Speech/statement | Date: 28/09/2018 | Ministry of Foreign Affairs
By Former Minister of International Development Nikolai Astrup (New York, 28 September)
Minister of International Development Nikolai Astrup's statement at a side event during the United Nations General Assembly.
As the interventions today have highlighted, illicit financial flows can take many different forms, and transfers are organised in many different ways. However, the result is always the same.
Ordinary people’s lives are being disrupted and their hopes stifled.
We must do what we can to finance development. But there is little point trying to fill a bath tub if the water just runs down the drain.
Siphoning off resources by illicit means not only slows development, it also undermines the whole structure of society.
It is not just the loss of large sums of money that is the problem; citizens also lose confidence in their elected leaders and public institutions. Citizens who pay taxes and contribute to society become disillusioned. Law-abiding companies find they are not competing on a level playing field, and the barriers to market entry are artificially high.
As long as a shadow financial system continues to exist, the whole fabric of society will be affected.
As long as corruption and deception are rewarded with wealth and prosperity, we are bound to fail in our goal of leaving no-one behind.
As long as secrecy and misuse of power persist, markets will fail, and democracies will not thrive.
We simply must plug that drain.
We must establish new practices and norms and create a global financial system that is sustainable in the long term.
As all of us here today are rightfully impatient for progress, we must also remember that progress has been made.
The G7, the G20, the OECD, the World Bank, the International Monetary Fund, the European Union, the African Union, and – not least – the United Nations General Assembly all agree. We must step up international cooperation to prevent corruption, stop financial crime and curtail illicit financial flows. In addition, several multinational companies and investment funds have expressed their support for this agenda.
This was not a given 15 years ago. Now it is time for this high-level political commitment to be translated into action.
As has been highlighted here today, the problem may be complex, but many solutions have already been identified. In other words, the theory of how illicit financial flows is well developed.
Allow me to digress for just one moment. Out in the Arctic Ocean there is a small Norwegian island called Jan Mayen. [And no, it is not a tax haven.] On that island, there is a research station. And one of the first things you see when you arrive there is a sign that says:
Theory is when nothing works, but everybody understands why.
Practice is when everything works, but nobody understands why.
At this station we combine theory and practice
so that nothing works and nobody understands why.
It is now time to put the theory into practice. To make sure that it works, and that everybody understands why.
While Unctad and UNODC are doing important work on theories, definitions and measurements, we cannot wait to put the knowledge we already have into practice.
First of all, we must combine national and international efforts. Effective international solutions are important, but they take time. National solutions are often within easier reach, but may not seem feasible for various reasons
Such as the fear of being the first mover. The fear of being the first to make transparent beneficial ownership information a requirement or to institute more thorough tax audits, and set legal precedence. The fear that being the first mover on these issues will make crucial investments and job creation less attractive. The fear of losing a competitive edge or comparative advantage.
In the short-term, this these fears are rational. However, in a long-term perspective, this is not the case. Tackling illicit financial flows may disturb a perverse balance in the short run, but will create strong markets and robust democracies in the long run.
We need to support those leaders who have this insight, bolster their resolve, and assist them in removing obstacles to reform.
Another reason why tackling illicit flows at the national level may seem impossible is the prospect of certain failure. Although a leader may know what needs to be done, she may also see that the system does not have the capacity to take the necessary steps.
This is a perfectly legitimate concern. Embarking on reform of tax policy and the tax system requires a civil service that has integrity, can exercise leadership and –crucially – has capacity.
This means having sufficient expertise in the first place, coupled with additional resources to implement reforms.
We have seen many examples of countries where strong political leadership has made it possible to find capacity at the national level. However, very few manage to do this without some international support.
Committed experts in fields like complex tax, auditing, compliance verification, transfer pricing, tax legislations, investigation of financial crime, are all critical to tax reform. Finding experts in all these fields is challenging for any country.
I hope that renewed international commitment to develop capacity will give leaders the confidence that success is a real option. Norway will fulfil its commitments to double support to capacity-building in this field by 2020, and we look forward to seeing all the other signatories of the Addis Tax Initiative do the same. Because putting theory into practice and matching capacity to identified solutions is possible.
As we overcome the obstacles to domestic action, we must pursue international cooperation.
In my view, our international solutions must focus on three things: accelerated cooperation, far-reaching transparency, and unflinching justice.
First, the problems we face are global in nature. Criminals and opportunists are using loopholes and discrepancies in the global system to enrich themselves. In the process, they are robbing people of their future, destroying the free market and jeopardising democracy itself.
Accelerating international cooperation may seem risky and costly, but international cooperation always bears fruit. The Platform for Collaboration on Tax made up of the IMF, the World Bank, the OECD and the UN was established earlier this year. We have high expectations that this will create an arena of clear complementarity of action, and reduce risk aversion.
We need these global organisations to lead the way and help us develop the norms and rules that are needed to close the loopholes - for good. We urgently need to put in place standards and practices in international accounting and finance that are fit for purpose in today’s global economy. Norway will do its part and support the platform partners in their endeavours.
Second, far-reaching transparency policies must be pursued. We have seen a good deal of progress in this area, but it must go further. Ideally we will reach a stage where all countries automatically share critical tax information with each other.
We should also develop a harmonised system of beneficial ownership registries so that any country can assess who is really benefiting from economic activity and value creation in their economy. Transparency is good for business, and good for governance.
Achieving far-reaching transparency requires intense international effort to improve the way intellectual property information and sensitive business information are handled. It is crucial to improve information security and strengthen international confidentiality norms. This requires strong governance and the willingness to err on the side of transparency, rather than on the side of secrecy.
Third, we must ensure that international crime is met with by unflinching justice. Legislation must be internationally coordinated and updated to keep up with new methods and approaches that are continually being developed by those engaged in these crimes. Closer international cooperation on investigating and prosecuting illicit financial flows must also be developed.
Financial intelligence units must find ways of cooperating seamlessly across borders, and litigation must be prioritised and not allowed to drag on for years. Swift and firm action to prevent impunity is a good long-term antidote for this poisonous crime.
-Domestic and international action needs to be complementary and mutually supportive in this effort of putting the theory into practice – and plugging the drain. I am an optimist. I believe that renewed attention to these issues will foster stronger leadership. Norway will do what it can to make sure that this is the case.
Finally, I would like to thank Nigeria for showing precisely such leadership. We greatly appreciate our collaboration on these issues. You know the theory, and you are putting it into practice.
Thank you. I will now open up the floor for comments and questions.