By Krishen Mehta, ACURA, 7/9/24

As of this writing, the US has placed sanctions on over 30 countries, close to one-third of the world’s population. When the pandemic started, the US vetoed the $ 5 Billion emergency loan that Iran had requested from the IMF to buy equipment and vaccines from the foreign market. The Caesar sanctions against Syria, put in place in 2020, have caused a tremendous humanitarian crisis, with 80% of the population having fallen below the poverty line. Studies show that the sanctions on Iraq in the 1990’s caused the death of almost half a million children. The US has repeatedly sanctioned Venezuela’s food distribution program, CLAP, in an effort to bring about the overthrow of the Government of Nicolas Maduro.

Assets being frozen is another extension of Western sanctions. In 2021, about $ 9 Billion of reserves held by Afghanistan in banks across the US and Europe were frozen when the Afghan government fell to the Taliban that year. Since the Revolution in 1979, Iranian assets blocked by the West and which remain in Western financial institutions are estimated at about $ 100 Billion. Venezuela’s gold remains frozen in the Bank of England in spite of repeated appeals by the Government of Nicolas Maduro to have the gold returned. And more recently, Russia’s sovereign wealth of about $ 300 Billion has been frozen by the collective West.

Due to these sanctions, almost one-third of the World’s population has been unable to access medicines that are essential to their survival. Article 25 of the Universal Declaration of Human Rights specifies that “everyone has a right to a standard of living adequate for health and well-being” which explicitly includes medical care even in times of conflict. Both international law and the ethical principle of justice require guaranteed access to healthcare, regardless of the person’s nationality or citizenship.

Why Tax Avoidance by Western Multinational Companies (MNCs) is another form of Sanctions

A subject that is not sufficiently discussed or debated is the issue of tax avoidance by Western MNCs which itself acts as a form of sanctions on the developing countries or the Global South. A recent report published by the European Union, The Global Tax Evasion Report 2024, provides an insight into the problem.

(https://www.taxobservatory.eu/www-site/uploads/2023/10/global_tax_evasion_report_24.pdf)

The report states that close to 35% of all profits booked by Western MNCs annually are shifted to tax havens. According to the report, the profit that was shifted to tax havens in 2022 alone was close to $ 1 trillion, and US multinationals were responsible for about 40% of that. That means that US MNCs very likely paid little or no taxes on close to $ 400 Billion of profits in 2022 alone. And this is a practice that has been going on for decades.

According to the IMF, the implications of this profit shifting by Western MNCs to the developing countries is profound and deeply disturbing. The Fund estimates that the tax losses to the developing countries as a result of this profit shifting by Western MNCs is at least $ 200 Billion a year. Page 21 of the report estimates the tax losses for both developing countries and developed countries as a result of this profit shifting. Since this study was done some years back, the actual tax losses that developing countries suffer annually could be even higher than the $ 200 Billion referred to in the report.

(https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Base-Erosion-Profit-Shifting-and-Developing-Countries-42973)

If we consider that taxes are an investment in a country’s future, whether it be for education, environment, health care, and other critical needs, this also means that the developing countries are losing at least $ 200 Billion of investment annually – revenue that rightfully belongs to them. Instead, these funds are routed or transferred to Western MNCs and through them to the collective West. If the IMF estimates of annual tax losses are correct then it also means that over a ten-year period developing countries have lost tax revenue of over $ 2 trillion over the last decade. If this is not another form of extractive colonialism, then what is?

From the perspective of the  developing countries, one could argue that the global tax architecture is rigged in favor of the  West to shift or  expropriate tax revenues that rightfully belong to them. The current international tax system was created almost a century ago by the League of Nations. At that time much of the Global South was still under colonial rule and had little or no say in the design of the system. This system was further codified by the post-Bretton Woods institutions that came into place after the Second World War and it continues to this day. The net result is that it deprives the developing countries of investments that are critical to their future. It should therefore not be surprising  that many of the developing countries are in debt to the IMF, the World Bank, and to Western financial institutions for essential borrowings just to survive. In effect, while these countries have political independence they do not have economic independence.

What can the Global South do to counter this trend? The feasibility of Reverse Sanctions

The Global South can fight back by telling Western MNCs that wish to do business in their jurisdictions that they need to play by rules that are both equitable and reciprocal. At a fundamental level the Global South countries must demand that there be no more tax avoidance by Western MNCs and that there be complete transparency to their operations. The developing countries need to ascertain how much is properly taxable in their jurisdictions and ensure that these taxes are paid to them instead of being siphoned or redirected to tax havens beyond their reach through sophisticated tax schemes that are difficult to challenge. Going forward this needs to be the condition of doing business in the Global South.

In the past, the developing countries were not in a position to insist on these conditions. The technology and capital of the West was needed by the developing countries to bring  their people out of poverty. So they acquiesced to whatever conditions the Western companies required of them. And this resulted in the emergence of an international tax architecture where profit shifting away from developing countries became the new norm.

But times have changed. Today, the Global South has the leverage to fight back.

A new paradigm is emerging. We are moving away from a unipolar world. The Bretton Woods structure is outdated, and the IMF and the World Bank are no longer the answer to the financial and economic needs of the Global South. Other sources of finance, capital, energy, and food security are now available to the Global South. As of November 2023, the BRICS had only five members (Brazil, Russia, India, China, and South Africa), but that month four more members were added (Iran, Egypt, Saudi Arabia, and the UAE). There are now 59 countries that have applied for membership in BRICS.

In addition to BRICS, much of the Global South is now a participant in China’s Belt and Road Initiative (BRI). As of December 2023, 151 countries had become members of BRI. The BRI, sometimes referred to as the New Silk Road, is a global infrastructure development strategy adopted by China in 2013 to invest in more than 150 countries and international organizations. And a number of developing countries have already benefited from this initiative.

As an alternative to the IMF and the World Bank, the BRICS now have their own New Development Bank. The purpose of this Bank is to help mobilize resources for infrastructure and sustainable development in the Global South. Trade is taking place in currencies other than the dollar, resulting in less control and mandates by legacy Bretton Woods institutions. As a result, the Global South has leverage today that it has never had before. It can assert the conditions for MNCs to do business in their jurisdictions. If they assert this leverage effectively they can stem (if not stop) the corporate tax avoidance that has been taking place for decades.

Specific actions that the Global South can take vis-a-vis Western MNCs to level the Playing Field?

On June 7, 2024, the United Nations published a draft Terms of Reference (ToR) on a UN Convention on International Tax Cooperation. This sets out the basic parameters for a future tax convention that will address priority areas that affect developing countries. These include the taxation of the digitalized and globalized economy, taxation of income derived from cross-border services, tax related illicit financial flows, and prevention and resolution of tax disputes. The Global South should be fully engaged with the UN on the new Tax Convention even though the United States and much of the Collective West opposes it. The UN Convention is the opportunity now for developing countries to take control of their own tax destiny and to move it away from the policy making bodies of the OECD.

In addition, the Global South should pursue certain additional steps to help reduce tax avoidance by MNCs. These include:

(a) Country by Country Reporting, whereby MNCs would be required to disclose their activity in each jurisdiction where they do business. This will bring transparency to the use of tax havens, and the profit shifting that may be taking place currently. This should be a condition for doing business in the Global South. 

(b) Formulary Apportionment and Unitary Taxation: This involves the quantification of certain apportionment factors to help determine the revenue that is properly taxable in each jurisdiction. Developing countries can demand that this formula be applied to MNCs doing business in their jurisdictions. It is the most fair way to ensure that profit shifting is not taking place. 

(c) Impose withholding taxes on all payments to subsidiaries of MNCs that are located offshore. Payments to related subsidiaries in tax havens is perhaps the most common way for MNCs to shift income from developing countries. By imposing a withholding tax on such payments, developing countries protect revenue that is rightfully theirs. 

(d) Bilateral investment treaties should be phased out. These treaties lock the developing countries into certain payment mechanisms that are not always favorable to them. They generally favor the investing country. Since 2016, India has terminated 77 of its Bilateral investment treaties. Other countries can learn from this experience and revisit their own existing treaties.

(e) Review of long-term agreements with MNCs to ensure that they provide both the developing country and the MNC a fair share of benefits from the underlying project. Whether it is mining, refining, or other aspects of the value chain, it is important to ensure that no tax abuse has crept in since the project was initiated and that it remains a win-win for both parties.

Conclusion – Negotiating fair practices, not seeking confrontation

The approach that is being suggested above is one of negotiating fair practices that are equitable to both sides and not to seek confrontation.It is important that developing countries take control of their own tax future, and take concrete steps to stem the current tax avoidance. Otherwise they will continue to lose access to investments that are critical for their future. As the global economy moves to a more multipolar world, and the West is not the only game in town, it is time for developing countries to assert their own conditions for western MNCs that wish to do business in their jurisdictions. The annual tax loss of about $ 200 Billion is not small change, it rightfully belongs to the developing countries, and should not be routed to tax havens.

If Western MNCs do not wish to abide by these rules, they can exercise the option of going to other jurisdictions. But the reality is that developing countries hold most of the resources that the Western MNCs need. That was true during the colonial era, and remains largely true now. So the options for the MNCs to go elsewhere are also somewhat limited. While such a step might be seen by some as ‘imposing sanctions in return’ the fact is that this is perhaps the only way for the Global South to access resources that are rightfully theirs. It is the only way for them to protect and sustain their own future.

Krishen Mehta is a former partner at PwC, and now a Senior Global Justice Fellow at Yale University. He is also a co-editor of a book, Global Tax Fairness, published by Oxford University Press.

By Andrew Korybko, Substack, 8/9/24

The US Government (USG) insisted throughout the entire time of Evan Gershkovich and Paul Whelan’s imprisonment in Russia on espionage charges that these two were “wrongfully detained”, but newly released footage from the FSB proves that they were indeed American spies. Folks can view the footage of Gershkovich here and Whelan here, both of which have a brief video analysis from RT’s Murad Gazdiev embedded at the bottom that’s also worth watching to place everything into context.

Gershkovich’s includes audio which proves that he knew that he was soliciting classified defense secrets on behalf of the Wall Street Journal and then planned to mislead their readers by claiming that they only spoke to an “anonymous source” without mentioning that they also obtained documents about this. He also tried hiding the flash drive that he obtained during his meeting with his source in a Yekaterinburg restaurant when he was arrested, which the video specifically highlights to draw attention to.

As for Whelan, there’s no audio in his video but it shows him receiving a flash drive in a hotel bathroom from a friend who he claimed during his interrogation was allegedly giving him pictures of churches. RT’s brief analytical video amusingly mocks his story as absurd. After all, Gazdiev reminded everyone that friends share pictures over email or text, not via flash drives in hotel bathrooms. Just like Gershkovich, he also obviously knew that he was illegally soliciting classified secrets, in this case about FSB officers.

Nevertheless, CNN promptly spun this newly released footage as alleged evidence of “entrapment”, completely ignoring the fact that both men knowingly accepted flash drives from their Russian sources that they were told contained classified information about their host country’s national security. It’s altogether a very shoddy information product that reeks of desperation to distract from the visual evidence that those two were literally caught red-handed receiving Russian state secrets.

It can only be speculated whether CNN’s Nathan Hodge – their London-based Senior Row Editor who used to serve as the outlet’s Moscow bureau chief and whose official bio reveals that he was “embedded extensively with the US military” – is running interference for the USG on his own or as a favor to friends. In any case, the fact that someone with such “impressive credentials” from the Mainstream Media’s perspective produced such a shoddy information product shows how much the West is panicking.

CNN’s reaction is literally Orwellian too since one can’t help but recall what he wrote in 1984 about how “The Party told you to reject the evidence of your eyes and ears. It was their final, most essential command.” That’s precisely what’s happening here since average Westerners are being told that neither Gershkovich nor Whelan were caught red-handed, the first of whom even acknowledged on tape that he knew he was soliciting secrets and planned to mislead his audience about the origin of that information.

The reality is that foreign intelligence agencies have always had some of their spies disguise themselves as journalists and tourists, and the US isn’t the only country that does so, of course. Be that as it may, whenever its spies get busted after hiding under these covers, the US always plays dumb and denies that they were engaged in espionage. It relies on a combination of the public’s generally friendly attitude towards journalists and tourists as well as their negative one towards rival states to keep up the charade.

Ironically enough, this gaslighting ends up backfiring whenever the US’ detained spies are swapped with another country’s alleged ones like what happened during last week’s historic exchange. Whichever party is in opposition at the time can claim like Trump just did that actual Russian spies were traded for “American hostages”, which could supposedly “encourage more hostage-taking” and should thus have never happened. Even so, it remains unclear how much of the population is receptive to those claims.

The importance of the footage that the FSB just shared about Gershkovich and Whelan’s arrests is that it debunks the fake news alleging that they were “innocent Americans taken hostage by Russia”. They were bonafide spies who knew the risks that they were taking, especially Gershkovich, who exploited his cover as a journalist to engage in espionage and thus risked endangering his colleagues in other countries. Neither of them deserves the sympathy that they received from their misled fellow Americans.

Kyiv Independent, 7/15/24

Almost 44% of Ukrainians think that it is time for official peace negotiations with Russia, according to a survey published by the ZN.ua media outlet on July 15. 

At the same time, a majority of respondents were also opposed to the current ceasefire conditions laid out by Russian President Vladimir Putin, which would entail the complete Ukrainian withdrawal from the four regions that are partially occupied by Russia.

Russia also illegally annexed Crimea in 2014 and currently fully controls the territory.

The figure nonetheless represented an increase in the number of Ukrainians who were in favor of negotiations compared to a similar poll conducted in May 2023, which found that 23% of respondents supported entering talks with Russia.

According to the ZN.ua survey, 35% said they were opposed to peace negotiations, and 21% said they were undecided. There was some degree of regional discrepancy in the results, with the highest number of respondents in favor of negotiations being in the south of Ukraine, at 60%.

In western Ukraine, 35% said they supported peace talks, a similar figure to those from eastern Ukraine (33%), where the bulk of the heaviest fighting and associated war-related destruction is ongoing.

An overwhelming majority of respondents (83%) said they were opposed to the withdrawal of Ukrainian troops from the partially occupied oblasts of Donetsk, Luhansk, Zaporizhzhia, and Kherson, which were illegally annexed by Russia in October 2022.

Another 76% said they believed that Putin would only allow a peace deal on his own terms.

A slim majority (61%) were not ready to give any concessions to Russia in order to obtain a peace deal, and 66% of respondents said they still believed in military victory over Russia. More than half (51%) said that a return to the 1991 borders, which would include all four partially occupied regions and Crimea, to be the minimum conditions for a peace agreement.

https://wabcradio.com/episode/frank-morano-scott-ritter-on-why-the-fbi-raided-his-home/#/

Follow the above link to this 15 minute interview in which Ritter gives the most detail yet on why the FBI raided his home last week. Kudos to Michael Averko for bringing attention to this interview. – Natylie

By Daniel Larison, Responsible Statecraft, 7/15/24

Donald Trump announced earlier today that he had selected Ohio Sen. J.D. Vance to be his running mate. Coming only two days after the assassination attempt on the former president in Butler, Pennsylvania, Trump’s selection elevated the young first-term senator to the Republican national ticket as the party’s national convention was getting underway in Milwaukee. In choosing Vance, Trump seems to have ignored pressure from Rupert Murdoch, who had reportedly been lobbying intensively in favor of North Dakota Gov. Doug Burgum and against Vance. Trump has chosen a loyalist who will appeal to his core supporters in the party’s populist wing.

While the selection makes sense in terms of the senator’s political alignment with Trump, it is somewhat unconventional given Vance’s limited experience in government. Vance will be the youngest vice presidential nominee since Richard Nixon in 1952. He has been in elected office for only a year and a half. Vance will likely face a lot of questions about his preparedness to serve as president if necessary.

Trump’s selection will likely prove to be controversial. Vance has become something of a lightning rod for criticism in Washington, especially since he entered the Senate. He first rose to national prominence as an author and critic of Trump’s candidacy in 2016, but he has since transformed himself into a vocal defender of the former president in the last few years. He has closely aligned himself with Trump’s agenda, and he has become a leading critic of the Biden administration’s Ukraine policy.

Vance went to the Munich Security Conference earlier this year to press his case against military aid to Ukraine. If a Trump-Vance ticket wins, it is conceivable that the U.S. could begin reducing or cutting off aid to Ukraine next year. That said, his skepticism about U.S. involvement in foreign conflicts doesn’t seem to extend beyond Ukraine.

Like Trump, Vance also holds some very hawkish foreign policy views. He has attacked Biden for “micromanaging” Israel’s war in Gaza, and he agrees with Trump that the Israeli government should “finish the job.” He has taken a remarkably hardline position on the war and U.S. support for it. He has said, “don’t use America’s leverage to effectively cause the Israelis to pull back here.”

As Reason’s Matthew Petti reported this spring, Vance has sharply criticized the neoconservative record in the Middle East, but “he’s doubling down on exactly the vision they’ve had all along: an alliance of Israel and Sunni Muslim–led states, backed by U.S. military power, to ‘police’ the region.” The U.S. will be hard-pressed to reduce its entanglements in the Middle East if it continues to sustain Israel’s destructive military campaigns. It is impossible to see how implicating the U.S. in the war crimes of its clients serves American interests or makes Americans any safer.

As we have seen over the last nine months, backing a client’s atrocious war does not free up U.S. resources and keep U.S. forces out of harm’s way. On the contrary, it puts targets on the backs of our soldiers and sailors, and it ensnares the U.S. in more unnecessary conflicts with other regional actors. Far from shifting the burden to clients, this approach has imposed new costs on the United States.

Vance’s hawkishness extends to East Asia as well. He has framed his opposition to aid for Ukraine primarily in terms of needing to focus U.S. resources on containing China, and he faults Biden for not doing enough on this front. Vance’s position implies that he thinks that the U.S. should be significantly increasing its weapon shipments to partners and adding to its military presence in the region. To the extent that U.S. policy in East Asia is too heavily weighted in favor of a “military-first” approach, this risks making things worse.

The senator has also expressed support for military action against drug cartels in Mexico. In a 2023 interview, he said, “I want to empower the president of the United States, whether that’s a Democrat or Republican, to use the power of the U.S. military to go after these drug cartels.” This has become a popular idea in the Republican Party in recent years, but it would be a bad policy for both the U.S. and Mexico. As Christopher Fettweis explained in Responsible Statecraft last year, “any military operation would almost certainly fail to destroy the cartels” and “it would not stop the flow of drugs into the United States.” Vance should know from his own military service in Iraq that the U.S. shouldn’t send its troops on impossible, open-ended missions.

Vance’s foreign policy record is not that long, but it contains some warning flags that the American people should take into consideration.