Financial Transparency Coalition

The year 2023 is going to be crucial for financial transparency and tax justice, as countries around the world desperately seek funds amid multiple crises, whist grappling with the impact of the COVID-19 pandemic. Many global South countries face sovereign debt defaults that will lead them to apply for International Monetary Fund (IMF) loan programmes which are often linked to austerity policies.

Progressive fiscal policy shifts and further advancing financial transparency are absolutely crucial to generate enough resources to reduce the impact of the multiple crises especially among the poor who are often women and minority groups. If we do not tackle financial transparency, kleptocrats and actors engaged in natural resource crimes will not be caught, and billions of dollars in hidden funds will continue to be stolen. But progress is tremendously slow in these areas, and advances that we make are easily lost amid endless legal challenges.

So what are the five main trends to look ahead in 2023 which could help countries face the multiple current funding crises they are facing? Let us take a look:

Fighting growing austerity

In 2023 more than ever before we are told that we have run out of money, and that the only way to restore public finances is by cutting public spending and raising consumption-related taxes. In total, 94 nations in the global South are due to cut public spending in 2023, while 85% of the world population will live with public spending cuts and other austerity measures.

Meanwhile COVID-19 recovery spending in the global South only reached 2.4% of GDP, a fifth of what was recommended by the UN, and much of the money did not go to those most impacted by the pandemic. As we revealed in the “Recovery at a Crossroads” report launched in September 2022 at the #EndAusterity Festival, only 4% of the funds spent in global South countries went to informal workers, who often represents the majority of the workforce and is largely made up of female workers, whilst 38% went to big corporations. Only 38% of funds went to vital social protection programmes that are key to reduce growing gender and economic inequalities.

In contrast, global North countries spent upwards of 10% of GDP in COVID recovery, and many have long-term recovery spending plans including the EU’s Recovery and Resilience Facility worth over €800bn focusing on green and digital Recovery which will continue into 2026. Meanwhile the US has its Inflation Reduction Act (IRA) spending worth $739bn going until 2032.  In the global South, only Chile is likely to continue long-term support policies into 2023 and beyond with a fiscal reform package to tax large corporates and the wealthy. So the big question is whether other global South countries will follow Chile’s path. Yet, there are barriers from this taking place, such as the IMF policy advice, which is often part of loan conditions, recommending to maintain tight fiscal policies due to increasing inflation.

In 2023 we at the FTC will closely monitor initiatives to redress this imbalance especially in the global South, such as the Fiscal Pact for Latin America and the Caribbean proposed by the governments of Colombia and Chile where a key meeting is expected this year to tackle illicit financial flows, and tax abuses in Latin America, pushing also for global solutions. In the Caribbean region, the Bridgetown Initiative led by Prime Minister Mia Mottley of Barbados will seek to reform the World Bank and the IMF to provide more international financing without austerity conditionalities.

International tax deals and the UN

In November 2022, the UN took a historical step to start negotiations on the UN role on tax governance that could possibly lead to a UN Tax Commission. It builds on the ECA declaration of African finance ministers in May 2022, calling for the start of negotiations on a UN tax convention. This step is important as ongoing negotiations at the OECD have not led to significant gains for global South countries in mobilising more revenue by taxing the profits of large multinational companies. These countries including Argentina, Brazil, India, Kenya, Pakistan, Nigeria and Indonesia may even end up losing revenue if they forego existing digital taxes that have a wider scope and a clearer basis for allocating revenue to them, so a lot is at play.

In December 2022, a budget for the tax resolution was recommended to be approved, paving the way then for UN Secretary-General António Guterres to produce a report detailing the options moving ahead. Mr Guterres has already pledged his office’s support to this process, and so by the next General Assembly we can expect an evaluation of the main options and modalities for negotiations to begin.

The resolution was sponsored by the Africa Group in the UN, the wider G77 group of global South countries, and the signatories of the LAC Fiscal Pact may wish to widen its scope. Civil society will make its impact by creating widened support for this initiative, highlighting how little revenue is collected in the global South and will monitor the negotiations at each stage to defend the interests of the global South.

Public beneficial ownership registries and corporate transparency in Europe

The European Court of Justice (ECJ) ruling invalidated public access to beneficial ownership registries in December 2022 which represented a major step backwards in the fight against Illicit Financial Flows. Some EU countries have already closed public access to beneficial ownership registries, while others may keep their registries open with the support of national legislation. The European Commission recognises that journalists and civil society have legitimate interests to access this information, and are likely to propose an amendment to the 6^th Anti-Money Laundering Directive (AMLD6) in January 2023.

We find this judgement misguided since it is based on a narrow understanding of the uses of public access to registries, with the rationale only covering existing money laundering and terrorist financing offences. Public access to BO registries plays a key role in the fight against environmental crimes, tax abuse, human rights abuses, and labour market abuses – but none of these were considered by the court as valid reasons for public access to BO data. It is likely that there will be on-request public access for civil society and journalists, but that requires to know already what one is looking for rather than find red flags.

Another important development to keep an eye for in 2023 is the key EU directive on corporate tax transparency, namely public country-by-country reporting (CBCR). This will move towards implementation in September 2023 as it is transposed and becomes part of national law in the 27 EU member states by June 2023, with reporting obligations to start by June 2024. EU member states will be able to make a more ambitious national transposition than what the directive sets as a minimum threshold.

The trouble with the directive is that it is not comprehensive as multinational corporations (MNCs) only report on activities in the EU and some jurisdictions on the highly problematic EU tax havens black and grey lists. If the rules were in force today, companies would not publish information on more than 75% of countries worldwide.

The EU, once a leader in tax transparency, will possibly be overshadowed by the Australian government promise to implement country-by-country reporting of all large multinationals operating there. Also there is a possibility of a knock-on effect in the US and elsewhere in opening the tax practices of large MNCs if the full CBCR information is included.

Also the US Securities and Exchange Commission (SEC) accepted that public information on CBCR is a material issue for investors to demand company boards to implement, and shareholder resolutions have followed at Amazon, Microsoft, Cisco and other large multinational companies.  In 2023, we will see more shareholder resolutions in the AGM season from April onwards concerning public CBCR, making the case for regulatory moves given that many investors find this information as being highly desirable especially when tax scandals are damaging to companies that work in public contracts.

We at FTC will make a renewed case for public access to BO registries and public country-by-country reporting in the EU and elsewhere based on the need to tackle environmental crimes that are not detected and reported on without the involvement of the public, journalists, and civil society as key users of BO data. Similarly, corporate secrecy of lack of tax reporting harms the enjoyment of human rights to health and education, as secretive private sector service providers in the care economy have been found to conceal their tax affairs.

Fighting environmental crimes through financial transparency

In 2023 we will seek to feed into developments towards a vessel transparency initiative, likely to be discussed both at the FAO Committee on Fisheries or the OECD Committee on Fisheries.  Such a transparency initiative is necessary to implement the World Trade Organisation (WTO) agreed ban on subsidies to companies engaged in IUU fishing.

We will also look to develop proposals towards identifying IUU fishing as a natural resource crime both at FATF, as well as at UNODC which are custodians with UNCTAD of the UN SDG indicator on Illicit Financial Flows (IFFs).  In Africa, we will seek recognition of IUU fishing as an Illicit Financial Flow at the African High-Level Panel on IFFs.  FATF should define the scope of environmental crimes in a new report.

We already saw some progress in 2022 with the US sanctioning the beneficial owners of one of the top companies engaged in IUU fishing, Pingtan Maritime Enterprise Ltd. which we identified in our “Fishy Networks” report launched in October 2022 as one of the main companies involved in IUU fishing.. Importantly, the company was also delisted from the NASDAQ, the US based stock exchange. Yet, Europe, as mentioned above, took a step backwards with the European Court of Justice (ECJ) deeming public access to beneficial ownership registries as being invalid on the basis that privacy of ownership was more important.

Targeting oligarchs and a Global Asset Registry

The Russian invasion of Ukraine in February 2022 has led to multiple countries sanctioning assets of Russian oligarchs including real estate, private bank accounts, yachts and luxury cars. Yet very little of the over US$1 trillion in assets laundered out of Russia in the last three decades has been found so far as much of such assets are hidden under the secrecy of shell companies. The FTC and ICRICT support the idea floated by Mario Draghi to create a registry of all assets, but this Global Asset Registry should not be limited to assets of Russian oligarchs.

The KleptoCapture Task Force was set up on 2 March 2022 in the immediate aftermath of the Russian invasion in Ukraine. But thus far, and based on public knowledge, they have identified mostly yachts, aircraft, sports cars and other high-profile assets belonging to sanctioned Russian oligarchs, which represent just a small part of the shady assets held by these wealthy individuals. This is partly since it largely relies on information that public interest groups, and investigative journalists have aggregated from best available public sources of information which is limited. If the beneficial owners of all assets were public, one would not need such a task force to hunt hidden assets.

In Europe, we see proposals towards registering assets that are not currently covered by the proposed 6^th Anti-Money Laundering Directive. Positively, the EU has sought to scope an EU Asset Registry but there is no proposal for to implement this yet.

Wealth tax campaigners in Latin America have also successfully put this issue in the agenda of countries like Argentina and Bolivia, by emphasising the importance of taxing wealth. Colombia for example included a wealth tax in its tax reform bill in late 2022, and also raised corporate taxes on mining, coal and oil companies in order to avoid austerity.

In 2023, we expect Chile to implement a wealth tax for those with assets over US$4.9 million, making only the very wealthiest to pay such a tax. But all this hinges on having a global asset registry. If assets were on a public registry, it would be much easier to design effective and progressive wealth taxes that would generate much-needed revenue to tackle the impacts of the COVID-19 pandemic and to avert austerity and cuts from being made. 2023 will tell how this fight will end.