Global Financial Integrity (GFI) has praised G20 leaders for prominently focusing on the issue of illicit financial flows, committing to move toward the automatic exchange of tax information and renewing the mandate of the Anti-Corruption Working Group for another two years, but expressed disappointment in the leaders’ failure to address the issue of anonymous shell companies.
Corruption, crime, and tax evasion in the form of illicit financial outflows cost the developing world USD 1 trillion per year according to GFI research, with Mexico—the current chair of the G20—suffering more than half a trillion dollars in outflows over the past decade.
Illicit outflows pose serious problems for developed Western economies as well, with Greece—the epicenter of the European debt crisis—hemorrhaging USD160 billion in illicit outflows from 2000 through 2009.
Tax Evasion and Avoidance
G20 leaders meeting in Los Cabos committed “to lead by example in implementing” the practice of automatic tax information exchange, and called upon other “countries to join this growing practice as appropriate,” a move lauded by GFI as a major step in the right direction.
“We are thrilled to see the G20 commit to adopting a standardized system of automatic tax information exchange,” said GFI Director Raymond Baker. “Automatic information exchange will go a long way towards curtailing tax evasion, and we’re heartened that the G20 has called upon all nations to adopt this important practice.”
GFI noted the significant advancement of this issue since the Cannes Summit in November, where world leaders stated they would merely “consider” automatic tax information exchange “on a voluntary basis as appropriate.”
GFI also welcomed the Los Cabos focus on profit shifting and abusive transfer pricing in both the communiqué and the Development Working Group’s (DWG) progress report, as well as the leaders’ support for the work of the OECD’sOslo Dialogue on Tax and Crime, in which GFI has been an active participant.
GFI noted that a new global accounting standard, requiring the country-by-country reporting of profits made and taxes paid by multinational corporations, would go a long way to identifying where abusive transfer pricing is taking place, and the organization called upon G20 leaders to adopt such a standard moving forward.
GFI also praised the renewal of the mandate of the G20’s Anti-Corruption Working Group for another two years. Commissioned at the Seoul Summit in 2010, the Working Group’s mandate was set to expire at the end of this year.
“We are extremely happy to see the mandate of the Anti-Corruption Working Group extended,” said Mr. Baker. “The Working Group has been crucial to progressing anti-corruption initiatives within the G20, and we’re looking forward to continuing to work with it over the coming years.”
In this week’s final communiqué, G20 officials agreed to adopt the recommendations of the Anti-Corruption Working Group to deny visas to “corrupt officials, and those who corrupt them,” a move lauded by GFI.
“No nation, particularly no G20 nation, should be offering refuge to corrupt foreign politicians,” stated Mr. Baker. “We’re very pleased that the leaders agreed to deny entry to both kleptocrats and the individuals who corrupt them.”
World leaders also committed “to deny safe haven to the proceeds of corruption” and committed themselves “to the recovery and restitution of stolen assets,” language welcomed but met with skepticism by GFI.
“As long as G20 nations like the United States and others allow for the incorporation of anonymous shell companies, trusts and foundations, G20 nations will be safe havens for the corrupt proceeds of foreign leaders as well as terrorists, criminals, and tax evaders,” added Baker.
“The G8, at its Camp David Summit in May, laid out a comprehensive asset recovery guide for our partners in the Middle East and North Africa. However, even the best asset recovery program is futile if we don’t first address the mechanisms, like anonymous shell companies, facilitating the flow of corrupt money into G20 countries.”