G8 Background Policy Brief

January 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 G8s continued focus on combating global corruption and commends its commitment to the Deauville Partnership with Arab Countries in Transition, which will provide increased support to transition governments in the Middle East and North Africa on anti-corruption issues. The G20 Seoul Anti-Corruption Action Plan represented a remarkable international consensus to combat corruption in key areas and it is vital that countries fully implement the plan. Given G8 members considerable political and economic clout, they should support and bolster the G20s efforts in this regard.

Summary of Recommendations
1. Implement and enforce international anti-corruption conventions, including the UN Convention Against Corruption (UNCAC) and the OECD Anti-Bribery Convention (OECD Convention). 2. Implement effective anti-money laundering actions and continue to support asset recovery initiatives. 3. Expand global transparency standards in natural resource and land management.

Detailed Recommendations
1. Implement and 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 public officials in developing countries totals as much as US $40 billion each year . Bribery undermines economic growth, diverts development assistance, and subverts environmental, health and safety controls; it threatens political stability and national security. United Nations Convention Against Corruption (UNCAC) The United Nations Convention against Corruption is the only legally binding universal anti-corruption instrument. The Convention's 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. It also addresses many different forms of corruption, such as trading in influence, abuse of
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power, and various acts of corruption in the private sector . Despite the fact that their 2006 action plan states we support the global ratification and implementation of the UN Convention Against Corruption, two G8 countries Germany and Japan have not yet ratified UNCAC. These states should ratify the convention by the end of 2013 and participate in the peer 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 to support development. Effective enforcement of the OECD Convention is important for achieving this goal. With the accession of Russia in 2012, all G8 countries are now members of the OECD Convention. However, according to Transparency Internationals 2012 Progress Report on the Enforcement of the OECD Anti-Bribery Con5 vention , only four G8 countries are actively enforcing the Convention. For the Convention to be a sufficient deterrent against corruption there needs to be active enforcement and sanctions against delinquent companies and individuals. It is also important that Canada, France, and Japan increase their enforcement efforts and that Russia fully implements and enforces the Convention as soon as possible. Finally, the G8 should use its influence to promote anti-foreign bribery and anti-corruption initiatives in other international fora.
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2. Implement effective anti-money laundering actions and continue to support asset recovery initiatives.
Beneficial Ownership Transparency In the U.S., and many 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 benefiting 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 proceeds of their criminal activities. 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 is illegally removed from developing countries annually roughly equivalent to the annual GDP of the worlds 12 poorest countries, where more than 240 million people 6 live . These stolen assets are often hidden in the financial centers of developed countries . 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. In order to address these issues, G8 countries should collect beneficial ownership information of companies and make it available to law enforcement agencies. Anti-Money Laundering actions G8 countries need to take concrete steps to prevent corrupt officials from accessing the global financial system and laundering the proceeds of corruption. This involves ensuring that the revised Financial Action Task Force
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(FATF) recommendations are effectively enforced and that 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 anti-money laundering compliance among large financial institutions in G8 countries is weak and needs to be strengthened. The Alliance welcomes the U.S. governments decision to review U.S. antimoney laundering rules with a view to correcting gaps, redundancies, or inefficiencies, and encourages other G8 countries who have not already undertaken such a review to conduct similar exercises. Asset Recovery The G8 released an ambitious and comprehensive Asset Recovery Action Plan in 2012. The G8s recent Arab Forum on Asset Recovery and its efforts to start a collaborative process on this issue are also encouraging. Seven G8 countries have already published Asset Recovery Guides; Russia should do so as well. 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 priority projects8. To reinforce the momentum behind stolen asset recovery initiatives, the G8 should implement its Asset Recovery Action Plan and develop mechanisms to promote the transparent use of returned funds.

3. Expand global transparency standards in natural resource and land management.

An abundance of natural resources should contribute to growth and development, but all too often it incentivizes corruption and conflict. Transparency in both the public and private sectors is needed to achieve the objective of transparency and accountability in natural resource management. We encourage the G8 to promote implementation of the globally-agreed Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests toward ensuring that large-scale land acquisitions do not negatively impact local communities and the environment. The Extractive Industries Transparency Initiative (EITI) shows that transparency is beneficial to countries. The criteria that are the cornerstone of EITI policy revolve around regular publication of all material payments and revenues to a wide audience in a comprehensive way, and require the participation of civil society. U.S. law requires listed extractive companies to publish payments to governments (Dodd-Frank Act 2010, sec. 1504); equivalent EU legislation has been proposed, and member states should support it. The primary aim of these efforts is to make information available to citizens about payments made to governments, as well as revenues related to the extractive industry, through a reinforced civil society.

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All G8 countries should adopt similar provisions in their national legislation and work towards setting a global standard on natural resource transparency. This needs to include open, competitive and transparent bidding processes, as well as budget and revenue transparency. The enrichment of corrupt kleptocrats at the expense of their populations can be reduced only if individual governments do not obstruct fair competition for natural resources and globally consistent reporting requirements are implemented.

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 Global Witness InterAction Oxfam America Transparency International-USA

End Notes
1 The Costs of Corruption, The World Bank Institute. 8 April 2004. 2 Barriers to Asset Recovery, The World Bank. 2011 3 UNODC website: http://www.unodc.org/unodc/corruption/index.html 4 G8 2006 Action Plan, Fighting High Level Corruption 5 Exporting Corruption? Country enforcement of the OECD anti-bribery convention, progress report 2012 6 Stolen asset Recovery: Politically Expose Persons, A policy Paper on Strengthening Preventive, Theodore S. Greenberg, Larissa Grey, Delphine Schantz, Michael Latham, Carolin Gardner, 2009 7 Stolen asset Recovery (StAR) Initiative: Challenges, Opportunities, and Action Plan, United Nations Office on Drug and Crime (UNODC) and the World Bank, June 2007 8 Stolen Asset Recovery (StAR) Initiative: Challenges, Opportunities, and Action Plan, United Nations Office on Drug and Crime (UNODC) and the World Bank, June 2007