deforestation and fog

Deforestation and Overfishing: The Environmental Effects of Foreign Tax Havens

The destructed land left from the acts of deforestation is an eerie sight. A distant treeline, fallen logs, and disrupted vegetation seem both natural and unnatural, and perhaps rightly so. In a recent investigation performed by Victor Galaz and members of the Stockholm Resilience Center, many acts of Amazonian deforestation can be directly linked to foreign tax havens. Why? Because there’s lots of money to be made in the destruction of these forests, which are eventually used by massive beef and soy companies to turn a profit. However, the fish industry, worth over $23 billion annually, is yet another market at the root of environmental destruction by use of oversea tax havens.

The Link Between Overfishing and Tax Havens

There is a reason why fishing boats are given a daily fish quota, as well as restrictions on the species of fish that they can keep; The environment. The practice of overfishing is capable of wiping out entire species. However, this can be viewed as limited profits for the companies involved in these restrictions; less fish equals less profits. For companies like this, it’s tempting to find a way around these regulations, and foreign tax havens offer the perfect opportunity.

The Cayman Islands, Bermuda, and British Virgin Islands all represent popular tax havens used by companies around the globe, including several U.S. based companies. Conveniently, these areas offer little to no enforcement of common environmental laws, meaning companies operating out of these tax havens are free to overfish or capture endangered species with very little chances of repercussion. For companies that previously followed environmental restrictions, this represents an incredible opportunity for increased profits.

But, how does it work? In reality, it’s quite simple. Companies based anywhere in the world with offshore accounts in a tax haven can register vessels within the tax haven. The vessel is then subject to the lax environmental laws of that area. So, a United States company that operates a division of their business out of a tax haven, like the Cayman Islands, and registers their vessels in that area no longer faces any restrictions on quotas or endangered species. With this lack of limitations, the company is now able to profit from these practices with little to no risk of related consequences, leading to billions in additional revenues.

Connecting Deforestation to High Profits

The connection between deforestation and tax havens is slightly more complicated. After all, how much profit can deforestation really mean to companies around the world? In order to understand this connection, you must understand that it is not the trees that these companies are after, it is the land. With cleared land, multi-million dollar beef and soy companies have more space for cow pastures or the harvesting of soy plants. In the case of these industries, cleared land equates to high profits. Companies in these industries utilize tax havens to increase their total profits by avoiding corporate taxes on their revenues. The money that they save on taxes gives them additional funds to support the operating costs of more and more projects, which leads to an increase in deforestation. Most of the deforestation made possible through tax haven profits takes place in Brazil due to their exceptionally lax environmental laws.

According to Galaz and his team, nearly all of the funds utilized for soy and beef deforestation projects in Brazil originated from the Cayman Islands, one of the most well-known tax havens in the world. They also found that the total money invested in these industries shockingly outweighs any other industry investments in Brazil.

Conservation Effects of Deforestation and Overfishing

With the increasing number of environmental protections in place, you might think corruption of this nature would be decreasing. However, companies seeking the monetary benefits of overfishing and deforestation have been quick to discover and implement the loopholes made possible through foreign tax havens. While this means substantial profits for the companies involved, it can mean serious threats to the environment. Both overfishing and deforestation are linked to the destruction of numerous key and beneficial species, which can lead to additional harm to the environment as well as future food shortages. These risks combined with the increasing threats of climate change can mean detrimental effects to the conservation of our world. However, it seems many companies are more focused on increasing their profits.

Combatting Tax Haven Based Destruction

Thankfully, there are ways to combat these issues. In light of recent leaks, like the Paradise Papers, which show exactly how tax havens are utilized by massive corporations, authorities across the globe have been cracking down on the regulation of these practices. Popular tax havens like Bermuda and the Cayman Islands are facing increased pressure to enforce the payment of corporate taxes and reduce other shady benefits that draw businesses to these areas. If oversea tax havens begin implementing the desired changes, the use of these territories for fraudulent practices should decrease. For now we can only hope that these tax havens begin to make the necessary changes that are key to the conservation of our planet.

To learn more about the effects of tax havens or to access numerous resources on fraud, check out the Newman & Shapiro Whistleblower Help Center and blog!