By Joseph Spanjers, November 21, 2014
Mexico and Bangladesh Voice Support for a Clear Target on Curbing Illicit Financial Flows on the Sustainable Development Agenda
The United Nations is in the process of forming the post-2015 development agenda. These proposed Sustainable Development Goals (SDGs) will eventually replace the Millennium Development Goals (MDGs) that were agreed upon for 2000-2015. As with the MDGs, the SDGs will inform which development issues take priority in the coming years.
Sustainable Development Goal 16.4, as is currently proposed by the UN’s Open Working Group, calls on the international community to:
“by 2030 reduce illicit financial and arms flows, strengthen recovery and return of stolen assets, and combat all forms of organized crime.”
Global Financial Integrity (GFI) applauds the Open Working Group for considering illicit financial flows in its proposal. Though Goal 16.4 is definitely a start in the right direction, it is not exclusively focused on illicit financial flows, nor is it measurable in the least. GFI proposes the following as an alternative:
“by 2030, reduce illicit financial flows related to trade misinvoicing by 50%.”
By Channing Mavrellis, November 20, 2014
Whether South Africa’s Illegal Gold Mining Problem Is Measured in Revenue, Security Risks, or Human Lives—in the End, Everyone Loses
South Africa is the world’s fifth largest producer of gold, with the gold mining sector representing approximately two percent of South Africa’s GDP. Yet the country’s mineral wealth has proved to be a growing source of illegal activity and conflict.
There are approximately 14,000 illegal gold miners in South Africa, many of whom are illegal immigrants from Lesotho, Mozambique, and Zimbabwe. Illegal gold miners are known locally as “zama zamas,” which is variously translated as “We are trying” or “He who seizes the opportunity” or “Take a chance.” They operate in the estimated 4,000 to 6,000 abandoned mines in the Witwatersrand basin, but will also bribe security guards, policemen, or mine employees to gain access to active mines and/or to steal equipment. Credible estimates of the value of the illegal gold mining industry vary widely, ranging from US$500 million to US$2 billion annually.
Not included in these figures is the tax fraud involved in these activities. According to Naomi Fowler, criminal syndicates exploit the fact that value added tax (VAT) is not charged on mined gold whereas it is on processed gold. These syndicates then use techniques like trade misinvoicing to fraudulently certify illegally mined gold as legitimate second-hand scrap gold, which enables them to claim back VAT that they never paid.
By Christine Clough, PMP, November 13, 2014
A Recent GFI Study & Conference Focused on Brazil’s Illicit Financial Flows, which Cost the Latin American Country US$401.6 Billion from 1960-2012
A pair of articles by The Economist last week highlight the economic challenges that Brazil’s recently re-elected president, Dilma Rouseff, will face in her second term leading Latin America’s largest economy. The federal budget shortfall has grown to 4.9% of GDP. Tax increases could further undermine growth, and cuts to benefits programs for Brazilians might also decrease spending and slow the economy, in addition to weakening progress on addressing the country’s economic inequality and poverty rates.
Many Brazilians already complain about the high tax rates and poor public services. According to a Christian Science Monitor article, which cites the Brazilian Institute of Tax Planning:
“the average person works 150 days a year to pay taxes, compared with 102 days in the [United States]. Among the 30 countries with the highest tax burdens, Brazil ranks last in terms of the quality of services citizens receive in exchange for high taxes.”
Businesses and individuals in Brazil are also dealing with high inflation, slow growth, a weakening currency, and a growing current-account gap.
By Joshua Simmons, November 10, 2014
Until Global Financial Crime Punishments include Individual Prosecutions, Rogue Banks Will Continue to Do as They Please, Writes GFI’s Joshua Simmons
After the recent spate of massive money-laundering, sanctions-busting, and tax-evasion scandals involving large international banks, sometimes it seems more difficult to name a single bank that has not been exposed for wrongdoing than list all those that have. One might think that, having worked their way through so many financial institutions, investigators and prosecutors would be at a loss for what to do next. The banks, though, seem more than willing to provide more work, with many either failing to meet their ends of their settlement agreements, continuing to move money for criminals and tax-evaders, or both.
Standard Chartered, which settled charges in mid-2012 related to its widespread activities violating U.S. sanctions on Iran, Burma, Libya, and Sudan, paid an additional fine this summer for failing to uphold its obligations under the settlement. The bank may now be in line for even more punishment, after new information seems to indicate additional transactions with Iranian entities that weren’t disclosed or admitted in the original settlement. It’s not presently clear whether Standard Chartered retained a relationship with Iranian customers after its settlement in 2012, but it certainly continued to take their money after the initial investigation began.
By Heather Lowe, October 30, 2014
Everyone Should Be Able to Determine with Whom They Are Doing Business, Writes GFI’s Heather Lowe
On Monday of this week, the Financial Action Task Force (FATF), the body setting international anti-money laundering standards, published new Guidance on Transparency and Beneficial Ownership, detailing a variety of ways in which countries can comply with FATF Recommendations 24 and 25 (which relate to transparency and beneficial ownership of legal persons and arrangements) and sending the message that complaining about the difficulty of compliance is no longer an option. FATF consulted with the Organization for Economic Cooperation and Development (OECD) on this publication, recognizing that identification of the beneficial owners of legal entities and arrangements is not only a money laundering issue, but a fundamental element of the OECD’s new multilateral automatic exchange of financial information. What neither FATF nor the OECD appears to have yet grasped, however, is that beneficial ownership – knowing who is ultimately behind a company – is a matter of sound business practice. Everyone should be able to determine with whom they are doing business.
That lack of understanding was evident on page 21 of the Guidance, where FATF made it clear that it was supportive of countries choosing to create publicly accessible registries for information, as the UK is in the process of creating. FATF stated that:
“although this is not required by the FATF Recommendations, some countries may be able to provide public access to information through a searchable online database.”
The rationale behind this, they say, is that it:
“would increase transparency by allowing greater scrutiny of information by, for example, the civil society, and timely access to information by financial institutions, DNFBPs and overseas authorities.”
While we civil society folks appreciate what appears to be an attempt by FATF to demonstrate that they have heard civil society’s drumbeat on this issue, unfortunately what this shows is that they have not yet understood the variety of reasons for that drumbeat.
By Tom Cardamone, October 2, 2014
A Quarterly Newsletter on the Work of Global Financial Integrity from June through September 2014
Global Financial Integrity is pleased to present GFI Engages, a quarterly newsletter created to highlight events at GFI and in the world of illicit financial flows. We look forward to keeping you updated on our research, advocacy, high level engagement, and media presence. The following items represent just a fraction of what GFI has been up to since May, so make sure to check our new website for frequent updates.
U.S.-Africa Leaders Summit
The big news this quarter was the U.S.-Africa Leaders Summit held in Washington, D.C. in early August, which brought together leaders from fifty African nations with President Obama, and included a ground-breaking announcement that a joint high-level working group on illicit financial flows would be formed. GFI participated in the summit’s Civil Society Forum as well as several additional side events, and were proud to partner with the Open Society Foundations (OSF) and other organizations to host the event “Resources for the Future: Partnering with Civil Society for Transparency and Accountability in Africa,” which celebrated the role of civil society in advocating for transparency and accountability in Africa and discussing ways to make further progress. The high-caliber roster of speakers are too numerous to list here, but included Vice President Joseph Boakai of Liberia; George Soros, founder of OSF; Mo Ibrahim, founder of the Mo Ibrahim Foundation; and Mojanku Gumbi, a trustee of the Thabo Mbeki Foundation. The public event was followed by an African-U.S. civil society working session.
By Tom Cardamone, September 30, 2014
GFI Calls for a Sustainable Development Goal (SDG) to Halve Illicit Flows from Trade Misinvoicing by 2030
As I noted in yesterday’s post, the momentum toward global action on illicit flows by the international community (i.e. the United Nations, OECD, G20, etc) has grown substantially over the past three years. Indeed, last October, the World Bank Group noted that “there is little doubt that [illicit] flows have a pernicious impact on development” and the UN group working on development financing said that “domestic resource mobilization is being severely undermined by illicit financial flows.” And, in January, the African Union stated that “it is imperative to curtail illicit financial flows [to ensure] the efficient and effective use of resources.”
But, while there is an understanding of the problem and a willingness to act, there is no broad consensus on what should be done. The opportunity that presents itself comes from a once-in-a-generation confluence:
- the international community agreeing on the need to reduce illicit financial flows (IFFs), and
- 2) the fact that the Post-2015 development agenda is open for debate.
The political will already exists to address the IFF challenge in concrete ways. Now, the question is: what does a SMART (i.e. Specific, Measurable, Achievable, Relevant, Time-bound) SDG target on illicit flows look like?
By Tom Cardamone, September 29, 2014
GFI Participates in High Level OECD Side-Event on Curbing Illicit Flows during UN General Assembly Meetings
On September 24th, tucked away in a quiet conference room in the basement of the UN General Assembly building, an extraordinary conversation took place on the future of global development. But, despite the gathering of representatives from the OECD, UN, World Bank, USAID and the Mexican, Australian, and Nigerian governments, the event received exactly zero media coverage.
Titled “Curbing Illicit Financial Flows for Domestic Resource Mobilization and Sustainable Development in the Post-2015 Era,” the focal point of the two-hour discussion was how the international community could, as the program description put it, “identify concrete international actions needed” to curtail illicit financial flows out of developing country economies. While other events were given more airtime and other issues may require more immediate attention, some ideas presented at the panel could be transformational in terms of how countries address the scourge of illicit flows and how the development agenda is funded.
