SEC Reorganizes to Enhance Performance; GFI Applauds, Offers Suggestions

August 6th, 2009

Global Financial Integrity applauds Mr. Khuzami’s plan to reorganize the enforcement arm of the SEC and maximize the agencies powers in an effort to enforce laws already on the books that require corporations to be accountable for their illegal actions on the national and international level. The SEC has not provided additional detail on the five specialized investigative groups, but we hope that trade mispricing is included in the scope of the investigative group responsible for market abuses by big traders.

Approximately 60% of global trade is now conducted within subsidiaries of the same multi-national corporation – as opposed to between different corporations.  The OECD has stated that since intra-group transactions are not subject to the same market forces as transactions between unrelated parties operating on the free market, there is a huge potential for profit shifting via under or over pricing of intra-group transactions. This profit shifting deprives developing countries host to subsidiaries of US companies from the benefits of such investment by preventing them from appropriately taxing those profits and increasing the local tax revenues that should be used as capital for local infrastructure, health programs, etc.

The SEC has an opportunity to enforce US laws, prevent profits of multinationals from languishing in tax havens, and support the developing world by including transfer pricing within the remit of the investigative group responsible for market abuse by big traders. We hope they seize this opportunity.

Written by Heather Lowe

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