Image: International Monetary Fund
The G20 Development Working Group (DWG) has released a document outlining its call to action for countries to adopt what it terms voluntary and non-binding high-level principles for combating illicit financial flows (IFFs).
The DWG falls under the G20’s Sherpa track and is the key G20 forum for the discussion of a wide range of issues that directly affect developing countries, especially those that are low-income.
IFFs cause significant harm to developed and developing countries alike, though the latter feels the impact much more severely. In its new report, the DWG places the discussion into the context of domestic resource mobilisation (DRM), one of the governmental strategies that are necessary for sustainable development but are hampered by IFFs. With the deadline for the implementation of the UN’s 17 Sustainable Development Goals coming up in 2030, says the group, numerous challenges remain across the world and are not being adequately addressed. The group names some of these challenges as debt vulnerabilities, insufficient private sector investment, regulatory barriers, and limited and ineffective DRM, among others.
DRM is “essential for sustainable development to strengthen the social contract and fiscal justice, enabling countries to generate revenue through multiple sources such as taxation including excise duties and consumption taxes, customs and other revenues, domestic savings, trade, and investment”, explains the DWG.
Efficient DRM reduces dependency on external financing and provides governments with resources needed to fund the strengthening of public institutions’ capacities and the provision of critical public goods and services – especially those aimed at poverty reduction, social protection, education, food security and nutrition, water, sanitation and hygiene, healthcare, affordable and clean energy, disaster risk management, and other basic provisions whose lack undermines fundamental human rights.
IFFs undermine sustainable and equitable development
However, says the DWG, these efforts continue to be significantly undermined by IFFs.
“IFFs erode the revenue base and deprive governments of crucial income that would otherwise be channelled towards sustainable economic development,” says the group. “Safe havens, aggressive tax practices and loopholes, offshore wealth concealment, and fraudulent and collusive trade practices weaken DRM and can significantly encumber governments.”
Dysfunctional institutions and corruption – situations that South Africans are all too familiar with and globally, we are far from alone in this – exacerbate the problems by diverting public funds, undermining financial transparency, widening inequality within and among countries, reducing public trust in governments, and weakening the performance and efficacy of public policies, integrity systems and procedures, and the justice system’s response to IFFs.
Multi-faceted approach to curbing IFFs
Accordingly, the DWG urges countries to intensify their efforts to clamp down on IFFs. A multi-faceted approach is recommended, including capacity building efforts in fiscal policy; strengthening financial regulatory systems and revenue management; leveraging technology; and adopting and effectively implementing anti-corruption measures – among others.
The voluntary and non-binding high-level principles are as follows:
- Enhance global financial transparency:
Promote financial and beneficial ownership transparency and the exchange of information. - Promote data integrity and exchange:
Improve existing reporting mechanisms based on quality, timely, and accurate data, and promote data and system standards for sharing data, where appropriate. - Address tax avoidance, tax evasion, and tax crimes and tackle IFFs:
Eliminate safe havens, aggressive tax practices, and loopholes and address tax avoidance and evasion, including by high net-worth individuals. - Enhance multilateral co-operation:
Enhance customs and trade oversight to combat trade and service-based money laundering and strengthen support and capacity for financial intelligence units. - Implement accountability mechanisms and promote policy coherence:
Strengthen multilateral co-operation through existing accountability mechanisms among international institutions, governments, regional, and financial regulators. - Build and strengthen capacity:
Promote capacity building, including in the public sector and at the national and sub-national levels. - Promote international co-operation and collaboration:
Improve transparency through strengthening existing reporting mechanisms and information-sharing practices between accountable institutions where appropriate. - Promote international co-operation for the recovery and return of stolen assets:
Promote transparent, efficient, and effective practices, and facilitate asset recovery and return, in line with domestic laws, frameworks and policies. - Promote and improve existing anti-IFF policy implementation:
Support the full implementation of anti-IFF policies, supported by clear accountabilities, effective inter-agency engagements, and adequate resource allocations. - Promote innovative technologies:
Use innovation smartly to curb IFFs by leveraging big data analytics, machine learning, and human-centric artificial intelligence.
More must be done
Meanwhile, the AU has just released a report titled Successes and Challenges of Implementing the Recommendations of the African Union High Level Panel on Illicit Financial Flows. The release coincides with the sitting 10 years ago of the High Level Panel, which was chaired by former president Thabo Mbeki.
In a nutshell, the report finds that although some steps have been taken, “there is a lot that can be done better and differently”. It also observes an “urgent need for continent-wide shifts in the institutional arrangements for combating IFFs, given technological advances that allow the hiding of money trails”.
It recommends practical steps on how to enhance the existing systems and structures designed to contain the outflows of illicit money.
In the follow-up to this article, to be published within the next few days, we discuss the report and share some of its key findings.
