A United Front Against Dirty Money

6 August 2012, by Eric Gutierrez.

Call me naive, but wouldn’t the supply of corruption be substantially reduced if something like a ‘Finance Industry Transparency Initiative’ was organised? Many international anti-corruption initiatives exist today – known by acronyms as EITI, CoST, IATI, OGP, etc. So why not an ‘FITI’?

The Extractive Industries Transparency Initiative (EITI), established in 2002, is a global standard for mining and oil companies to publish what they pay, while countries publish what they receive. The Construction Sector Transparency Initiative (CoST) took shape in 2007 to improve the value for money spent on public infrastructure. The International Aid Transparency Initiative (IATI) followed in 2008 to make information about aid spending easier to find, use and compare. In 2011, the Open Government Partnership (OGP) was launched to make governments more transparent, effective and accountable. Even the G20 has its own Anti-Corruption Working Group (ACWG), which has been quite successful in lining up the world’s most important economies behind an Anti-Corruption Action Plan.

These initiatives, no doubt, encourage and embed better behaviour, and should be lauded and supported. But without transparency in the finance industry, bad behaviour will not only continue, it will also remain to be rewarded. Secrecy in the finance industry is what enables not only corrupt politicians but also criminal bosses and tax dodgers to stash away billions in cash in the global financial system, mixing it with the accounts of the 1- as well as the 99-percent.

Unfortunately, the record shows it may be next to impossible to get the finance industry to behave properly. Back in 1998, no less than the Organisation for Economic Cooperation and Development (OECD) attempted to open up ‘secrecy jurisdictions’ in a report on the global menace posed by harmful tax competition. It vowed to take ‘defensive measures’ if these jurisdictions did not implement OECD standards on transparency and exchange of information by July 2001. But the problem was that leading OECD members were themselves secrecy jurisdictions. This forced the OECD to later say in a statement that “coordinated defensive measures would not apply to uncooperative tax havens any earlier than it would apply to OECD member countries.”

There is also this little-known entity known as the Financial Action Task Force on Money Laundering (FATF), established by the G7 back in 1989. In February 2012, it updated its forty recommendations on combating money laundering – state-of-the-art policies to fight financial wrongdoing. These still are ‘recommendations’, not binding legal standards that countries accepting dirty money are obliged to observe.

So what can be done then to shine light into an industry that thrives on secrecy, and which seems to have perfected the art and science of state capture? Quite a few things can be considered to chip away at the edifice. To start with, the various, separate initiatives could be better linked to each other. For example, since they are both seeking reforms in the same financial architecture for moving dirty money, anti-corruption advocates could work closer with tax justice campaigners, and vice versa. A wider, united front against dirty money has become necessary.

Quite a few countries, such as India and Brazil, are now stepping up their defences against the adverse impact of dirty money. Bangladesh has recently announced new rules to stop the abuse of transfer pricing. But perhaps more will be eyeing Russia, which is set to play a leading role in global anti-corruption initiatives. In 2013, Russia will be chairing the G20 and holding the FATF presidency. In 2015, it will be hosting the bi-annual meeting of the UN Convention against Corruption (UNCAC). Many are hoping Russia will disprove the whispers, and perhaps even consider playing a key role in building the united front against dirty money.

About Eric Gutierrez

Eric Gutierrez is Christian Aid’s Governance Adviser. He is also a member of the Coordination Committee of the UNCAC Civil Society Coalition, a network of over 330 civil society organisations in more than 100 countries committed to the implementation and monitoring of the UNCAC.