Theft of state assets: Will the G20 act?
Wednesday, April 2, 2014 at 2:08AM
Shruti Shah in Angola, Chad, EU's Anti-Money Laundering Directive, Equatorial Guinea, G20 Anti-Corruption Action Plan, Nigeria, Star Network, Transparency International's Corruption Perception Index, Ukraine, United Nations Human Development Index, Viktor Yanukovych

As the G20 Anti-Corruption Working Group meets in 2014 under the chairmanship of Australia, it is important that the countries make progress on their commitments detailed in the 2013-2014 G20 Anti-Corruption Action Plan. 

In the Action plan, the G20 countries have committed among other things, to work on transparency of anonymous corporations, facilitating asset recovery, and combating corruption in specific sectors such as extractives. All of these are important issues and have been in the news recently.

The news stories emerging from Ukraine show that people are still coming to grips with the scale of corruption in Ukraine. Ukraine's new prime minister has said that $37 billion are missing from state coffers. European countries like Switzerland, Austria, and Liechtenstein moved swiftly to freeze assets connected to the corrupt regime. 

The sobering reality, however, is that recovering stolen assets is a slow and cumbersome process, and very few of the assets stolen by kleptocrats actually make it back to the country. According to the Star Network, developing countries lose between $20 billion and $40 billion each year to bribery, embezzlement, and other corrupt practices.

Over the past 15 years, only $5 billion has been recovered and returned.

While moves to freeze assets of kleptocrats are certainly useful to ensure that corrupt leaders do not continue to enjoy their wealth, it is essential that G20 countries move with all speed to prevent asset flight from occurring in the first place.   

One way to do that would be to close loopholes that allow companies to be formed without disclosing the beneficial owner. The misuse of shell companies to aid and abet corruption is not new and we have discussed it in our post last year.

Ukraine's investigators discovered documents reveal that the previous regime's leaders were frequent users of shell companies. In fact, the ostentatious private residence of the toppled president, Yanukovych, seen as a symbol of the corrupt regime, was partly owned by a British shell company. Addressing the issue of anonymous shell companies may be one of the most important challenges that the G20 needs to tackle in 2014. 

The European Parliament's recent vote in favor of requiring public registries of beneficial ownership information for companies incorporated in the EU -- as part of its revisions to the EU's Anti-Money Laundering Directive -- is a welcome one.

More urgent progress is needed both in the United States, which still lacks legislation to tackle this issue, and by the G20, however. The loopholes that permitted the asset flight seen in Ukraine are not new nor are they unknown to G20 countries. Absent action, the question becomes which country will suffer a similar fate next.

The other big corruption story making the airways is Nigeria's corrupt and opaque oil industry. Nigerian President Goodluck Jonathan ousted the country's central bank governor after the governor blew the whistle on Nigeria's National Petrol Corporation, alleging that $20 billion in revenue was missing from the country’s treasury. 

Allegations related to Nigeria's oil industry are not new. In 2013, Nigeria's EITI disclosures uncovered huge loopholes and discrepancies between what the government received and what they should have received. Nigeria is Africa's largest oil producer and its massive oil revenues should help reduce poverty and improve human development goals. 

Nigeria's story is similar to other resource rich countries in Africa like Chad, Angola, Equatorial Guinea -- countries that are resource risk but rank poorly on TI's Corruption Perception Index. They also score poorly on the health and education indicators in the United Nations Human Development Index, indicating that the benefit from the resource revenue does not reach large sections of their populations.

Transparency both by companies and governments will benefit countries and their populations. It is important that G20 countries set a global standard in the natural resource sector by requiring enhanced disclosure through country-by-country and project-by-project reporting on payments that companies active in the extractive industry make to governments.  

Governments too should commit to budget and revenue transparency as well as competitive and transparent bidding processes.

To encourage the G20 to make progress on these issues by the November Summit, we and other civil society organizations have provided prioritized recommendations to the G20 Anti-Corruption Working available here.

We certainly hope that the G20 countries pay serious attention to the lessons from Ukraine and Nigeria and take prompt and meaningful actions.

________

Shruti J. Shah is a contributing editor of the FCPA Blog. She's a Senior Policy Director at Transparency International-USA, responsible for the promotion of TI-USA's anti-corruption law and regulation policy agenda. She can be contacted here.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
See website for complete article licensing information.