UN Climate Summit, New York

Side Event: Curbing illicit financial flows for domestic resource mobilisation and sustainable development in the post-2015 era

Remarks by Angel Gurría, OECD Secretary-General

24 September 2014 – New York, United States

(As prepared for delivery)

Ms Badawi [Zeinab], Minister Ngozi Okonjo-Iweala, distinguished panellists, Ladies and Gentlemen,

Thank you for attending this event co-hosted by Australia, Mexico and the OECD on “Curbing illicit financial flows for domestic resource mobilisation and sustainable development in the post-2015 era”. Your presence here today underlines the importance of this issue for the international community in the context of the Post-2015 agenda.

Indeed, we are at a critical juncture. As the Millennium Development Goals (MDGs) approach their expiry date, we must focus our efforts on ensuring a brighter, more inclusive and sustainable future for all. This is no walk in the park. The new international framework must respond to the demands of our highly complex and interconnected global economy. We face a plethora of common issues, including: growing inequalities; changing consumption patterns and population dynamics; increasing natural resource scarcity; and ongoing illicit financial flows.

These global challenges call for a genuine global response. A greater coherence of stakeholders on core policy issues is imperative. That is why the OECD is committed to making Policy coherence for sustainable development a central pillar of the post-2015 agenda.

And one area where Policy Coherence for Development has the potential to make a real difference is in the fight against illicit financial flows.

Mobilising resources for development by tackling illicit flows

The recent reports of the UN Open Working Group (OWG) and the Intergovernmental Committee of Experts on Sustainable Development Financing (ICESDF) both highlight the need to deal with the systemic conditions that hamper the use and mobilisation of countries’ own resources for sustainable development.

Tackling illicit financial flows will not only be critical to meet the challenge of financing a more ambitious Post-2015 Development Agenda. But also to create an enabling international environment that allows each and every country to pursue national sustainable development strategies.

Illicit financial flows stemming from corruption, money laundering, tax evasion, and other crimes are among the biggest obstacles to mobilising resources for development. The numbers are disputed, but it is likely that illicit outflows significantly exceed the inflows from aid and foreign direct investment in many developing countries.

These flows strip resources that could be used to finance much needed public services, such as health care and education, and ultimately to finance sustainable development. A mere portion of these funds would have significant positive impact: It is estimated that every $100 million recovered could fund full immunisations for 4 million children or provide water connections for some 250 000 households in a developing country. [1]

We need coherent and collective action and we need it now. In developing countries, illicit flows are often a symptom of deeper governance failures, including weak institutions and high levels of corruption. These countries need to improve the efficiency of their tax systems and tackle corruption in order to mobilise their domestic resources more effectively.

But the fight against international illicit financial flows is not limited to developing countries. It entails a shared responsibility for all. Unfortunately, many illicit flows end up in OECD countries. Without action they risk becoming safe havens for illicit flows from developing countries.

Greater policy coherence is therefore critical. From crime control to regulations in the financial sector, and tax regimes, its implications require cross-sectoral and cross-national responses.

The OECD – a champion for more coherent policies to fight illicit financial flows.

The OECD stands at the forefront of international efforts to combat corruption, fight against tax crime and tackle other illicit financial flows. We do so by partnering with relevant stakeholders and fostering knowledge sharing and policy coherence. As we are here today.

Last year, as part of our Strategy for Development, we released our first report measuring OECD members’ efforts to curb illicit financial flows. And this year we produced a report which shows that coherent policies in OECD countries in areas such as tax evasion, anti-bribery and money laundering can contribute to reducing illicit financial flows from developing countries. It is important that we keep our member countries on their toes.

We are also intensifying our work to contribute to an international enabling environment for sustainable development with an arsenal of ‘soft laws’, benchmarks, studies and peer pressure mechanisms in a wide range of policy areas. Let me mention a few examples:

  • Tax avoidance strategies, though they may be legal, are unfair. They deprive governments from much needed tax revenues, crucial to invest in infrastructure, implement sustainable growth policies and move people out of poverty. 2 trillion US dollars in profits are stashed offshore to avoid taxation. [2] This situation is no longer acceptable. Our work on base erosion and profit shifting (BEPS), launched in 2012 upon a request by the G20 attempts to tackle the planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where taxes are low.

In effect, we are working on new international tax rules for the 21st century. All non-OECD G20 countries participate in the BEPS project on an equal footing, and we have also established an in-depth engagement approach to better understand the most significant BEPS issues for developing countries. We have put in place a 15-point Action Plan that we will roll out over the coming 18 months. This Action Plan will allow all countries to draw up co-ordinated, comprehensive and transparent tax standards which match up with modern business practices.

  • Efforts to improve international tax transparency will also help governments fight tax fraud and tax evasion. The OECD has developed a new single standard for the automatic exchange of tax information, under a mandate from the G20, endorsed by G20 Finance Ministers in February, and approved by the OECD Council. The 122 members of the Global Forum on Transparency and Exchange of Information for Tax Purposes will monitor its implementation and work to ensure that developing countries can fully benefit from participation in this standard. Furthermore, the Global Forum continues to ensure that members can effectively exchange information upon request thanks to a robust peer review process and the provision of technical assistance in particular in developing countries.
  • Our work on Tax Inspectors Without Borders helps developing countries bolster their domestic revenues by making their tax systems fairer and more effective. Furthermore, this June, with the help of our Italian colleagues, we launched the “OECD International Academy for Tax Crime investigations” which has already trained more than 60 investigators and law enforcement officials from developing countries.
  • Last but not least, our fight against one of the biggest systemic threats of the 21st century – corruption – continues through the OECD’s Anti-Bribery Convention, which has helped governments to enforce anti-bribery laws and secure convictions. We also have the CleanGovBiz initiative, which draws together the OECD’s anti-corruption tools, reinforces their implementation, improves co-ordination among relevant players and monitors progress towards integrity.

Ladies and gentlemen,

With 2015 just around the corner, we face a moment of opportunity. We must work together to ensure that the post-2015 agenda provides us with a coherent framework to steer a transformational shift towards sustainable development.

We have a shared responsibility to reduce all forms of illicit financial flows, and their negative impacts on sustainable development. In this effort, policy coherence provides us with a tool to make this happen. In designing a Post-2015 world let’s think coherence!

The OECD, as always, stands ready to work with you. I wish you all the best in your discussions.

[2] Remarks by the SG: “The benefits of the global transparency agenda for growth, inclusiveness and trust”, London, UK, 17 June 2014.