On 28 February in the Financial Times, Martin Sandhu writes about the need to “clean up global finance” citing two recent reports. He notes further that “(a)ccording to (one) report, the world’s governments lose more than half a trillion dollars annually to tax manoeuvres that circumvent the intentions of legislatures by exploiting loopholes and discrepancies in the law.” Clearly these are resources that are needed as governments seek to address economic consequences of the COVID-19 crisis.
The first report Sandhu cites is form a UN High-Level Panel on International Financial Accountability, Transparency and Integrity. Their report was issued on 25 February. In this report’s Executive Summary, the key conclusions can be found in this paragraph: “Illicit financial flows (IFFs) — from tax abuse, cross-border corruption, and transnational financial crime — drain resources from sustainable development . They worsen inequalities, fuel instability, undermine governance, and damage public trust . Ultimately, they contribute to States not being able to fulfil their human rights obligations.”
Whilst not directly mentioning banks, specific comments are certainly directed towards the role of banks in the international financial flows:
- The global financial system must be reformed, redesigned and revitalised so that it conforms to four values – accountability, legitimacy, transparency, and fairness.
- Policies shaping the global financial system and furthering financial integrity must be redesigned to adhere to the values of accountability, legitimacy, transparency and fairness.
- Enablers should be held accountable to agreed standards; the media should be protected; and civil society should be included in policy-making.
The second report cited was issued by the Center for American Progress. It includes a preface endorsed key legislative leaders from the US, the UK and the EU:
- Sen. Robert Menendez, Chairman, U.S. Senate Foreign Relations Committee
- Tom Tugendhat MP, Chairman, U.K. Foreign Affairs Committee, and
- David McAllister MEP, Chairman, EU Parliament Committee on Foreign Affairs
The key conclusions can be found in this paragraph from the Executive Summary: “The emergence of kleptocracy as a threat to global democracy has occurred in tandem with the growth of poorly regulated and ungoverned spaces in the global financial sys- tem, which in turn has birthed a shadow economy that now contains immense flows of anonymous wealth. The rise of financial secrecy has enabled the “globalization” of corruption, empowering kleptocratic states and actors on the world stage by offering them new tools and access to foreign markets. This trend toward globalized corruption has been enabled in crucial part by regulatory asymmetries among key international economic actors and a lack of resources and political will in law enforcement.”
From both of these reports it is clear that the role of banks, especially large international banks, will and should be under scrutiny for their role in facilitating flows of funds of a dubious nature. As with KYC and AML regulations, banks will need to look at their practices and more importantly their cultures to ensure they are not contributing to a problem but rather are part of the solution.
