Essays in Political Economy
Edited by Susan Rose-Ackerman and Paul Lagunes
Chapter 13: Tax avoidance, tax evasion, money laundering and the problem of ‘offshore’
Capital flight from developing nations to rich nations, frequently via (‘offshore’) secrecy jurisdictions, is said to be bad for the developing nations, because it erodes their tax base. It has a number of causes, including tax avoidance, tax evasion, corruption, fraud, plunder, money laundering, caprice and rational and irrational investment. It was facilitated by the end, in the late 1970s, of the Bretton Woods arrangements. Under the Exchange Controls Act 1947 it was a crime to take cash out of the UK whatever its provenance. There is much concern about the relationship between international capital movement and its lawfulness. In the literature on such flows the word ‘illicit’ is generally used. Another word frequently deployed is ‘laundering’. The purpose of this chapter is to untangle some of the arguments, and to examine the relationship between the respective crimes and non-crimes. What it will suggest is that so far as possible in the formation of international policy, arguments about laundering should be kept separate from those to do with corruption, tax evasion and tax avoidance. Corruption is the logically prior issue because, of the issues under consideration, only corruption strikes directly at the rule of law. If it is possible to bribe a judge, or a police officer or a tax inspector or somebody placing government contracts, then it does not matter what the rules are, because they will not be applied. In particular the rhetorical device of branding money ‘dirty’ or activity as ‘laundering’ should be avoided.
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