Fighting “Dirty Money” and Illicit Financial Flows to Reduce Poverty

Synopsis

Financial integrity and good governance are essential aspects of the World Bank Group’s role in assisting the economic development of developing countries. The World Bank’s effort to combat corruption and illicit financial flows is the focus of its Stolen Asset Recovery (StAR) Initiative and its Financial Market Integrity (FMI) teams. StAR and FMI have intensified their activities to help developing countries regain their legitimate assets. An estimated US$20 billion to $40 billion is stolen from developing countries each year, according to reliable estimates, and the theft of those resources undermines economic growth and denies public services to those who need them most. By helping countries establish systems to obtain information on the source, destination and ultimate beneficiary of illicit financial flows, the Bank Group supports the fight against corruption. The issue of asset recovery has gained further prominence with the initial backing by the G8 leaders, in 2011, of an action plan to address the concerns of Arab countries in transition. Further support for the plan was offered by the G8 under its U.S. presidency in 2012 and its U.K. presidency in 2013. In 2013, StAR pursued at least 37 asset-recovery cases, arranged almost 200 bilateral meetings, helped reactivate 11 mutual legal assistance (MLA) requests, and helped complete eight MLAs. As a result of StAR’s action, $28.8 million was repatriated from Lebanon to Tunisia, and a further $58 million in physical assets (including aircraft and boats) in France, Italy, Spain and Switzerland were returned to Tunisia.

The StAR initiative, which was established in 2007, is a partnership between the Bank Group and the United Nations Office on Drugs and Crime. The unit works with client countries as well as with donors to improve the legal framework for asset retrieval, and it provides training, guidance and practical assistance.

The Financial Market Integrity Unit, which was established in 2001, provides client countries along with World Bank Group staff with tools for increasing transparency and for going after “dirty money.” Its aim is to strengthen the financial soundness, safety and integrity of the financial system.

Challenge

Addressing financial crime is challenging, particularly when it involves multiple jurisdictions spread across different continents. Anti-money-laundering efforts follow financial trails to pursue criminals who are constantly looking for new ways to evade justice. There have been some positive recent developments for those who are pursuing such criminals. Anti-money-laundering initiatives increasingly allow for the targeting of those who aid and abet criminals  and have eased international cooperation toward the prosecution of financial crimes. Initially driven by the G7 and conceived as an initiative by developed countries, these efforts have become more globally united within the last decade, particularly given the growth of the Financial Action Task Force (FATF) – an intergovernmental organization that promotes action to fight money laundering. More than 180 jurisdictions are committed to following the FATF’s guidelines. In addition, the World Bank Group has promoted a number of initiatives to address the challenges involved in illicit financial flows by looking at the circumstances of individual countries that might, for example, have cash-based economies, while also ensuring that the fight against corruption addresses the broader issues of financial inclusion and financial integrity.

Approach

The World Bank Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) program was introduced in 2001. It is a mandatory element of the Financial Sector Assessment Program (FSAP). The approach that the World Bank has undertaken reflects the belief that the integrity of a country’s financial system is critical to maintaining its stability and advancing its development. As a result, the work conducted by StAR and FMI is now fully embedded within Bank’s Governance and Anti-Corruption agenda. As governments around the world improve governance standards and tackle corruption, they are seeking support in undertaking reform and measuring the impact of their efforts. Both StAR and FMI share knowledge and resources to help developing countries use their capabilities to fight corruption. Both StAR and FMI use a combination of instruments including diagnostic work, technical assistance, policy development and knowledge dissemination. Technical assistance, through the training of key officials within developing countries, has proven very effective in advancing StAR’s and FMI’s agendas. Both bodies also help client countries establish effective legal and institutional frameworks that are tailored to the specific circumstances of a given jurisdiction, and they build capacity so that those tools can be effectively used.

Results

The results for FMI and StAR differ according to their various delivery mechanisms. Policy and advocacy work is aimed at influencing international bodies such as the FATF, as well as regulations within financial centers and elsewhere. The objective of advisory and technical assistance is to help client countries set up and implement effective AML/CFT and asset-recovery regimes. Results include the following:

• Technical and organizational support by StAR in the initial launch and implementation of the Arab Forum on Asset Recovery (AFAR) in 2012, and follow-up events in 2013 that included special sessions on aspects of the asset-recovery process and an international gathering in Morocco for AFAR II in October2013. Additional follow-up activities and contacts, with officials in the Arab World and the world’s major financial centers to advance capability for asset recovery and specific cases.
• Cooperation with the G20, which led to its support for StAR initiatives on asset recovery, financial disclosure and the proceeds of corruption, including fresh commitments by the G20 Anti-Corruption Working Group in 2013.
• International partnerships to promote and assist with asset recovery, including efforts of the StAR/INTERPOL Global Focal Points Initiative, cooperation with the Organization for Economic Cooperation and Development (OECD) and FATF, and collaboration with regional practitioner networks in Africa, Europe and Latin America.
• Financial Intelligence Units have been established in more than 130 countries. They have helped promote AML/CFT in many of those jurisdictions. Greater efforts have been undertaken, in particular, in the Middle East and North Africa (MENA) region and in sub-Saharan Africa.  
• Since 2007, at least 81 missions for assistance have been undertaken in fragile and post-conflict jurisdictions. In addition, more than 40 missions have been undertaken in areas that are close to fragile and conflict situations. Notably, the percentage of activities carried out by FMI in fragile states rose from 1.5 percent in 2007 to 36.8 percent in 2012.
• Since 2007, more than 400 technical assistance events have been undertaken by Financial Market Integrity, including scoping missions, workshops, desk reviews and other on-site knowledge-sharing activities.
• From 2007 to 2013, more than 6,000 people have attended Financial Market Integrity training activities in such areas as risk assessment and law enforcement.
• From 2011 to 2013, StAR increased general capacity-building and advisory activities to 28 jurisdictions in Europe, Africa, the Arab world, Asia and Latin America.
• From 2011 to 2013, StAR activities included training for 1,500 practitioners in asset-recovery procedures and processes and 35 practitioners trained in case management for asset recovery. In addition, 62 were trained as trainers.
• In helping advance specific capacity requirements, StAR trained 230 practitioners involved in cases from 2011to 2013. It also trained 20 practitioners in case assessment and established two mentorships to assist in continuing activities.
• In 2013, StAR helped start at least 37 asset-recovery cases, arranging almost 200 bilateral meetings, helping reactivate 11 mutual legal assistance (MLA) requests, and helping complete eight MLAs. As a result of StAR’s assistance, $28.8 million was repatriated from Lebanon to Tunisia and a further US$58 million in physical assets (including aircraft and boats) in France, Italy, Spain and Switzerland were returned to Tunisia.
• StAR has also supported the work of regional practitioner networks engaged in asset recovery and confiscation including: CARIN (the Camden Asset Recovery Information Network) in Europe, Asset Recovery Inter-Agency Network (ARINSA) in Southern Africa and Research Review and Advisory Group (RRAG) in Latin America. StAR is also advising on the creation of similar networks in East Africa and in the Asia Pacific region, and is coordinating with the UNODC of the establishment of a similar network in West Africa.
• A major StAR study, “Left Out of the Bargain: Settlements in Foreign Bribery Cases and Implications for Asset Recovery,” was published in November 2013, providing the first-ever comprehensive analysis of settlement practices by both civil and common-law countries in bribery cases. That study was a accompanied by the creation of an online database detailing 395 foreign bribery cases around the world.
• There has also been an increase in the number of knowledge products published and disseminated, either in hard copy or downloaded from the Internet. New translations in 2013 included the “Asset Recovery Handbook” into Arabic, Korean and Spanish.

Bank Contribution

Both StAR and FMI are advisory units providing strategic counsel to clients. Some lending has, in the past, incorporated AML/CFT-related components – either in the context of Development Policy Operations or Investment Operations. There are also some examples of Technical Assistance loans that included AML/CFT components. Such lending operations were then led by the respective Regions, with FMI providing technical support.

The advisory services described above include:

1) technical assistance – through workshops, mentorships, hands-on trainings and advisory services supporting countries in developing effective laws, regulations and institutional frameworks; assessing the risk of money laundering and the financing of terrorism on their economies and financial systems; training financial-sector supervisors and investigators, prosecutors, or judges; and designing and implementing effective asset-disclosure systems for public officials.

2) policy development – through collaboration and research, contributing to international debates with a unique perspective that links anti-money-laundering efforts with governance and anti-corruption, financial inclusion, ease of doing business, taxation, stolen-asset recovery, asset disclosure, environmental crime, and other development issues. 

3) diagnostic evaluations – through assessments of countries’ AML-CFT regimes to diagnose effectiveness and areas of potential risk, as stand-alone diagnostics or in the context of the Financial Sector Assessment Program (FSAP).

StAR’s interventions have evolved from a strong focus on policy and advocacy work to a rebalancing toward assistance to client countries on asset recovery, putting a premium on hands-on capacity-building for recovering stolen assets that are stashed abroad. Overall, the financial resources allocated to these advisory services range between US$5 million and US$7 million per year and have been financed by a mix of Bank and Trust Funds.

Partners

In order to achieve meaningful results, both StAR and FMI work with partners in recipient and donor countries, as well as with relevant multilateral institutions and civil society organizations. The StAR Initiative is a joint partnership between the World Bank Group and the United Nations Office on Drugs and Crime, ensuring that all activities are conducted under the umbrella of the UN Convention against Corruption (UNCAC) – specifically Chapter V on asset recovery. Beyond this funding partnership, StAR is engaging other partners – international organizations (e.g., United Nations Development Programme (UNDP), OECD, FATF and INTERPOL), financial centers (e.g., G8 and G20 members, the United Kingdom, the United States, Switzerland and others), countries affected by corrupt activities and civil society organizations (e.g. Transparency International and Global Witness). FMI has also worked with a range of partners since the start of the AML/CFT program. Because of the FSAP umbrella, the International Monetary Fund is a critical partner, in terms of both policy and technical assistance. FMI is also deeply engaged with the Financial Action Task Force (FATF) and its regional bodies. Other partners include the United Nations, the Organization for Economic Cooperation and Development, the Organization for Security and Co-operation in Europe, the Egmont Group of Financial Intelligence Units, and the Commonwealth Secretariat. FMI also works with several bilateral partners – either in the context of their support and contribution to the AML/CFT program or through coordinated and jointly delivered trainings. 

Moving Forward

FMI provides client countries and World Bank staff with tools that increase transparency and go after “dirty money,” with the aim of strengthening the financial soundness, safety and integrity of financial systems. Our AML/CFT and asset-disclosure tools offer innovative ways to fight crime and address development issues involving governance and anti-corruption priorities, financial inclusion, the ease of doing business, stolen asset recovery and illicit financial flows. The training and capacity-building provided by FMI helps sustain national-level efforts to strengthen the governance and anti-corruption agenda.

The World Bank is the only multilateral technical assistance provider on illicit financial flows that has a specific focus on developing countries. It is also the lone provider with the expertise and skills to cover the entire range of issues at stake in AML/CFT – including laws and regulations as well as institutional strengthening and capacity-building in the criminal justice sector. There is also a growing understanding by the G8 of the importance of action to recover stolen assets and to combat illicit financial flows. During the upcoming U.S. presidency of the G8, we will continue to provide advice and technical assistance to client countries, as well as the World Bank.

Beneficiaries

Many countries and jurisdictions have benefited from FMI and StAR assistance. A good example of the value of their services is provided by the experience of Bolivia. The most recent phase of StAR’s involvement with that country began in 2012, following  work dating from 2009. StAR was active in helping the authorities in La Paz establish a National Inter-Agency Working Group on Asset Recovery. In July and October 2013, a StAR team carried out two workshops for 40 officials focusing on international cooperation in criminal matters. The attendees identified a range of follow-up priorities, including high-level asset-recovery cases that they have continued to develop.  A number of additional asset-recovery cases were also initiated by the Bolivian government. In one prominent case, StAR was involved in helping the Bolivian authorities in freezing a suspect account. The Bolivian government has requested further targeted case-specific assistance in the future. In addition, StAR has been involved in helping the Bolivian authorities establish an asset-disclosure regime.