{ "title": "Privacy, Transparency and Combatting Illicit Financial Flows – IMF F&D", "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2019/09/illicit-financial-flows-and-privacy-vs-transparency-purcell", "canonical": "https://www.imf.org/en/publications/fandd/issues/2019/09/illicit-financial-flows-and-privacy-vs-transparency-purcell", "overlayPath": "/en/publications/fandd/issues/2019/09/illicit-financial-flows-and-privacy-vs-transparency-purcell/index.md", "summary": "Transparency is a potent weapon in the battle against illicit financial flows, corruption and tax evasion says the IMF’s Jay Purcell and Ivana Rossi.", "sections": [ { "heading": "Executive overview", "content": "- Transparency is presented as a potent weapon against illicit financial flows, corruption, and tax evasion.\n- Trade-offs exist: transparency improves enforcement, accountability, trust, and deterrence by increasing detection risk, but it entails loss of privacy for some individuals with legitimate reasons for discretion.\n- Recommendation principle: manage trade-offs to maximize public availability and safeguard sensitive details rather than using privacy concerns as an excuse for inaction." }, { "heading": "Problem definition: illicit financial flows", "content": "- \"Illicit financial flows\" covers at least three types:\n - Funds generated by illegal acts (e.g., corruption, smuggling, drug trafficking).\n - Funds whose transfer constitutes an illegal act (e.g., transfers to hide income—tax evasion—even if income was legally generated).\n - Funds destined for an illegal purpose (e.g., financing of terrorism)." }, { "heading": "Case study: Pakistan’s tax-disclosure initiative", "content": "- Context and facts:\n - Pakistan’s tax revenue to GDP ratio was 9.2 percent, ranked lower than that of all but 1 of 154 jurisdictions.\n - Population: 180 million.\n - Number filing income tax returns: 1.2 million people and firms.\n - 70 percent of Pakistani lawmakers had not filed returns in the cited year.\n- Policy action:\n - In 2014 the Ministry of Finance authorized the Federal Board of Revenue to make public how much income tax every company and individual pays each year.\n- Outcomes and trade-offs:\n - Some evidence of improved compliance, though compliance remains low.\n - Improvement came at the cost of reduced privacy for all citizens.\n - Purpose: to shame noncompliers and enable civil society and journalists to hold them to account." }, { "heading": "Disclosure by public officials", "content": "- Prevalence and scope:\n - More than 90 percent of countries have legislation requiring financial disclosure by at least some public officials (World Bank statistics).\n - Only about 50 percent of those that require disclosure allow public access by law; a much smaller percentage grant access in practice.\n- Typical disclosure contents:\n - All income, assets, and liabilities held by officials or close family members (e.g., spouse), domestic or abroad.\n - In some cases, assets for which they are ultimate or \"beneficial\" owners.\n- Benefits:\n - Advances anti-corruption objectives from prevention to enforcement.\n - Helps determine politically exposed persons for customer due diligence and aids asset-tracing and recovery.\n - Public access enables watchdogs, journalists, and civil servants to generate leads that spur investigations (examples: Croatian prime minister resignation in 2009; French budget minister scandal leading to conviction and reform).\n- Privacy-management considerations:\n - Public access need not mean publishing entire declarations; highly sensitive information (e.g., bank account numbers) is kept confidential.\n - Tailor public access (e.g., only high-level officials).\n - Growing recognition, including case law, that public interest can outweigh personal privacy for high-level officials." }, { "heading": "Beneficial ownership transparency", "content": "- Scale of concern:\n - Damgaard, Elkjaer, and Johannesen (2018) estimated that $12 trillion—almost 40 percent of all foreign direct investment—passes through empty corporate shells associated with no actual economic activity.\n- International standards and policy direction:\n - FATF recommends enhanced transparency of legal entities and beneficial ownership; basic company-register information should be public and beneficial ownership information should always be available to competent legal authorities.\n - Group of Twenty and OECD Global Forum have focused on enhancing beneficial ownership transparency.\n - EU decision: member states must establish publicly available beneficial ownership registries as of 2020.\n- Benefits of public registries:\n - Supports financial institutions’ due diligence.\n - Enables public monitoring of government procurement and verification of officials' disclosures.\n- Privacy-management recommendations:\n - Provide enough information to identify beneficial owners without unnecessary details.\n - Establish case-by-case exemptions from publication where there is evidence of a serious risk of violence or intimidation.\n- Examples:\n - United Kingdom and Denmark are noted as pioneers in creating public beneficial ownership registries." }, { "heading": "Geographic targeting orders (real estate)", "content": "- Rationale:\n - Real estate purchases can be used to launder or invest illicit proceeds via single large transactions and by obscuring beneficial owners using corporate vehicles.\n- U.S. FinCEN example:\n - Early 2016 FinCEN issued temporary geographic targeting orders requiring certain US title insurance companies to identify natural persons behind companies used to pay \"all cash\" for high-end residential real estate in parts of New York and Florida.\n - FinCEN’s approach: require beneficial ownership information be provided to the government but not the general public, balancing investigative access with buyer privacy.\n - In 2017 FinCEN indicated that more than 30 percent of purchases reported pursuant to its geographic targeting orders were conducted by people already suspected of involvement in questionable dealings.\n - FinCEN has consistently renewed and expanded the orders’ scope to other major metropolitan areas without unduly compromising buyer privacy.\n- Applicability:\n - Similar measures could be implemented with respect to land registries in other countries." }, { "heading": "Tax records and public disclosure of taxpayer information", "content": "- Scale of issue:\n - Tax evasion costs governments more than $3 trillion a year (2011 estimate by the Tax Justice Network).\n- Public-disclosure practices:\n - Norway publishes taxpayers’ incomes and returns since at least 1863.\n - Pakistan began public disclosure to a somewhat lesser degree 150 years later.\n - Finland publishes citizens’ income and tax payments on November 1 each year (\"National Jealousy Day\").\n- Privacy-management mechanisms:\n - Norway requires individuals to log in to a dedicated system that tracks their searches; taxpayers can see who has viewed their information.\n - Users are limited to searching 500 records a month in Norway.\n - Sweden maintains similar controls; media may be allowed anonymous searches in certain cases.\n- Impacts:\n - Controls appear to have reduced frivolous record requests while preserving investigative functions of the media." }, { "heading": "Key findings and policy recommendations", "content": "- Findings:\n - Transparency tools—public disclosures by officials, beneficial ownership registries, geographic targeting orders, and public or controlled publication of tax records—can materially help detect, deter, and investigate illicit financial flows.\n - Transparency enhances accountability, builds trust in institutions, and enables third-party scrutiny by journalists, academics, and civil society.\n - Privacy concerns are real and can provoke opposition; they can also be invoked disingenuously to resist transparency.\n- Recommendations and good practices:\n - Ensure relevant authorities have ready access to complete information.\n - Aim to maximize public availability of non-sensitive information, tailoring availability to different stakeholders.\n - Safeguard sensitive personal details (e.g., bank account numbers) and provide mechanisms for case-by-case exemptions (e.g., serious risk of violence or intimidation).\n - Implement technical and procedural controls to discourage frivolous searches and commercial data mining (e.g., search limits, audit trails, controlled anonymous access for journalists where appropriate).\n - Manage trade-offs deliberately; do not use privacy concerns as an excuse for inaction on illicit financial flows.\n\nIMF Finance & Development, September 2019 — Jay Purcell and Ivana Rossi\n\n---\n\n Content in this bundle\n\n- الخصوصية مقابل الشفافية\n - الخصوصية مقابل الشفافية (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - الخصوصية مقابل الشفافية (PDF){rel=\"external\" type=\"application/pdf\"}\n- Privacidad vs transparencia ● Finanzas y Desarrollo ● Septiembre de 2019\n - Privacidad vs transparencia ● Finanzas y Desarrollo ● Septiembre de 2019 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Privacidad vs transparencia ● Finanzas y Desarrollo ● Septiembre de 2019 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Confidentialité ou transparence\n - Confidentialité ou transparence (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Confidentialité ou transparence (PDF){rel=\"external\" type=\"application/pdf\"}\n- Privacy, Transparency and Combatting Illicit Financial Flows – IMF F&D\n - Privacy, Transparency and Combatting Illicit Financial Flows – IMF F&D (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Privacy, Transparency and Combatting Illicit Financial Flows – IMF F&D (PDF){rel=\"external\" type=\"application/pdf\"}\n- Конфиденциальность и прозрачность – Финансы и развитие – сентябрь 2019 года\n - Конфиденциальность и прозрачность – Финансы и развитие – сентябрь 2019 года (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Конфиденциальность и прозрачность – Финансы и развитие – сентябрь 2019 года (PDF){rel=\"external\" type=\"application/pdf\"}\n- 隐私与透明 - 《金融与发展》2019年9月号·第56卷·第3期 - 国际货币基金组织季刊\n - 隐私与透明 - 《金融与发展》2019年9月号·第56卷·第3期 - 国际货币基金组织季刊 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - 隐私与透明 - 《金融与发展》2019年9月号·第56卷·第3期 - 国际货币基金组织季刊 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2019/09/illicit-financial-flows-and-privacy-vs-transparency-purcell" } ], "bullets": [ "[Markdown version](/en/publications/fandd/issues/2019/09/illicit-financial-flows-and-privacy-vs-transparency-purcell/index.md)", "[Structured JSON version](/en/publications/fandd/issues/2019/09/illicit-financial-flows-and-privacy-vs-transparency-purcell/index.json)", "[Bundle manifest](/en/publications/fandd/issues/2019/09/illicit-financial-flows-and-privacy-vs-transparency-purcell/bundle-manifest.json)", "Authors: JAY PURCELL, IVANA ROSSI", "Published: September 1, 2019", "Transparency is presented as a potent weapon against illicit financial flows, corruption, and tax evasion.", "Trade-offs exist: transparency improves enforcement, accountability, trust, and deterrence by increasing detection risk, but it entails loss of privacy for some individuals with legitimate reasons for discretion.", "Recommendation principle: manage trade-offs to maximize public availability and safeguard sensitive details rather than using privacy concerns as an excuse for inaction.", "\"Illicit financial flows\" covers at least three types:", "Context and facts:", "Policy action:", "Outcomes and trade-offs:", "Prevalence and scope:", "Typical disclosure contents:", "Benefits:", "Privacy-management considerations:", "Scale of concern:", "International standards and policy direction:", "Benefits of public registries:", "Privacy-management recommendations:", "Examples:", "Rationale:", "U.S. FinCEN example:", "Applicability:", "Scale of issue:", "Public-disclosure practices:", "Privacy-management mechanisms:", "Impacts:", "Findings:", "Recommendations and good practices:", "**الخصوصية مقابل الشفافية**", "**Privacidad vs transparencia ● Finanzas y Desarrollo ● Septiembre de 2019**", "**Confidentialité ou transparence**", "**Privacy, Transparency and Combatting Illicit Financial Flows – IMF F&D**", "**Конфиденциальность и прозрачность – Финансы и развитие – сентябрь 2019 года**", "**隐私与透明 - 《金融与发展》2019年9月号·第56卷·第3期 - 国际货币基金组织季刊**" ], "related": [ { "title": "الخصوصية مقابل الشفافية", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2019/september/ar/purcell.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2019/september/ar/purcell.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2019/september/ar/purcell.pdf", "mime": "application/pdf" } }, { "title": "Privacidad vs transparencia ● Finanzas y Desarrollo ● Septiembre de 2019", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2019/september/es/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2019/september/es/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2019/september/es/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf", "mime": "application/pdf" } }, { "title": "Confidentialité ou transparence", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2019/september/fr/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2019/september/fr/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2019/september/fr/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf", "mime": "application/pdf" } }, { "title": "Privacy, Transparency and Combatting Illicit Financial Flows – IMF F&D", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2019/september/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2019/september/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2019/september/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf", "mime": "application/pdf" } }, { "title": "Конфиденциальность и прозрачность – Финансы и развитие – сентябрь 2019 года", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2019/september/ru/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2019/september/ru/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2019/september/ru/illicit-financial-flows-and-privacy-vs-transparency-purcell.pdf", "mime": "application/pdf" } }, { "title": "隐私与透明 - 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