C20 Governance Working Group: background paper

The C20 Governance Working Group will develop recommendations for the G20 to support economic growth and resilience through effective and transparent institutions. Corruption, loopholes created by outdated legislation and opacity in how decisions are made facilitate the syphoning off of public funds, inefficient investments, a lack of trust in governance and economic instability. Anti-Corruption Key problem to be solved: Corruption negatively impacts economic growth by distorting bidding processes, creating uneven playing fields and damaging the credibility and reputation of governments and companies. Corruption also leads to inequalities such as access to health, education and professional opportunities. Global Financial Integritys 2013 Report on Illicit Financial Flows found that crime, corruption and tax evasion resulted in USD 946.7 billion flowing from the developing world in 2011. Cumulatively between 2002 and 2011 the report suggests that illicit financial outflows from developing nations totalled USD 5.9 trillion. The resulting loss of tax revenues entrenches poverty and weakens developing country economies. Current G20 position: The G20 leaders in St Petersburg recognised corruption is a severe impediment to sustainable economic growth and poverty reduction and can threaten financial stability and the economy as a whole. The Leaders endorsed the St Petersburg Framework, making the Anti-Corruption Working Group a permanent Working Group of the G20, and made available an Issues Paper on Corruption and Economic Growth1 prepared for the G20 Anti-Corruption Working Group. The current G20 Anti-Corruption Action Plan ends in 2014 but many commitments by governments have not yet been implemented. C20 position: Effective Anti-Corruption measures can increase economic growth by building trust and transparency, creating a sound environment for investment, trade and employment. Many financial institutionsnot only in offshore financial centres, but also in G20 countriesremain safe havens for all types of illicit money, generated by corruption, tax evasion and other forms of criminality.2 Potential solutions for the G20 to adopt in 2014: Fulfilment of Anti-Corruption Action Plan commitments on whistle-blower protection legislation in public and private sectors, stolen asset recovery and denial of entry to corrupt officials within G20 countries. Practical steps towards tackling money laundering and illicit financial flows, including G20 members legislating and implementing public registers of beneficial ownership of companies and trusts. Transparency in the Extractive Industries G20 members work towards establishing a global standard for the mandatory reporting of payments by extractive industry companies to governments and there is wider G20 commitment to implement the EITI aG20 Leaders endorse a specific forward- looking 2015-16 Action Plan that is tangible and actionable.

Tax Transparency Key problem to be solved: Estimates suggest developing countries lose an estimated $100bn to $160bn of tax revenues annually to tax avoidance and tax evasion. The off-shore financial system of
1 2

See http://www.oecd.org/g20/topics/anti-corruption/Issue-Paper-Corruption-and-Economic-Growth.pdf Civil20 Working Groups Recommendations to the G20, p.51

tax havens, anonymous shell companies and other trade-based money laundering techniques facilitate the illicit flow of capital throughout the world, to, from and between developing and developed economies and entities. Current G20 position: The 2013 G8 Summit, chaired by the UK, pushed for greater transparency about tax. This was followed up at the G20 St Petersburg Summit where members instructed the OECD to develop plans for a system to automatically exchange information between tax authorities. This is to commence in 2015, and the standard, and the data release associated with it, will be key issues for implementation. C20 position: G20 Members should deliver specific, time-bound commitments to increase transparency in the international financial system, while enabling developing countries to reap the benefit from 1) the automatic exchange of tax information; and 2) reforming customs and trade protocols to detect and curtail trade mis-pricing ; and 3) progress towards full country by country reporting. Potential solutions for G20 to adopt in 2014:

Automatic information exchange between tax authorities that makes sure developing countries can use and benefit from the system Country-by-country reporting by all MNEs disclosing revenue, profit, assets, taxes paid and employees in each jurisdiction the company operates in Public disclosure of ultimate beneficial ownership

Open Government and Open Data Key problem to be solved: Lack of transparency in government erodes trust in public institutions, undermining civic and economic growth. Lack of transparency also prevents citizens from holding decision-makers to account for the effective and legitimate use of public money. Current G20 position: At the 2013 G8 Summit the UK announced its commitment to the G8 Open Data Charter and in November the UK hosted a meeting of the partners in the Open Government Partnership. Each of these initiatives provide underlying support for greater transparency which will strengthen efforts to combat anti-corruption and money laundering, end illicit financial flows and counter tax evasion and avoidance. There is as yet no concerted G20 action on the issue. C20 position: Lack of transparency in the public sector fuels citizen mistrust and can lead to political instability and misallocation of scarce public resources to the benefit of the few at the expense of the many.3 Potential solutions for G20 to adopt in 2014: G20 Leaders adopt open data exchange protocols, notably those related to corporate entity registration, financial transactions and trade reporting

Ibid, p.55