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.
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.
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.
These 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).
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?
The 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.