January 7, 2010
This article was originally published by The Huffington Post.
In early December of last year, an unusual group of 40 organizations and individuals met at Yale University to discuss illicit capital flows out of developing countries, lack of transparency in the global financial system, and the impact these conditions have on human rights around the world. The meeting brought together experts from the fields of human rights and financial transparency to explore similarities in their work and develop a common agenda.
The result of this discussion — called the New Haven Declaration — is being released today. Its message is clear, that “human rights and international financial integrity are intimately linked” and that poverty increases when money flows out of nations illicitly instead of being invested in the basic needs of people in their countries. While seemingly unrelated, a common thread linking cash flows due to crime, corruption, and tax evasion is the need for a global shadow financial system to facilitate such transactions.
This system has grown to immense scope — some 70 tax havens around the world, secrecy jurisdictions enabling the establishment and operation of entities with unknown beneficial owners, disguised corporations in the millions, anonymous trust accounts, fake charitable foundations, abusive transfer pricing in international trade transactions, money laundering techniques, and holes left in the laws of Western nations that ease the flow of illicit money through this shadow system and ultimately into Western coffers.
Some analysts suggest that perhaps half of global trade and capital movements pass through tax havens and secrecy jurisdictions somewhere between origination and completion. Financial secrecy is not just a tax or law enforcement problem. Even more importantly, it is an economic development and human rights problem of huge proportions. The Washington NGO Global Financial Integrity estimates that $1 trillion in illicit money is spirited out of developing countries every year, utilizing the global shadow financial system.
This outflow drains hard currency reserves, heightens inflation, reduces tax collection, cancels investment, cripples foreign aid, undermines free trade, worsens poverty, and forestalls sustainable growth for billions of people. With official development assistance recently running about $100 billion annually, for every $1 being generously handed out across the top of the table, the West is taking back some $10 under the table. The human cost of these financial outflows from developing countries is vast.
An estimated 18 million people a year die of economic deprivation and causes stemming directly there from. Of these, some 9 million are children under the age of five who die from diseases for which vaccines or treatments are available. Curtailing even a fraction of the $1 trillion a year of illicit outflows would provide resources that could save millions of lives. Human Rights Watch has documented how billions of dollars in illicit outflows have damaged, for example, Angola, Equatorial Guinea and Indonesia, shifting abroad funds that could otherwise be used for education and health services.
The right to an equitable global financial system should be understood as an integral component of human rights advocacy. Article 25 of the Universal Declaration of Human Rights, adopted in 1948, says that everyone is entitled to a standard of living adequate for their health and wellbeing. No provision of the declaration has been more massively disregarded than this one.
Today there are more people living in severe poverty than the whole of humanity in 1948. Illicit financial flows out of poorer countries, expedited through the global shadow financial system, are a major contributor to this reality.
Reducing these outflows will require “greater transparency and integrity in the global financial system,” the statement being released today says, and constructing such a system is a “prerequisite to creating an economic framework that is open, accountable, fair, and beneficial for all.”
The New Haven Declaration calls on “the United Nations, G8, G20, WTO, IMF, World Bank and other international bodies , as well as on governments, world leaders, faith groups and civil society organizations to recognize the linkage between human rights and financial transparency.”
Acknowledging the linkage is an essential step toward a more just economic order.
Arvind Ganesan is the Director for Business and Human Rights at Human Rights Watch, Thomas Pogge is the Leitner Professor of Philosophy and International Affairs at Yale University, and Raymond Baker is Director of Global Financial Integrity.