Can big banks be trusted with the fight against economic crime? The UK government seems to think so…

Sue Hawley, policy director of NGO Corruption Watch, examines the government’s approach to tackling economic crime and argues that its reliance on ‘public-private partnerships’ as regulators raises serious conflicts of interest and the threat of regulatory capture

When UK Prime Minister Theresa May came to power, she ditched her predecessor David Cameron’s language of fighting corruption in favour of a broader economic crime agenda. May’s government has consistently stated that achieving progress on economic crime is a real priority, and fortunately, anti-corruption has remained a key plank of that agenda (despite the all-consuming maelstrom of Brexit). But the direction that the government is taking on economic crime – by creating public-private partnerships to tackle it – is a cause for real concern and demands urgent scrutiny.

The clearest expression of the government’s economic crime agenda has been the creation of a new national authority, the National Economic Crime Centre (NECC), in November 2018, and an Economic Crime Strategy Board (ECSB) in January 2019. The NECC is an operational body whose goal is to “deliver a step-change in the UK’s response to serious and organised economic crime,” while the ECSB is a task force that is supposed to “set priorities, direct resources, and scrutinise performance against the economic crime threat.” Both initiatives have been created as a so-called public-private partnerships – a voluntary regulatory initiative between the state and the private sector – in what the government calls “the whole system” approach, yet this appears to be based on astonishingly little analysis of whether such partnerships are effective and what they are designed to achieve.

The NECC is touted as a public private partnership “particularly with those businesses at risk from economic crime.” It hosts the Joint Money Laundering Intelligence Taskforce (JMLIT) – an information-sharing platform between law enforcement and the private sector established in 2015 and regarded as ‘best practice’ by FATF. The ECSB meanwhile, chaired by the Home Secretary and the Chancellor, includes CEOs from three of the UK’s biggest banks, Barclays, Lloyds and Santander, and senior representatives of UK Finance (the finance industry’s ‘collective voice’), alongside the National Crime Agency, the Solicitors Regulation Authority, Accountants Affinity Group and the National Association of Estate Agents. Its first output will be an Economic Crime Plan jointly produced with the private sector, and specifically UK Finance, in July 2019.

Risk of policy and regulatory capture

There is no doubt that the UK’s “complex web” of enforcement bodies responsible for economic crime desperately needs a national coordinating body – a role the NECC will crucially fulfil. Nor can there be any doubt that the UK needs an overarching national economic crime strategy to address years of under-investment in economic crime enforcement. The question is whether the private sector has a legitimate role in either of these initiatives and, if so, what?

An operational information-sharing platform between public bodies and the private sector such as JMLIT clearly makes sense. But upscaling this model to give the private sector a significant presence within a national enforcement authority and a key role in formulating national public policy on tackling economic crime is a major step beyond. The latter approach creates real risks of policy and regulatory capture by the private sector, and potential conflicts of interest.

Who’s at the table?

The most significant private sector representation on the ECSB are the large London-based banks and their lobbying body, UK Finance. This excludes several key actors both within the private sector, such as the small and medium sized enterprises who are often severely impacted by economic crime as well as players in the RegTech industry, and outside it, such as whistleblower organisations, victim groups and voluntary or civil society organisations. It is also despite criticism from the National Audit Office in 2017 of an earlier public-private partnership, the Joint Fraud Taskforce, for its heavy focus on the banking industry at the exclusion of other private-sector players.

Nor are the banks (or other private-sector actors), merely victims of economic crime. They may also be perpetrators and facilitators of crime. The day the ECSB was announced, with Barclays on its board, the trial of a former Barclays CEO and other senior ex-employees started in London for alleged financial wrongdoing. A few months later, Lloyds, another board member, was facing scrutiny for its handling of the HBOS fraud that cost the bank £1 billion and damaged numerous small businesses. Why are those who should be being held to account by the UK’s economic crime regime being invited to help run and design it?

Developing a genuine and long-term strategy to tackle economic crime, whether it be fraud, money laundering or corruption, does require a multi-stakeholder approach. But it must not be captured by the private sector and particularly not by the big banks.

Who pays?

Despite stating that economic crime is a priority, the government has not committed any significant new public resource. The government has invested just £48 million since late 2018 in bolstering law enforcement, including the creation of the NECC – all reassigned from other departmental pots. In this context, the creation of public-private partnerships looks alarmingly like an attempt to avoid public investment in the economic crime infrastructure and get the private sector to pick up the bill.

The Treasury Select Committee in its Economic Crime Inquiry report in March 2019 noted that there had been “no cross-government assessment of public resources being brought to bear” on achieving a hostile environment and urged the government to make an assessment and rectify any short-falls. In May 2019, Lynne Owens, Director General of the National Crime Agency, effectively called the government out on this by making a bold bid for an extra £2.7 billion of public funds to tackle serious and organised crime (which includes economic crimes such as fraud, money laundering, tax evasion and corruption). The current Spending Review, and whether it results in real new public investment in bolstering the law enforcement response to economic crime, will be a key test of whether economic crime is indeed a government priority.

Meanwhile, a genuine debate about how and what the private sector can and should contribute, whether through increased regulatory fees or other means, needs to be had in the public domain and not behind closed doors. It is essential that those who pay do not get to set the terms of how they are regulated, and how public bodies are designed.

Who knows and who has oversight?

One of the most alarming things about the creation of the NECC and ECSB, and the development of the Economic Crime Plan is the lack of transparency and accountability. Again, the NAO highlighted these as key issues with the Joint Fraud Taskforce. Yet many of those failings risk being replicated with the ECSB.

There is no public oversight or transparency about how members of the ECSB are appointed, what is being discussed at meetings, and how the Economic Crime Plan is developed. Moreover, the NECC is hosted by the National Crime Agency, which is not subject to the UK’s Freedom of Information Act (FOI). Getting any information about its performance and output is going to be nigh impossible.

An accountable economic crime agenda which can command public confidence requires urgent development of oversight mechanisms. ECSB meetings should be fully transparent and the NECC (and the NCA) should be brought under the remit of the FOI Act .

Economic crime affects us all – when corrupt elites bring their stolen wealth into the UK and distort our economy and democracy, but also through local government and electoral fraud. The government’s strategy should concern us all and must not be left to the banks to determine.

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Fieldwork notes on traffic police corruption in Ghana

The phenomenon of traffic police abusing their power to extract small bribes from drivers is common in many countries. But how do drivers feel about it and why is it so difficult to tackle? Sussex PhD student Riccardo d’Emidio is exploring whether social norms approaches can improve our understanding of the issue, and here offers some reflections on his fieldwork in Accra, Ghana.

I am now entering the third month of my PhD fieldwork and after spending quite a lot of time in government buildings I finally managed to venture out of the centre of Accra to interview trotro (local bus) drivers on their experience of corruption on the streets of the greater Accra.

I was lucky enough to be joined by my colleague Seyram Agbemenya, who acted as interpreter when people did not speak English, but who also critically made contact with drivers in the chaotic bus station. The third member of our group was the illustrator Luca Modesti who did some live sketching during the interviews, skilfully capturing some of the details of the unusual interview setting. Intervista 1

I interviewed three groups of drivers and “mates”, i.e. the helper that calls out destinations, collects the cash and squishes passengers on the packed minivans. The first two interviews took place inside parked trotros, which to my surprise created a very intimate interviewing space, sheltering us from the chaos of sellers, preachers and stalls. Curious heads would pop through the windows, trying to figure out what two “obronis”[1]were doing in a parked trotro in the heat of a Saturday morning.intervista 2.jpeg

The final interview took place at the resting ground of drivers and mates, under a rickety tent, where drivers wait between shifts, eat their lunch, doze off and play checkers. So, we sat on long benches next to the rowdy checker tournament and started chatting about their experience of corruption on the streets of Accra.

All participants were very vocal and outspoken with regards to their interaction with the police: they blamed their economic hardship on the police officers who stop them two or three times each trip asking them for a bribe each time.  When I asked them if they had ever reported or heard of any of their colleagues reporting an officer for bribery or misconduct, they told me: “we are nobody and cannot fight this injustice…this is just the way it is”.
Intervista 3
Many Ghanaians (and indeed many police officers) argue that the problem of bribery on the streets is a shared responsibility, since often drivers offer cash to officers as soon as they see them, without even being asked.  Nonetheless drivers disagreed, they adamantly argued that paying upfront is an attempt to pay less. Apparently, if you refuse to pay, or do not “dash” (bribe) immediately the officer that stopped you with 20 or 40 Ghana cedis (between 2 and 5 GBP), they might take your driving license or take you to the police station and request more money starting from around 100 Ghana Cedis (approx. 14 GBP). While these might seem petty figures, these are important amounts for a driver.

While it is way too early to even mention the words “initial findings” from these and other interviews I conducted, these conversations sparked a number of messy thoughts (and notes) that hopefully I will get to process (at some point). For this post however, I wanted to single out and share with you one area of researchthat I found very exciting;  one question for anti-corruption practitioners,  and oneuseful reminder all of us working in the anti-corruption sector.

When I asked the different groups of drivers, why policemen on the streets would ask money from them, none of them hesitated: “It’s their lifestyle! This is how we are trained in this country: you make profit for yourself, not for the government!” were some of the common answers.  As a researcher interested in the role and impact of social norms in shaping corrupt behaviour, this  statement exemplified how social norms relating to (predatory) authority can play a significant role in shaping these daily interaction between trotro drivers and police officers. This is something that I will continue exploring in my future interviews and that I believe feeds into the Ghanaian “corruption complex”.

In all the interviews I prompted the drivers to think about possible solutions to the daily bribery they face on the streets. At one point one of them, looked at me in the eyes and responded very simply: “the police should give us receipts! This way I would pay only once a day and not three times every trip!”.   While for several anti-corruption practitioners this might sound simply ridiculous or impossible to do, I wonder if there have been any attempts to put in place some kind of “harm reduction” strategies like the one suggested by the trotro driver. So, taking into account that official receipts for bribes might not be an option, my questionfor all of you out there is: what short term strategies can realistically be put in place to limit the destructive impact that petty bribes have for people in poverty? What has been done so far? Do you know of any examples? (If so, please do send them my way).

Finally, the suggestion of “official receipts for bribes” reminded me of something I was aware of but had somewhat overlooked: corruption and poverty are profoundly interlinked.  As I was sitting engrossed in my readings in the library or in my air-conditioned office I had forgotten how deeply corruption and poverty feed into each other in a vicious circle, exposing already vulnerable citizens to even more threats and hardship. While this is something that several researchers and civil society organizations across the world systematically raise, I wonder whether the link between anti-corruption and poverty relief get the same attention (both in theory and in practice).

In the past years I have worked with a range of institutions and organizations from civil society and the public sector to develop anti-corruption campaigns and messaging. I have seen “Say NO to corruption” in so many languages, shapes, formats and colours that I have lost count. As I left the trotro station I couldn’t help asking myself to what extent anti-corruption reforms and interventions are actually (and purposefully) placing the bulk of the weight of “saying NO to corruption”  onto the shoulders of the most vulnerable members of society. Are anti-corruption reforms taking into account the cost of opting out of corruption? If so, is that cost evenly and fairly distributed? My hunch is that this is not the case.

 

 

 

[1]Obroni is the Akan word for foreigner, literally meaning “those who come from over the horizon.” It is often colloquially translated into “white person.”

Mission creep and a credibility crisis: Is the Financial Action Task Force still fit for purpose?

This year, the Financial Action Task Force – the global standard setter in the fight against financial crime – will celebrate its 30th birthday.  Given the constant stream of headlines revealing egregious cases of money laundering around the world, Tom Keatinge (Director of the Centre for Financial Crime & Security Studies at RUSI) asks whether FATF remains fit for purpose.

What started in 1989 as a ‘taskforce’ to tackle the laundering of the proceeds of the South American narcotics industry through US banks has experienced extreme mission creep. Following 9/11, its mandate was expanded to embrace terrorist financing; in 2012 it expanded again to cover the implementation of United Nations financial sanctions to counter the proliferation of weapons of mass destruction; and it regularly publishes reports alerting countries and their regulated sectors to different forms and methods of illicit finance including human trafficking, the abuse of beneficial ownership, and the threats posed by vulnerabilities in the charitable sector or the physical transportation of cash.  Those present that day in 1989 at the G7 meeting in Paris wondered whether the institution they’d created would last three months, let alone 30 years.

The FATF (comprising 36 mainly rich countries) has driven tremendous – and generally positive – change in the global anti money laundering (AML) landscape.  The regular assessment of countries’ implementation of its recommendations (something of a misnomer given the harsh consequences of ignoring them) has raised standards and capabilities around the world; its practice of naming-and-shaming countries that fall short of compliance has spawned a vast industry of consultants, donors and trainers who travel the world helping laggards address their shortcomings.

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Strengthening the rule of law in the Western Balkans: Why should the EU care?

One of the main conditions set by the EU for aspiring members in the Western Balkans is to strengthen the rule of law, but the success of these efforts has so far been relatively limited. Drawing on a new study, Tena Prelec (Doctoral Researcher, University of Sussex) explains some of the major challenges that exist in the region and outlines why promoting the rule of law should continue to be viewed as a key priority for the EU.

Many of the most pressing rule-of-law related issues are deeply embedded in the political, economic and social structure of the countries of the Western Balkans. Tackling them is no easy matter and requires multi-faceted solutions: the coveted trophy of fostering better governance cannot be achieved within a few months’ time, nor even in a five-year period (such as the length of an EC mandate). Instead, it needs a strategy that will skirt short-term victories in favour of long-term gains, while providing clear benchmarks, fair reward and punishment, and the use of uncompromising language in calling out abuses. The Balkans in Europe Policy Group study “Strengthening the Rule of Law in the Western Balkans: Call for a Revolution Against Particularism” sets out a wholesome strategy addressing the matter from an institutional, political and sociological perspective.

But, why should EU member states be interested in this topic? From a practical standpoint, it is understandable that European Union leaders and officials are sometimes reluctant to prioritise painstaking work that would only bear fruit in the long run, preferring to focus on maintaining stability (or the appearance thereof) and on more achievable successes. On top of the clear benefits for the Western Balkan countries, however, there are a number of pragmatic reasons – next to a host of loftier ones – why the European Commission, and indeed all the member states of the European Union (including the ‘outgoing’ UK), should be interested in ensuring that a comprehensive revolution against state capture and corruption takes place in EU accession countries.

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Whitewashing the UK: The Financial Action Task Force’s evaluation of the UK puts its credibility at stake

By Sue Hawley, Policy Director of Corruption Watch UK and SCSC Practitioner Fellow

When FATF released its evaluation of the UK’s anti-money laundering and counter terrorist financing regime in December 2018, giving it almost full marks, civil society organisations were dismayed. Global Witness accused the review body of being ‘asleep on the job’. RUSI questioned “the relevance” of the evaluation given the UK’s repeated role in global money laundering schemes.

FATF – the global anti-money laundering body – is one of the most feared and respected review bodies on the international stage. Unlike equivalent review bodies such as the OECD or UN, FATF has the power to blacklist non-cooperative jurisdictions – a sanction that could seriously impact a country’s credit ratings and ability to access international finance.

Lacking transparency and stakeholder input

Unfortunately, FATF also happens to be one of the least transparent and participatory of the international review bodies, with very little public or civil society input into its reviews. It meets primarily with governments and the private sector, including civil society groups only to discuss one specific recommendation (8) on measures to prevent non-profit organisations being susceptible to terrorist financing, and then only a narrow set of CSOs. UK civil society groups asked the UK government and FATF several times to meet with evaluators to discuss broader money laundering policy issues – unsuccessfully.

The result of only meeting a narrow range of stakeholders is that FATF evaluators only hear the narrative of the government under review. Voices with good evidence that might question that narrative, such as civil society and academia, are effectively excluded. FATF’s UK evaluation is a perfect example of this.

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First set of students graduate on University of Sussex’s LLM in Corruption, Law and Governance in Doha, Qatar

Prof Dan Hough proudly reports on the first set of students to graduate from the University of Sussex’s LLM in Corruption, Law and Governance in Doha, Qatar

The University of Sussex is based in the tranquil settings of the South Downs in the UK, faculty members and students nonetheless are acutely aware that many of the problems that get discussed there are global in nature and scope.  That is nowhere more evident than in the international fight against corruption.

The University of Sussex, via the Sussex Centre for the Study of Corruption(SCSC), has developed an impressive portfolio of undergraduate, postgraduate study and research in this area.  Undergraduates in the Department of Politics, for example, are able to specialise in analysing the corruption challenge via bespoke modules. That can include analysing corruption in international business or more putting more political types of corruption under the analytical microscope.

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Three causal narratives about regulation and corruption

By Claire A. Dunlop, Professor of Politics and Public Policy at University of Exeter, UK and Claudio M. Radaelli, Professor of Public Policy at University College London, UK

What is the exact causal relationship between corruption in the public sector and regulation? Hundreds of studies have scrutinized this relationship. We end up with not just one, but three causal narratives: that regulation causes corruption but under certain conditions; that it is the quality of regulation to hinder corruption; and that anti-corruption regulation can aggravate the problem of corruption.

The first narrative is by far the most popular. It is corroborated by studies carried out mostly by economists – regulation of private market activities may not only be inefficient, but push companies and small business entities to pay bribes to avoid either compliance or administrative costs – or simply to get a permit that depends on the discretion of public authorities. Does it follow that de-regulation is always a good idea to curb corruption? It depends: for a start, we have an efficiency loss if we scrap regulation that generates net social benefits. Then in some cases even what apparently looks like the most benign form of de-regulation, such as de-regulating business starts-up, can facilitate corruption. This is the case when de-regulation facilitates the process of rent-extraction by ruling elites. It also depends on whether we are looking at small-scale corruption in rule-making or grand-scale regulation-induced corruption such as nationwide privatization plans or the attribution of licences to broadcast television.

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