The fact that between USD 500 and 800 billion are drained each year from developing countries to the global North through illicit financial flows (IFFs) points to a profound global governance crisis and systemic inequality as Oxfam demonstrates with figures in their new report released January 2016. It is also a question of gender justice.
Typical examples of IFFs are widely considered to be those resulting from criminal activity like money laundering, or arms and drug dealing. While these certainly play a part, the bulk of IFFs actually come from global-scale tax evasion and avoidance by multinational corporations and trade mis-invoicing.
Some of the most powerful corporate sectors operating in the resource-rich global South, particularly in the extractives industries, lead the podium of tax evaders. They largely benefit from all sorts of tax incentives sealed in “investment protection schemes” and the help of powerful financial institutions that transfer wealth to tax havens as part of their services to corporate clients.
Why should gender equality advocates care about IFFs?
Combatting IFFs is deeply linked to contesting corporate power nationally and internationally. Having an accountable and regulated financial system globally can contribute to redress the unequal distribution of wealth and power that is in the hands of just a few. Ultimately it is a question of economic, social and gender justice. Here are at least three reasons of why this is so and what gender and women’ s rights advocates should consider.
1. The United Nations estimates USD 50 billion are lost annually in Africa alone through IFFs. These are public resources desperately needed to fight impoverishment through better access to key services like quality education, healthcare, social protection, care, and sexual and reproductive health and rights.
These areas in particular are notably under-funded in most developing countries forcing, for example, many women to absorb larger amounts of care work as social services rollback. Constrains in policy space of states to mobilize public resources has the result of entrenching multiple discrimination and structural gender inequalities as women’s unpaid work plays a crucial role in subsidizing the entire economy.
2. In addition, even if corporations can find innovative ways out to avoid paying their share (or have their tax lawyers find a way for them), public revenues still have to be raised from somewhere. Often the perceived easiest (when ignoring the social and gendered consequences) is through taxation to basic goods that ordinary people on the ground consume.
Numerous studies including from the UN Special Rapporteur on Extreme Poverty and Human Rights show the incidence that taxation on basic consumer goods through taxes such as the value-added tax (VAT) has on entrenching gender inequalities. Because of current gender norms, a majority of women spend a large amount of their income in acquiring basic goods to provide for those under their care compared to large corporations that benefit from tax exemptions.
3. Thirdly, as raising public revenue becomes increasingly hard countries are increasingly turning to private sources of funding – exactly those contributing to the lack of public resources – to fill up this gap.
The enthusiasm across the board for Public-Private Partnerships (PPPs) as a mode of development financing is thus closely tied to the consequences of capital flight from the global South to the global North. Investment protection and investor-to-State dispute settlement provisions ensure the private part of the equation gets its return on investment no matter the outcome. Allowing free-reign to corporations to make profits out of common resources and access to services is not conducive to fulfilling women’s rights and gender justice.
Without a strong human rights based regulatory framework and binding accountability mechanisms for the private sector, there is little evidence to suggest PPPs can contribute to reduce inequality in any way.
Despite this context, there are signs that IFF can no longer be swept under the rug.
As IPS reports, the United Nations has called IFFs as one of the key “hidden sources” for development funding. They admit tackling this issue is an absolute necessity to secure development funding for the implementation of the 17 Sustainable Development Goals (SDGs).
“By many accounts, 2015 will be remembered as the year of illicit financial flows” said the Financial Transparency Coalition that dedicated its 2015 report to review advances and retrogression on this matter. “The damage they [IFFs] cause are now on the map. But it’s up to citizens, working with allies in government, media, business, and elsewhere to ensure that the right solutions are put into place” the coalition points out.
What can be done?
It is clear that combatting IFFs cannot be done by individual countries alone, but will need a global shift from tax competition to tax cooperation among countries. The Organization for Economic Cooperation and Development (OECD) developed a set of actions to regulate tax evasion and tax avoidance that was endorsed by the G20 in November. However, the lack of participation of the full range of developing countries most affected by IFFs, make these spaces lack legitimacy to set rules applying to all countries.
Though developed countries fiercely resisted establishing a UN global tax body at the Third Financing for Development Conference held in Addis Ababa in July 2015, pressure has not diminished. Developing countries and global social civil society will persist both inside and outside the UN demanding a global tax body. Democratic regulation on tax transparency and public availability of financial information will be essential.
Further, strengthening corporate accountability is a possibility on the table at the UN Human Rights Council. An open-ended intergovernmental working group is in place to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises. This process also has the potential to address corporate tax evasion as a form of violation of human rights, in particular economic, social and cultural rights. The substantive involvement of women’s rights organizations and other CSOs is key including to ensure a feminist perspective in the process and ultimately in the binding instrument. At the same time is constructive engagement of all governments in the process of utmost importance.
In parallel to such processes and to what government officials discuss, mobilization of social movements at large, including women’s rights and gender equality advocates is more important than ever to reclaim for all people and their human rights the resources being drained through illicit financial flows. Challenging corporate power and demanding tax justice are key components in the struggle for economic and gender justice worldwide.
Ana Abelenda is Program Coordinator on Economic Justice at the Association for Women’s Rights in Development (AWID).