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Forging the link between inclusion and integrity in Ethiopia

Emily Rose Adeleke's picture



How can financial inclusion and financial integrity policies complement each other? That question was addressed in a report recently released looking at the state of Ethiopia’s anti-money laundering/combating the financing of terrorism (AML/CFT) framework.
 
The assessment was conducted by a World Bank Group team of experts and published by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). This is the first assessment of a developing country to be published that uses the revised 2012 Financial Action Task Force (FATF) standards.
 
Ethiopia’s compliance with the international standards on AML/CFT had never been assessed before, and this report sheds light on the functioning of a unique and vibrant economy in Africa. In addition, this is the first AML/CFT assessment to highlight the connection between financial inclusion and financial integrity policies.
 
As noted in an earlier blog post, entitled "The Royal Stamp of Inclusion," the FATF has confirmed that financial inclusion and financial integrity are mutually reinforcing public-policy objectives. The revised FATF standards have a more explicit focus on the risk-based approach in implementing an AML/CFT framework. This approach allows for the identification of lower risk scenarios and the application of simplified AML/CFT measures in certain areas (primarily customer due diligence, or CDD).
 
The Ethiopia assessment notes that only about 28 percent of the population is served by the formal financial system – leaving 72 percent of the population dependent on cash or informal financial service providers. The Ethiopian government has identified the expansion of formal financial services as a national priority, through its “Growth and Transformation Plan” and the “Ethiopian Financial Inclusion Project.”
 
The assessment makes suggestions as to how the Ethiopian authorities can “link up” the policies of inclusion and integrity – for example, by allowing for simplified customer due diligence processes, and by providing guidance to financial institutions on the issue.

Piggybanks for plunder: Corrupt cash flows to Global Cities, requiring transparency and complete disclosure of assets

Christopher Colford's picture



Corrupt cash from secretive international sources – deliberately funneled through ‘shell companies’ to conceal the money’s illicit origins – is often used to buy ‘Towers of Secrecy’ in leading global cities like New York, as documented by a recent New York Times investigation.

Cities exert a magnetism that’s irresistible – attracting not just the most ambitious who seek economic opportunity and the most creative who revel in cultural richness, but also lawbreakers and looters: notably nowadays, the corrupt kleptocrats and tax-avoiding oligarchs whose hot money increasingly flows into the safe haven of prime real estate in the world’s leading cities.

At least part of the trend toward soaring center-city property prices, according to many anticorruption monitors, is due to the impact of illicit financial flows. It’s not just the plutocratic One Percenters who are steadily bidding up real-estate valuesPlunderers and profiteers – often concealing their identities, with the aim of shielding their wealth from tax authorities and international asset-trackers – use prestigious parcels of center-city property as a piggybank to shelter their tainted lucre.

The most vibrant and most competitive of Global Cities – notably London, Paris, New York, Hong Kong and Singapore – have long been magnets for money, luring the world’s most enterprising entrepreneurs as well as its most desperate refugees. As their global vocation and vitality have lured the ambitious and the avaricious, however, the “priced out of Paris” syndrome has often taken over: Gentrification has morphed into “plutocratization,” notes Simon Kuper of The Financial Times, with “global cities turning into vast gated communities where the One Percent reproduces itself.”

Meanwhile, “the middle classes and small companies [are] falling victim to class-cleansing," Kuper asserts. "Global cities are becoming patrician ghettos” – with the middle class and the poor being driven ever-further out from the center-city in search of affordable housing, doomed to interminable commutes to sterile suburbs or brooding banlieues.

Most of the property price spiral in world-leading cities is surely attributable to the allure of cosmopolitan life in an age when urbanization is accelerating worldwide. But as two members of the World Bank Group’s unit on Financial Market Integrity (FMI) and the Stolen Asset Recovery (StAR) Initiative recently wrote in a StAR blog post, the melt-up of prime property prices often involves corrupt money and evasive property-registration practices.

Citing a recent New York Times investigative series that meticulously documented suspicious practices within Manhattan real-estate trends, FMI specialists Ivana Rossi and Laura Pop noted that the property-buyers “took several steps to hide their identity as the real owners of the properties. Some of these steps involved buying condos through trusts, limited liability companies or other entities that shielded their names. Such tactics made it very hard to identify the 'beneficial owner': to figure out who owned what, or who was the ultimate controller of a company (or other legal entities) since the names were not shown in the company records.”

Vast sums are flowing unchecked around the world as never before – whether motivated by corruption, tax avoidance or investment strategy, and enabled by an ever-more-borderless economy and a proliferation of ways to move and hide assets,” said the painstaking New York Times investigation, "Towers of Secrecy," by Louise Story and Stephanie Saul.

Probing “the workings of an opaque economy for global wealth,” the reporters excavated the substrata of this enduring scandal. “Lacking incentive or legal obligation to identify the sources of money, an entire chain of people involved in high-end real-estate sales – lawyers, accountants, title brokers, escrow agents, real-estate agents, condo boards and building workers – often operate with blinders on.”

In a moment of inadvertent self-revelation, a Manhattan real-estate broker confessed her look-the-other-way negligence “when vetting buyers: ‘They have to have the money. Other than that, that’s it. That’s all we need.’ ” A former executive of a property-development firm was equally blunt: “You pretty much go by financial capacity. Can they afford it? They sign the contract, they put their money down with no contingency, and they close. They have to show the money, and that is it. I don’t think you will find a single new developer where it’s different.”

No wonder that the upper reaches of the U.S. real-estate market are “more alluring for those abroad with assets they wish to keep anonymous,” the Times analysis found. “For all the concerns of law-enforcement officials that ‘shell companies’ can hide illicit gains, regulatory efforts to require more openness from these companies have failed.”      

The Times’ discoveries, asserted Rossi and Pop, thus underscore the important issues involved in asset disclosure and "beneficial ownership” rules. Many nations require that public officials fully disclose their financial holdings. Such transparency is one important safeguard against the plundering of public wealth by kleptocrats, corrupt clans or well-connected cronies in countries that are vulnerable to chronic larceny.

Yet some dishonest public officials exploit legal loopholes – or flout the law entirely: “As the StAR publication ‘Puppet Masters’ demonstrated, those that do engage in corrupt activities are likely to use entities such as companies, foundations and trusts to hide their ill-gotten wealth,” wrote Rossi and Pop. “These conclusions are also confirmed by a recent Transparency International UK report. It showed that 75 percent of UK properties in the UK, under criminal investigation since 2004 – as the suspected proceeds of corruption – made use of offshore corporate secrecy to hide the owner’s identities.”

Drawing on a new World Bank Group report (which they co-authored with Francesco Clementucci and Lina Sawaqed), “Using Asset Disclosure for Identifying Politically Exposed Persons,” Rossi and Pop argued that accurate and complete financial disclosure by officials in positions of public trust (known in the financial-integrity world as “Politically Exposed Persons”) are an essential safeguard against the diversion of assets. Such disclosures, by themselves, don’t provide a “magic bullet” solution to prevent corruption, yet they are a vital mechanism in building transparency and trust.

“Once there is an ongoing investigation, the information declared can be very helpful as evidence, both in what has been included as well as omitted,” wrote Rossi and Pop. “In many countries, intentionally leaving out information on a house or a bank account carries serious penalties. Furthermore, financial disclosures can help catch a dishonest public official whose lavish lifestyle – including real estate in a prized location – could not be supported by the resources, such as a public-sector salary, indicated in the declaration.” The key factor in ensuring integrity and combating corruption is thus the full disclosure of “beneficial ownership.”

Property prices in Global Cities are already being propelled upward by the gusher of money that is flooding, through fully legal channels, into the world’s most desirable and stable locations – thus threatening to put affordable housing, in many major cities, beyond the reach of all but the fortunate few. The last thing that already-unaffordable cities need is an unchecked flood of illicit billions and furtive real-estate transactions, which will only intensify the pressure that now threatens to create a renewed boom-and-bust cycle of unstable housing prices.

Urban advocates who are working to promote inclusive, sustainable, resilient and competitive cities will applaud the continued vigilance of asset-trackers and corruption-hunters – like the FMI and StAR units, through their work sans frontières
on the disclosure of beneficial ownership – whose efforts to halt illicit financial flows will provide an additional instrument to help ensure that cities will be as inclusive as possible in a relentlessly urbanizing age.

 

#TakeOn Corruption


Vulnerable yet invaluable: Protecting our patrimony by safeguarding art, artifacts, archaeology and assets

Christopher Colford's picture

The spectacular recovery of a long-missing painting by Pablo Picasso – a canvas that had been stolen more than a decade ago, in a daring museum theft in Paris – offers a vivid reminder of the illicit worldwide trade in stolen assets, artworks and archeological artifacts. Preventing the cross-border smuggling of stolen money, art and natural treasures poses a stern challenge to law-enforcement authorities. Yet the vigilance of the international network of corruption-hunters and asset-trackers can often result in a triumph, as illustrated by the case of the now-recovered Picasso.

The art world hailed last week’s revelation that “La Coiffeuse,” painted by Picasso in 1911, had been intercepted in December by U.S. Customs and Border Protection officials. The painting was identified during its shipment to a climate-controlled warehouse in Long Island City, New York, and it was then seized while it was in transit at Port Newark, New Jersey. The work – unseen since its 2001 theft from the Centre Georges Pompidou in Paris – had been shipped on December 17 from Belgium to the United States in an innocent-looking FedEx container, adorned with a holiday-season tag marked, “Joyeux Noel.” Its shipping registration papers falsely described it as an “art craft/toy” valued at $37. The legal process that began last week in New York should soon have the canvas on its way back to France, where it is owned by the nation.

The Picasso had been assigned an estimated value of about 2 million euros at the time of its theft in 2001 – suggesting how lucrative the underground market for stolen art may be. Despite any such theoretical valuation, however, such cultural riches are truly beyond price: They belong to humanity’s shared patrimony, and thus their theft is an immeasurable crime against history.



"La Coiffeuse" by Pablo Picasso. Photograph via the U.S. Department of Justice.

The sudden recovery of the Picasso has reminded art-watchers – and law-enforcement officials – that the 25th anniversary of a still-baffling crime is fast approaching: the March 18, 1990 theft of $500 million in artworks from the Isabella Stewart Gardner Museum in Boston. That theft deprived the world of, among other masterpieces, Rembrandt’s “Christ in the Storm on the Sea of Galilee,” painted in 1633. Despite occasional rumors that some of the stolen works might be available somewhere on the global black market, that crime remains unsolved – and the criminals, part of the vast international network of art thieves and smugglers, remain at large.

Police agencies and global asset-trackers certainly face a herculean task. International plunder takes many forms – from the “grand-scale corruption” that infects fraudulent banking transactions to the looting of countries’ wealth by dictators and kleptocrats. Cracking down on the illicit flows of funds worldwide – which are sometimes abetted by corruptible accountants and pliant lawyers, who help steer loot to safe havens and stash money in offshore tax-dodging accounts – requires persistent detective work and meticulous forensic accounting. In the case of stolen art treasures, the art world must appeal to the conscience of connoisseurs and dealers – and must rely on the integrity of curators at museums large and small, who surely know better than to traffic in property whose provenance might be even slightly suspicious.

Units like the Stolen Assets Recovery (StAR) Initiative – a joint effort by the World Bank and the United Nations Office of Drugs and Crime – patiently promote cooperation among transnational, national and local law-enforcement bodies. That task requires a commitment for the long haul, as they steadily pursue capacity-building among governments and private-sector watchdog agencies that are determined to build their anticorruption capabilities. Closer legal, technical and financial coordination sans frontières is an indispensable tool in hunting down and repatriating looted lucre.

As in the case of the now-recovered Picasso, the effort to protect priceless artworks sometimes ends in a law-enforcement success. In a just-opened art exhibition in Washington, art-watchers can now get an up-close look at an inspiring example of how a strong national commitment to fighting crime – backed by methodical investigative work and tenacious legal processes – can achieve enduring results.

The Embassy of Italy last week opened an exhibition of irreplaceable artworks that might have forever vanished onto the international black market, had it not been for the work of one of the country's specialized military units: the Guardia di Finanza, which since 1916 has protected Italy from smuggling, drug trafficking and financial crimes. Its specialized art-investigations team, the Gruppo Tutela Patrimonio Archeologico, has successfully prevented the theft of many works of art, some of which can now be seen (by appointment) at the Embassy on Whitehaven Street. Treasures such as these are integral to Italy’s culture and the West's heritage.

In opening the exhibition, Ambassador Claudio Bisogniero noted that “the trafficking of archaeological works is a growing phenomenon that in recent years has spiraled upwards at an alarming rate” – with Italy ranking “first among the countries [that are] victims of this crime. . . . These treasures belong to Italy. But they also belong to European identity and, by extension, to all mankind.”

With the Picasso canvas soon headed back to Paris, and with the recovered art and archaeological treasures now being celebrated at the Embassy, arts-watchers can breathe easier, knowing that these masterworks are secure. But protecting the global patrimony requires the constant vigilance of corruption-hunters and asset-trackers – like the Guardia di Finanza, the StAR unit and their law-enforcement allies worldwide – who stand guard against the plunder of the vulnerable yet invaluable assets that comprise the common heritage of humanity.


Amid the rescue and recovery in Greece: Corruption-hunting – putting promises into practice

Christopher Colford's picture



After the drama,
 the dénouement. Crisis-watchers who were riveted to last week’s continuous flow of breaking-news bulletins from Brussels – as the European Union and Greece furiously negotiated (often through diplomatic feints and calculated disclosures to the press) a fragile accord on the latest stages of Greece’s debt crisis – are now awaiting the next high-intensity, high-anxiety step in the prolonged process: the scrutiny of the list of proposed reforms that Greece has agreed to submit to still-wary EU officials by Monday.

Whether this week’s list of proposed reforms, being drawn up by Finance Minister Yanis Varoufakis, proves to be enough to satisfy the skeptics in the Eurogroup is the next question for Eurozone-focused analysts. Continued haggling over the details seems likely over the next week – and, ominously, the remainder of calendar for 2015 looks unforgiving. Even if an accord can be solidified this week, many observers dread that anxieties will be inflamed again within four months, when the EU’s brief extension of its financial rescue package for Greece will have run its course – just at the moment when Greece will be facing a midsummer deadline for paying large installements of its vast international debts. Another bout of brinkmanship this summer may revive fears of a possible disorderly exit from the Eurozone. With the fragile Greek banking system vulnerable to potential runs by depositors, the situation will surely command the attention of financial-sector crisis managers for months to come.

Throughout the white-knuckle phase of this Greek tragedy, the Bretton Woods institutions have had a constructive role to play in trying to resolve various aspects of the crisis. The International Monetary Fund has been a central pillar of the rescue operation, joining the European Central Bank and the European Union as part of the so-called “troika” (or, as it is now phrased more mildly in EU parlance, “the institutions”) serving as the rescue overseers. The World Bank Group has been involved in the situation, as well – although in a less-visible role that involves Greece’s long-term recovery rather than its short-term rescue. By providing, not financing, but technical expertise to Greece, the Bank Group has been helping strengthen the country’s investment climate – an area where, according to recent editions of the “Doing Business” report, Greece has made some notable progress in recent years.

As the Eurogroup and Greece this week consider Varoufakis' list of proposed policy reforms, one important concern is certain to be on everyone’s agenda: enforcing stronger steps to fight corruption and ensure good governance. In an anticorruption cri de coeur last week, an Op-Ed commentary in the New York Times by Gregory A. Maniatis explained, and deplored, how that beleaguered country’s chronic “corruption by elites siphoned off countless billions” that should instead have been used for pro-growth investment.

“Practically every time Greece made a purchase — be it of medicines, highways or guns — a substantial cut went into the wrong hands,” wrote Maniatis, who is a senior fellow at the Open Society Foundation and the Migration Policy Institute and an adviser to the United Nations. “As a result, monopolies and oligopolies led by politically connected families choked competition and controlled much of the country’s banking, media, energy, construction and other industries.”

An estimated 20 billion euros (about $22.8 billion) are lost every year due to pervasive corruption in the Greek economy, he wrote – and such a coddled “kleptocracy set a tone of impunity that enabled lower-level graft” in a “cycle [that] became self-perpetuating, as oligarchs tightened their stranglehold over the political system.”

Noting that Transparency International ranked Greece “at the bottom among European Union members” in its Corruption Perceptions Index – “tied for last with Bulgaria, Italy and Romania” – Maniatis questioned why “graft prosecutions are rare” in Greece. Every act of corruption, after all, requires two-way complicity: “In order for someone to receive a bribe, someone else has to pay it,” he noted. Perhaps legal watchdogs, in both Athens and Brussels, have not been diligent in monitoring the behavior of major European companies that might be engaging in bribery.

Maniatis’ suspicion suggests that the troika's crisis-management program may have overlooked a corrosive threat to Eurozone stability: “Why wasn’t Brussels focused at least as much on corruption as it was on debt? If the European Union’s absence on this front was lamentable before the crisis, it was inexcusable afterward. Officials from the so-called troika essentially took up residence at the Greek Finance Ministry in 2010, but rarely visited the Ministry of Justice.”

Warning of the threat that corruption poses to sound development and shared prosperity in every economy, Maniatis’ essay brought to mind the recent World Bank Group-hosted forum by the International Corruption Hunters Alliance, with the theme of “Ending Impunity: Global Knowledge: Local Impact.” As many speakers at the ICHA forum in December 2014 pointed out – and as many countries that are struggling with eradicating corruption continue to find – a profound mindset-shift is needed to change an economy that tolerates a culture of corruption into an economy that demands a culture of compliance. By insisting on good governance standards, private-sector firms, no less than public-sector agencies, have the duty to enforce a “zero tolerance” policy for graft in every country where they conduct business.

Eradicating pervasive corruption from a long-graft-ridden economy may be a years-long challenge – if it can be achieved at all. So, while strict anticorruption measures are almost certain to appear on Varoufakis’ list of proposed policy reforms for Greece, enacting and enforcing them – and promoting a culture that recognizes corruption as Public Enemy Number One for development – seems likely to require near-permanent vigilance.

Those who wish Greece well in its long struggle to renew its economy – along with those who wish the European Union success in its half-century-long trajectory toward integration and stability – will surely applaud their forthcoming steps
toward promoting good governance and adopting stronger anticorruption safeguards. Along with all nations that seek to eradicate corruption, Greece and the EU can draw on the substantial body of knowledge developed by the International Corruption Hunters Alliance – an indispensable resource in the global quest for good governance that helps promote shared prosperity.



Follow the Money: Corruption and Graft Punish the Poor, Undermine Development, and Corrode Honest Governance

Christopher Colford's picture



Follow the money, and you’ll find out how and why corruption has become "Public Enemy Number Onefor those who are promoting global development – as crony capitalists in the private sector connive with corrupt officials in the public sector to short-circuit sound business practices, reward self-interested insiders, subvert the broad public interest, and undermine the ideals of good governance.

This week’s gathering of the third-ever conference of the International Corruption Hunters Alliance (ICHA) – a global network of prosecutors, lawyers, detectives, forensic accountants and policymakers who track down illegal and unethical financial practices – will underscore the continuing drain on development imposed by public-sector graft, private-sector lawbreaking, and the worldwide flow of illicit funds from sinister financial transactions.

Monday morning’s opening plenary session at the World Bank Group’s headquarters in Washington – headlined by Prince William, the Duke of Cambridge and heir to the British throne, along with Bank Group President Jim Yong Kim – began a week that should help focus worldwide attention on the way that systematic corruption enriches lawbreakers, undermines respect for the rule of law, thwarts good-governance efforts and drains scarce resources from effective development.

The three-day conference should also raise public awareness of the vigorous international action that has been mobilized in recent years, as corruption-related concerns have risen to a leading position on the global diplomatic agenda.

Inspired by then-World Bank President James D. Wolfensohn’s landmark “cancer of corruption” speech at the 1996 Annual Meetings, global action has been steadily gaining momentum – through such channels as the G20 leaders’ working group to tighten policies and procedures; the Financial Action Task Force’s standard-setting vigilance; the OECD’s Anti-Bribery Convention and its continuing monitoring of corruption’s toll; and civil-society organizations’ diligent watchdog efforts to ensure that development dollars will go, not toward graft, but toward the places where aid is desperately needed.

This week’s events at the Bank Group – focusing on the theme of “Ending Impunity,” and pivoting around International Anti-Corruption Day, which the United Nations has designated as this Tuesday – are timed to coincide with the launch of the OECD’s latest Foreign Bribery Report

The World Bank Group continues to champion the anticorruption ideal and good-governance standards: by enforcing a “zero tolerance” policy for corruption, closely tracking furtive patterns of suspicious financial flows, and working with law-enforcement officials worldwide to track down assets that have been looted and hidden by kleptocratic regimes. This week’s conference is organized by the Integrity Vice Presidency – which coordinates the Bank Group-wide effort to expunge all corrupt or unethical practices – with the support of such Bank Group units as the Governance Global Practice and the Stolen Assets Recovery Initiative.

An International Alliance against Corruption: Mindful of its Actions but Determined to Act

Dina Elnaggar's picture

When they first met in 2010, they hardly knew each other.  This week, members of the World Bank’s International Corruption Hunters Alliance convened their second meeting and for many of them, the fight against corruption is no longer solo. 
 
Once again, the World Bank welcomes more than 200 corruption fighters driving an agenda that is focused on international cooperation, technological tools and new approaches that can be incorporated in their anti-corruption mission.  Since their meeting in 2010, a lot has happened.  Corruption did not end but many of their collective actions had a profound impact in spreading a higher standard of accountability in public procurement and creating a broader range of enforcement powers.  Cooperation between the World Bank Integrity Vice Presidency and a number of national prosecution and investigative bodies has resulted in action against corrupt companies and officials.  Examples are many.  The point is, working as an Alliance is about sharing information and conducting parallel investigations, that is turning transnational crimes from a challenge to a success story.

Weekly Wire: the Global Forum

Kalliope Kokolis's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

TrustLaw
Anti-Corruption Views- World Bank, UN make ‘how to’ asset recovery guide

"How do you stop corrupt regimes from stashing their money in your jurisdiction? That is the question a joint initiative by the World Bank and United Nations answers in a recent report.

The Barriers to Asset Recovery report, by the Stolen Asset Recovery Initiative (StAR), gives policymakers a ‘how to’ guide on implementing laws and mechanisms needed to freeze and repatriate stolen assets." READ MORE