Introduction
This paper is based on the topic of business ethics. The aim of the paper is to identify an ethical issue in business which has been in the news in the last four months and analyze it using ethical decision-making frame work. The issue to be discussed is the promotion of tax evasion through the use of offshore tax havens. The article which contains this issue was published in the Guardian on 20th November 2013 and was titled “Row as Barclays promotes tax havens as a gateway for investment in Africa”.
Discussion of the issue
The article mentioned above is based on a report published by Action Aid which is an international non governmental organization. In the report, Action Aid claimed that Barclays bank was engaged in unethical business practices by encouraging investors wishing to invest in Africa to do so through offshore tax havens, with Mauritius being the preferred route for investment in Africa and Asia. Action Aid obtained this information from a brochure published by the bank promoting Mauritius as the preferred offshore tax haven.
According to Toby Quantrill (Action Aids’ tax justice adviser), the bank’s promotion of the use of offshore tax havens deprives many African countries of revenue for development due to huge loses in taxes through offshore tax havens. He went ahead to argue that the bank should encourage direct investment in Africa instead of promoting offshore tax havens.
The sentiments of Action Aid were reinforced by former United Nations secretary general Kofi Annan who condemned such practices citing the problems of lack of health, education, and nutrition as the key reason why corporates must invest directly in the developing countries which are in dire need of revenues to uplift the living standards of the people. Action Aid also challenged the bank to provide a comprehensive statement outlining the affairs of its offshore corporate section and the evidence showing that it was not involved in tax evasion.
The use of offshore tax havens deprives countries of revenue in two ways. One is through lack of taxation of the investments since they are considered as subsidiaries of the companies’ main branches situated in a tax haven jurisdiction. The other way is through non taxation of profits which are repatriated to the companies’ main branches in the offshore tax haven jurisdiction in compliance with double taxation treaties signed between the offshore haven jurisdiction and the other countries. This enables companies to maximize their profits through cunningly avoiding taxation of their investments and profits.
The use of offshore tax havens is contrasted with direct investment where investors pay the respective taxes for their investments as well as for the income which they get from the countries where they have investments. Through this, the countries where the companies have investments are able to generate a lot of revenue which is used by the governments to provide services to the people.
Analysis of the issue
The use of offshore tax havens by corporates is an ethical issue because it has to do with whether corporates should avoid taxation or not. It also has to do with whether the act of promoting offshore tax havens amounts to unethical practice by Barclays bank or not. The fact that Barclays promotes the use of offshore tax havens paints a bad picture of a bank which has the dream of becoming the “strongest force for good in Africa”. In other words, the bank can be accused of hypocrisy. In order to analyze this issue, I will use two components of the ethical decision making frame work namely utilitarianism and virtue ethics.
Utilitarianism
In business ethics, utilitarianism is an ethical model of reasoning which emphasizes on the maximization of good and happiness and the minimization of the reverse of happiness and good. Its key proponent is Jeremy Bentham. According to him, the principles of human interactions are based on the overall good. In this sense therefore, good is looked from an objective sense in that what is good is seen as what produces ‘good’ for the maximum number of people.
Utilitarianism is based on the principle of ‘the end justifies the means’; meaning if the end of a process or action is good, then the means of arriving to that end are also good and justifiable. According to the model therefore, for an action to be considered as ethically or morally correct, it should have an outcome which benefits the maximum number of people. What this means is that people should focus on the end of a process but not the means of arriving at that end.
Jeremy Bentham’s view on the issue
Jeremy Bentham would advise the bank to continue with the promotion of offshore tax havens for the simple reason that offshore tax havens enable companies to maximize their profits due to avoidance of tax. His advice would be based on the reasoning that the avoidance of taxation would enable the bank and other companies to generate huge profits which would be used in corporate social responsibility activities which would lead to the happiness of many people.
Virtue ethics
This is guided by the question of whether a course of action respects human rights or not. Every human being is endowed with certain inalienable rights and entitlements. These rights and entitlements exist as shared norms of human moralities and natural rights. The rights and entitlements underscore the importance of treating all human beings with dignity, fairness, and equality irrespective of their cultural backgrounds. These rights and entitlements are supported by strong reasons and legal basis at national and international levels.
The rights criterion is valid in qualifying actions as right or wrong. Rights have to do with doing justice to every one irrespective of his or her physical characteristics. The criterion is based on the intrinsic value of life and social justice. Every human being is entitled to all good things and all deeds which are just. There is no human being who qualifies for more entitlements than others because all human beings are equal.
The criterion of rights is also based on the reasoning that rights should be respected and protected at all costs. In other words, actions should be considered so as to ensure that they do not infringe on people’s rights even if the actions are of benefit to the whole society.
Aristotle’s view on the issue
According to Aristotle, for actions to be considered as either morally or ethically correct, they need to be analyzed on a case by case basis. In other words, all cases are unique and therefore analysts should be careful to avoid generalizations. According to his virtue ethics explained above, people have rights to be treated fairly according to rules of natural justice. The citizens of African countries have the right to enjoy good life; which is made possible by governments’ taxation of investments and income generated by companies. It is through taxation that governments get funds to provide food, health care, education and social services to its people so that they may be able to live good life and enjoy their human rights. The promotion of offshore tax havens by Barclays would therefore be rejected by Aristotle on the grounds that it would hinder the people from enjoying their natural rights as citizens of the countries where they live.
Immanuel Kant’s view on the issue
Kant’s formalist theory is an ethical model of reasoning which is based on rules or duties of a person. Kant argued that it is not possible to quantify good and thus, the only moral and ethical deeds are those which are both good and right. Right in this sense taken to mean one’s duty. He emphasized on the motive of an action rather than its consequences. In this regard therefore, a good act may be done with the wrong motive either by omission or commission. Similarly, an act may be done with a bad motive and produce good or desirable results. The theory is the opposite of utilitarianism in the sense that it considers both the means and the end, as opposed to utilitarianism which focuses only on the end. The theory is therefore said to reinforce the argument that the means must justify the end, meaning that the end should only be considered as good; only of it is arrived at using morally correct actions or deeds.
The theory has been explained as an absolutist perspective in the sense that it considers something to be either good or bad and does not allow for conditions under which a good thing may be considered as bad or a bad thing to be considered as good.
Just like Aristotle, Kant would, therefore, reject the idea of the bank promoting offshore tax havens because it is not the right way for corporates to generate extra income for their corporate social responsibilities.
Miguel Alzola’s views on corporate social responsibility
In an article titled “When urgency matters on non-discretionary corporate social responsibility”, Alzola argues that corporates have a moral obligation to undertake corporate social responsibility. To support his argument, he uses what he calls justification principles of ability and membership. The principle of membership has to do with a person’s duty to take care of those who live in the same geographical area with him or her. With this principle, corporates are treated as individuals. According to Alzola, if an individual participates in community work, it should not be seen as charity work because the same individual benefits from the products of that particular work for the simple reason that he or she lives within that community. The same applies to corporates. The principle therefore obligates corporates to do what the people in their surrounding community do.
The principle of ability has to do with some one being obliged to help by virtue of having the ability to help. The principle takes into account what Alzola calls comparable costs. If for example a person is faced with the threat of death due to lack of medication, then a billionaire who is aware of the same has a moral obligation to help the person with money for medication. The reason is that the cost of the medicine is not in any way comparable to the amount of money the billionaire has.
Similarly, corporates earn comparatively huge income than individuals and therefore, they are presumed to have the ability to help those who are faced with various challenges or problems. This help should not be mistaken for charity because what the corporates donate to assist is not in any way comparable with the amount of income which they earn.
According to Alzola therefore, Barclays is ethically wrong in promoting the use of offshore tax havens because doing so amounts to irresponsible behavior. Corporates must instead do direct investments so that they pay taxes to the countries as a matter of duty. In addition to paying taxes, corporates must use a certain percentage of their profits in corporate social responsibility, which according to him is not a matter of charity but of duty.
Conclusion
The issue of Barclays bank promoting the use of offshore tax havens as a gateway to investment in Africa and Asia can be solved through reconciling the two parties; that is Barclays bank and Action Aid. Action Aid has already challenged the bank to come clear on its offshore corporate section and provide evidence that it does not engage in tax evasion. The bank on its part needs to reconsider its idea of promotion of offshore tax havens and instead advocate for direct investment so that countries are able to get the highly needed revenue for development. The bank also needs to be investigated by the relevant authorities which regulate the ethical conduct for corporates and if it is proved that it engages in unethical behavior as alleged by Action Aid, then the relevant sanctions be applied as a disciplinary action.