Monday, September 28, 2009

G20: ignoring the elephant, failing poor countries

The G20 communiqué contains many good things, and some serious disappointments. We have already commented on some. But there is more. Read the innocuous-looking paragraph 22 of the preamble which includes this:

"22. To take new steps to increase access to food, fuel and finance among the world’s poorest while clamping down on illicit outflows. "

This is unfortunate. They should not have talk about "outflows." Talk about "flows." This is tremendously important. Imagine how different this would look if they had written "clamping down on illicit inflows."

"Outflows," like the term "capital flight," points the finger at the country that is the victim of the illicit flows - the developing countries, in other words - whereas "flows" encompasses both the victim jurisdictions and those that actively seek and receive the dirty money -- not to mention the pinstripe infrastructure of lawyers, accountants and bankers that get rich by fostering and encouraging these flows. (Read more on this here.)

Focusing on "illicit outflows" is exactly like considering global financial imbalances, and then pointing the finger only at the surplus countries like China, and letting the United States, Britain, and other profligates off the hook.

The communiqué talks quite clearly about "global financial flows," not "global financial outflows." So why not "illicit flows?" There is a double standard here.

Paragraph 42 in the main text after the preamble dances around the elephant in the room even more overtly.

"As we increase the flow of capital to developing countries, we also need to prevent its illicit outflow. We will work with the World Bank’s Stolen Assets Recovery (StAR) program to secure the return of stolen assets to developing countries, and support other efforts to stem illicit outflows. We ask the FATF to help detect and deter the proceeds of corruption by prioritizing work to strengthen standards on customer due diligence, beneficial ownership and transparency. We note the principles of the Paris Declaration on Aid Effectiveness and the Accra Agenda for Action and will work to increase the transparency of international aid flows by 2010. We call for the adoption and enforcement of laws against transnational bribery, such as the OECD Anti-Bribery Convention, and the ratification by the G-20 of the UN Convention against Corruption (UNCAC) and the adoption during the third Conference of the Parties in Doha of an effective, transparent, and inclusive mechanism for the review of its implementation. We support voluntary participation in the Extractive Industries Transparency Initiative, which calls for regular public disclosure of payments by extractive industries to governments and reconciliation against recorded receipt of those funds by governments.

It talks about "outflows" in the form of "stolen assets" (this would be great if they classified evaded taxes as stolen assets -- which is exactly what they are -- but unfortunately this hasn't yet made it onto the international agenda). It talks about "proceeds of corruption" and about bribery, when only 3% of illicit flows is calculated to come from the proceeds of bribery; it talks about aid effectiveness (remember Raymond Baker's comment about how for every dollar we given in aid, we take back ten dollars in dirty money under the table;) it talks about the UN Convention on Corruption (UNCAC) which doesn't yet, but should, encompass tax evasion explicitly as corruption; and it focuses on the EITI, which is a positive but deeply flawed and limited voluntary initiative in the oil and mining sector. All of these things - stolen assets, corruption, the EITI and so on - are tremendously important. But to focus on them exclusively, while ignoring the bigger picture, is a mistake.

Where is the explicit mention of tax evasion and avoidance? Where is the mention of the responsibilities of several major rich countries in aiding and abetting illicit flows?

Having said that, paragraph 15 is more encouraging. It contains much unjustified self congratulation, but also some more welcome statements, such as

"We are committed to maintain the momentum in dealing with tax havens, money laundering, proceeds of corruption, terrorist financing, and prudential standards. . . . we stand ready to use countermeasures against tax havens from
March 2010."

As far as it goes, this helps. But, appallingly, there is no mention here, either -- or in the entire document -- of "tax evasion" or "tax avoidance" which constitute the real touchstones for reform in this area. Tackle those, and you automatically tackle the others that are mentioned - and not vice versa. By tying tax havens to these lesser problems, you ignore the more important stuff. We wonder which jurisdictions lobbied to have these words removed.

The next paragraph says this:

"We task the IMF to prepare a report for our next meeting with regard to the range of options countries have adopted or are considering as to how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system."

Interesting. Not entirely unwelcome, notwithstanding the IMF's tendency to be an extremely conservative force in these matters. But could this be a way of delaying deliberations on a much-discussed Tobin-style tax, or a financial transactions tax?

There are plenty of sensible things in the G20 communiqué, such as this:

"We call on our international accounting bodies to redouble their efforts to achieve a single set of high quality, global accounting standards within the context of their independent standard setting process, and complete their convergence project by June 2011. The International Accounting Standards Board’s (IASB) institutional framework should further enhance the involvement of various stakeholders."

Which is positive, though vague, and as Richard Murphy remarks:

"The International Accounting Standards Board has a long way to go. Their record with civil society on IFRS 8 is dire. Their refusal to recognise anyone but a provider of capital as a user of accounts is a flagrant breach of their public duty. Memo to the G20, from civil society: bring them into line."

All in all, some positive messages, mixed with major disappointments. We have a very, very long way to go. The world's leaders won't get there on their own. Civil society needs to push very hard.

Once again, the communiqué is here.


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