As world leaders gather this week in New York for the United Nations General Assembly (UNGA), an epidemic of offshore wealth looms large over efforts to safeguard a turbulent post-pandemic world. Faced with myriad unpredictable crises, ranging from historic floods and droughts to widespread food scarcity and brewing recessionary fears, governments around the world are facing a need to raise revenues to stave off disasters and have a chance to meet the UN’s Sustainable Development Goals.
Despite this pressing need, an estimated 10 percent of the world’s economic output gets hidden away in offshore and illicit wealth according to last year’s final report of the UN High Level Panel on International Financial Accountability, Transparency, and Integrity (FACTI). While these dubious and secretive trillions help the extravagantly wealthy and politically connected individuals, as demonstrated through the Pandora Papers and other leaks, they represent lost opportunities for marginalized communities around the world. The debates at the UNGA this week should serve as a reminder that the world pays a high price when other countries, chief among them the United States, enable this world of offshore wealth. Now is the time for the United States to demonstrate its anti-corruption and development commitments to the world by following through on overdue reforms to quash illicit finance.
Global Need for Revenues
As they prepare to tackle today and tomorrow’s crises, treasuries around the world are still confronting the problems posed by COVID-19. The pandemic triggered the deepest global economic contraction since the Second World War, and while trillions were spent on securing families, businesses, and health systems through the crisis, fears of an uneven and rocky economic recovery persist. Whispers of a new global recession have come alongside entirely new challenges as well. Flooding in Pakistan has temporarily submerged no less than one third of the entire country, an area the size of Arizona, in an apocalyptic catastrophe that has killed more than 1,500 people and affected 33 million others. By contrast, Africa, Europe, China have endured record droughts this summer, drying out major rivers and testing the limits of local economies. At the same time, the Russian invasion of Ukraine has left global food prices elevated, even as relief arrives through resumed grain shipments.
All of these compounding crises have left their mark on global development progress. COVID-19 alone has thrust more than 100 million people into extreme poverty, dashing short term hopes for continued progress. As global debt has surged past $300 trillion dollars, driven primarily by emerging economies, developing countries have seen their ability to pursue developmental goals diminished. A 2022 Report from the Gates Foundation has found that, nearly halfway through the Sustainable Development Goals’ 15-year agenda, “the world is on track to achieve almost none of the goals.”
Structural Reform of Offshore Wealth
The multiplication of threats to global markets and economic development has demonstrated that the fiscal demands of the COVID-19 pandemic were not a flash in the pan. As this year’s UN Financing for Development Report makes clear, Governments need to structurally improve their capacity to mobilize resources to deal with increasingly complex problems.
At the same time, offshore and illicit wealth are showing themselves to be an ever increasing drain on public resources, particularly of developing nations. An estimated $7.6 trillion dollars of private wealth sits in hidden, offshore assets, and hundreds of billions in corporate tax revenues goes uncollected each year due to profit shifting practices. Illicit financial flows pose a yet more insidious cost on societies, both depriving governments of public funds while enabling crimes that endanger people and the planet alike.
The United Nations responded to this growing concern through the recommendations of the FACTI Panel. Composed of experts from around the world, the panel came together in March of 2020 to leverage financial accountability, transparency, and integrity measures to support sustainable development. The Panel’s final report, published in February of 2021, offered 14 recommendations including the improvement of anti-money laundering standards, the publication of beneficial ownership registries, and the creation of a U.N. Tax Convention to encourage fairness and cooperation in taxation. These recommendations would bring the trillions in offshore wealth, either outright illegally stolen or secured through dubious tax practices, back into public view and public coffers.
While the Panel concluded its work around one year ago, other recent reports from the United Nations and the ongoing General Assembly serve as a call to return to FACTI’s recommendations as a way to clamp down on illicit finance and offshore wealth and provide governments with the fiscal flexibility needed to address contemporary challenges.
Addressing the United States Credibility Gap
The Biden administration has talked a big game when it comes to anti-corruption and development commitments to the rest of the world. The United States has emphasized its interest on both fronts repeatedly at the G7 and through ambitious global programs such as Biden’s “Build Back Better World.” The Administration has also highlighted anti-corruption themes in regional economic proposals and strategies for the Americas, the Indo-Pacific, and Sub-Saharan Africa. The success of these proposals, however, rests on the United States advancing complementary reforms at home, which ensure that the U.S. financial system does not reward corrupt criminals and kleptocrats who siphon away public funds to private pockets.
In this regard, the United States is facing a credibility gap. Despite publishing a “Strategy on Countering Corruption,” late last year, the Administration has overseen excruciatingly slow progress on the premier anti-corruption pledges needed to plug the financial secrecy leaks in the global economy. The Corporate Transparency Act, promised to be the most consequential U.S. anti-corruption reform in two decades, has moved toward implementation at a glacial pace. While the first of three rulemakings associated with the may be nearing completion, the entire law was due to be implemented by December of last year. There are other reforms where the Administration has made no progress at all. Recommendation 6 of the FACTI Panel Report, for instance, calls on governments to adopt global anti-corruption standards for financial, legal, and accounting professionals known as “enablers.” The U.S. currently, however, is among only two democracies that have yet to establish these standards for all enablers.
There is reason for hope, though. The appointment of Richard Nephew as the State Department’s Coordinator on Global Anti-Corruption portends renewed Administration focus on the reform pledges it has made. Moreover, strong implementation of the Corporate Transparency Act, while overdue, would still be a landmark anti-corruption victory paving the way for additional reforms to get illicit wealth out of U.S. real estate. The Administration should move quickly to see these reforms through to make the most of its own supposed “Year of Action” on anti-corruption and democracy reforms. The U.S. will host the International Anti-Corruption Conference in December and this event can serve as a “forcing moment” for the U.S. to follow through on important anti-corruption reforms.
Congress could also play a role in bringing the U.S. in line with its own promises by mandating the sorely needed anti-corruption standards for non-bank financial enablers. The aptly named ENABLERS Act would create these common sense requirements and bring the U.S. up to speed with the rest of the world. The U.S. House of Representatives has already adopted the measure; now the Senate must do the same.
By following through on these immediate avenues for reform, the United States can prove its commitment to ending the world of financial secrecy and empowering communities around the globe. And as world leaders meet this week to discuss solutions to ever more complex and ever larger problems, there is hardly any time to wait.