Money Laundering
At the
G8 summit in 2013 that took place in Lough Erne, Northern Ireland, the leaders of the eight nations committed to a number of measures aimed at preventing the use of businesses and legal arrangements that promote money laundering, tax avoidance and tax evasion, including the G8 Action Plan.

Financial Crime and Poverty

Between April and July 2021, when the rest of the globe was in upheaval, billionaires’ wealth surged by 27.5%, even during a pandemic. Reliable estimates indicate that between $20 billion to $40 billion is stolen annually from developing nations, undermining economic growth and depriving those who need public services the most.

According to a U.N. panel study asking for a global crackdown, systematic tax violations, corruption and money laundering are keeping billions of people around the world impoverished. It claimed that up to 10% of the world’s wealth may be stashed away in offshore jurisdictions at a time when governments are facing mounting budgetary difficulties due to the COVID-19 pandemic and rising inequality. According to a panel of international presidents, governors of central banks and representatives of business and civil society, criminals launder up to 2.7% of the global GDP annually.

The Impact of Transfer Mispricing and Money Laundering on Poverty

According to the OECD, annual tax haven losses in developing nations could be three times greater than annual foreign aid inflows. As an illustration, through transfer mispricing, the Democratic Republic of the Congo (DRC) sold state-owned mines for an incredibly cheap price to anonymous “shell” corporations in the Virgin Islands, only to be sold on to major listed businesses at their market price. Such transactions cost the DRC $1.35 billion USD, which is double the nation’s budget for health and education in a place where 71.3% of the population currently lives in poverty.

Developing nations thus lack the public resources that would give people access to food, healthcare and education to help them escape poverty. Money laundering, on the other hand, has detrimental effects on the economies of developing countries through escalating crime and corruption, lowering foreign investment, weakening financial institutions, compromising the economy and private sector, thwarting efforts at privatization and losing tax revenue. All of the effects are the bricks shaping the foundations of poverty.

G8 Actions Against Financial Crimes

The G8 Action Plan calls for greater disclosure of a company’s ownership and financial details, particularly when it comes to shell corporations that help launder money from questionable sources. The nations vowed to pursue laws that can undergo robust enforcement and have support from “effective, appropriate and deterrent sanctions.”

Now that nations have made the promises that the declaration outlined, each nation will publish a national action plan outlining the specific steps to take. The G8 Action Plan supports the following key concepts that are essential to the openness of ownership and management of businesses and legal structures, subject to our varied constitutional situations and the recognition that a one-size-fits-all approach may not be the most effective.

G8 Financial Crime Principles

  1.  Companies should have adequate, accurate and up-to-date basic information, including knowledge of who controls, owns and benefits from them.
  2.  Onshore law enforcement, tax administrations and other relevant authorities, including, if necessary, financial intelligence units, shall have access to information on the beneficial ownership of firms. Countries should take steps to make it easier for financial institutions and other regulated firms to get information about a company’s beneficial ownership.
  3. Trustees of explicit trusts should be aware of the trust’s beneficial owners, including its settlor and beneficiaries. Law enforcement, tax agencies and other pertinent entities, such as financial intelligence units as necessary, should have access to this information.
  4. In order to reduce the risks to which their anti-money laundering and combating the funding of terrorism system is subject, authorities should recognize them and put in place effective and proportional measures. It is important to tell the appropriate authorities, enterprises that are subject to regulation and other jurisdictions about the findings of the risk assessments.
  5.  It is important to prevent the abuse of financial tools and specific shareholding arrangements that may impede transparency, such as bearer shares and nominee shareholders and directors.
  6. Nations should place effective anti-money laundering and counter-terrorist financing requirements on financial institutions and designated non-financial businesses and professions, including trust and company service providers, in order to identify and confirm the beneficial ownership of their clients.
  7.  Companies, financial institutions and other regulated organizations shall be subject to effective, appropriate and deterrent fines if they fail to uphold their respective commitments, particularly those relating to client due diligence.
  8.  To counteract the misuse of businesses and legal arrangements for illegal conduct, national authorities should collaborate successfully inside their own countries and across international boundaries. Upon requests from international counterparts, countries should make sure that their relevant authorities can quickly, helpfully and effectively give information on basic companies and beneficial ownership.

Looking Ahead

G8’s agenda has enhanced the opportunity to advance the plan that will address illicit finance at the Lough Erne Summit despite the fact that the effects would take time to materialize. The G8’s ability to cooperate in order to launch ground-breaking international projects will determine the degree of success, though. Enhancing financial transparency, good governance, information exchange and accountability must be the main goals of these projects because doing so will significantly reduce the likelihood of criminals being able to access the global financial system.

– Karisma Maran
Photo: Flickr