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ONE adds to pressure on G20 to act against tax evasion and other illegal financial flows

The ONE campaign describes corruption involving developing countries as the $1 trillion scandal and says the G20 must implement measures such as automatic information exchange (AIE) and the transparent publication of the revenues governments receive if the organisation wants to end it.

ONE, an international organisation that fights against extreme poverty and preventable disease, particularly in Africa, claims in a report out today that $1 trillion is being stolen each year from developing countries through "shady deals for natural resources", the use of shell companies, illegal tax evasion and money laundering. It is calling on the G20 heads of government to take action at their summit in Brisbane on November 15 and 16.

The ONE campaign is demanding the G20 takes action to:

  • make information public about who owns companies and trusts to prevent anonymous shell companies and similar legal structures from being used to launder money and conceal the identity of corrupt and criminal individuals;
  • introduce robust mandatory reporting laws for the oil, gas and mining sectors so that countries' natural resources are not stolen from their citizens;
  • crack down on tax evasion by implementing AIE so that developing countries can collect the taxes they are due; and
  • publish government data, so citizens can see where the money from resources goes and hold their governments accountable for the delivery of essential services.




ONE estimates that $19.5 billion in revenue could be raised annually if the $20 trillion of undeclared assets  - $3.2 trillion, it says, originates in developing countries - it believes were held offshore in 2013 were taxed, "even conservatively".

As well as a commitment from every G20 country to making beneficial ownership information publicly available, ONE wants each of them to implement a national plan on the transparency of such information and to harmonise throughout the G20 the legislation that may be required to do this.

"Great progress has been made in recent years, with the G8 countries committing to individual action plans on beneficial ownership and the UK and France passing legislation to make this information public. This should now become an international standard," ONE said.

The campaign points out that a global transparency standard on payments to governments for natural resources is emerging and that countries such as Canada, the EU, Norway and the US have committed to mandatory disclosure.

Tax evasion

ONE said a crackdown on tax evasion would help developing countries pay for their medical and infrastructure needs. It pointed out that rich countries raised 34.1% of their GDP in taxes in 2011, while low-income countries raised an average of 13%.

"This was not, primarily, because their tax rates are lower, but because so many individuals and firms living and doing business in developing countries avoid taxes, either illegally or through sophisticated manipulations of their company accounts that shift profits to other parts of the world," the report said.

It added that Global Financial Integrity (GFI), a research and advocacy organisation has estimated that illegal tax evasion, facilitated by the manipulation of cross-border trade, was the reason for the majority of the $946.7 billion lost to developing countries through illicit financial flows in 2011.

AIE and CRS

Before G20 heads of government summit in November, their finance ministers will have their own meeting in Cairns on September 20 and 21, at which they will consider the Common Reporting Standard, the mechanism developed by the OECD for implementation of AIE.

The ONE report says AIE will help countries identify cases with a high risk of tax evasion and help them "recover evaded taxes quickly and efficiently".

"The G20 has already endorsed AIE," the report says, "but all G20 countries should build a truly multilateral system and accelerate the timeline for complying to no later than 2017."

"Developing countries should have access to this information even if they cannot reciprocate,” David McNair, one of the report's authors told International Tax Review. "This is very important. $20 trillion is held offshore. This is a critical tool for cracking down on undeclared assets."

ONE also wants country-by-country reporting to become a requirement for companies, arguing that the public disclosure of key financial information in each country in which a company operates would help officials spot when money was being moved out of a country.

"G20 leaders have the power to help stop this $1 trillion scandal through a set of simple, low-cost measures that will also benefit their own countries, helping them to recover revenues from tax evaders and creating new economic opportunities," the report concluded.

Methodology

The ONE report was based on a three-pronged approach to research that looked at work GFI has done on illicit financial outflows; the work of the UN Office on Drugs and Crime, which has put global money laundering at between 2.1% and 4% of global GDP and "an aggregation of a range of methodologies", such as the estimates that:

  • developing countries lose $100 billion to $160 billion in tax revenues from trade mispricing; and $250 billion from illegal tax evasion each year;
  • the global cost of money laundering in 2014 is between $1.91 billion and $3.64 trillion; and
  • the global cost of bribery is between $600 billion and $1.7 trillion.

ONE said it took a “highly conservative” estimate that the cost to developing countries of money laundering and bribery was one-third of the low range of the global total and that this puts the cost at $1.18 trillion.

With Australia's G20 presidency coming to a climax at the heads of government summit, tax looks sure to be central to loud demands from different interest groups for the world's biggest economies to take action on a range of different issues.



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