Biden’s democracy summit

One thing which emerged promising for the developing countries out of the “Democracy Summit” recently hosted by President Joe Biden is the US Treasury Secretary Janet Yellen’s acknowledgment that “there’s a good argument that right now, the best place to hide and launder ill-gotten gains is actually the United States where some states in the US allow for creation of shell companies without disclosing who really owns them.”

In the same context in 2016, in the wake of public revelation of the Panama Papers, President Barack Obama called for international tax reforms, describing the revelations as “important stuff and a huge problem”. He asserted: “The problem is that a lot of this stuff is legal, not illegal”. This leak forced the prime minister of Iceland to step aside from his office. David Cameron, the British prime minister defended his family’s tax arrangements, whereas Gianni Infantino, the then president of Fifa, denied any wrongdoing.

The next similar and recent disclosure is the Pandora Papers, a compendium of more than 12 million leaked documents that reveal the hidden, unethical and corrupt dealings of the global wealthy and elite, including prominent world leaders, politicians, corporate executives, celebrities, and billionaires.

There are around 40 tax havens around the globe of which 20 are top graded havens as per ranking of countries on two criteria: secrecy and global scale weight. They are spread across regions with nearly half of them located in Europe while the rest exist across the Americas and Asia. They include financial powerhouses like the US, Japan, British Overseas Territories or Crown Dependencies. None is located in developing economies.

Such a massive revelation, one after the other and the locations of safe tax havens on developed nations’ soil, proves beyond doubt that ill-gotten money from developing and mostly poor countries is flowing into affluent countries and directly or subvertly into their economies at the expense of developing nations’ economies.

One of the main reasons behind the economic and social backwardness of developing countries is corruption of its leaders and government functionaries and that the corrupt have means to park their money in safe tax havens provided to them by the developed nations. It is estimated that annually an amount of one trillion dollars flows from poorer developing countries to richer capitals and tax havens across the globe.

Ironically, there have been fewer voices by the leadership of developing countries against the abettors of this act providing safe heaven. This could be one reason that the developed nations don’t react more than condemning the act of tax evasion.

Prime Minister Imran Khan has been highlighting the issue at every available opportunity. In his address last October to World Leaders Summit Dialogue, organised by the United Nations Conference on Trade and Development (UNCTAD), he reiterated his concern over illicit money flows and the damage it is causing to the developing nations.

The USA has been in the lead to advance around the globe its commitment to democracy, human rights, ethnical business practices, acts against money laundering and similar global disciplinary compliance. It is now obligatory upon it to frame global laws which stop the flow of ill-gotten money from developing nations to developed nations.

(The writer is former President, Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2021