Economy

GENEVA (8 April 2016) – The United Nations Independent Expert on foreign debt and human rights, Juan Pablo Bohoslavsky, today called on the international community to urgently put an end to financial secrecy. He warned that tax evasion and the flow of funds of illicit origin undermine justice and deprive Governments of resources needed for the realization of economic, social and cultural rights.

The expert’s call comes as leaked documents have shown how corporations, wealthy individuals and politically exposed persons have systematically hidden assets in more than 21 offshore jurisdictions.

“The clients may have had different motives for depositing their assets into more than 210,000 secret shell companies. But tax evasion, hiding corruption and criminal funds appear to be a prominent reason,” said Mr. Bohoslavsky, author of a recent study* on illicit financial flows presented to the UN Human Rights Council.

The expert noted that shell companies have also been used in the past by groups and individuals busting sanctions, trafficking drugs, engaging in illicit arms trade, terrorism as well as by authoritarian rulers responsible for severe violations of human rights.

“Tax evasion destroys trust in public institutions and the rule of law, and shrinks the fiscal space for investing in public health care, education, social security and other public goods and services,” the Independent Expert said. “Public funds that are essential to guarantee economic, social and cultural rights to all are robbed from the people.”

The leaked documentation shows that many banks and financial intermediaries have failed to exercise due diligence with their clients. Some of them may actually have aided and abetted tax evasion, corruption and other criminal activities. According to the ‘Panama Papers’ more than 14,000 banks, law firms, company incorporators or other middlemen have set up companies, foundations and trusts for customers.

Mr. Bohoslavsky recalled that the UN Human Rights Council recognized that flows of funds of illicit origin deprive many States of resources required to progressively realize human rights. In a resolution adopted last month, the Council stressed the need for transparency and effective due diligence procedures of financial intermediaries.

Reducing substantially by 2030 illicit financial flows is an agreed target of the new UN Sustainable Development Goals. Curbing such flows was also agreed to at the Third International Conference on Financing for Development held in July 2015 in Addis Ababa.

“States need now to take action to honour these commitments,” the expert said. “The ‘Panama Papers’ underscore the need to make public disclosure of beneficial ownership information legally binding in all countries. States must put an end to such harmful banking secrecy, for which there is no meaningful justification.”

“We need to move to a global system of automatic exchange of tax information which ensures that developing countries can benefit from it on an equal footing,” he stated. “Financial institutions and intermediaries facilitating tax evasion, corruption or other criminal activities must be also held to account.”

According to estimates by the Washington based think tank Global Financial Integrity, illicit financial outflows from developing and emerging economies related to tax evasion, crime, corruption and other illicit activities amounted to 1.1 trillion USD in 2013. This is a significant drain of resources which increased during the last decade on an average rate of 6.5 per cent per year.

(*) Read the Independent Expert’s report on illicit financial flows and human rights, available in all UN languages: http://ap.ohchr.org/documents/dpage_e.aspx?si=A/HRC/31/61

ENDS

Juan Pablo Bohoslavsky (Argentina) was appointed as Independent Expert on the effects of foreign debt and human rights by the United Nations Human Rights Council on 8 May 2014. Before, he worked as a Sovereign Debt Expert for the United Nations Conference on Trade and Development (UNCTAD) where he coordinated an Expert Group on Responsible Sovereign Lending and Borrowing. His mandate covers all countries and has most recently been renewed by Human Rights Council resolution 25/16.