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Structured dialogue, value chain and competitiveness: A journey through implementation, from Copenhagen to Kabul

Steve Utterwulghe's picture



Afghanistan. Photo by Steve Utterwulghe.

This latest blog post should start with a mea culpa. Indeed, my 2015 work plan for public-private dialogue (PPD) did start in Dushanbe, Tajikistan, not Copenhagen. However, who can swear that he never tweaked a title a tiny bit to make it catchier?
 
While Dushanbe hosted the very productive First Regional PPD Forum in the “stans,” the 8th Global PPD Workshop took place in March in the Danish capital. There, “more than 300 representatives from governments, private enterprises, PPD coordination units, investors’ councils, competitiveness partnerships, civil society, business organizations, and various development partners participated in the event. They represented 54 countries and a total of 40 PPD initiatives who joined the event to share their experiences and discuss lessons learned.”
 
High-powered individuals kick-started the Copenhagen event, including HRH Crown Princess Mary of Denmark, who reiterated that, to make a difference in the world, “it will take partnerships across countries, governments, and between public and private sectors.”
 
Once the keynote speeches had been delivered, the real work began among the delegates and with the PPD experts. I jumped from impromptu coffee break to coffee break and strategized with the Côte d’Ivoire delegation on how to prepare for the National Day of Partnership/Dialogue in Abidjan; discussed ways to better involve the private sector in Morocco; debriefed with the Guinea Minister of Industry, SMEs and Private Sector Promotion on how the PPD structure that we helped put in place is strengthening the local value chain for extractive industries (see below); and moderated an engaging session on public-private dialogue in fragile states and conflict-affected countries (FCS), which provided great insights as I prepared to fly out on PPD missions to Somalia and Afghanistan.
 
Aside from the buzz of international gatherings, what really matters for the delegates, from both governments and the private sector, is to get inspired and bring back home ideas that can be adapted locally and successfully implemented. Public-private dialogue is an art defined by some fundamental core principles that can be adjusted according to specific needs and environments.
 
As a reminder, PPD refers to the structured interaction between the public and private sectors to promote the right conditions for private sector development. Its ultimate function is to contribute to a prosperous economy by expanding market opportunities and enabling private initiative. This is also very much the mission of the new World Bank Group Global Practice on Trade & Competitiveness (T&C). Its Senior Director, Anabel Gonzales, wrote in one of her blog posts on Trade and Development in Africa that fostering competitiveness and strengthening supply chains is a key to development and an integral part of T&C’s offering.
 
As I reflected on the links between structured multi-stakeholder dialogue, competitiveness and supply chains, I remembered a Harvard Business Review article written by Michael Porter and Mark Kramer, entitled Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility.
 
What particularly caught my attention at the time was the theory on interdependence between companies and society that the Harvard professors put forward. They argued that this interdependence takes two forms: the social impact that a company’s activities has on society, or “inside-out linkages,” and the social influences on the company’s competitiveness, or “outside-in linkages.”
 

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


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.



Walk the talk and fight illicit flows

Jean Pesme's picture

Credit: Images_of_Money, Flickr Creative Commons

A hornet’s nest has been stirred up by the leak of millions of financial files by the International Consortium of Investigative Journalists (ICIJ) in collaboration with journalists around the world. The ICIJ says that its work reveals more than 120,000 offshore companies and trusts, exposing the hidden dealings involving politicians, businessmen and others. While authorities around the world are assessing the validity of these documents, the extent of the information emanating from the British Virgin Islands, the Cook Islands and elsewhere is revealing in many ways. Importantly it is a rebuff to those who claim that there is no problem with the workings and transparency of the international financial system. Whatever the veracity of the allegations contained in the ICIJ report, they reveal the extent of highly complex and secret financial and corporate structures, and their cross-border nature.  These revelations have already spurred some to call for more regulation by governments.

Thank you, Bono

Ivana Rossi's picture

I grew up listening to U2, and I have followed Bono’s pioneering work raising awareness on pressing issues around poverty. My perspective was that Bono, like other very famous artists, generally leaned towards important topics that create immediate empathy, such as child malnourishment, education and health sector failures. Hence my grateful surprise when Bono yesterday singled out open data and transparency as key issues in the fight to end poverty.

Fighting Corruption: The Politically Exposed Persons Factor

Larissa Gray's picture

Last month, the Financial Action Task Force on money laundering (FATF), revised its 40+9 Recommendations on the fight against money laundering and the financing of terrorism (AML/CFT) with a new set of 40 Recommendations.
Credit: Flickr, CennyddThese revised recommendations introduce some significant changes, some of them critical for World Bank client countries. One of the main challenges going forward will be for those stakeholders tasked to implement them, whether policy makers and legislative drafters, government agencies (supervisory authorities, financial intelligence units, law enforcement), banks and other financial institutions, and what are referred to as designated non-financial business service providers (DNFBPs) (e.g, casinos, real estate agencies, dealers in precious metals/stones, lawyers and accountants, and trust and company service providers).

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.