We are not here to lecture governments or private sector partners about their shortcomings, real or otherwise. We do not want to slow unnecessarily the global supply chain or financial flows.
However, we do wish to create a safe space to have complicated conversations so that we can identify and enlist the help of key stakeholders in this effort – though we are under no illusions that this will be easy.
The only serious way to tackle such a complex global problem is to unpack its three component parts; product & industry groups; the people involved; and the infrastructure that keeps it flowing.
- Product & industry groups
Just recently, according to the BBC, nearly 100 people were killed after consuming counterfeit alcohol in two separate incidents in India and Mozambique. Counterfeit pharmaceuticals, estimated to be a 200 billion dollar a year business, kills more than 1 million people annually, according to Interpol. The counterfeiting of high-value consumer products, while not mired with the same health and safety issues, is also a major tax loss for countries and revenue loss for businesses. All these contribute in one way or another to the strengthening of the shadow or illicit economy, and impede the competitiveness of the formal one.
- Actors involved
- Enabling infrastructure
We may be inclined to think that illicit financial flows only run through the dark web using Bitcoin and other virtual currencies, which does play a part, albeit small. Instead, most of this illicit economy travels on the same global systems as the regular economy. For this reason, greater transparency in the global financial system is fundamental. The challenge is to get ahead of this movement and to try and shape the outcomes in a constructive manner.
Steps in the right direction are being taken. For example:
1) Automatic exchange of tax information across borders, led by U.S. FACTA legislation, is emerging and requires foreign financial institutions to report earnings on foreign accounts by U.S. persons.
2) Knowledge of the beneficial ownership of corporations is moving forward, with the UK taking a lead role, striking a blow at shadow enterprises.
3) Payments by resource companies to foreign governments is required under Dodd-Frank, affecting many non-U.S. companies.
4) Country-by-country reporting is advancing, particularly in the European Union, with efforts under way to require all corporations to report their financial results in each taxing jurisdiction where they conduct business.
Further movement in these areas and steps toward greater financial transparency is inevitable. So, how do we work with the primary stakeholders to influence this change? Hold a special event drawing attention to the issues? Produce, from our Meta-Council, a brief on these matters? Assemble a small group of progressive companies to champion greater financial transparency?
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