Global Corruption Crises: Context, Solutions - focus on Anti-Money Laundering

Frank Vogl - Speech to the Florida International Bankers Association, 15th Anti-Money Laundering Compliance Conference

Miami, Florida, March 5, 2015.

Julia Vogl - from the series - Urban City Myth 2011.

 

Presentation to FIBA 2015

Kleptocrats, stealing staggering sums of cash from the people that they should serve and wielding enormous power are just one part of the multiple corruption crises gripping the world today.

These crises are contributing to global insecurity, financial and economic instability – they are challenging freedom and democracy in many countries. Moreover, corruption is a prime cause of entrenched poverty in many parts of the world. Many of you are from Latin America, or work with institutions in the region, and one facet of the crisis of corruption today is that the leaders of such important economies and democracies as Argentina, Brazil, Chile and Mexico are right now enmeshed in scandals.
 

A central argument that I will make today is that there can be no sustainable solutions to corruption and money laundering without civil society leadership. This consideration is inadequately understood by governments, development institutions, corporations including banks, and by many in academia. Transparency International, the global anti-corruption organization, is determined to increase its leadership efforts in this area. We are waging campaigns to unmask the corrupt, to say “No Impunity,” and to press hard for enforcement of anti-money laundering laws and regulations.

Rarely before have the crises of corruption been as widely reported by the media as they are today. Nevertheless, the responses by most governments and most multilateral official institutions are far from satisfactory.  Pledges are repeatedly made at the highest international official levels to combat money laundering, to unmask corrupt practices, and to call a halt to the rampant impunity that so many corrupt politicians and their cronies enjoy. But the enforcement actions on these pledges repeatedly fall short.   

A number of major banks have lost public confidence because of their failures to implement anti-money laundering regulations. The recent public disclosures about the activities at HSBC demonstrate the yawning gap between the public rhetoric of some top bankers and the practices of their institutions. It was widely reported, based on leaks to the media, that 100,000 people had accounts at the bank’s Swiss branch in 2005-2007, and that there was evidence suggesting that the bank assisted tax evaders.
 

CRISIS

For many years, I was a newspaper reporter and when it came to scandals in business and politics the order always was: “Follow the money.”  Here today our focus is anti-money laundering (AML) with particular emphasis on Latin America. Far, far too much money is fleeing the region – illicitly.

The volume of illicit financial flows from Latin America, in excess of $160 billion a year, approximately three percent of GDP, according to Global Financial Integrity GFI). This may be a conservative estimate. But, consider how absolutely crucial this is when noting that real GDP in the region was just an estimated 0.4% last year and may be a mere 0.2% this year, according to forecasts by the Institute of International Finance.[i]

The growth years for the region from 2000 onwards created a stage for a major decline in poverty. The percentage of very poor people in Latin America fell from 42% to 25%.[i] But the region is now stagnating, the prospects for growth are bleak and the risks of increased poverty are significant. The economy of the largest country in the region, Brazil, is, as The Economist magazine reported last week, “in its worst mess since the early 1990s.”[ii]

Just consider how much brighter prospects would be for tens of millions of Latin Americans if instead of vast sums of cash flowing illicitly abroad, these sums were instead invested at home.

Illicit financial flows represent a criminal tax on the citizens of scores of countries. They are the product of organized crime.  They result from many transactions pursued by executives at business corporations who personally gain from illegal activities.  Most importantly, the illicit outflows of cash from many countries are the means by which politicians, top civil servants and their cronies, transform the funds gained from abusing their public offices into foreign investments.   

$1 trillion -- Business and Money Laundering

Illicit financial flows – estimated to be close to one trillion dollars, according to Global Financial Integrity (GFI)[iii], are helped on their way by professional launderers into shell companies registered in countries where the rule is “no questions asked.” The cash then flows into the world’s most attractive investment centers, from Dubai to New York and Miami, London, Paris, Geneva and other locations. And, from there the money travels onwards into corporate investments, fine art, expensive real estate and a host of valuable assets that can be bought and sold in major national and international markets.

The participants at this FIBA conference are deluged with offers by all manner of consultants to acquire new, ever-more sophisticated AML compliance tools and technologies. Businesses are seeing their expenses rise and rise as they strive to ensure sound AML compliance. It would be an enormous benefit to everyone if these costs could be sharply cut. The answer does not rest in new compliance technologies, but in smashing the money-laundering rackets themselves and curbing corruption and this is the prime focus of my presentation today.

DOWNLOAD - the full presentation - FIBA March 2015. 

[i] Research by Professor Nora Lustig, Tulane University, presented at the Center for Global Development on February 26, 2015. http://www.cgdev.org/media/declining-inequality-latin-america-presentation

[ii] The Economist, editorial February 28, 2015 – “Latin America’s erstwhile star is in its worst mess since the early 1990s.”

[iii] Global Financial Integrity, December 2014 report on illicit financial flows. http://www.gfintegrity.org/report/2014-global-report-illicit-financial-flows-from-developing-countries-2003-2012/

[i] Institute of International Finance, February 2015, Global Economic Monitor - https://www.iif.com/publication/global-economic-monitor/february-2015-global-economic-monitor