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

Argentina - Constructive Citizenship - Integrity & Anti-Corruption

On September 10, 2014, Frank Vogl spoke at the BCS Congress in Buenos Aires, Argentina. He asked the question: Why should things be different? And he responded - The answer rests in the fact that over the last 20 to 30 years the world has changed in revolutionary ways. Now, as never before, the train heading for open and decent government is on the tracks and gaining speed. If you do not see it coming you will be shocked and surprised. If you have the wisdom to see where it is going, then it is time that you jumped on board. The presentation concluded as follows: -

The issue for business people today goes far beyond regulatory anti-corruption compliance. To check the boxes on the compliance forms is no assurance that anything will change.

Integrity in business starts with the tone at the top of the enterprise. The example that leaders of business provide by their own activities can do more than anything else to build corporate values, to establish trust with business partners, at home and abroad.

The business case for values of integrity and anti-corruption has never been stronger and it is set to get still stronger. The rising middle-class will not sit still and see itself squeezed by old elites, or populist politicians driven only by their own greed and arrogance.

You may think that my perspective is unrealistic and that my comments do not apply to Argentina. I respond by suggesting that you take note of the march of recent history. Yes, there are many setbacks and yes in many parts of the world the scale of corruption is absolutely terrible. But, the negatives need to be seen clearly alongside positive developments.The revolutions that created the end of regimes in Tunisia, Libya, Egypt and Ukraine in recent years were all led by civil society organizers able to use social media and other tools to channel the anger of the public at large at the corruption in their governments.

The forces of anti-corruption, promoting transparency and accountability, and demanding justice, are unstoppable. The transformative changes in global finance and business, in media technology and civil society organization all come together to build a compelling case for constructive citizenship.

please read the full speech Frank Vogl address to BCS Argentina September 10 2014

Democracy, Security, Human Rights & Poverty – The Challenges of Global Corruption

Frank Vogl introduces his new book: Waging War on Corruption

Address to the Foreign Policy Association, New York.

Julia Vogl - from the series "Middle of Everywhere"

The landscape of corruption is a dismal one and so it may surprise you that my new book asserts that there are now grounds for cautious optimism that improvements are possible in many countries. I believe there are solid reasons to expect major improvements in transparency and accountability in government. Too often we see politicians, civil servants and members of the military serving themselves first, rather than the public. This is about to change. Corrupt officials have ever fewer places to hide.  

 At long last, we may be at a tipping point where the sheer force of mass public pressure in many nations forces profound governance changes. Above all this is because of the skills and the courage of remarkable people who are leading an international anti-corruption movement of unprecedented scale and force. They deserve to be honored. Their work deserves far greater recognition.

 When I had completed the draft of my book I e-mailed my friend José Ugaz in Peru to ask him to review the section on Peru and, if he liked the book to endorse it. José, who had been one of the chief prosecutors of former – and now jailed - President Fujimori, responded immediately that he would be delighted to help, but first he was distracted right then and there - a bomb had just been found under his car.

I asked my friend Elena Panfilova in Moscow, who runs Transparency International there, to review key parts of the book and endorse it if she liked. She immediately said she would, but Elena is constantly battling crises in a nation where people like here are facing mounting threats and restrictions.

I sat down with Elena once to talk about her life and her work and she recalled that she had been to the shopping mall to buy jeans for her sons and had confronted the government’s thugs who had been following her all day and told them to leave her alone. She had gone to her office and furiously typed a letter of protest on her computer to the Minister of the Interior, but she did not send it. Two days later an official from the ministry called her and said he had heard that she had sent a letter of complained. Elena never hits the send button when she writes to the government – she knows they are permanently hacking into her computer.

Across the world there are people like José and Elena who are leading the charge against corruption – against politicians and public officials who break the public’s trust and abuse their offices for their personal gain.

Why do so many brilliant and dynamic people risk their lives for this cause? 

They are driven by a sense of what is right, by a patriotic conviction to improve life and civilization in their countries, and by the haunting awareness that corruption is never a victimless crime.

Too often it is the very poor who suffer the most. Corruption is a major cause of poverty across the world and a major cause of human rights abuse. In many instances corruption is a fundamental crime against humanity – it is inextricably linked to core issues of human rights.

Nigerian Finance Minister Ngozi Okonjo-Iweala,[1] who served with distinction at the World Bank, once told the story of Rose, a twenty-one year-old university student in Nigeria: “Rose, from a poor rural family, could not purchase the series of class notes sold by her lecturer to students as part of the reading material for her class. The lecturer, who used these moneys to supplement his income, noticed that Rose was not purchasing the notes and penalized her through low grades for her work. When she explained she couldn’t pay she was asked to make up with other favors, which she refused. The failing grade she was given was instrumental in her withdrawal from the university, which put an end to her higher education. An individual and an entire family lost their hope and pathway to escape poverty. When I followed up on this story, I found that it was by no means an isolated case. It was part of a systemic rot that had befallen what had once been a very good tertiary education system in Nigeria.”

Every time an official steals from the public purse, then someone suffers. Every time an official acts as a villain, then there is a victim. There are tens of millions of young people like Rose.  There can be no higher calling than to strive to assist people like Rose.

In this regard I am delighted that in our audience this evening is Anabel Cruz from Uruguay, the Chair of the Board of Directors of The Partnership for Transparency Fund (www.PTFund.org), which is working every day to promote citizen action against corruption and help people like Rose. Thanks to Anabel and her and my colleagues inn PTF, scores of civil society groups in the world’s poorest countries have obtained small grants to pursue specific projects that have improved prospects precisely for people like Rose. PTF demonstrates that fighting corruption can yield humanitarian gains.

Corruption is a constant threat to the vitality of democracy, to the effective workings of the free enterprise system and to our security. Corruption is universal.

 Many Americans felt that the $6 billion dollars spent on last year’s elections contained within it the smell of something decidedly wrong. Senior politicians, from New York State, Illinois and many other parts of our country have been investigated and found guilty of corruption. When we look across the world, therefore, we must be humble.

Tonight, I want to first of all provide you with a sense of just how much progress has been made in waging war on corruption and then I want to highlight just a few of the crucial challenges that demand greater attention by all who seek to build a better world.

My book is dedicated to the remarkable people who created and who work today for Transparency International (www.transparency.org) and for the Partnership for Transparency Fund. Their achievements and their determination is worthy of your support.

In 1990, I met with an old friend from the World Bank, Peter Eigen, who was at the time the Bank’s Kenya-based director for eastern Africa.  He was distraught that so much foreign aid funding that should alleviate poverty, was just enriching corrupt elites – funds that should be used to building sanitation systems, hospitals and schools, was building personal bank accounts in Switzerland for crooked government leaders.

Peter spoke to a range of friends and in early 1993 – yes exactly 20 years ago – a few of us established Transparency International with headquarters in Berlin, Germany. We elected Peter the chairman and my friend Kamal Hosain of Bangladesh and I were the first vice chairmen. We had no cash, no staff and no offices.

The Economist magazine ran a cartoon of Don Quixote and Sancho Panza tilting at windmills.  We would tell people about our idea and they would politely say how nice and implied that we were idealistic, hopeless dreamers.  I have been a volunteer for TI ever since – it has been my night job, my weekend job and often much more.

TI’s focus has been on every aspect of advocacy, but we soon realized that we needed an organization to explicitly assist civil society organizations in poor countries with specific anti-corruption projects they may have to relieve the huge burden of corrupt practices from the backs of the poor. So in the late 1990s, a few of us established the Partnership for Transparency Fund as a U.S. 501c3 organization, based in Washington DC and since then it has funded more than 200 projects that have improved the lives of hundreds of thousands of people.

[1] Ngozi Okonjo-Iweala, lecture in June 2007 in Washington DC. 

Download
Foreign Policy Association – New York City – March 7, 2013
“Democracy, Security, Human Rights & Poverty – The Challenges of Global Corruption

Discussing international corruption on Czech national television

http://www.ceskatelevize.cz/porady/1096898594-udalosti-komentare/video/

World Bank Presentation – Corruption

A discussion at the World Bank on corruption, the World Bank and civil society. Frank Vogl calls on the Bank to “scale-up” its engagement with civil society and notes that the rising tide of mass public engagement against corruption in rising numbers of countries is “the present and the future” that the Bank should recognize fully and partner with.  Please read the presentation and send your comments. 

Download
Lecture Transcript
Video

Interview for L'Eco Journal, Tunisia (in French)