Tax evasion practices stand in the way of Millennium Goals

Efforts to shed light on tax evasion practices are intensifying, and the focus is increasingly on some rather 'unusual suspects'. Earlier this week, an initiative was launched which measures the degree to which countries accommodate or combat various forms of 'financial secrecy': the Financial Secrecy Index (see box). Contrary to OECDs own official list of tax havens, the Top 10 countries accommodating financial secrecy, instead of combating it, are to large part the OECD-countries themselves (USA (Delaware), United Kingdom (London), Ireland, Luxembourg, Belgium, and Switzerland).

Financial secrecy is a key factor in making a wide range of illicit financial flows possible; and its ramifications are felt far beyond the OECD countries themselves. Until recently, there was a high degree of uncertainty with regard to the magnitude of various forms of illicit financial flows. This is no longer the case.

For every dollar poor countries receive in development assistance, more than eight dollars are illegally transferred from poor to rich countries. This is one of the key conclusions of a report estimating illicit financial flows from developing to developed countries, published by former IMF economist Dev Kar and colleagues at Global Financial Integrity (see box).

The DIIS Policy Brief, Combating illicit financial flows from poor countries, by Jakob Vestergaard and Martin Højland, assesses these new data as 'highly reliable' - and goes on to recommend a number of policies that could be adopted to address the problem. 'If the world's developed countries put their act together to combat such illicit financial flows, the costs of meeting the Millennium Goals could be financed by developing countries themselves'the authors conclude.