Amnesty scheme —chances of its success

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Situtioner

M. Ziauddin

The corrupt don’t like paper trails, they like secrecy. What better way to hide corrupt activity than with a secret company or trust as a front? The G20 adopted Beneficial Ownership Principles in 2014 to tackle the problem. Transparency International’s new report shows that some progress has been made, but that the pace of change is too slow – and the G20 countries are suffering for it.
Still, while the global environment is turning fairly hostile towards tainted money stashed in off-shore safe havens thanks to the publication of Panama Papers in April 2016 the High Level Principles adopted by G20 leaders earlier this month has further improved the chances of the success of the amnesty scheme announced by government of Pakistan on April 5 this year.
The High Level Principles on Beneficial Ownership Transparency adopted by G20 leaders in Brisbane earlier in April has declared a high priority “financial transparency”, in particular the transparency of beneficial ownership of legal persons.
That they have been adopted is a good start.
To bring a set of countries as diverse in political and economic leanings as Australia, India, Mexico, Saudi Arabia, South Africa and the UK to agreement on an issue as sensitive as making it harder for individuals to hide behind secret companies, especially when corrupt public officials may be involved, is a tremendous challenge.
The G8 adopted Beneficial Ownership Principles last year under David Cameron’s leadership. Those principles have certainly informed these G20 principles but the diplomatic efforts required to scale up so quickly from eight to 20 members must be congratulated, not least with late reservations from China.
The principles state that countries should ensure that law enforcement, tax authorities and other “competent authorities” have access to information in a “timely” manner to follow dirty money trails. They “could implement this, for example, through central registries of beneficial ownership of legal persons or other appropriate mechanisms”.
It is disappointing, according to Transparency International that the word “public” is missing from the central registries – after all, it is regrettably only a suggestion, not a full commitment. Public registries would, of course, be a method that would produce the most timely access of this information to all relevant authorities and other stakeholders, including in other jurisdictions trying to follow the money trail. Public registers would strip the veil of secrecy from those abusing corporate entities.
One G20 principle that is a new addition to those adopted by the G8 last year is a commitment to “identify high-risk sectors, and enhanced due diligence could be appropriately considered for such sectors”. TI hopes that within this framework, additional attention can be placed on looking at the luxury goods sector and real estate which allows the corrupt to enjoy lavish lifestyles, as well as accountants and lawyers who make it happen. TI said it would prefer that once the high-risk sectors are identified, enhanced due diligence “will be applied” as opposed to “could be considered”.There are many instances, TI said, in the new principles where ambiguous wording could provide camouflage for inaction. According to TI this wording needs to be tightened up – if not in G20 statements then at least in national level legislation and policy.
According to the principles, authorities should have “timely” access to beneficial ownership information in order to do their due diligence. But why not “direct” or “automatic” access, asks TI?
In one principle “countries should require financial institutions and DNFBPs [Designated Non-Financial Businesses and Professions, such as lawyers, accountants and real estate], including trust and company service providers, to identify and take reasonable measures … to verify the beneficial ownership of their customers.” Yet the next clause states that countries should only “consider facilitating access” to that information. One way to facilitate access, according to TI, is to make this information automatically and freely available – preferably through a public register.
G20 countries are being asked to “ensure that their national authorities cooperate effectively domestically and internationally” and exchange information “with international counterparts in a timely and effective manner”. Cross-border corruption, in the opinion of TI, by its very nature requires good cooperation. Therefore, the Ti believes the G20 being one of the major forums can help bring this about.
This year has seen unprecedented unanimity from a range of actors on the need for enhanced beneficial ownership transparency. Each of the official G20 engagement groups called for beneficial ownership transparency within their priority recommendations. TI made a call for G20 countries to adopt public registries containing beneficial ownership information in their key recommendations. The Business 20 called for G20 governments to “endorse the G8 core principles around transparency of ownership and control of companies and legal arrangements”.
In addition, an Open Letter to G20 Leaders coordinated by Transparency International and signed by 25 global civil society, anti-corruption and religious leaders called on G20 leaders to adopt public registries of beneficial ownership. The signatories included two Nobel Peace Prize Laureates, Archbishop Desmond Tutu and Tawakkol Karman, as well as the heads of Transparency International, Global Witness, Global Financial Integrity, Amnesty International, Oxfam, Care International and others.
Australia should feel pleased that it managed to bring all G20 members to a common agreement on action they need to take to make it harder to for the corrupt to hide behind secret companies. There is restlessness amongst civil society for better, stronger, more ambitious commitments and actions. But a key point is that these new High Level Principles bring all countries on to one page. It’s now down to pressure at the domestic level to have these principles adopted and strengthened back on a national level.
It is important that the Brisbane G20 Summit is a success. This is not just a matter of Australian pride. An increasingly integrated world needs an effective forum for international economic cooperation, especially in areas such as international tax, trade, globally operating financial institutions and climate change. Australia must deliver a summit in which the G20 is seen to be serving that role.
The G20 leaders can overcome political roadblocks and provide high-level strategic leadership to ensure that international economic institutions, such as the IMF, World Bank and WTO can meet the needs of an increasingly integrated global economy.
The G20 leaders need to show that they intend to act on their commitments by inviting international economic organisations to monitor the implementation of each member’s required reforms and the group’s overall progress in meeting the 2 per cent growth target. The Summit must concentrate on the future of the international trading system. The summit will need to demonstrate progress in ensuring that international tax laws are adjusting to the challenges of globally operating businesses.
OPEN LETTER TO G20 LEADERS
When a global financial system allows billions of dollars of corrupt or stolen money to flow unchecked around the globe, something is wrong. When financial secrecy helps strip Africa of US$50 billion each year, something is wrong. When the poor of this world see the wealth of their countries slip beyond their borders, something must be done.
That’s our message to you, as G20 leaders: when you take stock in November of the health of the world’s financial system, you must address the flaws that still allow the corrupt to operate with impunity and siphon off tainted monies. In your drive to achieve a target of 2% collective growth in GDP above trend, you must remember that growth must be inclusive and sustainable and not leave anyone behind. At the Brisbane Summit you must put people at the centre of your decision-making.
As long as there are places in the global financial system where illicit financial flows can find a safe harbour and there are people to help hide these funds there will be millions more around the world who suffer. You, the leaders of the world’s largest economies must make the global financial system serve its citizens.
At least one trillion dollars is siphoned from developing countries each year. The perpetrators of this “trillion dollar scandal” are rarely found, nor challenged. The UN estimates that global detection rates of illicit funds by law enforcement are as low as 1 per cent. However, there are common-sense ways to make it harder for criminals to hide the proceeds of their crimes. You have already done some of the heavy lifting.
The G20 has declared that shedding light on corporate ownership is a priority. Today anonymous companies, secrecy jurisdictions and opaque corporate ownership structures represent the primary methods used by those who are corrupt or evading tax to shift their funds and mask their identity. G20 governments must collect and publish the identity of the real, living people who ultimately own and control companies and other legal entities to make it easier to track the origin of corrupt or illicit funds. You as G20 leaders could take a bold step to unmask the corrupt by pledging to do this in Brisbane.
The G20 has agreed that profits should be taxed “where economic activities occur and value is created” to ensure that countries, especially developing countries do not lose out on the wealth of their resources and the graft of their people. It is crucial that multinational companies are more transparent about their operations. They should publish information about revenue, profits, numbers of staff, tax liabilities and taxes paid on a country-by-country basis. This needs to be public for citizens to see the impact of companies in their communities and to make it easier to scrutinise where money is earned and where it may be going missing.
Opacity in the global financial system serves as a smokescreen to hide crime and corruption but the G20 has the opportunity to shine a light and make it harder to hide. Lest we forget: the primary victims of organized crime, corruption, and tax evasion or avoidance are the poorest citizens of the world. Put people at the heart of your decisions in Brisbane next week.

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