Christian Aid has called on the UN and world leaders to stop “abusive” and “illicit financial flows” of money.
In a new report, the development agency and its partners say that money earned, transferred or used around the world illegally or by exploiting legal loopholes is robbing poor nations of revenues worth $416bn a year.
The ‘Trapped in Illicit Finance’ report was released as world leaders gathered at the UN General Assembly in New York for the High-Level Dialogue on Finance for Development.
Under current definitions, illicit financial flows include money that has been laundered or made through the drugs trade, tax evasion or by means of corruption.
The report challenges the governments of wealthier nations to go further in their definitions to encompass immoral or harmful flows of funds.
Lead author of the report Dr Matti Kohonen, Christian Aid’s Private Sector Principal Adviser, said that the lost revenue could be put towards the estimated $2.5tn of investment needed each year to help poorer countries achieve the sustainable development goals.
“It is a scandal that poorer nations are losing out on an astounding $416bn a year in public revenues,” he said.
“This is money that could help governments deliver much-needed services such as healthcare, education, homes, road and climate adaptation initiatives. It could also go a long way to plugging the funding gap for the sustainable development goals.
“These illicit financial flows harm people’s human rights and hinder their chances of living dignified, thriving lives. Put simply, the wealthy are bleeding the poor dry.”
He said that the “abuse” of economic rules had “been allowed to go unchallenged for too long” because many forms of illicit financial flows were actually legal.
“That’s we believe it is time governments of the global north stop insisting on a legalistic definition of illicit financial flows,” he said.
“We need to broaden the definition and shift towards a rights-based understanding. Because what matters is not whether flows of money or tax practices are legal, but whether they are abusive, harmful or limit governments’ ability to deliver on their human rights obligations.”
Jayati Ghosh, Professor of Economics at Jawaharlal Nehru University, New Delhi, said that governments were allowing companies and wealthy individuals to escape from paying their fair share of taxes because of legal loopholes and tax havens.
“Across the world, citizens who want their governments to implement policies to reduce inequalities, address climate change and looming ecological disaster, provide better public services and amenities, ensure social protection, generate quality employment and so on, are always confronted with one question: where is the money?” she said.
“We are constantly told that governments cannot afford the necessary expenditure; that running fiscal deficits will lead to financial chaos and crisis; and that raising taxes will simply drive away investment.
“So we are made to feel that our governments are effectively helpless in dealing with the multiple crises facing our societies and economies, and all we can do is turn to the private sector and appeal to their generosity and social conscience.
“But this is not just misleading; it is simply wrong. Governments are constrained in their resources because they tolerate widespread tax evasion and avoidance.”
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