Illicit Financial Flows and the Recession

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Around the world governments are announcing massive cuts in government spending. The consequence is inevitable: programs that politicians and civil servants once thought essential will be subject to new scrutiny. In many cases those programs will be scaled back, or even cut altogether. Nowhere is this more likely than amongst new programs, where there is no established pattern of spending and no certain proof of delivery of benefit as yet.

Many of the programs initiated over the last few years to tackle tax haven secrecy jurisdiction abuse fall into this last category. Will commitments to negotiating new information exchange agreements, to promoting new standards of governance, to implementing new anti-money laundering objectives and to (more importantly) actively monitoring their implementation on the ground survive this process of cuts? Likewise, will commitments to help developing countries develop the tax systems they need to raise their own revenues avoid cuts that are likely to impact on all development spending?

I do not know the answer to these questions, but I can guess the outcome. None of these programs have strong domestic political appeal, if I’m honest. They’re technical and essential, but are behind the scenes activity. It makes them exceptionally vulnerable to anyone wielding an axe over spending.

In that case the recession and its aftermath, and the chosen policy of cuts that so many governments (unnecessarily, in my opinion) are adopting to tackle it, could represent the biggest threat to progress in tackling illicit financial flows yet encountered.

It’s obvious to informed commentators that we cannot afford to stand back from tackling this issue now when it can contribute to much of  the revenue needed to solve the problem of government deficits that plague so many governments. But will those with short term zeal for short term cuts see it that way? If they do not then the current round of cuts in public spending sweeping across Europe and beyond will be the best gift to the abusers of tax havens / secrecy jurisdictions that they’ve had for a long time.

And that is very worrying indeed.

Cross posted from the Task Force on Financial Integrity and Economic Development blog