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Anti-Corruption Measures ANTI-CORRUPTION MEASURES 20 JULY 2020 FACTI BACKGROUND PAPER 5 MICHAEL FINDLEY, DANIEL NIELSON and JASON SHARMAN This background paper was commissioned to support the FACTI Panel’s deliberations and will be used to inform the Panel’s interim and final reports. The paper benefited from comments and contributions from the FACTI Panel members, the FACTI Panel secretariat, and staff at the UN Office of Drugs and Crime, the OECD secretariat, the FATF secretariat, Rebecca Russavage, Chris Zimmer and Tyler Morrow. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the FACTI Panel, its members, the FACTI Panel Secretariat or the United Nations. HTTP://WWW.FACTIPANEL.ORG CONTENTS 1. INTRODUCTION ....................................................................................................................................................... 1 2. Review of corruption prevention implementation ................................................................................... 1 2.1 Chapters II and III: Preventive measures & criminalization and law enforcement........... 2 2.2 Chapter IV: International cooperation ................................................................................................. 5 2.3 Chapter V: Asset recovery ......................................................................................................................... 6 2.4 Chapter VI: Training and technical assistance .................................................................................. 8 2.5 Corruption and economic and gender inequality ............................................................................ 8 2.6 Implementation trends: Evidence from randomized controlled trials ................................... 9 3. Gaps and vulnerabilities contributing to a lack of incentives for public sector corruption prevention ........................................................................................................................................................................ 12 3.1 Proceeds from public-sector corruption in source countries .................................................. 12 3.2 Misidentification of haven countries .................................................................................................. 13 4. Anti-corruption measures in the financial system: banks and professions ................................ 16 4.1 Facilitators and service providers ....................................................................................................... 16 4.2 Financial institutions ................................................................................................................................ 19 4.3 Defeating the race to the bottom ......................................................................................................... 22 4.4 Information, information sharing and effectiveness ................................................................... 22 5. Proposals and recommendations .................................................................................................................. 24 5.1 Re-thinking how risk and effectiveness are measured .............................................................. 24 5.2 Re-focusing the fight on haven countries ......................................................................................... 24 5.3 Regulating, licensing and auditing corporate service providers ............................................ 25 5.4 Beyond the state 1: better engaging non-profit actors ............................................................... 26 5.5 Beyond the state 2: better engaging for-profit actors ................................................................. 27 6. Appendix: Selected partnerships, initiatives and instruments ......................................................... 29 1. INTRODUCTION The first meeting of the FACTI Panel highlighted the role of corruption as a structural impediment to sustainable development. The Panel suggested giving due attention to capacity for combating corruption both at the national level as well as improving the effectiveness of international legal instruments. As discussed in the FACTI Panel’s first background paper, corruption is a complex social, political and economic phenomenon that affects all countries.1 Further, corruption can power a vicious cycle antithetical to sustainable development: corruption detracts from development strategies, hurts small and medium sized enterprises (SMEs), and invites more corruption out of a sense of fatalism.2 Corruption often involves entrenched power structures, systems of societal relations, and social norms, which together form a system of incentives that bind a network of actors into a governance arrangement that does not involve impersonal application of neutral rules. The goal of this paper is to selectively describe the state of play in preventing corruption in both countries experiencing widespread corruption and countries that are more prone to be used as havens for the proceeds of foreign corruption offences. Given the complexity mentioned above, there is insufficient space for a comprehensive analysis of all aspects of corruption. Instead, this paper focuses on aspects of financial mechanisms for prevention and detection of corruption, as well as the associated laundering of these funds. Section 2 of this paper will review trends in implementation of corruption prevention measures, including implementation of commitments undertaken by signatories to the UNCAC. Section 3 provides an assessment of some of the gaps and vulnerabilities in the current system that contribute to a lack of incentives for corruption prevention. Section 4 reviews impediments to effective implementation of existing anti-corruption systems and standards for financial institutions (especially banks), facilitators and other professional service providers, with particular focus on countries that are havens for the proceeds of foreign corruption offences. Section 5 suggests some proposals for addressing the gaps, vulnerabilities and impediments identified. A brief appendix reviews the existing partnerships, initiatives and instruments in strengthening public financial management and boosting fiscal transparency. 2. Review of corruption prevention implementation In reviewing trends in legal and policy implementation, we rely both on country-by-country reviews by various inter-governmental organizations, particularly the United Nations Office on Drugs and Crime (UNODC), supplemented by reviews by non-governmental organisations (NGOs) and scholars, as well as the authors’ previous research, including policy work but especially randomized controlled trials (RCTs) evaluating the effectiveness of financial transparency standards. 1 “Overview of Existing International Institutional and Legal Frameworks Related to Financial Accountability, Transparency and Integrity”, FACTI Panel Background Paper 1, 6 April 2020, www.factipanel.org/documents/background-paper-1-overview-of- existing-international-institutional-and-legal-frameworks-related-to-financial-accountability-transparency-and-integrity 2 Rose-Ackerman, Susan, and Bonnie J. Palifka. Corruption and Government: Causes, Consequences, and Reform. 2nd ed. New York, NY: University of Cambridge Press, 2016, page 30. ANTI-CORRUPTION MEASURES – JULY 2020 PAGE 1 2.1 Chapters II and III: Preventive measures & criminalization and law enforcement The first substantive chapter of UNCAC is dedicated to the prevention of corruption. Its text explicitly recognizes that corruption is a multifaceted phenomenon with global consequences; although the UN Secretary-General’s foreword to the convention notes that the effects of corruption are most destructive in developing countries. In this section we focus our attention on trends in the formation and implementation of national anti-corruption strategies. We then discuss trends related to transparency initiatives. 2.1.1 Developing and implementing anti-corruption strategies Together with the Implementation Review Group, the UNCAC Working Group on the Prevention of Corruption has been key in tracking progress in anti-corruption statutes. Created in 2009 by the UNCAC Conference of State Parties, the Working Group has met every year to assess implementation on select topics of the Convention. Most recently, the Working Group met in 2019 to review Resolutions 7/5 and 7/6, both focused on strengthening prevention measures. These countries highlighted self- and peer assessments as well as stakeholder meetings with private, public, and civil society groups as best practices for formulating their strategies.3 The Working Group also noted the importance of establishing policy coordination bodies and/or specialized coordination systems to best implement those national strategies. These coordination efforts align and streamline diverse government agencies, oversight responsibilities, and avoid duplicating responsibilities. Overall, the positive trend evident here is the prominence of national strategies and the utility of policy coordination efforts.4 The clearest positive trend over the past two decades charts the proliferation of national anti- corruption strategies and national laws criminalizing corruption, as called for by UNCAC Chapters II and III respectively.5 A UNODC-led review of the first two rounds of the UNCAC Implementation Review Mechanism (IRM) process revealed that more than 60 per cent of Member States
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