Money laundering and tax havens, the darker side of the global financial system

                                   Money laundering and tax havens, the darker side of the global financial system 

 By Thalif Deen: A sign in a laundry room in New York had an attractive, if frivolous, slogan: "We wash dirty clothes, not dirty money." More recently, in 2019 the film Laundry, based on the book Secret World, by the journalist Jake Bernstein, winner of the Pulitzer Prize, exposed the Byzantine world of money laundering.

 They are the darkest sides of the global financial system, with hundreds of billions of dollars in ill-gotten profits that are safely in foreign banks, a crime perpetrated on a global scale, the High Level Panel on Responsibility denounced on Thursday 25. , International Financial Transparency and Integrity to achieve the 2030 Agenda (Facti, in English).

 Ibrahim Mayaki, Facti co-chair and former Prime Minister of Niger, noted that closing the loopholes that allow money laundering, corruption and tax abuses, and ending the malpractices of bankers, accountants and lawyers are mandatory steps to transform the world economy for the universal good. 

 In a report published on Thursday 25, the panel launched in March 2020 by the United Nations (UN), insisted governments on the need to approve the Global Compact for Financial Integrity for Sustainable Development , which has been proposed for years to control tax evasion and money laundering. 

 The Panel is made up of former world leaders, central bank governors, business and civil society leaders, and academics, and in its report states that up to 2.7% of global gross product is laundered each year.

 Meanwhile, companies seeking tax-free jurisdictions deplete their countries' budgets by a total of up to $ 600 billion a year. 

This occurs in a context that during the covid-19 pandemic, the wealth of billionaires has soared 27.5%, while 131 million people joined the ranks of extreme poverty. 

 It happens, indicates the Facti report, while it is calculated that a tenth of the world's wealth would be hidden in financial assets in tax havens, which would prevent governments from collecting their part of taxes and being able to count on resources to face the losses. social and economic impacts of covid.

 For example, Facti indicates that the recovery of annual losses from tax evasion and avoidance in Bangladesh would allow the country to extend its social safety net to an additional nine million older adults. Chad, for its part, could afford 38,000 classrooms and Germany would have to build 8,000 wind turbines.

 Kunal Sen, Director of the World Institute for Development Economic Research at the United Nations University, told IPS: “At a time when developing countries are facing a sharp decline in tax revenues due to the economic crisis generated by the pandemic, it is imperative to find solutions to the great losses in the public treasury due to illicit financial flows. 

 It is, he pointed out, a key challenge for development, since the provision of crucial public services, such as education, health and infrastructure, depends on states having funds to spend.

 "The global coordination of fiscal policies, preferably led by the countries of the Group of Seven (G7, of industrialized powers of the world), to limit tax evasion and money laundering is the need of the moment," he said. 

 James A. Paul, former executive director of the Global Policy Forum, told IPS that the new UN Facti report is certainly welcome, but there are reasons to wonder where it will take us.

 "It offers a devastating analysis of the corrupt global financial system and how financiers undermine welfare, fairness and legitimacy," he said. 

The report argues that the architecture and rules of the financial system make sustainable development and the 17 Sustainable Development Goals (SDGs) of the 2030 Agenda difficult and may even be impossible to meet.

 "Those who have followed the global financial system critically over the past decades will not disagree, but they will find little here that is really new," said Paul, author of such works as "Of Foxes and Chickens." "Oligarchy and Global Power in the UN Security Council". 

 He also noted that "it has long been clear that the world's richest nations and families are the main beneficiaries of this system, that they are in control of politics and that they have no intention of fundamentally changing things."

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 In particular, he stressed, the national leaders of this global corruption mafia are citizens of the United States and the United Kingdom, whose financial institutions and oligarchies are the most powerful in the world. 

 "They have ruled the global financial system for a long time and (despite statements to the contrary) are strongly opposed to reforms that would increase fairness, transparency and the other good elements that the High Level Panel tries to promote." Paul said.

 For the specialist, "this leads us to the dilemma about the UN and its ability to analyze and solve the most fundamental problems in the world.

" However, Paul felt that the presidents of the UN General Assembly and the Economic and Social Council should be congratulated for creating the Facti and for reminding us once again how the world oligarchy is practicing corruption on an impressive and devastating scale. 

. But the big problem with the Facti report is that its editors have not been able to go as far as the situation of tax havens and money laundering requires. Although this is not a surprise due to the interests and sectors involved.

 “We need something more fundamental: nothing less than a roadmap towards a world democratic order, freed from the clutches of the financial oligarchy and guided at last by the needs and will of the peoples themselves… The UN and its capacity to analyze and solve the world's most fundamental problems, ”Paul insisted.

 The Ghanaian and former UN Secretary General, Kofi Annan, denounced in the past the scope of money laundering and evasion in Africa. 

 "Billions of dollars of public funds continue to be snuffed out by some African leaders, even as roads collapse, health systems fail, school-age children have no books, desks, no teachers, and telephones do not work." he stated. 

Richard Ponzio, principal investigator and director of the Global Governance, Justice and Security Program at the Stimson Center, based in Washington, told IPS that tax abuse, corruption and money laundering erode national tax bases and drain funds for critical projects. for the countries, which depend on the taxes of these capitals.

 These are very serious crimes, he recalled, and "contribute to feeding insecurity in today's hyper-connected global economy, by supporting the work of criminal syndicates and international terrorists to the detriment of global security and justice.

" The recommended Global Compact on Financial Integrity for Sustainable Development would help expand the global reach of the Financial Action Task Force, which created the G7 in 1989 and later joined by a few dozen countries, with the aim of coordinating global efforts against money laundering.

 In addition, the specialists consulted agreed, countries should be encouraged to join the OECD (Organization for Economic Cooperation and Development) Declaration on Automatic Exchange of Information (AEOI) in Tax Matters, the objective of which is to increase the bank transparency and reduce tax evasion worldwide.

 The AEOI rule benefits both rich and poor countries, makes it difficult for money launderers to hide their profits, and makes it easier for victims of tax evasion to recover funds.

For developing countries to fully reap the benefits of this new transparency, he said, the developed world and international institutions must recognize and help overcome the financial and capacity constraints that prevent less-favored countries from participating in a multilateral regime of AEOI.

 At the same time, developed and developing countries should promote transparency of corporate records to prevent money launderers from operating behind shell companies, the academics consulted stressed.

 Paul added that local and international non-governmental organizations (NGOs) have long pointed to the staggering sums diverted from the public purse by banks and financial managers, aided by corrupt politicians and systematically covered up by complicit journalists, businessmen and academics. 

 Ethical research has shown, among other things, how taxes are evaded or evaded and how the wealthiest individuals and companies pay next to nothing in support of public projects and programs. 

“This knowledge has deepened public mistrust in governments and led us to the current crisis of global authoritarianism, but it has done little to change regulatory laws, improve tax collection, or reduce public corruption. In any case, the trend has gone in the opposite direction ”, stressed the specialist. 

 Ponzio, for his part, said that the UN Guiding Principles on Business and Human Rights and other corporate social responsibility standards can also contribute to improving the requirements to prevent or reduce illicit financial flows in different economic sectors, including the financial, accounting and legal.

 For this expert, participatory budgeting and a human rights approach to budget control can reveal whether these illicit flows divert government spending aimed at promoting the public good.

 With the right information, civil society organizations, the media, and the general public can play an important role in requiring states, businesses, and facilitators (lawyers and accountants, among others) to comply. their human rights obligations.

 T: MF / ED: EG