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.
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
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)
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
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?
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?
Illicit Financial Flows
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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
Human Rights
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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
Human Rights
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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.
Whose responsibilities and duties?
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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?
Whose rights and which rights?
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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
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.)
What remedies should be created?
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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
Emerging themes and findings
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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
Emerging themes
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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