ANTI-CORRUPTION AND ANTI-MONEY LUNDERING EFFORTS REEXAMINED IN THE CONTEXT OF “EASY TO STEAL...

Author: Omolola Adekanye

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ANTI-CORRUPTION AND ANTI-MONEY LUNDERING EFFORTS REEXAMINED IN

THE CONTEXT OF “EASY TO STEAL EASIER TO KEEP”1

Abstract

Although corruption, money laundering and terrorism financing is more common in some

regions than others, it undoubtedly has adverse global impact. As recent national and

international security threats from designated terrorist groups and the recent financial crisis that

had cross border effects reveal, there is no national or regional exclusivity to the detriments of

corruption, money laundering and Terrorism Financing. The World Bank reports that corruption

is the major catalyst for global poverty. Moreover, it is the case that corruption that commonly

takes place in developing countries, relies on the international financial system, as the proceeds

are more often than not, laundered through the international financial system and invested in

foreign financial institutions. Thus corruption, on the grand scale is a crime that depends

significantly on the laundering process, giving the perpetrators the benefit of enjoying the

proceeds of their crime. This emphasizes the need for international cooperation in enabling the

domestic efforts against corruption and money laundering across borders. Just as corruption

weakens economic development and growth, money laundering adversely impacts the

international financial integrity. Thus the acknowledgement that corruption and illicit financial

flows threatens global financial stability and security is the basis of this paper. The general aim

of this paper is to explore the influence that repatriation of illicit funds back to corruption prone

regions in Africa can have on combatting corruption, provided this repatriation is done within

1 As captioned in an article in the Economist titled Recovering Stolen assets, making a hash of finding cash, May 11,

2013, the red tape and disorderly process of repatriation of sized assets makes it easy for money launderers to keep

stolen assets in foreign countries thus frustrating the efforts to combat the underlying crime as well as the money

laundering crime.


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the proposed strategic framework in this paper. This paper proposes that poverty and economic

under development being the underlying drivers of corruption in Africa undermines political will

and social pressure needed to actively combat corruption in these regions. Therefore it is

necessary to incorporate a systemic repatriation procedure into the existing anti-money

laundering guidelines2 that will be a source of financing for economic development and poverty

alleviation projects with a view to reducing the susceptibility to corruption in prone regions in

Africa.

Introduction

Economists and international institutions have reported extensively that corruption stifles

economic growth and contributes significantly to global poverty3. Hence the vehement campaign

against corruption which has led to the several anti-corruption codes and subsequent voluntary

conventions against corruption, and the birth of organizations such as Transparency International

to further this cause. In corruption prone regions, corruption in prevalent at petty and grand

levels. At petty levels corruption would involve an ordinary citizen having to pay a bribe for a

service that they should ordinarily be entitled to. While at the grand level, corruption is rife and it

typically involves a variety of parties ranging from multinational corporations, public official

and politicians (Politically Exposed Persons or PEPs in anti-money laundering lingo) but is by no

means restricted to developing countries or national borders. This level of corruption typically

involves money laundering where expensive luxury items or funds exchange hands for “favors”

such as the recent tumult of the Siemens case in Germany4. Following the international efforts to

2 The Financial Action Task Force 4-+ 1 Recommendations, the Guidelines issued by the Basel Committee on Banking

Supervision and the Wolfsberg Principles on Money Laundering 3 See Denis Osborne ET AL. Corruption: the enemy within, 7-16 (1998) 4 See Dougherty (2008) and Schafer & Williamson (2008)


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combat corruption and Money laundering such as the United Nations Convention on Corruption

(UNCAC) and the World Bank and IMF anti-money laundering efforts amongst others, many

countries have national laws against corruption and money laundering in some cases. Although

over a 100 developed and developing countries have ratified the UNCAC and other similar

regional frameworks to combat corruption and money laundering, there has been divergent levels

of improvement in the business culture between developing and developed countries in terms of

enforcing anti-corruption and anti-money laundering provisions. This is evident as Transparency

International reports higher indices of corruption in developing countries than in developed

countries. Also Global Financial Integrity reports much higher illicit financial flows from

developing countries than from developed countries.

This paper explores the underlying issues that may be responsible for this stagnation of African

countries in combatting corruption and money laundering despite their commitment to anti-

corruption and anti-money laundering conventions. The conclusions opined in this paper unveils

a proposed solution that aims to break the cycle of corruption, by paying attention to some of the

idiosyncrasies that this proposed solution poses. This paper will discuss the economic and

developmental disparities between African Nations and developed nations and how this impacts

the efforts to contend corruption and money laundering.

The international efforts to combat corruption and money laundering implies that every country’s

compliance with the Anti-Money Laundering /Counter Financing Terrorism international

standard plays an important role in enhancing the world’s financial system integrity, stability and

security. It is therefore apposite to have effective compliance and enforcement of Anti-Money


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Laundering/Counter Financing Terrorism across regions rather than more effective enforcement

in some regions than in others.

The result of susceptibility to corruption and money laundering in most African nations, coupled

with the low anti-money laundering compliance metrics, is very high illicit financial flows and

poverty. The African Development Bank reports that Africa is a Net creditor to the world.

Although some African Nations that are the research focus of this paper show some growth in

Gross domestic Product, they record very sparse commensurate improvement in economic

development, human development, poverty alleviation. Neither do they record encouraging

improvements in prevention of corruption and money laundering in a grand scale. This has rather

increased. Indeed even financial institutions in these regions are not reluctant to transact with

PEPs when it is glaring that the transaction is suspicious as in the case of Denis Teodorin of

Equatorial Guinea who as a Minster of Agriculture earns only $4,000 a month but acquired a $35

million mansion in Malibu amongst others and holds accounts in BNP Paribas and CCF Banque

Privee Internationale owned by HSBC yet still has access to these funds. Other corrupt

governments such as General Sani Abacha of Nigeria and Republic of Congo transact through

the international financial system in spite of the anti-Money laundering guidelines that the Banks

and financial institutions are subject to.

On the other hand, developed nations with active domestic anticorruption culture rank highest on

Transparency international’s ratings in terms of the level of corruption arguably because more

resources are channeled towards enforcement of anti-corruption provisions and the business

culture has evolved to cull corrupt practices. Developed countries also record higher anti-money

laundering compliance, and expectedly record less illicit financial flows out of the country.


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These regions have more stable economic development and growth and it is reflective in human

development and welfare. Developed nations are less vulnerable to capital flight or illicit

financial flows, since transparency and openness improve investors’ confidence in the long-term

prospects for such economies. This suggest firstly, that illicit financial funds are less likely to

freely flow out of developed nations as there is more active anti-money laundering

implementation across agency and secondly, that these illicit funds are more likely to be

reinvested within the country as there is higher investor confidence and long term prospects of

returns for the investor. From a regulatory and an economic perspective, this is desirable.

Reinvesting of illicit funds within the jurisdiction, allows for easy detection, investigation and

enforcement of judgment. From an economic perspective, the reinvestment of the funds within

the jurisdiction, is an enhancement to the economy as it will contribute directly or indirectly to

the development of the economy. The level of human development and effective democratic

process checks and supports the political will needed to combat corruption and money

laundering.

Investor confidence in more stable economies in developed countries appears to be a primary

reason for the laundering of funds to be invested. Launderers (otherwise referred to as looters)

are more interested in returns on investment or safe keeping of illicit funds outside the shores of

the nations they were illicitly generated. It appears therefore that a stable economy is partly but

not exclusively an incentive for launderers to target financial institutions in developed countries

for investment of illicit funds by taking advantage of the financial system to maximize returns.

Also as the majority of illicit funds are derived from embezzlement of public funds, launderers

would rather reduce the risk of being caught by the enforcement authorities or the media


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scrutiny. Expectedly albeit unjustly, many looters of funds from African nations record profitable

returns on investments in international financial institutions in economically stable nations.

On this note, it’s pertinent to draw a distinction between illicit financial flows out plaguing

developing nations and capital flight. While capital flight may be akin to illicit financial flows in

the sense that there is a withdrawal of capital and assets from the country, and they both can

impose a severe burden on the economy, since the lack of capital impedes economic growth and

may lead to lower living standards, capital flight differs from illicit financial outflows. By

definition capital flight is not necessarily illegal and it is usually preceded by severe political or

economic instability created by radical political or economic policy change that is unfavorable to

investors or other adverse circumstances such as Puerto Rico is currently experiencing. Capital

flight in the past, has occurred in some cases when foreign investors repatriate capital back to

their home country on patriotic objectives. Whereas the illicit financial flows is fundamentally

illegal and the economic implication of illicit financial flows is hardly anticipated. To that effect,

the loss of the capital illicitly by the country, is not mitigated in anyway. Whereas governments

can plan if they anticipate capital flight and can take strategic measures to restore confidence and

attract investment to the country thus providing a channel for economic restoration. However

illicit financial flows is facilitated by laundering which also operates as a crime and the recovery

of illicitly laundered funds is by the criminal justice system which involves seizure of the assets,

and repatriation if necessary.

Recently, programs like the Kleptocracy Asset Recovery Initiative launched in 2010 by the

Department of Justice of the United States of America, similar to other efforts in the United

Kingdom have reached illicit funds from foreign countries laundered into or through financial


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institutions in their jurisdiction. This has resulted in asset seizures and forfeitures including

payment of penalty and disgorgement of profits by foreign nationals subject to the jurisdiction by

the transaction. These welcome efforts to combat money laundering territorially, now escalates

the need for a workable framework regarding repatriation illicit funds that are embezzled public

funds or fall into the category of funds that actually belong to victims of the financial crime

especially when these victims are poorer countries. As there are legal, economic and political

reasons why a discussion on this topic will rather be deferred, yet international cooperation is

absolutely necessary, this paper seeks to propose a workable framework that addresses glaring

reservations.

The first part of the paper will highlight the susceptibilities of most African nations to corruption

and money laundering by identifying some of the factors that undermine compliance efforts with

international anti-money laundering standards and fosters exposure to illicit financial flows at the

expense of the economic development and socio economic welfare of these countries. The

indication of poor levels of compliance with international standards of anti-money laundering

will be done by analyzing data published by the IMF5 and KPMG6 over a period of 6 to 10 years

(up to 2012). By reference to data from these two studies for the purpose of objectivity7, this part

will explore the commonality of high illicit financial flows and high levels of corruption and

money laundering to developing countries in Africa which also rank as some of the world’s

poorest countries. This will be contrasted with the performance in AML/CFT compliance,

5 See Concepcion Veredugo Yepes, International Monetary Fund, Compliance with AML/CFT International Standards: Lessons

from a Cross Country Analysis WP/11/177, 5 – 26 International Monetary Fund Working paper (2011) 6 KPMG Propriety service Limited, KPMG International, Africa Anti-money laundering survey 2012, 7 – 18, KPMG

International (2013) 7 The IMF being an institution with international objectives and offering macro-prudential view and KPMG being independent of

national or international objectives and offering a business oriented view.


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corruption level as reported by Transparency International of developed countries which rank as

some of the world’s richer countries in terms of socioeconomic development, and stability.

The second part of this paper acknowledges that while the recommendations to improve AML

regimes will enhance cross border investigation and prosecution of corrupt practices, these

recommendations have little effect on tackling the vice of corruption in prone regions. Indeed

evaluating and improving anti-money laundering processes, and institutional cooperation8 is

critical to investigations and prevention of laundering. However, this doesn’t directly impact the

enforcement of anticorruption provisions and the underlying issues that breed corruption, and

corruption continues to spur money laundering in prone regions in spite of the efforts to combat

laundering. In other words effective AML regimes treat the symptoms of corruption but not the

cause as the drivers of an effective anti-corruption regime operate domestically not

internationally.

Some recommendations in regional and international conventions sparsely mention the need for

international cooperation with regards to repatriation of sized assets. This paper proposes

repatriation of sized assets within a framework that both reduces the exposure of these funds to

illicit use and laundering (negative recycle9) and addresses the catalysts for corruption and

money laundering which as discussed in the first part are economic deprivation and human

under-development (poverty). Repatriation within this context raises several theoretical issues

and this part discusses the legitimacy of the demand for repatriation within the context of

fundamental fairness and integrity. The premise of this recommendation is that while

8 Such as recommendation to identify beneficial owners on accounts held in financial institutions. 9 A term I use to refer to the exposure of repatriated assets to illicit use such as embezzlement by public officials and laundering

of those assets.


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international cooperation on repatriation may not be prioritized by countries, international and

regional conventions, the pressure from international collaboration on developing countries to be

more complaint will eventually escalate the outcry by developing countries for repatriation of

illicit funds. Especially as this deprivation impairs their economic growth which as we have seen

fosters corruption and money laundering and also deprives them of resources to actively combat

these crimes directly or indirectly. The implication of such outcry could potentially lead to a

frame work for repatriation of funds that merely addresses the operational deficiency (like Egypt

is experiencing10) but omits core issues like “negative recycling”.

The third and conclusive part of this paper discusses the strategic framework for repatriation of

illicit funds and assets to developing countries with the aim of preventing negative recycling. By

tying our observations in the preceding parts that make developing countries vulnerable to

money laundering and particularly the risk of negative recycling in the event that repatriation

takes effect, this paper will highlight key issues that must be considered in a repatriation

initiative. This framework also serves to prevent diplomatic tensions that has begun to arise by

the current structure for cross border asset recovery which is on a bilateral basis currently. As

countries having informal arrangements with themselves, this would lead to a proliferation of

bilateral agreements on the procedure for cross border asset recovery without principles that

would guide the terms of this process.

10 Supra. The article discusses Egypt’s difficulty with recovering assets that were stolen and invested in the United Kingdom due

to operational and technical difficulties.


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PART I

The Global Financial Integrity estimates that developing countries lose one trillion dollars in

funds to illicit financial flows of which at least five hundred billion dollars of that ends up in

Western accounts11. Countries in Africa account for about $859 billion between 1970 and 2008

and has risen by an average of 11.9 percent since. Illicit financial flows are funds derived from

illegal means such as corruption which includes bribery, tax evasion, embezzlement of public

funds and other illicit activities that deprive the local economy of expected revenue. In the case

of African nations, these are funds needed to lift themselves out of poverty and

underdevelopment. African nations rank highly among the most corrupt countries and corruption

facilitates money laundering hence the high numbers reported of money laundering by public

officers from African nations through international financial institutions.

Historically, embezzlement of public funds, bribery of public officials and other forms of

corruption that cripple economic growth, is an orientation that was propagated by illegitimate

administrations in most African nations. These administrations had no regard for the rule of law

or accountability as under a democratic regime and so created the culture of enriching

themselves with public funds knowing that their illicit acts will be found out soon and they will

be held to account when their administration gets replaced by a democratically elected

government. The funds embezzled and stashed away is expected to be used to protect themselves

and buy their freedom. These regimes were common in Africa especially during the rise of coup

de tat and military administrations of civilian dictators. They tolerated and entrenched a culture

of enriching themselves and their family members through corrupt practices and embezzlement

11 Report on “Illicit Financial Flows and the problem of net resources transfer from Africa: 1980-2009, A joint report from

Global Financial Integrity and Africa Development Bank, May 2013


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and this facilitated money laundering. As globalization spread, and the financial systems became

more sophisticated, money laundering became easier so funds were transferred through financial

institutions to countries outside the continent in a bid to avoid the recovery of these funds when

the administration changes. This culture grew over time and infiltrated the public system and the

social orientation evolved so much that bribery and corruption became entrenched.

The consequent illicit diversification of public funds from legitimate national goals such as

infrastructural development, investment in economic and human development, resulted in poor

educational systems and standards, deprived healthcare systems, high unemployment rates and

poor economic conditions in these nations hence their rankings as poorest countries in the world.

While most African nations are resources rich and a teeming ground for economic development,

they are listed as developing countries and are amongst the world’s poorest nations. Due to the

poor infrastructural base, these nations lack industry to be among the world’s leading exporting

nations, yet on average, these nations import three times more than they export to the world.

Needless to say this cycle of poverty is the disease of many of these African nations and as many

World Bank studies indicate, poverty puts people in the “race to survive at whatever cost” mode

which means corruption and bribery may become the order of the day as that is what it will take

for the average person the survive. Integrity global reports that families in these regions face

tough decision of deciding between buying food and paying a bribe to get treatment for their

child.

To the extent that there is a proliferation of low level corruption, grand scale corruption thrives

as the stunted economic growth and human under development erodes the strength of the

electorate to resist grand scale corruption perpetrated by public officers and other parties


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involved usurping the possibility of having strong political will to combat corruption in these

nations. Indeed institutions established under such a regime will most likely be weak and pliant

since they are run by and in an inherently corrupt system. The press and the people have a very

weak voice for compelling accountability in such a system because the legal and electoral

systems that should enable the electorate to voice their opinions against such practices are either

uninformed or defeated in the face of previous failures or intimidations in some cases. Recently

non-governmental organizations and radically opposed groups to corruption and mismanagement

of public funds have been more vocal. Therefore as the various reports on global poverty reveal,

the African nations that rank as the world’s poorest, also rank high as some of the most corrupt

nations. The numbers in these reports reveal the socioeconomic settings of these nations that

determine its susceptibility to corruption and money laundering, which include the

unemployment rate, poverty levels and literacy rates – technological advancement – financial

systems12. Indeed the ideas and narratives behind policies are set by the socioeconomic culture of

a country and the attitude of the government is crucial in dictating the level of acceptance of anti-

corruption and anti-money laundering regimes.

This explains the IMF’s findings13 that the institutions set up domestically to enforce AML/CFT

compliance (referred to as Financial Intelligence Units along with other specialized supervisory

bodies such as the police, and the judiciary) showed very low degree of compliance across board

compared to the case in developed countries. On this note, it is the extra territorial reach of

legislations such as the Federal Corrupt Practices Act of the United States that may have some

impact on the business cultures in such regions.

12 Lenschow et al. 2005 13 Ibid pg. 7


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While both the IMF and the KPMG reports indicate low compliance levels with AML/CFT

procedures, it is important to note that the evaluation of compliance standards might reflect poor

compliance levels of AML/CFT compliance procedures in developing countries in Africa,

because of the peculiarities of the business environment and level of sophistication of operations

which differ from developed countries. Therefore the testing parameters should take into account

this variation in operational sophistication. For instance most African economies operate as cash-

based economies as overwhelming proportion of daily transactions take place by physical

transfer of cash in large quantity likewise in small quantities. Whereas in more technologically

and infrastructural advanced economies like the US are not cash-based. Indeed cash transactions

of relatively substantial amounts of money, should trigger a red flag that invokes a potential

violation of the FCPA or Patriots Act if no further action is taken by the party solicited for the

transaction14. Therefore the evaluation of compliance standards must integrate context based

peculiarities of the regions by assessing how well the compliance procedures have been adapted

to the local environment for accuracy. It is no doubt that more sophisticated systems make it

easier to loot or transfer funds and probably carry on undetected illicit transactions, but it also

makes it easy to investigate and detect unusual transactions. Therefore the less sophisticated

business environments are a convenient host for money laundering but hardly for enforcement

due to the difficulty of gathering evidence and investigation.

The IMF reports that a higher degree of compliance seemed to be associated with a higher level

of economic development15 indicating that the more wealthy countries have more funds to

14 As the standard for violation under the money laundering provisions is “wilful blindness” thus an omission of this sort could

trigger a violation that meets the requisite mind set. 15 46 advanced economies reported an average of 56.8% compliance whereas 115 emerging economies reported an average of

37% compliance


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allocate to implementing advanced AML/CFT systems and more devotion for socioeconomic

reasons and to protect their economic and financial integrity.

Part II

The international and regional conventions against corruption and money laundering have

provide a very strong foundation for successful AML regimes. Aptly, the recommendations to

improve AML instruments have focused on international challenges such as cross border

cooperation, alignment of in-depth KYC/KYA due diligence amongst others. This paper opines

that the challenges to the efforts and instrument to combat corruption operates at a domestic level

whereas the major challenges faced by AML/CFT regimes operate both at a domestic and

international levels. The effectiveness of an anti-corruption regime is most dependent on political

will, socioeconomic development in the jurisdiction. As discussed in part I, poverty grossly

enables corruption by usurping the power in the democratic process to demand accountability

and ensure transparency allowing embezzlements and other corrupt practices to go unnoticed or

unchallenged.

The UNCAC provisions on corruption is reflective of most jurisdictions’ provisions against

corruption. Legislations, such as the Federal Corrupt Practices Act (1977) in the US and the

Independent Corrupt Practices Act (2000) of Nigeria, and the Bribery Act of the United

Kingdom broadly criminalizes corruption similar to the UNCAC. The range of activities that is

defined in chapter III of the UNCAC, as corruption is broad and they include bribery of national

and foreign public officials. The UNCAC includes bribery of officials of public international

organizations (Articles 15 & 16), embezzlement or misappropriation or other diversion of

property by a public official (Article 17); abuse of position by a public official for obtaining


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undue advantage (Article 19), trading in influence (Article 18), illicit enrichment (Article 20),

bribery in the private sector and embezzlement of property in the private sector (Articles 21 &

22). Among the contracting states that have incorporated these provisions, Transparency

International reports great difference in the corruption levels between developed states and

developing states in Africa. As noted lower levels of corruption in developed countries doesn’t

necessarily mean there is hardly an avenue for corrupt practices but that the anti-corruption

implementation is more effective because there is more resources devoted to regulation and

enforcement. Also there is more scrutiny of government operations by the people (the media and

state-state peer review) in older democracies (developed states) such that there is accountability

and transparency and the democratic process is more efficient in ensuring that corruption has no

place in the systems. This scrutiny also compels effective regulation and enforcement of anti-

corruption provisions and this serves to create a general negative perception of corruption that is

not quite the case in developing countries that are prone to corruption. The Foreign Corrupt

Practices Act in the US is about the earliest enactment of anti-corruption Laws including the

addendum of the whistle blower provision in the Dodd-Frank. Several other countries have

enacted stringent anti-corruption legislations and the political will behind these enactments

dictate their effectiveness where influential Politically Exposed Persons (PEPs) are involved.

The UNCAC also criminalizes the laundering of the proceeds of corruption and other criminal

activities (Article 23). Some of other current regional conventions have provisions that address

the cycle of conversion processes undertaken to clean illicitly obtained money in the course of

engaging in corrupt activities. These conventions that have shaped the international AML regime

include:


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The Organization of American States Inter-American Convention against Corruption

1996 (OAS Convention)16

The Organization for Economic Co-operation and Development Convention on

Convention on Combating Bribery of Foreign Public Officials in International Business

Transactions 1997 (OECD Convention)17

The Council of Europe Criminal Law Convention on Corruption 1999 (COE

Convention). Came into force July 1, 2002

African Union Convention of Preventing and Combating Corruption 2003 (AU

Convention). Came into force August 5, 2006. See Carr (2007)

Article 23 laundering offense allows very little degree of variation in domestic implementation

by contracting states thus the only degree of deviation allowed to the contracting state is that they

may adapt it to fit with the fundamental principles of their domestic law. The offenses created by

article 23, if implemented, should harmonies the law across the contracting states to a large

extent where the predicate offence is corruption.

The money laundering conventions obligate regulatory authorities in contracting states to

institute domestic regulatory and supervisory regimes that suit their various localities including

not just traditional financial institutions but also informal channels termed “parallel banking”

commonly used in some ethnic communities. The system known as Hawala (in India and

Pakistan)18 or Fie Ch’ieu (China) while typically used by migrant workers lacking bank accounts

16 Came into force March 1997 17 Came into force February 1999 18 Many villages are within walking distance of a post office and post offices do offer savings facilities. Unfortunately, they are

not authorized to receive foreign remittances. There are plans to introduce this facility and

this is likely to lower the use of hawala


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can also be a channel for illicit transactions. The recommendations to incorporate anti-money

laundering regulations that extends to alternative methods of money transfer is welcome and

being considered but in the meantime it is a vulnerable channel that can be exploited once again,

because of the circumstance of under development and lack of sophistication in regions where

these alternative methods are common.

In addressing the vulnerability factors of poorer regions with less sophisticated systems to

corruption and money laundering, it is clear that ample recommendations for more effective

implementation of anti-corruption and AML compliance regimes point to improving the

socioeconomic conditions of these states. Indeed this along with more stable institutions (FIUs)

and legal systems will be the most effective pedestals. These focus on the domestic challenges.

The other challenges that affect the effectiveness of anti-money laundering regimes have been

the subject of various recommendations by regional and international conventions and they focus

on international factors promoting cross border cooperation in investigation and enforcement.

In this regard, the Financial Action Task Force (FATF) Recommendation 1, addresses the double

criminality requirement in the UNCAC and provides that: instead of enforcing the double

criminality rule, ‘countries may provide that the only prerequisite is that the conduct would have

constituted a predicate offence had it occurred domestically.’ This is particularly useful in cases

of grand corruption since those who engage in grand corruption are likely to be persons of

influence and, as such, have the opportunity of ensuring that legislative changes are made to the

criminal law in their jurisdiction that would prevent their prosecution under their own laws. It is

therefore one of the tools that may be used to adapt AML regimes to be used in the fight against

corruption.


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The proposition of this paper is that while these recommendations like others will aid the fight

against corruption, it barely scratches the surface. The KPMG report indicates that when foreign

authorities investigate grand scale corruption in regions that are prone to corruption, they find the

authorities in those regions either uncooperative or incapable of contributing to those

investigations due to intimidations or sheer reluctance. This clearly suggests that even local

enforcement of anticorruption provisions in prone regions is at the mercy of domestic

influences19.

The IMF paper20 arrives at two key conclusions upon which its recommendations are based, in

its assessment of the Money laundering and financing terrorism risks. The paper concludes: (i) It

is necessary to evaluate the extent of countries’ compliance with the AML/CFT standard in other

to lessen countries’ vulnerability to Money Laundering and Terrorism Financing and (ii) the

standard itself should incorporate more comprehensively the underlying risk of ML/FT,

including all sectors that are vulnerable to ML and FT. This mirrors the recommendations of this

paper in relation to corruption being the most peculiar to the regions of focus in this paper. In

relation to African nations prone to corruption and money laundering, there is need to address the

underlying vulnerabilities in determine the most effective method of enhancing anti-corruption

through domestic efforts involving socioeconomic empowerment and development

(employment, literacy and welfare).

African Development Bank reports that Africa has great potential for economic growth but the

funding needs for investment in infrastructural development and economic and human

development are not being meet due to lack of funds. In the Initiative for Risk Mitigation Report

19 Other side of the coin, UK and corruption in Africa, A report by the Africa All Party Parliamentary Group, 2006 20 Ibid pg. 7


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by the African Development Bank21, it is reported that over the past decade (2001-2011),

Africa’s economic growth, and economic output has more than tripled. According to the

Economist22, in eight out of those ten years, Africa has grown faster than East Asia. The reports

predicts that over the next five years, the average African economy will grow faster than its

Asian counterpart. Ersnt & Young reports23 that this growth is supported by the emergence of

democratic governments in the countries of Africa. However, according to the key assessments

of the World Bank, what will ultimately determine Africa’s long-term growth potential is its

investment in infrastructure that will ensure reduced unemployment, better education standards,

healthcare and improved standard of living. The continent’s infrastructure lags behind other

developing regions and human development is key to sustainable stability in an economy.

According the World Bank, and the estimated infrastructure spending need is US$93 billion a

year (15 percent of the region’s GDP) for the decade from 2010-2020 to close the infrastructure

gap with other developing countries. However, only US$45 billion is being mobilized, leaving a

gap of close to US$50 billion a year. While official development finance for Africa’s

infrastructure has grown steadily, current official sources of funding will not be enough to cover

this financing gap, which needs to be filled24.

As the ADB notes, that going by the stats on illicit financial flow from African nations, Africa is

a net creditor to the world, this paper proposes that the financing gap that will aid infrastructural

development may be stashed in financial institutions or sized by foreign authorities. Several

21 African Development Bank Initiative for Risk Mitigation in Africa report on; Needs assessment for risk mitigation in Africa:

Demands and solution, March 2013 22 The Hopeful Continent: Africa Rising,” The Economist, December 3, 2011. 23 Ernst & Young, “Building Bridges: Ernst and Young’s 2012 Attractiveness Survey” (2012) 24 OECD, “Mapping Support for Africa’s Infrastructure Investment” (Paris: Organization for Economic Cooperation

and Development, May 2012)

http://www.oecd.org/daf/internationalinvestment/investmentfordevelopment/MappingReportWeb.pdf


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organizations have clamored for the repatriation of laundered funds from the financial

institutions which currently benefit from them or from authorities where they have been

forfeited, to the countries that they were illicitly taken from. The process of repatriation is less

than seamless and has been mostly unsuccessful for most African Nations and in most cases. In

fact in some cases, the governments make no demand for repatriation.

Indeed it is arguable that if these funds were not mismanaged or stolen, they may have

contributed significantly to the development of these countries and probably reduced the

breeding potential for corruption. Therefore repatriation of these funds in this climate of more

stable democracies in most African nations is a salient source of much needed finance that would

contribute to curing one of the fundamental breeders of corruption – poverty and socioeconomic

deprivation.

Indeed the aim of an AML and anti-corruption regime is to ensure prosecution and recovery of

stolen assets and chapter IV of the UNCAC, makes provision for international cooperation with

regards to asset recovery across borders. However any recommendation for repatriation of funds

to prone regions must consider incorporating a framework for repatriation that is more

comprehensive than the provision in the UNCAC and one that mitigates the possibility of

negative recycling of the funds as will be discussed in the broad recommendation in part III. In

the absence of a holistic framework for repatriation of assets to corruption prone countries, there

will be no justification for repatriation of funds if this will further enhance the corruption and

laundering or if these funds will be under the control of corrupt governments. The current

landscape on cross border asset recovery is worked out on a bilateral basis25 and this has created

25 Stolen Asset Recovery Initiative (STAR) a United Nations – World Bank project provides training and technical assistance on

a state by state basis to foster asset recovery between states seeking repatriation and states holding the assets.


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some diplomatic tensions, uncertainties and vagueness in the process hence the Stolen Asset

Recovery Initiative by the United Nations and the World Bank.

Part III

The main objectives of anti-money laundering and anti-corruption provisions and enforcement

are to identify and confiscate the proceeds of crime. Procedurally, an important feature in this

regard, is that confiscation of the proceeds of crime under these rules and procedures do not

require a prior criminal conviction. In other words, the accused need not necessarily be convicted

of that crime for the AML rules to kick into action. This is reflective of Article 5 of the United

Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988,

which enshrined the founding tenets of AML. See also the Financial Action Task Force (FATF)

Recommendations numbers 1, 2 and 3. The same principles are now reflected in the United

Nations Convention against Corruption (UNCAC) Articles 14 and 31. The latter approach

applies under English Law26 and the US seizure and forfeiture. Indeed, the FATF

Recommendation 3 provides that: ‘Countries may consider adopting measures that allow such

proceeds or Instrumentalities to be confiscated without requiring a criminal conviction, or which

require an offender to demonstrate the lawful origin of the property alleged to be liable to

confiscation, to the extent that such a requirement is consistent with the principles of their

domestic law. ‘This is of great potential significance in a corruption case, where obtaining a

conviction may be problematic for various reasons: for example the corrupt person may have

public immunity by virtue of his office, the judiciary may be corrupt or there may be practical

difficulties involving evidence and proof. In addition where the trial does take place it is more

26 See definition of “criminal conduct” under Proceeds of Crime Act 2002 Section 340(2)


22

than likely to be significantly delayed because of the complexities of the case as well as the

tactics of the defendant’s legal representatives. The delays may be such as to permit the proceeds

of the corrupt activity to be dispersed or lost in the meantime. By making a prior conviction

unnecessary, AML procedures can be beneficial in ensuring that the freezing of assets is not

delayed while waiting for the result of a criminal trial, thus minimizing the risk that the

perpetrator has time to arrange their concealment while awaiting trial or sentence.

This paper recommends that a comprehensive cross border asset recovery framework should be

incorporated in the regional and international conventions that aims to streamline the operational

process as the substantive process. Further, a different set of asset recovery and repatriation

procedure should apply for regions prone to corruption and money laundering. The aim of this

procedure is to minimize the risk of these funds been exposed to negative recycling and

ultimately ensuring that the funds are channeled towards nation building and socioeconomic

development efforts in the country of origin thereby curbing the cycle of poverty and

socioeconomic deprivation in the regions. The proposed framework will benefit from the

guidance of the United Nations and the World Bank in establishing the procedural guidelines

drawing from the experience gathered under the STAR initiative.

The guidelines for prone regions must address two key factors; first, the objective of the

investment or financing project, second the channel through which these funds will be repatriated

so that there will be scrutiny of the use of these funds upon repatriation. The ideal investment of

objectives should contribute to socioeconomic development.

My research reveals that the ideal channel for repatriation of recovered stole assets to African

countries would be the African Development Bank. The ADB has maintained impeccable record


23

since establishment and like other regional banks, has been very influential in promoting

economic growth and stability, combating corruption and money laundering in Africa. Being and

independent entity with international recognition and no state alliance, the ADB’s sponsors

include the United States, several European countries, and a diversity of African states. Per its

mandate, as a regional Bank the ADB has demonstrated strategic commitment to development

and growth in Africa. The role played by the ADB in financing projects in African nations gives

it similar responsibility to the proposed responsibility in this framework. For example the ADB

introduced a conditions for borrowing nations that requires that the projects must be free from

corruption and most contribute to economic and human development in sectors such as

agriculture, education or healthcare. Its regional presence and in depth knowledge of the region

sets it up as the institution best positioned to administer the financial responsibilities in the

repatriation process for African corruption prone countries.

The operational details of this recommendation would include issues about how these funds will

be administered upon repatriation through the ADB. The Funds will be kept as investment for the

states at the receiving end of the recovered asset but the control of these funds will be subject to

the conditions discussed above. They must be channeled toward economic development and

human development projects and their performance on this account will be monitored and

evaluated by the ADB and publicly reported. This kind of scrutiny will most likely create a race

to the top as governments in prone regions would come under pressure to back anti-corruption

regulations domestically limiting exposure to corruption and money laundering.

This proposed framework raises conceptual issues (international law related) that would be the

subject of interesting deliberations in subsequent papers.


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References

United Nations Convention against Corruption, Chapter 4 & art. 23, Oct. 31, 2003, A/58/422

The revised FATF Recommendation adopted and published February 2012, available at

www.fatf-gafi.org/recommendations

Concepcion Veredugo Yepes, International Monetary Fund, Compliance with AML/CFT

International Standards: Lessons from a Cross Country Analysis WP/11/177, 5 – 26 International

Monetary Fund Working paper (2011)

KPMG Propriety service Limited, KPMG International, Africa Anti-money laundering survey

2012, 7 – 18, KPMG International (2013)

Penny Jackson, The Africa All Party Parliamentary Group, Other side of the coin, UK and

Corruption in Africa, 31- 34 (2006)

Ernst & Young, Building Bridges: Ernst and Young’s 2012 Attractiveness Survey at 20 (2012)

available at http://www.ey.com/ZA/en/Issues/Business-environment/2011-Africa-attractiveness-

survey---Africa-as-it-is-perceived

Dev Kar, Sarah Frietas, Global Financial Integrity, Illicit Financial Flows from Developing

Countries: 2001-2010 at 14 – 18 (2012) available at

http://www.gfintegrity.org/storage/gfip/documents/reports/IFFDec2011/illicit_financial_flows_fr

om_developing_countries_over_the_decade_ending_2009.pdf

Jennifer Mbabszi Moyo, Guirane Samba Ndiaye, African Development Bank, African

Development Bank Initiative for Risk Mitigation in Africa report on; Needs assessment for risk

mitigation in Africa: Demands and solution, 13-14 (2013) available at

http://www.icafrica.org/fileadmin/documents/Knowledge/ICA_publications/IRMA%20FINAL%

20REPORT-AfDB%20Official%20v2.pdf

Robert Palmer, U4 Anti-corruption Resource center (Chr. Michelsen Institute) available at

http://www.u4.no/publications/profiting-from-corruption-the-role-and-responsibility-of-

financial-institutions-2/

Hinterseer, K., Criminal Finance: The Political Economy of Money Laundering in a

Comparative Legal Context UK, Kluwer Law International (2002)

Daniel, and Maton, J., Recovering the Proceeds of Corruption: General Sani Abacha – a

Nation’s thief (2008), in Pieth, M. (ed.) Recovering Stolen Assets, Basel: Basel Institute of

Governance.


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Denis Osborne ET AL. Corruption: the enemy within 10 – 18 (The Hague Boston: Kulwer Law

International eds.,1997)

Lenschow, A., Liefferink, D., and Veenman, S., When the Birds Sing. A Framework for

Analyzing Domestic Factors behind Policy Convergence 12(5) Journal of European

Public Policy 791-97 (2005) (discussing the importance of Government/political will in policy

setting)

The Economist, Recovering Stolen assets, making a hash of finding cash, The Economist, May

11, available at http://www.economist.com/news/international/21577368-why-have-arab-

countries-recovered-so-little-money-thought-have-been-nabbed

The Economist, The Hopeful Continent: Africa Rising, The Economist, Dec. 3, 2011, available

at http://www.economist.com/node/21541015

Carter Dougherty, Siemens bribery case moves to trial in Germany, New York Times, May 26,

2008 available at

http://www.nytimes.com/2008/05/26/business/worldbusiness/26ihtsiemens.4.13226498.html?_r=

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