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Dark Offshore Money Threatens Democracy

Dark offshore money, stashed in tax havens and countries with favorable financial secrecy laws, makes it easier to support candidates surreptitiously and manipulate public opinion. Clamping down on these jurisdictions would strengthen tax collection in democracies and reduce the resources available to authoritarian regimes.

WASHINGTON, DC/CAMBRIDGE – Democracies around the world face two major threats: a crisis of legitimacy, and increasingly aggressive authoritarian regimes. What links both and makes them much more dangerous is the pernicious effect of dark-money transfers, particularly those that pass through offshore tax havens and jurisdictions with excessive financial secrecy. Restricting these tax havens and requiring more transparency on cross-border financial flows should become a major policy priority for all G7 countries in 2024.

The internal threat to democracy is an erosion of legitimacy. In industrial economies such as the United States and Europe, new technologies, rising cross-border capital flows, and lower barriers to trade increased average productivity and created economic growth over the last half-century, but the benefits of this growth were not widely shared. Inequality within these countries has increased dramatically since the mid-1970s, with millions of people now feeling they have been left behind.

Support for democracy is undermined by the belief that the economic game is “rigged,” with people who are already powerful and privileged gaining the most – sometimes at the expense of the rest. While this belief may be exaggerated, it accords with the reality of tax evasion.