CAPITALISM'S ACHILLES HEEL Dirty Money and How to

30 CAPITALISM’S ACHILLES HEEL
transfer pricing within multinational corporations, the use of trade to shift
money at will between parents, subsidiaries, and affiliates operating in dozens
of countries. For many multinational corporations, exaggerated transfer pricing
is standard procedure, a major part of global strategies to minimize taxes
and maximize profits.
Intracompany trade across borders represents about 50 to 60 percent of
all cross-border trade. I have never known a multinational, multibillion-dollar,
multiproduct corporation that did not use fictitious transfer pricing in
some part of its business to shift money between some of its entities. In years
past, chemical companies were a common example of falsified transfer pricing,
taking advantage of proprietary products to move revenues and relocate
profits. Then pharmaceutical companies became widely known for the same
practice, invoicing as much as 10 times or more for the same product sold to
one subsidiary out of which profits were drawn as compared to another subsidiary
where profits were permitted to remain.
There are several firms that sell data on transfer pricing, that is, on the
laws and regulations that exist in countries that attempt or do not attempt to
control transfer pricing. If you’ve got a question, contact Ernst & Young to
obtain the firm’s Transfer Pricing Global Reference Guide, offering “creative
and practical solutions for your transfer pricing needs.” 6 For a hefty fee,
they’ll tell you what’s legal and what isn’t in a selection of distant countries.
That’s just to keep you informed, not to stop you from using transfer pricing
to shift revenues and profits with ease.
The most marvelous example of transfer pricing I have ever encountered
concerns diamonds out of South Africa, which illustrates what you can do in
cahoots with a government. For more than a century millions of carats of diamonds
were exported at essentially zero value, to be cut, graded, and sold
abroad with most of the revenues kept abroad as well. The real volume and
value of diamond exports was a classified state secret. When I inquired I was
told, “This was a decision by government. It was not allowed to identify a specific
company or producer of diamonds for export or the value of diamond exports.”
7 As a consequence, no one knows but the exporters what happened to
the hundreds of billions of dollars generated from diamond sales.
The situation changed a few years after majority rule was achieved in
South Africa. Today a Diamond Board assesses or approves the assessment of
diamonds for export, and their quantity and value are published by the
South African Revenue Service. In a recent month, exports of 66,560 carats