GFI Notes Significant Progress on Automatic Information Exchange but Warns that Poorest Countries Are Being Shunned
October 30th, 2014
October 30th, 2014
WASHINGTON, DC – While noting significant progress today in the global effort to curb tax evasion, Global Financial Integrity (GFI) expressed concerns that the OECD/G20 movement toward automatic exchange of financial information was excluding the world’s poorest countries from reaping any benefits while failing to deal with the issue of illicit financial flows in comprehensive manor.
89 countries committed Wednesday to implement automatic exchange of financial information between jurisdictions by the end of 2017 or 2018 at the annual meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin.
“The automatic exchange of financial information between jurisdictions is an essential tool to detect and deter cross-border tax evasion, as well as money laundering,” said Heather Lowe, GFI’s legal counsel and director of government affairs. “Global Financial Integrity has been advocating for the creation of a global system of automatic exchange of financial information since our founding in 2006, and we consider today’s commitment to be significant progress.”
“Still, we have concerns that the implementation of this framework is excluding the world’s poorest countries, many of which could benefit significantly from inclusion on at least a non-reciprocal basis, while also failing to deal with illicit flows stemming from non-tax-related crimes,” added Ms. Lowe, an international expert on financial crime.
Illicit Flows Are More than Just Tax
GFI research finds that illicit financial flows drain roughly US$1 trillion per year from developing and emerging countries—stifling economic growth and fueling crime, corruption, and tax evasion.
“While a portion of illicit financial flows are driven by tax evasion, much of it is also propelled by other crimes such as drug trafficking, sex slavery, corruption, and fraud, among other things,” noted Ms. Lowe. “The current framework committed to by these 89 countries risks either missing these other major forms of crime, or keeping that information locked up by tax authorities and away from the government investigators and prosecutors who are charged with tackling the many other financially-motivated crimes that directly affect people’s lives.”
Poorest Countries Excluded
Of the 123 members of the Global Forum on Transparency and Exchange of Information for Tax Purposes, only 94 jurisdictions were invited to join the program, with just one of the 48 countries classified by the United Nations as least developed countries—Vanuatu—asked to participate. Vanuatu was one of only five invitees to not yet agree to implement the program within a specific timeframe.
“Illicit financial flows have an outsized impact on the least developed countries, so it’s vitally important that they be included in this automatic exchange program as soon as practicable,” continued Ms. Lowe. “We understand that rich countries are objecting to participation by developing countries because, they claim, developing countries lack sufficiently robust data privacy standards and confidentiality laws, but there is no real indication from the OECD, G20, or wealthy countries about how they plan to tackle this manufactured roadblock. We should all be asking where the right to deny the provision of this information to developing countries stems from.”
Africa Initiative. What about Asia, Latin America?
For the first time, the OECD framework does announce an intention to reach out to African states on the topic of automatic exchange, but the details are limited (for example, we are not told which 17 African countries have agreed to participate), and there does not appear to be a plan to broaden the program to Latin America or Asia, home to many of the world’s poorest countries.
“We welcome the Africa Initiative as progress towards expanding the benefits of automatic exchange to the world’s poorest, but we are concerned by the exclusion of Asian and Latin American countries, apart from those generally perceived to be secrecy jurisdictions,” stated Ms. Lowe. “Moreover, while we understand that it may take some time for some of the least developed countries to implement systems to return information back to wealthier countries, even the poorest nation should be able to receive data on their own citizens. There is no reason why wealthier nations should, for example, refrain from sharing information on Tanzanian citizens with offshore bank accounts with the Tanzanian Revenue Authority.”
An Extraordinary Amount of Work
Despite these concerns, GFI went on to acknowledge the immense amount of work that has gone into advancing the issue over the past few years.
“While improvements need to be made, we would like to acknowledge the tireless work by the staff at the OECD and the G20-nations who have been working on this agenda over the past few years, and thank them for their extraordinary work—both technical and political—in progressing the issue of automatic exchange of financial information to the point that it is at today,” noted Ms. Lowe.
Notes to Editors: