A new report published by researchers this week in the academic journal, Nature, Ecology and Evolution, states that tax havens and offshore financial centres, including the Cayman Islands, are supporting unsustainable practices such as Amazon deforestation. While tax havens have long been blamed for the negative socio-economic consequences of the global financial system on developing countries in particular, this latest report is the first to find a direct negative connection between offshore finance and threatened ecosystems.
The report, “Tax havens and global environmental degradation“, highlights the lack of previous research about the impact of tax-neutral jurisdictions on the environment, but this first foray into the topic already raises concerns. The study analyses how tax havens influence the sustainability of the ocean and the Amazon rainforest as two key examples of delicate eco-systems under threat.
“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,” Victor Galaz, lead author of the new study, said in a release.
Allegations of secrecy, which are constantly denied by all off-shore financial centres, is noted as a key challenge to furthering this research. “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,” added Beatrice Crona, executive director of the Global Economic Dynamics and the Biosphere programme (GEDB) and co-author of the paper.
Cayman is singled out as being instrumental in moving and managing the financing for major beef and soy companies in the Amazon Basin. The paper includes the first quantification of foreign capital that flows into these sectors operating in the Brazilian Amazon both linked to deforestation.
“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,” the authors state in the report. The Cayman Islands turned out to be the largest transfer jurisdiction for foreign capital to the key companies, the report found.
Other jurisdictions are noted for their part in the finances related to the illegal, unregulated and unreported (IUU) fishing industry, as 70% of ships that support it are, or have been, flagged in a tax haven such as Belize and Panama.
“The global nature of fisheries value chains, complex ownership structures and limited governance capacities of many coastal nations, make the sector susceptible to the use of tax havens,” Henrik Österblom, another co-author said.
The work is part of an on-going wider research project called “Earth System Finance: New perspectives on financial markets and sustainability”, which is a collaboration between GEDB, Stockholm Resilience Centre (Stockholm University), Future Earth, and the UNEP Finance Initiative.