Global response needed to stop rampant tax abuse costing governments trillions, UN panel says

World lead­ers voiced sup­port for the FACTI panel’s ambi­tious plan, while oth­ers raised con­cerns about imple­ment­ing reg­u­la­tions around lawyers and own­er­ship data.

The UN’s High-Level Panel on International Financial Accountability, Transparency and Integrity launched its final report in an online event on Feb. 25, 2021, that includ­ed high-rank­ing politi­cians, experts, and oth­er stakeholders.

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 Thursday.

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 reportpub­lished 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,”  Moyo 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.”

ICIJ, Brenda Medina