TWN  |  THIRD WORLD ECONOMICS |  ARCHIVE
THIRD WORLD ECONOMICS

Ecuador focuses on new UN tax body to fight illicit financial flows

Ecuadoran Foreign Minister Guillaume Long speaks with Inter Press Service’s Tharanga Yakupitiyage about the need to curb international tax dodging and about his country’s initiatives on this front as chair of the developing-country Group of 77.

NEW YORK: The time is now to work together to fight illicit financial flows, according to Ecuador’s Foreign Minister Guillaume Long.

Ecuador, having long advocated for tax justice, has shed light on the issue at the United Nations. With his country being the current chair of the Group of 77, Long highlighted the need to end the financial secrecy of tax havens that often harm developing countries and to create an intergovernmental body to help regulate taxation and financial flows.

In an interview with Inter Press Service (IPS), Long explains the issues, challenges and goals in achieving tax justice.

Q: The President of the UN General Assembly said that financing to meet the Sustainable Development Goals (SDGs) is going to take $6 trillion annually and $30 trillion through 2030. Do you think much-needed finances will be made available if the current rate of illicit financial flows is curbed?

A: I think it’s huge what you can get from curbing illicit flows and basically from tax dodging or tax evasion. In the case of Ecuador, we calculated that an approximate amount of $30 billion is held in tax havens.

Just so you get a general idea of what that means, Ecuador’s gross domestic product (GDP) is roughly around $100 billion, so $30 billion means almost a third of our GDP. Most countries struggle to grow, but here you’ve got 30% of GDP literally being robbed from us in tax havens. That means less investment, less dynamism in the economy, less creation of jobs and also less taxes – it’s those taxes that are used for public policies to reduce poverty, reduce inequality and create much-needed infrastructure.

There have been estimates that public infrastructure that is needed right now in the developing world is roughly $1.5 trillion. This includes hospitals, schools – the kind of infrastructure that the developing world needs to reduce huge rates of inequality and poverty, and some of the things we are trying to amend through, for example, the SDGs. And that’s only probably about 15% of illegal assets held abroad in tax havens and various offshore accounts.

[Curbing illicit financial flows] could revolutionize and dramatically transform the story and history of development. And it would certainly be one of the best sources of financing for development, which is the big thing.

Now that we have come to an agreement on the 2030 [Sustainable Development] Goals and what it is that we want to do, the next question is: how do we do this? And we have to do this with resources. Some resources are available to us, but many others aren’t and this is basically through tax dodging.

This is also fundamentally a practice that is carried out by elites and therefore it also means that you get greater rates of inequality. In a continent or a region like Latin America, if you do a per capita average, then it is the middle class, but we know that averages hide huge disparities and Latin America is actually the most unequal region in the world, and a lot of that has to do with elites not being a willing part of the social contract. And a major aspect of the social contract is taxation and not participating in tax dodging.

Q: How much does the developing world, particularly Africa, Asia and Latin America, lose to illicit financial flows?

A: There are huge numbers that are being reported. Oxfam talks of $7.6 trillion in tax dodging – I’m not even talking about illicit financial flows, not even talking about offshore accounts, I’m talking about $7.6 trillion in tax dodging.

This is why Ecuador has taken this issue so seriously. We’ve been talking about tax havens and tax avoidance for years, particularly in this government in the last 10 years with the presidency of Rafael Correa. But after the Panama Papers scandal last year, President Correa really launched this as his priority and as a major crusade. He even launched what he called an “Ethical Pact” which included a referendum in Ecuador to ban civil servants and elected officials from holding assets in tax havens. If you are found to hold assets in tax havens, you can be removed from office automatically.

I really think Ecuador is one of the countries, if not the country in the world, that’s done the most. This referendum, which was successful in terms of its results, is an example to the world. And I think Ecuador has been the most proactive country in the year that’s transpired since the revelations of the Panama Papers in taking concrete and bold steps.

Another major thing that we have been doing on the international front is from our [chairmanship] of the G77. We have pushed for the creation of an intergovernmental body on tax justice. We had a workshop this morning which was co-chaired by Ecuador, India and South Africa with huge participation exactly on this issue.

There is an opportunity – now that the issue is back at the forefront of the media, it means that we have to maximize that opportunity to try and create mechanisms, particularly inside the United Nations, that fight tax dodging. [This issue] we can deal with if we have the right tools and institutions to fight that.

Q: What are your thoughts on public disclosures on tax havens like the Panama Papers? Is that something that is needed more in order to increase transparency and action on tax havens?

A: Whistleblowing plays an important role. When information is public and people find out about these things, if their politicians have been hiding money and fog them – most politicians have a very patriotic discourse saying they’re going to create jobs and economic activity and bring foreign investment. But surely there is a paradox and a contradiction if you are saying “vote for me because I’ll bring loads of foreign investment into the country” and then on the other hand you’ve got all your personal assets hidden away somewhere without paying taxes. I think when those contradictions and lies – and I would use the word “robbery” especially if you are dodging taxes – are exposed, then that’s a good thing. It creates greater consciousness.

I think this is a time of great opportunity because since the Panama Papers scandal, a lot of countries that could be considered to be tax havens are starting to take measures because they are under increasing pressure by people and by countries like Ecuador and other countries to do something about it.

The fact that we are having this debate today and the fact that I am talking to you is not necessarily in the tax havens’ interest because it brings the spotlight onto their activities, so generally speaking, those kinds of public disclosures are a very important part of creating a general awareness that this must stop.

There are a lot of double standards too. On the one hand, developing countries are under pressure for all sorts of things: they’ve got to grow, they’ve got to be good economically, they’ve got to guarantee human rights – all of these things which we absolutely abide by and are very committed to. But surely there is a contradiction with having to do that and then, on the other hand, all of these countries that are kind of sermonizing to the rest of the world from their civilizational pedestal are reaping the benefits of all the crony and corrupt elites of the developing countries depositing their money in these bank accounts without paying taxes.

So there’s a hypocrisy there that has to be exposed. And if these public disclosures can help to do that, then so be it.

Q: Has there been any progress since the UN Economic and Social Council (ECOSOC)’s adoption of the UN Code of Conduct on Cooperation in Combating International Tax Evasion?

A: That was a very important step. It was the first piece of important legislation and regulatory result that came out of the Committee of Experts in a long time. So we are seeing progress, though still not enough, but still progress. And that has to do with [it being] back on the agenda.

Now there is a new step, which I think is very important, that the [UN] Secretary-General from June onwards is going to be naming the members of the Committee of Experts. So that’s also a positive development because it obviously raises the stakes and gives it more political clout.

Ecuador’s position is that we celebrate that the Committee of Experts was created with largely the fruit of debate that goes back to Monterrey [where the first International Conference on Financing for Development was held] in 2002. But now we think that the Committee of Experts is insufficient and that we need something else. We need something with more clout, with more accountability, with more relation with the United Nations system itself and the governmental nature of this organization.

You have it in other spheres – if you look at trade, the World Trade Organization is a regulatory body at the highest level for trade, while the World Intellectual Property Organization is a regulatory body for intellectual property at the highest level. Those institutions exist because it is in the interest of big capital that they should exist. Big capital is in favour of free trade and if a country stands in the way of free trade, then you get reprimanded. But it’s not necessarily in the interest of big capital to have the equivalent in the field of taxation.

This is an important concept that we should bear in mind. A lot of the institutions of global governance that we have inherited respond to specific interests and not always to the interests of the most powerless in society. They respond to the interests of the most powerful in society.

And why should trade be more important than taxation? Probably in terms of redistribution, taxation is more important than trade. Nobody is saying that trade isn’t important for the overall accumulation of wealth of different countries, but in terms of redistribution and in terms of capacity of the state to work towards the 2030 Agenda [for Sustainable Development], then surely [taxation] plays a huge role.

It is great that we are getting closer but it is frustrating that we are still talking about a fight in order to create an institution that will then dedicate itself to fighting for a greater outcome which is tax justice. We are not even fighting for tax justice, we are fighting for the right to have the corresponding institutions just like you have them in the fields of trade and intellectual property and others.

Q: Are you proposing a new UN tax body or are you hoping to transform the Committee of Experts into an intergovernmental body?

A: We are looking to transform the Committee of Experts but we are very open to different kinds of formats. We are trying to create consensus [...] – I mean, we preside over the G77 which is 134 nations, so creating consensus between 134 nations is already a tall order – but at the end of the day, we are actually trying to create consensus between 193 nations of the United Nations and that includes tax havens, countries that have been a little pro-status quo particularly in the OECD [the rich-country Organization for Economic Cooperation and Development], and a lot of countries that are not in the G77.

So we are open to all sorts of different outcomes. We just want to raise the hierarchy, the political clout, the visibility, the strength of the body. There are a number of initiatives. Some people have talked about keeping it within the ECOSOC while others want to elevate it to the General Assembly – there’s a huge debate within the G77 about it.

But there is consensus between 134 nations of the G77 that it should be an intergovernmental body. And that’s something that we are trying to, through our presidency, express the will of the nations that are members of our group.

Q: How feasible is the proposal for an intergovernmental body for approval by the General Assembly?

A: I think multilateralism is a slow process always. I think we are getting closer. And I think that the big conference on financing for development in the next few weeks should make significant progress. I think we will find that there is much more consensus than there was in Addis Ababa [where the third International Conference on Financing for Development was held] in 2015.

Most countries from the Global South have these discussions about tax justice and the right to development. But a number of countries from the G20 [grouping of the world’s major economies] or OECD or more industrialized countries have also started to be flexible in their position. We are seeing changes. In the workshop we had today, which would have been unthinkable a few years ago, we had loads of tax havens present. Not just tax havens that are blacklisted in the Global South by the Global North but tax havens from Europe and from other parts of the world. And they were there because they want to listen in on the debate, which shows that at least they are concerned or interested, and some of them actually spoke out and said they are making changes and showing a greater commitment.

There is another major thing, which is the securitization of the issue. For some countries, [the issue] of terrorism is a big thing. Where do terrorists hide their money? Well, increasingly in constituencies that enjoy banking secrecy and those tend to be tax havens. If we can all at least agree on the outcome, which is greater accountability and greater regulations on that matter, even if it is for different reasons, it’s about consensus building and that’s what multilateralism is about.

Q: So would this proposed UN tax body help bring such international cooperation in tackling illicit financial flows?

A: That’s exactly right. It’s not just about naming and shaming tax havens. If suddenly you have two neighbouring countries in a European setting, even if they are developed countries, and they start this kind of taxation war by lowering their taxes in order to try to suck capital and investment out of each other in this kind of race to the bottom, then a [UN tax] body like that should be able to intervene and make at least the right recommendations.

Whether those recommendations become compulsory, then that’s another debate, but it should be a body like you have in other fields that has the capacity to make clear recommendations.

Q: Have you faced or expect to face opposition for this proposal, especially from the Global North?

A: For sure. The G77 has been facing – basically [the position] I am presenting to you is not a new position, the position has been going on for decades and there has been clear language on behalf of the G77.

It is interesting because within the G77, you actually have tax havens as well. But even those tax havens have accepted that an intergovernmental body, which doesn’t exclude them, is quite a good measure if you want to have a serious debate and discussion between member states on this issue.

This has been the position of the G77 which has been resisted for decades. There [have] been loads of opposition. We saw it in Addis Ababa, particularly [from] members of the G7 [leading industrialized countries] or the G20 and lots of opposition from the OECD countries and opposition from countries that are not always considered to be tax havens in the kind of stereotypical manner.

Countries like the United Kingdom have been opposed to this very much, not only because of its own policies but also because of what are euphemistically called non-autonomous territories. The five biggest tax havens, in relative terms of the offshore assets per GDP index, are non-autonomous territories and four of the five are British while one is [American]. They are not sovereign nations and they are not members of the United Nations. That’s an important issue and it’s not surprising that there is opposition when we are trying to move away from this.

The Panama Papers singled out Panama and actually Panama is making quite significant efforts to move away from that image. We are very happy to see them move away from such practices but actually, Panama is not necessarily in the top five in terms of the GDP index. The very people who even write up the blacklists are not free of tax malpractice themselves. (IPS)                           

Third World Economics, Issue No. 639, 16-30 April 2017, pp8-10


TWN  |  THIRD WORLD ECONOMICS |  ARCHIVE