Open registries and tax heavens, the perfect combo for IUU fishing / by Francisco Blaha

There was a lot of coverage on the news last year on the Paradise and Panama papers, as an insight on the intricate ways in which financial secrecy jurisdictions (tax heavens) lead to reduced transparency, and any lack of transparency is of immediate attraction to fiheries operators where transparency is something you don't want.

 Photo serves an illustrative purpose and was not taken in the context of IUU fishing

Photo serves an illustrative purpose and was not taken in the context of IUU fishing

In my experience, if you dodgy… then you are dodgy for most things. This however don't imply that you are a mean person aat the same time. Over the years I meet quite dodgy characters in fisheries that are quite nice and affable people, is just that they don't really play by the rules… while others (the lesser in my personal experience) are real devious characters and make a point to play the system and sink anyone on their way.

But basically, if you re going to be underreporting, or setting on areas not allowed, or finning on the side or other 1000 things you can do in fishing… chances are you go for jurisdictions to flag your vessels that don't really take much responsibility and you do your business in places that not particularly transparent.

As a IUU fisheries operator if your flag state has an open registry and is a tax heaven at the same time, you hit the double bonus!

The correlation in between this two issues, while known, it wasn't studied a lot until this paper came along “Tax havens and global environmental degradation” authored by a group of very clever people loosely related to the Stockholm Resilience Centre (I wrote about them before).  The paper looks to the bigger picture in between fisheries and degradation of the Amazonian forest.

I’ll focus on some of the aspects of fisheries quoting below, but as usual, read the original!

The role of tax havens for global fisheries
The fisheries industry is a global business, with owners, fishing companies, customers and other actors in the value chain spread across the world. The global nature of fisheries value chains, complex ownership structures and limited governance capacities of many coastal nations make the sector particularly susceptible to the use of tax havens in three important ways.
First, the use of these jurisdictions has been proved to support aggressive tax planning and tax evasion. Common strategies to avoid taxes include exporting and re-exporting fisheries products under incorrect article codes via subsidiaries, or selling to the tax haven subsidiary at a highly discounted value and then re-exporting to the real customers at the full value. Unreported sales and recategorization of sales income as agency fees charged by a subsidiary located in a tax haven represent additional ways by which seafood companies have been documented to avoid taxes.
Second, these jurisdictions also facilitate the evasion of regulation designed to address overfishing and fisheries crime by exploiting loopholes created by the fact that many well-known tax havens also qualify as secrecy jurisdictions in other regards, such as flags of convenience (FOC) states. FOCs are countries to which vessel owners flag vessels and from which they can expect limited or no sanctioning mechanisms if they are identified as operating in violation to international law. Recent findings indicate that some of these vessel registries are run by private entities, further reducing transparency and the ability of governments to exercise formal and informal pressure directed at FOC states. By setting up company structures with subsidiaries in jurisdictions that are both FOCs and tax havens, companies can obfuscate profits and beneficiary ownership of subsidiaries and individual vessels.
This has implications for illicit activities, linking to the third point — namely, that the secrecy afforded by combined use of tax havens and FOCs also allows companies to secure the dual identity of a fishing vessel, one of which is used for legal and the other for illegal fishing activities. Historical examples of IUU fishing from the Southern Ocean illustrate the destructive combination of tax evasion, hidden beneficiaries, falsely allocated catches and the resulting depletion (or, in the instance of South African stocks, collapse) of fish stocks, as well as reduction of critically threatened seabird populations.
Our analysis combines multiple datasets on fishing vessels and flag information to specifically highlight the link between IUU fishing and tax haven jurisdictions. While only 4% of all registered fishing vessels are currently flagged in a tax haven jurisdiction, data from regional fisheries management organizations and the International Criminal Police Organization (INTERPOL)34 show that 70% of the vessels that have been 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 (Fig. 1).
  Fig. 1 |  Fishing vessels and tax havens. Number of registered fishing vessels globally in the FAO Fishing Vessels Finder database ( n  = 257,798)33 compared with the number of vessels that have been found to carry out or support illegal, unreported and unregulated (IUU) fishing activities( n  = 209)34. Dark blue wedges show the percentage of vessels flagged in tax havens. The bar plot displays the count of IUU vessels that are, or have been, flagged in the different tax havens, where asterisks indicate overlap between tax haven jurisdictions and flags of convenience (FOC) states

Fig. 1 | Fishing vessels and tax havens. Number of registered fishing vessels globally in the FAO Fishing Vessels Finder database (n = 257,798)33 compared with the number of vessels that have been found to carry out or support illegal, unreported and unregulated (IUU) fishing activities(n = 209)34. Dark blue wedges show the percentage of vessels flagged in tax havens. The bar plot displays the count of IUU vessels that are, or have been, flagged in the different tax havens, where asterisks indicate overlap between tax haven jurisdictions and flags of convenience (FOC) states

The use of tax havens — and its associated problems such as loss of tax revenues, reduced transparency and lack of compliance — make tracing of fisheries resource use and allocation of accountability extremely difficult and costly. As such, it represents a major threat to the sustainability of global ocean resources that should be acknowledged and taken seriously. 
Putting tax havens on the global sustainability agenda
The lack of clearly established causal links between capital flows via tax havens and environmental change should not deter from further investigations. Instead, we hope that our analysis triggers important questions for those interested in the implications of tax havens for global environmental sustainability. For scholars, the questions centre on causality and the importance of legal and illegal capital flows. That is:
  • To what extent does the use of capital channelled through tax haven jurisdictions allow companies to expand their extractive operations in ways that they would not do otherwise? In particular, to what extent does the use of tax havens allow companies to circumvent environmental regulation and accountability?
  • Does the use of tax havens by multinational corporations lead to underreporting of inward FDI into extractive activities affecting important global environmental commons?
  • Are these jurisdictions used to a different extent in different extractive sectors, and if so, why?
  • If losses of tax revenues are substantial over time, do these undermine national and regional monitoring and enforcement capacities that would help safeguard important global environmental commons.
 No Panamanians on board! (Photo serves an illustrative purpose and was not taken in the context of IUU fishing)

No Panamanians on board! (Photo serves an illustrative purpose and was not taken in the context of IUU fishing)