G20 Fails to Make Progress on Illicit Flows

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G20 leaders met this past weekend in Brisbane, Australia for their annual summit, issuing a communiqué full of ambitious proposals for growing the global economy, but noticeably lacking in responses to illicit financial flows, one of the largest drags on development worldwide. But Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization, has expressed its disappointment at the underwhelming result.

“Illicit financial flows—fueled by anonymous companies and tax haven secrecy—undercut economic growth and tax revenues, drain roughly US$1trillion per year from developing and emerging countries, and facilitate crime and corruption on a grand scale,” said GFI president Raymond Baker. Mr. Baker is a longtime authority on financial crime, co-authored an open letter to G20 leaders on the topic prior to the summit.

 “The G20 passed up a golden opportunity to begin tackling this global scourge by curbing the abuse of anonymous companies and instituting public country-by-country reporting for multinational corporations.”

Alongside the communiqué, the G20 also issued a set of “High-level principles of beneficial ownership transparency,” setting out a list of “concrete measures G20 countries will take” to address the misuse of anonymous companies.

 The principles largely echo the commitments at last year’s G8 Summit and guidance issued by the Financial Action Task Force last month, suggesting that G20 countries could implement central registries to provide law enforcement access to information about company owners, but failing to commit countries to do so or even to mention the utility of making these registries public.

Commitment to Automatic Exchange of Tax Information Welcome but Incomplete

The communiqué also affirmed the agreement last month between 89 countries (including every G20 member) to exchange financial information automatically and reciprocally under the OECD’s Common Reporting Standard. While this is a welcome culmination of the G20’s long track record of leadership on automatic exchange, the G20 failed to address the extension of tax information exchange to the other 100+ countries in the world.

“For a couple of years, the G20 has declared that automatic exchange of financial information is ‘the new global standard,’ and now we are proudly seeing that claim come to fruition,” said Mr. Simmons. “However, it’s critical that the new framework for making information exchange a reality is able to accommodate the world’s poorest countries, who suffer the effects of tax evasion and money laundering at least as much as—and often substantially more than—rich countries.”

Crucial Work Remains to Curtail Corporate Tax Avoidance in Developing Countries

The G20 additionally ratified a move by international organizations to further engage developing countries in the OECD’s base erosion and profit ship (BEPS) project, a wide-ranging effort to revise international tax standards, which GFI hailed as a critical step toward ensuring the project’s results will be globally equitable and all countries will have the ability to provide for their own development.

“Corporate tax avoidance starves governments of much needed revenue at a time when rich and poor nations alike are struggling to make ends meet,” stated Mr. Simmons. “Ensuring that developing countries are able to contribute their perspectives to this discussion is crucial to ensuring that the problem is resolved equitably and for the benefit of those who are harmed the most.”

The G20 leaders, however, completely neglected calls for a commitment to require multinational companies to publicly disclose basic financial information on a country-by-country basis, an important element of curtailing abusive tax avoidance by multinational companies. Public country-by-country reporting has already been widely adopted for extractives companies as well as financial institutions in the European Union, and EU leaders have proposed extending the requirements to all large companies.

“Requiring companies to publicly disclose where they are operating, where they are making their profits, and where they are paying taxes is a common-sense approach to detect and deter corporate tax dodging,” concluded Mr. Simmons. “The G20 is falling behind public sentiment by failing to embrace it.”

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