A briefing paper by Global Witness, Tax Justice Network, Christian Aid, and Global Financial Integrity
Introduction
The past year has seen increased attention on different aspects of the same problem: illicit financial flows out of developing countries and their role in perpetuating poverty. There is growing consensus on the importance of this phenomenon and the damage it causes, and that development is not just about providing aid, but enabling developing countries to mobilise their own resources.
These illicit financial flows include illegal tax evasion, abusive transfer mispricing, and the transfer of corruptly-acquired funds into bank accounts abroad, which should be prevented by anti-money laundering regulations.
All of these illicit financial flows are facilitated by global financial opacity, both in tax havens and major financial centres.
As a result of the financial crisis, which was largely created by global financial opacity, governments are now starting to tackle these issues, particularly through the G20 process.
Political will and institutional capacity to address these issues are of course required at the country level. However, as NGOs have been arguing for some time, there are potentially huge development benefits from this progress in international regulation. But the links between these problems and their solutions need to be made clear, and that is the purpose of this briefing.
The wording of the G20 communiqué and the G20 Working Group 2 report in April suggested that tax issues be dealt with by the OECD tax havens process, and corrupt flows into the financial system be dealt with by the Financial Action Task Force. While these are the bodies mandated to deal with these two issues, there are multiple linkages across the problems of tax and capital flight that, if recognised, will allow more effective holistic solutions to be implemented.