May 16, 2013
Christine Clough, PMP
This article was originally published by the Thomson Reuters Foundation.
When the G8 Foreign Ministers met in London last month, they reaffirmed their commitment to supporting economic and political reforms in Egypt, Tunisia, Morocco, Jordan, Libya and Yemen under the Deauville Partnership with Arab Countries in Transition. The Deauville Finance Ministers and international financial institutions made a similar declaration at their meeting in Washington a week later. A key part of this effort has focused on corruption and asset recovery. The six Arab countries are supposed to improve rule of law and reform their economies and political systems to fight corruption and be more transparent. The G8 governments have agreed to help with these domestic reforms, including building greater institutional capacity and championing recovery of assets stolen under the previous regimes in Egypt, Tunisia and Libya. But their statements seem to reveal a flawed premise: that corruption and capital flight are the fault of those countries over there, and the only role for Western governments to play is helping them to clean up the mess. The money that Mubarak, Ben Ali and Gaddafi allegedly stole went to banks in the UK, the U.S., France, and a number of other countries. If the G8 sincerely wants Deauville to be an “effective and pragmatic partnership,” member countries should work to make their own financial sectors more open and law-abiding.
The G8 launched the Deauville Partnership with Arab Countries in Transition in 2011 during its 37th Summit in Deauville, France in response to the perceived root causes of the Arab Spring. The U.S. government hosted a special Camp David Summit a year later that produced a more detailed plan, including four priority areas: stabilization, job creation, participation/governance, and integration. The participation and governance area includes an Action Plan on Asset Recovery (Action Plan) and an Arab Forum on Asset Recovery, membership or commitments to existing bodies such as the Open Government Partnership and the UN Convention Against Corruption, and an overall commitment to build and bolster institutional capacity in the Arab partner states.
The Deauville approach is fundamentally flawed, because it places too much blame on its Arab partners for the corruption and capital flight and fails to tackle the shadow financial system. The recommendations are nearly all focused on what those countries should do, seemingly ignoring the fact that much of the stolen assets are alleged to have gone to accounts in G8 member country banks. This has long been a problem with the fight against corruption: Western governments blame corruption on ‘those developing countries over there’ and chastise them for poor governance, transparency, and rule of law. The Action Plan reflects these attitudes and oversights: the role for the G8 governments is to tell the Arab states how to get the money back and how to try to prevent such illicit outflows in the future. To be sure, the Arab states and other developing nations have a large amount of responsibility for enabling the illegal outflow of money, and there are measures that these countries should take to prevent the ongoing loss of illegal capital flows. But Western economies are just as much to blame. Unfortunately, the G8 fails to accept responsibility in the Action Plan for stolen assets making their way to France, the UK, Italy, Germany, the U.S., or elsewhere, and there are no stated actions for these countries to curtail future illicit inflows.
The member states of the G8 should expand the Action Plan to include greater transparency of financial account holders, in order to facilitate greater enforcement of existing know-your-customer and other anti-money laundering rules. Requiring firms to publicly disclose their true, human “beneficial” owner at the time of incorporation will help curtail the existing practice of using anonymous shell companies to launder criminal money impunity— the number one method used by criminals and kleptocrats to disguise their transactions. Many countries have know-your-customer laws to try to prevent elaborate money laundering schemes, but they are ineffective so long as anonymous shell companies, trusts, and fake foundations create a level of secrecy that is too complex to penetrate.
The recent repatriation of $28.8 million of Zine al-Abidine Ben Ali’s stolen assets back to the people of Tunisia—the repatriation to any Arab Spring country—is a step in the right direction, and it should be welcomed. However, $28.8 million is a small victory given the tens of billions of dollars that flowed illicitly out of Tunisia, Egypt, and other Arab Spring countries over the preceding decade. Such repatriations are few and far between and cannot undo the damage already caused by the corruption.
UK Prime Minister David Cameron has taken the lead on this issue over the past month, advocating that the G8 establish public registries of corporate beneficial ownership information when the leaders meet in Northern Ireland next month. It’s now time for the U.S., Japan, Canada, Russia, and others to follow suit, ensuring that a strong commitment is made in this summer’s communiqué.
Kleptocrats and other public officials who engage in corruption deserve to be prosecuted to the fullest extent of the law, and countries that experience corruption should continue to enact reforms and strengthen their capacity for preventing and responding to these crimes. However, the financial abuses of corrupt leaders on a massive scale will continue until the countries into which the illicit money flows get serious about improving their own transparency and respect for the law. This should be a priority at the G8 Summit this summer.
Christine Clough is a Senior Program Officer at Global Financial Integrity.