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No, We Shouldn’t Let Up On Anti-Money Laundering Enforcement

EJ Fagan

flikr / Will Survive

Over the past six months, various arms of the law in the United States have significantly increased their anti-money laundering enforcement actions. The centerpiece of these actions have been fines to ING, Standard Chartered, and an anticipated forthcoming action against HSBC. Other banks, and even Wal-Mart, could be targeted in the near future as well.

The banks were cited or accused of a number of blatant violations of the law, but one common strain ran through all three. All three banks were allegedly ‘stripping’ wire transactions that were related to Iran. Banks that do business in U.S. dollar accounts are required to conduct certain kinds of due diligence on those accounts, if they are linked to certain types of high-risk customers. Embedded in each wire transaction is information about the owner of the account. All three banks allegedly stripped wire transactions from Iranian clients of their information, so as not to set off any alarm bells about who their customers were.

Now, you or I may think that this kind of intentional circumvention of anti-money laundering laws and U.S. government sanctions against a rogue state would warrant action of at least a fine—if not jail time for those involved—but not everyone agrees. James Alan Jones, from Pace University, wrote this week in The Hill,

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Russia’s Tustle with USAID

Ann Hollingshead


Since the 1999 Duma election, which was widely considered free and fair, Russia has descended from a “Partly Free” society, according to Freedom House’s Freedom in the World Rankings, to “Not Free” this year. In the last six years, Russia has passed a law giving bureaucrats discretion to shut down NGOs; an assassin murdered Anna Politkovskaya, an investigative journalist who was critical of the Kremlin, in cold blood; and the government heavily manipulated the parliamentary elections to give a majority to pro-government parties.

Corruption has been an endemic part of Russia’s public and private sectors for decades. Global Financial Integrity estimates that the country loses about $50 billion in illicit financial flows per year, a number which money transferred abroad stemming from tax evasion, corruption, and trade mispricing. According to WikiLeaks, extortion is so widespread that it has “become the business of the Interior Ministry and the federal intelligence service.”  The government has transformed into an organization more closely resembling “the mafia” and the line separating government from business is so blurred it is nearly non-existent.

It was shortly after taking office in March of 2000, that Russian President Valdimir Putin—who took over office when Yeltsin resigned—began to investigate the tax affairs of Russia’s oligarchs—a class of rich businessmen whose deeply-entrenched wealth was rooted in the privatization of Russia in 1990s. Putin claimed his effort was a part of a new anticorruption campaign. In reality, Putin’s moves were an attempt to consolidate his own political power by limiting the influence of the oligarchs over state policy.

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Dictators’ Riches Are Stolen at Home, But Banked in the West

Stefanie Ostfeld

Cross-posted with permission from Freedom House.

flickr / Mitchel25J

Corrupt dictators who take bribes and loot their treasuries are rightly condemned by governments and other observers in developed countries. But the extent to which this plundering is aided by lax and weakly enforced money laundering laws in the West has too often escaped notice. It is remarkably easy for these criminals to hide their identities behind anonymous shell companies and bank secrecy in order to bring their dirty money into the United States and Europe.

Right now the U.S. Department of Justice is trying to seize proceeds from what may be one of the most egregious cases of state looting. A recent complaint details claims that Teodorin Obiang, son of the autocratic president of Equatorial Guinea, used anonymous shell companies in the United States and his home country to disguise his identity and deposit illicit money into U.S. bank accounts. It was then apparently spent on expensive property, a fleet of fast cars, and a crystal-studded glove worn by Michael Jackson.

The complaint alleges that Obiang spent more than $300 million between 2004 and 2011 to acquire assets and property around the world. In one stretch of less than three months, he allegedly bought a $30 million mansion in Malibu and a $38 million private jet. Global Witness separately uncovered a plan last year for Obiang to build the world’s second most expensive yacht. At $380 million, this would have cost approximately three times his country’s combined health and education budgets.

Obiang’s eccentric and expensive tastes aside, the real problem with his lavish spending is that it significantly exceeded his official monthly salary of $6,799 and the amount of income he claims to have earned from his business interests in Equatorial Guinea.

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Swiss Banks Will See Huge Withdrawals, But That May Not Make Much of a Difference

EJ Fagan

flickr / wallyg

Switzerland’s legendary banking secrecy is feeling the pressure. A series of tax treaties will make Swiss deposits more vulnerable to scrutiny from law enforcement. The treaties, specifically the German-Swiss one currently being negotiated, are far from perfect, but from the perspective of someone with a deposit in UBS or Credit Suisse, their cover is blown. You may think that this is something that will directly lead to historic prosecutions for epic-scale tax evasion, but that is unlikely. Instead, as Reuters reports, a significant portion of the $2 trillion deposited in Swiss banks are simply going to be withdrawn:

ZURICH - UBS expects Swiss banks to see European clients withdraw “hundreds of billions of francs” as a result of steps to stop foreigners using secret accounts to evade taxes.

Juerg Zeltner, head of UBS wealth management, reiterated an estimate he gave in May that Switzerland’s biggest bank could see outflows of 12-30 billion Swiss francs ($12.8-31.9 billion) from total European assets under management of over 300 billion.

The article does not specify where the money is likely to end up, but you can be sure that little is unlikely to be found back in its home country, ready to be taxed. In all likelihood, less-vulnerable secrecy jurisdictions like Singapore, the Cayman Islands and Mauritius will gain from Switzerland’s loss. Money that tax evaders, organized crime, and other people with less-than-legitimate reasons to seek banking secrecy will simply pack up and wire their money elsewhere.

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The Rising Price of Corn, Food Aid, and Corruption

Ann Hollingshead

flickr / Charles Haynes

Every time I ride my bike by a corn field in Oregon—full and tall—I feel a little bit thankful. I am thankful for our mild summer heat, this year and others. Thankful forOregon’s efforts to create a more sustainable food system. And particularly thankful that I live in country where record high temperatures don’t affect my ability to feed myself.

It’s not true everywhere. Record heat across the U.S. Midwest has battered corn crops, making it likely this year’s harvest will be one of the lowest in years—and sent prices soaring. As a result, consumers in the United States will have to pay more for everything from soft drinks to biofuels to beef. But the cost to U.S. citizens will be slight—a bump in food prices of no more than 3 to 4 percent. It is the world’s developing countries that will truly suffer.

As agricultural economist Michael Roberts explains, “About 2 billion people still live on $2 a day or less. Often, they must spend half or more of their income on food, the bulk coming from staple grains like corn, wheat and rice. For these people, a huge rise in grain prices is more than noticeable — it can literally break their budget.”

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Transparency International’s Frank Vogl: Technology Can Help Fight Corruption

EJ Fagan

flickr / newfilm.dk

Frank Vogl, one of the founders of Transparency International, wrote an op-ed in the Financial Times today. He is optimistic that the rise of information technology will lead to more assertive judicial systems and more accountable government. Vogl writes,

The arrest on Sunday of the Indian cartoonist Aseem Trivedi for “insulting” his country in his work, highlights the dangers of lampooning corruption, not just in India but across much of the world. Corruption is not a single event. It is perpetrated every day against citizens by crooked politicians and civil servants consumed with greed and hubris. However, as the case of Mr Trivedi shows, in the age of instant communication, it is also becoming much harder to hide.

In scores of nations, corruption is a major cause of poverty and human rights abuses and leads to justice systems that serve only the powerful and the rich. It is an affront to the proper functioning of a market economy. And it threatens our global security – the trade in illicit weapons, for example, is facilitated by bribes.

This is far from an issue exclusive to poor and developing countries. No government can claim that it does not harbour officials who abuse their office for personal gain. The more than $2bn that will probably be spent in this year’s US elections has a nasty smell to it – who can believe that so many special interest groups are pouring tens of millions of dollars into the campaign if they do not believe that they will extract major benefits if their candidates succeed?

Read the whole op-ed here.

At the 2012 Task Force Conference in Gammarth, Tunisia, one breakout panel, “Transitioning to Transparency: Harnessing Technology to Improve Access to Information and Combat Corruption”, will tackle this issue head-on. The registration deadline is fast approaching, so click here for more information.

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Please Join Us in Tunisia – The Annual Conference of the Task Force on Financial Integrity and Economic Development

EJ Fagan

The 2012 annual conference of the Task Force on Financial Integrity and Economic Development will take place at the Ramada Plaza Tunis in Gammarth, Tunisia, from October 17-18.

Registration is now open at the new Task Force Conference website. The deadline to register is September 17, so act now! Any questions should be directed at conference@financialtransparency.org.

Illicit financial outflows from developing countries – which total around $1 trillion per year – undermine the tax base in poorer countries, eroding the accountability that is essential for good governance and global stability.  Fiscal accountability is a key component of a well-functioning social contract, both of which have been absent in many countries in the Middle and North Africa (MENA) region, including Libya, Tunisia, Egypt, Yemen and Syria. MENA countries have experienced the highest average annual illicit outflows of any region: $146 billion. Establishing transparent financial systems helps secure democracy and avoids a return to authoritarian rule.

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Illicit Financial Flows Explained, [With Graphics] – All Three Parts

EJ Fagan

$1 trillion in illicit financial flows leaves the developing world every year, ten times the amount of foreign aid that flows in. This amounts to a tremendous loss for the developing world, and directly contributes to untold amounts of poverty and lost opportunity. Exactly what illicit financial flows are and how they affect the developing world can often be abstract and difficult to understand. Task Force blogger and former Global Financial Integrity economist Ann Hollingshead, using Prezi, attempted to explain these concepts in an easy-to-understand, graphical format.

Below is her three-part series, “Illicit Financial Flows, Explained [With Graphics]”

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Foreign bribes in the Middle East & North Africa – Not just a regional problem

Farid Farid

 Cross-posted with permission from Transparency International’s Space for Transparency blog. On 06 September, Transparency International released its annual report on enforcement of the OECD Anti-Bribery Convention.

A six month joint investigation published this week in British papers revealed that the country’s authorities have not been proactive in seizing key assets by the former Egyptian president Hosni Mubarak and his sons Alaa and Gamal.

The wealth amassed by the thirty year regime was aided and abetted with foreign companies paying bribes to former regime officials in exchange for tax breaks and being provided with a freer economic climate to manage their enterprises.

The political events of last year throughout the Arab world were primarily underpinned by economic concerns of endemic poverty. The tumultuous protests, which are still ongoing, sublimely exposed the skewed system of economic distribution that favoured political elites rather than their populations.

Transparency International’s soon to be publishedreport Exporting Corruption? precisely highlights the role multinational companies played in this problem.

The Arab uprisings were enthusiastically supported by European governments such as France and the United Kingdom but our report raises this question: will they make sure that their companies do not offer bribes that corrupt the institutions that are now being reformed.

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Is Paying Taxes Patriotic?

Ann Hollingshead

flickr / RambergMediaImages

In a fiery speech to the Democratic National Convention on Monday, Mayor of Newark Cory Booker bellowed: “Being asked to pay your fair share isn’t class warfare. It’s patriotism.”

It’s a sentiment that’s been often repeated on the campaign trail in the last few weeks. Vice President Joe Biden made the same suggestion in a campaign speech in New Hampshire. “Wealthy people are just as patriotic as middle-class people, as poor people, and they know they should be doing more,” said Vice President Biden. “We’re not supposed to have a system with one set of rules for the wealthy and one set of rules for everyone else.”

To think about whether or not it is indeed true that paying taxes is patriotic, I think it’s helpful to define patriotism first.

Of course, that’s no easy task. While the vast majority of Americans consider themselves patriotic—they also all have wildly differing views on what that means.

To simplify matters into what is probably an excessively vague definition, let’s say patriotism is a “love for one’s country.”

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Der Spiegel: Hundreds of Billions Flowing Illicitly Out of Greece

EJ Fagan

flickr / Aster-oid

This week, the influential German magazine Der Spiegel published a report based on research from Global Financial Integrity, which found that $261 billion in illicit money flowed out of the country from 2003-2011. The summary (in German) is available here.

Task Force Director Raymond Baker, who also directs Global Financial Integrity, commented in the article, noting that Greece’s deep recession likely contributed to the outflows, “In a recession, it will be harder for individuals and companies to get loans. This attracts illegal funds, which will close the gap.” Mr. Baker also remarked that illicit investors were likely buying up Greek real estate.

The article comes just after former Greek Prime Minister George Papandreau commented on how tax havens are helping to destroy the Greek economy in a speech last week,

Papandreou told the opening of Socialist International’s four-yearly conference that $21 trillion was hidden in tax havens around the world.

“Whether it is in developed or developing nations, it is our citizens that are being robbed,” he said, saying this “plain robbery” denied governments the capacity to invest in areas like welfare and education.

“I know this, Greece is suffering from this. Had this alone been tackled, Greece would have most likely never have needed a bailout.

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Featured Allied Organization: The Interfaith Center on Corporate Responsibility

Sarah Bracht

The Task Force has over 130 Allied Organizations. Today, we are proud to highlight the Interfaith Center on Corporate Responsibility as our newest featured organization.

Interfaith Center on Corporate Responsibility (ICCR)
New York City, USA





Through the lens of faith, ICCR works to build a more just and sustainable world by integrating social values into investor actions. Currently celebrating its 41st year, ICCR is the pioneer coalition of active shareholders who view the management of their investments as a catalyst for change. Its 300 member organizations with over $100 billion in assets under management have an enduring record of corporate engagement that has demonstrated influence on policies promoting justice and sustainability in the world. Harnessing their power as active shareowners, ICCR members promote corporate transformation from the inside by engaging and advising management towards sustainable practices that ensure long term business growth while measurably improving their environmental and social impacts. ICCR seeks a global community built on justice and sustainability through transformation of the corporate world.

You can follow ICCR on Twitter at @ICCROnline, or visit their website here.

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Latest Press Releases

New Standard Chartered Settlement Underscores Insufficiency of Fines & Monitoring in Deterring Illicit Activity at International Banks

Global Financial Integrity · August 20, 2014

WASHINGTON, DC – As New York regulators announced that British bank Standard Chartered ...

GFI Welcomes New U.S.-Africa Partnership to Combat Illicit Finance

Global Financial Integrity · August 7, 2014

WASHINGTON, DC – Global Financial Integrity (GFI) welcomed the announcement from the White House and African leaders today regarding the establishment of a ...

GFI Urges Obama, African Leaders to Prioritize Curbing Illicit Financial Flows at U.S.-Africa Summit

Christian Freymeyer · August 5, 2014

WASHINGTON, DC – As African leaders descend on Washington this week for the historic U.S.-Africa Leaders Summit, Global Financial Integrity (GFI) called ...