Global Financial Integrity

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Transparency, Accountability Key to Restructuring of Global Financial System

Monique Perry Danziger, +1 202 293 0740 ext. 222
Global Financial Integrity
Monique Perry Danziger, +1 202 293 0740 ext. 222

WASHINGTON, DC – As policy makers, business leaders, and institutional stakeholders convene in Davos, Switzerland for the World Economic Forum, Global Financial Integrity (GFI) urges participants to call for greatly improved financial transparency and accountability.

“Every year hundreds of billions of dollars in illicit money is hidden in shell companies, fake foundations and secret bank accounts with the aid of jurisdictions that provide secrecy and illicit-finance management for depositors,” said GFI director Raymond Baker.  “When Forum participants meet to discuss the post-crisis world, measures to eliminate opacity from the global financial system should be at the top of the list.”

The importance of one of the Forum’s themes, “Addressing the Challenges of Sustainability and Development,” is underscored by a new GFI report titled “Illicit Capital Flight Out of Developing Countries: 2002-2006.”   The key finding of the report is that developing countries lose as much as $1 trillion dollars a year in illicit capital flight as a result of illegal commerce, corruption, and tax evasion.

“In 2006 total outflows from developing countries outpaced incoming official development assistance (ODA) by a ratio of nearly 10 to 1,” said Baker.  “Curtailing this kind of capital flight is necessary to bolstering developing economies which are predicted to get hit the hardest by this economic crisis.”

GFI, which recently launched the “Task Force on Financial Integrity and Economic Development,” recommends the following steps be taken to improve accountability in global finance:

  • That systems be put in place to curtail the practice of mispricing trade;
  • That country-by-country reporting of sales profits and tax paid by multinational corporations be required in audited annual reports and tax returns;
  • That the beneficial ownership, control and accounts of companies, trusts and foundations be readily available on public record to facilitate due diligence;
  • That automatic exchange of information between tax and governmental authorities on income, gains and property received by non-resident individuals, corporations, and trusts, be made mandatory;
  • That predicate offenses for a money laundering charge be harmonized and codified.

“The current economic crisis is due in large part to the culture of secrecy that enables money to be transferred across borders and, usually, into tax havens or secrecy jurisdictions,” said Baker.  “This institutionalized opacity benefits the rich—corporations, wealthy individuals, criminals, even terrorists, shielding income and assets from accountability.  It contributes to widening income disparity and undermines the rule of law, forestalling the spread of a well functioning democratic-capitalist system.”