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Financial Integrity

Bringing the banks to account

It began as a trickle but has turned into a flood. HSBC, Barclays, Wachovia, JP Morgan, and UBS have all been engulfed by waves of scandal involving, money laundering, fixing interest rates, risky trades, and rigging the money markets. The question now is – have the banks gone bad? The claim by senior bank executives they ‘we did not know’ rings hollow, and must not be allowed to stand if they are to regain their integrity. 

The banks have long resisted greater hands-on supervision of their activities, but the recent rash of publicity surrounding their bad conduct proves that left to their own devices market discipline is not enough. Their involvement in dubious transactions, including in greasing the wheels of corruption through money laundering requires the full implementation of existing rules and regulation, and empowered supervision. The World Bank’s Stolen Asset Recovery Initiative (StAR) along with Financial Market Integrity (FMI) have long pressed for the banks to do more to prevent money laundering and to fight corruption.  As a rough estimate, it is believed that $20 – $40 billion is stolen from the coffers of developing countries every year. Much of it ends up being laundered through the banks, passing through financial capitals around the world en route to the beneficiaries. Mechanisms to detect illicit cash flows have long been in place, but the existing system is not working, and corruption is eating away at the foundations of the banking system.

Will financial disclosure by public officials mean less corruption?

Financial disclosure systems are attracting increasing attention. Can these systems credibly help to prevent corruption in public office? Can they play a useful role in detecting officials who engage in corrupt behaviors? Could they even assist in the complex global work of tracking and investigating illicit flows?

Credit: Perry French, Flickr Creative CommonsThe recently released  Public Office, Private Interests from the Stolen Asset Recovery (StAR) Initiative with data by the Public Accountability Mechanisms Initiative of the World Bank provides a practical approach to addressing the challenges and requirements of effective disclosure administration.  The overarching message is that effective disclosure is a balancing act. Yes, a disclosure system can make a meaningful contribution to corruption prevention and enforcement. But cannot do so if expected to tackle and apply sanctions for all forms of graft and corruption in public administration.

Requiring that public officials submit a signed declaration of their income, assets and business interests is on the face of it an intuitively simple way of ensuring that they think twice about seeking to profit illicitly from their public duties, or of allowing private interests to influence, appear to influence, or otherwise conflict with their official responsibilities. Fear of detection is the motivating force; a reminder of ethical obligations, and assistance in fulfilling them, the encouragement. In practice, however, this deceptively straightforward idea is very challenging to implement.