Global Financial Integrity

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To Stimulate Growth, G20 Should Prioritize Illicit Financial Flows at St. Petersburg Summit

Clark Gascoigne, +1 202 293 0740 ext. 222
E.J. Fagan, +1 202 293 0740 ext. 227

Tax Evasion, Crime, Corruption Major Detriments to Growth, Exacerbate Income Inequality

GFI: G20 Should Embrace Country-by-Country Reporting, Crack Down on Anonymous Shell Companies

Russian Crackdown on Civil Society “Casts a Dark Cloud” on Summit

WASHINGTON, DC – As world leaders prepare to meet in Moscow this week to discuss stagnating economic growth, Global Financial Integrity (GFI) urged G20 leaders to take strong action to curtail illicit financial flows, the proceeds of crime, corruption, and tax evasion.  The Washington, DC-based research and advocacy organization called on world leaders to expand efforts to crackdown on abusive tax dodging and the anonymity surrounding anonymous shell companies.

“Our research shows that illicit financial flows are one of the biggest hindrances to economic growth and one of the primary drivers of inequality in rich and poor nations alike,” said Raymond Baker, President of GFI.  “The global economy is at a very tenuous place right now with major emerging economies like India, Brazil, and Malaysia in turmoil, China showing signs of slower growth, and European nations just beginning a very fragile recovery.”

According to GFI’s research, tax haven secrecy, anonymous shell companies, and trade-based money laundering facilitated the illegal outflow of roughly $261 billion from the Greek economy in the lead-up to the European debt crisis, it drained a remarkable $3.79 trillion from China between 2000 and 2011, and tax haven abuse is estimated to cost U.S. taxpayers roughly $150 billion per year.

February report from GFI found that Russia—the host of this week’s G20 Summit—experienced illicit inflows and outflows totaling US$764.3 billion since the fall of the Soviet Union.  Meanwhile, GFI estimates that over the most recent decade, India suffered illicit financial outflows of $123 billion, Malaysia hemorrhaged $285 billion in illegal capital flight, and Indonesia lost $109 billion in dirty money.

“No G20 nation is immune to the consequences of money laundering and tax evasion.  This is a global epidemic that world leaders ignore at their own peril,” added Baker.

Automatic Exchange of Tax Information

“Automatic exchange of tax information between jurisdictions is one of the best ways to begin curtailing this problem.  It ensures that tax authorities and law enforcement in both rich and poor countries have the necessary records they require to detect and deter tax evasion,” noted Heather Lowe, GFI’s Legal Counsel and Director of Government Affairs.

The G20 Finance Ministers meeting in Moscow in July called on all jurisdictions to implement the automatic exchange of tax information as the new global standard, and they offered to provide assistance to developing nations as they work to implement automatic exchange moving forward.  GFI welcomed that move and called on world leaders this week to live up to that pledge by reiterating their commitment to automatic exchange of tax information and agreeing to join the pilot program for multilateral automatic exchange of information pioneered by European nations this year.

“All G20 nations should commit to joining the European pilot on automatic tax information exchange,” said Ms. Lowe.  “Notably, Australia announced in July that it would be joining the pilot, suggesting that they would be committed to making tax evasion and avoidance a priority when they take the chair of the G20 in 2014.  The world is moving to a system of automatic exchange, and now is the time for each G20 nation to put its money where its mouth is.”

Country-by-Country Reporting

Additionally, GFI called on G20 nations to move seriously toward curtailing abusive tax avoidance by multinational corporations by requiring that they publicly disclose revenues, profits made, losses, taxes paid, subsidiaries, and staff levels on a country-by-country basis.  A July report from the OECD on “Base Erosion and Profit Shifting” (BEPS) failed to endorse this simple premise, eliciting disappointment from civil society.

“As recent hearings and articles exposing the profit shifting practices of Apple, Starbucks, and Google highlight, it is now common in international business for companies to artificially shift their profits out of the nations in which they were generated and into tax havens.  Such behavior starves governments of much needed tax revenue at a time when rich and poor nations alike are struggling to make ends meet.  Requiring companies to disclose where they are operating, where they are making their profits, and where they are paying taxes is a straightforward way to detect and deter corporate tax dodging,” said Ms. Lowe.

In April, the European Union adopted requirements that all financial institutions disclose profits made, taxes paid, subsidiaries, and staff levels on a country-by-country basis, and EU leaders announced in May that they were considering requiring all multinational companies to do the same.

“Global momentum is clearly moving toward requiring multinationals to publicly report information on a country-by-country basis, and the public has been demanding it—especially in Europe.  Now is the time for the G20 to fully embrace public country-by-country reporting for multinationals,” added Ms. Lowe.

Anonymous Shell Companies

Beyond country-by-country reporting and the automatic exchange of tax information, GFI highlighted the need to crack down on the secrecy behind anonymous shell companies.

“As the Department of Justice has noted, anonymous shell companies are the most-widely used method for laundering the proceeds of crime, corruption, and tax evasion,” noted Ms. Lowe. “They facilitate sex slavery, arms trafficking, and drug dealing.  These phantom firms are also used to disguise campaign contributions, get around being barred from an industry, and dupe other business owners. Public registries of meaningful corporate ownership information are not only about stopping crime – they are about protecting basic principles like sound business practice and open and fair elections.  The G20 leaders should make eliminating anonymous shell companies a priority of the summit, demanding that nations create public registries of meaningful beneficial ownership information.”

Anti-Corruption Working Group

Noting the important work done by the G20’s Working Group on Anti-Corruption over the past few years, GFI urged world leaders to make the mandate of the Group permanent.

“The Anti-Corruption Working Group is a vital forum for ensuring that anti-corruption is an integral part of global economic policy.  There’s no reason for the Working Group’s mandate to be only two years in length.  We hope to see it incorporated as a permanent voice within the G20 framework,” said Ms. Lowe.

Russia: Serious Transparency Concerns

On another note, GFI expressed grave concern over the treatment of civil society organizations by Russian authorities in advance of the G20.

“The widespread crackdown on civil society organizations operating within Russia raises serious concerns about the Russian government’s accountability and commitment to the people it purports to represent,” said GFI President Raymond Baker.

“While organizations such as GFI have had the opportunity to discuss matters with other G20 governments and even the Russian Sherpa in advance of the summit, the active campaign against Russian NGOs casts a dark cloud over the entire summit,” added Mr. Baker.


Notes to Editors:

  • To schedule an interview with Mr. Baker, Ms. Lowe, or other GFI spokespersons, contact Clark Gascoigne at +1 202 293 0740 x222 (Office) / +1 202-815-4029 (Mobile) / On-camera spokespersons are available in Washington, DC.
  • Click here to read an HTML version of this release on our website.
  • Click here to read GFI’s analysis of July’s G20 Finance Ministers meeting, published July 19, 2013.


Clark Gascoigne
+1 202-293-0740 ext.222 (Office)
+1 202-815-4029 (Mobile)

EJ Fagan
+1 202-293-0740 ext.227


Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system as a means to global development.

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