Asia Initiatives

The Financial Integrity Initiative seeks to stem the outflow of capital from the developing countries that legally belongs to the developing countries and can be retained there. The loss of revenues from proper tax collection alone amounts to about $ 160 bln a year. This is several times more than the $ 40-50 bln that the World Bank estimates the poor countries need annually to meet the Millenium Development Goals. Such funds, if available, could be used for increased investments in education, job creation, health care, a cleaner environment, access to water, and the resources to fight infectious diseases.

This initiative is inspired by the work of Raymond Baker, a scholar at the Center of International Policy in Washington, DC. His work on this subject is documented in a book called "Capitalism's Achilles Heel". It explains how retaining this capital (through fair tax collections, addressing banking and accountancy rules, and increased public awareness of illegal outflows) can be a sustainable form of finance for developing counties. The long-term goal of developing countries should be to replace foreign aid dependency with tax self-reliance, and through retention of capital that is taken out through illicit means by businesses, politicians, and others.

It is estimated (by the Tax Justice Network and various other groups) that profit-shifting by multi-national companies operating in developing countries deprives these countries of about $ 160 bln in tax revenues each year. Furthermore, research indicates that funds taken out by illicit means by groups mentioned above are in the range of $ 600 bln to $ 700 bln each year. In aggregate, this comes to an outflow of capital of about $ 800 bln a year from the developing countries. If even 10% of this could be retained each year, or $ 80 bln, it could have a dramatic impact on the developing countries.

This initiative is led by Krishen Mehta, Founding Director of Asia Initiatives, and a partner with PricewaterhouseCoopers (PwC) for almost 20 years. Krishen retired from a 30 year career with PwC in 2008 and is devoting his next career to this subject. Krishen believes that economic deprivation that results from such capital outflows is a direct contributor to poverty and effects the fundamental human rights of people living in these countries.

The work has had the support of the Aspen Institute's Business and Society Program in New York, where Krishen serves as a member of the Advisory Board. In January, 2009, a meeting was held in NY to discuss this issue with accounting firms in the context of their tax advising with respect to transfer pricing. Areas are now being identified whereby accounting firms and law firms can work more closely, and identify certain common principles, in meeting their responsibility in advising their MNC clients.

In the years ahead, the plans under this Initiative would include research, advocacy, increased public awareness, and support for legislative actions in both the West and the developing nations with regard to regulations that effect such capital outflows. If, over time, just the 10% goal mentioned above is met, the $ 80 bln of assets available annually could change lives in a significant way in the developing countries. Only in this way can we ensure that the cost of one generations' activities do not compromise the opportunity of future generations.

For more information, please contact Krishen Mehta.