FACTI Panel And The Illicit Financial Flows Menace

By Abubakar Usman

To say that global finance is currently skewed in a manner that allows tax abuses, corruption, and illicit financial flows (IFFs) to flourish would be stating the obvious. This is because of obvious gaps, loopholes and shortcomings in rules, and their implementation which allow these abuses to flourish.

From all indication, illicit financial flows represent double theft as it is an expropriation of funds that also robs billions of a better future. This situation undermines trust in public ethics, drains resources, pushes people into poverty, and hampers efforts to tackle global challenges, including COVID-19 and the climate crisis.

The magnitude of the resources the world stands to gain by creating financial integrity for sustainable development is enormous. Statistics have shown that as much as ten per cent of the world’s Gross Domestic Product might be held in offshore financial assets. According to the United Nation’s High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel), an estimated $7 trillion of the world’s private wealth is funneled through secrecy jurisdictions and haven countries.

Taking into account just one sub-type of illicit financial flows – corporate profit-shifting, or the shopping around for tax-free jurisdictions by multinational corporations – such practices cost countries where these profits are actually made on the order of $500bn to $650bn a year, according to some estimates. Turning to the illegal flows, as much as 2.7 per cent of the global GDP is laundered by criminals. In the same vein, bribery of all types across the world amounts to an estimated $1.5trn to $2trn every year.

While these opaque transactions occur in many countries, they have a much heavier impact on developing countries. These resources are of a scale that is unfathomable by ordinary citizens. Yet, the ordinary citizens stand to gain more from the recovery of these funds when financial integrity for sustainable development is realized.

It was in a bid to address these challenges, which prevailed long before the COVID-19 pandemic and economic crisis, that the 74th President of the United Nations General Assembly and the 75th President of the United Nations Economic and Social Council jointly appointed members of the High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel).

The UN Panel is co-chaired by former Prime Minister of Niger, Ibrahim Assane Mayaki and former President of Lithuania, Dalia Grybauskaitė.

Notable members of the Panel include: Chairman of Nigeria’s Independent Corrupt Practices and Other Related Offences Commission, Prof. Bolaji Owasanoye; Annet Wanyana Oguttu, Benedicte Schilbred Fasmer, Heidemarie Wieczorek-Zeul, Irene Ovonji-Odida, José Antonio Ocampo, Karim Daher, Magdalena Sepúlveda, Manorma Soeknandan, Shahid Hafiz Kardar, Susan Rose-Ackerman, Tarisa Watanagase, Thomas Stelzer, Yu Yongding and Yury Fedotov.

Towards combating illicit financial practices, corruption and creating avenue for sustainable development of countries, the FACTI Panel made 14 recommendations, of which financial integrity is key.

As part of its agenda to further raise awareness on its recommendations and map out strategies on the implementation of the FACTI Report towards combating illicit financial flows in Africa and beyond, the UN Panel held a virtual meeting with civil society organisations (CSOs) across Africa on Thursday, March 18.

The CSOs represented at the virtual meeting include: Alvin Mosioma of Tax Justice Network Africa (TJNA), Peter Kamalingin of Oxfam Africa, Alex Cobham of Tax Justice Network (TJN), Eva Joly of Independent Commission for the Reform of International Corporate Taxation (ICRICT), and Nimmo Elmi, African Centre for Tax and Governance (ACTG), among others.

Addressing the virtual meeting, a member of the Panel and ICPC Chairman, Prof. Bolaji Owasanoye emphasised the need for the CSOs to play an active role in the implementation of the FACTI recommendations towards combating illicit financial flows (IFFs) in Africa.

“The active participation of Civil Society would be vital to reinforce the urgent message to the United Nations Member States and all other stakeholders that transforming the global financial architecture to combat illicit financial flows is necessary to achieve the ambitious and transformative vision of the 2030 Agenda and shape our collective future for the better,” he said.

Owasanoye stated that illicit financial flows drained the resources of countries, pushed people into poverty and hampered efforts to tackle global challenges, including COVID-19 and the climate crisis. According to him, the FACTI Panel’s 14 recommendations cover broad areas such as accountability, legitimacy, transparency, fairness, enablers, non-state actors, international cooperation, dynamism, capacity building, national and global governance.

Financial integrity, according to the ICPC boss, is crucial to tackling the menace of corruption and illicit financial flows, adding that countries can better deliver peace and prosperity for the people now and into the future.

He said, “Building on decades of work by countries and the United Nations, the Panel has a blueprint to free the global economy from illicit financial practices and ultimately ensure sustainable development for all. Achieving financial integrity for sustainable development requires greater transparency, enhanced accountability and more cooperation at the national, regional and global levels, with all people contributing.”

Beyond tracking illicit financial flows, stopping the flows and returning the assets, the Panel recommended that the funds be used to finance the sustainable development goals. It stated that resources, instead of vanishing into offshore maze, could be used to benefit the people and places from which the funds were generated.

On accountability, members of the FACTI Panel advocated enactment of legislation to provide for the widest possible range of legal tools to pursue cross-border financial crimes, while also recommending that businesses should hold accountable all executives, staff and board members who foster or tolerate illicit financial flows in the name of their businesses.

In terms of legitimacy, the Panel recommended that international tax norms, particularly tax-transparency standards, should be established through an open and inclusive legal instrument with universal participation. To achieve this, it called on the international community to initiate a process for a United Nations Tax Convention.

On its recommendation in the area of transparency, the FACTI Report canvassed international anti-money-laundering standards that would enable all countries to create a centralised registry for holding beneficial ownership information on all legal vehicles. The standards are expected to encourage countries to make the information public, thereby improving tax transparency by having all private multinational entities publish accounting and financial information on a country-by-country basis.

In the area of fairness, the FACTI Panel recommended that taxpayers, especially multinational corporations, should pay their fair share of taxes. It called on the United Nations Tax Convention to provide for effective capital gains taxation, adding that this should be equitably applied on services delivered digitally. This would require taxing multinational corporations based on group global profit.

It further called for the creation of fairer rules and stronger incentives to combat tax competition, tax avoidance and tax evasion, starting with an agreement on a global minimum corporate tax.

With the recommendations by the FACTI Panel, the path forward is clear: to move past the threshold of transformation, towards achieving the Sustainable Development Goals. There is therefore the need for a conse nsus by the global community to squarely tackle illicit financial flows.

The governments can recommence the journey towards the visionary targets and goals set out in the 2030 Agenda for Sustainable Development by fostering financial integrity. The creation of financial integrity for sustainable development requires nothing less than transformation of the financial system, and it must proceed in parallel with the transformations being developed to address climate change and ensure sustainable investment. These transformations are the direct implication of the ambitious goals Member States have set for themselves in the 2030 Agenda.