The FinCEN Files investigations published in the past week have exposed once again how the criminal and the corrupt abuse the international financial system. Against the backdrop of these revelations, the interim report of the UN’s Financial Accountability, Transparency and Integrity (FACTI) Panel, published this week, could not be more timely.
At Transparency International, we have been following the Panel’s work closely. In July, we suggested three key reform areas that we believe the FACTI Panel should prioritise to curb corruption and, at the same time, help reduce the US$2.5 trillion funding gap standing in the way of achieving the 2030 Agenda for Sustainable Development.
A lack of coordinated global action to stem illicit financial flows undermines both post-COVID-19 recovery as well as long-term sustainable development. The new FACTI Panel has the power to possibly change that.
This week’s interim report makes clear that the lack of transparency, accountability and integrity in financial systems comes at a great cost, as it undermines the social contract and drains resources from development.
The report also recognises the need for state and non-state actors, including businesses, civil society and the media – in developed and developing countries – to work in concert.
From 1:17:10: Watch Transparency International’s Gillian Dell deliver remarks during the FACTI Panel’s interim report launch event on 24 September 2020.
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The way forward requires a coordinated effort to address the problems underlying the fight against corrupt money flows – the problems that the FACTI Panel has recognised this week. We ask the FACTI Panel to ensure that its recommendations, expected in a few months, address three systemic, interlinked challenges.
1. Tackling secrecy
Beneficial ownership transparency and effective supervision
Over half of the Suspicious Activity Reports (SARs) in the FinCEN Files revealed that banks lacked information about one or more entities behind suspicious transactions. The FACTI report extensively covers policy issues and tools surrounding beneficial ownership transparency and recognises secrecy as the common denominator underlying illicit financial flows. While we have seen progress in establishing beneficial ownership transparency as a norm, current global standards are inadequate to ensure the corrupt are not able to shield themselves through anonymity. Major financial centres continue offering secrecy to the corrupt and criminal across the world.
Importantly, governments should take note of gaps the report highlights in the regulation and supervision of professional enablers and take remedial steps to close them. As we have been reminded this week, the negligent or wilful failure of these professions to carry out their due diligence obligations enables devastating financial crimes around the world.
2. Ensuring justice
Foreign bribery prosecution and asset recovery
Ensuring justice requires both holding the corrupt to account and providing recourse to the countries and people they have exploited.
The report recognises that prosecuting perpetrators of cross-border corruption is a critical component of the broader efforts needed to combat and remediate the corruption affecting developing countries and threatening their achievement the Sustainable Development Goals. Similarly, the report recognises that asset recovery is often hampered by cumbersome legal processes and ineffective coordination, as seen in recent cases such as the seizure of Isabel dos Santos’s assets in Portugal.
The transparent, accountable and speedy return of stolen assets could supply much needed resources to victim countries, allowing them to reinvest in public goods such as healthcare, education and infrastructure.
3. Collaborating effectively
International cooperation and inclusion
Finally, tackling cross-border corruption and illicit financial flows is not possible without strong international cooperation. Crucially, the Panel calls for better coordination across different international instruments, with a particular focus on improving implementation and closing gaps.
We strongly support the recognition in the interim report of the key role that journalists, whistleblowers and civil society organisations play in driving systemic change. The FACTI process, which has been inclusive and has consistently sought to engage civil society, has been a positive example of the value of tapping into external expertise in these areas.
Decisionmakers’ turn to act
As we highlighted in July, we believe the FACTI Panel presents a unique opportunity to complement existing frameworks and tools with concrete recommendations on new pieces of international architecture that can help to close existing policy gaps. Chief among these would be the establishment of a global asset registry and a new instrument or agreement to accelerate asset recovery.
A patchwork of international agreements that evolved organically over time has proven completely ineffectual to address the scale of the problem of illicit flows and financial crime. The FinCEN Files are just the most recent example of how inadequate the current frameworks are, both in the public and private sectors.
The FACTI Panel can leverage its broad coalition of experts to show a path towards real systemic change. However, turning this potential into a reality will require action from member states and international institutions to internalise and implement its recommendations in the form of real, tangible policies and actions.