A critically important Briefing Paper “The links between tax evasion and corruption: how the G20 should tackle illicit financial flows” (September 2009) by Global Witness, Tax Justice Network, Christian Aid, and Global Financial Integrity, warns that capital flight through money laundering represents the principal mechanisms by which transnational corporations engage in tax avoidance and facilitate international bribery. Raymond Baker, of Global Financial Integrity and author of Capitalism’s Achilles Heel (2005), is the catalyst behind this study
The Paper issues recommendations in six areas, calling for:
1. Country by country reporting requiring transnational corporations to publicly and fully report the economic activity and taxes paid in all jurisdictions.
2. Following the Sarbanes-Oxley model, making officers of corporations engaged in transnational business sign a statement in the commercial invoice certifying that no trade mispricing has been attempted or occurred. Both companies and individuals involved in a misrepresentation might face civil or criminal liability.
3. Countries forcing beneficial owners of legal entities and parties to contracts above a certain amount to be publicly disclosed in the relevant jurisdiction, with significant penalties for non-compliance.
4. Governments adopting mandatory rules and procedures pursuant to which they collect and exchange financial data about individuals and legal entities with one another.
5. States adopting rigorous “know your customer rules” must be imposed on financial institutions in accordance with the Financial Action Task Force’s (FATF’s) recommendations and other relevant documents; again this information should be shared among governments, all of which should engage in more active regulatory and monitoring activity.
6. Changing existing anti-money money laundering laws so that the predicate offenses are the same in all states, whether committed within a jurisdiction or abroad.
The G-20 represents the best mechanism to implement these initiatives. It is worth noting that 16 G-20 members also belong to FATF — an important organization — but one that is highly political and unwilling to blacklist or impose sanctions against tax havens and other countries/territories facilitating money laundering.
Among the G-20’s member-states are Brazil, China and India – none of which are members of the Organization for Economic Cooperation and Development (OECD) (but all are members of both the International Monetary Fund (IMF) and World Bank).
The G-20 is not a formal organization – rather it is a club to discuss and hopeful coordinate economic policies. The OECD describes its mission as “[bringing] together the governments of countries committed to democracy and the market economy from around the world to:
– Support sustainable economic growth;
– Boost employment;
– Raise living standards;
– Maintain financial stability;
– Assist other countries’ economic development;
– Contribute to growth in world trade.”
The Organi[z]ation provides a setting where governments compare policy experiences, seek answers to common problems, identify good practice and coordinate domestic and international policies. In recent years, academics, think tanks and non-governmental organizations (e.g. Christian Aid, Global Financial Integrity, the Tax Justice Network Transparency International, etc.) have increasingly become aware of the role of illicit money flows in transnational crime and corruption. Ultimately, the inhabitants of developing countries are the principal victims.
I have always been convinced that there are only 20 odd countries in the world, while the number of “states” number closer to “200.” States have governments generally run by elites and are not accountable to the population that inhabits the territory they purport to rule.
These governments (along with their members and elite groups that help to keep them in power) depend on bribery, corruption and customs duties for revenue. Elites in such states tend to send their children abroad to attend private schools.
In these states, the government need not deliver services to the inhabitants who live in the territory they control. In contrast, the governments of “real” countries depend on taxes paid by their citizens, which are used to pay for services.
This latter “specie” of government is accountable to its citizens to some degree, even if the country is not free from corruption (a term the U.N. Convention Against Corruption could not define). The willingness of many individuals, private entities, and states makes this all possible.
This contributes to the fact that a very large share of the world’s population lives in poverty. To my knowledge, the payment or receipt of a bribe is not legal in any state. Nonetheless, bribery throughout the world is rampant.
The Financial Times citing Transparency International’s Global Corruption Report 2009 reports that “since February 1999, when the [OECD’s Anti-Bribery Convention] went into force” to reduce the bribing of foreign officials to obtain or retain business, the U.S. government “has brought 103 cases, Germany more than 40, France 19 and the UK just one.”
Admittedly, international bribery represents a small share of the world’s corruption. Nonetheless, if the G-20 is a “club,” shouldn’t its members uphold certain moral (legal) standards?
It is no secret that businessmen routinely complain about the level of corruption in Brazil, China, India and Russia as well as the willingness of persons from such companies to pay bribes.
Thus, would it not make sense that the G-20 states agree that as a condition of membership sign the OECD Anti-Bribery Convention? This stipulation would be a small step in combating the problem, but one could not ask for a better time to propose this idea.