The United Nations High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda Financing for Sustainable Development, or FACTI, presents its interim report tomorrow, September 24, 8:00 – 10:30 a.m. Eastern Time, 12:00 – 14:30 UTC (register for webinar here). The report will identify reforms to the laws governing international tax cooperation, anticorruption, and money laundering needed to staunch illicit financial flows and hasten the return of stolen assets. As explained last week, the FACTI panel was created by the UN General Assembly and the Economic and Social Council as part of the effort to ensure developing states will have sufficient resources to meet the 2030 Sustainable Development Goals.
Professors J.C. Sharman, Daniel L. Nielson, and Michael G. Findley of Cambridge, Texas, and Brigham Young Universities respectively, prepared a background paper for the panel assaying the progress made in curbing money laundering and other abuses of the financial system that facilitate corruption. A summary of their paper is below; the full text is here.
Progress in Global AntiCorruption Efforts? Not So Fast
In April of 1989, Laurence Greenwald, a partner in the NYC law firm Stroock & Stroock & Lavin had reached the end of his patience. His firm had spent thousands of hours and tallied $1.2 million in legal fees seeking to identify and seize hundreds of millions of dollars in assets stolen from Haiti’s treasury by its notorious dictator Jean-Claude “Baby Doc” Duvalier. The successor Haitian government had retained Stroock firm to investigate and launch recovery proceedings. Yet after years of legal work by Stroock and other firms around the globe, in 1988 the new government stopped cooperating and refused to pay its legal bills.
In a letter to the Haitian government, Greenwald fumed, “The behavior of your ministers leaves us no alternative except to conclude that your ministers apparently want our efforts on behalf of Haiti to fail, are not concerned that Haiti will lose the substantial investment it has made in pursuing the Duvaliers, and want the Duvaliers to keep the money they stole.” Such frustrations commonly afflicted those seeking an end to corrupt practices in the international financial system during the late 20th Century. What progress has the international community made in the intervening decades?
In our research, we found that some discernible headway has taken place in the laws and practices of lower-income jurisdictions often labeled as “source countries.” Many governments have adopted United Nations anti-corruption standards, created new agencies, promulgated enforcement strategies, made procurement contracts more transparent, and shared financial information. They have also welcomed technical assistance on how to fight corruption. Notably, authorities have recovered millions in stolen assets through an array of new law-enforcement tools, although it appears these efforts recover only a small fraction of proceeds from corruption. Moreover, little evidence suggests that technical assistance in this area produces discernible results, and many of the new statutes, agencies, and strategies remain unenforced or underfunded.
Much work also remains to be done in other areas. Notably, the “haven countries” in whose major banks stolen assets frequently end up have not seemed sufficiently motivated to block the in-flows or return them to their sources. We hasten to note that the havens are not simply offshore financial centers residing in small-island countries or the Alps. Rather, havens include some of the largest financial centers in the United States, the European Union, the United Kingdom, and China. More needs to be done to highlight and address the hosting and facilitating roles of countries that otherwise receive high marks for transparency and the effective combatting of money laundering.
Evidence from our decade as researchers performing “secret-shopping” exercises through field experiments and audit studies reveals that it remains remarkably easy to incorporate a shell company anonymously and to obtain a bank account whose beneficial owner remains unknown and untraceable. And again this pattern holds in many countries who receive clean bills of health from international anti-money laundering and anti-corruption ratings. The basic vehicles of corruption remain anonymous shells and untraceable inter-bank transfers with help from professional intermediaries, who often remain unregulated or, more commonly, routinely violate standards that are rarely enforced.
Better identification of havens and improved measurement of risk promise to address some of these issues. Importantly, licensing and auditing corporate service intermediaries will likely do more to combat corruption and associated money laundering than beneficial ownership registries. Such registries that exist are replete with low-quality unverified information. The international community could also unleash non-governmental organizations in their endeavors to expose and combat corruption by granting them legal standing and funding them through a portion of the fines levied on complicit banks. Even the private sector could be incentivized to hunt down and expose corruption for profit through the use of litigation financing and ethical impact investing. Thus while measurable progress has occurred in the global fight against corruption, tangible and identifiable steps remain before Baby-Doc-style corruption is brought to heel.