"Bribes to the tune of $1.5–$2 trillion change hands every year. Tax evasion costs governments more than $3 trillion a year, and countless more is lost through other illicit activities. This is money that could go for health care, education, and infrastructure for millions worldwide. But the cost to society is far greater: corruption distorts incentives and undermines public trust in institutions. It is the root of many economic injustices young women and men also suffer every day,” stated the September edition of the Finance and Development (F&D) research series issued by the International Monetary Fund (IMF).
The IMF shined a spotlight on the dark web of secret transactions that enable tax evasion and avoidance, money laundering, illicit financial flows, and corruption.
To the IMF, the question is not only how it needs to change if it is to remain relevant. It is also whether the political environment will allow it to remain relevant. The IMF is built on a commitment to cooperation among member countries, but it is on the wane.
“The countries of the world might rediscover its importance. If so, they will find the fund an invaluable instrument. The IMF cannot ensure that outcome. But it can, and must, prepare for it. To its credit, it is doing so,” the research said.
The gross world product (GWP) last year recorded $87 trillion, up from $11 trillion in 1980. The GWP is one of many measures of well-being, and the improvement is notable.
However, $7 trillion, representing eight percent of global GDP, is the amount of private wealth estimated to be hidden in offshore financial centers, much of which likely comes from illicit activities, according to the research.
On the other hand, as it mentioned, the gain in government revenue is estimated at $1 trillion that could be achieved by reducing corruption around the world by one-third.
These numbers put in the limelight the hidden corners of the global economy, the money that escapes the reach of tax collectors, regulators, and law enforcement, the research added.
“These are the ill-gotten gains of graft, the proceeds of regulatory arbitrage, and the profits from tax domiciles that some consider to be the equivalent of tax evasion. Taken together, they detract from the public good. It is money lost that could be put to use improving people’s lives”, read the report.
At the same time, the rise of digital finance, crypto assets, and cybercrime adds to the challenges, as it became a hidden marketplace for everything from stolen identities to arms and narcotics, according to the research.
To deal with this serious issue, the research said, countries ought to entrench governance and transparency policies. The job was not easy, it added, because it required sustained, long-term efforts, but joint action would bring tangible benefits to millions of people.
“Demands on government resources are building to boost growth in some advanced economies, build infrastructure in emerging markets, and improve health and education in the developing world. So the draining away of trillions of dollars represents a threat to our well-being. It contributes to a weakening of trust in government and undermines its ability to address key economic problems like inequality and poverty,” the F&D research said.