(IPS) – On a sign outside a laundry in New York is the cheeky slogan: “We wash dirty laundry, not dirty money.” It is the dark side of the global financial system. Millions of US dollars of illicit profits find safe haven in offshore banks. The crime is taking place on a global scale, a UN High Level Talking Group on Financial Transparency and Integrity for 2030 (FACTI) recently declared.
Ibrahim Mayaki, co-chair of FACTI and former prime minister of Niger, points to closing loopholes. They allow money laundering, corruption and tax abuse. Controlling wrongdoing bankers, accountants and lawyers are steps towards transforming the global economy for the common good, he said.
In a report on 25 February, the UN panel called on governments to agree to an international agreement on financial soundness for sustainable development. The group, which includes former world leaders, central bank directors, civil society bigwigs and academics, spoke of at least 2.7 per cent of global economic output being “laundered” annually. Corporations in search of tax-free territories were costing governments over 500 billion euros in tax revenue annually.
At a time when billionaires’ wealth increased by 27.5 per cent and 131 million people were impoverished by COVID-19, a tenth of the world’s wealth could be hidden in offshore financial assets, according to the report. This prevents governments from collecting their share of taxes. Collecting the annual loss from tax avoidance in Bangladesh, for example, would allow it to extend its social safety net to 9 million more elderly people. In Chad, it could pay for 38,000 classrooms, and in Germany, it could be used to build 8,000 wind turbines, the report says.
Professor Kunal Sen, director of research at the UN University UN-WIDER, told IPS: “At a time when developing countries are facing sharply declining tax revenues due to the economic crisis triggered by the pandemic, it is imperative to find solutions to the huge losses to public coffers from illicit financial flows.”
This is a key development challenge, he said. The provision of essential public services such as education, health and infrastructure depended on states having money to spend, he stressed. “Global coordination of tax policy, preferably led by the G-7 (developed countries), that curbs tax evasion and money laundering is the need of the hour.”
James A. Paul, former director at the Global Policy Forum, welcomed the report. However, he said there is cause for reflection on where it should lead. “It provides a devastating analysis of the corrupt global financial system and how financiers undermine prosperity, fairness and legitimacy.” The architecture of the system and its rules make sustainable development difficult, if not impossible, he said.
“So, it‘s been clear for a long time that the richest families and nations in the world are the main beneficiaries of this system, that they have a grip on policy, and that they have no intention of fundamentally changing things,” Paul pointed out. Its leaders are mainly nationals of the US and the UK, whose financial institutions and oligarchies are the most powerful in the world, he added.
