Edmund Rice Justice Bulletin

The terms of the EU bail-out of Cyprus announced last week signals the end of its status as an offshore tax haven, particularly for wealthy Russians.

The overall impact will be a dramatic change for Cyprus’ economy oversight of which has been seen to be lax by international standards. The Cyprus government has agreed to take significant measures to alter its tax-haven status as part of the deal which “will mark the end of an era for Cyprus, which has in effect spent the past decade advertising itself as a place where wealthy individuals who want to avoid taxes and scrutiny can safely park their money, no questions asked,” according to New York Times columnist Paul Krugman. “But it may also mark at least the beginning of the end for something much bigger: The era when unrestricted movement of capital was taken as a desirable norm around the world.”

Such a shift could permanently reshape, or even eradicate, the tax haven system as currently understood. In the meantime, however, offshore assets in Cyprus might just move elsewhere, such as Latvia or the Cayman Islands

Tax havens are just one feature of the global financial system that impact on the poor and vulnerable of our planet. Global Financial Integrity estimates that the amount of money draining illicitly out of developing countries into western economies is approximately $850 billion to $1 trillion a year.  These cross-border funds are generated as the proceeds of a) bribery and theft by government officials (about 3 percent of the global total), b) criminal activity such as drug trading and racketeering (comprising some 30 to 35 percent of the global total), and c) commercial tax evasion accomplished primarily through the mispricing of exports and imports (by far the largest component at about 60 to 65 percent of the global total).

Africa’s illicit illegal outflows have been on the rise over the last decade amid a commodities boom. Outflows peaked in 2007 at just more than 100 billion dollars amid record high oil and commodity prices. While Africa is rich in natural resources, the size and scope of the illicit outflows suggests that much of the wealth ends in private bank accounts.

Unfortunately, local African judicial systems have shown little willingness or desire to fight the corruption. In most countries the judicial system is likely all but powerless against the powerful and corrupt military, police, and government officials who are engaged in corruption. Abroad, however, courts in the United States and Europe have been pressing charges against corrupt corporations and individuals.

Numerous Western countries have been seeing a rise in illegal capital flows as people try to shield their money from taxes and the prying eyes of governments. As a result, many powerful nations, such as the United States, have been pushing for a more transparent financial system. Even the famed vaults of Switzerland have been forced to open their books.

There is a possibility that African nations may eventually benefit from this growing trend towards more international banking cooperation. This, in turn, could provide African nations with more of the necessary tools needed to fight and curb corruption and direct more benefits of economic growth to the people