The Financial Transparency Coalition (FTC) is a global network of more than 150 allied civil society organizations, thirteen governments, and dozens of the world’s foremost experts on illicit financial flows (IFFs). The FTC uses its wide reach and deep expertise to influence global norms and standards for financial transparency, and close loopholes in the global financial system. By promoting concrete measures to create more transparency, we work to address the systemic issues that stifle economic development.
Curtail illicit financial flows through the promotion of a fairer, more transparent, accountable and sustainable financial system.
The Shadow Financial System and the Need for Greater Transparency
Over the past half century, the shadow financial system has grown more complex, encompassing a variety of tools to hide and move money undetected. Whether its with the use of anonymous companies and tax havens, or through accounting schemes like trade mispricing, the result is the proliferation of illicit financial flows—money thats illegally earned, transferred or utilized.
But while the tactics used can be complicated, the consequences of this murky structure, and the money it moves, are clearer than ever. The financial crises in the United States, the debt crisis in Europe, and the uprisings during the Arab Spring demonstrate the interconnectedness of the international financial system and the need for a global approach in addressing systemic issues.
Despite commitments from world leaders, the rules of global finance remain distorted, and allow corporations to earn record profits while hiding billions offshore to avoid paying taxes. By taking advantage of these loopholes, they use backhanded trading schemes to shift profits into tax havens. Unfortunately, these are not isolated instances; they are time-honored secrecy tactics of the international financial system.
The Coalition urges international organizations, governments, and the financial community as a whole, to substantially improve transparency in the global financial system. Thus far, the debate has given greater emphasis to strengthening regulation within existing structures. While some regulatory improvements are certainly needed, the Coalition believes transparency could dismantle the entire shadow financial system.
The Five Recommendations
The Coalition advocates five core recommendations to improve transparency and accountability:
- Curtailment of mispricing in trade imports and exports – this includes both abusive transfer pricing between multinational enterprises and intentionally mispriced transactions between unrelated parties;
- Country-by-country accounting of sales, profits, and taxes paid by multinational corporations;
- Transparency of beneficial ownership of corporations and trusts;
- Automatic cross-border exchange of tax information on personal and business accounts; and
- Harmonization of predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries.
Cracking down on illicit financial flows would allow developing countries to mobilize more domestic resources, and it would help create a more sustainable global economy for everyone.