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Why Illicit Financial Flows And Multinational Tax Avoidance Are Not The Same Thing (ICTD)
May 10, 2018
From the article:
Professor Sol Picciotto recently wrote an article which responds to a paper I wrote on the question of what is meant by “illicit financial flows” (IFFs) and in particular whether tax avoidance and tax planning by multinational enterprises should be included in the concept.
As a reader of the ICTD website it is likely that you, like Professor Picciotto, are a member of “team tax”; someone who would answer the question ‘is taxation interesting and important?’ with ‘hell, yeah!’. I also count myself as a member of this team. We are also members of “team development”; concerned with advancing prosperity, equity and peace. Beyond that, we are members of “team research”; we seek to make a contribution to the common good through developing and testing ideas, including through robust, collegiate debate.
It is in this spirit that I am responding to Professor Picciotto’s article.
The question of defining IFFs has become particularly salient in relation to the Sustainable Development Goals, where they are included as a target. As members of “team tax” you may be inclined towards the argument that tax avoidance is, or should be, included under this target, since to exclude it might suggest that it is not important. But the question of whether taxation is important is not the same as whether tax avoidance really belongs under the IFF umbrella.
Collecting tax is not the only challenge to building capable states. Public institutions can get stuck in persistent failure, driven by a mismatch between capacity and expectations, playing out as corruption and ineffective public services. In this environment crooked and corruptible businesses crowd out those that won’t or can’t play that game. ‘Violent entrepreneurs’, strongmen and organised crime fill the gap in state capability. The billions of dollars looted by leaders from national treasuries represents only a fraction of the damage done.