Mixed Progress in Addressing Global Tax Evasion and Corruption

  Disappointment has been expressed that a small group of rich countries blocked a plan for international tax rule-making to be removed from the clutches of the world’s rich countries, with developing countries being given more of a say.

At the Third Financing for Development Conference (FfD3)hat concluded recently in Addis Ababa the push for a global tax body to help give developing countries more say was rejected which means that more than 100 developing countries will remain excluded from decision making on global tax standards.

Nevertheless the news was not all bad.

Global Financial Integrity (GFI), have joined with other NGOs to applaud the global commitment made to reduce the massive flow of illicit funds from developing country economies. For the first time international consensus was reached on the importance of an issue that has been at the forefront of efforts by hundreds of research and development organisations for the last ten years.

Specifically, the FfD3 Outcome Document requires member states to “redouble efforts to substantially reduce illicit financial flows (IFFs) by 2030, with a view to eventually eliminate them, including by combatting tax evasion and corruption through strengthened national regulation and increased international cooperation.” Additionally, the final text calls on “appropriate international institutions and regional organisations to publish estimates of IFF volume and composition.” The ability to measure illicit flows was at the heart of significant disagreement during the FfD3 preparatory negotiations in New York earlier this year with the G77 countries calling for country-level estimates of illicit flow volumes.

“This language is an affirmation that illicit flows have a corrosive impact on development and is a recognition that significant global focus is required to address the problem if the Sustainable Development Goals are to be met,” said Tom Cardamone, Managing Director of Global Financial Integrity. In a recent GFI study, titled Illicit Financial Flows and Development Indices: 2008-2012, the extent to which IFFs can undermine an economy was underscored given that twenty of the world’s poorest nations have illicit flows that are greater than receipts from development aid and foreign direct investment combined.

Former UN Secretary-General Kofi Annan noted today that “stemming the hemorrhage of finance lost through illicit financial transfers will be a key driver of domestic resources that can be used for future development.”   Annan is Chairman of the Africa Progress Panel whose recent report People, Power, Planet highlighted the impact illicit flows have on the continent of Africa. The report calls on the international community to “support African efforts to strengthen tax and customs administration and reduce illicit financial outflows, especially via trade misinvoicing.”