Financial Transparency Coalition

Simone D. McCourtie/World Bank*

Indian finance minister Pranab Mukherjee called for international pressure to force non-cooperative jurisdictions to share information about the money they hide at an Asian Development Bank Governors’ seminar last week.

This comes in the wake of a series of moves by India to crack down on the huge black money flows out of the country. Earlier in the year Mukherjee made similar comments in the build up to a meeting of G20 finance ministers, arguing for an “effective multilateral platform for automatic, spontaneous and requested exchange of information”.

India also demonstrated its commitment to financial transparency by joining the Task Force on Financial Integrity and Economic Development. The latest comments indicate strong support for the Task Force’s fourth pillar, automatic cross border exchange of tax related information. This would allow governments to collect information about the income and assets of non-residents and share information automatically with other jurisdictions, with proper safeguards. Ultimately this would bring in more tax revenues for public services, infrastructure and development as rich elites and unscrupulous multinationals would not be able hide their money so easily.

The current mechanisms for sharing information on taxpayers – the OECD’s bilateral Tax Information Exchange Agreements (TIEAs) – are woefully inadequate. They only allow for information exchange on request, meaning that the requesting government needs to know about foreign bank accounts in the first place. And tax havens signing agreements with each other were deemed co-operative by the OECD, regardless of whether meaningful information was actually exchanged.

The weakness of the TIEA system was implicitly acknowledged recently by the UK and Germany, as they pursued separate deals with Switzerland to tax money hidden in accounts there. However these alternative arrangements would perpetuate Swiss banking secrecy and represent a serious setback to the cause of financial transparency and multilateral cooperation.

British and German resolve to push for automatic exchange of tax information within Europe is very likely to be undermined by the billions these deals will bring in. And progress towards automatic information exchange with developing countries will slip farther away on the horizon. The OECD has acknowledged that losses to developing countries through tax dodging exceed ‘by some distance’ the level of aid received.

India alone is estimated to have lost a staggering $462 billion between 1948 and 2008 in illegal capital flight, which includes tax evasion as well as other flows. Global Financial Integrity ranked India’s illicit financial outflows as the 15th largest among developing countries: approximately $104 billion cumulatively from 2000-2008.

As rich countries pull punches in the fight for financial transparency, it’s a relief that emerging economies are pushing ahead regardless. India’s determination to force tax havens to exchange meaningful information about the stashed assets of non-resident taxpayers may be crucial. An appearance of integrity on the world stage is especially important given increasingly lurid corruption scandals at home.

With India a key member of the BRIC grouping and a growing force in the G20, civil society calls for an end to tax haven secrecy this year may yet become reality.

Visit www.endtaxhavensecrecy.org to raise the volume.

* Image License: Some rights reserved by World Bank Photo Collection