03 February 2000
(Tax evasion, corruption, money laundering distort economies) (1780) U.S. Treasury Secretary Lawrence Summers says that as global economic interdependence increases every country becomes increasingly vulnerable to financial crime and corruption, which ultimately distorts economic growth and public trust. "Integration and technology can bring new life to old vices: be it a company's desire to evade the taxes it owes; a criminal's desire to launder the proceeds of his crime; or the corrupt official's willingness to bend or break the rules," Summers said February 3 at the annual meeting of the Committee of Hemispheric Financial Issues (CHFI) in Cancun, Mexico. A copy of his remarks was made available in Washington. Tax evasion and tax havens distort the economy and financial system of the host country, "encouraging non-transparency and a culture of deception," he said. This, in turn, "threatens to undermine the public trust upon which compliance, in all of our economies, depends." Corruption, Summers said, impedes development and "it distorts macroeconomic, monetary and financial policy decisions, adversely affecting public revenues." While these crimes often transcend national boundaries, Summers said it is equally important that the solutions not be constrained by national borders. Summers said that money laundering matters for two reasons: -- It is the lifeblood of criminals and provides the means by which they may be caught. -- And, it taints financial institutions, which can lead to destruction of public trust in their integrity. Following are terms and acronyms used in the text: -- OECD: Organization for Economic Cooperation and Development. -- CHFI: Committee of Hemispheric Financial Issues. -- OAS: Organization of American States. -- IFI: international financial institutions. -- IDB: International Development Bank. Following is the text of Summers' remarks as prepared for delivery: (begin text) [U.S. Department of the Treasury Washington, D.C. February 3, 2000] "THE REGIONAL AND GLOBAL CHALLENGE OF TAX EVASION, CORRUPTION AND MONEY LAUNDERING" TREASURY SECRETARY LAWRENCE H. SUMMERS REMARKS AT THE ANNUAL MEETING OF THE COMMITTEE OF HEMISPHERIC FINANCIAL ISSUES CANCUN, MEXICO We live in new global economy -- a new economy fueled by innovation and technology, the spread of markets, and the advent of emerging market economies. These changes hold out incalculable potential and opportunity for all of our economies. But we know that they also bring important challenges in their wake. In the financial sector especially, integration and technology can bring new life to old vices: be it a company's desire to evade the taxes it owes; a criminal's desire to launder the proceeds of his crime; or the corrupt official's willingness to bend or break the rules. In a more integrated world, all of these pose a serious threat to our economies and our people -- because they undermine the good governance and transparency in institutions on which economic development and growth will increasingly depend. And that threat does not stem solely from the activities that take place within our borders. As interdependence increases -- each country is as vulnerable to financial crime as the weakest link in the chain. In that sense they are global public "bads" in the same way that environmental degradation and terrorism are. They are not constrained by national boundaries -- and neither must be our solutions. For all of these reasons, it is right and important that the Finance Ministers of this region should take this opportunity to commit our countries to enhanced national and regional efforts to combat these problems. Just as war is too important to be left to the generals -- in a new global economy, the challenge of overcoming corruption and financial crime is too important to be a challenge for law enforcement agencies alone. Let me very briefly discuss each of these threats to good governance and transparency in our region and our efforts to combat them, including the very important step forward the countries of this region are taking today in the war against international money laundering. I. Tax Evasion and Tax Havens In a more integrated global financial system, offshore jurisdictions have become that much more accessible -- and the scope for tax abuse and avoidance has expanded. This puts pressure on national tax systems, particularly in the larger economies. It distorts the economy and the financial system in the jurisdictions that benefit, encouraging non-transparency and a culture of deception. And it threatens to undermine the public trust upon which compliance, in all of our economies, depends. For all of these reasons, we have devoted priority attention in the United States to combating international tax evasion and avoidance: -- Through greater exchange of information between national tax authorities, including in this region. -- By promoting, in various international organizations, including the OECD, measures to address the concerns raised by non-transparent practices, such as strict bank secrecy, and to address harmful tax competition. -- By examining our own laws to determine what changes are required to prevent the exploitation of tax havens by United States taxpayers. A number of other countries are working along similar lines. With these meetings, we are delighted that CHFI will provide another force for international action with regard to this issue. I particularly welcome our proposed call for enhanced efforts by the IDB (International Development Bank), the World Bank, and member countries to provide support for jurisdictions that are seeking to lessen the regional and global externalities that their financial regimes may create. The United States and the international community have and must continue to recognize and respond to the fact that smaller countries may be directly affected by such efforts, particularly when they have previously earned considerable economic benefit from offshore finance. II. Corruption Corruption impedes development by eroding trust in public institutions. It distorts macro-economic, monetary and financial policy decisions, adversely affecting public revenues, discouraging private investment, misdirecting public sector spending, and damaging the credibility of governments by undermining the confidence of both taxpayers and private investors. In all of these ways -- the core missions of finance and economic ministries are directly and adversely affected by corruption. But they have not traditionally considered themselves to be in the frontline of combating it. Increasingly and rightly, that perception is changing. For, if we have learned anything from developments in different emerging market and transition economies in the past decade, it is that there is no better antidote to corruption than the market, and the steps that governments take to enable the market to function. For example: -- Non-transparent financial procedures, excessive regulations, and under-trained and under-paid civil servants all create incentives for bribery and fraud. By the same token, addressing these problems greatly constrains their scope. -- Lack of competition in the financial sector and bribery of financial regulators and supervisors adversely affects the allocation of private capital, permits money laundering to flourish, as well as increasing the vulnerability of financial systems to crises. Properly handled, financial liberalization can therefore combat corruption and money laundering as well as promote growth and financial resilience. I welcome CHFI's proposed new push in this area, including our call for strengthened IFI efforts, particularly with respect to helping national financial officials find the right ways to promote integrity and tackle corruption in fiscal, budgetary, customs, procurement and financial regulatory administration. Going forward, we must work to support the same objectives in our own countries -- notably through more effective implementation of the objectives of the Inter-American Convention Against Corruption, to bring this Hemisphere into line with the OECD and Council of Europe. In this context I believe a follow-up OAS mechanism for multilateral and mutual review and evaluation of implementation progress can and should play a useful role and bring this Hemisphere into line with anti-corruption efforts in the OECD and the Council of Europe. III. Money Laundering: A Comprehensive Approach Money laundering matters for two reasons. First, because it is both the lifeblood for criminals and a means by which they may be caught. And second, because it taints our financial institutions and if left unchecked, eats away at public trust in their integrity. Addressing this many-layered threat is a challenge of national policy. Last year, President Clinton published the United States' first National Money Laundering Strategy, a comprehensive set of concrete actions we are taking to address the problem, some of which were included in the Money Laundering Act of 1999 that was submitted to Congress in the Fall. If passed, that legislation would for the first time make it a crime to launder money derived from foreign official corruption. It would also make bulk cash smuggling of more than $10,000 a crime -- and give our law enforcement officials new tools to go after the largest known money laundering system in this hemisphere, the Black Market Colombian Peso Exchange. As the latter example highlights, this is equally a challenge of regional and international cooperation. That is why developing and expanding the work of the Financial Action Task Force (FATF) -- and its Caribbean regional equivalent, the Caribbean Financial Action Task Force (CFATF) -- is so important. And it is why the creation of a regional counterpart to FATF and CFATF in South America is so welcome. International fora such as the FATF and the CFATF provide recommendations for specific actions that governments can take to help shield their financial systems from dirty money, and prevent its movement across international borders for criminal purposes. Equally important, these bodies provide mechanisms, such as the Self Evaluation and Mutual Evaluation programs, to ensure that member governments effectively implement these recommendations. As I said at the beginning of my remarks, those who engage in financial crime derive maximum advantage out of international integration, and so must the governments who want to stop them. We need to expand the community of nations that subscribes to these kinds of protective measures if they are to be truly effective. In that sense the new South American FATF is an idea whose time has come. I thank and salute here the governments of Argentina and Brazil, for their leadership role in working to establish such a forum. Countries cannot win the war against international financial crime on their own. With the creation of a Caribbean and, now, a South American FATF, they will not have to. What matters is that every country move quickly to make good on the commitment they will make here today, to subscribe to these bodies and work to implement effective and truly collaborative solutions. In that same spirit of collaboration, let me now hand the floor to my friend and colleague from Argentina, Daniel Marx. (end text) (Distributed by the Office of International Information Programs, U.S. Department of State.)