Harnessing Open Account Trade — A Major Enabler for Illicit Financial Flows from Developing Countries
Can blockchain technology come to the rescue? Will the African Continental Free Trade Area leverage its Digital Trade Protocol?
By Yuefen Li
The current geopolitical landscape has made domestic resource mobilization an even more important imperative for developing countries. In this context, it is more urgent than ever to combat illicit financial flows (IFFs) whose staggering amount from developing countries has outstrippedthe combinedsum of official development assistance (ODA) and foreign direct investment (FDI)going into the developing world. The IFFs from the financial channel is significant, but the greater proportion ofIFFs actually stems from trade channels rather than from financial channels. It is particularly concerning that the flexibility and legitimacy of international trade have been exploited to cover IFFs. Trade mis-invoicingisthe largest component of IFFs from developing countries. A major reason for trade being used to undertake illicit, fraudulent or criminal activities is because 80%-85% of the more than US$ 24 trillion international trade is conducted via open account trade (OAT), which has minimum scrutiny as it is conducted on a bilateral basis between the importer and exporter, not transparent and with minimal involvement of the financial institutions and customs authorities. OAT payment does not require documents to prove quality, quantity and other information about the product being shipped and is made through automatic payment systems which lack the oversight provided by any third party. OAT gives trade mis-invoicing great ease, flexibility, minimal cost and minimal risk. Therefore, if the world is serious about combatting IFFs, it is urgent and imperative to close loopholes in the OAT for IFFs, making it transparent, trackable and involving third party monitoring and scrutiny. The functionalities and features of Blockchain technology (BCT), though its implementation is still nascent, can be a good candidate to make OAT more modern, transparent to regulators, traceable, more efficient and above all minimize IFFs.The goals of the African Continental Free Trade Area (AfCFTA)’sDigital Trade Protocol (DTP)includeboosting intra-African trade through unifying and harmonizing regulatory framework for Africa’s digital economy and regional trade, promoting cross-border data flows and paperless trade,and enhancing cybersecurity measures.Theexploration of Blockchain adoption to reduce OAT’s risks for IFFs and make trade more effective aligns well with DTP’s goals.
Reducing the Cost of Remittances – A Priority for the Global South
By Danish
Remittances are a lifeline for many households in low and middle income countries (LMICs), and have emerged as an important source of external financing for sustainable development. With over 800 million people dependent on remittances worldwide, their importance for developing and least developed countries is well established. However, the high cost of remittances remains a significant challenge, and despite global commitments to reduce these costs, progress has slowed down.
This paper thus provides an assessment of the current drivers of remittance costs and explores the relevant policy discussions and initiatives at the United Nations (UN) and Group of Twenty (G20). It further highlights the continuing challenges as well as the innovative solutions such as increasing digitalisation and development of cross-border fast payment systems in different regions of the global South. The upcoming Fourth International Conference on Financing for Development (FfD4) and G20 initiatives under South Africa’s Presidency present important opportunities for the international community to redouble its efforts and make concrete, ambitious commitments to lower the cost of remittances. Finally, the paper provides some relevant policy considerations and recommendations, especially to accelerate the implementation of existing commitments, leverage digital public infrastructure and to discourage levying of taxes on remittance flows to developing countries.
COMBATTING ILLICIT FINANCIAL FLOWS (IFFS) AND ENHANCING DOMESTIC RESOURCE MOBILISATION (DRM) FOR FINANCING DEVELOPMENT: A DECADE UNDER REVIEW
Hosted by the South African G20 Development Working Group and the South Centre, funded by the International Economic Partnership Programme
Date: 30 April 2025
Time: 13:15 to 14:30
Venue: Room CR-D United Nations Headquarters, New York
The side event focuses on the importance of reducing illicit financial flows (IFFs) and enhancing domestic resource mobilisation (DRM) to support the financing for development initiatives.
STATEMENT BY DR. CARLOS CORREA, EXECUTIVE DIRECTOR OF THE SOUTH CENTRE, TO THE MINISTERS AND GOVERNORS MEETING OF THE INTERGOVERNMENTAL GROUP OF TWENTY-FOUR (G24)
22 April 2025, Washington, D.C.
The South Centre statement to the G24 Ministerial Meeting highlights the risks of a darkening global economic outlook and need for collective action at UN and FfD4 for addressing systemic issues & reforming the international financial architecture, especially for taxation & sovereign debt.
What Is Driving the BRICS’ Debate on De-Dollarisation?
By Ding Yifan
Ahead of the 2023 BRICS summit in Johannesburg, South Africa, there was much discussion amongst the member countries about whether negotiations would take place at the meeting regarding the development of a BRICS currency and the acceleration of de-dollarisation, that is, the promotion of currency cooperation and reduction in the use of the US dollar. In the end, the country leaders did not specifically discuss the issue of a BRICS currency but passed a resolution on expanding the organisation’s membership. Nonetheless, from both historical and realist perspectives, it is in the interest of the BRICS countries to promote de-dollarisation.
General Statement at the 2nd Preparatory Committee for the 4th International Conference on Financing for Development
New York, 3-6 December 2024
At the 2nd Preparatory Committee for the 4th International Conference on Financing for Development, South Centre emphasised the important opportunity FfD4 presents for developing countries to address significant shortfalls in resource mobilization necessary to implement SDGs & to reform the international financial architecture to align with Southern priorities.
South Centre Inputs to FfD4 Elements Paper – Debt Sustainability, Business and Finance, Taxation
By Yuefen Li, Danish, Abdul Muheet Chowdhary
The upcoming 4th conference on financing for development (FfD4) represents an important opportunity for developing countries to achieve a deep reform of the international financial architecture so that it meets their sustainable development needs and enhances the scale of development finance to fully realize the 2030 Agenda for Sustainable Development. Based on the inputs provided by the South Centre to the FfD4 process, this policy brief highlights some of the key messages, problem statements and policy solutions in the areas of sovereign debt, private business and finance, and international tax cooperation that should be considered by the countries of the global South in their deliberations towards achieving ambitious outcomes at FfD4.
Undue High Expectations of the G20 Common Framework: Urgent Need to Reform the International Debt Architecture
By Yuefen Li
This article stresses how international debt architecture reform requires innovative solutions beyond the G20 Common Framework, and should be addressed at the 4th International Conference on Financing for Development.
STATEMENT BY DR. CARLOS CORREA, EXECUTIVE DIRECTOR OF THE SOUTH CENTRE, TO THE MINISTERS AND GOVERNORS MEETING OF THE INTERGOVERNMENTAL GROUP OF TWENTY-FOUR (G-24)
21 October 2024, Washington D.C.
The South Centre participated in the G-24 Annual Meeting of Ministers and Governors in Washington D.C. See our statement:
Analysis of Imbalanced Tax Treaties of Developing Countries
Insights From the Tax Treaties Explorer Database
By Aiwei Feng, Shristi Joshi and Quinn McGannon
This report will start from exploring the historical background, theoretical frameworks, and practical implications of tax treaties, with a specific focus on their impact on developing countries. Utilizing diverse literature and datasets, including the Tax Treaties Explorer (TTE) from the International Centre for Tax and Development, it aims to identify restrictive tax treaties and provisions disadvantageous to developing nations. The methodology involves desk reviews, data analysis, and case studies to offer insights into challenges faced by developing countries in international taxation. By scrutinizing key provisions like those concerning permanent establishment and withholding taxes, it aims to highlight how treaties affect revenue generation, economic sovereignty, and development outcomes of South Centre Member States. South Centre Member States have been chosen for the purpose of this study due to their status as developing countries with much to gain from renegotiating their existing tax treaties.
Ultimately, this study intends to fill the gap in terms of treaty research and development of tax treaties of South Centre Member States by identifying their restrictive tax treaties and provisions therein with Organisation for Economic Co-operation and Development (OECD) countries. The choice of OECD countries reflects their status as mostly developed countries. At the same time, the study also intends to supplement tax treaties literature so far dominated by legal and economic analyses by focusing specifically on identifying specific restrictive provisions.
