Global response needed to stop rampant financial corruption


Every year, trillions of dollars flow out of developing countries due to the activities of criminals, corrupt politicians and officials, and tax evaders. Writes Brenda Medina

Governments around the world should tackle cross-border financial corruption and rampant tax abuse to obtain the resources necessary to eradicate poverty, address climate change and reduce inequalities exacerbated by the COVID-19 pandemic, a high-level United Nations panel recommended.

The International Financial Accountability, Transparency and Integrity panel published a report with 14 recommendations aimed at updating and enhancing the international financial system. Among its suggestions to governments: set a global minimum tax of 20% to 30% on corporate profits; establish global guidelines and regulations for accountants, attorneys and financial professionals; publish information about the profits, location of assets and owners of corporations; and create laws to pursue financial crimes and corruption cases across borders. The panel also calls for international standards on protecting journalists, advocates, and whistleblowers.

“Every year, trillions of dollars flow out of developing countries due to the activities of criminals, corrupt politicians and officials, and tax evaders,” said Munir Akram, president of the UN Economic and Social Council and permanent representative of Pakistan in the UN. “Turning a blind eye to such illicit [financial] flows, especially during a time of economic recession triggered by the COVID-19 pandemic, is nothing short of criminal.”   

The panel calls on countries to sign a global pact to implement the recommendations, track and stop the illicit movement of money across jurisdictions, and ensure that the recovered funds are used for sustainable development.

“Given the magnitude of resources that could be unlocked with financial integrity, the Global Pact could have a substantial impact on the well-being of people and planet in developing and developed countries,” the report states. “It would also constitute a major contribution to improving multilateral and national governance.”

According to the report, corporate profit-shifting or “the shopping around for tax-free jurisdictions by multinational corporations,” costs countries where those profits are made $500 billion to $650 billion annually. Around $7 trillion of the world’s private wealth is stashed in tax havens, an estimated 10% of the global gross domestic product is held offshore and almost 3% of the world’s GDP is laundered by criminals, the report says.

The panel reported that the money lost to tax evasion and avoidance annually in South Africa, for example, could be used to build 3,500 new schools or pay for HIV treatment for 6 million people. The losses in Brazil could be used to build homes for 8 million low-income families. In Germany, the millions lost to tax avoidance could be enough to install 8,000 onshore turbines to generate electricity, and the funds lost in India could cover hospital treatments for 55 million low-income patients.

World leaders weigh in

During a virtual launch event on Thursday, high-ranking politicians including Norway’s Prime Minister Erna Solberg, Pakistani Prime Minister Imran Khan, Mexico’s Minister of Public Administration Irma Eréndira Sandoval and Nigeria’s Foreign Affairs Minister Geoffrey Onyeama welcomed the report’s recommendations. The leaders also called for a fair implementation of the recommendations and immediate international actions.

“International bodies dealing with tax evaders, corruption and illicit financing, should be inclusive and representative. They should not be used as an instrument of pressure and coercion against developing countries,” said Khan. “We must also take some quick, concrete actions. First, a commitment by haven countries to immediately and unconditionally return all foreign assets that are shown to be stolen or whose legitimacy cannot be explained … the OECD’s proposal to freeze and return unexplained assets of foreign politically exposed persons is worthy of consideration.”

Onyeama said that, given the “bleak picture” painted in an interim report published by the FACTI panel in September, the government of Nigeria expected stronger recommendations in some areas of the final document.

Nevertheless, Onyeama noted the panel’s acknowledgment of the shortcomings of the existing global tax system, which he said is outdated and makes combating tax abuses, particularly by multinational corporations, “a genuine dilemma for most developing countries.” The minister said the current tax treaties and structures are “anything but inclusive” since these were framed over a century ago, “when most developing countries were yet to be really independent.”

Solberg said she is encouraged by recent efforts to facilitate country-by-country tax reporting and that more jurisdictions are improving transparency on beneficial ownership.

“However, many countries aren’t yet participating in the standards-setting bodies,” Solberg said. “We all share a responsibility to prevent illicit flows from passing through our jurisdictions. Stronger global consensus on tax cooperation is an important step.”

Pushback on some recommendations

Panelists from different sectors said implementing some of the recommendations could be challenging in a discussion following the report presentation.

“What is wrong that is proposed in the report is that we must increase government regulation of the legal profession,” said Sternford Moyo, president of the International Bar Association, a membership group that includes more than 80,000 individual attorneys and 190 bar associations and legal societies.

“Without judicial independence you can’t really have the rule of law, so that aspect of the report clearly cannot be supported by right-thinking lawyers,” Mayo said. “It is not correct that self-regulation is not working merely because a few lawyers have committed financial crimes.”

“Bar associations can regulate but if it is not working in certain jurisdictions, can governments step in then to establish standards to tackle enablers of financial crime?” asked Maryam Nemazee, the panel moderator and a journalist from Al Jazeera English.

Moyo responded that most attorneys are law abiding and adhere to high professional standards. Those who don’t should be “dealt with by the criminal system” in their respective countries, he said.

The discussion comes on the heels of a new report published by the Organisation for Economic Cooperation and Development this week, warning about the key role that lawyers, accountants and other professions play in cross-border financial crime.

Another recommendation that panelists said could prove difficult to implement is the collection, sharing and publication of data, and specifically the creation of a public registry revealing the real owners of companies and assets.

Marcus Pleyer, president of the Financial Action Task Force, the agency that sets global anti-money laundering standards, said that his organization encourages public beneficial ownership registries as a very strong tool for countries, but these aren’t a requirement.

“Public registry is an option that we encourage countries to use but you must also see that we have more than 205 countries that committed to our standards, each country has different systems and different data protection laws, and we can’t oblige every country to have a public registry,” said Pleyer. “It depends on each national legal system.”

Dalia Grybauskaite, FACTI panel co-chair and the former president of Lithuania, said that the report’s recommendations are more ambitious than previous similar initiatives because the current global crisis calls for a reform of the global financial system. However, most of the recommendations are straightforward and manageable, Grybauskaite said.

“Are they doable? In most cases and, I think, in absolute cases they are doable because everything depends only on the political will of member states.”


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