Tax Justice Network reaction to #FinCENFiles leaks

Some of these people in those crisp white shirts in their sharp suits are feeding off the tragedy of people dying all over the world

~ Martin Woods, a former suspicious transactions investigator for Wachovia, quoted by BuzzFeed.

Alex Cobham, chief executive at Tax Justice Network, said:

“The FinCENFiles leak exposes two major flaws in the global regime to combat illicit financial flows – the process by which financial secrecy jurisdictions are able to facilitate and promote corruption and tax abuse in other countries. We commend the ICIJ and their global media partners in bringing these critical issues to public attention.

“First, the leaks show that the biggest financial market in the world has comprehensively failed to play its role in regulating cross-border flows of suspicious money. The size of the US financial sector and the dominance of the dollar in world trade means that US regulators hear of suspicions relating to illicit financial flows all over the world – but typically lack the capacity or the motivation to explore further, or even to notify other authorities of the threats they face. The USA ranks as the second most dangerous secrecy jurisdiction on our 2020 Financial Secrecy Index, largely for this reason – while demanding with menaces that others improve their transparency and cooperation, the United States typically refuses to provide any such cooperation to others.

“This in turn points to the second major flaw exposed by the work of the ICIJ: that the global system to combat illicit financial flows operates not on the basis of effectiveness, but of power dynamics among countries that are deeply unhelpful to progress. Just as a handful of large economies have prevented the OECD from taking serious action against the tax abuses of multinational companies, which impact lower-income countries most intensely, so too the balance of power around correspondent banking has produced deeply unequal outcomes.

“This leak lays bare deep failures in the US approach to correspondent banking – failures that allow all sorts of clearly high risk financial institutions in the USA and other secrecy jurisdictions to continue providing services to anonymous legal entities, sometimes with clear evidence of criminality. But at the same time, the crackdown on correspondent banking in supposed ‘high risk’ countries (typically lower-income countries) has thrown up obstacles to all sorts of legitimate business – from small- and medium-sized businesses in a smaller country like Barbados struggling to access financial services crucial to participating in international trade, to entire countries such as Somalia facing an almost complete cutoff as banks ‘derisk’ to meet biased international standards.

“The Tax Justice Network hopes that the FinCENFiles can be the catalyst needed to address these gaping flaws in the regulation of corrupt finance and tax abuse – both the failure of US regulators to meet their international responsibilities as the world’s dominant financial market, and the failure of international institutions including the Financial Action Task Force to provide a fair and effective approach to correspondent banking standards.

“Lastly, as will be revealed over the coming days, many of the world’s major financial institutions have comprehensively failed to meet their own responsibilities, in the name of turning a profit – however dirty. Swift and robust action is needed, including potential criminal charges, or banks will simply continue to treat the prospects of being caught and fined as a simple cost of business.”