FACTI Background Paper: Analysis of the Different Peer Review Mechanisms for Ensuring Compliance with Anticorruption and Financial Integrity Norms

For two decades governments have been signing agreements where they promise to curb corruption and halt the international flow of illicit funds. A promise, however, is only as good as the method for enforcing it, and in the case of international conventions and treaties the only method available is the peer review.  Experts from neighboring or similarly situated nations review how well the government is keeping its promises, recommending ways it can do better and sometimes chastising it for breaking its promises. The theory is that threat of a bad review will put pressure on a government to live up to its commitments.

Peer reviews come in various shapes and sizes, and experience with ones has shown that some are more effective than others.  At the request of High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda Financing for Sustainable Development (FACTI), Valentina Carraro, Lecturer in International Relations at the University of Groningen, and Hortense Jongen, Assistant Professor in International Relations at the Vrije Universiteit Amsterdam, reviewed the effectiveness of the peer review mechanisms of six of the most important anticorruption and financial integrity agreements:

  • the Implementation Review Mechanism of the United Nations Convention against Corruption,
  • the Follow-Up Mechanism for the Implementation of the Inter-American Convention against Corruption (MESICIC),
  • the Organization for Economic Co-Operation and Development Working Group on Bribery (OECD Antibribery Convention),
  • the Global Forum on Transparency and Exchange of Information for Tax Purposes,
  • the Inclusive Framework on Base Erosion and Profit Shifting,
  • the Financial Action Task Force and the Financial Action Task Force-Style Regional Bodies.

Their summary of their findings and recommendations is below. and their paper here.  (Background on the FACTI and a link to its interim report recommending changes in international and domestic laws to combat corruption and stem  illicit financial flows is here.)

Peer Review in Financial Integrity Matters

What role can peer review play in promoting international financial accountability, transparency and integrity? And how might peer review contribute to achieving the 2030 Sustainable Development Agenda? Peer review is the most prevalent international monitoring instrument in financial integrity matters today. From combating terrorist financing to fighting corruption, and from anti-money laundering to tackling tax evasion, peer review is used to evaluate states’ policy practices.

So what is peer review? Peer review is a system of mutual intergovernmental evaluations. Experts from states (i.e., the peers) evaluate each other in how they tackle a specific problem. Often, these experts receive help from the Secretariat of the International Organization that organizes the peer review. The outcome of such an evaluation exercise is usually a report with recommendations for improvement. Peer reviews come in many different forms. For example, some of them involve almost all countries in the world (global peer reviews), while others take place among states from a specific world region (e.g., Africa, the Americas or Europe). Some peer reviews are very transparent and involve many different stakeholders in the evaluations. Others rely almost exclusively on governmental experts.

This raises several questions. Are some peer reviews, by virtue of their design and functioning, better adept at promoting states’ adherence to financial integrity standards? What are good practices in peer review? Before we answer these questions, a disclaimer: There is no perfect peer review. What works well in some policy areas and international organizations might not work in other contexts. That being said, we do find that some peer review designs have several advantages and strengths. To name a few: peer reviews that not only evaluate whether states have implemented specific financial integrity standards in their national legislation, but also review whether states comply with these standards in practice, are preferable.In addition, some peer reviews runprograms and initiatives to help states with implementing the recommendations from a peer review (so-called technical assistance and capacity-building programs). Other good practices in peer review relate to the mechanisms’ transparency, the inclusion of nongovernmental stakeholders, the specificity of review recommendations, and systems for follow-up monitoring. Finally, as peer review is not a one-off exercise, long-term, impartial and stable funding over time is important.

 Peer reviews that are in use today also exhibit several gaps and vulnerabilities, which might lead to non-implementation of financial integrity standards in countries. Based on an analysis of the six peer reviews identified above, we distinguish between challenges that stem from institutional factors (i.e., the design and functioning of a peer review) and domestic factors. As to the first, in a number of peer reviews, the frequency of country evaluations is rather low. Furthermore, some peer reviews lack a system for monitoring states’ progress over time: they give recommendations to states, but do not systematically follow-up on whether states also implement these recommendations. Other institutional shortcomings relate to limited participation of nongovernmental stakeholders as well as political bias and power imbalances among states. Finally, the extensive use of peer review in financial integrity matters creates a risk of overlap between different peer reviews and of increasing monitoring fatigue. When it comes to domestic challenges, we might usefully distinguish between states that lack the will to implement financial integrity standards (and the recommendations of a peer review exercise) and states that lack the skills, tools, or resources to do so. Each requires a different governance approach.

Finally, peer review is a particularly helpful tool for achieving the 2030 Sustainable Development Agenda. Of particular relevance for financial integrity matters, Sustainable Development Goal (SDG) 16 aims to promote peaceful and inclusive societies, and two of its sub-targets stress the importance to combat illicit financial flows (16.4) and corruption (16.5). Considering that SDGs consist of non-legally binding targets for states – namely, states are not legally obliged to implement these targets – monitoring their progress by means of peer review presents several advantages: peer reviews promote mutual learning and provide a non-confrontational forum for states to exchange ideas and best practices.

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