Illicit Financial Flows, Poverty and Human Rights: Overview of Research and Findings

1. Illicit Financial Flows, Poverty and Human Rights: Overview of Research and Findings IBAHRI Task Force on Illicit Financial Flows, Poverty and Human Rights Presentation to the Public Interest Law Alliance, Dublin, Ireland October 4, 2012 Lloyd Lipsett LKL International Consulting Inc.

2. General Statement of Problem • Trends in global poverty and inequality, including the economic crisis and the current challenges for States to raise taxation revenues and provide social programmes that address poverty • Illicit financial flows including corruption, bribery, money laundering, tax evasion and other factors that affect the State’s ability to raise resources and provide social programmes • What can a human rights analysis contribute to the understanding of the problem and to future actions? • IBAHRI Task Force on Illicit Financial Flows, Poverty and Human Rights

3. Research methodology • Desk research: thorough examination of 3 bodies of literature: (1) illicit financial flows, with a focus on tax evasion; (2) poverty and development, with a focus on current multilateral efforts to eradicate poverty such as the MDGs; and, (3) human rights, with a focus on economic, social and cultural rights • Individual interviews with organizations and individuals with expertise on the 3 areas above, including corporate and tax lawyers, accountants, business representatives, tax authorities, NGOs • Questionnaire to IBA membership, targeted through various committees (e.g. taxation, mining, anti-corruption and corporate social responsibility) • Research and expert opinions commissioned for background information related to our case studies • Consultation meetings: Sao Paulo (June) and SADC region (August)

4. Poverty • Multi-dimensional definitions of poverty: not just a numerical calculation, but beginning to look at deprivation of opportunity and of dignity • Overview of the causes of global poverty and inequality: some are caused by “natural” causes, but others by human causes

5. Poverty • Current approaches to the eradication of poverty • Millennium Development Goals and UN Decade for the Eradication of Poverty • International institutions’ policies towards the eradication of poverty (World Bank, IMF, EU, etc.), including through promotion of FDI • Critical assessment of how the international community is falling short on its commitments to eradicate poverty • How can a more effective and equitable taxation system help eradicate poverty? New approaches about building capacity to generate revenue for development and promote good tax governance?

6. Illicit Financial Flows • Overview and definitions of illicit financial flows, with a focus on tax evasion • Tax evasion as an illegal activity • Tax avoidance as a legal activity • Aggressive tax planning and abusive tax avoidance as grey areas • Methods of tax evasion and avoidance, including transfer pricing • Tax havens as mechanisms that facilitate tax evasion and abusive tax avoidance, with a focus on the secrecy aspects of such jurisdictions • Is there a legitimate role for tax havens in the global economy? • When does tax competition become harmful in terms of human rights?

7. Illicit Financial Flows • The actors • States, including the role of governments in developed countries, developing countries and in secrecy jurisdictions • Corporations, including extractive industry companies and financial institutions • Corporate advisors: lawyers and accountants • Individuals, especially high net worth individuals • Normative framework for the international tax system • OECD and UN framework of tax policies and compliance mechanisms • Competing frameworks: United States, United Kingdom and Switzerland

8. Human Rights • Poverty under international human rights law • Poverty as a violation of specific human rights standards (e.g. right to an adequate standard of living, social security, food, health, education, and in extreme cases even the right to life, etc.) • Poverty as a consequence and perpetuation of violations of human rights • New UN Guiding Principles on Extreme Poverty and Human Rights • Human rights provisions related to taxation • Mobilization of the “maximum available resources” and the progressive realization of economic, social and cultural rights • The right to development • Indigenous peoples rights to benefit from exploitation of natural resources

9. Human Rights • Human rights provisions related to transparency and access to information • Protect, Respect and Remedy framework and the UN Guiding Principles on Business and Human Rights • State obligation to protect human rights • Corporate responsibility to respect human rights • Access to remedies: States’ and corporations’ obligations to provide effective mechanisms for alleged violations of human rights • Tax abuses: an infringement or violation of human rights under international law? • No specific international convention has made this connection, but many trends in international human rights law are pointing in this direction.

10. Whose responsibilities and duties? • States (domestically): division of responsibilities between different levels of government for collection of taxes and delivery of social programmes; coherence between corporate and fiscal policy and human rights • States (internationally): cooperation and technical assistance for tax enforcement and exchange of information, as well as for development programmes • Corporations: to obey the law and to “know and show” that they respect human rights through human rights due diligence and avoiding negative impacts • Implications for lawyers, accountants and financial Institutions? • Responsibilities of individuals?

11. Whose rights and which rights? • Taxation rights of States and sovereignty over tax policy • Economic, social and cultural rights of all citizens to benefit from programmes related to education, health, food, water, social security, etc. • Democratic rights related to access to information, transparency, participation • Process rights of taxpayers related to fair and non-discriminatory treatment and privacy • Non-discrimination vs. priority to most vulnerable groups • Access to remedies

12. What remedies currently exist? • Criminal law for tax evasion and fraud • Administrative enforcement and penalties • International treaties and enforcement mechanisms • Optional Protocol to the International Covenant on Economic, Social and Cultural Rights • International and regional mechanisms and human rights conventions relevant to poverty • Domestic judicial and non-judicial remedies, including those with extra-territorial effect (e.g. Alien Tort Claims Act) • Market-based remedies related to disclosure (e.g. Dodd-Frank Act, etc.)

13. What remedies should be created? • Tax evasion as an international crime vs. tax abuse as a human rights violation? • Strengthening the international treaty regime related to reporting of financial flows and exchange of information of tax information • Strengthening domestic democratic governance for taxation and human rights • Strengthening corporate responsibility for tax compliance and human rights • Strengthening tax morale through increased deterrence, fairness and social norms

14. Emerging themes and findings • Strong interest in the Taskforce’s research from all sectors: an important issue that has not been considered from a human rights perspective • Importance of corporate tax evasion and avoidance, but don’t forget the role of individual tax avoidance and private wealth management • A useful analogy to non-repatriation of funds of illicit origin, which clarifies the responsibility of States to cooperate to repatriate such funds and for States to invest repatriated funds in a rights-respecting manner • Important timing to address the issues connected to poverty given the forthcoming Guiding Principles on Extreme Poverty and Human Rights

15. Emerging themes • Possibility to advance the implementation of the Guiding Principles on Business and Human Rights, particularly with respect to the extractive and financial sectors, as well as for law and accounting firms • Need to look beyond tax collection in making the human rights case: how are the revenues spent? What do you do if a repressive government uses taxes to violate human rights? Fundamental role of governments to think about tax reform, both domestically and internationally • Human rights as part of tax morale: need to educate about the links between tax, poverty and human rights