Economic Transparency Curtailing The Shadow Financial System

Source: Task Force on Financial Integrity and Economic Development, February 2009

We may be at a rare moment when the interests of rich and poor countries are synonymous.

At the heart of the current worldwide economic crisis is a lack of transparency in the global financial system. This is the end product of a half century of creating and expanding a shadow financial structure comprising tax havens, secrecy jurisdictions, disguised corporations, anonymous trust accounts, and fake foundations. Also included in this system are trade mispricing mechanisms, money laundering techniques, and gaps left in western laws that facilitate the movement of corrupt, criminal, and commercially taxevading money across borders. Some estimates suggest that as much as half of global trade and capital
movements pass through this shadow financial system.

The consequences of this murky structure and the money it moves are now clear:

• In developed countries, credit has dried up in large part due to the difficulty of appraising the
quality of assets held by financial institutions that operate partially or wholly within this opaque
system. This includes almost all major U.S. and European banks.

• In developing countries, an estimated $1 trillion a year of illicitly generated money is shifted
abroad through this system, constituting the most damaging economic condition hurting the poor, undermining poverty alleviation and delaying sustainable growth.

The Task Force on Financial Integrity and Economic Development urges the G-20 to focus on substantially improving transparency in the global financial system. Thus far in discussions and commentaries, greater emphasis has been given to strengthening regulation within the existing structure. While some regulatory improvements are certainly needed, we believe this emphasis is misguided. Far greater benefit can arise by significantly curtailing the shadow financial system that is clearly at the root of the economic crisis all nations are facing.
See also:
Economic Crisis + Offshore
Source: Tax Justice Network, 2009

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