Haven countries
A new report by the United Nations says that more than $7 trillion in private wealth is hidden in haven countries, and that about 10% of world GDP is held offshore. “Corruption and tax avoidance are rampant. Too many banks are in cahoots and too many Governments are stuck in the past,” says Dalia Grybauskaite, co-chair of the High-Level Panel on International Financial Accountability, Transparency and Integrity to Achieve the 2030 Development Agenda (FACTI Panel). Grybauskaite, a former president of Lithuania, believes, “We’re all being robbed, especially the world’s poor.”
The UN report says that the world’s poor are being held back down by taxes, corruption and financial crime. According to the interim FACTI report, governments lose $500 billion each year due to profit-shifting enterprises. Speakers at a related press conference opined that poor countries could use that money to invest in infrastructure and development. The report estimates that money laundering amounts to around $1.6 trillion per year, or 2.7% of the global GDP.
The UN panel, which was created last year, includes former heads of state and government, central bank governors, business and civil society leaders and prominent academics from around all over the world. The panel called on governments to do more to address tax abuse and corruption in global finance.
Prime Minister Imran Khan was one of the speakers at the virtual launch of the UN report. He broke down how about “$1 trillion is taken out each year by these white-collar criminals”, and insisted that “this bleeding of the poorer countries must stop”. PM Imran also called for several reforms in the international financial system to address these problems. Chief among them was the return of assets stolen from developing countries, including the proceeds of corruption and bribery. He called for offshore havens to impose criminal and financial penalties on financial institutions, accountants, lawyers and others that use or assist in transferring such assets.
The Prime Minister also demanded that the names of “beneficial ownership” of foreign companies must also be made available upon inquiry by interested and affected governments. He also called for barriers on “profit shifting” — a common practice among multinational companies of internally moving profits from high tax jurisdictions to low or no-tax ones to cut their tax bills. On a related note, he called for digital transactions to be taxed in the location the revenues are generated. He also urged more UN oversight of bodies investigating illegal financial flows.
All of these had the express or implicit backing of the report’s authors, and it will be heartening to see if they eventually turn into something more concrete. A few less workable suggestions, made by PM Imran, included the revision or discarding of “unequal investment treaties” and a “fair system for adjudication of investment disputes”. These may refer to Pakistan’s recent troubles in international courts, but as we have said before, fair arbitration systems already exist. The problem was that between judicial activism and political instability, there is no way to tell if a deal is truly good or bad. Still, we do need serious reforms soon. Even developed world leaders such as Norwegian Prime Minister Erna Solberg admitted as much. She noted that financial secrecy and illicit frauds “always lock people and countries in poverty, and have a severe impact on institutions, governance, democracy, and security”. Solberg’s concern that “the very few people who gain from illicit financial frauds do so at the cost of the many [which] undermines our promise to leave no one behind” needs to be paid attention to on a war-footing basis.
Published in The Express Tribune, September 26th, 2020.
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