Making tax evasion an international crime

The adverse effects of corruption have long been recognized in the international community. In 2003, the United Nations Convention Against Corruption (UNCAC) was entered into by several member-states. As of 2021, the number of states that agreed to the treaty had reached 189.

Corruption, of course, is not a single act. There are a variety of acts that can constitute corruption. The UNCAC, for instance, requires those who are party to the treaty to implement laws criminalizing bribery, embezzlement, money laundering and obstruction of justice. It also enjoins state parties to consider criminalizing trading in influence, abuse of functions, illicit enrichment, bribery in the private sector, embezzlement in the private sector and concealment of the proceeds of corruption.

Generally, the specific crimes listed above involve financial crimes. However, the UNCAC appears to be silent on one other financial crime—tax evasion.

Tax evasion can constitute corruption as it prevents the government from raising the budget necessary for it to fund its social services, its infrastructure projects, and to make its debt payments. This is doubly true for corrupt public officials who receive bribe money or use government funds to enrich themselves and who, no doubt, will not pay taxes on those ill-gotten wealth.

There are several similarities between tax evasion and corruption. Primarily, both these acts hinder economic development. The Organization for Economic Cooperation and Development (OECD) has recognized corruption as a threat to good governance, sustainable development, democratic processes and fair business practice. Likewise, Transparency International, a nongovernmental organization/global coalition against corruption, also studied the relationship between corruption and tax revenues. Finally, the UNCAC Coalition —a global civil society network of more than 350 nongovernmental organizations around the world—has also pointed out that tax evasion can be included in the global agenda for standard setting, particularly setting thresholds and punishment to prevent corrupt public officials.

Furthermore, both tax evasion and corruption, in order to be successfully addressed, requires inter-governmental collaboration. The international community can benefit from having cross-government cooperation between anticorruption authorities, antimoney laundering authorities, financial intelligence units, tax authorities, customs authorities, financial regulators, police and prosecutors.

A call for reforms

Tax evasion and corruption are serious financial crimes that undermine the rule of law. They are not only detrimental to economic growth but they also make corrupt public officials richer and more powerful at the expense of the public.

More broadly, however, is the intent of the UNCAC. In the words of former UN Secretary General Kofi Annan, the adoption of the UNCAC “will reaffirm the importance of core values such as honesty, respect for the rule of law, accountability and transparency in promoting development and making the world a better place for all.”

Addressing tax evasion is very much in line with this avowed goal. By addressing tax evasion, governments can more effectively promote integrity and accountability for all.

So, what exactly must be done in order to combat tax evasion on the international level? One thing that can be done is by amending the UNCAC to include tax evasion.

This, though it appears straightforward, is a difficult proposition as it first requires a state party to propose the amendment and for that proposal to be agreed to by a two-thirds majority of the state parties.

To get this consensus, there are two global governance processes that can be undertaken: (1) issue framing and agenda setting and (2) public standard setting.

On issue framing and agenda setting, it is important to underscore the connection between corruption and tax evasion. The similarities and links between corruption and tax evasion have already been discussed earlier. They are both serious financial crimes that hinder development and erode the rule of law.

The present proposal to include tax evasion in the UNCAC can be framed as an act that will promote transparency and accountability. Refusal to support the agenda could come with the reputational risk for the country and its public officials.

On the issue of public standard setting, it is crucial to set the basis for including corruption in the list of offenses provided in the UNCAC, as well as to include the imposition of sanctions that will deter the commission of these financial crimes.

The UNCAC already recommends the disqualification of public officials found guilty by the specific corrupt acts listed therein. The Philippines has similar provisions in its tax code. Specifically, those who have been convicted of tax evasion are disqualified from occupying any public office. However, at present, there is no mechanism by which bribe money or ill-gotten wealth can be investigated or assessed.

Overall, the international community must be made to recognize that tax evasion is just as damaging as any of the other financial crimes that the UNCAC presently considers corruption. Especially now, with the looming possibility of a global economic crisis, corruption in all its forms—including tax evasion—must be addressed. INQ

This is an excerpt from the paper submitted to the Harvard Kennedy School as final requirement to IGA 103 Global Governance under Professor Kathryn Sikkink.

This article reflects the personal opinion of the author and not the official stand of the Management Association of the Philippines or MAP. The author is a MPA/Mason Fellow at Harvard Kennedy School. He is a member of MAP Tax Committee and MAP Ease of Doing Business Committee, co-chair of Paying Taxes on Ease of Doing Business Task Force and chief tax advisor of Asian Consulting Group. Feedback at [email protected] and [email protected].