Tax-related illicit financial flows and human rights
| Date | 02 July 2018 |
| Pages | 750-769 |
| Published date | 02 July 2018 |
| DOI | https://doi.org/10.1108/JFC-04-2017-0029 |
| Author | Juan Pablo Bohoslavsky |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Tax-related illicit financial flows
and human rights
Juan Pablo Bohoslavsky
United Nations, Viedma, Argentina
Abstract
Purpose –This paper aimsto discuss the tax-related illicit financial flows froma human rightsperspective.
It argues that curbing illicit financial flows, and specifically tax abuse, is essential not only for realizing
human rights but also for achieving the sustainabledevelopment goals. It provides definitions of tax evasion
and avoidance, as well as estimationsof illicit financial flows. It studies the tax abuse implications for human
rights and sustainable development,as well as the obligations in the field of human rights and tax abuse. It
also critically assesses the recent internationalinitiatives aim at curbing illicit financial flows. It concludes
with a set of recommendationson how to curb illicit financial flows.
Design/methodology/approach –This paper combines economic, legal and policy perspectives to study
the multidimensional, complex and global problem of illicit financial flows. It not only proposes an explanation of
the volume, roots and economic, social and human rights implications of illicit financial flows but it alsoproposes
reforms that states and other stakeholders need to implement in order to curb this phenomenon.
Findings –Combatingtax abuse and illicit financialflows more broadly, is essentialto make better progress
in realizing international human rights obligations. The inclusionof a specific target to reduc e illicit financial
flows under the sustainable development goals makes clear that curbing such flows is also essential for
creating an enablingenvironment for sustainabledevelopment. While we should applaudthat reducing illicit
financial flows is mentioned in one of the targets of the sustainable development goals, the target remains
broad andvague. Specific measures to operationalizethis target are needed to ensurethat progress is achieved
and that suchprogress can be tracked and measured.The author presents recommendationsfor discussion.To
promoteaccountability, the recommendations areaddressed to specificstakeholders.
Originality/value –This paper tries to contribute to improveour knowledge and understanding of illicit
financial flows and tax abuse more specifically at global level and their implications for human rights, to
make the need for changemore compelling, as well as to stimulate thedebate around reforms that need to be
implementedto curb illicit financial flows.
Keywords Tax, Human rights, Illicit financial flows
Paper type Conceptual paper
This article is based on the report the author wrote as UN Independent Expert on Foreign Debt on
Human Rights presented to the UN Human Rights Council on 7 March, 2016. The report, dated 15
January 2016, has been published as UN Doc. No. A/HRC/31/61A/HRC/28/59 and is also available in
electronic format in Arabic, Chinese, French, Spanish and Russian. The author wishes to extend his
gratitude to Tim Engelhardt, Mariannick Koffiand Gunnar Theissen from the Office of the UN High
Commissioner for Human Rights for their dedication during their research and editorial work while
writing the report, and Esther Shubert for having prepared a background research paper for the
report. In New Haven, Connecticut, on 30 October 2015, the author participated in an expert meeting
to discuss this study organized in collaboration with the Yale University Global Justice Programme
and the organization Global Financial Integrity. The author thanks all participants for their feedback
and in particular Thomas Pogge for his generous support. Some of the arguments, findings and
recommendations presented in this article were subsequently discussed by the author in concrete
country missions (see reports on Panama (A/HRC/37/5/Add.2), Switzerland (A/HRC/37/54/Add.3) and
Tunisia (A/HRC/37/54/Add.1), all presented to the United Nations Human Rights Council in February
2018, which are available at www.ohchr.org/EN/Issues/Development/IEDebt/Pages/IEDebtIndex.
aspx)
JFC
25,3
750
Journalof Financial Crime
Vol.25 No. 3, 2018
pp. 750-769
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2017-0029
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
1. Introduction
The flow of illicit funds destroys trust in public institutions and the rule of law, and it
shrinks the fiscal space for investing in public health care, education, social security and
other public goods and services. Illicit financial flows also contribute to the build-up of
unsustainable debt as governments lacking domestic revenue may resort to external
borrowing.
The global estimations of illicit financial flowsgive us a sense of how spread and rooted
this phenomenon is in the modern world and how harmful it is for societies and human
rights holders. They also tell us that cases such as the Panama papers and the Bahamas
leaks are just the tip of an iceberg.
Given the serious social,economic, financial, political and institutional implicationsof the
illicit financial flows, why is it doneso little to tackle this challenge? Well, it is obvious why
those persons and corporations in countries of origin and countries of destination, plus
intermediaries, benefiting from this business model, oppose to any legal andpolicy change
aim at reducing illicit financialflows.
On the other hand, it is true that states committed, when approved in 2015 the new
sustainable development goals,to “significantly reduce illicit financial”(target 16.4)[1]. Yet,
as no rigorous and independent monitoring mechanism has been put in place it is hard to
believe that this goal could be achieved by 2030. That is why it is so important that
genuinely interested states and civilsociety at both, national and international levels, make
this issue visibleand advocate with a consistent agenda.
This article tries to contributeto improve our knowledge and understanding of tax abuse
and illicit financial flows atglobal level and their implications for human rights,to make the
need for change more compelling, as well as to stimulate the debate around reforms that
need to be implemented to curbillicit financial flows.
There are a large number of phenomena classified as illicit financial flows, including
illegal tax evasion; tax avoidance by transnational corporations; bribery, corruption and
concomitant asset recovery; and other criminal activities. While those activities negatively
affect human rights in a number of ways[2], it has been estimated that the majority of all
illicit financial flows are relatedto cross-border tax-related transactions. Curbing tax-related
illicit financial flows thus has the potential to make the largest fiscal impact and would
enlarge domestic resources available for the realization of human rights, including social,
economic and cultural rights. This why this article focuses on tax-related illicit financial
flows: tax evasion by high net worth individuals, commercial tax evasion through trade
misinvoicing and tax avoidanceby transnational corporations.
The structure of this articleis as follows. After this introduction, in Section 2 definitions
of tax evasion and avoidance are proposed, and estimations of illicit financial flows are
presented. In Section 3, the tax abuse implications for human rights and sustainable
development are studied, in particular from the perspectives of equality and non-
discrimination, economic equality and the new Sustainable Development Goals. Section 4
reviews the obligations in the field of human rights and tax abuse, in particular those
referred to the maximum available resources, international assistance and cooperation, use
of funds and responsibilities of non-state actors. Section 5 presents and critically assesses
the recent international initiativesaim at curbing illicit financial flows. Finally, in Section 6,
some concluding remarksand recommendations are presented for discussion.
2. Tax abuse: definitions and estimates
Illicit financial flows can be definednarrowly or broadly. In their narrow sense, they refer to
unrecorded financial flows involvingfunds that are illegally earned, transferred or used, for
Illicit financial
flows and
human rights
751
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