Why illicit financial flows are a feminist issue!

by Attiya Waris

© WU Wien

Attiya Waris is an advocate, arbitrator and senior lecturer at the Law School, University of Nairobi in Kenya where she has been teaching for over 12 years. In 2016 she was a visiting researcher at the Institute of Austrian and International Tax, Vienna University of Business and Economics. Attiya is both author and co-author of several taxation articles and books including “Tax and Development: Solving Kenya’s Fiscal Crisis through Human Rights” (2013).

International Financial Flows (IFF) have different definitions. However simply put, it is the movement of money in all its forms whether in cash, goods, services from one country to another. However, this money has certain characteristics; it may be illegally earned (e.g. black money), illegally transferred (through smuggling of cash or an illegal trade like ivory trade) or illegally utilised (for example through purchase of narcotics) making IFF both legal and illegal. My policy brief for the Association for Women’s Rights in Development (AWID) titled “Why illicit financial flows are a feminist issue!” explains not only what Illicit Financial Flows (IFFs) are, but also what their causes are and the effect IFFs have on gendered concerns.

What is tax evasion and tax avoidance?

Both tax evasion and avoidance are decided upon at the domestic level within a state through law, policy and regulation. Evasion or avoidance varies between different states because it is specifically based on the laws of a state.
Tax evasion includes ways of reducing the amount of taxes one pays to the state that has been declared illegal by virtue of domestic laws declaring it as such. It is a crime. Tax avoidance includes methods of reducing tax due to the state by using the law, absence of laws or absence of clear laws to reduce the amount due. It is not necessarily illegal however it is considered morally reprehensible (Riddle, 1981).


© L. Edmondson/flickr.com

What are IFFs?

The concept of IFFs is characterized by a lack of a unique consensual definition. There are two main definitions. One, equates 'illicit' with 'illegal', so that IFF are movements of money or capital from one country to another that are illegally earned, transferred, and/or utilized. This would include individual and corporate tax evasion (which is illegal) but not avoidance (which is legal), and other criminal activity like bribery or the trafficking of drugs or people (Cobham, 2015).
Two relies on the dictionary definition of 'illicit' as 'forbidden by law, rules or custom' – encompassing the illegal but also including the socially unpalatable, such as the multinational corporate tax avoidance. This definition would allow countries with weak laws to include the concern on the one hand but also allows countries with more robust laws with loopholes to close these laws that are being used inappropriately.

What causes IFFs?

The contexts that allow IFFs to take place are numerous and interlinked but can be explained in four central issues:
1. An exclusionary global financial system: To date there is no global body or institution where laws, rules regulation and even good practices can be made through a globally democratic process, there are only exclusionary membership based organizations that make rules unsurprisingly for their members’ benefit.
2. Shrinking political space to shape national tax policies: In order to attract investment there are more and more tax incentives being given. A recent public statement was made by an IMF lawyer that although conditionalities are decreasing, tax conditionalities have been increasing: developing countries are not deciding on their economic and fiscal future (Taxpayers Rights Conference, Vienna 2017).
3. Tax havens or secrecy jurisdictions: There is a vast network globally of over 90 countries offering different types on tax breaks and incentives to encourage Foreign Direct Investments (FDIs). The most interesting example however is that of Switzerland. The extra-territorial impacts of Switzerland’s opaque financial legislation on women’s rights and gender equality was the subject of a submission by a group of civil society organizations, at the Committee on the Elimination of Discrimination Against Women (CEDAW) in 2016. The submission mentions India ranked 16th out of 200 countries in terms of the amount of offshore wealth held by residents in Geneva, Switzerland. “Though it is difficult to ascertain the exact percentage of these funds that were un-taxed in India, reasonable estimates suggest that the Indian government lost out on between US $492 million and $1.2 billion in direct tax revenue that could have been collected on the funds held in just this one branch of this one bank in Switzerland – a sum equivalent to 44% of the expenditure allocated to women’s rights and 6% of the total national social sector budget for 2016/2017” (Zee News India, 2017).


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4. Low levels of state resources: The present international tax system allows Multinational Companies (MNCs) to move their capital around the globe in order to pay the lowest possible tax. As Professor Sol Piccioto notes in a report for the Tax Justice Network, MNCs are treated “as if they were loose collections of separate entities operating in different countries. There is currently only weak coordination between tax authorities, and this ‘separate entity’ approach gives MNCs tremendous scope to shift profits around the globe to suit their tax affairs” (Picciotto, 2012). As a solution to the problem, he proposes a Unitary Taxation system where MNCs “would be taxed not according to the legal forms that their tax advisers create for them, but according to the genuine economic substance of what they do and where they do it.”

The disproportionate impact of IFFs on gender justice

Gender impacts of IFFs tend to be understood and studied at the national and even local level, with scarce literature that focuses on the global impact of IFFs as an obstacle to the realization of women’s rights and gender justice.
1. Impact on delivery of social services: the less revenue a state collects the less money is spent on social services and more often than not women’s services are the first to feel the bite
2. Unemployment and underinvestment in an economy: Women tend to form the majority of the informal sector and the less money there is in an economy the fewer women are paid. However the recent research into the gender pay gap also means that there is a higher pay gap in some sectors including finance itself
3. Regressive fiscal policies: IFFs often trigger regressive tax policies – countries facing budget deficit tend to cover that through increased consumption taxes rather than taxing the wealthy. These directly affect the family unit.
4. Reliance on debt and development cooperation: Equitable and progressive tax policies, based on human rights, have the potential to reduce inequalities and redistribute resources to achieve development goals and end impoverishment.
5. Threat to women’s peace and security: Hidden wealth also increases inequality between developed and developing countries.
6. Resourcing for women’s rights and gender justice: Lost resources through IFFs often cannot be used legitimately and end up fueling criminal activity, including illegal arms trade, human trafficking – of which 49% of victims are women and 21% are girls – and other activities undermining peace and human rights (Grondona et al, 2016) (15 September 2017).

Further reading

Center for Economic and Social Rights et al. (2016) Swiss Responsibility for the Extraterritorial Impacts of Tax Abuse on Women’s Rights. Submission to the Committee on the Elimination of Discrimination against Women 65th Session, November 2016.

Centre for Budget and Governance Accountability and Financial Transparency Coalition (2015) Illicit Financial Flows: Overview of Concepts, Methodologies and Regional Perspectives.

Cobham, A. (2016) Breaking the vicious circles of illicit financial flows, conflict and insecurity. ECDPM, GREAT Insights Magazine, Volume 5, Issue 1, February 2016.

Grondona, V., Bidegain N. and Corina Rodríguez Enriquez (2016) Curbing Illicit Financial Flows and dismantling secrecy jurisdictions to advance women’s human rights, London.

International Consortium of Investigative Journalists (ICIJ) (2016) The Panama papers.

ILO (2016) Women at work. Trends 2016, Geneva.

Financial Flows from Africa (2015)

Ritter, I. (2015) Illicit Financial Flows: An Analysis and some Initial Policy Proposals. Friedrich-Ebert-Stiftung.

Tax Justice Network (2015) 10 Reasons Why an Intergovernmental UN Tax Body Will Benefit Everyone.

Tax Justice Network (2015) Financial Secrecy Index

Waris, A. (2013) Tax and Development: Solving Kenya’s Fiscal Crisis through Human Rights, Law Africa, Nairobi.

Picciotto, S. (2012) Towards Unitary Taxation Of Transnational Corporations. Tax Justice Network, 2012.

Riddle, Joan (1981) "Tax Evasion vs. Tax Avoidance." Resource News 6 (1981): 12.