In the wake of the FIFA scandal, David Cameron told G7 leaders yesterday that corruption is the arch-enemy of democracy and development. However, as exciting as it is to watch the great and corrupt toppled from their tainted thrones, exposure of the odd high profile case does little to fix systems that support and encourage this behaviour.
What the case of FIFA really needs to do is draw our attention to the financial systems that enable global corruption. FIFA officials could only thrive in a culture where illicit financial flows are an embarrassing footnote, not a focus of global condemnation – a world where tax havens, lax regulation, limited scrutiny of suspicious transactions and bafflingly complex accounting practices are considered normal, not unacceptable.
In the Making a Killing report launched today by Save the Children we look at another dimension of illicit financial flows (IFFs) – trade misinvoicing (trade fraud) and what the tax loss as result of this represents for countries with the highest levels of child mortality in terms of spending on essential health systems.
It gets to the heart of why illicit financial behaviour such as corporate tax dodging is fundamentally connected to our ambition to reduce to zero all preventable child deaths by 2030 and ensuring that as we move to a new era of sustainable development, no child is left behind.
While much has been made of the size of IFFs in countries such as China and India, our research suggests that the scale is no less shocking for low-income countries, where the impact is genuinely life-threatening. We calculated that sub-Saharan Africa is potentially losing $15 billion in tax a year as a result of tax dodging scams by companies – equivalent to the cost of 1.8 million desperately needed health workers in the region.
The recommendations we make to address tax dodging rightly focus on the role of the international community in taking action:
- greater transparency in company ownership and accounting practicesautomatic sharing of
- tax information between countries on a multi rather than bilateral basis
- increased capacity building for poor countries to strengthen their own systems
- and perhaps most importantly, a solid commitment to reducing IFFs globally by 50% by 2020 that can be measured and tracked.
At this point it’s easy to get lost in the technical jargon. But the logic behind these actions is remarkably simple. Remove the secrecy that encourages illicit practices to take place and support governments to detect and respond to problems where they arise.
Responsibility for leading on these actions has been recognised by the G7 before. In 2013 a declaration to address these issues and more was made, but follow-up action has been slow. Cameron, who led on this agenda, has since made steps towards setting up a registry of beneficial ownership in the UK. However, with only the lightest ‘encouragement’ to the 10 UK Crown Dependencies and Overseas Territories that serve as tax havens, the job is not even half done.
What is needed now is not a media-catching reframing of the issue to focus on corruption, but determined follow-through on actions that address the systems allowing it to proliferate.