In November the leaders of the world’s most powerful economies – the G20 – meet in Brisbane, Australia to discuss how to address the urgent issues facing the world’s financial system today. Corruption will be on the agenda and this week the G20 Anti-Corruption Working Group is meeting in Paris to finalise exactly what issues should be included.
Transparency International has called on the G20 to take the necessary steps to address the flaws in the global financial system that allows the corrupt to syphon off funds stolen from the public purse and hide the proceeds of their crimes.
The stakes are high: if the G20 takes bold steps millions of people will be better off because governments will have more resources to spend on basic services. One trillion dollars is lost from developing countries each year through gaps and loopholes in the international financial system that the G20 has the power to tighten up.
There are two key issues which Transparency International believes must be on the G20 anti-corruption agenda that may not be adopted:
- Ending secret ownership of companies (shell companies) by making it mandatory to have public registries to show who really owns and benefits from a company
- Greater transparency in the extractive industries
Shell companies and beneficial ownership
A shell company is a legal entity that has no physical presence, no employees and no commercial activity. It can, however, open bank accounts and these accounts are held by the company, not any named individual. They are therefore used to hide the real people who own and control them – the “beneficial owners”.
In other words shell companies are perfect vehicles for the corrupt to hide the proceeds of their crimes. The World Bank’s Stolen Asset Recovery Initiative found that shell companies were involved in more than half of all grand corruption cases examined.
A new Transparency International report on 6 November will show how transparent the world’s biggest companies are. Which corporate sector do you think will be the most transparent? Click here for the 2012 report.
Last year Transparency International welcomed the UK’s move to establish a register of company ownership and the Group of Eight leading economies call for an end to shell companies.
We now want the G20 to go a step further and encourage its members to adopt public registers of the beneficial owners of all companies. This is a cost-effective and efficient method to enhance transparency and would make it easier for law enforcement, investors and citizens to know who is behind the companies operating in their country.
In the run up to the Paris meetings we have learned that several G20 countries have said they may consider registries, but not public ones. They should follow the European Parliament which voted in favour of public registries earlier this year.
Attacking the resource curse
Resource rich countries have a poor history when it comes to fighting corruption. Too often money that should go to citizens is siphoned off by the powerful elite in collusion with industry. That’s why it is important that the G20 discuss what needs to be done to enhance transparency in the sector.
The G8 championed greater transparency in the extractive industries in 2011 and said they would “make progress towards common global reporting standards to make extractive industry payments more transparent”.
Mandatory disclosure of payments to governments and operations on a project-by-project and country-by country basis would mitigate political, legal and reputational risks and increase the long-term stability that investors seek.
More than two-thirds of the world’s listed mining companies will soon be subject to mandatory disclosure legislation in the US, UK, EU and Canada.
However, mandatory disclosure commitments must extend beyond G8 and EU countries. This is urgent for G20 countries with sizeable extractive industries such as Australia, China, Brazil, and South Africa – none of which are G8 members. Under Australia’s leadership, a country where as much as 10 per cent of GDP is generated by the extractives industry, the G20 must collectively agree to reduce opportunities for corruption through establishing a global revenue transparency standard.
Why the G20 needs to act on corruption
- Transparency International’s Global Corruption Barometer 2013 found that only 16 per cent of people in G20 countries said their government’s efforts to tackle corruption were effective.
- If corruption was an industry it would be the world’s third largest amounting to 5 per cent of global GDP.
- In a 2011 worldwide business survey conducted by Transparency International nearly 30 per cent of the respondents lost business to a competitor who used bribery.
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