Financial transparency

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Financial transparency strengthens economic security, the rule of law and democracy The global economic crisis has shown the scale of the financial excesses which undermine the economic stability of States in the long term. The declarations from the G20 Heads of State and Government Summits, and the recent G8, insist on the urgent need to promote greater transparency internationally through comprehensive and concerted efforts. Promoting financial transparency appears to be the appropriate response to combat financial opacity and economic instability.

It is with this in mind that the French Presidency of the G20 (November 2010 - November 2011) made financial transparency a central priority, with the determination to promote all its dimensions: prudential (not tackled here), tax and financial, with combating corruption as a cross-cutting focus.

Fighting Corruption

Corruption is a scourge which affects all countries, developed or not. It is a brake on development and the poorest people are the hardest hit by its consequences. According to a World Bank study, the sum of bribes paid each year amounts to more than $1000 billion, representing around 9% of global trade.

Economically, corruption leads to unfair competition as not all companies comply with the same rules on it. Strengthening international regulations and generalizing sanctions help companies today to establish whistle-blowing and compliance procedures. These actions, far from undermining the competitiveness of these businesses, allow them to reposition themselves on more innovative and promising markets.

France has made combating corruption a priority. For this purpose, it promotes strengthening of international regulations in international bodies (United Nations Convention against Corruption, OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, European institutions, Council of Europe, etc.). A G20 working group also contributes to maintaining political impetus in this matter.

Money laundering

The Financial Action Task Force (FATF) was created in 1989 in the framework of the G7. It is the body responsible for disseminating and enforcing international anti-money-laundering standards. For this purpose, it drew up a series of 40 recommendations for States and financial and non-financial professionals. This corpus is a common financial governance "soft law" standard but which draws its strength from the recognition it has acquired since 1989 at international level. It is revised regularly to take into account new trends and lessons learnt. Its latest update was validated in February 2012. In November 2001, the FATF’s mandate was extended to cover fighting the financing of terrorism.

The recommendations of the FATF mainly cover:

  • establishment of due diligence (knowledge of the customer and transaction record-keeping);
  • reporting of suspicious transactions to financial intelligence units (TRACFIN in France), which should analyse and communicate its results to the courts where necessary;
  • prosecution and conviction of those involved in money-laundering.

The FATF has 36 members (the major OECD countries, G20 members except Indonesia and two regional international organizations: The European Commission and the Gulf Cooperation Council). The other world countries are covered by nine regional bodies similar to the FATF, applying the same standards.

Since the 2009 London G20, the procedure for identifying high-risk jurisdictions has been strengthened within the FATF. Thus two lists have been updated during each plenary since 2010:

  • A public Statement (the “black list”), which includes the countries that are not engaged in an FATF action plan or where the progress made is insufficient with regard thereto;
  • A list called “Improving Global AML/CFT Compliance: on-going process” (the “grey list”), which identifies countries which have weaknesses in their systems to combat money laundering and financing of terrorism and which have accepted to engage in an action plan with the FATF to strengthen them.

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Combating tax havens

Combating tax havens has gradually become a priority on the international diplomatic agenda, as the erosion of tax bases is even more prejudicial in times of crisis and great fiscal constraints. It is also a major development issue, as developing countries are the primary victims of multinational companies’ tax avoidance and optimization strategies, particularly through the manipulation of intra-group transfer prices.

For information, tax avoidance covers all behaviours by taxpayers aimed at reducing the amount of tax they would normally have to pay. If it uses legal means, tax avoidance thus falls into the optimization category. Conversely, if it relies on illegal techniques or hides the true scope of its operations, avoidance falls into the evasion category.

At the initiative of France and the G20, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has become the body of reference for international standards in the fight against tax havens. The Forum currently has 120 members and goes well beyond the simple signing of bilateral intelligence exchange agreements, assessing effectiveness through a robust peer review mechanism.

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Updated on: 01.03.13