Abstract
The United Nations Millennium Declaration of 2000 was translated into a roadmap, setting out measurable goals such as the Millennium Development Goals (MDG) to be achieved by 2015. The first goal was to eradicate extreme poverty and hunger by reducing “by half the proportion of people whose income is less than $1 a day”, achieving “full and productive employment and decent work for all, including women and young people”, and reducing “by half the proportion of people who suffer from hunger”. Due to lack of progress towards the goal set by the MDG the target date for the elimination of poverty was extended to 2030 by the UN Sustainable Development Goals in 2015. Development, seen as a key factor for poverty eradication, is marred by corruption on the part of the bureaucratic and political elite (often termed politically exposed persons or PEPS). This chapter examines the links between development, corruption and money laundering and the measures adopted to prevent money laundering by the PEPS.
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Notes
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- 3.
Anup Shah (2011) Poverty Around the World http://www.globalissues.org/article/4/poverty-around-the-world
- 4.
- 5.
- 6.
Martin Ravallion (1998) “Poverty Lines in Theory and Practice” Living Standards Measurement Study Working Paper 133, Washington, DC: World Bank.
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- 8.
- 9.
- 10.
- 11.
- 12.
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- 14.
Besides the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), the World Bank also houses three affiliate agencies—the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID).
- 15.
For more on the history and evolution of the World Bank (WB) visit http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20653660~menuPK:72312~pagePK:51123644~piPK:329829~theSitePK:29708,00.html (accessed 12 December 2011).
- 16.
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World Bank Annual Report 2014, https://openknowledge.worldbank.org/handle/10986/20093 Figure 15.
- 18.
Ibid. Fig. 16.
- 19.
Ibid. Table 1.
- 20.
G Cremer (2008) Corruption & Aid Development: Confronting the Challenges (trs. Elisabeth Shüth) London: Lynne Reinner, pp. 39–40.
- 21.
World Bank INDONESIA: Fiduciary Review of the Second Sulawesi Urban Development Project Overview Report, 2002 available at http://www1.worldbank.org/publicsector/anticorrupt/PoliticalEconomy/PREMCourse07/Amit%20background%20material/Fiduciary%20review%20Indonesia.pdf. Interestingly, an internal memorandum from the WB provides a typology and the amounts of informal payments that are normally set aside for funded projects. Five to ten percent is set aside for payments to various authorities including planning to place a project on the priority list at the pre-project stage; 5–30% for inclusion in the approved bidders’ list and 5–35% for signing of the contract with the bid winner. During the life of the projects, bribes are also paid for inspection and completion certificates. “World Bank Memoranda On Corruption In Indonesia Confidential: Indon Resident Staff Views Re ‘Leakage’”, Staff Bank Dunia Di Jakarta Augustus, 1997 Reproduced as Appendix 2 Select Committee On International Development http://www.publications.parliament.uk/pa/cm200001/cmselect/cmintdev/39/39ap07.htm
- 22.
The Corruption Perception Index (CPI) uses a scale of “0” (very corrupt) to “100” (very clean). In 2014, India received a score of 38 and was ranked 85 out of 175 countries. Denmark, in comparison, received a score of 92 (edging very close to “very clean”) and was ranked at 1.
- 23.
World Bank Annual Report 2014, fn 12, p. 50.
- 24.
See for instance CIOB (2013) Corruption in the UK Industry http://www.giaccentre.org/documents/CIOB.CORRUPTIONSURVEY.2013.pdf; Patrick X W Zou (2006) “Strategies for Minimising Corruption in the Construction Industry in China” Journal of Construction in Developing Countries 11(2):15. There have been numerous initiatives to introduce codes of ethics for the construction industry. See, for instance, the UK Contractors Group (UKCG) Code of Business Ethics and Conduct http://archive.ukcg.org.uk/about-us/ukcg-code-of-business-ethics-and-conduct/. Clause 2 of this Code states in relation to bribery and corruption that UKCG “members are committed to ensuring that their businesses operate with the utmost integrity and that they and their employees will not offer, promise or pay bribes to anyone, or request, agree to accept or receive bribes or otherwise breach applicable laws on bribery and corruption”.
- 25.
See “Commonwealth Games: Corruption, Chaos & a Race to Avert a Crisis” available at http://www.independent.co.uk/sport/general/others/commonwealth-games-corruption-chaos-amp-a-race-to-avert-a-crisis-2057234.html, ‘India Orders Probe into Commonwealth Games Corruption’ available at http://www.voanews.com/english/news/asia/south/India-Orders-Probe-into-Commonwealth-Games-Corruption-105097774.html
- 26.
See “Indian Activist Anna Hazare Refuses to End Hunger Strike” available at http://www.guardian.co.uk/world/2011/apr/07/anna-hazare-hunger-strike (accessed 1 December 2011), “Indian Activist Anna Hazare on Hunger Strike as MPs Debate Anti-graft Bill” http://www.guardian.co.uk/world/2011/dec/27/indian-anti-graft-hunger-strike
- 27.
“The Donors Who Turn a Blind Eye to Kenyan Sleaze” http://www.ft.com/cms/s/1/f09518ac-9e53-11da-b641-0000779e2340.html#axzz4B4hjCjnw
- 28.
See 2000: Balfour Beatty’s Annus Horribilis Oxford: ILISU Dam Campaign available at http://www.thecornerhouse.org.uk/sites/thecornerhouse.org.uk/files/balfour.pdf. See also Appendix I Select Committee on International Development.
http://www.publcations.parliament.uk/pa/cm200001/cmselect/cmintdev/39/39ap06.htm
- 29.
Both civil and criminal proceedings were brought against Mr. Sole, the Chief Executive of the L Highlands Developments Authority. Mr. Sole was charged with bribery and fraud and was imprisoned to 18 years which was reduced to 15 on appeals. The civil proceedings were for recovery of funds. See “M 12 Million Bribery Scam on Sole” https://journal.probeinternational.org/1999/08/09/m12-million-bribery-scam-sole/. A number of companies involved in the consortium were also found guilty of corruption and fined various amounts. See “Lesotho fines second dam firm” available at http://www.thecornerhouse.org.uk/sites/thecornerhouse.org.uk/files/balfour.pdf (accessed 1 September 2011). See ‘Lesotho Fines Second Dam Firm’ available at http://news.bbc.co.uk/1/hi/business/3185145.stm. The WB has debarred two firms, the Canadian firm Acres International and the German firm Lahmeyer. See “Corrupt Lahmeyer Debarment Welcome but Late – NGOs” available at http://www.internationalrivers.org/en/africa/lesotho-water-project/corrupt-lahmeyer-debarment-welcome-late-ngos
- 30.
E Mekay (2004) “Poorest Pay for World Bank Corruption – US senator” http://www.ipsnews.net/2004/05/development-poorest-pay-for-world-bank-corruption-us-senator/
- 31.
The exclusion of politics is clearly stated in Art. III(5)(b) and Art. IV(10) of the IBRD Articles of Agreement which read:
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Art III, Sec. 5 (b)
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The Bank shall make arrangements to ensure that the proceeds of any loan are used only for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency and without regard to political or other non-economic influences or considerations.
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-
Art IV, Sec. 10
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The Bank and its officers shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purposes stated in Article 1.
-
-
- 32.
James D Wolfehnson (1996) ‘People and Development’ Address to the Board of Governors at the Annual Meetings of the World Bank and the International Monetary Fund, reprinted in Voice for the World’s Poor: Selected Speeches and Writings of World Bank President James D Wolfensohn, 1995–2005 Washington, DC: World Bank, 2005 http://elibrary.worldbank.org/doi/abs/10.1596/0-8213-6156-2
- 33.
Colin Leys (1965) “What is the Problem about Corruption?” Journal of Modern African Studies 3: 215.
- 34.
N H Leff (1964) “Economic Development through Bureaucratice Corruption” American Behavioural Scientist 8(3): 8.
- 35.
See Joseph S Nye (1970) “Corruption and Political Development: A Cost-Benefit Analysis” in A Heidenheimer (ed) Political Corruption: Readings in Comparative Analysis New York: Holt, Reinhart & Wilson.
- 36.
M Dobb (1948) Soviet Economic Development since 1917 1948, London: Routledge & Kegan Paul, 2.
- 37.
See L Anderson “Demystifying the Arab Spring” in The New Arab Revolt Foreign Affairs/CFR eBook, May/June 2011. Summary available at https://www.foreignaffairs.com/articles/libya/2011-04-03/demystifying-arab-spring
- 38.
Pranab Bardhan (1997) “Corruption and Development: A Review of Issues” Journal of Economic Literature 35(3) 1320, 1328. See also S Alatas (1998) Corruption, Its Nature, Causes and Functions, Aldershot: Brookfield; Mbaku (1994) “Africa after more than Thirty Years of Independence: Still Poor and Deprived”, Journal of Third World Studies 11: 13; D. Gould and Mukendi (1989) “Bureaucratic Corruption in Africa: Causes, Consequences and Remedies”, International Journal of Public Administration 12: 427; “Eliminating World Poverty: Making Globalisation Work for the Poor”, Cmnd 5006, (London: HMSO 2000); Susan Rose-Ackermann, “The Economics of Corruption” 4 Journal of Public Economics (1975), 187; C.W. Gray and D. Kaufmann (1998) “Corruption and Development”, 35 Finance and Development 35:7; V. Tanzi (1998) “Corruption Around the World: Causes, Consequences, Scope and Cures” IMF Staff Papers 45: 559.
- 39.
R Klitgaard (1988) Controlling Corruption Berkeley, University of California Press; Susan Rose Ackermann (1999) Corruption & Government Cambridge: CUP.
- 40.
For more on this, see Indira Carr (2009) “Corruption, the Southern African Development Community Anti-corruption Protocol and the Principal—Agent—Client Model” International Journal of Law in Context 5(2):147. This model is used by both Klitgaard and Rose Ackerman to explain corruption in the public sector, especially in the context of the public-private dealings. As to whether the same conditions apply in private sector corruption or public-public sector corruption needs to be explored further. However, the two factors to reduce corruption, transparency and accountability are, in my view, of universal application.
- 41.
Max Weber (1947) The Theory of Social and Economic Organization, New York, Free Press. See also see D C North and R P Thomas (1996) Rise of the Western World: A New Economic History Cambridge: Cambridge University Press.
- 42.
Paul Collier (1997) “The Failure of Conditionality” in C Gwin and JM Nelson (eds) Perspectives on Aid and Development Washington, DC: John Hopkins University Press, Paul Collier, P. Guillaumont, S. Guillaumont and J.W. Gunning (1997) “Redesigning Conditionality” World Development 25(9):1399.
- 43.
See F Darroch The Lesotho Corruption Trials – A Case Study, Transparency International, 2003 (available at http://www.ipocafrica.org/index.php?option=com_content&view=article&id=71&Itemid=66).
- 44.
See Vasuda Chottray and David Hulme (2007) Contrasting Visions for Aid and Governance: The White House Millennium Challenge Account and DFID’s Drivers of Change http://www.gprg.org/pubs/workingpapers/pdfs/gprg-wps-062.pdf
- 45.
Ibid., p. 26.
- 46.
Ibid.
- 47.
Roberto A Fredman (2014) “How the World’s Biggest Companies Bribe Foreign Governments—in 11 Charts” The Washington Post https://www.washingtonpost.com/news/wonk/wp/2014/12/03/how-the-worlds-biggest-companies-bribe-foreign-governments-in-11-charts/
- 48.
- 49.
- 50.
The International Chamber of Commerce has also produced “Rules on Combating Corruption” which focuses on good commercial practice. The document is available at http://www.iccwbo.org
- 51.
See Indira Carr and Opi Outhwaite (2011) “Controlling Corruption through Corporate Social Responsibility and Corporate Governance: Theory and Practice” Journal of Corporate Law Studies 11(2); 299.
- 52.
See Art. 3(b)(i) and (ii). Note that the Convention does not use the phrase “money laundering”.
- 53.
David Chaikin and J C Sharman (2009) Corruption and Money Laundering: A Symbiotic Relationship, New York; Palgrave Macmillan, p. 21.
- 54.
See Indira Carr and Rob Jago (2014) “Corruption, the United Nations Convention against Corruption (UNCAC) and Asset Recovery” in Colin King and Clive Walker (eds) Emerging Issues on the Regulation of Criminal and Terrorist Assets, Farnham: Ashgate.
- 55.
The World Bank., Stolen Asset Recovery (StAR) Initiative Challenges, Opportunities and Action Plan (The World Bank, Washington, DC, 2007); de Quiros, C., Dead Aim: How Marcos Ambushed Philippine Democracy (Foundation for Worldwide People’s Power, Pasig City, 1997). See also David Chaikin, “Tracking the Proceeds of Organised Crime – The Marcos Case” Paper Presented at the Transnational Crime Conference convened by the Institute of Criminology in association with the Australian Federal Police and Australian Customs Service, Canberra, 9–10 March 2000.
- 56.
Michael Peel and Jeevan Vasagar (2016) “Malaysia: 1 MDB Money Trail” The Financial Times https://next.ft.com/content/0981b2c8-cfe3-11e5-92a1-c5e23ef99c77
- 57.
Jake Maxwell Watts (2016) “Prosecutors: Money Laundering Probe Largest Ever in Singapore” The wall Street Journal http://www.wsj.com/articles/prosecutors-1mdb-money-laundering-probe-largest-ever-in-singapore-1464375014
- 58.
Currently, the following conventions are in force:
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Organisation of American States Inter-American Convention against Corruption 1996 (OAS Convention), in force 6 March 1997.
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Organisation for Economic Co-operation and Development Convention on Convention on Combating Bribery of Foreign Public Officials in International Business Transactions 1997 (OECD Convention), came into force 15 February 1999. See I.Carr and O.Outhwaite “The OECD Anti-bribery Convention Ten Years On” 2009 5(1) Manchester Journal of International Economic Law 3.
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Council of Europe Criminal Law Convention on Corruption 1999 (COE Convention), in force 1 July 2002.
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Council of Europe Civil Law Convention on Corruption 1999 (Civil Law Convention), in force.
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African Union Convention on Preventing and Combating Corruption 2003 (AU Convention), in force 5 August 2006. See I. Carr “Corruption in Africa: Is the African Union Convention on Combating Corruption the Answer?” 2007 Journal of Business Law 111 for a critical discussion of this Convention.
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United Nations Convention against Corruption 2003 (UNCAC) in force 14 December 2005.
-
- 59.
The UNCAC includes within its list of criminal offences a wide range of activities, all of which may not be immediately fit with the popular notion of corruption. Some of them may well fall within fraud (e.g. embezzlement), but the reason for including activities that could be construed as falling within fraud was to ensure that there was some degree of uniformity across states, and acts such as misappropriation did not escape the net because a contracting state’s criminal law did not cover the many shades of fraud. The activities criminalised are bribery of national and foreign public officials including officials of public international organisations (Arts. 15 and 16), embezzlement or misappropriation, or other diversion of property by a public official (Art. 17); abuse of position by a public official for obtaining undue advantage (Art. 19), trading in influence (Art. 18), illicit enrichment (Art. 20), bribery in the private sector and embezzlement of property in the private sector (Arts. 21 and 22).
- 60.
The Financial Action Task Force (FATF) on Money Laundering was established by the G-7 Summit that was held in Paris in 1989.
- 61.
This Convention came into force in 1993. Arts. 6(1) and (2) state:
-
1.
Each Party shall adopt such legislative and other measures as may be necessary to establish as offences under its domestic law, when committed intentionally:
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(a)
The conversion or transfer of property, knowing that such property is proceeds, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of the predicate offence to evade the legal consequences of his actions.
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(b)
The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property, knowing that such property is proceeds; and subject to its constitutional principles and the basic concepts of its legal system.
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(c)
The acquisition, possession or use of property, knowing, at the time of receipt, that such property was proceeds.
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(d)
Participation in, association or conspiracy to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the offences established in accordance with this article.
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(a)
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2.
For the purposes of implementing or applying paragraph 1 of this article:
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(a)
It shall not matter whether the predicate offence was subject to the criminal jurisdiction of the Party.
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(b)
It may be provided that the offences set forth in that paragraph do not apply to the persons who committed the predicate offence.
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(c)
Knowledge, intent or purpose required as an element of an offence set forth in that paragraph may be inferred from objective, factual circumstances.
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(a)
-
1.
- 62.
1. Each State Party shall adopt, in accordance with fundamental principles of its domestic law, such legislative and other measures as may be necessary to establish as criminal offences, when committed intentionally:
-
(a)
-
(i)
The conversion or transfer of property, knowing that such property is the proceeds of crime, for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the predicate offence to evade the legal consequences of his or her action.
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(ii)
The concealment or disguise of the true nature, source, location, disposition, movement or ownership of or rights with respect to property, knowing that such property is the proceeds of crime.
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(i)
-
(b)
Subject to the basic concepts of its legal system:
-
(i)
The acquisition, possession or use of property, knowing, at the time of receipt, that such property is the proceeds of crime.
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(ii)
Participation in, association with or conspiracy to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the offences established in accordance with this article.
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(i)
-
(a)
- 63.
OECD (2001) Behind the Corporate Veil Paris: OECD. According to a US Senate Report a private banker is used to set up a shell company for a client and open accounts in the name of the company thus hiding the ownership of an individual to the assets (US Senate permanent Subcommittee on Investigations, Committee on Governmental Affairs Money Laundering and Foreign Corporation Enforcement and Effectiveness of the Patriot Act, Case Study Involving Riggs Bank, 15 July 2004, p. 13.
- 64.
People of the Philippines v Joseph Ejercito Estrada Sandigbayan Criminal case No. 26558 (for Plunder) September 12, 2007 Decision available at http://jlp-law.com/blog/people-philippines-vs-joseph-estrada-sandiganbayan-criminal-case-26558-plunder/
- 65.
For more on FIUs, see Global Financial Intelligence “Financial Intelligence Units” http://www.global-financial-intelligence.com/central-banks-fius/
- 66.
http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf. The latest version was adopted on 16 February 2012 and updated in February 2013, October 2015 and June 2016. The Recommendations, the Interpretive Notes and the Glossary together comprise the FATF standard.
- 67.
- 68.
Louis de Koker (2013) ‘The 2012 Revised FATF Recommendations: Assessing and Mitigating Mobile Money Integrity Risks Within the New Standards Framework’ Washington Journal of Law, Technology & Arts 8:3: 165 at 168.
- 69.
The inclusion of terrorist financing was included in the 2001 revision and dealt with the issue in its Eight Special Recommendations later expanded to Nine.
- 70.
Recommendation 36 of the 2012 version of the FATF Recommendations states that “countries should take immediate steps to become party to and implement fully the…the United Nations Convention against Corruption 2003…”
- 71.
Note that the requirements in R10 and R10 apply equally to designated non-financial businesses and professions by virtue of Recommendation 22. Lawyers and accountants fall within this category.
- 72.
Smurfs refer to individuals who are used for depositing cash below threshold limits. The threshold limit set by Recommendation 10, is USD/EUR 15,000. This may be slightly lower in some countries. For instance, in India, it is INR 1,000,000 per annum which is around EUR 13,200 at current exchange rates.
- 73.
The inclusion of insurance may at first sight come as a surprise but money launderers could use illicit monies for payment of premiums. For a detailed account of the link between money laundering and insurance, see Sandra Lawrence (n.d.) “Money Laundering in the Insurance Industry” available https://www.world-check.com/media/d/content_pressarticle_reference/aisaninsurance_08.pdf. See also International Association of Insurance Supervisors (IAIS) (2004) “Examples of Money Laundering and Suspicious Transactions involving Insurance” for examples of case studies, available at http://iais.web.org under Other Supervisory Papers and Reports section.
- 74.
For example, an agent, a representative.
- 75.
Peter Reuter and Edwin M Truman (2005) “Anti-Money Laundering Overkill?” The International Economy (Winter): 56, at 59.
- 76.
FATF (2012) International Standards on Combating Money Laundering and the Financing of Terrorism, updated June 2016, p. 7.
- 77.
See FATF (2012) Recommendation 1 and Interpretive Notes to Recommendation 1.
- 78.
FATF (2012), p. 123.
- 79.
Art 52(1).
- 80.
This document is not binding.
- 81.
FATF Guidance (2013) Politically Exposed Persons (Recommendations 12 and 22) Paris: FATF/OECD, p. 11.
- 82.
Recommendation 1 reads:
Countries should identify, assess, and understand the money laundering and terrorist financing risks for the country, and should take action, including designating an authority or mechanism to coordinate actions to assess risks, and apply resources, aimed at ensuring the risks are mitigated effectively. Based on that assessment, countries should apply a risk-based approach (RBA) to ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate with the risks identified. This approach should be an essential foundation to efficient allocation of resources across the anti-money laundering and countering the financing of terrorism (AML/CFT) regime and the implementation of risk- based measures throughout the FATF Recommendations. Where countries identify higher risks, they should ensure that their AML/CFT regime adequately addresses such risks. Where countries identify lower risks, they may decide to allow simplified measures for some of the FATF Recommendations under certain conditions.
Countries should require financial institutions and designated non-financial businesses and professions (DNFBPs) to identify, assess and take effective action to mitigate their money laundering and terrorist financing risks.
- 83.
Guidance, p. 11. Ibid.
- 84.
U4 Expert Answer (2008) “African experience of Asset Declaration” http://www.right2info.org/resources/publications/asset-declarations/u4-anti-corruption-resource-centre_african-experience-of-asset-declarations
- 85.
Ibid., p. 12.
- 86.
Ibid., pp. 12–13.
- 87.
Ibid., p. 13.
- 88.
Peter Reuter and Edwin M Truman (2005) “Anti-Money Laundering Overkill?” The International Economy Winter: 56 at 60.
- 89.
Richard Eskow (2015) “The Big Banks Are Corrupt – and Getting Worse” http://www.huffingtonpost.com/rj-eskow/the-big-banks-are-corrupt_b_7418508.html
- 90.
Borrowing from the title of Reuter and Truman’s article, fn 89.
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Carr, I. (2018). Corruption, Development, Financial Institutions and Politically Exposed Persons. In: Ryder, N. (eds) White Collar Crime and Risk. Palgrave Studies in Risk, Crime and Society. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-47384-4_2
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