Global Financial Integrity

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Tagged ‘Governance’

How Tax Abuse and Human Rights are More Closely Related Than You Think

Tax abuse leads to greater income inequality that can be seen in the contrast of slums and cities.

Tax abuse has a significantly negative effect on the enjoyment of human rights.

It is a large issue that is not often associated with humanitarian causes. Often tax abuse is perceived to only impact those on the extremes: the super rich and the miscellaneous rogues who run a money-laundering scheme out of their basements.

Yet secrecy jurisdictions, tax evasion, transfer pricing, and offshore bank accounts all contribute to increasing income inequality regardless of legality.  Such inequality skews political power, which then has an undeniable impact on the availability of basic human rights to food, water, and shelter.

Tax abuse is not simply a clandestine activity, rather it is also actively sanctioned by governments through secrecy jurisdictions and other moves such as corporately lobbied tax holidays, both of which contribute to increased inequality and deeper poverty. This then violate the principle that governments should maximize efforts to provide basic human rights.

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The Difficulty Of Addressing Governance Issues Underlying Illicit Financial Flows

A recent study at Global Financial Integrity (GFI) found that illicit financial flows from developing countries (henceforth emerging markets), which grew around 18 percent per annum since 2002 swelled up to  US$1 trillion in 2006. While the lack of prudent macroeconomic policies, political instability, and governance issues are major drivers of illicit flows, a subsequent study at GFI found that banking secrecy and  lack of regulatory oversight  facilitated the absorption of illicit flows in mainly Western financial institutions. Curtailing illicit flows must therefore involve both emerging market as well as developed countries to address the factors responsible for the generation and absorption of illicit funds.

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From Monetary To Fiscal Dominance: Implications For Illicit Financial Flows

Time is running short for recipient countries to curtail illicit financial outflows and for developed countries to implement stricter oversight of banks and offshore financial centers that absorb these flows. Developing countries cannot count on a continued increase in bilateral assistance to offset the erosion of real values through inflation let alone counteract the reduction in aid effectiveness due to unrecorded leakages of capital.

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