No Safe Havens for Stolen Funds

On Jan. 12, 2010, a devastating earthquake left more than 230,000 Haitians dead and nearly a million homeless.

That very day, thousands of miles away, a legal drama was unfolding whose victims would be the same Haitian people. Despite the efforts of Swiss authorities, legal constraints prevented the return of stolen assets held by the family of Haiti’s ex-dictator Jean-Claude “Baby Doc” Duvalier in Switzerland, money that could be used for recovery following the natural disaster.

The Swiss Supreme Court had ordered the release of $5.7 million to the Duvalier family, saying that the statute of limitations had expired. As soon as the decision was made public, the Swiss officials ordered the assets frozen on a constitutional basis and announced they were working on legislative reforms to make the return of stolen assets easier.

The legal challenges revealed by the Duvalier case are not unique. Countries around the world face legal constraints when dealing with stolen assets — especially developing countries with scarce resources to match the skills and creativity of criminals.

Every year an estimated $20-$40 billion are stolen from developing countries and stashed away in the developed world. In the past 15 years, only $5 billion have been successfully returned to their countries of origin.

A recent U.S. Senate investigation revealed that despite efforts to crack down on money laundering, millions of dollars are still funneled into the United States by corrupt foreign officials through U.S. financial institutions, lawyers, lobbyists and other professionals.

The Senate report recommended that the U.S. Treasury adopt recent World Bank Group/ U.N. Office on Drugs and Crime proposals to strengthen bank scrutiny of so-called “politically exposed persons” — high-level public officials and their associates — and to require intermediaries to know their customers and check the source of their funds and wealth.

Laws and regulations do matter, but they are not enough if implementation and enforcement don’t follow. This requires active participation from private financial institutions as well as gatekeepers, since experience demonstrates that reputational and business risks are not enough to deter the private sector from associating with the corrupt.

Fortunately, the recent global financial crisis has spurred the international community to keep the financial system in check and reduce its exploitation by the unscrupulous. During the G-20 summit in September, the world’s leading industrialized and developing economies committed to fight this scourge and reclaim stolen capital for development — an endeavor that puts international financial centers at the front line of the battle. At a time of heightened mistrust of the financial sector worldwide, financial institutions would go a long way in addressing their credibility gap by deepening their commitment to fight corruption.

The Financial Action Task Force, the international body that combats money laundering and the financing of terrorism, has recently agreed to strengthen its efforts against corruption. The task force recognized the proceeds of corruption as a significant risk to the international financial system. It agreed to further cooperation between financial intelligence units and law enforcement. It also decided to strengthen its tools to prevent and detect the abuse of the financial system by cronies and their associates. We strongly welcome these developments, and the World Bank Group will continue to closely work with the FATF for more effective results.

But much more is needed. At the World Bank Group we are working together with U.N. Office on Drugs and Crime on the Stolen Asset Recovery Initiative to underscore that stronger standards are not enough without adequate implementation. To be effective, the financial system needs to be vigilant, to periodically review politically exposed persons’ accounts, to require the declaration of individual owners behind a company and other financial disclosures.

Success will depend on active cooperation between the public and the private sector, along with international organizations and civil society. Financial institutions must become a central part in efforts against theft to ensure there are no financial safe havens for stolen funds. They could begin by taking voluntary initiatives to show they are serious in ensuring that “corrupt money stays out of my bank!”