Curbing Illicit Financial Flows

2018 ◽  
Author(s):  
Xiaodon Liang
Keyword(s):  
Tax Evasion ◽  
Developing Economies ◽  
International System ◽  
Tax Avoidance ◽  
Incentive Structure ◽  
Global Finance ◽  
Tax Havens ◽  
Financial Flows ◽  
Playing Field ◽  
Illicit Financial Flows

Illicit financial flows (IFFs) drain state finances and economic vitality, with disproportionate impact on developing economies. IFFs—including money laundering, tax evasion, and tax avoidance—pose a transnational problem addressed so far through international regimes of coordination and cooperation. But meaningful reductions in IFFs require addressing the root of the problem: information asymmetries. Developed nations and tax havens know where money is hidden and profits are made, while developing nations do not. Since the international system of global finance creates the incentive structure and permissive environment for illicit flows, it is at this level that states must focus their policy-making attention. New information-sharing mechanisms, such as automatic exchange of tax information and public country-by-country tax reporting, can level the playing field and enable lower-income states to effectively address the IFF problem.

Addressing illicit financial flows in Africa

2016 ◽  
Vol 23 (4) ◽  
pp. 1074-1091 ◽  
Author(s):  
Bernd Otto Schlenther
Keyword(s):  
Money Laundering ◽  
Tax Evasion ◽  
Tax Avoidance ◽  
Medium Term ◽  
Profit Shifting ◽  
Financial Flows ◽  
Content Type ◽  
Priority Areas ◽  
Long Run ◽  
Illicit Financial Flows

Purpose This paper aims to identify the underlying key components of illicit financial flows (IFFs) and highlights the priority areas where government resources should be pooled under a whole of government approach to mitigate the risks posed by IFFs. These areas are tax avoidance and tax evasion (specifically intra-company profit shifting, investment and profit shifting within the extractive sector, fraud and beneficial ownership), anti-corruption measures, governance and accountability measures, anti-money laundering effectiveness and effectiveness in the detection of falsified customs declarations. Design/methodology/approach The concept of IFFs is emerging as an umbrella term for bringing together seemingly disconnected issues. The concept is ill-defined, but there are various identifiable components supporting the term IFF such as capital flight, corruption, money laundering, tax avoidance, tax havens and transfer pricing practices. The author identifies the key areas of concern through a literature review and recommends prioritization of short- to medium-term risk areas and long-term policy imperatives. Findings In the short- to medium-term, an effective “whole-of-government” approach should be based on uniform risk identification and prioritization between mandated government agencies and in the long run, it should be focused on building responsive and effective institutions through a process of good governance and effective taxation. Originality/value A large body of literature deals with “IFFs” and the “whole-of-government approach” as separate concepts. This paper draws on the existing literature and identifies priority areas for addressing IFFs, and, for these to be successful, they are entirely dependent on a whole-of-government approach – both in the short and long run.

scholarly journals Tax justice and the challenges of measuring illicit financial flows

2019 ◽  
pp. 103-114
Author(s):  
Richard Murphy
Keyword(s):  
Multinational Corporations ◽  
Multinational Corporation ◽  
Tax Avoidance ◽  
Accounting Standards ◽  
Tax Havens ◽  
Financial Flows ◽  
Corporation Tax ◽  
Illicit Financial Flows ◽  
Large Corporations ◽  
The Way

Multinational corporation tax avoidance is primarily about tax avoidance. That is, recording transactions in ways that are legal but which might not meet with the approval of the all the tax authorities who might be impacted by the way in which transactions are recorded are reported. This is most especially true of many transactions involving tax havens. The problem with tracing transactions recorded in these places has, however, been locating any data on them because if the accounting opacity that they create, which is also permitted by existing accounting standards for multinational corporations. Country-by-country reporting was created to tackle this opacity head-on by requiring that all large corporations report all their transactions wherever they might arise. The result could be far greater information on the illicit financial flows of major companies, or their potential elimination.

scholarly journals How Big Are Illicit Financial Flows?

2021 ◽  
pp. 75-88
Author(s):  
Joras Ferwerda ◽  
Brigitte Unger
Keyword(s):  
Money Laundering ◽  
Tax Evasion ◽  
Tax Avoidance ◽  
Financial Flows ◽  
Illicit Financial Flows ◽  
The Cost ◽  
Insight Into ◽  
Tax Regulation

In recent years several leaks have given us insight into how the wealthy and criminals hide their money. The boom of leaks has resulted in a ‘hot phase’ in tax regulation. As a result, the number of studies that want to measure illicit financial flows has also increased. This chapter tries to provide an overview of this booming new field. What do all these studies teach us about the seriousness and size of tax avoidance, tax evasion, and money laundering? What is precisely measured, and how? This chapter concludes that the term ‘Illicit Financial Flows’ has become a bit of a floating identifier, a name that is vague enough to be used for many different concepts but at the cost of losing its meaning. We argue that decomposing the problem of illicit financial flows and what each study aims to measure, might give more useful insights.

Who are our owners? Exploring the ownership links of businesses to identify illicit financial flows

2021 ◽  
pp. 147737082098036
Author(s):  
Alberto Aziani ◽  
Joras Ferwerda ◽  
Michele Riccardi
Keyword(s):  
Money Laundering ◽  
Tax Evasion ◽  
Economic Incentives ◽  
Tax Havens ◽  
Financial Flows ◽  
Holding Companies ◽  
Business Ownership ◽  
Cultural Proximity ◽  
Illicit Financial Flows ◽  
High Level

This article investigates the patterns of business ownership in Europe, using a unique dataset on the nationality of 28.7 million shareholders of companies registered in 41 European countries. By means of an exploratory multivariate analysis, it tests whether ownership links between different countries are driven exclusively by social and macroeconomic variables – such as trade or geographical or cultural proximity – or are also related to measures of financial secrecy, corruption and lack of compliance with anti-money laundering regulations. The results indicate that factors other than licit economic incentives explain the international ownership structure of European companies. European firms have an abnormal number (that is, above the predicted value) of owners from tax havens and countries with poor financial transparency, which may suggest the use of holding companies for money laundering and tax evasion and to conceal illicit financial flows. However, ceteris paribus, the number of owners is abnormal in countries where rule of law and the control of corruption are more effective, suggesting that a high level of corruption may be a cost in money laundering activities. The findings contribute to the current international debate on illicit financial flows – as framed by United Nations Sustainable Development Goal 16.4 – and can be used by public agencies and private actors to detect anomalies in business ownership and prevent potential financial crime schemes at corporate level.

scholarly journals Illicit financial flows and foreign direct investment in developing countries

2016 ◽  
Vol 6 (4) ◽  
pp. 442-447
Author(s):  
Emmanuel Innocents Edoun ◽  
Alexandre Essome Dipita ◽  
Dikgang Motsepe
Keyword(s):  
Foreign Direct Investment ◽  
Interest Rates ◽  
Tax Evasion ◽  
Local Governments ◽  
Direct Investment ◽  
Good Governance ◽  
Transfer Pricing ◽  
Developed Countries ◽  
Financial Flows ◽  
Illicit Financial Flows

Africa is facing a number of challenges that are negatively affecting socio-economic development at all levels of governments and local governments are expected to play a leading role for Africa’s development. One of these challenges are illicit financial flows that are perceived by many as a crime against Africa’s transformation. The continent is losing billions of dollars every year because of tax evasion, corruption and inappropriate transfer pricing and maladministration. With tax being one of Africa’s main sources of revenue, current and past researches revealed that, illicit financial flows (IFFs) cripple African Governments tax base as a results of capital outflows and lack of good governance. This situation obviously is a challenge for Africa’s development as governments struggle to finance structuring projects and this in turn compels these governments to seek funds from international organisations at very high interest rates. It is also important to reveal that Foreign Direct Investment (FDI) rapidly grew after the Second World War with the intention to maximize profit on investment in less developed countries and specifically in the African continent. In competing in Africa, most multinationals main objective is to pay less tax, make extensive profits and transfer the proceeds to their country of origin. This subsequently gave rise to illicit financial flows in Africa where the continent is losing billions of dollars. Past studies equally revealed that, Africa’s revenue could increase between 55 and 65%, if appropriate mechanisms of monitoring the flows were in place. This study therefore is based on the premise that, tax evasion, illicit financial flows, corruption and abusive transfers pricing are all factors that affect Africa’s development. Using appropriate method of inquiry, this study wants to demonstrate the presence of FDI’s in Africa as a modus operandi behind tax evasion. It also using the “Appropriability Theory” to explain the rationale for FDI in Africa.

How Countries Should Share Tax Information

2019 ◽  
pp. 303-322
Author(s):  
Arthur J. Cockfield
Keyword(s):  
Human Rights ◽  
Transaction Costs ◽  
Tax Evasion ◽  
Academic Support ◽  
Tax Planning ◽  
High Quality ◽  
Financial Flows ◽  
Optimal Outcomes ◽  
Illicit Financial Flows ◽  
International Tax

This chapter looks at exchange of information (EOI) policies, proposing several ways to make EOI policies fairer and more efficient, so as to maximize their potential to reduce illicit financial flows and curb abusive tax practices that undermine human rights. While there appears increasing policy and academic support for EOI initiatives that promote global financial transparency, the current international tax regime, with its high transaction costs for taxpayers and tax authorities, does not seem particularly amenable to producing optimal outcomes. The chapter then emphasizes how, to promote enforceability, the ideal EOI system delivers high-quality tax information while providing needed legal protections for taxpayer privacy. The exchange and usage of high-quality tax information would reduce transaction costs for tax authorities as they could more readily identify taxpayers engaged in offshore tax evasion and aggressive international tax planning.

Impediments affecting the curbing of illicit financial flows of organised crime in developing economies

2019 ◽  
Vol 26 (1) ◽  
pp. 5-21 ◽  
Author(s):  
Emmanuel Sotande
Keyword(s):  
Developing Countries ◽  
Developing Economies ◽  
Task Force ◽  
Organised Crime ◽  
Policy Implications ◽  
Periodic Review ◽  
Financial Flows ◽  
Content Type ◽  
Serious Crime ◽  
Illicit Financial Flows

Purpose The purpose of this paper is to examine the treats hindering war against illicit financial flows of organised crime in developing economies and Nigeria in particular. The examination shows that the impediments facing the fight against money laundering and organised crime financial flows vary from one country to another. It may be lesser in developed economies where most instruments, treaties and best practice recommendations to curb serious crime originated from. However, the impediments against the proceeds of organised crime in developing economies are overwhelming. Design/methodology/approach The research methodology adopted was qualitative analysis. This was applied through the use and analysis of documents and expert interviews. Findings The impediments jeopardising the success against organised crime and other related serious crime financial flows in developing economies are devastating. Consequently, the study offered some policy implications to help mitigate these impediments in developing countries. The dynamics and the phenomena of organised crime business model are operated with ingenious strategies within the global states. Therefore, staying in control of the menace and the threats originated from the organised criminal activities would require periodic review of the global initiatives, standards and strategies deployed by the standard setters to combat organised crime and its financial flows in developing and evolving economies. Additionally, the implementing countries should be carried along and allow to make inputs when such initiatives and standards are being developed. Social implications In Nigeria, there is a clear evidence of “collateral damage” in terms of social justice as result of financial exclusion of many bankable adults of the country that do not possess unique identities for account opening documentation and customer due diligence of the Financial Action Task Force recommendation 10. Originality/value There have been quite a number of studies on organised crime and still fewer have recognised the need to explore the success or failure of combating the proceeds of crime in developing economies. This study provides answer to these gaps by screening associated risks of fighting the proceeds of organised crime in developing countries and Nigeria in particular.

Countering Harmful Tax Practices

2020 ◽  
pp. 49-65
Author(s):  
Lukas Hakelberg
Keyword(s):  
Tax Evasion ◽  
Financial Stability ◽  
Tax Avoidance ◽  
Clinton Administration ◽  
The United States ◽  
Business Associations ◽  
Perceived Fairness ◽  
Tax Havens ◽  
The Us ◽  
The Impact

This chapter shows that the Clinton administration promoted an international campaign against underregulated financial centers. It did so because it was concerned about the impact of tax havens on the perceived fairness of the US tax system, international financial stability, and the US sanctions regime. The Organisation for Economic Co-operation and Development (OECD), however, made the strategic mistake to tackle tax evasion by individuals and tax avoidance by multinationals in a single project, creating opposition from business associations in the United States and elsewhere. Instead of credibly linking noncompliance with OECD recommendations to economic sanctions, the Clinton administration thus accepted the severe dilution of the harmful tax competition initiative's anti-avoidance elements even before the Bush administration took office in 2001. A nested comparison of two unilateral tax initiatives moreover reveals that the Clinton administration generally failed to pass regulations curbing tax avoidance but succeeded in passing regulations against tax evasion.

The regime against money laundering: a call for scientific modelling

2018 ◽  
Vol 21 (4) ◽  
pp. 584-593 ◽  
Author(s):  
Emmanuel Sotande
Keyword(s):  
Money Laundering ◽  
Design Methodology ◽  
Developing Economies ◽  
International Standards ◽  
Dark Side ◽  
Financial Flows ◽  
Content Type ◽  
Illicit Financial Flows ◽  
Scientific Modelling ◽  
Combat Money Laundering

PurposeThe purpose of this paper is to examine the magnitude of the global problem of money laundering and the scholarly critics of money laundering concept. The paper further explores the scientific modelling to combat money laundering transactions.Design/methodology/approachThe research methodology adopted was qualitative analysis. This was applied through the use and analysis of documents and expert interviews.FindingsThe paper reveals how the global displacement on the fight against money laundering is being determined by “attractiveness index”. This attractiveness index is the dark side affecting anti-money laundering (AML) concept within developing economies. The critics of the AML accounts for major discrepancies associated with the context of the term AML regimes and international standards to combat illicit financial flows.Social implicationsThe regimes against money laundering compel countries to adopt the same recommendations and standards and were not given opportunity to proffer their own creative alternatives within their own circumstances.Originality/valueThe paper suggests AML Transaction Validation Model in the quest to combat illicit financial flows originated from organized and serious crime within the global jurisdictions.

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