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Governance

Assessing the Assessors: From Form to Substance

Jean Pesme's picture



How good are the experts at evaluating countries’ anti-money-laundering and combating the financing of terrorism (AML/CFT) systems? That was the central question in a new report released last week by the Center on Law and Globalization. The report takes a critical look at the IMF’s evaluations of the AML/CFT systems of 150 countries from 2004 to 2013. Although we may differ on some of the analysis and recommendations, the report provides ample food for thought and raises issues that need to be addressed and, in certain instances, corrected.

It isn’t possible here to provide a full overview of all the points raised in the report, but a few key messages stand out:

The report finds that assessors were too focused on formal compliance (“rules on the books”) and did not, in any systematic fashion, try to ascertain the real impact of a country’s entire AML/CFT regime in practice. In the words of the report, “Reliance (by assessors) was placed on the prima facie plausibility of the claim that adherence to the [international AML] standards would help reduce money laundering and the financing of terrorism.” This criticism goes to a wider point: that evaluations were conducted without a clear articulation of the objectives to be achieved by AML/CFT measures. If you don’t know what a system is meant to accomplish, how can you evaluate it?

These are valid points and they hold true, not just for IMF evaluations, but also for others (including the World Bank) who carried out assessments using the same internationally agreed methodology. However, the report fails to take due account of the considerable work that has been undertaken in recent years to address and correct those shortcomings.

Since 2010, an intensive process of revision has been underway to improve the AML/CFT standards and the assessment methodology. There has been a long and vigorous debate within the Financial Action Task Force (FATF), the global standard-setter on these issues, and between the FATF and other bodies, about the best way to remedy the system’s deficiencies to make assessment reports more useful. Both the Bank and the Fund have played a very active role in this discussion.

As a result of this process, the new standards approved in 2012, along with a new methodology approved in 2013, provide a framework to address those concerns: Countries’ AML/CFT systems are to be judged based upon an assessment of their effectiveness in addressing a country’s ML/FT risks. Are government interventions commensurate to the risks faced? For example, a country with a negligible financial sector and a high use of cash should probably not spend too much money and manpower on policing its securities sector. Conversely, a sophisticated financial center providing easily usable incorporation services should probably keep a close eye on company registration. As a participant in this process, the World Bank has been a strong proponent of this pivot toward risk and effectiveness. In our view, only such an approach can help countries make meaningful decisions regarding their priorities and their strategies.

High-Speed internet and the Values of the Arab Spring

Joulan Abdul Khalek's picture
High-Speed Internet and the values of the Arab spring

I remember once at a conference in Tunisia being asked by a young member of parliament why it made sense to invest in a fiber optic cable to a remote village in Djerba instead of improving more basic services such as electricity grids or water irrigation. The interesting thing is that the two are not mutually exclusive, as most of the times conventional infrastructure projects also have the capacity to deliver fiber at a small incremental cost. But at the time I answered that investing in internet infrastructure should not only be seen as an economic activity but also as an extension of the values of the “Arab Spring”.

Can Aid Donors Really 'Think and Work Politically'? Plus the Dangers of 'Big Man' Thinking, and the Horrors of Political Science-Speak

Duncan Green's picture

Spent an enjoyable couple of days last week with the ‘thinking and working politically’ (TWP) crew, first at a follow up to the Delhi meeting (nothing earth shattering to report, but a research agenda is on the way – I’ll keep you posted), and then at a very moving memorial conference for the late Adrian Leftwich (right), who is something of a founding father to this current of thought.

Regular readers of this blog will know that I’m a big fan of this line of thinking: understanding and engaging with the underlying issues of power and politics should be the heart of any serious work on development.

But based on last weeks exchanges, I’ve got some concerns too – here are some reflections:

First some choice quotes:
 

Lowering Barriers to High Speed Internet in the Arab World

Michel Rogy's picture
Lowering Barriers to High Speed Internet in the Arab World
This blog post was first published on the ICT blog.

On affordability grounds alone, millions of people in the Middle East and North Africa region could be excluded from today’s information revolution. Meeting this challenge has become a top regional priority. Many countries in the Arab world have identified broadband Internet as a critical input to the broader objective of nation building and the transition to a knowledge-based economy.http://www.worldbank.org/en/region/mena/publication/broadband-networks-in-mna

Can Businesses Help Create Political Stability?

Zahid Hussain's picture

 © Simone D. McCourtie/World BankBusinesses generally stand little chance of doing well when politics is not stable. Political stability is a necessary condition for an enabling business environment. What can the business community do to help achieve sustained political stability? Experience shows more often than not they fail to do so. What keeps the private sector divided even when both their collective and personal interests are directly at stake? Such an apparent puzzle can be explained by the soft budget constraint syndrome interacting with cronyism.
 
The term “soft budget constraint” (SBC) was originally conceived by the economist, Janos Kornai. The concept has since been regularly invoked in the literature on economic transition from socialism to capitalism. Now the concept is increasingly acknowledged to be pertinent well beyond the realm of socialist and transition economies. A host of capitalist phenomena, ranging from the collapse of the banking sector of East Asian economies in the 1990s and the business rescue packages seen in the midst of the recent global financial crises can be usefully analyzed in SBC terms.
 
The syndrome is at work only when organizations can expect to be rescued from trouble, and those expectations in turn affect their behavior. The more frequently financial problems elicit support in any part of the economy, the more organizations will count on getting support themselves. The government may from time to time announce they will break with past practice and refrain henceforth from bailouts. But such announcements have little effect unless combined with some institutional change that lends credibility to their claims.
 
SBC syndrome alone cannot explain why business groups do not react collectively to political adversities. The divisive force in this process comes from cronyism.
 
Cronyism normally means some of those close to political authorities receive large economic favors. The most visible ones usually entail ownership of a business or its operation, such as the privatization of state-owned enterprises (SOEs). More frequently, however, economic entitlements are provided through privileged access to governmental favors. The most valuable are the provision of monopoly or quasi-monopoly positions and the extension of domestic credit at highly subsidized terms. Favoritism in awarding government contracts is also important and may be as significant as the others. 

Development could be a click away in the Arab World

Junaid Kamal Ahmad's picture
Video Blog
​Junaid Kamal Ahmad, World Bank Director of Sustainable Development for the Middle East and North Africa, discusses the immense potential for high speed internet to be an engine of development in the region. This is the focus of the forthcoming report, “Broadband Networks in the Middle East and North Africa: Accelerating High-Speed Internet Access.”  

Jishnu and Shanta Talk Transfers

Shanta Devarajan's picture

Shanta:  Jishnu, your blog post and mine on cash transfers generated a lot of comments.  Some people argued that giving poor people cash will not “work” because they will spend it on consumption rather than on their children’s education, which is something we care about.  What do you have to say to that?

Jishnu:  I don’t think the question “does giving cash to poor people work?” is well-defined.  It can only be answered in the negative if we (the donors who give the cash) impose our preferences and judge what poor people spend on relative to those preferences.  But if we give poor people cash so they will be better off, then—by definition—they are better off, regardless of how they choose to spend the extra money.

Politics in Development? Meet the New Institutional Economics

Kate Henvey's picture

Around the end December of every year, the pundits start coming out with their forecasts for 2014. This past December, the World Bank pundits predicted everything from girls outperforming boys in developing countries (girl power!) to the staggering idea that for Europe, 2014 will be a better year.

This year though, the World Bank’s Future Development Forecasts blog, included a prediction that caught these two political scientists by surprise— “as more and more economists point to the primary [sic] of politics in development, political scientists will wake up and wonder why they have been left out of the discussion.”

Getting Digital Service Delivery Right

Tina George Karippacheril's picture

We are curating a new monthly series on Digital Gov in developing countries seeking fresh perspectives and insights into the policy, institutional, and technical dimensions of using technology and public management to make services work for businesses and citizens.  
 
Over a cup of tea, on a January afternoon of freezing rain, Emily, who works on Digital for the US Government, and I met to exchange perspectives on what it takes for governments to get digital right. Although our contexts are vastly different, we agreed that there remain similar pain points in the developed and developing world. In the first edition of the Digital Gov. blog, we consider factors common to good digital service delivery.

Yemen: Looking beyond the National Dialogue

Wael Zakout's picture
Yemen
Boy with Flag. Photo credit: Al Jazeera English

With the successful conclusion of the National Dialogue Conference (NDC), Yemen has demonstrated both to the region and the world that there is another way of dealing with conflict and grievances. One clear outcome of the NDC is a political transition  based on dialogue rather than confrontation. The challenge now will be to convert this outcome into meaningful results for the people of Yemen. 

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