Author: Omolola Adekanye
1
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.
Author: Omolola Adekanye
2
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)
Author: Omolola Adekanye
3
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
Author: Omolola Adekanye
4
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.
Author: Omolola Adekanye
5
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
Author: Omolola Adekanye
6
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
Author: Omolola Adekanye
7
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.
Author: Omolola Adekanye
8
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.
Author: Omolola Adekanye
9
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.
Author: Omolola Adekanye
10
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
Author: Omolola Adekanye
11
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
Author: Omolola Adekanye
12
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
Author: Omolola Adekanye
13
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
Author: Omolola Adekanye
14
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
Author: Omolola Adekanye
15
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:
Author: Omolola Adekanye
16
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
Author: Omolola Adekanye
17
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.
Author: Omolola Adekanye
18
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
Author: Omolola Adekanye
19
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
Author: Omolola Adekanye
20
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.
Author: Omolola Adekanye
21
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)
Author: Omolola Adekanye
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
Author: Omolola Adekanye
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.
Author: Omolola Adekanye
24
References
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Author: Omolola Adekanye
25
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0
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