Rich smell

The fo­rum for rich coun­tries is­sues an over­due mea culpa

The Financial Express - - INTERNATIONAL -

THE leak­age of wealth from poor coun­tries through tax eva­sion, money laun­der­ing and other mis­deeds is be­com­ing an ever big­ger worry for those who want poor coun­tries to get rich. Global Fi­nan­cial In­tegrity cal­cu­lates that such “il­licit fi­nan­cial flows” have in­creased sharply over the past decade and may now be $1 tril­lion a year or more. Even ex­perts who ques­tion the cam­paign­ing group’s method­ol­ogy ac­cept that out­flows prob­a­bly ex­ceed in­com­ing aid and in­vest­ment com­bined.

Big rich coun­tries of­ten ac­cuse small off­shore fi­nan­cial cen­tres, such as Jersey and the Cay­man Is­lands, of act­ing as will­ing con­duits for dodgy money. The min­nows say they are be- ing bul­lied: big hyp­ocrites should clean up their own acts first. This case is bol­stered by a damn­ing re­port on its own mem­bers by none other than the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment (OECD), a Paris-based club of in­dus­tri­alised coun­tries.

The re­port is harsh­est in its as­sess­ment of how in­ter­na­tional money-laun­der­ing stan­dards crafted by the Paris­based Fi­nan­cial Ac­tion Task Force (FATF) are im­ple­mented. Only 12 of the OECD’s 34 mem­bers were fully or largely com­pli­ant with a ma­jor­ity of the stan­dards that re­cent peer re­views have set on cus­tomer due dili­gence and record keep­ing. Penal­ties for banks with poor con­trols are (Amer­ica apart) mostly fee­ble. Anony­mous shell com­pa­nies are eas­ier to set up in the OECD (es­pe­cially in Amer­ica) than in tax havens. Barely any coun­tries ap­ply the FATF rules to non-fi­nan­cial “gate­keep­ers”, such as lawyers and in­cor­po­ra­tion agents, who play an im­por­tant role in set­ting up opaque own­er­ship struc­tures.

The rich coun­tries also score poorly on re­cov­er­ing and re­turn­ing as­sets looted by klep­to­crats and their clans. They repa­tri­ated a mere $147m be­tween 2010 and 2012. (To be fair, prov­ing that as­sets are ill-got­ten is hard in places where they tend to be parked, such as Bri­tain and Switzer­land.)

The re­port could have been tougher still. Strong re­sis­tance from the OECD’s con­stituents and some sec­re­tariat of­fi­cials re­peat­edly de­layed its pub­li­ca­tion and di­luted its con­tent. In par­tic­u­lar, a sec­tion on “trans­fer mis­pric­ing” —trade be­tween re­lated par­ties, such as two com­pa­nies in a multi­na­tional group, de­signed to hood- wink tax au­thor­i­ties or ma­nip­u­late mar­kets—was re­moved af­ter the OECD’s tax di­vi­sion com­plained. It was ap­par­ently wor­ried about main­tain­ing con­sen­sus on an over­haul of in­ter­na­tional cor­po­rate tax.

For­tu­nately, Canada, Aus­tralia and other coun­tries that fared poorly in the in­ter­na­tional com­par­isons (see chart) failed in their ef­forts to have them all taken out. They had ar­gued that such rank­ings would not re­flect im­prove­ments made since their last peer re­views. Out­side ex­perts counter that th­ese have been mod­est at best.

Some real progress has been made. Bri­tain, for in­stance, now backs pub­lic reg­is­ters of cor­po­rate own­er­ship. A transat­lantic con­sen­sus is build­ing on the au­to­matic ex­change of tax in­for­ma­tion. But big rich coun­tries still like to por­tray them­selves as lead­ers in the fight against black money. In fact they are lag­gards. In 2014 they should prac­tise what they preach.

Ad­vance Aus­

Money laun­der­ing com­pli­ance* Se­lected OECD coun­tries, lat­est

Source: OECD






* with eight FATF rec­om­men­da­tions on cus­tomer due dili­gence and record-keep­ing

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