draining development.pdf - Khazar University

490 Draining Development?great array of businesses. No country has been found to be in compliancewith the entire set of regulations. Even if a nation were in compliance,there are other channels, such as hawalas (informal systems fortransferring money that are traditional in Arab countries and SouthAsia), for which the regulations are barely meaningful. AML regulationshave certainly complicated the lives of felons with large incomes andhelped remove some of the barriers to imprisoning sophisticated offenders.It is much less clear that they have reduced the criminal activitiesthey have targeted.Can the set of proposals for controlling IFFs accomplish more?Country-by-country reporting, transparency rules for traditional secrecyjurisdictions, and better tracking of politically exposed persons are allmajor reforms that would importantly change the ways in which businessis conducted. The need of major corporations, both financial andother, to maintain working relationships with the international financialsystem provides a strong incentive for compliance with these rules, asmay be indicated by the apparent success of recent efforts to isolate theIranian economy. Such sanctions have the advantage of a well-definedtarget, whereas those aimed at IFFs are, by definition, not so narrowlytargeted. It would be premature to make a judgment whether thesereforms would do more than change the modalities by which illicitmoney moves internationally. Perhaps kleptocrats sleep less comfortablybecause of these changes.Alex Cobham, in chapter 11, points to the significant exposure ofdeveloping countries to secrecy jurisdictions (which are usually calledtax havens) in terms of the share of capital flight that passes throughfinancial institutions domiciled in these places. These jurisdictions arenow seen as a threat to the effectiveness of financial regulation and macroeconomicpolicy globally. A number of international bodies, such asthe European Union and the Organisation for Economic Co-operationand Development, have taken steps to make them more transparent; seethe survey and critique of such efforts in the report of the NorwegianGovernment Commission on Capital Flight from Poor Countries. 6Despite the high level of rhetoric on this issue from world leaders, it isfair to say that little progress has been made in the fundamentals (Eurodad2009). The barriers to change with respect to tax havens are the standardones for international economic policy reform, well described in