Illicit financial flows and tax havens: The poor support the rich
When Raymond Baker first went to Nigeria in 1960 for work, he was surprised to find that many local businesses made no profit. He was even more surprised that management did not seem to worry about this. When Baker himself brought on a partner and bought a company that seemed to struggle financially, they were soon able to make profit.
-Was it because we were management geniuses? No, we made profit simply because we ran the business the way you are supposed to. It took me a while to realise that multinational companies and Africans were using trade strictly for the purpose of shifting money abroad, he says.
It was also clear to him that what he was seeing around the world was not what was being addressed in development circles.
Detrimental effects on development
At the conference ‘Lifting the veil of secrecy: Tax havens, capital flows and development countries’ organized by CMI and NHH in collaboration with Tax Justice Network earlier this week, Baker, the President of Global Financial Integrity was very clear on why illicit financial flows and tax evasion should be a crucial field of interest to researchers.
- Every year, 18 million people die from economic deprivation. That is 55 000 people every day. How many of these 55.000 people would have lived if money remained in their countries? How much more money would be available for health, education, infrastructure and development of the private sector? These are the questions we must be prepared to ask even if we cannot get accurate answers, says Baker.
Estimates on how much African countries lose each year because of illicit financial flows, tax havens and tax evasion vary. Critics of the numbers presented, argue that it is too hard to measure, and that such numbers at best only are vague estimates. But what is constant is the mind-baffling magnitude of any estimate. Raymond Baker argues that discussions about the accuracy of such measures take the attention away from the main issue.
-Illicit financial flows have to be grasped in order of its magnitude, not its exactitude, he says, adding that large sums stemming from the manipulation of trade and illegal activities do not show up in the data that organisations like Global Financial Integrity and others can access and use for analysis. What is clear though, is that the end result is negative for developing countries.
-Instead of the rich supporting the poor, our data shows that it is the opposite. The poor supports the rich, says Baker.
An uphill effort
Baker argues that the democratic capitalist system has failed, and that illicit financial flows and the use of tax havens are problems that need to be dealt with if capitalism is to survive.
-The primary threat to the democratic capitalist system does not come from corrupt governments or terrorists, but from us and our failure to operate the capitalist system legally and ethically. It is an uphill effort to do this entirely on moral and ethical grounds. To combat illicit financial flows and tax havens, we have to strengthen the laws that regulate the market, he says.
*The conference 'Lifting the Veil of Secrecy: Tax Havens, Capital Flows and Developing Countries (21-22 November) was organised by the Chr. Michelsen Institute (CMI) and the Norwegian School of Economics (NHH) in collaboration with Tax Justice Network Norway and the TaxCapDev-network with financial support from the Research Cpuncil of Norway.
*Senior researcher at CMI, Odd-Helge Fjeldstad, was central in organising the conference. His research project Taxation, institutions and participation (TIP), has fed directly into the conference, focusing on issues like the effects of tax havens on the domestic revenue system, institutions and citizen participation in African countries.
*The TIP-project aims to generate new, contextualized evidence on the political economy of domestic revenue mobilisation, institutional development and state legitimacy in countries exposed to large scale capital flows.