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Review of the World Bank Sanctions System: A Good Start But Additional Transparency Needed

Shruti Shah

Cross posted from Transparency International’s Space for Transparency Blog.

The World Bank Group is currently undertaking an evaluation and review of its Sanctions System. That Sanctions System is an integral part of the Bank’s Anti-Corruption policy in that it provides a framework for punishing corrupt contractors, thereby creating a deterrent to corruption. A well-functioning Sanctions System is also important in helping to ensure that the development goals of Bank-financed lending projects are not undercut by fraud or corruption and that World Bank loans produce the greatest possible development impact vis-à-vis the money disbursed.

The Bank has begun a series of consultations with external stakeholders focusing on the performance and implementation of the Sanctions System, as well as the findings and recommendations made by the internal team leading the review process. The review team has produced a diagnostic report evaluating the legal adequacy of the system and its performance and making specific recommendations for reforms. This report has not been made public.

Given the importance of the Sanctions System to effective development and poverty alleviation, it is critical that these consultations are transparent and inclusive and are structured in such a way so that they are most conducive to generating meaningful input from all interested parties. The World Bank has conducted successful and transparent consultations in the past, most recently in the review of its procurement procedures. The Bank has already taken a first step towards a transparent consultation process by launching a dedicated sanctions consultations website that features a summary of its diagnostic report (.pdf) as well as information regarding its plan of action and expected timeline for the review.

While Transparency International and Transparency International-USA will be submitting written recommendations on substantive issues, we have two recommendations with respect to the consultation process:

  1. The Bank should promptly make available the internal diagnostic report, including all associated data.  At the very least, a redacted version of the report with the data should be made available. The summary document prepared by the Bank is useful but does not provide the necessary detail. The findings, discussion, and data contained in the diagnostic report are essential for stakeholders to assess and evaluate whether the review team’s recommendations correspond to current shortcomings and also to provide meaningful feedback.
  2. All submissions and recommendations by external stakeholders should be published in a timely manner with identifying information omitted if needed to preserve confidentiality. We understand that the Bank will be publishing the transcripts of consultation meetings, for which we applaud the Bank. The prompt publishing of submissions and comments will help ensure a transparent and inclusive consultations process, and will also allow for a richer exchange of ideas.

Transparency International – USA believes that the sanctions consultations are an excellent opportunity for the World Bank Group and interested stakeholders to work together to improve a system that is looked to by many other institutions. We therefore recommend that the Bank take the above steps to create an open and transparent consultations process that will be beneficial to all parties, and will serve as a model for developed and developing countries.

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Interactions Between Small- and Large-Scale Corruption in China

Ann Hollingshead

Over the last year, from the symbolic to the substantive, leaders in China have shown an interest in seriously tackling the issue of corruption. These changes have included charging Bo Xilai, the powerful former Communist Party chief in Chongqing, with corruption, bribery and abuse of power and, the relatively symbolic gesture, of banning the construction of new government buildings, which are often ostentatious relative to the communities they inhabit. Yet these changes have raised questions over the daily reality that citizens of China (and every other nation) confront as they interact with policemen, building inspectors, and customs officials—but also as they watch news. Indeed, citizens of the world confront two different, yet highly related forms of corruption; these exist both on the large-scale and on the small-scale. And these types of corruption interact with each other, but also and with citizens’ perceptions of their nations.

On a large-scale corruption undermines development and democracy, exacerbates poverty, erodes civil society, stifles social services, and worsens public health. When it involves cross-border flow of money, it is damaging to economies not just because of the underlying corrupt acts, but also because it deprives the country of both public and private resources—including financial capital—that might otherwise be diverted to productive activities.

Corruption on a small scale, sometimes called “petty corruption,” occurs in thousands of contexts daily. Every day people, usually in developing countries, make thousands of routine payments to building inspectors, customs officials, and other bureaucrats for the services that those employees are obligated to perform, but don’t without a little extra. This type of corruption has a much different effect than its large-scale counterpart. When a person pays a bribe, the venal official need not necessarily transfer it abroad. In fact, they are more than likely to just spend the cash.

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Increasing [Amicable] Cooperation on Offshore Tax Evasion

Ann Hollingshead

There is an old proverb that goes something like this: “one finger cannot lift a pebble.” And while reducing cross-border tax evasion is not like lifting pebble—it’s more like hauling a boulder—it is true that it cannot be achieved unilaterally. No single country can stop, stem, or slow offshore tax evasion by its own citizens without the help of at least one other nation. This is true by definition.

Historically much of the bilateral cooperation on tax evasion has been less than amicable. That is changing. Increasingly, we are seeing that the cooperation in matters of tax between nations—particularly wealthy ones—is neither begrudging nor forced. These nations are not just cooperating to stem tax evasion abroad; they are doing so willingly and proactively.

The countries which have begun to cooperate on these matters mainly includes wealthy Western nations, including the United States and most of the European Union. The most notable recent occurrence of this cooperation, at least symbolically, occurred at the G8 summit in June of this year. It was at this summit that the leaders of the world’s wealthiest countries agreed to work towards sharing “information automatically to fight the scourge of tax evasion.” An admirable goal, if even a symbolic gesture.

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Income Inequality, Wealth, and Illicit Financial Flows in Asia

Ann Hollingshead

In recent years wealth among the wealthiest has increased. This trend is well-documented in the United States, where commentators have noted that since 1979, the rich have become richer and the poor have become (relative to the rich) poorer. Dubbed the “Great Divergence” by NY Times op-ed columnist Paul Krugman, this phenomenon may be both a driver and the result of tax policy and tax evasion in the United States. But America isn’t the only country vulnerable to these kinds of trends. In fact, evidence from recent years has suggested that these trends are at play in several emerging markets, particularly those in Asia, where incomes are rising with steady economic growth.

Wealth among the wealthiest residents of Asia has increased in recent years. In particular, as the effects of the Great Recession ebbed, the economic recovery came much faster to high net worth individuals in Asia. In recent years, more people in Asia have become millionaires. For example, according to RBC Wealth Management and Capgemini, in 2011, the number of people in Asia-Pacific with assets between $1 and $5 million rose from 1.9 to 3.08 percent, while their total wealth increased 1.5 percent. In fact, in recent years, the countries with the largest increases in populations of ultra high net worth individuals have been emerging markets, including India and China.

There are now 18,000 centa-millionaires, that is, those who have more than $100 million in assets, in Southeast Asia, China and Japan. This is more than both the number of centa-millionaires in North America (17,000) and Western Europe (14,000).

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Taxcast Episode 19: July 2013

Taxcast by Tax Justice Network

In the July 2013 Taxcast: We analyse the OECD’s Action Plan it says is going to tackle corporate tax avoidance. And who needs the OECD, the G8 or the G20 anyway? The Taxcast looks at working models governments could implement NOW without any more summits: Japan introduced it’s Tax Haven Counter Measure Law in the 1970s and Mexico has a tax haven black list and the Dictamen Fiscal rule to help it hold multinational corporations to account.

Want to download to listen to any time offline? 

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Looking Forward: Poverty in 2015

Ann Hollingshead

Every year the OECD Development Assistance Committee publishes a report on resource flows to fragile states. This year’s report, Fragile States: 2013 Resource flows and trends in a shifting world, provides some fascinating insights into the future of global poverty, particularly among fragile states.[1] Coupled with our understanding of illicit financial flows from developing countries, we have an interesting picture of global poverty in coming years.

In 2005 the two countries with the largest number of people living in extreme poverty (i.e. with incomes of less than 1.25 USD / day) were India and China. This fact is statistically unsurprising given that (1) those countries are both developing and (2) those countries have the largest populations in the world. But looking forward to 2015, we expect this picture to change rather radically.

Source: OECD

Source: OECD

As we see from the infographic above, from the OECD Development Assistance Committee, India will still have the second largest population of people living below the poverty line, but the reduction in the number of people in poverty is dramatic. Nigeria, perhaps surprisingly, will hold the second largest population of the world’s poorest. Nigeria is also one of the world’s largest exporters of illicit capital. According to a report on Illicit financial flows from developing countries between 2001 and 2010 by Global Financial Integrity, Nigeria lost an average of $12.9 billion in illicit financial flows, which ranks the country ninth in the world. According to the same report, between 1980 and 2009, Nigeria’s average illicit financial flows represented over 50 percent of its external debt.

According to the OECD report (and as shown in the infographic above), in terms of people living in extreme poverty, in 2015, Nigeria will be followed by the Democratic Republic of the Congo (for which we do not have data on illicit financial flows), Indonesia (averaged $10.8 billion in illicit financial flows between 2001 and 2010), Bangladesh ($1.4 billion in IFFs), Tanzania ($333 million), and Pakistan ($251 million). Of these, Pakistan and the Democratic Republic of the Congo are notable not only for their high proportions of the global poor, but also for their risk of regional and global conflict.

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G20 Finance Ministers and Central Bank Governors Communiqué Released

EJ Fagan PDF

The G20 Finance Ministers and Central Bank Governors met in Moscow this weekend, following the release of the OECD’s report on Base Erosion and Profit Shifting (BEPS). That report, along with pieces of FTC’s agenda money laundering, automatic information exchange and beneficial ownership made it into the communiqué released by the G20 representatives following their summit.

You can download the full document here. Look for sections 18-20 for FTC’s agenda.

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Press Releases

OECD BEPS report confirms the international tax system is failing rich and poor nations

Financial Transparency Coalition

Today the OECD identified 15 policy action points and created a two-year timeline that it hopes will restore trust and fairness in what it concedes has become a flawed and discredited international tax system.  The report, Action Plan on Base Erosion and Profit Shifting, recognises what the Financial Transparency Coalition (FTC) has known for years: That the integrity of the current global tax system has been undermined by multinational companies and their tax planners exploiting the boundaries of acceptable tax planning.

The OECD today clearly stated that multinational companies’ artificial shifting of revenues and profits to low or no tax jurisdictions harms governments, businesses and citizens throughout the world.  The FTC heartily welcomes the OECD’s specific acknowledgment that “in developing countries the lack of tax revenue leads to critical under-funding of public investment that could help promote economic growth”.

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The Importance of Whistleblowers to Financial Transparency

Ann Hollingshead

This week Edward Snowden, the whistleblower who leaked information about the National Security Agency’s data collection program, may be allowed to leave his temporary station at the Moscow International Airport, where he has been staying since he fled Hong Kong in June. Snowden’s leak has brought the concept of whistleblowing into sharp focus in our headlines lately, including the controversies over the relative benefits and costs of these individuals and programs that support them. As in the case of Snowden, the concept of whistleblowing can be controversial, and it is always painful for the entity or government who is having the whistle blown on it.

In many cases, whistleblowing has proven an effective tool for improving democracy and transparency—it increases information and public engagement, encourages debate, and strengthens oversight. These concepts all have particular importance to some of the issues the Financial Transparency Coalition faces. Transparency, information, engagement, and oversight are critical to each of our recommendations. As such, whistleblowers have often proved critical to fostering these values.

Here are a few of the important whistleblowers in the history of our causes, namely in tax evasion and corruption. As always, this list is representative and not exhaustive.

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Egypt in Crisis: A Look at Corruption Figures for the Last Two Years

Farid Farid

Cross posted from Transparency International’s Space for Transparency blog.

Egyptians are sharply divided over the military’s recent ouster of President Morsi on the back of large-scale popular demonstrations against his rule. They are far more unified, however, in their views on what ails the country.

Corruption is at the forefront of those concerns.

On 9 July 2013 Transparency International released theGlobal Corruption Barometer(GCB) that captures the views on corruption of over 100,000 ordinary citizens in over 100 countries, including Egypt.

Forty-four per cent of Egyptians surveyed consider corruption in the public sector a very serious problem. And nearly 65 per cent surveyed said corruption had worsened since the January 2011 revolution that brought first the Supreme Council of Armed Forces and in 2012 President Morsi to power.

Mohammed Morsi ran on anti-corruption platform and won presidential elections in June 2012.

Under Morsi, the Consultative (Shura) Council agreed a new constitution, approved in a popular referendum in December 2012, that included for the first time the establishment of a national anti-corruption agency.

Morsi’s government also recently launched initiatives to draft for the first time a law on the right of access to information, another one on the protection of whistleblowers, and one to prevent conflicts of interest. Civil society activists requested improvements, such as modifying the wholesale exception of intelligence bodies from being subject to information requests, but these laws remained in draft form.

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Job Listing: Financial Transparency Coalition Administrator

Financial Transparency Coalition

The Center for International Policy (CIP) is a non-profit founded in 1975 to advocate for a foreign policy that promotes cooperation, transparency and accountability in global relations. CIP’s programs advocate policies that advance international cooperation, demilitarization, respect for human rights, and action to alleviate climate change and stop illicit financial flows.

The international secretariat of the Financial Transparency Coalition (FTC), which CIP hosts, seeks an entry-level administrative staff person to manage the day-to-day functions of the Coalition. This is an exciting opportunity to contribute to the efficient administration of an influential coalition of civil society, governments, and experts who have joined together to curb illicit financial flows out of developing countries. This is a grant-funded position until December 31, 2014, with the possibility for extension. The administrator reports to the manager of the Financial Transparency Coalition.


  • Work with the manager to develop and implement financial systems to make the coalition run smoothly, effectively and efficiently.
  • Assist with regular budget and finance tracking to ensure that the secretariat can deliver reliable and up-to-date budget information to the Coalition’s Coordinating Committee and funders.
  • General administrative support in office management, setting up calls, managing systems like calendar, shared drive and email distribution lists.
  • Support the new media coordinator to maintain website back-end functions and email domain management, as well as FTC’s online content.
  • Draft and distribute quarterly newsletter to FTC members.
  • Assist with annual conference event planning.
  • Assist with membership database management.

Job requirements:

  • BA/BS in business, management, communications, finance or other relevant field.
  • 1-2 years’ experience, preferably in an administrative or finance role.
  • Strong organizational skills, attention to detail, and the ability to multi-task.
  • Demonstrate a successful track record with regular tracking of expenses against budget.
  • IT experience (basic computer maintenance, troubleshooting and solving minor computer problems and experience with office networks, familiarity with web-based content management systems).
  • Event planning experience is a plus.
  • Commitment to The Financial Transparency Coalition’s goals and mission.

Salary: Mid $30Ks, commensurate with experience, includes full health benefits, dental insurance, life insurance and a retirement plan.

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Behavioral Economics and Lessons for FCPA, AML, and Tax Compliance

Ann Hollingshead

Under the standard economic theory of crime, compliance with laws is a mix of two important factors.  One: the penalty that results if the offender is caught and 2: the probability of the offender getting caught in the first place.  If the fine is proportional to the crime, but the probability of being caught is almost certain, few will risk it.  In the same way, if the probability of being caught is low, but the penalty is very high, again few will risk it.

Gary Becker—the libertarian economist who wrote Crime and Punishment: An Economic Approach, an authoritative economic theory on crime—has described his own encounter with these tradeoffs. In one inspirational moment for his research, while teaching at Columbia University, Becker asked himself whether he should park in a spot that was closer to campus, and illegal, or in a lot which was somewhat further away. He notes that he had to make a calculation: What was the likelihood that he’d be caught if he parked down the street, versus the time and the money that would be lost by parking further away?

Economists often use this framing device when talking about a whole host of crimes—including white collar crime—and, I have discussed these tradeoffs as well, in particular with respect to the Foreign Corrupt Practices Act.

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Latest Press Releases

$2 lost for every $1 gained: New report shows global financial system fails developing countries

Eurodad · December 18, 2014

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Financial Transparency Coalition · December 17, 2014

WASHINGTON D.C.—The Financial Transparency Coalition congratulates two members of its Coordinating Committee who were named to the International Tax Review’s “Global ...

EU compromise tightens regulation on shell companies, but without public access, many still in the dark

Financial Transparency Coalition · December 17, 2014

BRUSSELS — In a deal reached last night, parliamentarians and campaigners have succeeded in making company ownership a fundamental topic. While EU ...