Commentary on the FACTI Panel’s Report and Recommendations (Part 2)

This post is the second in a two-part series on the report and recommendations of the UN’s High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (the FACTI Panel). In its report, published this past February, the Panel issued 35 recommendations (grouped into 14 categories) for addressing the problem of illicit financial flows. Of those 35 recommendations, 8 principally concerned tax matters, but the other 27 are directly relevant to corruption—especially though not exclusively grand corruption, which often involves cross-border flows of illicit money. I decided that it might helpfully contribute to the conversation about these topics to respond directly with a bit of commentary on each of those 27 recommendations. My last post covered the first 13, and this post will cover the remaining 14. With that prologue out of the way, let’s dive in.

  • Recommendation 9A: International organizations must provide timely advice related to [illicit financial flows], so that procedures, norms and policies can be updated regularly. This is fine, kind of obvious (but no less important for that!), and helpfully emphasizes the importance of good analysis to inform decision-making. There’s not much else to say.
  • Recommendation 9B: Governments must dynamically adjust their national and international systems in response to new risks. This is also correct and important, though at the same time kind of obvious and not very specific. There’s nothing in the recommendation or the report’s accompanying explanatory text that explains how governments and international organizations can “remain flexible,” “capitalize on [new possibilities for enforcement in a timely fashion,” and “adapt nimbly to changing local contexts”—only a general exhortation that they should do so. Fine, but not terribly groundbreaking or helpful.
  • Recommendation 10A: Create an International Compact on Implementing Financial Integrity for Sustainable Development to coordinate capacity building. Extend existing capacity building that tackles tax abuse, corruption, money-laundering, financial crime and asset recovery. I’m heartened to see that the FACTI Panel emphasized capacity-building in this area. Particularly in poorer countries, the lack of adequately trained experts in financial crime detection (as well as the lack of adequate, up-to-date technology) can be a significant impediment to effectively combating illicit financial flows. Of course, in some contexts, it’s a lack of political will, rather than capacity limitations, that’s the primary impediment. But capacity-building is certainly an important element of the broader agenda. That said, I do wish that the report had been more specific about what the Panel has in mind when it references an “international compact” to coordinate capacity building. The explanatory text in the full report doesn’t add much detail, so I’m left with lots of questions, including: What organization would house this compact? (The UN? The FATF? Or would it be a stand-alone entity?) How would it be funded? How would it relate to other entities that are already working on these issues and in some cases providing funding for what might be considered “capacity building” in areas relevant to illicit financial flows? Why exactly is there a need for coordination of capacity-building efforts, as opposed to simply ramping up support for capacity-building more generally? What sorts of “capacity” are the highest priority, and what jurisdictions ought to be prioritized? Again, I wouldn’t expect something like the FACTI Panel report to go in-depth on any of these questions, and I think the report performs a useful service just by raising this possibility and thereby putting it on the agenda. But I do confess a fair bit of uncertainty about exactly what was being proposed here, so it’s hard to assess or form much of an opinion.
  • Recommendation 10B: The international community should finance the creation and maintenance of public goods that can lessen the cost of implementing financial integrity commitments. So the text of this recommendation isn’t as clear as it could be, since “[p]ublic goods that can lessen the cost of implementing financial integrity commitments” is a pretty broad category that could cover a lot of different things. The report’s explanatory text, however, clarifies some of what the Panel has in mind: “beneficial ownership registry software and] artificial intelligence software for analysing suspicious financial transactions,” as well as other software more specifically relevant to tax issues. I like the idea, though it would have been nice to have a clearer sense of how exactly the Panel envisions this all taking place. My understanding is that the kinds of software under discussion here are typically (maybe always) developed by private firms, and then purchased by governments (or financial institutions). Is the suggestion that the development of such software ought to be subsidized by the government? Or that wealthy governments should subsidize the purchase of such software by the governments of poorer countries? I’m not sure I’m totally sold on why such measures are needed. (I’m all for more aid to poorer countries, but I’m not sure it should be specifically earmarked for the purchase of particular types of computer software.) And I hate to be pedantic, but software of this sort is not a “public good.” A public good, technically, is a good that is (1) non-excludable (once created, it’s impossible to stop other people from benefiting from it) and (2) has no or low rivalry of consumption (meaning that one person’s consumption of the good doesn’t prevent others from consuming it). Computer software has low rivalry of consumption, but it is most certainly excludable. So it’s not a public good, in the technical economic sense. I think what the panel means is that it’s a good with very high positive externalities (that is, the social benefits of producing the good are much higher than the private benefits that the producers can appropriate, and so in a free market the good would be under-produced). Again, that’s mostly a pedantic point about economic terminology, but I do think it’s more helpful to think of the issue here in terms of what sorts of technology, or other products, governments ought to subsidize or include in aid packages. While we’re on the topic of things that the international community could provide, rather than relying on private market solutions, I’ll put in a plug for a proposal that my friend and former student Ruta Mrazauskaite have advanced, which I wish the Panel had included: a global, government-maintained database of politically exposed persons. I think something like that, which is in the spirit of what I think the FACTI Panel is advocating here, could potentially have a greater positive impact than subsidizing the development of new beneficial ownership registry software.
  • Recommendation 10C: Strengthen the capacity of United Nations Office on Drugs and Crime (UNODC) to do research on anti-corruption, including in collaboration with other international organizations, with the strategic aim of improving the effectiveness of capacity building and technical assistance. I was surprised and delighted to see that the FACTI Panel chose to devote one of its recommendations specifically to research! As the explanatory text accompanying the recommendation points out, figuring out what’s effective in combating corruption “requires a greater capacity to do research on all aspects of anti-corruption strategies,” as well as “learning from and collaborating with relevant international institutions such as the World Bank, UNDP, International Anti-Corruption Academy, and other researchers.” Amen! Where do I sign up? More seriously, I appreciated this call for more in-depth research, and greater use of such research in formulating and implementing anticorruption strategies, as well as the recognition that doing this “will require an upgrade to the UNODC Secretariat to enable them to better bring policy-relevant research to practitioners.” That said, here as elsewhere the report is rather light on specifics.
  • Recommendation 11B: Designate an entity to collect and disseminate data about mutual legal assistance and asset recovery efforts. As the report’s explanatory text further explains, the idea here is to create a “body with universal membership” that would, on an annual basis “collect and disseminate reliable, comprehensive and disaggregated data on mutual legal assistance [(MLA)] requests and their results.” I like the spirit behind this proposal, but I have a few questions. First of all, just how “disaggregated” does the Panel imagine that this data should be? Is the idea that every MLA request will be individually tracked, and the results shared with every government in the world? I can see some big problems with that, especially if some of these MLA requests concern senior figures in, or associated with, other governments. There may be very good reasons to keep the subjects of individual MLA requests confidential. But perhaps the Panel is calling not for a global database of MLA requests with information on, for example, the target of the investigation or the particular form of assistance requested, but rather quantitative data, along the lines of “in the past year country X submitted [this number of] MLA requests to country Y, of which [this number] were satisfactorily completed, [this number] were denied, and [this number] are still pending,” and perhaps also information on the mean, median, and modal number of days between the submission of an MLA request and its resolution. That seems more feasible. But I’m still wondering how “universal membership” in such a body could reasonably be achieved (it’s hard for me to imagine, for example, that China would agree to participate). I’m also not sure whether the FACTI Panel considers universal membership a precondition for an entity like this being viable, or whether that’s more in the nature of an aspirational target. But these open questions notwithstanding, I generally think that getting more data on MLA requests and how they’re handled would be very useful, and I’m glad that the FACTI Panel is pushing in this direction.
  • Recommendation 11C: Designate an entity to collect and disseminate data on enforcement of money-laundering standards, including beneficial ownership information. This seems like a good idea, but something that could and should be handled by the existing Financial Action Task Force (FATF), rather than through the creation of a new standalone body.
  • Recommendation 12A: Update the United Nations Convention against Corruption (UNCAC) implementation review mechanism to improve comprehensiveness, inclusiveness, impartiality, transparency and especially monitoring. This is a very good idea that has little chance of being implemented. I suspect that the relative weakness of the current UNCAC peer review mechanism is due not to some oversight or lack of capacity, but to the fact that ensuring broad membership in UNCAC—a top goal of the Convention’s drafters and supporters—was incompatible with a really strong, robust, and intrusive review mechanism. And because the Convention can’t be revised without the consent of the Member States (which include places like Russia and China), the prospect of increasing transparency and strengthening monitoring strike me as dim. Still, I like that the FACTI Panel is at least calling attention to the deficiencies of the current UNCAC review mechanism and pushing for reform. And some of the specific sub-proposals that the report discusses may be more feasible.
  • Recommendation 12B: Update UNCAC and other peer review mechanisms to reduce duplication and increase efficiency. So I like the general spirit of this recommendation, but this is another one of those places where the Report is frustratingly non-specific (even though most of what it does say seems sensible). One is left wondering, what exactly should be done to reduce duplication and increase efficiency? Why do these problems arise in the first place, and how do we make sure that addressing these problems doesn’t undermine the goals of these monitoring mechanisms? And in at least one respect, the Panel report’s discussion seemed to contain an unrecognized internal tension: The opening sentence of the explanatory text emphasizes that “reducing the risk of monitoring fatigue is … critical,” but then the very next sentence urges Member States to “further shorten the intervals between evaluations[.]” If one is worried about “monitoring fatigue,” then wouldn’t more frequent evaluations exacerbate that problem? Maybe there’s a simple way to resolve that tension, but the report doesn’t seem to even be aware that there’s a tension here. Also, while I can get on board with the call to “enhance collaboration among different peer reviews in the area of financial integrity,” I wish the report had actually described at least some of the existing instruments (besides UNCAC) that deal with this issue, so that we have a sense of just how much duplicative or overlapping peer reviews are in this area.
  • Recommendation 13: Governments should create robust and coordinated national governance mechanisms that efficiently reinforce financial integrity for sustainable development and publish national reviews evaluating their own performance. This seems to me like a good idea, though as always, the devil is in the details. I do wish that this section of the report had provided some examples of what the Panel considers to be best practices (or at least good practices). But basically, fine.
  • Recommendation 14A: Establish an inclusive and legitimate global coordination mechanism at United Nations Economic and Social Council (ECOSOC) to address financial integrity on a systemic level. So… I like the idea of a global coordination mechanism for financial integrity, but we kind of already have one: FATF. I’m not sure why ECOSOC should take over the global coordinating function here. Now, to be fair, the Panel report discusses FATF, does not propose eliminating FATF, and lays out a case for why ECOSOC should take on a bigger role. For one thing, while “FATF has near universal participation through its Associate Members, … associate members do not enjoy formal equal representation in the plenary, where standards are officially set.” (FATF has 39 full members, including all of the G-20 countries.) The report builds on this theme in noting that, as a general matter, in many international fora, “sub-groups [of countries rally together] to ensure their interests prevail,” which “creates unequal treatment and outcomes for countries, with developing countries primarily losing out.” The UN, the Report continues, is a more “inclusive and universal body,” and because ECOSOC already addresses sustainable development issues, “it makes sense that ECOSOC, supported by the whole UN system and relevant organizations, becomes the venue to facilitate international cooperation … [for] building financial integrity.” So, while I could be misunderstanding, the impression I get from this is that the problem with the existing international mechanisms for coordinating international efforts to combat illicit finance—such as FATF—is that they are biased in favor of developed countries and their interests, and while FATF and similar organizations should continue to exist, it would be fairer and more effective for the more inclusive and equitable ECOSOC to have the principal coordinating role. Well, maybe. But I can think of a few concerns here. First of all, I’m not sure that ECOSOC has, or could easily develop, the technical expertise to take on this role, and I’m not sure that the value-added from doing so would be worth the effort if such expertise is already contained in existing bodies like FATF. Second, what the report celebrates as a virtue—the fact that all countries have an equal voice in UN organs like ECOSOC—may not be ideal in this context, where what we really want and need to do is to raise the bar, push countries to do more, etc. Put simply, there’s a risk of playing to the lowest common denominator. And let’s face it, UN organs overall don’t have a great track record when it comes to setting clear, rigorous international standards—as opposed to airy, aspirational, try-your-best sorts of standards. I need to restrain myself here, because I have to admit I don’t really know what I’m talking about. I’m no expert in the institutional structures of ECOSOC or FATF. But I did think it was worth articulating an instinctive and inchoate (if politically incorrect) skepticism of UN bodies like ECOSOC. And since FATF, for all its imperfections, actually seems to be performing its international coordination and standard-setting role fairly well, I wonder why the FACTI Panel wouldn’t choose FATF (perhaps reformed in various ways) as the lead coordinator for global efforts to tackle illicit international financial flows.
  • Recommendation 14C: Starting with the existing FATF Plenary, create the legal foundation for an inclusive intergovernmental body on money-laundering. This recommendation builds on the theme discussed in the previous note. The report argues that FATF “would benefit from a more formal establishment of the governing body, with appropriate rules for universal representation,” and “sees merit in a constituency approach that would formally give voice to all, instead of having non-FATF-member jurisdictions speaking through FATF-style regional bodies, which are officially only observers at the FATF plenary.” I really don’t know enough about FATF to comment intelligently on the details of, or potential reforms to, its institutional structure. But I had trouble figuring out exactly what problem the FACTI Panel was trying to solve here. Is the lack of inclusiveness and equal representation an intrinsic problem in this context? It’s not at all obvious to me that it is. Indeed, if more equal and inclusive representation would lead to a watering down of FATF standards, I’d oppose equality and inclusion in this context (though not in others). Or did the Panel conclude that the standards themselves would be better, stronger, and more effectively enforced if more countries had representation and voting power in FATF? If so, how and why? The report never tells us. The undercurrent I’m detecting (and of course I could be wrong) is a kind of resentment—perhaps felt by some members of the FACTI Panel from countries without full representation on FATF—about this inequality. I get that. But, respectfully, I don’t care. What’s important here is what institutional structure will produce the best, most appropriate and effective international standards and recommendations. And the report doesn’t really do much either to justify the value of inclusiveness in FATF as intrinsically valuable, or to explain why a different institutional structure would lead to stronger and better rules. So I’m left unsatisfied and unpersuaded, and I hope that those who favor the reform laid out in this part of the report do more, in other fora, to lay out the substantive case for these reforms in more detail.
  • Recommendation 14D: Design a mechanism to integrate the UNCAC COSP into the coordination body under the auspices of ECOSOC. Maybe I’m just getting tired (it’s been a long march through all these recommendations!), but I just don’t understand this one. I mean, I understand all the words. I just can’t quite figure out, or picture, what the report is getting at here. The explanatory text declares, first, that the UNCAC Conference of State Parties (COSP) “should consider violations of the UNCAC, … including failure to enforce anti-corruption policies and to cooperate on the return of assets.” What does it mean that the COSP should “consider” violations? Consider them in what way? Do what with this knowledge? This seems like a completely empty, meaningless statement. The report then continues that the UNCAC COSP “needs to coordinate action with other bodies working in the financial integrity ecosystem, which should happen through the ECOSOC coordination mechanism.” (Here the report is clearly referencing the proposed ECOSOC coordination mechanism suggested by Recommendation 14A, as no such mechanism currently exists.) I’m all for coordination, but it’s very difficult to figure out what sort of “coordination” the Panel has in mind when it comes to the COSP. The COSP meets every couple of years to discuss the Convention, debate possible changes (which never happen), yell at each other a bit, hold some side meetings, eat some nice meals at their governments’ expense, etc. I’m not sure how or why the COSP would “coordinate” with, say, the FATF. I’m open to the possibility that some such coordination might be helpful, but the Panel report is not super-helpful in clarifying any of this. Finally, the Panel report’s explanatory text on this recommendation concludes with the statement that UNCAC Member States should, through ECOSOC, “agree on political priorities and further actions to coordinate UNCAC implementation with the broader financial integrity for sustainable development architecture.” Um, the COSP meetings are already intended to be fora where the UNCAC Member States can “agree on political priorities and further actions to coordinate UNCAC implementation,” and usually nothing productive happens because the States Parties can’t come to agreement on anything important. I’ve got no idea why the panel thinks that doing the same thing under the auspices of ECOSOC will make any difference. So all in all, this recommendation struck me as mostly vacuous.

Whew! There you have it – the conclusion of my tour through 27 of the FACTI Panel’s recommendations on how to promote “financial integrity for sustainable development.” Some of the recommendations are great, some are odd, some are silly, and some are intriguing but lack sufficient detail. But overall, the FACTI Panel has done us all a useful service by providing a document that can serve as the focus for discussion and debate over this vitally important topic. I very much hope that others – especially those who disagree with any of my assessments – will weigh in as well, and help carry this conversation forward.

4 thoughts on “Commentary on the FACTI Panel’s Report and Recommendations (Part 2)

  1. Thanks for carefully analyzing the panel’s recommendations. The discussion of them will be the better for it.

  2. Thanks for the commentary professor. It seems like a lot of these recommendations lack punch or specificity (the Compact for instance, which you mention is a good idea but not fleshed out enough). I’d be curious to get more of an overall report card from you on these recommendations. Taking the package as a whole, how meaningful and bold is the Panel’s work? Were there notable things you thought should have been included but weren’t?

  3. Thanks for these excellent posts. I’d like to echo Disha’s call above – would you consider a third post suggesting issues the Panel could have looked at or raised, but didn’t?

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