had been arrested only a few months earlier..so you could somewhat imagine that this was coming, but it’s a fantastic news. It’s also symbolically very important because this man has been one of the most ruthless, violent, terrible killers in the history of the Sicilian Mafia, of course, he murdered women and children, he is one of the killers of Falcone. So it’s the end of an era.”

Naomi: “The end of an era for Cosa Nostra, I hope, compared to how it was in the past, but other mafia networks in Southern Italy like the Camorra and N’drangheta are still strong, still powerful and very dangerous. So if we look at the scale, just of all of the Italian mafias, I mean, it’s difficult to estimate these things as I know from the Tax Justice Network’s work, and the fact that transparency, and financial transparency isn’t there in so many places, but I’ve been looking at the estimated turnover of mafia business in Italy – according to the Bank of Italy it’s worth 2% of Italian GDP, that’s about 38 billion euros a year, that’s 104 million euros a day of dirty money washing through the system. I mean, can you speak to the scale and, you know, how big this is because 2% doesn’t sound like a lot, but it really is.”

Professor Varese: “Yeah, 2% is a lot. And the Bank of Italy is very reliable. There have been other numbers floating around like 7%, that’s I think, too much. It’s really important to see how this money, this figure is constructed. Uh, there is a lot of confusion over this because obviously what the mafia does, it extorts or ‘protects,’ depending on the point of view, businesses. So businesses pay a cut of their profit to the organisation mainly in Western Sicily, where the mafia is most rooted. And so we have to distinguish the business from the mafia income. So the business remains independent and makes money, but there is also often a tendency to confuse the turnover of the business with the profit of the business, with the profit of the mafia. And so it’s very, very hard to construct meaningful estimates. You can say that the Sicilian mafia is certainly in decline, partly because of this massive pressure from the police, and also because they have left the drugs trade. So they’re not any more involved in drugs as they used to be. Uh, now you can estimate the number of crime families, which are in Western Sicily and with some of them also in Eastern Sicily. And this is a number around 80 and the estimates of the membership is between one thousand and 400 ‘made’ members. So you can work out from that, but of course, not everybody makes all that much money, I mean, some are soldiers in the organisation who are probably just scraping through, and some, of course the bosses make much more. So it’s very hard to put a number to that. Certainly the Bank of Italy is a reliable source.

Another way to think about this is that there is an office, a procurator’s office in Palermo, which is responsible for managing property that are confiscated from people who are connected to the mafia, not necessarily mafia members, but also people connected to the mafia. So again, you can argue that maybe these confiscations happen very easily, but they estimate to have confiscated a third of the value of the Sicilian economy, so it’s a lot of money, so that would include items confiscated from people who are connected to the mafia, but not necessarily in the mafia so this goes also could be people who just pay protection money, which of course is illegal in Italy.”

Naomi: “So, you can see what a huge effect Cosa Nostra has had in Sicily all these years. As Professor Varese’s work has shown, Cosa Nostra tends to stay relatively local where they can maintain the tightest control with people they trust, but one of their favourite jurisdictions to launder money is in nearby Malta. Just one investigation not so long ago discovered people with links to Cosa Nostra were generating €14 million a month through illegal online gaming there. Some of that cash generated was being reinvested in legitimate businesses. But we’ll get back to Malta in a minute. This is journalist Stefano Vergine:”

Stefano: “What we know for sure is that over the last years, Italian authorities seized around 4 billion euros that allegedly belongs to Messina Denaro. It’s money that Messina Denaro invested through a number of his affiliates in legal businesses like supermarkets, wind farms, tourist companies, and also a lot of works of art. These assets were all in Italy, mainly in Sicily. The investments of course, were not done by him, they were done by people close to him. But of course, this might not be the whole wealth belonging to Messina Denaro. So, where could be the rest of his money? And for sure, we know that the global financial system provides a number of tools that help criminal organisations invest money. I’m thinking especially about tax havens and countries that guarantee the anonymity to beneficial owners of companies and of bank account holders. I’m thinking about Switzerland, for example, which borders Italy. Until a few years ago, bank secrecy was completely in place in Switzerland, and that means that if an Italian, for example, went to a Swiss bank with a bag full of cash, this person could deposit the money and no one would ever know this in Italy, neither judicial authorities. Now, things have partially changed and Switzerland started to exchange data of account holders with the authorities of countries that are part of the OECD. Still, hiding money, however is possible. And there are many places in the world that allow this to happen, officially or unofficially. One way is, for example, by using offshore companies linked to bank accounts that are based in a country where authorities don’t actually check properly who their client is. Let me mention some examples that I found out in my job – in 2016 on the magazine L’Espresso, along with a group of colleagues, part of ICIJ, we worked on the Panama Papers and we found out the names of dozens of offshore companies managed by a number of trusted men of mafia leaders. I’m talking about people like the Garabiano Brothers, Salvatore Riina, Bernardo Provenzano, who have been the absolute leaders of the Sicilian Mafia, the socalled Cosa Nostra. They were all sentenced to life imprisonment.

In one case, for example, we revealed offshore companies doing business in Africa with gold and diamond mines. These companies based mostly in the British Virgin Island were owned by the sons of Vito Palazzolo. We’re talking about mafia organisations that are based on familiar ties. It’s their strength. So Palazzolo was sentenced for being one of the biggest money launderer of Cosa Nostra when the Mafia organisation was led by Toto Riina, we’re talking about the nineties and its main business was trafficking heroin around the world. Palazzolo was sentenced for mafia back in the eighties, but the public didn’t know about these offshore companies owned by his sons until we revealed them in 2016. And this means that in the British Virgin Islands, no one raised a red flag on these companies, although the shareholders were sons of one of the biggest money launderers of Cosa Nostra.

There are a number of cases like this and in the Malta files, we also find cases like this, and this shows that you don’t necessarily have to go that far, you don’t have to go to the Caribbean, you can stay close to Italy and go to Malta. Uh, in 2017, we revealed that some mafia organisations opened companies in the island. I’m talking about Sicilian mafia, Camorra, N’drangheta, the Calabrian mafia. For example, we found a company based in Malta whose director was the heir of an important mafia clan based in Calabria, the socalled N’drangheta, the family is a big family specialised in cocaine trafficking with the South American cartels. So this is another example that shows how easy can be for a criminal organisation to open a company. Why is that? Even in countries where beneficial owners are not secret and where authorities officially collaborate with other countries, this is the case of Malta for example, many banks and financial authorities don’t really care about who their customers are as long as they bring money in. So this is, I think, what actually help criminal organisation to invest money overseas.”

Naomi: “And sometimes the best investigations that have given us the most information were only because this information was leaked, right? And not because it’s actually possible for somebody like you sometimes, a journalist, to actually get behind the wall of secrecy to be able to report on who’s behind a particular crime or a company involved in a crime right?”

Stefano: “That’s true. I mean, most of the times, yes, the best investigations are coming from a leak or let’s say from an internal source. It doesn’t have to be, you know, a huge leak like Panama Papers, which, which was a very good investigation and brought a lot of results. But still, yes, let’s say one way is to have a police source that is telling you things that have been already uncovered. Uh, the other way is to have an internal source or a whistleblower that can take you, that can bring you a lot of data or data concerning his company’s specific field of activity.”

Naomi: “Yeah, otherwise it can be like coming up against a brick wall. Let’s have a look at Malta as one of the favourite jurisdictions for Cosa Nostra money. The harm Malta’s done to itself and its people because of its oversized financial sector and offshore secrecy services is obvious. It’s not exaggerating to say it’s become a criminal state. Dirty money has undone the rule of law there, almost every check and balance. But it doesn’t stop there because once dirty money’s gone into their financial system, it washes into the global economy. This is Kevin Cassar. He’s a surgeon in Malta, who’s spoken out about how Malta has become a mafia paradise:”

Kevin Cassar: “Malta is just 60 miles south of Sicily. We can actually see Mount Etna on a clear day. So we are extremely close. We have regular ferries going across, which takes about just two hours by ferry. If you take a plane, it takes you 20 minutes to get to Sicily. The big advantage to mafiosi and other people in organised crime in Sicily is that Malta joined the European Union and we’re also, of course, we’ve got the Euro and we are part of Schengen, so there is free movement. So it’s extremely easy to get in and out of Malta and into Europe and from Sicily into Malta with very little or no checks at all. Now, in addition to that, Malta is the tiniest country in the European Union, which means that some of these criminal organisations have a turnover every year which is basically the size of our economy. And therefore, in a small place like this, it is extremely easy to pay your way into whatever position you want to get to.”

Naomi: “Dirty money is also what led to the murder of Maltese journalist Daphne Caruana Galizia, to shut down her investigations. And the mess the police made of that case, and allegations about politicians connected to it tell you everything about the state of justice in Malta. And just as telling, not long ago in Malta the post of Deputy Police Commissioner became vacant. No one applied for it and for me, that speaks very strongly about what a kind of a failed state Malta actually is.”

Kevin Cassar: “Yeah. It definitely is a failed state, and the problem is that the Prime Minister has almost absolute powers. So the Prime Minister appoints the police commissioner. The problem with that is that people who are deeply involved in gross corruption, who are involved in, you know, illegalities who are close to the Prime Minister, were never prosecuted. Um, so we have, for example, magisterial inquiries related to Pilatus Bank for example, which specifically said that the chairman of Pilatus Bank, which is this money laundering enterprise for the Azerbijanis, and for people close to former Prime Minister Joseph Muscat should be prosecuted. This man has never been prosecuted. We had another magisterial inquiry which looked into allegations that one of these secret financial structures set up by Mossack Fonseca belonged to the Prime Minister’s wife, former Prime Minister Joseph Muscat that is, and one of the accountants who was part of the same company that was working very closely with the Prime Minister, the conclusions of the inquiry was that this man should be prosecuted for perjury. This man was never prosecuted. So we have a state of impunity, which was one of the main conclusions of the Daphne Caruana Galizia inquiry.

So in answer to your question, why do people not want to join the police force in any, even almost at the, the lowest levels, let alone at the higher echelons? And the reason is that this is a completely corrupt institution. The police commissioner himself was finally removed when there was an order by the court that he should be investigated. That was months, if not years ago. No action has been taken against the former police commissioner.

There is also huge pressure, of course, on people who are in the police force who try to do their job. So we’ve had people, for example, like a chap who was investigating these people close to politicians and politicians themselves was basically hounded out of the force, and he’s now suing the government for discrimination and for basically not reintegrating him into the police force. We had another gentleman who was in the FIU, that’s the Financial Investigative Authority, who was basically kicked out when he started to work on these cases of corruption involving politicians. So it’s no surprise that nobody wants to get into a police force like that.”

Naomi: “No, no surprise at all.”

Kevin: “You know, we live in a country where we’ve had several bombings people killed with car bombs, the same type of bombs that killed Borsellino and Falcone. In a small country like this where you have bombs exploding and killing people, none of those bombings has been solved. The only one that has partially been solved is the Caruana Galizia bombing, and that’s because of the involvement of the FBI. So, can you imagine a small country like ours where we have multiple people killed from car bombings and nobody ever arraigned? And I tell you possibly why, because the people who are now under arrest, finally, the Maksar Brothers, they were clients of our current Prime Minister. So our current Prime minister was the lawyer defending the Maksar Brothers. So this is the sort of network that we have, which is, to me, it is far worse than what is happening in Sicily, because in Sicily, there is some rule of law, the state is trying to protect the citizens. In this country, our government, our authorities, our institutions, the police are all part of this criminal network.”

Naomi: “So, however bad things have been, and can be in Sicily, Malta is a classic captured state because of its big financial secrecy sector. And looking the other way when it comes to criminal money coming in extends to everything. It undermines fair public procurement in the public interest, which Sicilians know all about too. All of this erodes people’s trust in the State to provide for their needs. Kevin Cassar, as a surgeon, has seen this for himself only too plainly in Malta:”

Kevin Cassar: “We are really in dire straits because half of our health service was sold off to this company. They of course had absolutely no intention of, you know, improving the health service at all. And people in the health service, of course, can easily recognise a scam because you don’t sell half the health service to somebody who’s never run a clinic, let alone a hospital. Besides later on, we found out that the government entered into a secret memorandum of understanding with this group of businessmen before the actually request for proposals by government was made. So they had already identified and decided who was going to run this enterprise. Of course, after two years, and a lot of promises that they were going to build a new hospital, that they were going to revitalise an old hospital and develop more services. They promised that they would build another hospital in Gozo, they promised they would build a medical school in Gozo, they promised they would increase jobs, they promised they would increase beds. None of this happened. So from our point of view, what we’ve seen is that, for example, when Covid struck and we needed more beds, we were deprived of those beds. Today, we are still lacking those beds and we are ending up, for example, using beds or changing a staff canteen into a ward, we’re still using a staff canteen for a ward. So the reality of the situation in practice is that giving out this concession, as it was called to these people, has basically seriously eroded the quality of care that we can offer our patients. And of course, we’ve lost millions. So these millions, nobody really knows where they’ve gone. The National Audit Office have published three separate reports, which is, they’re damning reports. They highlight that this was a scam from start to finish. There has been no action taken at all against the people involved. That is 4 billion euros. So can you imagine in a small country like ours?!”

Naomi: “Yeah. Yeah. And I think my question to you then is, I think that none of the things that you are describing could happen without financial secrecy. That has been such a central part of the economy there in Malta, and that’s having a very bad effect, not just on people in Malta, but people in Sicily, people in Italy, people everywhere in the world, because it’s all connected, so my question is – as you know, we campaign against financial secrecy. We want the real beneficial owners of companies to be declared publicly, that there should be public registries, that there’s full financial transparency in all areas. So, what effect would full financial transparency on a place like Malta be, do you think?”

Kevin Cassar: “I, I think this is absolutely crucial. So half our public health service was sold to a company, and no single Maltese person actually knew the ultimate beneficial owner of the company behind this. It, it was so opaque, the structures upon structures were impossible. So we were being told as citizens that our half our health service was being sold to somebody, and we didn’t even know who this somebody was. So, you know, that is one big problem. But the truth is that leading our government, which is really a party that still has a massive support base in this country, are people who have been working tirelessly to make financial structures even more opaque. We’ve recently had the Minister of the Economy who’s made it even more difficult for citizens to identify who is the ultimate beneficiary owner of companies which are registered in this country. You can’t know who they are. There’s been about 10,000 companies that have been suddenly scrubbed off the Malta business registry. So we can’t go back historically once we find out that these companies were involved in illicit activity and find out who they were. So, it is extremely difficult for journalists to do their job, it’s almost impossible to get clear answers. This is a mafia state. This is a state captured by a small group of people who are making millions, who are becoming obscenely wealthy, and who are draining the funds of this country for their own personal gain. And that’s not something I am saying. It’s something that the US State Department has said, and this is why a former minister of energy and the chief of staff of the former Prime Minister can’t get into the United States as we speak.”

Naomi: “Journalist Stefano Vergine again:”

Stefano: “I think the main problem is the system, financial system that allows these kind of things. Because for example if you have foreign companies investing in Italy, but you are not able to find out who the beneficial owners are, well, that’s an issue, and you can’t do much from an Italian point of view. So I think this is the biggest problem.”

Naomi: “And again, the problem isn’t contained in one part of the world, the weak links in each jurisdiction interconnect and they’re easy to exploit. Professor Varese again:”

Professor Varese: “I think it’s obvious that you need to know who is the ultimate beneficiary of shell companies or trusts. And I think the kind of deregulations we see in London in which you can own a company which is owned by another company and you can easily create a company with fake names or you have these addresses in London which have thousands and thousands of companies in one address, I think all of that is facilitating massive criminal money transfers. So I think that, I think is crazy.”

Naomi: “And this is also where it gets politically tricky. No jurisdiction has clean hands and they’re all slow to cast stones because they’re all living in glass houses. But Malta has become such a threat to the EU for various reasons, that the EU Commission’s been monitoring events there, it’s done a number of reports on what’s going wrong. So, Kevin, what should the European Parliament, the Commission be doing to help tackle corruption in Malta do you think?”

Kevin Cassar: “A lot of people looked towards the European Union to act as, if you like, a protector for the people from its own government. Sadly, a lot of people here feel very let down by the European Union. The European Union has been very weak. The reality is that if Europe wanted to control this country, they could – by withholding funds. There are hundreds of millions coming from Europe. So the first thing that Europe should do is not simply write reports, but it must impose clear requirements. It should immediately withhold funds until all the measures have been taken to implement proper rule of law, to implement proper checks and balances, and to ensure that none of the money that is coming from Europe is diverted into criminal organisations, criminal activity and rampant corruption. But of course, Europe won’t do that because it’ll appear to be picking on a small state when it has much bigger problems, such as, you know, Hungary and Poland. But the truth is that as was done with the case of Hungary, changes will only come if there is severe imposition and restriction of funds to this country.”

Naomi: “The EU should take action. The trouble is the EU does things like maintain a ridiculous black and grey list system of jurisdictions it says are ‘non-cooperative for tax purposes’ and they need to improve governance in those areas. So, with these lists it doesn’t list any EU nations, no matter what they do, so it needs really to face up to its own failings. Professor Varese again:”

Professor Varese: “The social and political cost of the existence of the mafia is massive, that’s for sure. I mean there is more than just the economic value, right? I mean, the economic value is important, but they interfere in the political process, they interfere in the economic development of the island. And of course they generate fear and violence, although not necessarily a lot of murders, the fear that they generate is massive, and also they generate a distrust, you know, in the Italian state and among people themselves.

As for the Sicilian mafia, it’s fair to say that the Sicilian mafia, and even the arrest of Matteo Messina Denaro, is not going to disappear because of the arrest of one person. And yes, it is under huge police pressure, but unfortunately the mafia is still there and now all the bosses are in jail and new bosses will come up. So there’s really a question for Italy to ask what really we need to do to defeat once and for all the Sicilian mafia. And that is to regain the trust of the people in Sicily who distrust greatly the Italian state. And tax evasion is not just a feature of the mafia, it’s a feature of Italy in general. So I think the Italian state has to, and Italian political class has to, ask big questions of why the mafia is still not being eliminated. The mafia is not just a criminal phenomenon linked to money laundering, it’s a political, social and economic phenomenon, which is deeply rooted in the lack of trust in an Italian state, which is extremely inefficient. Only yesterday I read about a case in a civil court it took 20 years to be settled, 20 years! Imagine if you’re a business, and so that generates a demand for the mafia. And so business people turn to the mafia to settle disputes, even legal disputes. And then of course the mafia gets a foothold in the legal economy. They are paid for these services and then they launder them in the local economy. And so that is, to me is the root cause of the mafia, a deeply inefficient state and a state that is not trusted by the people. A lot of the job the mafia does is involved in construction, you know, they organise construction bids. And so making it more transparent the way construction contracts are allocated is very important and possibly to centralise more the bids, as opposed to keep them local. Because at the local level, the mafia is extremely powerful. So I think that tackling the money the mafia makes is certainly important, and we need to do that. But in itself, it may not be enough.”

Naomi: “No, no, definitely not. I’ve definitely seen exactly what you’re talking about in Sicily where somebody has something stolen and they don’t go to the police, they go to where they can receive a service. Um, and I don’t think anybody thinks that that’s the right way or the way that they prefer, but it is the way that they use often, you know, not all people, but, many people. And then, you know, it seems very important that a tax system must be accountable and it’s part of building trust with people. So how do you use a tax system to build trust, which is understandably gone in a place where to differing extents in Sicily, the state is really not in evidence, it’s not really present in people’s lives?”

Professor Varese: “Yeah, a simple, straightforward, and fair tax system is crucial. And, um, in the Italian case, you have a lot of exceptions, a lot of people, a lot of subgroups that don’t pay taxes. And so that generates a sense of unfairness and privilege that there are, there are small groups of well connected and well organised groups in society and in the economy who can avoid paying taxes. So there is the overwhelming burden of taxes is paid in Italy by people who are employed by the states, like teachers or professors or, or nurses. And so it gives you the impression that there is a section of society that overwhelmingly pays taxes and cannot avoid paying them and a section of society which doesn’t pay taxes. So, I totally agree, I think that is one of the key elements to making the state more efficient together with, of course, the justice system, especially the civil court system. Ultimately you need a functioning state, a state that function, and is not too complicated. So transparency, efficiency, and justice carried out quickly is crucial to regain trust in the state. This is absolutely crucial if you want to tackle the deep-rooted reasons. So ultimately we need the state reform in all its parts so that you have an efficient provision of goods and services, including welfare state, which is obviously not working very well. Imagine that in Sicily roads are like not really working across the island, and they often break down. So you cannot cross the island sometimes because there is an accident in the highway.”

Naomi: “Oh yeah, definitely. Near my town in Sicily there was a road that was closed off for years and years and we all had to go on a crazy long diversion because they didn’t fix it for so long. Sometimes Sicilians themselves get together and fix their own roads. I mean, staff who work in care homes looking after the elderly go on strike sometimes because they haven’t been paid for months. The local rubbish collection that people pay taxes for just stops. Once it happened for months, people were burning it to keep the rats and stray dogs away. Then they introduced another local ring-fenced rubbish tax – imagine how people feel when that stops working! I mean people will believe, and go for anything that seems to work in their lives.”

Professor Varese: “Yes, I don’t think it’s a matter necessarily of increasing expenditures. I think it’s a matter of spending better what we already spend and really restructuring the state. But it really requires the fight against entrenched special interests. So it’s costly politically, but the problem of the Sicilian mafia would never be solved by purely arresting people and military and police forces, though they’re extremely important of course, because these people have to be arrested like Messina Denaro, and they have been found guilty in court. So obviously that has to be done. And I would say investigations are actually quite efficient and quite thorough. But everything else is not. And until everything else is tackled and becomes a genuine national emergency, for the first time really, then I think the problem of the mafia will stay with us, and then yes, they will launder their money, they will interfere with politics, they will interfere with the local economy, they will generate fear and further distrust in the state.”

Naomi: “So much of this comes down to the failure to establish a social and economic model based on fundamental rights. Central to that is a transparent, fair and accountable tax and financial system. Without a system like that, a predatory one will form that generates injustices, inequalities, and democratic inadequacies where criminal opportunities for profit and power flourish and spread. The Matteo Messina Denaros of this world can’t enjoy the levels of wealth they do without these weak links of secrecy in our global financial system. As I say, some of those weak links also serve commerce and other rich and powerful people. That’s why public registries of the real owners of companies, trusts and foundations are so important. Failure to properly collect, verify and publish this information should mean fines and prosecutions. After years of pressure from anticorruption campaigners, the European Union did finally take action to introduce a requirement for European countries to implement public registers of the beneficial ownership information of companies. But, a recent ruling from the European Court of Justice has reversed 10 years of progress. As a result, many leading European tax havens have once more restricted access. The winners from all this are the Matteo Messina Denaros of this world. And their professional enablers – unscrupulous lawyers, accountants, wealth managers, and bankers.

That’s it for this edition of the Taxcast. Thanks for listening. We’ll be back with you next month.”


Jargon
Beneficial Owner

The person who actually benefits from the income or capital associated with owning something, and/or on whose behalf a transaction is being conducted. They are often different from legal or nominee owners, who may just be proxies who get no benefit from the asset, whose identity is used to hide the real beneficial owner.

Global Asset Register

This is a proposal to create a comprehensive international registry of all wealth and assets, and their real beneficial owners, in order to tackle global tax abuse and redress inequalities.

Secrecy Jurisdiction

A tax haven or secrecy jurisdiction is a place that deliberately provides an escape route for people or entities who live or operate elsewhere. They shield them from whatever taxes, criminal laws, financial regulations, transparency or other constraints they don’t like. Ordinary people whose lives are affected by tax haven laws are not consulted on these laws because they live in other countries: they have no say in how those laws are made, thus undermining their democratic rights.

Tax Haven

A tax haven or secrecy jurisdiction is a place that deliberately provides an escape route for people or entities who live or operate elsewhere. They shield them from whatever taxes, criminal laws, financial regulations, transparency or other constraints they don’t like. Ordinary people whose lives are affected by tax haven laws are not consulted on these laws because they live in other countries: they have no say in how those laws are made, thus undermining their democratic rights.

Offshore

A tax haven or secrecy jurisdiction is a place that deliberately provides an escape route for people or entities who live or operate elsewhere. They shield them from whatever taxes, criminal laws, financial regulations, transparency or other constraints they don’t like. Ordinary people whose lives are affected by tax haven laws are not consulted on these laws because they live in other countries: they have no say in how those laws are made, thus undermining their democratic rights.

Tax Evasion

Tax evasion is an illegal – usually criminal – activity, by which a taxpayer escapes tax through deception. Tax avoidance, on the other hand, means getting around (or avoiding) the spirit of the law without actually breaking the law. There is a large grey area between the two poles of avoidance and evasion.

Trusts

A trust is an arrangement that separates out ownership of an asset. Under a standard trust a person gives up an asset for the benefit of someone else (the beneficiary) under a set of rules (the trust deed.) These rules are enforced by a third person, the trustee. Trusts are used extensively in tax havens, whose laws provide secrecy which allows the original owner to pretend to have given away the asset while in reality still controlling it. This allows them to potentially escape the tax bill on its income, or hide links to money laundering or other criminal activity.

Offshore Trusts

A trust is an arrangement that separates out ownership of an asset. Under a standard trust a person gives up an asset for the benefit of someone else (the beneficiary) under a set of rules (the trust deed.) These rules are enforced by a third person, the trustee. Trusts are used extensively in tax havens, whose laws provide secrecy which allows the original owner to pretend to have given away the asset while in reality still controlling it. This allows them to potentially escape the tax bill on its income, or hide links to money laundering or other criminal activity.

5 Rs of Tax

Revenue, to fund public services, infrastructure and administration.
Redistribution, to curb inequalities between individuals and between groups.
Repricing, to limit public “bads” such as tobacco consumption and carbon emissions.
Representation, to build healthier democratic processes, recognising that higher reliance of government. spending on tax revenues is strongly linked to higher quality of governance and political representation.
Reparation, to redress the historical legacies of empire and ecological damage.

Further Sources

1

Dear European Court of Justice: You Were Played

2

This Luxembourg Businessman Got Europe’s Corporate Registries Shut Down. But Whose Privacy Was He Protecting?

3

Malta, the Mafia’s paradise, by Kevin Cassar
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