G20 Background Policy Brief

March 2013

Anti-corruption and Transparency

For more information, please contact: John Ruthrauff Director, International Advocacy InterAction jruthrauff@interaction.org 1-202-552-6523 Sue Pleming Senior Director, Communications InterAction spleming@interaction.org 1-202-552-6561 Comments and questions on specific recommendations should be addressed to: Shruti Shah Senior Policy Director Transparency International-USA sshah@transparency.org 1-202-589-1616

The U.S. G8/G20 Advocacy Alliance (Alliance) welcomes the G20s continued focus on global corruption and its commitment to closing the implementation and enforcement gap. The G20 Anti-Corruption Action Plan for 2013-2014 contains significant anticorruption commitments; the United States needs to press countries to fully and rapidly implement the plan.

Summary of Recommendations
1. Implement and effectively enforce international anti-corruption conventions, including the UN Convention Against Corruption and the OECD Anti-Bribery Convention. 2. Implement effective anti-money laundering actions and continue to support asset recovery initiatives. 3. Promote integrity, transparency, accountability and prevention of corruption in the public sector.

Detailed Recommendations
1. Implement and effectively enforce international anti-corruption conventions, including the UN Convention Against Corruption (UNCAC) and the OECD Anti-Bribery Convention (OECD Convention).
The World Bank estimates that corruption costs US $1 trillion each year , and bribery by 2 public officials in developing countries totals as much as US $40 billion each year . Furthermore, bribery undermines economic growth, diverts development assistance, and subverts environmental, health and safety controls. It also threatens political stability and national security. In their 2013-2014 Anti-Corruption Action Plan, G20 leaders reiterated their commitment to UNCAC and to tackling foreign bribery. United Nations Convention Against Corruption (UNCAC) The United Nations Convention against Corruption (UNCAC) is the only legally binding universal anti-corruption instrument. The conventions far reaching approach makes it a unique tool for developing a comprehensive response to a global problem. UNCAC covers five main areas: prevention, criminalization and law enforcement measures, international cooperation, asset recovery, and technical assistance and information exchange. UNCAC also covers many different forms of corruption, such as trading in influence, abuse of power, and various acts of private sector corruption. Two G20 members, Germany and Japan, have yet to ratify UNCAC. We urge them to
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ratify the Convention by the end of 2013. Furthermore, G20 Countries should actively apply and enforce the relevant national laws implementing UNCAC. Additionally, they should support increased transparency and support participation of civil society and other stakeholders in the UNCAC review process. OECD Anti-Bribery Convention (OECD Convention) Consistent and vigorous enforcement of foreign bribery laws is necessary to effectively reduce foreign bribery in international business and development.G20 members China, India, Indonesia and Saudi Arabia should become parties to the OECD Anti-Bribery Convention and its peer review process. All G20 countries should criminalize foreign bribery. For the convention to be a sufficient deterrent against corruption there needs to be active enforcement and sanctions against delinquent companies and individuals. Eleven G20 countries are now members of the OECD Convention. However, according to the 2012 Transparency International progress report on the enforcement of the 3 OECD Anti-Bribery Convention, only four G20 countries are actively enforcing the Convention . All G20 countries not actively enforcing the Convention should increase their enforcement efforts. It is also important that Russia fully implements the Convention and starts enforcing it.

2. Implement effective anti-money laundering actions and continue to support asset recovery initiatives.
Beneficial Ownership Transparency In the U.S. and other jurisdictions around the world, companies can be formed without disclosing ownership. These anonymous companies are increasingly being misused by criminals and kleptocrats to conceal their identities while they benefit from the assets derived from their illegal activities. Once these anonymous companies are formed they easily enter the global financial system to begin the process of laundering the criminal proceeds. The lack of transparency of beneficial ownership of these companies makes it too easy to hide the proceeds of corrupt acts. It is estimated that $20 billion to $40 billion are illegally removed from developing countries annually roughly equivalent to the combined annual GDP of the worlds 12 poorest countries, where more than 240 mil4 lion people live . Furthermore, these stolen assets are often hidden in the financial centers of developed coun5 tries . The true cost of corruption far exceeds the value of these stolen assets siphoning away funds that could have been used to further critical development goals. Therefore, G20 countries should collect beneficial ownership information of companies and make it available to law enforcement agencies. Anti-Money Laundering actions G20 countries need to take concrete measures to prevent corrupt officials from accessing global financial systems and laundering the proceeds of corruption. This involves ensuring that the revised Financial Action Task Force (FATF) recommendations are effectively enforced and there is increased enforcement of Know-Your-Customer policies. Too many of the worlds largest banks have been subject to large fines related to anti-money laundering deficiencies. This points to the fact that compliance among large financial institutions is weak and anti-money laundering compliance needs to be strengthened. We note that the U.S. government has decided to review U.S. anti-money

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laundering rules with a view to correcting gaps, redundancies, or inefficiencies. Other countries which have not already undertaken such a review should consider conducting a similar exercise. Furthermore, it is important that the G20 working group on Anti-Corruption collaborates with G20 finance ministers on anti-corruption and governance issues in the financial sector, which would include strengthened rules on revolving doors and conflicts of interest for individuals who move between public office and the private sector, and vice versa. Asset Recovery However, asset recovery efforts have had only minimal success to date. The Philippines provides an illustrative example: Former President Marcos is estimated to have siphoned off between $5 billion and $10 billion by the time he was forced out in 1986. The asset recovery efforts of the Philippines extended over 18 years before achieving some success. The largest single cash remittance from looted Marcos funds was made in February 2004, when $624 million was taken out of escrow and remitted to the Philippines Treasury. All receipts from assets recovered went through an off-budget fund called the Agrarian Reform Fund, to be spent on agrarian reform programs. In October 2006, the Commission on Audit noted that a significant portion of the recovered assets were used to finance excessive, unnecessary expenses unlikely to benefit the agrarian reform beneficiaries. Monies were also found to have been used to procure items at inflated prices, while many spending items were not among the approved pri6 ority projects . To facilitate asset recovery processes we welcome the G20 commitment to continue their engagement with the UNODC and World Bank Stolen Asset Recovery Initiative (StAR) and facilitate mutual legal assistance proce7 dures. G20 countries should adopt the recommendations from StARs Barriers to Asset Recovery Report . In their 2013-2014 action plan, G20 leaders committed to develop and make them publicly available national guides on international cooperation on asset recovery. We encourage G20 leaders to follow the model set by G8 countries on this issue.

3. Promote integrity, transparency, accountability and prevention of corruption in the public sector.
Transparent management of public finances, which permits public oversight, is necessary to improve the likelihood that limited resources are used as intended. All G20 countries should establish transparent and accountable public finance management systems, including for budgeting and procurement. They should adopt and urge all other countries to enact and implement standards for procurement and public financial management consistent with Article 9 of UNCAC. Article 9 of UNCAC requires, among other things, the disclosure and declaration of any existing interest in particu8 lar public procurement . It recommends that each party make all information relating to procurement public and that all the requirements for awarding a contract be clearly established in advance and published. The selection criteria must be objective and predetermined, and a system of domestic review and appeal must be available if a conflict arises. Article 9 also lays down principles to promote transparency and accountability in the management of public finances, which include a system of accounting and auditing standards and related oversight, as well as effective and efficient systems of risk management and internal control.

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The G20 countries should urgently implement the principles for asset disclosure by public officials agreed on at the 9 Los Cabos summit in 2012. The High-Level Principles on Asset Disclosure by Public Officials include requirements that the disclosure systems be as comprehensive as necessary to combat corruption. They also state that information should be made as widely available as possible within the government, as well as to the general public. Finally, they state that disclosure should be required of those in senior leadership positions and/or in positions that have a greater potential for corruption. To further ensure accountability, G20 countries should not allow elected public officials to enjoy immunity when charged with corruption offenses. An atmosphere of impunity may enable those guilty of corruption escape punishment. This impunity may result from breaking existing laws or exploiting legal loopholes, such as weak regulations, statutes of limitations, and immunities. In carrying out all of these recommendations, the G20 Working Group on corruption should operate with the highest degree of transparency, make publicly accessible draft recommendations, and provide opportunities for meaningful civil society participation.

While the statement is not designed to be a consensus position of the contributors, it has been endorsed by InterActions leadership. The recommendations were developed by a Policy Team of the G8/G20 Advocacy Alliance, whose members are listed below. ActionAid USA Global Financial Integrity Heinrich Boell Foundation-North America InterAction ONE Oxfam America Transparency International-USA

End Notes
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The Cost of Corruption World Bank Institute April 2004 Barriers to Asset Recovery World Bank 2011 Exporting Corruption? Country enforcement of the OECD Anti-Bribery Convention, progress report, 2012. 4 Stolen asset Recovery: Politically Expose Persons, A policy Paper on Strengthening Preventive, Theodore S. Greenberg, Larissa Grey, Delphine Schantz, Michael Latham, Carolin Gardner, 2009 5 Stolen asset Recovery (StAR) Initiative: Challenges, Opportunities, and Action Plan, United Nations Office on Drug and Crime (UNODC) and the World Bank, June 2007 6 Stolen Asset Recovery (StAR) Initiative: Challenges, Opportunities, and Action Plan, United Nations Office on Drug and Crime (UNODC) and the World Bank, June 2007 7 World Bank and UNODC StAR initiative, An analysis of the key barriers and recommendations for action 2011 http://star.worldbank.org/star/publication/barriers-asset-recovery 8 Article 9 UNCAC 9 High-Level Principles on asset disclosure by public officials. www.g20.org/load/780986631