Tax Havens Shelter Illegal Fishing and Amazon Deforestation, Study Finds

A first-of-its-kind study published Monday shows that tax havens don't just shelter the wealth of celebrities and large corporations—they also obscure the financial transactions behind environmental destruction.

The study, published in Nature Ecology and Evolution by the Stockholm Resilience Centre at Stockholm University and Global Economic Dynamics and the Biosphere (GEDB) at the Royal Swedish Academy of Sciences, found that 70 percent of vessels involved in illegal fishing were registered in tax havens and that 68 percent of the foreign capital transferred to sectors involved in the deforestation of the Brazilian Amazon was moved through tax havens.

"Our analysis shows that the use of tax havens is not only a socio-political and economic challenge, but also an environmental one. While the use of tax haven jurisdictions is not illegal in itself, financial secrecy hampers the ability to analyse how financial flows affect economic activities on the ground, and their environmental impacts," lead study author Victor Galaz said in an email.

The study is part of a longer term investigation by the institutions involved called "Earth System Finance: New perspectives on financial markets and sustainability."

The researchers say they are the first to look at the relationship between tax havens and environmental destruction on a systemic level.

"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," GEDB executive director and study co-author Beatrice Crona said in an email.

Monday's paper focused in on illegal fishing and the financing of the beef and soy sectors in the Amazon, which are both linked to deforestation.

While 70 percent of fishing vessels involved in illegal, unregulated and unreported (IUU) fishing either are currently or have been registered under the laws of countries that are also tax havens, only four percent of fishing vessels total are "flagged" or registered in these countries. IUU vessels were most often flagged in Belize and Panama in particular.

Further, tax havens often double as "flag of convenience" countries that do not penalize vessels flying under their flag if they are implicated in breaking international law.

In the case of the Amazon, the researchers found their 68 percent figure by looking at how nine beef and soy companies operating in the Brazilian Amazon received foreign funds between October 2000 and August 2011. Some companies received as much as 90 to 100 percent of their foreign capital through tax havens.

The study also represents the first quantification of the flow of foreign investments into the Brazilian beef and soy sectors and found that most of these transactions happened through the Cayman Islands.

The researchers concluded with three recommendations for how the international community should respond to the study's findings.

First, the loss of revenue due to the use of tax havens should be considered an indirect subsidy of economic activity that harms the environment.

Second, environmental organizations like UN Environment should calculate the ecological cost of these unofficial subsidies.

Third, tax evasion should be viewed as an environmental problem as well as an economic and political one.