Give people the ability to engage, and they will change the world. Or will they?
The massive expansion of political voice and social activism over the past several decades -- ranging from the mushrooming of citizen-led initiatives for transparency and accountability, to the uprisings in the Middle East and North Africa, and the eruption of protest movements in countries as diverse as Brazil, India, Turkey and Mexico – has generated great enthusiasm about the transformational potential of popular participation.
The reality, however, is more complex than that.
Think back to the Arab Spring and the extraordinary mobilization of so many people who managed to topple one authoritarian regime after another. The streets were theirs, but in most of these countries ousting dictators has turned out to be much easier than building political systems that are more democratic and open for citizens to engage. While much in demand,
I recently prepared a module on Citizen Engagement and Development Outcomes for a Massive Online Open Course (MOOC) on “Engaging Citizens: A Game Changer for Development?”, just launched by the World Bank Group and partner organizations in both Washington, DC and London.
Public Sector and Governance
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 values: Plunderers 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.
- Financial Market Integrity
- inclusive development
- collaborative governance
- Open Government
- Law and Regulation
- Private Sector Development
- Public Sector and Governance
- urban development
- urban competitiveness. Private sector competitiveness
- Competitive Sectors
- competitive cities
- Competitive Industries
- Competitiveness Policy
- business environment
- Law and Regulation
- Urban Development
- Public Sector and Governance
- Private Sector Development
- Financial Sector
As the people of Vanuatu begin the painstaking task of assessing the damage to their homes, businesses, and their communities in the wake of Cyclone Pam, another assessment is underway behind the scenes.
Given the intensity of the category 5 storm and the reports of severe damage, the World Bank Group is now exploring the possibility of a rapid insurance payout to the Government of Vanuatu under the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI).
The Pacific catastrophe risk insurance pilot stands as an example of what’s available to protect countries against disaster risks. The innovative risk-pooling pilot determines payouts based on a rapid estimate of loss sustained through the use of a risk model.
The World Bank Group acts as an intermediary between Pacific Island countries and a group of reinsurance companies – Mitsui Sumitomo Insurance, Sompo Japan Insurance, Tokio Marine and Nichido Fire Insurance and Swiss Re. Under the program, Pacific Island countries – such as Vanuatu, the Cook Island, Marshall Islands, Samoa and Tonga – were able to gain access to aggregate risk insurance coverage of $43 million for the third (2014-2015) season of the pilot.
Japan, the World Bank Group, and the Secretariat of the Pacific Community (SPC) partnered with the Pacific Island nations to launch the pilot in 2013. Tonga was the first country to benefit from the payout in January 2014, receiving an immediate payment of US $1.27 million towards recovery from Cyclone Ian. The category 5 cyclone hit the island of Ha’apai, one of the most populated of Tonga’s 150 islands, causing $50 million in damages and losses (11 percent of the country’s GDP) and affected nearly 6,000 people.
Globally, direct financial losses from natural disasters are steadily increasing, having reached an average of $165 billion per year over the last 10 years, outstripping the amount of official development assistance almost every year. Increasing exposure from economic growth, and urbanization—as well as a changing climate—are driving costs even further upward. In such situations, governments often ﬁnd themselves faced with pressure to draw funding away from basic public services, or to divert funds from development programs.
Investing in Innovative Financial Solutions
The World Bank Group and other partners have been working together successfully on innovative efforts to scale up disaster risk finance. One important priority is harnessing the knowledge, expertise and capital of the private sector. Such partnerships in disaster risk assessment and financing can encourage the use of catastrophe models for the public good, stimulating investment in risk reduction and new risk-sharing arrangements in developing countries.
The Caribbean Catastrophe Risk Insurance Facility (CCRIF) is another good example of the benefits of pooled insurance schemes, and served as the model for the Pacific pilot. Launched in 2007, this first-ever multi-country risk pool today operates with sixteen participating countries, providing members with aggregate insurance coverage of over $600 million with 8 payments made over the last 8 years totaling of US$32 million. As a parametric sovereign risk transfer facility, it provides member countries with immediate liquidity following disasters.
We also know that better solutions for disaster risk management are powered by the innovation that results when engineers, sector specialists, and financial experts come together to work as a team. The close collaboration of experts in the World Bank Group has led to the rapid growth of the disaster risk finance field, which complements prevention and risk reduction.
- disaster recovery; Aceh; tsunami
- disaster response
- disaster relief
- disaster recovery
- disaster preparedness
- Disaster management
- Disaster Funding
- disaster coverage
- Disaster Risk Financing and Insurance Program
- catastrophic risk; livestock; disaster risk management
- Public Sector and Governance
- Private Sector Development
- Financial Sector
- Climate Change
The Latin America and the Caribbean region is crying out for infrastructure improvements. An investment estimated at 5 percent of the region’s GDP — or US$250 billion per year — is required to develop projects that are fundamental for economic development. This includes not only improving highways, ports and bridges, but also building hospitals and creating better transport, public transit and other mobility solutions for smarter cities. Rising demand for infrastructure also is prompting countries to redouble efforts to attract greater private investment
At the Multilateral Investment Fund (MIF), as at the World Bank Group, we believe that public-private partnerships (PPPs) can help governments fill this infrastructure gap. However, the projects must be implemented effectively and efficiently to achieve social and economic objectives.
Governments in the Latin America and the Caribbean region not only lack financing to address the infrastructure gap, but also face challenges in selecting the appropriate large infrastructure projects, planning the projects, managing and maintaining infrastructure assets — and gaining public support for private investment in public infrastructure.
However, PPPs are gaining ground in Latin America and the Caribbean. Beyond the larger economies of Brazil, Colombia and Mexico, assistance from the MIF and the Inter-American Development Bank (IDB) has enabled countries such as Paraguay to develop laws that pave the way for PPP projects. Just this week, Paraguay announced its first such project, which involves an investment of US$350 million to improve and build more than 150 kilometers of roads.
PPPs have been moving beyond classic interventions in public infrastructure, which have typically included roads, railways, power generation, and water- and waste-treatment facilities. The next wave of PPPs increasingly involves and provides social infrastructure: schools, hospitals and health services. In Brazil, IFC, the private sector arm of the World Bank Group, helped create the Hospital do Subúrbio, the country’s first PPP in health, which has dramatically improved emergency hospital services for one million people in the capital of the state of Bahia.
With over 600 million people living along the fault-line across the Himalayan belt, South Asia’s earthquake exposure is very high. To further compound the problem, South Asia is urbanizing at a rapid pace and a significant growth in mega-cities, secondary and tertiary cities / towns is happening in high risk seismic zones. The region has experienced three large events over the past 15 years, the Bhuj earthquake of 2001, the Sumatra earthquake of 2004 (leading to the Asian tsunami) and the 2005 Kashmir earthquake. While there have been no major earthquakes these past 9 years, the region is akin to a ticking bomb for an earthquake disaster. Keeping this in mind, we mapped a region of 3000 Km radius from the center of India and analyzed earthquake events over a one-year period from May 2013 to May 2014. Only those earthquakes recorded by the United States Geological Survey’s global earthquake monitoring database (USGS) greater than 4.0 magnitude on the Richter scale were considered. We found a total of 1,247 recorded earthquake events. The story of a 1000 earthquakes was born and was a story that needed to be told.
We decided to create a video that would become an awareness tool and effectively communicate the risk the region faces. We deliberately steered away from talking about work being undertaken to reduce seismic risks or policy mechanisms that can be adopted. There are other mechanisms, mediums and opportunities to take that agenda forward. This is a short 90 seconds video and hopefully communicates the urgency of investing resources and efforts into earthquake safety. Increase the volume, enjoy, get scared. and then be prepared!
“When one woman is a leader, it changes her. When more women are leaders, it changes politics and policies,” says Michelle Bachelet, the president of Republic of Chile. It’s true.
Over the last few decades, the world has seen an increase in number of women leaders. It’s key to our progress.
The conference panel of leading scholars and practitioners on microcredit: From left to right: Esther Duflo, Kate McKee, Lindsay Wallace, Carol Caruso, and Peer Stein.
Photo credit: Michael Rizzo.
On Friday, February 27, researchers, policymakers, investors and practitioners joined forces to move forward in the dialogue around microcredit’s impact on the lives of the poor. Many themes emerged from the day, but perhaps the most salient came from Dean Karlan, who summed things up in 2 words: “Understand clients.”
The conference began with six presentations from researchers Orazio Attanasio, Abhijit Banerjee, Jaikishan Desai, Esther Duflo, Dean Karlan and Costas Meghir, who completed randomized control trials (RCTs) in six countries examining the impact of microcredit. Lindsay Wallace, of the MasterCard Foundation, noted, “These studies may not be new, but they are incredibly important.” While specific findings varied from country to country, the studies confirmed with evidence what many in the field already assumed: that, while microcredit can be good for some, it is no magic bullet for tackling poverty.
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.
As such, reforming procurement systems can prove transformational for development in any country.
In Georgia, the introduction of e-procurement (Ge-GP) is a good example of how strong political will and commitment can be critical in the context of reforming public procurement. Within a year, the State Procurement Agency of Georgia (SPA) designed, developed, and tested an e-procurement system, and eventually moved to the mandatory use of e-Procurement, fully replacing paper-based tenders.