Photo: Save the Children

Tackling Illicit Financial Flows & the Post-2015 Goals

By Francis West, Head of Inequality and Sustainable Development, Save the Children

With world champions Spain, the Netherlands and Chile in their World Cup group, it’s fair to say that Australia were always going to struggle to make an impact in Brazil last month.

But they will have a much greater say at another global gathering this year, one that could have much grander implications for Brazil and the wider world. The G20 Leader’s Summit, this year hosted by Australia in November, aims to build global economic resilience and stimulate growth. Taking place in the midst of the UN negotiations on the Post-2015 development framework, a debate that is rapidly turning towards the tricky question of how to fund the new set of goals, the G20 could lay the foundations for a new approach to development financing. That new approach is needed now more than ever.

The Overseas Development Institute has estimated that additional funding required, over and above all existing spending, to meet expected Post-2015 targets in education, health, water and sanitation, food security and nutrition alone will be somewhere between $26 billion and $50 billion per year for each of the four sectors. Development aid alone won’t cut it. Much of the funding will need to come from developing countries themselves. As such, it is positive that the G20 agenda includes a focus on modernising the international tax system and fighting corruption. A new report launched by Save the Children this week suggests that addressing these issues will be central to eradicating preventable child deaths and to ensuring access to clean water.

In 2011, almost US$1 trillion was siphoned out of the budgets of the poorest countries through illicit financial flows like tax evasion, bribery, money laundering and manipulation of trade prices. Partially as a result, half of sub-Saharan countries collect just 17 percent of their GDP in tax compared to 35 percent in rich countries, which means they’re effectively being stunted in their ability to improve their economies and help their most needy citizens.

For example, between 2010 and 2012 five dodgy deals cost the Democratic Republic of Congo over US$1.3 billion in revenues through the undervaluation of assets and sale to foreign investors, according to the Africa Progress Panel 2013 report. This sum represents twice the annual health and education budgets of a country with one of the worst child mortality rates in the world and seven million school-aged children out of school.

But there have been success stories too.

In Rwanda in 1998, the federal government used part of a £20 million grant from the United Kingdom to set up the Rwandan Revenue Authority. Since then the UK and other donors have helped make the RRA more efficient to the point it now collects the value of that original grant every month.

Save the Children’s new report Tackling Tax and Saving Lives argues that if all developing countries captured illicit financial flows, they could wipe out preventable under five deaths entirely by 2030 – 20 years ahead of the current timeline.

Tax is often a dirty word in the political debate in wealthy nations. But this isn’t an anti-business agenda- particularly when talking about illegal tax evasion, as opposed to the ethical debates on tax avoidance.

Robust tax systems are the core of modern, developed economies, and there is clear evidence that developing economies that bring in more tax revenue also enjoy reductions in poverty like lower under-five mortality, more children that complete primary school, and more people with access to improved water and sanitation.

Increasing tax revenue to 20 percent of GDP could save almost 287,000 children’s lives each year and provide an extra 72 million people with access to clean water, according to our report. These sorts of figures really do bring into perspective detailed wrangling on tax codes and reporting systems.

But the benefits of taxation go beyond financing. Budget commitments garnered from domestically mobilised revenues indicate political commitment and governments are more likely to be accountable to the citizens who paid taxes. What matters is not just how much money is available to be spent, but where the money comes from and how that shapes spending priorities.

But developing countries cannot achieve this alone- this requires concerted global cooperation. To help developing countries recoup lost tax revenue, developed countries must put their own house in order, honouring commitments made to clamp down on tax havens and encouraging corporations on their shores to be more transparent about ownership, profits and tax payments.

For the last month, the world has been well and truly engrossed in the biggest sporting event on the planet. And while the lead up meetings to the G20 Summit will happily take place in the shadows of the World Cup, hopefully the legacy they leave behind will have a lasting impact on the world’s poorest people for many generations to come.

Francis WestWikipedia: Francis West was a Deputy Governor of the Colony and Dominion of Virginia.

Share this story

3 Responses

  1. Wonderful analysis. At least 100 billion a year for the four sectors and if the reforms suggested were implemented it would be easy to fund the needed changes. Meanwhile, recognizing that an organized group of villagers with financial clout and a vision of the future is the starting point of any development effort savings groups provide a very low cost, sustainable and virally self-replicating way to achieve this objective. Each million dollars will establish savings groups in about 600 villages that according to a Gates funded RCT in Mali will be translated into a village wide decrease in chronic hunger and building assets while spreading to nearby villages at no additional costs. A team of anthropologists identified a substantial increase in social capital. There are nearly 800,000 savings group members in Mali with over a million in Tanzania and Uganda dwarfing microfinance in these countries while accomplishing financial inclusion at a tiny fraction of the cost of the institutional alternatives. The principles underpinning savings groups – starting small with a vision of scale, simplicity, building on local traditions, local control and accountability can be applied across the development spectrum. for more information contact Jeff Ashe, ja****@ao*.com 

  2. We must not let African leaders off the hook in discussions relating to illicit financial flows. Deals in which multi national companies are given huge tax breaks to entice them to invest are agreed by these leaders and equally they make it easy for the money to leave their shores without due regard for their citizens. 

    The same leaders are also responsible for tax collection as well as ensuring that, all citizens benefit from that revenue. But as we all know this does not always happen. 

    In my opinion, the buck stops with these leaders and if they governed in the interest of citizens, that amount of money would not leave Africa

  3. At FairWater, we embrace the idea of business-fights-poverty, because we have seen that charity-fights-poverty does not work in the end.


    One of the reasons is that in the charity approach for development there is too much room for illicit and fraud funding. Not in the last place because charity organizations are not transparent about their long term results.


    Why? The simple reason is that they don’t need to be. Their successful business model is based on clever PR to crate emotions that will stimulate people and governments that represent these people to donate to finance their day to day activities. There is no accountability for long term results. They build schools, hospitals and water points, but they do not provide sustainable conditions for teachers, doctors and maintenance of the water points. On top of that, the NGOs themselves are often tax exempted, so do not contribute to the baseline needs for the society that they claim to help.


    Taxes are important, in fact the only true indicator for development of a country is how effective the tax system is and how transparent the money is used. Taxes are supposed to create a fair society and a part of it must be used to respect the human rights of poor people. This will create a more stable society in which the business community can flourish. Therefore it is not only in the interest of the private sector to pay taxes, but also the private sector should be concerned how the taxes are used.


    Donors for development play an important role in this. They intervene with massive funding in the private sector, but often play around with the tax systems. When tax revenues are limited and not transparent, it is only due to natural human behavior that fraud and corruption takes over.


    It is an illusion to think that we can erase corruption and poverty in this world. But when more aid funding will include taxes, this could be the start of a more transparent tax system that will ultimately also benefit the poor that are supposed to benefit from these aid projects in the first place.


    FairWater is a social enterprise with a focus on cost-effective public water points that can be maintained at very low cost, see our website for more info.


    Paul van Beers



Next Event

Business Fights Poverty Global Goals Summit 2024