The International Corporate Accountability Roundtable (ICAR) has a new report out that looks at customer due diligence rules. Banks are currently required to perform certain kinds of customer due diligence to check for several different categories of things, including corruption risk. The report analyzes the status quo regarding customer due diligence rules, and begins to address whether or not a rules addressing similar processes for human rights concerns would be feasible.
You can view it below.
Cross-posted from Transparency International’s Space for Transparency blog.
The recent independent report on Kabul Bank scandal points out to the urgency to transform the country’s laws and institutions, from the financial sector to the justice system. The team that published the report are to be congratulated for shedding light on a “ponzi scheme” scandal that involves the theft of US$900 million.
Last month, Transparency International’s chair Huguette Labelle reminded us that:
Countries at the bottom of our corruption indices remain largely failed states with repression of human rights, social chaos and continued poverty.”
Afghanistan is one such country. Sufficient evidence suggests that corruption in Afghanistan is getting rampant. According to President Karzai himself, the phenomenon is now at a level “never before seen”.
The United Nations Development Programme (UNDP),has a budget of roughly $5 billion, and operates about 6,000 foreign aid projects throughout the world. This year, UNDP decided that it wanted to be more transparent in reporting what it does to the world. It got a $225,000 grant (Hat tip: Corruption Currents) to create a cool new web app:
And that’s not all. The customizable embed (available at open.undp.org) allows you to embed any combination of statistics, graphs, charts, and this map to share online. Want to know what share of UNDP’s budget gets spent on Afghanistan? That gets donated by the government of Denmark? That goes to supporting poverty reduction? Its all simple, easy, and shareable. If you believe that UNDP is misappropriating its budget, the tools are available for you to act.
This demonstrates a larger point: transparency gives you a great bang for your buck. Any multinational company could recreate this system without any difficulty and post their sales, profits, number of employees and taxes paid–country-by-country reporting, which the Task Force advocates for–online, for everyone to see. This would allow tax authorities, citizens, and investors to see exactly where companies are saying their revenues and costs are, and discourage gaming the system.
Cross-posted from Transparency International’s Space for Transparency blog
Integrity, trust and culture can seem like the most intangible and abstract of concepts in a hard-edged business environment – until they disappear. As the finance industry has discovered in recent years, failing to tend to a culture of integrity can cost you dearly. There are the record fines of course – such as those meted out to Goldman Sachs, Barclays and UBS – and they have grabbed most of the headlines. But there is also the incalculable reputational damage, which in the longer term can have a very tangible impact in terms of lost customers, investment and contracts.
Sigmund Warburg understood this very well. A refugee from Nazi Germany, he arrived in London in the 1930s and made a career in what was then known as “merchant banking” (i.e. investment banking), becoming a dominant figure in the City in the post-war years. Warburg was a consistent advocate of “relationship banking”, a view of banking that emphasised the ethical framework that networks of capital needed to do their business properly. As he himself put it:
“The reputation of a banking firm for integrity, generosity and thorough service is its most important asset, more important than any financial item. Moreover, the reputation of a firm is like a very delicate living organism which can be easily damaged and which has to be taken care of incessantly, mainly being a matter of human behaviour and standards.”
How far financial firms have fallen short of these standards can be seen in the spate of recent money-laundering and index-rigging scandals. The trial of former UBS trader Kwaku Adeboli is also instructive. Despite attempts to portray the relatively junior employee as an isolated “rogue trader”, both the firm and its supervisors recognised a more pervasive problem. UBS has fired or suspended more than a dozen staff since the scandal first emerged. It has clawed back pay awards and reduced the bonus pool for the investment bank by three-fifths. On Monday, it received a STG 30 Million fine from the UK Financial Services Authority (one of the highest ever) for “significant control breakdowns” and the case itself has exposed numerous failures of management as well as a “more aggressive” attitude to pursuing revenue.
This week TIME Magazine opened polling to their readers to weigh in on their nominations for Person of the Year. Generally, I think their picks are pretty good, although sometimes their nominations are a little off the mark (Roger Goodell, really?). Anyway, the nominations got me to thinking what a Transparency Person of the Year would look like. Keeping with TIME’s definition, this would be someone who influenced the news, for better or worse, on issues related to financial transparency. Here are my picks.
CARL LEVIN. I’m going to go with the most obvious one first. If I did this list every year, the Senator from Michigan’s name would probably appear every time. Over his tenure in the U.S. Senate, Senator Levin has proved himself a formidable adversary for those powerful interests who seek to take advantage of weakness in our economic and financial system at the expense of ordinary Americans. Senator Levin has sponsored three key pieces of legislation that would promote transparency: the Stop Tax Haven Abuse Act; the Incorporation Transparency and Law Enforcement Act; and the Equal Access to Tax Planning Act. He’s continued to fight for this legislation this year.
NGOZI OKONJO-IWEALA. The globally renowned economist, Nigeria’s finance minister, and one of three candidates in this year’s race for President of the World Bank has long been an advocate of improving the financial systems to reduce illicit financial flows. At the Center for Global Development / Washington Post forum in April she again encouraged the International Monetary Fund and the World Bank to take up the issue of illicit financial flows. As Finance Minister in Nigeria, she’s helped the country get proactive about these issues, fostering greater fiscal transparency to combat corruption.
We often approach transparency laws from an anti-corruption, anti-tax evasion perspective here on the Task Force blog. But recent transparency regulations, like the recent oil, gas, and mining rules made active this month by the Securities and Exchange Commission, are also good for business. They will provide investors, creditors, and other financial actors with clear, verifiable, easily accessible data in which to make decisions. This will make markets more efficient, leading to better economic outcomes for all.
Suzanne Ito of Revenue Watch highlighted the relationship between transparency and good investment decisions earlier this month, after news broke that BP would be fined $4 billion by the U.S. Department of Justice for criminal charges stemming from the 2010 Deepwater Horizon oil spill. While much of the relates to other violations of the law that were wrapped up in the spill, Ito notes,
Notably, the oil company will pay an additional $525 million to the Securities and Exchange Commission (SEC) to settle charges that it “misled investors by misrepresenting and omitting material information” about the rate at which oil was flowing into the gulf. Robert Khuzami, Director of the SEC’s Division of Enforcement, said in a statement:
The oil spill was catastrophic for the environment, but by hiding its severity BP also harmed another constituency—its own shareholders and the investing public who are entitled to transparency, accuracy and completeness of company information, particularly in times of crisis. Good corporate citizenship and responsible crisis management means that a company can’t hide critical information simply because it fears the backlash.
If I were a BP shareholder, I would be pretty angry right now. The company that I own a piece of was deliberately misleading me about how much oil they were pumping out of the ground, and as a result will pay $525 million in fines rather than spending far less money simply disclosing the accurate numbers. And even worse, BP was banned today from pursuing new government contracts in the Gulf of Mexico. Maybe I should have bought Chevron stock instead.
Task Force member Global Witness’s Rosie Sharp wrote the following op-ed in The Guardian on Monday. She expanded on the argument that she wrote about on this blog earlier this week, about the implications of the Guardian, the International Consortium of Investigative Journalists and the BBC’s Panorama programme investigations into the nominee shareholders that make anonymous shell companies possible. Drawing the broader implications of these individuals and legal structures, Sharp writes,
Criminals can benefit from the ease with which anonymous companies can be set up. How did Saadi Gaddafi, son of the former Libyan dictator, own a £10m house in Hampstead? Through an anonymous company incorporated in the British Virgin Islands. How did Viktor Bout, the arms trader known as the “merchant of death”, disguise his activities? In part, by using 12 companies registered in Texas, Florida and Delaware. How was Afghanistan’s Kabul Bank looted, resulting in what’s possibly the largest banking failure of all time, costing 6% of the country’s GDP? Through loans made to anonymous companies linked to bank staff.
Why don’t Congolese citizens know who bought the rights to six of their country’s best copper and cobalt mines? Because they were bought by anonymous firms registered in the British Virgin Islands. And, what’s more, these companies bought them at a snip – in some cases just a 20th of their estimated value – and then sold some of them on for much, much more. Someone pocketed a fortune, but hidden company ownership means neither we, nor Congolese citizens, can know who.
The World Bank says that corruption is the biggest obstacle to alleviating poverty. Anonymous shell companies are one of the main mechanism used by the corrupt. If we want to make poverty history, we have to make corruption history.
You can read the full op-ed here.
Léonce Ndikumana, a member of the Task Force Economist Advisory Council, appeared on The Real News to discuss his new research on capital flight from Africa. His work found that $1.6 trillion in capital flight and odious debt have left Africa from 1970-2010. Of that sum, he found that at least $619 billion had gone missing, and was illicit. Much of this, he argues, was facilitated by big western banks, tax havens, and other Western financial structures.
The video is below, and runs for 9:51. You can download Ndikumana’s updated research here. [PDF]
In November’s Taxcast: is it the beginning of the end of tax avoidance for multi-national corporations? Some countries fight back. And the Finance Curse – why an oversized finance sector’s bad for an economy. A special extended edition.
Taxcast is produced by Naomi Fowler. You can follow her on Twitter @Naomi_Fowler.
Investigations carried out by the Guardian, the International Consortium of Investigative Journalists and the BBC’s Panorama programme into the ease with which anonymous shell companies can be used to move dirty money around the world are on the front page of today’s paper and being broadcast tonight at 20.30 on BBC One. Their findings match those of Global Witness and others.
The days of corrupt politicians being bribed with a briefcase of used dollar bills are long gone. These days terrorists, tax evaders, arms smugglers and corrupt politicians open a bank account using an anonymous shell companies to disguise their identity.
The World Bank looked into 150 grand cases of corruption. 70% of the time, the corruption was facilitated by an anonymous company. American companies were the most popular choice of the corrupt, but companies from the UK and its crown dependencies and overseas territories came second.
In theory, anti-money laundering laws prevent anonymous companies from being created: company service providers are meant to know who owns and controls the companies they set up. But research by academic Jason Sharman shows that these laws are widely flouted. He and his colleagues carried out a mystery shopping exercise into more than 3,000 company service providers worldwide. His findings were alarming. 48% of company service providers were prepared to set up a company without requesting the proper identification documents. What’s more, company service providers in rich OECD countries such as the UK were more likely to flout the law than those in tax havens.
Real estate is often the choice conduit for money launderers to transfer money, primarily because it can be difficult to misprice, but also because of the way some countries write their laws.
India, in its ongoing fight against illicit financial flows, is now struggling to clamp down on shady real estate deals. From Trust Law:
Ulwe, a village of dusty, uneven streets on the outskirts of Mumbai, lacks basic amenities like water supply and electricity, but a two-bedroom, 1,000 sq ft house costs about 5 million rupees ($91,000), beyond the reach of many middle-class Indians.
According to prospective buyers, many developers will demand up to 30 percent of that price in cash, a small slice of the ubiquitous, unaccounted “black money” that costs India’s straitened exchequer billions of dollars in lost taxable income.
Legislation that would bring more transparency to the industry will be considered during the winter session of India’s parliament, which starts on Thursday.
However, investors, tax officials and bankers Reuters spoke with were sceptical the law would stamp out illegal practices they say are closely entwined with politics.
“Four out of 10 developers were ready to do it in full white and six were asking for a black component,” said 35-year-old Umesh Kolhapure, who was looking for a three-bedroom house around Ulwe, near the proposed site of a new international airport serving the country’s financial capital.
You can read the full analysis here.
For many developing countries, natural resource wealth offers a potential way out of persistant poverty. There are few places in the world where this is as true as Niger, a landlocked country with a per-capita GDP of just US$400. The country has substantial mining exports and potential oil reserves, but an opaque financial system empowers a corrupt and increasingly autocratic regime, and little wealth from natural resources has reached the people on the ground. Niger ranks 186th out of 187 countries on the UN Human Development Index.
Our friends at Publish What You Pay (PWYP) have been leading a campaign for revenue transparency in the oil, gas, and mining industries. The goal is to make sure that every time a multi-national oil, gas, or mining company makes a deal for natural resources with a government anywhere in the world, the citizens of that country know what money is coming in. This information will help them hold their governments accountable, and make sure that precious resource wealth does not disappear into a black box of corruption in places like Niger.
Of course, a lot of people stand to lose from this kind of transparency. Below is a video produced by PWYP about what their activists are struggling with in Niger.
May 10, 2013·
WASHINGTON, DC – Global Financial Integrity (GFI) lauded former UN Secretary-General Kofi Annan and the Africa Progress Panel (APP), which he chairs, ...
April 25, 2013·
WASHINGTON, DC / LONDON – In a major victory for transparency advocates, British Prime Minister David Cameron called on members of the ...
April 25, 2013·
LONDON - Prime Minister David Cameron revealed today that the UK will be seeking action from the G8 to end the abuse ...