“(1) In its resolution 55/61 of 4 December 2000, the General Assembly recognized that an effective international legal instrument against corruption, independent of the United Nations Convention against Transnational Organized Crime (resolution 55/25, annex I) was desirable and decided to establish an ad hoc committee for the negotiation of such an instrument in Vienna at the headquarters of the United Nations Office on Drugs and Crime (UNODC). The text of the United Nations Convention against Corruption was negotiated during seven sessions of the Ad Hoc Committee for the Negotiation of the Convention against Corruption, held between 21 January 2002 and 1 October 2003. The Convention approved by the Ad Hoc Committee was adopted by the General Assembly by resolution 58/4 of 31 October 2003. The General Assembly, in its resolution 57/169 of 18 December 2002, accepted the offer of the Government of Mexico to host a high-level political signing conference in Merida for the purpose of signing the United Nations Convention against Corruption. In accordance with article 68 (1) of resolution 58/4, the United Nations Convention against Corruption entered into force on 14 December 2005. A Conference of the States Parties is established to review implementation and facilitate activities required by the Convention.
(2) First International Forum on Tax and Crime ∙ Oslo ∙ 21-23 March 2011. Issues related to greater inter-agency co-operation were discussed by more than 150 delegates from 54 delegations who participated in the first tax and crime forum on 21-23 March 2011 in Oslo hosted by the Norwegian government. The conference brought together representatives from a range of OECD and non-OECD governmental agencies, including Tax Administrations, Finance and Justice Ministries, Financial Intelligence Units, Central Banks, FATF, International Organisations, as well as business and NGOs. Second International Forum on Tax and Crime ∙ Rome ∙ 14-15 June 2012. This Forum brought together senior policy makers from different government agencies including the tax, anti-money laundering and anti-corruption communities, as well as private sector representatives, NGOs and other interested stakeholders. Participants examined best practice approaches to closer inter-agency co-operation at the domestic level and explore how to improve international cooperation. The conference also showcased specific key risks in the tax and crime area, allowing countries to target resources and learn from the experience of others. Building on previous events in Oslo and Rome, the Third Forum on Tax and Crime provided an opportunity for senior government officials from tax and customs administrations, anti-money laundering and anti‑corruption authorities, police and law enforcement, public prosecutors, financial regulators and government Ministries, as well as international organisations and NGOs, to discuss current issues and country experiences on key policy and operational topics in combating all forms of financial crime.
(3) The 4th Joint African Union Commission/United Nations Economic Commission for Africa (AUC/ECA) Conference of African Ministers of Finance, Planning and Economic Development was held in 2011. This Conference mandated ECA to establish the High Level Panel on Illicit Financial Flows from Africa. Illicit financial flows out of Africa have become a matter of major concern because of the scale and negative impact of such flows on Africa’s development and governance agenda. By some estimates, illicit flows from Africa could be as much as US $50 billion per annum. This is approximately double the official development assistance (ODA) that Africa receives and, indeed, the estimate may well be short of reality as accurate data does not exist for all transactions and for all African countries.
Fronting means a deliberate circumvention or attempted circumvention of the South African B-BBEE Act and the Codes. Fronting commonly involves reliance on data or claims of compliance based on misrepresentations of facts, whether made by the party claiming compliance or by any other person. Verification agencies, and /or procurement officers and relevant decision-makers may come across fronting indicators through their interactions with measured entities. The B-BBEE Commission may also approach a court of law to restrain any breach or for any appropriate remedial relief, which may include setting aside the transaction or initiative. The B-BBEE Commission will not discuss the merit or the details of its investigative process, but the findings will be published as required in the B-BBEE Act.
The European Union and Ukraine are planning to set up a joint anti-corruption investigative team by next month to tackle potential misuse of EU funds for Kiev, said an EU official involved in setting up the unit.
A short video on corruption and the UNCAC (United Nation Convention Against Corruption) produced by the UNCAC Coalition and Transparency International.
United Nations Deputy Secretary-General Jan Eliasson and former South African President Thabo Mbeki today stressed the need for global efforts to address the problem of illicit financial flows from Africa, which have crippled the continent's...
Any discussion on illicit financial flows – money that leaves countries through illicit activities like money laundering and bribery – seems to prompt the question: how much money are we talking about?
A lot of effort currently goes into estimating it, but perhaps the crucial question to ask is what countries are doing to address it. A new report from the Organisation for Economic Co-operation and Development (OECD) measures responses to illicit financial flows from developing countries and analyses how OECD countries are tackling issues of money laundering, bribery, tax evasion, and asset recovery.
In these policy areas, international standards have been in place for years. The report finds that most countries have regulations in line with the standards, but also that they could do more to stop illicit flows. By comparing country performance and by contrasting achievements in the relevant policy areas, this analysis offers strong recommendations on how advanced economies can contribute to fighting crime in developing countries – while simultaneously making their own systems stronger. global development professionals Join the Guardian Global Development Professionals Network
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Of the OECD's 34 member countries, not one is fully compliant with the beneficial ownership recommendations on legal arrangements. Lax rules on declaring who really owns a company ('beneficial ownership') make it almost impossible to trace illicit money. Transparency on who owns what company can help win the fight against illicit flows. Establishing a comprehensive, transparent public registry of companies is relatively cheap, yet makes the investigation of corporate structures easier.
Governments should also require financial institutions and similar service providers to conduct 'due diligence' – in other words, carry out background research on whoever orders their services. Often, a quick internet search will reveal surprising similarities between the names of the seemingly innocuous client and an arms dealer in a conflict zone. These recommendations are not new: most are noted in the financial action task force's 40 recommendations from 2003, updated in 2012.
Combating cross-border tax evasion
Exchange of information between tax authorities is a key weapon against cross-border tax evasion. More than 120 jurisdictions, including many developing countries, have committed to the international standard on exchange of information on request. Since 2009, the OECD's Global Forum on Transparency and Exchange of Information has been working to ensure that this standard is implemented properly. The global architecture on exchange of information has seen dramatic progress. Since 2000, OECD countries have signed roughly 1,300 agreements with developing countries, enabling them to request information for tax purposes.
Following commitments from the G8 and G20 countries, the OECD, together with the G20 countries, is currently developing a single global standard on automatic exchange of information. This will enable tax authorities share information automatically with foreign partners, not just when asked.
For donor agencies, this means funding capacity building. Developing countries need support to translate complex tax information into convictions of tax evaders.
Freezing, recovering and repatriating stolen assets
Between 2010 and 2012, OECD countries returned $147m and froze almost $1.4bn worth of stolen assets. While the cost of investigators who can find and trace stolen funds is relatively high, these figures show that there is an impressive return to be gained, which can in turn be used to fund development efforts.
Analyses have shown that countries with a consistent and comprehensive asset recovery strategy recover the largest amounts of assets. As with tax evasion, an important factor here is capacity. Sending in experienced investigators is one way to help developing countries gain convictions.
International bribery
As of 2012, 221 individuals and 90 companies have been sanctioned for foreign bribery. This suggests a growing political will to punish bribe payers; but approximately half of the OECD countries have yet to sanction a single offender. Considering that bribery is rife in many international business transactions, it's hard to believe that some of the world's most commercially active countries have not seen cases of corruption.
Given that most countries have laws criminalising bribery, the weak link (again) seems to be enforcement. Governments need to ensure that their enforcement authorities are equipped to prosecute consistently. Developing countries in particular need support for their prosecution systems.
While we may never know the exact extent of the problem, illicit flows of money from developing countries can nevertheless be tackled; the tools exist that are proven to do the job. The figures also show that some progress is being made. OECD countries recognise that instead of trying to measure a problem as shadowy, complex and difficult to quantify as illicit financial flows, the focus should be on addressing these flows more effectively. That will take a whole raft of preventative and enforcement measures. If governments consistently put their commitments into action and enforce regulations, the crimes of money laundering, bribery and tax evasion may start to pay criminals a lot less.
Lena Diesing works for the governance for development and peace team, within the global partnerships and policy division of the Organisation for Economic Cooperation and Development. Follow @LenaDiesing on Twitter
As we join other nations to mark World Press Freedom Day, today, May 3, it once again affords us opportunity to reflect on the state of the media in our country, particularly post-2015 General Elections.
The Malawi Economic Justice Network (MEJN) says illicit financial flows are highly affecting economic growth of the country, saying the siphoning of the funds is undermining growth in Malawi. Speak...
The Internal Revenue Service, which is increasingly being drawn into complex probes involving tax fraud, has set up a new criminal-investigation team to root out identity theft.
The Ahmadu Bello Memorial Foundation, on Friday advised the President-elect, Gen. Muhammadu Buhari to strengthen anti corruption laws in the country to make it easier to prosecute offenders.The Ma
This week, delegates from across the world are meeting at the University of Johannesburg to discuss financial transparency and human rights. It sounds boring, but tackling illicit financial flows from Sub-Saharan Africa is gaining attention. If nothing is done the majority of people will likely remain poor while a tiny percentage benefits, and benefits big. By GREG NICOLSON.
Stories on the illicit financial outflows from Africa often focus on the numbers, simply because they are astounding. A Global Financial Integrity report conservatively estimates that between 2003 and 2012 $529 billion left Sub-Saharan Africa through illicit flows, growing an average 13.2 percent each year. These figures aren't as high as in other parts of the world, but they're the worst when compared to growth, with illicit financial outflows in Sub-Sahara Africa averaging 5.5 percent of GDP. If $529 billion seems hard to grasp, it's almost twice what Sub-Saharan Africa received in foreign direct investment and one-and-a-half times what it got in official development assistance in the same period. So for every $1 of foreign investment and aid, 84 cents leaves illegally.
The system's like a sieve, but instead of flour it's billions of dollars falling through the cracks.
Now, unless you follow global financial systems like the BeyHive follows Beyonce, the details seem exceptionally boring. But the lost billions are tied to expanding basic human rights and turning the continent's successful economic growth into things like jobs, service delivery, education and health. A leader of the World Bank has called illicit financial outflows a global priority, the White House has recognised the problem, the United Nations has a team on it and so does the African Union. On Monday, Global Financial Integrity president Raymond Baker said, “This is the ugliest chapter in global economic affairs since slavery.” It's a big deal.
Thabo Mbeki has been focusing on the issue in recent years and a statement on his foundation's website traces the origins of illicit financial flows from Africa back to the 1960s, when elites in newly-independent governments were uncertain about stability and sought to stash money away in Western institutions. At the same time large corporations were globalising and looking to minimise corporate taxes.
Essentially, the practice is the illegal transfer of money from one country to another, when funds are illegally earned, transferred or used. Think of tax havens and shell companies, a politician transferring dirty money offshore, criminal organisations laundering their cash through trade, terrorists doing wire transfers, or traffickers carrying suitcases of cash across borders. Most importantly, think of multinational companies. According to Global Financial Integrity, corruption accounts for about five percent of illicit flows, criminal activity like drug trafficking and smuggling 30 to 35 percent, and transactions from multinational companies 60 to 65 percent.
Addressing the African Union this year, Mbeki, chair of the high level panel on illicit financial flows, agreed “that large corporations are by far the biggest culprits responsible for illicit outflows, especially given their ability to retain the best available professional legal, accountancy, banking and other expertise”. They do it mostly through misinvoicing, or lying about the commercial value of a transaction on invoices submitted to customs. It's often easy, because trading partners write their own invoices. Companies can evade taxes, claim certain tax incentives, and shift money into tax havens and secret accounts.
It's estimated that at least $122 billion was illegally transferred out of South Africa between 2003 and 2012, recording the tenth highest illicit outflows in the world (Nigeria was ninth, once again a step ahead). Ceasing illicit transactions does not mean the money would be available directly to spend on services, but to put it into perspective, the $29 billion estimated to have illegally left the country in 2012 exceeds the total 2015 education budget. It's something like 1,300 Nkandla upgrades.
On Monday, Yale University's Professor Thomas Pogge brought the issue back to human rights and development. Curbing illicit financial flows would significantly boost tax collections in developing countries. Currently, these countries struggle to collect taxes from much of the population and those who can afford to pay, wealthy citizens and international companies operating in the area, are doing all they can to avoid paying, leaving governments with fewer resources to improve the lives of citizens. “Clearly, massive reductions in existing human rights deficits could be achieved by allowing poor countries to collect reasonable taxes from multinational corporations and from their own most affluent nationals, assuming the resulting revenues were appropriately spent,” said Pogge.
There are a number of recommendations. Countries should try to confirm who owns anonymous companies and enforce laws against money-laundering. Multinational corporations should be required to report their finances and details of subsidiaries in all countries where they operate. Resource extraction contracts should be made public. States should boost customs enforcement and heavily scrutinise transactions involving tax havens. Citizens, both of developing countries and those in states with powerful financial centres that enable tax dodging, should demand greater transparency.
While there's hope – the issue is at least now on the global agenda – there are many challenges. “Why is this such a hard problem to resolve? Is it a question of getting governments to do the right thing? Is it a question of getting corporations to do the decent thing? What is it?” asked Siphosami Malunga from Open Society Initiative for Southern Africa. The challenge, he said, is that political and business elites have a common interest. “They are not two separate entities. They are one working in tandem to make money,” he said. “This is a problem of elite capture and in order to address it we are going to have to disentangle those relationships.”
He has a point. During the Marikana Commission, suspicions were raised that platinum company Lonmin had a questionable transfer pricing agreement going through Bermuda (the company denied the allegations and certain transfer pricing practices are legal in SA). Months after the allegations surfaced, former Lonmin non-executive director and current Deputy President Cyril Ramaphosa said tax dodging was stealing from South Africans. But Lonmin only stopped paying “sales commissions” to the Bermuda company in 2012. Why? The commission heard that Lonmin's BEE partner, controlled by Ramaphosa's Shanduka Group, didn't want to break the Bermuda ties. DM
Illicit Financial Outflows from Developing World Up 13.7% from 2010 Nearly $6 Trillion Stolen from Developing Countries in Decade between 2002 and 2011 China, Russia, Mexico, Malaysia, India—in Declining Order—are Biggest Exporters of Illicit...
In the wake of the horrifying human toll taken by the earthquake in Nepal, attention has once again turned to the role of corruption in increasing the original death toll and in hampering the effec...
09 Apr 2015 by Max Everest-Phillips, Director, Global Centre for Public Service Excellence, Singapore Between 1980 and 2009, total illicit financial outflows from Africa grew by 11.9 percent per year. Photo: Carly Learson/UNDP Liberia
In this blog series, our experts share their thoughts and lessons learned on key financing for development issues, in the run-up to the UN’s Financing for Development conference in July.
Tax evasion has often been the hallmark of the elites. In ancient Rome, the upper class viewed tax as ‘the mark of bondage.’ Two millennia later, Leona Helmsley, the wife of a real estate billionaire in New York, reportedly said: ‘Only little people pay taxes’.
But the Roman Empire collapsed because the tax on land was largely passed on the poor, and later on the middle classes, while the elite carried less and less of the public financial burden.
Today, both developed and developing countries alike face similar problems. Illicit Financial Flows (IFFs) such as tax avoidance and evasion, embezzlement of national resources, trade misinvoicing, and smuggling of goods and capital across borders, are widespread phenomena and occur for a range of reasons, including theft, corruption, high political or economic instability in the originating country or higher returns on investment in the destination country.
Although these problems can affect all countries, it can be particularly prevalent (and harmful) in natural resource-rich states with weak governance such as Nigeria, Gabon and Equatorial Guinea. A 2010 study by the African Development Bank (PDF) suggests that, between 1980 and 2009, total illicit financial outflows from Africa grew by 11.9 percent per year, outpacing official development assistance entering the region. The problem is not specific to Africa: In UNDP’s 2011 report on illicit financial flows from the Least Developed Countries (LDCs), we found that the ratio of illicit financial flows to GDP averaged about 4.8 percent for LDCs as a whole.
Progress in tackling the problem has been slow, in part because IFFs often benefit powerful vested interests. Political capacity to act is constrained where counter-measures require the support of those same elites who are also significant beneficiaries of IFFs. Can this conundrum be solved?
Control of IFFs requires two conditions to apply: an effective state with the capability and determination to address the problem; and ‘veto-holding’ elites that will not block reform. One of the most successful examples in the last fifty years is the administrative state of Singapore. Their concept of ‘public service excellence’ is the product of the elite’s buy-in for the state to enforce public authority fairly, effectively and efficiently. The capacity to work in the collective interest, with elites as well as states constrained by political accountability and by the rule of law, leads to greater public trust in the institutions and strengthens their capacity to govern. Conversely, failings in governance lead to a ‘vicious cycle’ of IFFs, worsening public service and weakening public authority.
Tackling IFFs today is shaped by whether those with money, power and influence play by the same rule as everyone else. Elite ‘free-riding’ (through IFFs, tax evasion, avoidance and exemptions) can only be effectively addressed if and when elites share a political conviction in their own and the country’s long-term future.
The Third International Conference on Financing for Development taking place in Addis Ababa in July provides an opportunity to make progress on this important agenda. Proposals tabled so far include policy innovations such as public country-by-country reporting by multinational enterprises, automatic exchanges of tax information between countries and creating an intergovernmental committee on tax cooperation. More effectively curtailing IFFs promises substantial sustainable development dividends.
The post-2015 sustainable development agenda will be adopted by the world’s governments at the UN in New York in September. World leaders will pledge to eradicate poverty, end hunger, take action to combat climate change, protect the environment and build peaceful societies (among many other things) all within the next 15 years. That these are goals worth pursuing is not in doubt. But it is also clear they will be extremely expensive to fulfil.
The UN’s Financing for Development conference taking place in July in Addis Ababa will develop a plan for financing our ambitious new development vision. In the run-up to this conference, our experts share their thoughts and lessons learned on key financing for development issues, such as the role of migration and remittances in funding development, the role of philanthropists and the private sector, the role of development aid and South-South Cooperation, innovative finance, illicit financial flows and more.
Transparency International (press release) (blog) Illicit Financial Flows from Africa: a complex political problem Transparency International (press release) (blog) Last month African heads of state meeting in Addis Ababa received and endorsed the...
U.S. Army Specialist Stephanie Charboneau sat at the center of a complex trucking network in Forward Operating Base Fenty near the Afghanistan-Pakistan border that distributed daily tens of thousands of gallons of what troops called “liquid gold”:...
Matteo Renzi, the Italian prime minister, hopes the new legislation - based on proportional representation - will be a point of reference for political stability
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