Mutual Connection Between Taxes and Environmental Problems (Part 2)

• Do you have any papers related to environment and tax?   

Yes, I have published-- in tax treatises and tax publications-- several first of its kind legal analyses which globally altered the transnational adjudication and disclosure of (1) corporate polluting activity; (2) lobbying payments made to foreign government officials to change environmental laws/tax policies of countries.  And other articles as detailed below.

Industrial growth, technological advancement and globalization has boosted the world’s economy but depleted the earth’s resources. The inception of industrialization fueled with hydrocarbon energy created the highest levels of CO2 pollution which causes environmental calamities such as hurricanes, drought and wild fires which cause deforestation, giving us a glimpse at the downside of industrial growth and how the environment has been side-lined and deemed as a byproduct given the vast amount of economic power of polluter companies —kept  in play with the abundant transnational lobbying and bribery payments made to politicians to erode environmental laws/tax policies of countries.  

According to a report, just 100 multinational companies have been identified as accountable for more than 70% of the world’s greenhouse gas emissions that travel beyond national borders. Accordingly, in my tax articles further detailed below, I addressed the following international/transnational environmental issues:

Adjudication of transnational polluter companies    

In the U.S., in the absence of mechanisms to address the failure of free-markets to consider environmental costs and damages, these costs are typically shouldered by shareholders of companies causing environmental damage which pushes the polluter company’s stock value down.  Therefore, an effective tool in the fight for environmental change has been class action lawsuits.  

Rule 10b of the Securities Exchange Act gives shareholders the right to bring a lawsuit to recover economic loss sustained as a result of fraud related to the trading of their investments in stocks or bonds. This fraud can come in many forms, including corporate mis-governance involving bribery, lobbying, bid-rigging, tax evasion, a lack of effective internal controls over corruption prevention, poor financial record keeping including statements regarding future environmental liabilities and climate change impacts.  

I wrote the first of its kind legal analysis using U.S. international tax provisions and tax treaties which extended the application of U.S. laws to offshore matters allowing transnational enforcement proceedings, as well as U.S. shareholders class action lawsuits against polluter companies in the U.S. justice system.  

As a result, U.S. government agencies such as the Department of Justice (DOJ), the Internal Revenue Service (IRS), and the Securities Exchange Commission (SEC) have been able to investigate and litigate and U.S. shareholders have been able to successfully bring class actions suits against polluter companies for offshore fraud to recover damages from:

• U.S. companies that violate environmental and other laws in foreign countries --such as Enron the fraudulent energy giant which has become synonymous with corporate corruption, accounting tricks, influence peddling, and environmental negligence.  Enron not only hid corporate debt, bribery payments in offshore entities to boost its U.S. financial statements, but it also bulldozed over environmental, human rights concerns to build a Bolivian pipeline which burst on January 2000, leaking 30,000 barrels of oil into a river in the Andean highlands; 
• Foreign companies that violate environmental and other laws -- such as World’s worst oil spill by British Petroleum for the Deepwater Horizon Oil Spill, Volkswagen for the Diesel Emissions Fraud scandal, and Royal Dutch Shell PLC’s for their plan to drill in the Arctic Ocean. 

Class actions lawsuits are a uniquely American invention, and historically they were not allowed in most other countries. Although that has changed in recent years-- with more than two dozen countries permitting some type of class, collective or group action in a rising tide of climate/environmental litigation against major fossil fuel producers worldwide.   Unlike earlier cases, these cases are not only being launched by shareholders, but also by environmental non-government entities, cities and counties. For example, the Netherlands has become a central battleground for class action suits in the EU against hydrocarbon companies, legally compelling these companies to address their role in the climate crisis.  

The threat of multiple jurisdictional class action law-suits stemming from environmental liabilities motivated nearly 1,400 companies around the world to adopt an internal carbon price/tax and disclose them in their financial statements. This includes more than 100 Fortune Global 500 companies with collective annual revenues of roughly $7 trillion which have aligned with the UN Global Compact’s Caring for Climate Business Leadership Criteria on Carbon Pricing, as well as major oil companies which committed to adopting a carbon pricing/tax disclosure after a personal appeal from Pope Francis at the Vatican to avoid “perpetrating a brutal act of injustice” against the poor and future generations. Because internal carbon pricing has emerged as an important tool to help companies manage climate risks and identify opportunities in the low-carbon economy transition.  

In the past two years, there has been particularly strong increase in corporate internal carbon pricing initiatives in China, Japan, Mexico, and the U.S.  Companies which haven’t yet adopted an internal price/tax will soon have to do so, as investors demand more and more insight into the risks of climate disruption according to a report prepared by the Task Force on Climate-related Financial Disclosures (TCFD).

Adjudication of corrupt corporate transnational payments to foreign government officials to thwart environmental laws/taxes   

One of the major hindrances to switching from hydrocarbon to clean energy is the lobbying/corruption efforts of the hydrocarbon industry.   The OECD says that, one in five cases of transnational bribery occurs in the oil, gas and mining sectors which account for $2.3 trillion in contracts and licenses, production, revenue collection, revenue allocation, and social and economic spending.  Every year, the world’s five largest publicly owned oil and gas companies spend approximately $1 billion of shareholder funds on misleading climate-related branding and lobbying payments to politicians designed to control, delay or block binding climate-motivated policy in various countries. This has hindered governments seeking to implement green energy policies in the wake of the Paris Agreement which are vital in meeting climate change targets according to a report.   

To bolster worldwide adjudication of transnational lobbying/corruption payments by companies that attempt to sway implementation of green energy policies, I wrote the first of its kind legal analysis using U.S. international tax provisions and tax treaties which extended the application of foreign corrupt practices act (FCPA) to offshore matters, allowing the cross-border enforcement of it.  The FCPA was originally a U.S. law but has been adopted by 41 countries.  It criminalizes bribery of foreign officials by companies and individuals pursuing business in foreign countries requiring them to create and maintain proper accounting controls and accurate records of their financial dealings by subjecting violators to civil and criminal penalties and the risk of losing the benefits of doing business with a government agency. As a result globally there has been a dramatic increase in:

• Cross-border FCPA enforcement actions against the world’s largest 28 hydrocarbon companies;
• Cross-border FCPA enforcement actions against heads of state who  accepted lobbying/bribery payments to change their country’s climate policy, as I wrote about in another article;
• Class action lawsuits against FCPA violating foreign hydrocarbon companies.