Money Laundering: the Darker Side of the World’s Offshore Financial System
NATIONS, Feb 26 2021 (IPS) – A sign outside a laundry in New York City had a
frivolously flippant slogan: “We launder dirty clothes, not dirty money.”
And a 2019 movie titled “Laundromat,” based on a book
‘Secrecy World’ by Pulitzer Prize winning author Jake Bernstein, exposed the
byzantine world of money laundering.
insidiously darker side of the world’s financial system – with millions of
dollars in ill-gotten gains finding safety in offshore banks– a crime
perpetrated on a global scale, says a High-Level Panel on International
Financial Accountability, Transparency and Integrity for Achieving the 2030
Ibrahim Mayaki, FACTI co-chair and former prime minister of
Niger points out closing loopholes that allow money laundering, corruption and
tax abuse and stopping wrongdoing by bankers, accountants and lawyers are steps
in transforming the global economy for the universal good.
In a report released February 25, the UN panel has called on
governments to agree to a Global Pact for Financial Integrity for Sustainable
The panel, comprising former world leaders, central bank
governors, business and civil society heads and academics, says as much as 2.7
percent of the global gross domestic product (GDP) is laundered annually, while
corporations shopping around for tax-free jurisdictions cost governments up to
$600 billion a year.
At a time when billionaires’ wealth soared by 27.5 percent,
even while 131 million people were pushed into poverty due to COVID-19, the
report says a tenth of the world’s wealth could be hidden in offshore financial
assets, preventing governments from collecting their fair share of taxes.
Recovering the annual loss to tax avoidance and evasion in
Bangladesh, for example, would allow the country to expand its social safety
net to 9 million more of the elderly; in Chad, it could pay for 38,000
classrooms, and in Germany, it could build 8000 wind turbines, according to the
Professor Kunal Sen, Director, UN University– World
Institute for Development Economics Research (UNU-WIDER), told IPS: “At a time
when developing countries are facing sharp declines in tax revenues due to the
economic crisis generated by the pandemic, it is imperative to find solutions
to the large losses to public exchequers due to illicit financial flows”
This is a key challenge to development, as provision of
crucial public services, such as education, healthcare, and infrastructure,
rely on states having money to spend, he pointed out.
“Global coordination of taxation policies, preferably led by
the G-7 (world’s industrialized) countries, that limit tax evasion and money
laundering is the need of the hour,” he noted.
James A. Paul, a former Executive Director at Global Policy
Forum, told IPS the new report by the UN High Level Panel is certainly welcome,
but there is reason to wonder where it will take us.
“It provides a devastating analysis of the corrupt global
financial system and how the financiers undermine well-being, fairness and
The report, he said, argues that the system’s architecture
and rules make sustainable development (and the UN’s 17 Sustainable Development
Goals) difficult, if not impossible to achieve.
“Those who have been critically following the global
financial system over the past few decades will not disagree, but they will
find little here that is truly new”, said Paul, author of “Of Foxes and
Chickens”—Oligarchy and Global Power in the UN Security Council.
He also pointed out that “It has been clear, then, for a
long time that the world’s richest families and nations are the primary
beneficiaries of this system, that they have a hammerlock on politics, and that
they have no intention of changing things in any fundamental way”.
In particular, the national leaders of this global
corruption mafia are nationals of the United States and the United Kingdom,
whose financial institutions and oligarchies are the world’s most powerful, he
“They have ruled the global financial system for a long time
and (in spite of declarations to the contrary) they are dead-set against
reforms that would increase “fairness,” “transparency,” and the other good
things the High-Level Panel seeks to promote,” said Paul.
This brings us to the dilemma of the UN– and its capacity to
analyze and to resolve the world’s most fundamental problems”.
However, he said the Presidents of the UN General Assembly
and the Economic and Social Council are to be congratulated for setting up this
Panel and for reminding us once again how the global oligarchy is practicing
corruption on a breathtaking and devastating scale.
The report’s authors are unable to go far enough, however.
This is no surprise.
“For we need something more fundamental — nothing less than
a roadmap towards a global democratic order, freed from the grip of the
financial oligarchy and guided at last by the needs and the will of the people
themselves… UN and its capacity to analyze and to resolve the world’s most
A former UN Secretary-General Kofi Annan, a national of
Ghana, once said that “billions of dollars of public funds continue to be
stashed away by some African leaders — even while roads are crumbling, health
systems are failing, school children have neither books nor desks nor teachers,
and phones do not work.”
Dr. Richard Ponzio, Senior Fellow and Director of the Global
Governance, Justice & Security Program at the Stimson Center in Washington,
D.C, told IPS that aside from eroding national tax bases and diverting funds
from critical public expenditure projects, tax abuse, corruption, and money
laundering help fuel insecurity in today’s hyperconnected global economy by
sustaining the work of criminal syndicates and international terrorists to the
detriment of global security and justice.
The recommended global pact for financial integrity for
sustainable development, he argued, should help extend the Financial Action
Task Force’s (created in 1989 by the G7 and later joined by a few dozen
countries) global reach in coordinating global anti–money laundering efforts.
In addition, more (especially non-OECD) countries should be
encouraged to participate in the OECD Declaration on Automatic Exchange of
Information (AEOI) in Tax Matters, which aims to increase banking transparency
and decrease tax evasion worldwide.
The AEOI standard—which benefits poor and rich nations
alike—makes it harder for money launderers to hide their proceeds and easier
for the victims of tax evasion to recover funds.
For developing countries to fully realize the benefits of
this new transparency, he said, the developed world and international
institutions should recognize and help overcome the financial and capacity
restraints that prevent less well-off countries from participating in a
multilateral regime for AEOI.
Simultaneously, developed and developing countries should
promote the transparency of corporate registries to prevent money launderers
from operating behind shell companies.
Paul told IPS that NGOs, both local and international, have
long been pointing out the staggering sums diverted from public treasuries by
banks and financial managers, aided by corrupt politicians and systematically
covered up by journalists, professors and other apologists.
The honest investigations have shown, among other things,
how taxes are avoided or evaded and how the richest individuals and companies
pay almost nothing in support of public projects and programs.
“This knowledge has deepened public distrust of governments
and it has led us into the present crisis of global authoritarianism, but it
has done little to change regulatory laws, improve the harvesting of taxes, or
reduce public corruption. If anything, the trend has been moving in the
Ponzio said the UN’s Guiding Principles on Business and
Human Rights and other corporate social responsibility standards can also
contribute to improving due diligence requirements to prevent or decrease
illicit financial flows (IFFs) in different economic sectors (including
financial, accounting, and legal).
He said participatory budgeting and a human rights approach
to budget monitoring can shine a spotlight on whether IFFs divert government
expenditure from promoting the public good.
Empowered with the right information, civil society
organizations, the media, and the general public can each play significant
roles in holding states, businesses, and facilitators (lawyers and accountants)
to their human rights obligations.
*UN Bureau Chief and Regional Director IPS North
America, has been covering the U.N. since the late 1970s. A former deputy
news editor of the Sri Lanka Daily News, he was a senior editorial writer on
the Hong Kong daily, The Standard. Thalif Deen is a former Director, Foreign
Military Markets at Defense Marketing Services (DMS); Senior Defense Analyst at
Forecast International; and military editor Middle East/Africa at Jane’s