Ecuador Fo­cuses on New UN Tax Body to Fight Il­licit Fi­nan­cial Flows

Trillions - - In This Issue - By Tha­ranga Yakupi­tiyage

The time is now to work to­gether to fight il­licit fi­nan­cial flows, ac­cord­ing to Ecuador’s For­eign Min­is­ter Guil­laume Long.

Ecuador, hav­ing long ad­vo­cated for tax jus­tice, has shed light on the is­sue at the United Na­tions. As Chair­man of the Group of 77, Long high­lighted the need to end the fi­nan­cial se­crecy of tax havens that of­ten harm de­vel­op­ing coun­tries and to cre­ate an in­ter­gov­ern­men­tal body to help reg­u­late tax­a­tion and fi­nan­cial flows.

In a re­cent in­ter­view, Long ex­plains the is­sues, chal­lenges, and goals in achiev­ing tax jus­tice.

Q: The Pres­i­dent of the Gen­eral Assem­bly said that SDG fi­nanc­ing is go­ing to take 6$ tril­lion an­nu­ally and $30 tril­lion through 2030. Do you think much-needed fi­nances will be made avail­able if the cur­rent rate of il­licit fi­nan­cial flows is curbed?

A: I think it’s huge what you can get from curb­ing il­licit flows and ba­si­cally from tax dodg­ing or tax eva­sion. In the case of Ecuador, we cal­cu­lated that an ap­proxi- mate amount of $30 bil­lion is held in tax havens. Just so you get a gen­eral idea of what that means, Ecuador’s gross do­mes­tic prod­uct (GDP) is roughly around $100 bil­lion so $30 bil­lion means al­most 1/3rd of our GDP. Most coun­tries strug­gle to grow, but here you’ve got 30 per­cent of GDP lit­er­ally be­ing robbed from us in tax havens.

That means less in­vest­ment, less dy­namism in the econ­omy, less cre­ation of jobs and also less taxes— it’s those taxes that are used for pub­lic poli­cies to re­duce poverty, re­duce in­equal­ity, and cre­ate much needed in­fra­struc­ture.

There are have been es­ti­mates that pub­lic in­fra­struc­ture that is needed right now in the de­vel­op­ing world is roughly $1.5 tril­lion. This in­cludes hos­pi­tals, schools— the kind of in­fra­struc­ture that the de­vel­op­ing world needs to re­duce huge rates of in­equal­ity, poverty, and some of the things we are try­ing to amend through, for ex­am­ple, the SDGS. And that’s only prob­a­bly about 15% of il­le­gal as­sets held abroad in tax havens and var­i­ous off­shore ac­counts.

[Curb­ing il­licit fi­nan­cial flows] could rev­o­lu­tion­ize and

dra­mat­i­cally trans­form the story and his­tory of de­vel­op­ment. And it would cer­tainly be one of the best sources of fi­nanc­ing for de­vel­op­ment which is the big thing. Now that we have come to an agree­ment on the 2030 Goals and what it is that we want to do, the next ques­tion is how do we do this? And we have to do this with re­sources. Some re­sources are avail­able to us, but many oth­ers aren’t and this is ba­si­cally through tax dodg­ing.

This is also fun­da­men­tally a prac­tice that is car­ried out by elites and there­fore it also means that you get greater rates of in­equal­ity. In a con­ti­nent or a re­gion like Latin Amer­ica—if you do a per capita av­er­age then it is the mid­dle class but we know that av­er­ages hide huge dis­par­i­ties and Latin Amer­ica is ac­tu­ally the most un­equal re­gion in the world and a lot of that has to do with elites not be­ing a will­ing part of the so­cial con­tract. And a ma­jor as­pect of the so­cial con­tract is tax­a­tion and not par­tic­i­pat­ing in tax dodg­ing.

Q: How much does the de­vel­op­ing world, par­tic­u­larly Africa, Asia, and Latin Amer­ica, lose to il­licit fi­nan­cial flows?

A: There are huge num­bers that are be­ing re­ported. Ox­fam talks of $7.6 tril­lion in tax dodg­ing—i’m not even talk­ing about il­licit fi­nan­cial flows, not even talk­ing about off­shore ac­counts, I’m talk­ing about $7.6 tril­lion in tax dodg­ing.

This is why Ecuador has taken this is­sue so se­ri­ously. We’ve been talk­ing about tax havens and tax avoid­ance for years, par­tic­u­larly in this gov­ern­ment in the last ten years with the Pres­i­dency of Rafael Cor­rea. But af­ter the Panama Pa­pers scan­dal last year, Pres­i­dent Cor­rea re­ally launched this as his pri­or­ity and as a ma­jor cru­sade. He even launched what he called an “Eth­i­cal Pact” which included a ref­er­en­dum in Ecuador to ban civil ser­vants and elected of­fi­cials from hold­ing as­sets in tax havens. If you are found to hold as­sets in tax havens, you can be re­moved from of­fice au­to­mat­i­cally.

I re­ally think Ecuador is one of the coun­tries, if not the coun­try in the world, that’s done the most. This ref­er­en­dum, which was suc­cess­ful in terms of its re­sults, is an ex­am­ple to the world. And I think Ecuador has been the most proac­tive coun­try in the year that’s tran­spired since the rev­e­la­tions of the Panama Pa­pers in tak­ing con­crete and bold steps.

An­other ma­jor thing that we have been do­ing on the in­ter­na­tional front is from our pres­i­dency of the G77 which we cur­rently chair. We have pushed for the cre­ation of an in­ter­gov­ern­men­tal body on tax jus­tice. We had a work­shop this morn­ing which was co-chaired by Ecuador, In­dia, and South Africa with huge par­tic­i­pa­tion ex­actly on this is­sue.

There is an op­por­tu­nity—now that the is­sue is back at the fore­front of the me­dia, it means that we have to max­i­mize that op­por­tu­nity to try and cre­ate mech­a­nisms, par­tic­u­larly in­side the United Na­tions, that fight tax dodg­ing. [This is­sue] we can deal with if we have the right tools and in­sti­tu­tions to fight that.

Q: What are your thoughts on pub­lic dis­clo­sures on tax havens like the Panama Pa­pers? Is that some­thing that is needed more in or­der to in­crease trans­parency and ac­tion on tax havens?

A: Whistle­blow­ing plays an im­por­tant role. When in­for­ma­tion is pub­lic and peo­ple find out about th­ese things, if their politi­cians have been hid­ing money and fog them—most politi­cians have a very pa­tri­otic dis­course say­ing they’re go­ing to cre­ate jobs and eco­nomic ac­tiv­ity and bring for­eign in­vest­ment. But surely there is a para­dox and a con­tra­dic­tion if you are say­ing ‘vote for me be­cause I’ll bring loads of for­eign in­vest­ment into the coun­try’ and then on the other hand you’ve got all your per­sonal as­sets hid­den away some­where without pay­ing taxes. I think when those con­tra­dic­tions and lies, and I would use the world ‘rob­bery’ espe­cially if you are dodg­ing taxes, are ex­posed then that’s a good thing. It cre­ates greater con­scious­ness.

I think this is a time of great op­por­tu­nity be­cause since the Panama Pa­pers scan­dal, a lot of coun­tries that could be con­sid­ered to be tax havens are start­ing to take mea­sures be­cause they are un­der in­creas­ing pres­sure by peo­ple and by coun­tries like Ecuador and other coun­tries to do some­thing about it. The fact that we are hav­ing this de­bate to­day and the fact that I am talk­ing to you is not nec­es­sar­ily in the tax havens’ in­ter­est be­cause it brings the spot­light onto their ac­tiv­i­ties so gen­er­ally speak­ing, those kinds of pub­lic dis­clo­sures are very im­por­tant part of cre­at­ing a gen­eral aware­ness that this must stop.

There are a lot of dou­ble stan­dards too. On the one hand, de­vel­op­ing coun­tries are un­der pres­sure for all sorts of things. They’ve got to grow, they’ve got to be good eco­nom­i­cally, they’ve got to guar­an­tee hu­man rights—all of th­ese things which we ab­so­lutely abide by and are very com­mit­ted to—but surely there is a con­tra­dic­tion with hav­ing to do that and then on the other hand, all of th­ese coun­tries that are kind of ser­mo­niz­ing the rest of the world from their civ­i­liza­tional pedestal are reap­ing the ben­e­fits of all the crony and cor­rupt elites of the de­vel­op­ing coun­tries de­posit­ing their money in th­ese bank ac­counts without pay­ing taxes.

So there’s a hypocrisy there that has to be ex­posed. And if th­ese pub­lic dis­clo­sures can help to do that, then so be it.

Q: Has there been any progress since the Eco­nomic and So­cial Coun­cil’s (ECOSOC) adop­tion of the ‘UN Code of Con­duct on Co­op­er­a­tion in Com­bat­ing In­ter­na­tional Tax Eva­sion’?

A: That was a very im­por­tant step. It was the first piece of im­por­tant leg­is­la­tion and reg­u­la­tory re­sult that came out of the Com­mit­tee of Ex­perts in a long time. So we are see­ing progress, though still not enough, but still progress. And that has to do with [it be­ing] back on the agenda.

Now there is a new step, which I think is very im­por­tant, that the Sec­re­tary-gen­eral from June on­wards is go­ing to be nam­ing the mem­bers of the Com­mit­tee of Ex­perts. So that’s also a pos­i­tive de­vel­op­ment be­cause it ob­vi­ously raises the stakes and gives it more po­lit­i­cal clout.

Ecuador’s po­si­tion is that we cel­e­brate that the Com­mit­tee of Ex­perts was cre­ated with largely the fruit of de­bate that goes back to Mon­ter­rey in 2002. But now we think that the Com­mit­tee of Ex­perts is in­suf­fi­cient and that we need some­thing else. We need some­thing with more clout, with more ac­count­abil­ity, with more re­la­tion with the United Na­tions sys­tem it­self and the gov­ern­men­tal na­ture of this or­ga­ni­za­tion.

You have it in other spheres—if you look at trade, the World Trade Or­ga­ni­za­tion is a reg­u­la­tory body at the high­est level for trade while the In­tel­lec­tual Prop­erty Or­ga­ni­za­tion is a reg­u­la­tory body for in­tel­lec­tual prop­erty at the high­est level.

Those in­sti­tu­tions ex­ist be­cause it is in the in­ter­est of big cap­i­tal that they should ex­ist. Big cap­i­tal is in fa­vor of free trade and if a coun­try stands in the way of free trade, then you get rep­ri­manded. But it’s not nec­es­sar- ily in the in­ter­est of big cap­i­tal to have the equiv­a­lent in the field of tax­a­tion. This is an im­por­tant con­cept that we should bear in mind. A lot of the in­sti­tu­tions of global gov­er­nance that we have in­her­ited re­spond to spe­cific in­ter­ests and not al­ways to the in­ter­ests of the most pow­er­less in so­ci­ety. They re­spond to the in­ter­ests of the most pow­er­ful in so­ci­ety.

And why should trade be more im­por­tant than tax­a­tion? Prob­a­bly in terms of re­dis­tri­bu­tion, tax­a­tion is more im­por­tant than trade. Al­though, no­body is say­ing that trade isn’t im­por­tant for the over­all ac­cu­mu­la­tion of wealth of dif­fer­ent coun­tries, but in terms of re­dis­tri­bu­tion and in terms of ca­pac­ity of the state to work to­wards the 2030 Agenda, then surely [tax­a­tion] plays a huge role.

It is great that we are get­ting closer but it is frus­trat­ing that we are still talk­ing about a fight in or­der to cre­ate an in­sti­tu­tion that will then ded­i­cate it­self to fight­ing for a greater out­come which is tax jus­tice. We are not even fight­ing for tax jus­tice, we are fight­ing for the right to have the cor­re­spond­ing in­sti­tu­tions just like you have them in the fields of trade and in­tel­lec­tual prop­erty and oth­ers.

Q: Are you propos­ing for a new UN tax body or are you hop­ing to trans­form the Com­mit­tee of Ex­perts into an in­ter­gov­ern­men­tal body that you have pro­posed?

A: We are look­ing to trans­form the Com­mit­tee of Ex­perts but we are very open to dif­fer­ent kinds of for­mats. We are try­ing to cre­ate con­sen­sus and if you are try­ing to cre­ate con­sen­sus—i mean, we pre­side over the G77 which is 134 na­tions so cre­at­ing con­sen­sus be­tween 134 na­tions is al­ready a tall or­der—but at the end of the day, we are ac­tu­ally try­ing to cre­ate con­sen­sus be­tween 193 na­tions of the United Na­tions and that in­cludes tax havens, coun­tries that have been a lit­tle pro-sta­tus quo par­tic­u­larly in the OECD, and a lot of coun­tries that are not in the G77.

So we are open to all sorts of dif­fer­ent out­comes. We just want to raise the hi­er­ar­chy, the po­lit­i­cal clout, the vis­i­bil­ity, the strength of the body. There are a num­ber of ini­tia­tives. Some peo­ple have talked about keep­ing it within the ECOSOC while oth­ers want to el­e­vate it to the Gen­eral Assem­bly—there’s a huge de­bate within the G77 about it. But there is con­sen­sus be­tween 134 na­tions of the G77 that it should be an in­ter­gov­ern­men­tal body. And that’s some­thing that we are try­ing to, through our pres­i­dency, express the will of the na­tions that are mem­bers of our group.

Q: How fea­si­ble is the pro­posal for an in­ter­gov­ern­men­tal body for ap­proval by the Gen­eral Assem­bly?

A: I think mul­ti­lat­er­al­ism is a slow process al­ways. I think we are get­ting closer. And I think that the big con­fer­ence on fi­nanc­ing for de­vel­op­ment in the next few weeks should make sig­nif­i­cant progress. I think we will find that there is much more con­sen­sus than there was in Ad­dis Ababa in 2015.

Most coun­tries from the Global South have th­ese dis­cus­sions about tax jus­tice and the right to de­vel­op­ment. But a num­ber of coun­tries from the G20 or OECD or more in­dus­tri­al­ized coun­tries have also started to be flex­i­ble in their po­si­tion. We are see­ing changes. In the work­shop we had to­day, which would have been un­think­able a few years ago, we had loads of tax havens present. Not just tax havens that are black­listed in the Global South by the Global North but tax havens from Europe and from other parts of the world. And they were there be­cause they want to lis­ten in on the de­bate which shows that at least they are con­cerned or in­ter­ested and some of them ac­tu­ally spoke out and said they are mak­ing changes and show­ing a greater com­mit­ment.

There is an­other ma­jor thing which is the se­cu­ri­ti­za­tion of the is­sue. For some coun­tries, is­sues of ter­ror­ism is a big thing. Where do ter­ror­ists hide their money? Well, in­creas­ingly in con­stituen­cies that en­joy bank­ing se­crecy and those tend to be tax havens. If we can all at least agree on the out­come which is greater ac­count­abil­ity and greater reg­u­la­tions on that mat­ter, even if it is for dif­fer­ent rea­sons, it’s about con­sen­sus build­ing and that’s what mul­ti­lat­er­al­ism is about.

Q: So would this pro­posed UN tax body help bring such in­ter­na­tional co­op­er­a­tion in tack­ling il­licit fi­nan­cial flows?

A: That’s ex­actly right. It’s not just about nam­ing and sham­ing tax havens. If sud­denly you have two neigh­bor­ing coun­tries in a Euro­pean set­ting, even if they are de­vel­oped coun­tries, and they start this kind of tax­a­tion war by low­er­ing their taxes in or­der to try to suck cap­i­tal and in­vest­ment out of each other in this kind of race to the bot­tom, then a [UN tax] body like that should be able to in­ter­vene and make at least the right rec­om­men­da­tions. Whether those rec­om­men­da­tions be­come com­pul­sory then that’s an­other de­bate, but it should be a body like you have in other fields that has the ca­pac­ity to make clear rec­om­men­da­tions.

Q: Have you faced or ex­pect to face op­po­si­tion for this pro­posal, espe­cially from the Global North?

A: For sure. The G77 has been fac­ing—ba­si­cally with the same po­si­tion I am pre­sent­ing to you is not a new po­si­tion, the po­si­tion has been go­ing on for decades and there has been clear lan­guage on be­half of the G77.

It is in­ter­est­ing be­cause within the G77, you ac­tu­ally have tax havens as well. But even those tax havens have ac­cepted that an in­ter­gov­ern­men­tal body, which doesn’t ex­clude them, is quite a good mea­sure if you want to have a se­ri­ous de­bate and dis­cus­sion be­tween mem­ber States on this is­sue. This has been the po­si­tion of the G77 which has been re­sisted for decades. There has been loads of op­po­si­tion. We saw it in Ad­dis Ababa, par­tic­u­larly mem­bers of the G7 or the G20 and lots of op­po­si­tion from the OECD coun­tries and op­po­si­tions from coun­tries that are not al­ways con­sid­ered to be tax havens in the kind of stereo­typ­i­cal man­ner.

Coun­tries like the United King­dom has been op­posed to this very much, not only be­cause of its own poli­cies but also be­cause of what is eu­phemisti­cally called non-au­ton­o­mous ter­ri­to­ries. The five big­gest tax havens in rel­a­tive terms of the off­shore as­sets per GDP in­dex are non-au­ton­o­mous ter­ri­to­ries and four of the five are Bri­tish while one is the U.S. They are not sov­er­eign na­tions and they are not mem­bers of the United Na­tions. That’s an im­por­tant is­sue and it’s not sur­pris­ing that there is op­po­si­tion when we are try­ing to move away from this. The Panama Pa­pers sin­gled out Panama and ac­tu­ally Panama is mak­ing quite sig­nif­i­cant ef­forts to move away from that im­age. We are very happy to see them move away from such prac­tices but ac­tu­ally, Panama is not nec­es­sar­ily in the top five in terms of the GDP in­dex. The very peo­ple who even write up the black lists are not free of tax mal­prac­tice them­selves.

Guil­laume Jean Se­bastien Long, Ecuador's Min­is­ter of For­eign Af­fairs and Hu­man Mo­bil­ity and Co­or­di­nat­ing Min­is­ter for Knowl­edge and Hu­man Ta­lent.

Mega-yacht "Luna". Owned by Rus­sian oli­garch and bil­lion­aire Farkhad Akhme­dov. Photo by Gar­itzko.

The Sword­bearer and Mace­bearer walk ahead of the Lord Mayor of the City of Lon­don Cor­po­ra­tion, who is es­corted by his Ward Bea­dle. The City of Lon­don Cor­po­ra­tion is the world's cen­ter for il­licit funds.

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