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Russia in the room: G20 Bali summit must denounce kleptocracy

Unless measures against illicit finance are prioritised, G20 is on track to lose anti-corruption credibility

G20 Indonesia meeting room, delegates preparing in the background

Photo: Mast Irham/Pool via REUTERS

Update, 14 November: Transparency International has been blocked from displaying a billboard reminding G20 members of their responsibility to stop kleptocrats. See our statement: G20 Bali summit: Leaders cannot continue to ignore kleptocracy.

Update, 16 November: The Bali summit concludes and leaders release their first joint communiqué since the invasion of Ukraine. See our reaction: G20 offers carte blanche to kleptocrats at Bali summit.

When the government of Indonesia took over the G20 presidency in December 2021, it released a programme centred on what was considered to be the biggest issue of the time – global recovery from the COVID-19 pandemic. But then in February, G20 member Russia launched a full-scale invasion of its neighbour Ukraine. The war and its global economic impact have dominated the global agenda since.

One thing that has become clear amidst this tragedy: the international community has underestimated the threat of kleptocracy and the large-scale, cross-border corruption that allows it to thrive. Otherwise, governments would have heeded our calls to fix the broken global financial system and stop the flow of dirty money years ago. Instead, their inaction has enabled kleptocrats to consolidate wealth and power, and to attack everything from sustainable development to democracy to global security.

A multilateral gathering such as the G20 – which brings together advanced and emerging economies from every continent of the world – should be playing a leading role in marshalling efforts against such a global threat. The less diverse G7 club, for example, has signalled a serious commitment to hold kleptocrats and their enablers to account. But meaningful action can only be achieved if all major financial centres follow suit.

If the G20 wants to remain relevant and play a constructive role in solving the world’s biggest problems in the years to come, the Bali summit taking place on 15-16 November needs to boldly confront cross-border corruption and kleptocracy. The first crucial step is to recognise that the multiple crises the world is now facing are a direct consequence of the G20’s past failures to combat transnational corruption. For the summit to be considered a success, leaders must commit to fast-tracking critical reforms spelled out in their previous pledges and to supporting international efforts to trace, seize and confiscate stolen assets.

Transparency International's banner, which we were refused to display on Bali international airport's premises, calls on the G20 leaders to stop kleptocrats.

Meetings but no outcomes

G20 finance ministers met for the first time under the Indonesian presidency just one week before Russia invaded Ukraine. At the end of the meeting, they issued a joint communiqué which, among other things, recognised that “effective implementation of the [global anti-money laundering] standards is crucial for building stability and confidence in financial markets, curbing corruption and ensuring a sustainable and inclusive recovery.”

While not legally binding, the traditional G20 communiqués are not insignificant. They help shape the discussions at the leaders’ summit later in the year and can serve as a blueprint for global action.

But as some G20 members wanted to explicitly criticise Moscow’s actions in the subsequent communiqués, they quickly became divisive.

In April, representatives of Canada, United Kingdom and the United States staged a walkout as the Russian delegate took the floor during the G20 finance ministers’ meeting. Unsurprisingly, the meeting failed to produce an official communiqué.

At the beginning of July, discussions around multilateralism turned sour at the G20 foreign ministers’ meeting after Russian Foreign Minister Sergei Lavrov, who has been sanctioned by several G20 members, left the room as his German counterpart Annalena Baerbock took the floor to condemn Russia’s actions in Ukraine. Again, there was no communiqué.

Despite Indonesian hosts “trying hard”, the meetings in the following months similarly failed to produce joint communiqués.

See why G20 needs to confront cross-border corruption

Open letter to G20 leaders

What to do with Russia?

Throughout the year, the government of Indonesia has maintained that Russia’s invasion of Ukraine should not distract G20 from its core mission – which is to play a strategic role in global economic development and prosperity. But the unwillingness to face up to one of the biggest global governance challenges of today has seemingly divided the group in two camps, rendering its work ineffective.

Several G20 members have openly called for Russia’s expulsion from the G20 club. This would not be unprecedented: in 2014, the annexation of Crimea cost Russia its place among the G8, now known as the G7.

The Indonesian hosts – as well as other members such as China and India – have resisted these calls. Reportedly, President Vladimir Putin is invited but will likely not attend the Bali summit next week.

Expulsion is not the only option, however. The inter-governmental anti-money laundering body Financial Action Task Force (FATF) has 39 voting members, making it even more diverse than G20 – and it announced in March that it was drastically limiting Russia’s influence over the group’s decisions. Later on, Russian delegates were also barred from participating in FATF meetings and project teams. As FATF has been deliberating on critical actions to prevent criminals and the corrupt from abusing anonymity offered by the global financial system this year, these precautions mean that the Russian government will not have a chance to block progressive measures that would hurt its political elites.

In contrast, as scrutiny against kleptocrats intensifies, Russia’s divisive actions in G20 meetings, if unchecked, risk undermining the G20’s anti-corruption agenda and watering down future commitments to counter illicit finance.

Russian Foreign Minister Sergei Lavrov seen in attendance of the G20 Foreign Ministers' Meeting

Photo: Stefani Reynolds/Pool via REUTERS

Anti-corruption momentum slipping

Persistent corruption challenges in the world’s largest economies pose a threat to economic prosperity everywhere. The G20 leaders recognised this in 2011 when they created a dedicated Anti-Corruption Working Group (ACWG). The resolve to tackle corruption brought about some significant early results, but the impetus has waned in recent years.

At the 2021 Rome summit, the ACWG adopted the new Anti-Corruption Action Plan 2022-2024. It has three overarching objectives: promoting the implementation of existing anti-corruption commitments; developing targeted actions in areas where the G20 can best add value; and countering new corruption challenges identified by the international community.

In a year like this, it is difficult to think of a much more pressing corruption challenge that requires urgent multilateral action than transnational corruption and kleptocracy. And while the ACWG plan already contains some critical actions for combating it, these were not prioritised this year – or when they were, the discussions lacked ambition.

Who has been at the helm of G20 anti-corruption meetings in 2022?

The Indonesian Corruption Eradication Commission (Komisi Pemberantasan Korupsi), also known as KPK, has led the ACWG meetings this year. Since its establishment in 2003, KPK gained prominence for its track record in prosecuting high-level corruption and was often credited for Indonesia’s improvement on the Corruption Perceptions Index (CPI). In fact, our Global Corruption Barometer 2020 for Asia showed that KPK was one of the best-known anti-corruption agencies in the region, with most Indonesians approving of its work. Political elites were beginning to take note, too.

In 2019, Indonesia's legislative body revised the law governing the functioning and mandate of KPK, seriously jeopardising its independence and effectiveness. The commission was essentially put under the control of president, with its authority being diminished. This law was passed despite massive public protests and warnings from civil society.

The impact became clear less than a year later when prominent anti-corruption investigators and staff were dismissed from the KPK after failing a so-called ‘civics’ test. Those sacked were known to be the backbone of the commission and responsible for many of its highest-profile arrests. These changes have already started affecting the work of the KPK and the state of corruption in the country. Transparency International Indonesia’s assessment of the commission’s performance points to a weakening of the agency.

Need to rein in illicit finance

G20 members are some of the world’s largest economies and key financial centres. They are also hubs for dirty money.

In the wake of Russia’s invasion of Ukraine, many advanced Western economies have accelerated long overdue anti-money laundering reforms. The momentum still needs to catch on with the rest of the G20, however.

It is clear that G20 members do not see eye-to-eye on many issues, but they must unite against kleptocracy. Unless they prioritise measures to address globalised corruption, the G20 will fail to deliver on its mandate anytime soon – with or without Russia among its ranks.

1. End anonymous companies, once and for all

Even before the Panama Papers investigations shook the world, G20 leaders had already pledged to crack down on anonymous companies. The adoption of high-level principles on beneficial ownership transparency at the 2014 Brisbane summit, for which we pushed, was an important milestone in shaping global consensus on the issue. Our reviews show, however, that most G20 countries have delayed putting these principles into practice. According to the G20’s own accountability report, progress to date has been mixed. Now that FATF has made a historic decision to require registers as a key solution to achieve beneficial ownership transparency, it would be most opportune for G20 members to redouble their efforts.

And while beneficial ownership transparency remained a priority for the G20 ACWG, the debate has not advanced enough – despite calls from the civil society engagement group, C20 and the business engagement group, B20. The G20 needs to not only meet the new standard but go a step further – in particular, by ensuring public access to registers and mandatory data verification by government agencies.

The next few months are also crucial for increasing scrutiny over trusts – highly secretive vehicles that kleptocrats favour to cover their tracks. The G20 members should support a meaningful reform of the global standard, currently underway at FATF, so that no loopholes remain.

Explore civil society’s positions towards G20 Indonesia

C20 Policy Pack

2. Regulate and supervise gatekeepers

On the other hand, G20 members did have an opportunity to discuss the role of professional enablers of financial crime. The G20 announced the preparation of a compendium of best practices on the regulation and supervision of the legal profession – one of the key gatekeepers of the financial system and where most resistance is found when it comes to anti-money laundering obligations.

Experience sharing is welcome and necessary, but none of the G20 members currently have a highly effective regulatory or supervisory regime for governing the legal profession or other enablers. In many G20 countries, professional enablers, including lawyers, corporate service providers and real estate agents, are still not required to carry out any checks on their customers, nor to report suspicious transactions to authorities. Even those G20 members that have relatively strong rules face significant challenges in practice – as seen in the European Union, for example.

Improvements to regulation and supervision are needed across the board, and G20 members must urgently scale up oversight instead of letting the industry regulate itself – an approach that has proven ineffective time and again. In fact, the G20 has already made commitments to that end, including through two sets of high-level principles: on beneficial ownership transparency and on organised crime. What is needed now is a renewed commitment and decisive steps to crack down on unscrupulous enablers.

3. Scale up multilateral action to uncover illicit assets

Since the onset of Russia’s invasion of Ukraine, G7 members have scaled up cooperation and are now working together to share intelligence on the dirty money parked in their economies. The G20 has been silent on the issue, which is detrimental considering that kleptocrats are likely to move their assets to other financial centres – including G20 economies – that continue to welcome them. G20 countries have also been involved as transit and destination countries for illicit financial flows in several recent transnational corruption cases – from the laundromats to Lava Jato.

In all these cases, investigations have been hampered or at best delayed, thanks to numerous challenges in accessing information and evidence held abroad. To effectively identify, freeze, confiscate and repatriate stolen assets, G20 countries need to discuss measures that would enable the safe, timely and proactive exchange of intelligence and improve international cooperation.

In 2020, the G20 laid the foundation for a network on anti-corruption law enforcement authorities, which should now be mobilised. Other initiatives to improve cooperation between financial intelligence units, tax agencies and other relevant competent authorities should be discussed.

The G20 is also an ideal platform for leaders to deliberate about leading economists’ and civil society’s proposals to create a Global Asset Register, which would help to effectively trace stolen assets.

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