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Priority reforms to advance SDGs & counter illicit financial flows

Three ways the FACTI Panel can help reduce the US$2.5 trillion funding gap and curb corruption

Photo by Kae B Yuki on Shutterstock

US$2.5 trillion. Every year.

That’s the size of the funding gap that stands in the way of achieving the 2030 Agenda for Sustainable Development.

The COVID-19 pandemic’s health and economic consequences means countries will need to raise even more money to have any chance of delivering on the Sustainable Development Goals (SDGs).

But all too often, precious resources that countries could use to meet development targets end up lost to corruption, tax evasion and tax avoidance.

It’s clear that with only 10 years left to achieve the 2030 targets, we need seismic change to ensure that the resources needed to pay for critical public services such as schools and hospitals are not simply misappropriated and hidden away in tax havens abroad.

A lack of coordinated global action to stem illicit financial flows undermines both post-COVID-19 recovery as well as long-term sustainable development.

The COVID-19 pandemic highlights the critical importance of global coordination, especially during times of crisis – and the subsequent consequences if that collaboration breaks down.

But the new High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI) has the power to possibly change that.

Established by the UN, the FACTI panel includes leading experts in the field with a mandate to recommend institutional reforms that could help curb the flow of dirty money and mobilise resources to achieve the UN’s ambitious development agenda.

This week, the Panel held a virtual consultation with the United Nations Member States.

While these conversations have been encouraging, Transparency International believes that the FACTI Panel would do well by prioritising three key reforms to address the pernicious impact of illicit financial flows.

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In April, Transparency International took part in a virtual town hall meeting to kick off the FACTI Panel, making the case that the new body should should focus on galvanising support for global action against illicit financial flows and transnational corruption that undermine sustainable development around the world.

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1. A common agenda to tackle secrecy

Despite existing international frameworks to tackle corruption, tax evasion and avoidance, as well as other criminal activities related to illicit financial flows, the global flood of dirty money remains one of the greatest threats to a sustainable future.

Secrecy is the common denominator. Existing global instruments and institutions need to do much more to uncover secrecy and end anonymity.

By creating a core agenda to prioritise secrecy issues, including reforming reporting standards, placing more emphasis on transparency in country review assessments, and focusing on addressing secrecy through public policy and research, FACTI can meet this challenge head-on.

The panel should encourage a coordinated effort to ensure that organisations, including the International Monetary Fund (IMF), World Bank, Financial Action Task Force (FATF), Organisation for Economic Cooperation and Development (OECD) and others, work together to take action against secrecy.

To this end, we welcome the FACTI’s establishment of a dedicated cluster that addresses these gaps in cooperation, which we hope will further these aims.

Enhancing transparency and removing anonymity of company ownership, in particular, is key to tackling secrecy and pinpointing dirty money in its country of origin. Doing so prevents corrupt actors from siphoning off development funds, often stashed away in secrecy jurisdictions and helps detect such wrongdoing.

FACTI is the only international body with the mandate or reach to explore innovative solutions to this challenge.

We endorse the recommendations made to the panel on transparency of asset and beneficial ownership information that were published this week. This highlights crucial loopholes in legal frameworks that impede transparency, demonstrates the need for beneficial ownership registers in all countries, and proposes progressive financing mechanisms for their establishment.

We strongly urge the FACTI panel to act as a convener to advance the debate around secrecy and anonymity, while strengthening the work of existing organisations and frameworks, and filling a gap in global infrastructure.

2. Global asset registry

The establishment of a global asset registry, a database of companies, properties, valuable goods and other assets – along with a list of their real owners – would go a long way in fighting corruption, tax evasion and dirty money.

Such a registry could bolster efforts to introduce a wealth tax – a measure that is gaining popularity in light of the COVID-19 pandemic.

Hiding and laundering illicit or unreported funds would be much more difficult if tax authorities and law enforcement had access to a global asset registry.

Most countries already have some form of asset registry. At least 40 countries have registries with information on the real owner of companies, while other initiatives, such as the Common Reporting Standard, record information on accounts. However, a global registry to address transnational corruption and facilitate international cooperation and asset recovery does not yet exist.

The FACTI panel should explore existing initiatives that could contribute to a global asset registry and determine the elements or infrastructure necessary to establish it.

3. Asset recovery agreement

According to the Stolen Asset Recovery Initiative (StAR), a partnership between the World Bank and the United Nations Office on Drugs and Crime, developing countries lose approximately US$20-40 billion each year to bribery, embezzlement and other corrupt practices.

Only a small fraction of these funds is ever returned to the citizens and taxpayers from whom they were stolen. The rest are lost to corruption, depriving essential public services, like health and education, of much-needed resources.

A major international effort is urgently needed to overcome obstacles to return proceeds of corruption to their countries of origin, including assets lost to tax evasion and other illicit financial flows.

One option would be to create a broad instrument covering all illicit financial flows – a suggestion raised in this week’s consultation with the UN Member States.

A new multilateral agreement could help accelerate asset recovery. Such an agreement should include procedures to recompense state and non-state victims of foreign bribery and standards for accountable asset return.

Transparency International and the UNCAC Coalition recently proposed a new multilateral agreement to cover all illicit financial flows that could be a protocol to the UN Convention against Corruption (UNCAC) or a standalone General Assembly-approved instrument.

Crucial next months

We’re calling on FACTI to coordinate an ambitious agenda among existing institutions to fight financial secrecy. FACTI is in a unique position to analyse existing asset registries and leverage them to establish a global asset register. It also has the power to make proposals to help accelerate the return of misappropriated assets.

The transparency and inclusivity of the Panel's work to date is welcome. As it builds momentum, FACTI Panel shows potential to achieve significant progress – which we will be monitoring closely ahead of the Panel’s interim report in September.

Tackling corruption, ending abusive tax practices and returning ill-gotten gains to the countries from which they were stolen can help governments pay for healthcare, education and other essential public services, while also reducing inequality and spurring growth.

This way can we secure the resources needed to overcome the immediate COVID-19 crisis as well as longer term development needs around the world.

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