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Illicit Financial Flows

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by

Martin Hearson

on 2 October 2012

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Transcript of Illicit Financial Flows

An introduction to illicit financial flows and their impact on developing countries Problems Solutions Licit source of income Illicit source of income Legitimate business
earnings Drug trafficking Bribery Corruption Domestic tax evasion Illicit financial flows Revenue authority Financial intelligence
unit Institution building Conventions International cooperation Standards & Conventions UN Convention Against Corruption OECD anti-bribery convention Bilateral treaty
or MoU Regional or global multilateral convention Bilateral tax convention or agreement Financial Action Task Force Global Forum on Transparency and Exchange of Information enforcement International
tax dodging Money
laundering International
tax dodging Money
laundering Extractive industry Financial transparency Access to financial Country-by- payments to govts Extractive Industry Transparency Initiative Listings rules (US: Dodd Frank. EU: transparency directive) Beneficial Tax concession Government loses public funds Capital flight reduces private funds for investment Investor confidence & taxpaying culture undermined IFFs damage development IFFs can originate from licit as well as illicit activities Secrecy jurisdictions help conceal the existence of the proceeds of corruption and tax evasion Tax planning complies with the law.
Tax avoidance follows the letter of the law but not the intention behind it.
Tax evasion breaks the law. It is not always possible to draw clear lines between them, nor to draw a clear distinction between
"licit" and "illicit" For example, tax avoidance that takes advantage of weak institutional capacity in a developing country might be illicit. This demonstrates that the political economy of institutions is crucial to IFF For more information, see the U4 brief “An introduction to illicit financial flows and their impact on developing countries” available at www.u4.no Identifies and investigates suspicious financial transactions Collects taxes and investigates non-compliance Provide legal authority for cross-border cooperation between financial intelligence units and obligation to comply with information requests Provide legal authority for cross-border cooperation between revenue authorities and obligation to comply with requests for information Sets standards for financial institutions and monitors jurisdictions' compliance with them, to help reduce secrecy that hides proceeds of corruption Standards & enforcement Monitors jurisdictions' compliance with tax information exchange standards set by the OECD, to help reduce secrecy that hides tax evasion Mandates global disclosure by governments andcompanies in member countries (EITI) and companies listed on stock exchanges (listings rules) to help identify bribery and misappropriation of payments ownership Allows investigators to identify beneficiaries of financial vehicles (companies, trusts) Allows public scrutiny of companies' tax affairs Allows public scrutiny of companies' tax affairs Allows public scrutiny of deals between businesses and governments reports country reporting transparency
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