draining development.pdf - Khazar University

Policy and Research Implications of Illicit Flows 491recent tracts by distinguished academics such as Joseph Stiglitz. The suggestedbarriers extend from protectionism by leaders of countries and aninherent difference in pace between financial globalization and the internationalfinancial regulatory system to the procyclicality of financial systems.7 The reform mill may grind slowly, but, if even the massive crisis of2008–09 does not generate meaningful reform, one has to be concernedwhether such reform is possible.In summary, it is not clear how much effort should go toward haltingillicit flows, as opposed to dealing with the underlying phenomena.There are political arguments that favor the effort, but also serious questionsabout how effective the targeted controls can be. It is likely thatsome effort should go specifically toward IFF control, but also that suchcontrol should be seen mostly as a component of the agenda for helpingdeal with corruption and tax evasion in developing countries.Transfer Price ManipulationTransfer price manipulation (TPM), the explicit subject of chapter 7, byLorraine Eden, and chapter 8, by Carlos Leite, and part of the scope ofchapter 9, by Richard Murphy, and chapter 4, by Clemens Fuest andNadine Riedel, falls in another category. TPM is both a means by whichillicit funds are generated and a method for transferring illegal fundsgenerated by other economic activities. 8 There is a shallow consensusthat TPM is reasonably well controlled in the developed world; there areintricate and heavily monitored agreements among countries that canoccasionally even lead to a twinge of sympathy for a multinational firmcaught between two aggressive national tax authorities. 9 This suggeststhat the TPM problem for developing countries can be solved throughnegotiation of agreements comparable with those found among membersof the Organisation for Economic Co-operation and Developmentand through training of the relevant officials.However, this takes us back to the conundrum raised in chapter 2 byBlankenburg and Khan, who treat all these regulatory issues as an exercisein political economy. TPM can occur for two quite distinct reasons.In one case, the multinational firm has more technical competence thanthe government with which it is engaged, and the TPM is simply undetected.This problem of government is, in principle, easily addressed