Financial Transparency Coalition

flickr / Downing Street

The G20, as anyone who is familiar with the slow moving tendencies of international organizations will attest to, has taken quite awhile to get behind the idea of cracking down on tax havens and fighting illicit financial flows from both developed and developing countries. The G20 initially recognized these issues as a problem for the internet national community to do something them in early 2009, but it took a slow evolution of statements over the three years for that recognition to be fully fleshed out into concrete actions and orders.

Illicit financial flows are a global systemic problem, and can only ultimately be significantly curtailed with a global systemic solution. That is why the G20’s progress on the subject is so interesting.

I track statements by the G20 on offshore transparency and tax issues, corruption, illicit financial flows, and their solutions.  Below is the evolution of the bureaucratic discourse.

G20 London Summit, Final Declaration, April 2009

“To take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.”

G20 Pittsburgh Summit, Final Declaration, September 2009

“To take new steps to increase access to food, fuel and finance among the world’s poorest while clamping down on illicit outflows. Steps to reduce the development gap can be a potent driver of global growth.”

Here, we see recognition that secrecy jurisdictions and banking secrecy are a problem, and we get a pledge to take action against tax havens. Then, at the next three summits, we get:

G20 Toronto Summit, Final Declaration, June 2010

“We agreed to consider measures and mechanisms to address non-cooperative jurisdictions based on comprehensive, consistent and transparent assessment, and encourage adherence, including by providing technical support, with the support of the international financial institutions (IFIs)… We stand ready to use countermeasures against tax havens.

G20 Seoul Summit, Final Declaration, November, 2010

“Build sustainable revenue bases for inclusive growth and social equity by improving developing country tax administration systems and policies and highlighting the relationship between non-cooperative jurisdictions and development.”

G20 Cannes Summit, Final Declaration, November 2011

“We reiterate the importance of our commitment to deal effectively with tax havens and non-cooperative jurisdictions including the fight against illicit capital flows considering their impact on development. We call on all relevant actors to strengthen and consistently enforce their procedures and policies against non-cooperative jurisdictions.”

While not completely fleshed out or specific, we do start to see evidence of policy solutions for these problems. The table is effectively set for 2012, where we saw the “light bulb moment” previewed in the 2012 Finance Minister’s Communiqué:

G20 Finance Ministers’ Communiqué, February 2012

“We call for an interim report and update by the OECD on necessary steps to improve comprehensive information exchange, including automatic exchange of information and, together with the FATF, on steps taken to prevent the misuse of corporate vehicles and improve interagency cooperation in the fight against illicit activities. We welcome the adoption of the revised FATF recommendations on combating money laundering and the financing of terrorism.”

This is a very specific call to action for the OECD, and at the first time mentions the misuse of corporate vehicles, and automatic exchange, two important pieces of the Task Force’s policy portfolio. At that set up Mexico in June:

G20 Los Cabos Final Declaration, June 2012

“48. In the tax area, we reiterate our commitment to strengthen transparency and comprehensive exchange of information. We commend the progress made as reported by the Global Forum and urge all countries to fully comply with the standard and implement the recommendations identified in the course of the reviews, in particular the 13 jurisdictions whose framework does not allow them to qualify to phase 2 at this stage. We expect the Global Forum to quickly start examining the effectiveness of information exchange practices and to report to us and our finance ministers. We welcome the OECD report on the practice of automatic information exchange, where we will continue to lead by example in implementing this practice. We call on countries to join this growing practice as appropriate and strongly encourage all jurisdictions to sign the Multilateral Convention on Mutual Administrative Assistance. We also welcome the efforts to enhance interagency cooperation to tackle illicit flows including the outcomes of the Rome meeting of the Oslo Dialogue. We reiterate the need to prevent base erosion and profit shifting and we will follow with attention the ongoing work of the OECD in this area.

49. We support the renewal of the Financial Action Task Force (FATF) mandate, thereby sustaining global efforts to combat money laundering and the financing of terrorism and proliferation of weapons of mass destruction.  G20 members also welcome the adoption of the revised FATF standards and look forward to their implementation. We welcome the progress made by FATF in identifying and monitoring high-risk jurisdictions with strategic Anti-Money Laundering/CounterTerrorist Financing (AML/CFT) deficiencies, using AML/CFT tools in the fight against corruption, improving transparency of corporate vehicles and increasing cooperation against tax crimes, addressing the risks posed by tax havens, as well as in increasing the reach and the effectiveness of AML/CFT measures by also considering financial inclusion efforts. We look forward to the completion in 2013 of the update of the FATF assessment process for the next round of mutual evaluations.

77. Corruption impedes economic growth, threatens the integrity of markets, undermines fair competition, distorts resource allocation, destroys public trust and undermines the rule of law. We call on all relevant stakeholders to play an active role in fighting corruption.”

It’s this last bit that exemplifies how far the G20 has come on this issue. Three years ago, slowly attempting to wade through the morass that is international bureaucracy, the G20 lightly called for steps to be taken against tax havens. Last June, the organization identified and supported actual steps to take in the combating of financial secrecy and corruption. The OECD produced this report on automatic exchange of tax information as a result, which will hopefully move the ball forward down the road at the Russia summit. Though it may have taken some time, the G20 should be lauded for its evolution on this issue and for its commitment to taking steps to quell illicit financial flows.