Global Witness

International oil companies such as the U.S. giant Chevron are beginning exploration off of Liberia’s coastline. However, this new research by Global Witness and Liberian Oil and Gas Initiative (LOGI)¹ suggests that while Liberia has come a long way from the devastating set of resource-financed civil wars that claimed the lives of 250,000 people between 1989 and 2003, serious governance problems persist, and the warning signs for the emerging oil sector are stark.

Curse or Cure? How oil can boost or break Liberia’s post-war recovery shows that even before a discovery is made, there are deep-seated problems in Liberia’s oil sector: government officials and at least one company have paid bribes, contracts have been awarded illegally and companies with little experience in the oil sector have received concessions.

With a crucial election upcoming in October 2011, the new Liberian government and international donors have a choice. They can reform the country’s laws and government agencies so that Liberia’s people benefit from oil. Or they can allow Liberia to continue down its present path, undermining the country’s post-war reconstruction and risking a return to the corrupt, unstable resource management that has characterized Liberia’s history. This report sets out the problems and makes recommendations for what needs to be done.

The full report can be found on the Global Witness website.

Footnotes:

1. This report has been prepared by Global Witness and four Liberian civil society groups: Center for Transparency and Accountability in Liberia (CENTAL), Liberia Democratic Institute (LDI), Liberia Media Initiative for Peace Democracy and Development (LMI) and Sustainable Development Institute (SDI). CENTAL, LDI, LMI and SDI together form the Liberian Oil and Gas Initiative.

LONDON/MONROVIA – Far-reaching reforms of Liberia’s oil sector are urgently needed if its population is to benefit from future oil discoveries, says a report released today by Global Witness (1) and the Liberian Oil and Gas Initiative (LOGI) (2). As the country heads to the polls in October, and with major oil companies such as US giant Chevron trying to find oil in Liberia, these reforms must be a priority for any new government.

Curse or Cure? How oil can boost or break Liberia’s post-war recovery provides an analysis of Liberia’s current oil sector. It finds that government officials and at least one company have paid bribes to ensure contracts were ratified in breach of Liberian laws, while companies with little experience in the oil sector have also received concessions. The report sets out what needs to be done to reform the sector, so that it can be used to generate funds for much-needed development.

“The decisions taken by the new government and international donors in the coming months could define our future: they must reform the sector now or risk continuing the corruption and instability of Liberia’s past,” said Jonathan Yiah of Sustainable Development Institute, a member of LOGI. “The warning signs are stark – this report shows at least one company, and even government officials, bribing Liberian legislators. This must change or we will again waste our resources and lose one of the best chances we have to build a sustainable economy.”

The report raises a number of specific concerns over the governance of Liberia’s oil sector:

• The government agency responsible for managing the oil sector – the National Oil Company (NOCAL) – is also a profit-making enterprise, which regulates the same companies it does business with. This conflict of interest has brought predictable results, with NOCAL paying members of the Liberian Legislature to ratify oil contracts between 2006 and 2008.
• In 2007, Nigeria’s Oranto Petroleum authorized a bribe to be paid to the Legislature in connection with the passage of at least one of its contracts. In 2010, US company Chevron purchased a 70 % share of the same contracts, despite information about how they were obtained being in the public domain.
• Liberia’s oil laws contain wholly inadequate provisions for the impact of oil extraction on Liberia’s people and environment, and the country lacks the financial safeguards to protect its economy from being destabilized by, or over reliant on, oil revenues.

“The Liberian Government has made some promising improvements in the resource sector, promoting transparency through the Liberian Extractive Industries Transparency Initiative and developing a National Energy Policy that outlines oil industry reforms,” said Global Witness campaigner Natalie Ashworth. “However, this reformist spirit has been undermined by poor implementation and a tendency of government officials to break their own laws in the pursuit of apparent quick wins.Curse or Cure shows how much more the Liberian Government and partners like the US and Norwegian governments have to do to clean up the country’s resource trade.”

Today’s report outlines a series of reforms that must be adopted to achieve this goal:

• The power to regulate oil companies should be taken away from NOCAL and given to a separate agency.
• Separately managed oil revenue savings accounts should be established to prevent Liberia’s economy from becoming over reliant on oil money.
• New oil laws should be developed that contain human rights, labour and environmental safeguards.
• The government should investigate evidence of corruption in the sector and enforce its anti-bribery and transparency laws – this includes publishing all oil contracts.

Most importantly, the Liberian Government and international donors should undertake these reforms through a transparent and inclusive process, involving all relevant government agencies and representatives of Liberian civil society.

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Footnotes:

1. Global Witness investigates and campaigns to prevent natural resource-related conflict and corruption and associated environmental and human rights abuses
2. This report has been prepared by Global Witness and four Liberian civil society groups: Center for Transparency and Accountability in Liberia (CENTAL), Liberia Democratic Institute (LDI), Liberia Media Initiative for Peace Democracy and Development (LMI) and Sustainable Development Institute (SDI). CENTAL, LDI, LMI and SDI together form the Liberian Oil and Gas Initiative.

Contact:

Global Witness:

Liberia: Natalie Ashworth, +231 (0)77 353 104, nashworth@globalwitness.org; Jonathan Gant +231 (0)77 080 651, jgant@globalwitness.org;

UK: Oliver Courtney, +44 (0)7739 324962, ocourtney@globalwitness.org

www.globalwitness.org

Centre for Transparency and Accountability in Liberia (CENTAL):

Thomas Doe Nah: +231 (0) 651 1142, tnah@cental.org

www.cental.org

Liberia Democratic Institute (LDI):

Dan T Saryee, Sr: +231 (0)651 4348, dsaryeeldi@yahoo.com, liberiadmo_institute@yahoo.com; dsaryee@brandeis.edu,

www.ldi-lbr.org

Liberia Initiative for Peace, Democracy and Development (LMI):

John O Kollie: +231 (0)651 3080, Liberia.mediainiative@gmail.com; jkollie2001@yahoo.com

Sustainable Development Institute (SDI):

Jonathan W Yiah: +231 (0)6641 355, managmentteam@sdiliberia.org; listserve@sdiliberia.org,

www.sdiliberia.org.

“A special economic zone shall be deemed to be outside of the Islands and not in the Islands.“

Emphasis added. So where will this zone be? It seems that it will, for the relevant purposes, effectively be ‘elsewhere’ – which, in practical terms, means ‘nowhere.’ This ‘it’s elsewhere, don’t-blame-us, we-can’t-regulate-this’ approach is what a lot of the activity of secrecy jurisdictions is designed to do – it’s not so common, however, to see this being made quite so explicit. This is tax havenry, pure and simple.

Who is responsible for this legislation, and who will be implementing it?

“a Chairman, a Deputy Chairman and two other persons appointed by and holding office at the pleasure of the Governor in Cabinet“

And who is this Governor? Well, there’s a lot of stuff on official websites that would take quite a bit of summarising. For simplicity’s sake, Wikipedia is quite good:

“The Governor of the Cayman Islands is the representative of the British monarch in the United Kingdom’s overseas territory of the Cayman Islands. The Governor is appointed by the monarch on the advice of the British government. The role of the Governor is to act as the de facto head of state, and he or she is responsible for appointing the Premier, who is the leader of the party with a majority of seats in the Legislature.”

So the buck stops at Buck House, kind of. (For those not familiar with this terminology, British people sometimes refers to Buckingham Palace, the Queen’s primary residence, as Buck House.) And indeed the Governor has quite a role in this new Caribbean Nowhere Land:

The Authority shall comprise the following members -
(a) a Chairman, a Deputy Chairman and two other persons appointed by and holding office at the pleasure of the Governor in Cabinet; and
. . . .
4. (1) The Governor in Cabinet shall by Order designate a Department of Government as the Secretariat to the Authority.
. . .
A member of the Authority is entitled to receive such remuneration in respect of each meeting attended as determined by the Governor in Cabinet from time to time.
. . .
The Governor in Cabinet may by Order, on the recommendation of the Authority, declare a parcel or parcels of land, areas or locations in the Islands to be the whole or part of a special economic zone and such Order may add to or remove any parcel or parcels of land, areas or locations in the Islands from such special economic zone.
. . .
The Governor in Cabinet may by Order declare a person to be a developer for the purpose of developing and operating a special economic zone under this Law.
. . .
The Governor in Cabinet may, after consultation with the Authority, make regulations prescribing all matters that are required or permitted by this Law to be prescribed or are necessary or convenient to be prescribed for giving effect to the purposes of this Law
. . .
The Governor in Cabinet may, at any time, revoke the appointment of any member, including the Chairman.”

That last one is a pretty powerful one. Well, they all are, in their own way.

In addition:

Clause 7 provides for the duty of confidentiality on the part of members of the Authority.

Strangely, though, despite this special confidentiality, the UK is supposed to be responsible for the “Good Governance” of the Cayman Islands – and the official paper on what this means (click on the link on this page) says that ‘transparency’ is part of good governance. So how do we square this ‘transparency’ with this duty of confidentiality? More generally, how do we square it with the Cayman Islands’ Confidential Relationships (preservation) Law, 2009, which states:

5. (1)
Subject to section 3(2), whoever-
(a) being in possession of confidential information however obtained-
(i) divulges it; or (ii) attempts, offers or threatens to divulge it; or
(b) wilfully obtains or attempts to obtain confidential information,is guilty of an offence and liable on summary conviction to a fine of five thousand dollars and to imprisonment for two years.

So you can go to jail in Cayman not just for divulging for information, but for merely asking for it. So much for ‘transparency’ as a part of good governance.

Now take a look at Section 3.2, which does provide some exceptions to this confidentiality law. You can penetrate this ferocious secrecy law – only under certain highly restricted conditions. Most important, perhaps, is the part that explores what happens when a crime has been committed outside of the islands. This exception is highly curtailed:

“a constable of the rank of Inspector or above, specifically authorised by the Governor in that behalf, investigating an offence committed or alleged to have been committed outside the Islands which offence, if committed in the Islands, would be an offence against its laws;”

This restricts any attempts to break Cayman’s secrecy in two important ways. First, the foreign crime has to be classified as an offence in Cayman too. Given how lax they are in so many ways, this is a massive loophole (and given that they boast so much about not levying tax, then this would most likely exclude tax crimes, though I’d have to confirm that).

Second, the police officer has to get the Governor’s permission to investigate. This is unusual. Why cannot the police authority just investigate a crime, without having to ask permission from the politicians? What sort of impartial system of ‘good governance’ is this? We have plenty of evidence – including the latest legislation – that the Governor’s willingness to compromise the tax haven status of the Caymans is absolutely not to be taken for granted: breaking through Cayman’s secrecy involves getting involved in a highly politicised process, with the fierce defenders of offshore activity firmly in the catbird seat.

As we know from conversations with disgruntled offshore practitioners, what this means in practice is that the small fry may well get their confidentiality pierced, if they fall foul of the law, while those who possess real political power and influence will find that avenues of protection are often available to them, whether through political processes or other avenues. There will be symbolic and token convictions (and sometimes more than that), to help the jurisdictions show how clean and cooperative they are, but the big fish criminals will often sleep soundly. We have no reason to think that Cayman is any different in this respect.

Back to the Special Economic Zones legislation – some indication of what’s up, from a Tax-news.com story in January – the legislation:

“is expected to offer attractive terms to those looking to make tax-efficient technology-based investments in the Caribbean and Americas region. The agreement permits the creation of what has been dubbed as an enterprise city, with the contractor, Hon Cayman Property Limited expected to invest more than USD500m over ten years.”

This is a bit out of date, admittedly. A story from July notes that the zone will be

“intended to attract global science, technology, commodities and derivatives, media, and educational entities to the Cayman Islands.”

Derivatives? The rest of the story raises all sorts of other questions. Who is Hon Cayman Property Limited? Why will manufacturing and engineering be specifically forbidden from practicing in this zone?

And, importantly, who will be operating here, and under what terms? It’s hard to say. In fact, we may never find out the terms, because:

Such special economic zone enterprise shall be entitled to employ any person it chooses who either has been issued with a current and appropriate work permit or is otherwise entitled to work in the Islands without a work permit, on such terms and conditions as may be agreed between the special economic zone enterprise and that person (including remuneration of whatever kind, currency, or rate they agree) and those terms and conditions shall be regarded as confidential information as defined in the Confidential Relationships (Preservation) Law (2009 Revision);

So you may be faced with prison if you even ask for information about those terms.

What a curious thing to include in legislation.

It’s fair to say, once again, that Britain is intentionally creating new laws in other parts of the world, in order to deepen the offshore system. And, despite all the furious denials, secrecy remains firmly, and deeply, entrenched in the Cayman Islands. If the jurisdiction (although on latest evidence, perhaps we should soon be calling it a jurisdiction plus a Nowhere Land) wants to be taken seriously, it should scrap all this legislation.

Richard Murphy has also analysed the new legislation, here.

Global Financial Integrity

WASHINGTON, DC – Global Financial Integrity’s Director of Government Affairs and Legal Counsel, Heather Lowe, will participate in a high-level meeting of governments and civil society at the U.S. Department of State on Tuesday, July 12, at which U.S. Secretary of State Hillary Rodham Clinton and Brazilian Foreign Minister Antonio Patriota will launch the Open Government Partnership (OGP). The Open Government Partnership is a new, multilateral initiative that aims to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance.

“This is a critical time to fight corruption and secure multi-lateral commitments to improve transparency and promote good governance,” said Ms. Lowe.  “Tuesday’s event will allow for dialogue and strategy formation before the formal launch of the initiative in September.”

Global Financial Integrity estimates that crime, corruption, trade mispricing and tax evasion cost developing countries approximately US$1.26 trillion in 2008, with average annual illicit outflows from developing countries averaging $725 billion to $810 billion, per year, over the 2000-2008 time period.

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Contact:

Monique Perry Danziger
mdanziger@gfip.org
+1 202 293 0740 ext. 222

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The Task Force on Financial Integrity and Economic Development addresses inequalities in the global financial system that penalize billions of people, and advocates for improved transparency and accountability.

Global Financial Integrity is a  coordinating committee and founding member of the Task Force on Financial Integrity & Economic Development .

For additional information please visit  http://www.financialtaskforce.org.

This year’s Transparency International Global Corruption Report, launched this week in Dhaka, Bangladesh, tackles corruption and climate change. The message? Without better governance, climate change measures could go awry. The risk is corruption. The result could be lack of progress in the reduction of greenhouses gases, putting the planet at risk.

The new TI report collects more than 50 articles on corruption threats that could affect climate governance, such as policy capture, and it highlights the challenges that will arise as large amounts of money intended for climate change start to flow through new channels.

The need for transparency and regulation if carbon markets

Carbon markets already reflect many of the risks that are inherent to climate finance. Credits earned from reducing greenhouse gases can today be sold for US$15 for one tonne of carbon. But reductions in carbon emissions are not a tangible, making it crucial that there is a robust system for monitoring, reporting and verifying emissions. Trust in climate claims is essential as the basis for the carbon market, which is already worth US$ 144 billion. Yet cases of fraud in the market, documented in the report and elsewhere, are already weakening this trust.

Huge financial flows committed

The sums involved in climate change could match, and one day even surpass, development aid funding. Governments at the Cancun climate negotiations in December 2010 agreed to mobilise US$30 billion a year of fast-track climate change funding for 2010–2012, and US$100 billion a year by 2020 to address the mitigation and adaptation needs of developing countries.

These huge financial flows will raise the stakes for efforts to improve climate governance, to prevent bribery and misallocation of funds.

A lot of the money for climate change will be spent in the 12 countries the World Bank has singled out as most vulnerable to either drought, floods, storms or rising sea levels. However none of these countries score higher than 3.6 on Transparency International’s Corruption Perceptions Index (where 0 is extremely corrupt and 10 is very clean).

Because climate financing will come from several different sources – the UN, the World Bank’s Green Climate Fund, bilateral donors, and others – common reporting and accounting criteria are crucial for tracking funds. Good reporting enables us to follow the money, but also the carbon – to establish whether carbon credits are earned by projects that actually reduce greenhouse gas emissions or preserve forests, which store carbon naturally.

Transparency needed to avoid a “green resource curse”

Finance for greener technologies is already driving investment in natural resources, such as land for biofuel production, or metals such as lithium, which could see an annual 10 per cent rise in demand as plans for electric vehicles develop. Half of the world’s known reserves of lithium are believed to lie in Bolivia’s Uyuni salt lake, for example. As Bolivia and other countries move forward with plans for extracting the resources crucial to a green future, they must take care that such resource wealth is well governed — and benefits both people and the environment.

Here, lessons can be learned from followers of the Publish What You Pay campaign and the Extractive Industries Transparency Initiative, who have promoted country by country reporting on revenues generated by the extractive industry, which is now reflected in the US Dodd-Frank Act. At the same time, these important multistakeholder initiatives have opened up a seat at the table for civil society, to represent broader civic interest. The same is necessary with green initiatives, to prevent a green resource curse.

Whether sourced publicly by governments or privately via markets, whether for mitigation or adaptations one thing is clear: climate finance will continue to grow. Given the risks we already know about existing aid and market systems, and those of new mechanisms, whose agendas and remits are in the making, we have a huge challenge to create a framework for accountable and transparent governance of this funding. Not only the fight against corruption, but the planet’s future, are at stake. If we act now, we have a unique chance to design a climate finance system with good governance from the get go. Let’s not miss the moment.

Originally published on Transparency International’s Space for Transparency blog.

Global Financial Integrity

WASHINGTON, DC – Global Financial Integrity (GFI) joined 76 civil society organizations in calling upon the G20 to take action on corruption. In a letter submitted to G20 officials last week, the civil society groups affirmed their support for the G20’s work combating corruption, urged swift action and made recommendations.

“Corruption—bribery and kleptocracy, repression and despotism—has pushed Egypt and Tunisia to revolution,” said GFI Director Raymond Baker. “The proof is irrefutable; the time for substantive change is here. The G20 must act swiftly and resolutely to follow through with the Anti-Corruption Action Plan announced in Seoul last November.”

The letter makes recommendations on a range of issues, including:

1. Ratification and Implementation of the UN Convention Against Corruption (UNCAC);
2. Adoption and enforcement of international anti-bribery measures;
3. Anti Money Laundering efforts;
4. Entry of corrupt officials into G20 countries;
5. International cooperation;
6. Recovering the proceeds of corruption;
7. Protection of whistleblowers;
8. Effective functioning of anti-corruption bodies and enforcement authorities;
9. Preventing corruption in the public sector;
10. Governance of international organizations; and
11. Public/private partnerships, including sector specific projects.

“Many of our recommendations are covered by the G20’s Anti-Corruption Action Plan,” said Heather Lowe, GFI director of goverment affairs. “The key ‘ask’ in our letter is for greater transparency in the global financial system, overall. We also stress the need for civil society input into the G20 process.”

Click here to download a full copy of the letter in PDF format (41 Kb).

Click here to download a full copy of the G20 Anti-Corruption Action Plan released at the Seoul Summit in November 2010.

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Contact:

Monique Danziger
Global Financial Integrity
+1-202-293-0740
mdanziger@gfip.org

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The Task Force on Financial Integrity and Economic Development addresses inequalities in the global financial system that penalize billions of people, and advocates for improved transparency and accountability.

Global Financial Integrity is a coordinating committee and founding member of the Task Force on Financial Integrity & Economic Development.

For additional information please visit http://www.financialtaskforce.org

Download the full letter by clicking the document on the left.

Bianca Ramirez / Flickr *

OK, it seems a bit premature to be thinking about Mexico’s G20 before we’re anywhere near November 2011 and Paris. But there are good reasons to start thinking about 2012 – and good reasons to think that it could be the first G20 that puts financial integrity and the combating of illicit flows right up front and centre.

There are important measures that can be pursued in 2011, and pressure must be maintained on President Sarkozy to deliver concrete actions to back his administration’s strong words on the damage done by secrecy in tax havens. With luck, however, the French G20 will be the last whose agenda is largely driven by the global financial crisis – and this creates the opportunity for Mexico to run the first G20 with a clear focus on long term development, and the necessary structural and systemic changes.

What could a Mexican G20 agenda look like? Well, we can get some ideas if we consider a range of evidence on the problems that face the country itself, on policy directions it has pursued and on its approach to G20 summits thus far.

Last month, Global Financial Integrity published new estimates showing the scale of illicit flows that Mexico faces – specifically, that the country lost around $460 billion between 2000 and 2008. This number is made all the more dramatic when you think that it does not take into account illegal, cash-only transactions or smuggling-related activities.

In response, and recognising that an enormous amount of these illicit flows end up in US bank accounts, Mexico has pursued a deal with the United States to automatically exchange information on interest paid to residents of the other country. Such a deal has long existed between Canada and the US, and between Canada and Mexico.

In early 2009, in fact precisely two years ago to the day, perhaps taken by a mood of optimism that was prevalent at that time, the Mexican finance secretary Agustin Carstens put the request formally in a letter to his US counterpart Timothy Geithner. As far as is publicly known, the letter has yet to receive a response.

The key point is the Mexican emphasis on automatic information exchange. Increasingly, it has become clear that automatic information exchange is the relevant standard for effective cooperation between jurisdictions (rather than the largely ineffective ‘on request’ exchange of information embodied in the OECD’s bilateral Tax Information Exchange Agreements).

Most obviously, the European Union member states exchange information on the savings income of each others’ residents under the Savings Tax Directive. In the UK, which has not always championed the directive, the tax authority has recently announced that “there will be increased penalties in place for under-declared income and gains from territories which do not automatically share tax information with the UK.”. To be clear: there will be higher penalties in place with regard to territories which only exchange information on request.

Perhaps the most exciting development came at the end of 2010, with the EU committing that member states would exchange automatically information on no less than five categories of income by 2015.

In the US, meanwhile, the Treasury Department has proposed regulations that would require banks to report to Treasury all interest payments to non-resident aliens – providing the basis for the US to engage in broader automatic information exchange, and indeed to respond positively to the Carstens letter.

Apart from its own desire for automatic information exchange, where does Mexico stand in relation to the broader G20 agenda? At the Seoul summit in 2010, Mexico took an active role, stressing a commitment to poverty eradication with a broad application. Ambassador Martha Ortiz de Rosas Gomez told the Korea Times: “We would like to see more elements aimed at helping not just the countries with the lowest incomes, but also emerging economies that have large poor populations… Within the G20 there are still deprived regions and vulnerable populations that need to overcome considerable challenges. The G20 should be one of the mechanisms to overcome them.”

In effect, Ortiz de Rosas Gomez stressed the role of inequality.  Since three quarters of those living in extreme income poverty—living on less than a dollar a day—are now in middle-income rather than low-income countries, the G20 must respond to this challenge and see beyond poverty in the latter.

Addressing inequality, rather than absolute low incomes, requires a functioning state, which is representative of its citizens and concerned with justice. Corporate tax abuse that strips government of the revenues needed to support the poorest is antithetical to that aim. Illicit flows of all sorts, including the proceeds of corruption, undermine effective (and progressive) taxation and clean government.

The opportunity for Mexico is this: that by putting financial integrity for development at the heart of the 2012 G20, they can make progress toward a multilateral agreement on the automatic exchange of tax information, which would mark a fundamental step toward changing the structures and systems that promote inequality and undermine governance. And who knows? Maybe they’ll even get a reply to that letter.

* Image license: Some rights reserved by bianca prime

WASHINGTON, DC – A new report from Global Financial Integrity (GF), “Illicit Financial Flows from Developing Countries: 2000-2009,” includes data on Tunisia, which GFI estimates is losing more than a billion U.S. dollars per year to illicit financial activities and official government corruption.

Report co-author and GFI Economist Karly Curcio has just published a piece on the blog of the Task Force on Financial Integrity and Economic Development offering an advance look at part of the report, which is not due to be released until Tuesday, January 18, 2011.  In the blog, Ms. Curcio notes:

“If parts of the economy are growing and developing, why has persistent unemployment and a strong government hand driven Tunisians to violent protests?

…

“Political unrest is perpetuated, in part, by corrupt and criminal activity in the country. Global Financial Integrity estimates that the amount of illegal money lost from Tunisia due to corruption, bribery, kickbacks, trade mispricing, and criminal activity between 2000 and 2008 was, on average, over one billion U.S. dollars per year: specifically US$1.16 billion per annum.

“With a population of approximately 10.6 million that means almost $110 are lost per person per year in the unrecorded transfers of illegal capital. This is money, desperately needed by the people, that is siphoned off by the wealthy and political elite annually…”

Click here to read the full blog post or visit the blog of the Task Force on Financial Integrity and Economic Development at www.financialtaskforce.org/blog.

To request an embargoed copy of the report and tip sheet for journalists, contact Monique Perry Danziger at mdanziger@gfip.org or +1 202 293 0740 ext. 222.

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Contact:

Monique Perry Danziger
mdanziger@gfip.org
+1 202 293 0740 ext. 222

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The Task Force on Financial Integrity and Economic Development addresses inequalities in the global financial system that penalize billions of people, and advocates for improved transparency and accountability.

Global Financial Integrity is a coordinating committee and founding member of the Task Force on Financial Integrity & Economic Development.

For additional information please visit http://www.financialtaskforce.org

Yiannis G./Flickr*

President Zine el-Abdine Ben Ali of Tunisia fled his country on Friday, and Prime Minister Mohammed Ghannouchi has announced that he is now in charge.  Tunisia is a country known for its oppressive government rule and, according to a BBC analysis, “human rights groups say the authorities tolerate no dissent, harassing government critics and rights activists.”

Unrest among Tunisians has lead to deadly riots this month over unemployment and poor governance. According to the Associated Press at least 23 people have died, and the opposition says that figures could be much more than that.

Anti-Government protests have increased in the wake of a college-educated street vendor who burned himself to death in protest against corrupt police officers who confiscated the produce he was trying to sell.

The state of public affairs in Tunisia is stretched thin and had left little hope for a reduction in income disparity across the country. The fleeing President, Ben Ali, was elected in November 1987 and has been serving his fifth consecutive five-year term as president.

According to a 2010 IMF staff report on the country, much of the economy is responding strongly to the financial crisis and has been experiencing accelerated growth in 2009 and 2010.  The report states, “The Tunis stock exchange index also experienced exceptional growth, reflecting strong earnings of listed companies—most notably banks—as well as abundant liquidity in an economy with relatively limited alternatives for financial investment.” If parts of the economy are growing and developing, why has persistent unemployment and a strong government hand driven Tunisians to violent protests?

Part of the problem with generating sustained economic growth in developing countries is ensuring that sound institutions—both political and economic—build the trust of Tunisians as well as their trading partners and visiting tourists. Much of the Tunisian economic growth depends on demand in Europe for Tunisian goods as well as a strong tourism sector.

Political unrest is perpetuated, in part, by corrupt and criminal activity in the country. Global Financial Integrity estimates that the amount of illegal money lost from Tunisia due to corruption, bribery, kickbacks, trade mispricing, and criminal activity between 2000 and 2008 was, on average, over one billion U.S. dollars per year: specifically US$1.16 billion per annum.

With a population of approximately 10.6 million that means almost $110 are lost per person per year in the unrecorded transfers of illegal capital. This is money, desperately needed by the people, that is siphoned off by the wealthy and political elite annually.

Tunisians are hungry and willing to riot for change. Hopefully, in the wake of this violence, the international community will be able to facilitate a more open and free political system in the country – one that makes political officials more accountable to their people and curbs the illicit flows fleeing the country….fleeing like Ben Ali.

Editorial Note: On January 18, 2011, Global Financial Integrity will release its new report, Illicit Financial Flows from Developing Countries: 2000-2009, measuring illicit financial flows out of 160 different developing countries. Sign up here to receive notices when new GFI reports are released.

*Image License: Some rights reserved by maja thurup