Stopping corruption to stop poverty

Clean water, low child mortality rates, decent levels of education and halting climate change. The global to-do-list for the years ahead has an estimated price tag of US$1 trillion per year. At the same time about US$1 trillion of unpaid taxes, stolen public funds and other corrupt cash never make it into the budget coffers of many of the countries that suffer from these problems.

It’s time for global leaders to do the math on solving the problem of poverty.

Tackling corruption must be central to discussions by world leaders meeting in Addis Ababa, Ethiopia this week to figure out how to fund sustainable development and the proposed global goals set for 2030. For Transparency International, targeting the problem of corruption – and illicit financial flows in particular – can help governments unlock critical funds for sustainable development.

For example, the US Senate estimates that tax evasion by US-based firms and individuals cost the government around US$100 billion annually.

The high costs of development

Annual investments of up to US$80 billion will be required to reach universal healthcare by 2030. An additional US$38 to US$42 billion is needed annually to achieve primary education for all and up to US$27 billion a year for access to water and sanitation.

All this does not even take into account the monies required to stop climate change. Estimates suggest an additional US$700 billion per year could be spent to put the world on a path of green, sustainable growth.

Yet corruption drains cash from public coffers, making long-term growth an uphill battle. An estimated US$1 trillion of what many refer to as illicit financial flows leave developing countries in the form of tax evasion, embezzlement, bribes, money laundering and smuggling. Worryingly, these flows have increased at a rate of 9.4 per cent each year for the last decade.

Take the case of Bangladesh. Corruption led to an outpouring of public money into secret Singaporean bank accounts rather than programmes to combat maternal mortality, HIV/AIDS and the lack of clean water. This money could have paid for a year of school for more than 300,000 children (see below).

Need for deeds and not words

Governments need to match promises made in Addis Ababa with actions. These include:

• Better corporate reporting standards. Countries should require companies to report important information like taxes paid, revenues and employees on a country-by-country basis, as the European Union has recently approved for all sectors.
• Transparency about the real owners that benefit from a company. Information should be updated regularly and, in the case of companies, publicly available. Public procurements should require bidders to declare their real, beneficial owners.
• Due diligence procedures by banks and financial institutions must be strengthened and enforced by governments. Governments should publish lists of politically exposed persons (or people with prominent public roles and their relatives and known associates), as well as any asset declarations filed by these people.
• Recovered assets should be tied to developmental and green projects in close cooperation with development agencies and with national authorities of the source country.
• More and better information is needed on illicit financial flows. There needs to be an agreed definition of illicit financial flows and governments must publish official estimates of their volume and breakdown in line with the proposed outcome document for the Addis Ababa conference.
• Use open data standards to follow the returned money. The International Aid Transparency Initiative offers a good open data standard for reporting on aid, and could help track other development flows.