A/HRC/22/42 IV. Illicit funds, asset recovery and human rights 47. As the Independent Expert‟s work on the subject matter of resolution 19/38 is ongoing, this section offers some preliminary comments about the impact of nonrepatriation of illicit funds to the countries of origin on the enjoyment of human rights. The final report of the Independent Expert on the subject will contain a detailed analysis of the impacts, drawing on the experiences of a number of developing countries that have been severely affected by the scourge of illicit financial flows. 57 48. It is widely recognized that illicit funds (including the proceeds of crime, corruption, money-laundering and tax evasion) divert resources intended for development, thereby undermining Government efforts to provide basic services and their ability to comply with their human rights obligations.58 The diversion of resources due to illicit financial flows and the non-repatriation of these funds reduce the “maximum resources” available to the countries of origin for the full realization of economic, social and cultural rights. The impact is disproportionately felt by the poor. 49. The non-repatriation of illicit funds also has an impact on the rule of law in the country of origin. Where both the incentives for and opportunities to export illicit wealth are significant, it is likely that the damage to the rule of law will be exacerbated. It has been pointed out that “the potential to hide illicit capital securely in tax havens is a direct stimulus to corruption and other illicit activities like transfer mispricing. It decreases the 57 58 A recent, widely publicized case is that of Zambia. According to a report by Global Financial Integrity, between 2001 and 2010, Zambia lost US$8.8 billion in illicit financial flows, of which US$4.9 billion is attributable to trade mis-invoicing. This is a massive amount for a poor developing country with an external debt of US$2.5 billion and a Human Development Index ranking of 164 out of 187 countries. In 2011, the GDP of Zambia was US$19.2 billion, while its GDP per capita was US$1,413. The Government collected a total of US$4.3 billion in revenue. Illicit financial outflows drain the country of resources needed for economic development and social investment. The loss also means the Government has to borrow from external sources. In 2012, the Government issued a Eurobond of US$750 million which pushed up the country‟s external debt from US1.6 billion to approximately US$2.5 billion. It is notable that these illicit outflows come on top of outflows from legal corporate tax avoidance, mainly through abusive transfer pricing in the mining sector. According to the country‟s Deputy Finance Minister, Miles Sampa, US$2 billion is lost yearly to tax avoidance by multinational corporations operating in Zambia. Of all the major multinationals that export copper and other metals out of Zambia, just “one or two” officially recorded a profit, and therefore pay no corporate tax. It is estimated that legislation being considered by the Government to close corporate tax avoidance loopholes and criminalize false reporting will enable the Government to raise US$1.5 billion annually. This would increase the national revenues by 35 per cent and allow much needed investment in education, health or infrastructure. See Sarah Freitas, “What Billions in Illicit and Licit Capital Flight Means for the People of Zambia”, Task Force on Financial Integrity and Economic Development, 13 December 2012, available from www.financialtaskforce.org/2012/12/13/what-billions-in-illicit-and-licit-capital-flight-means-for-thepeople-of-zambia; Christian Aid, “Zambia must launch copper mining tax probe, says Christian Aid partner”, 18 February 2011, available from www.christianaid.org.uk/pressoffice/pressreleases/February-2011/zambia-launch-copper-mining-taxproce-christian-aid-partner-1802.aspx; Christian Aid, Blowing the whistle: Time’s Up for Financial Secrecy (London, Christian Aid, May 2010), p. 23, available from www.christianaid.org.uk/images/blowing-the-whistle-caweek-report.pdf; Matthew Hill, “Zambia Says Tax Avoidance Led by Miners Costs $2 Billion a Year”, Bloomberg News, 25 November 2012, available from www.bloomberg.com/news/2012-11-25/zambia-says-tax-avoidance-led-by-minerscosts-2-billion-a-year.html. See, e.g., A/HRC/19/42. All the international legal instruments dealing with corruption recognize that the scourge undermines economic development. 17