The Financial Accountability and Corporate Transparency (FACT) Coalition estimates that emerging market economies lose in toto nearly $1 trillion—or 5% of GDP—every year to illicit financial activity. Some African countries lose over 30% of their tax revenue to tax avoidance schemes. Without measures to support transparency, corruption threatens the ability of emerging market governments to deliver services and repay sovereign debt.
Gary Kalman, Executive Director of the FACT Coalition, discussed two corporate transparency issues and how they harm public finances, especially in emerging markets:
(1) Corporate tax avoidance and evasion through the shifting of undisclosed profits overseas, which generates uncertainty and detracts from public fiscal health and economic activity.
(2) Lack of beneficial ownership information, which allows executives to create anonymous corporate structures to facilitate illicit practices, such as money laundering, tax evasion, and trade in counterfeit or pirated goods.
Gary discussed several effective enforcement measures that have improved transparency in the EU and their implications for the developing world. Studies by the World Bank and others demonstrate a positive correlation between government transparency and global competitiveness.