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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Building Integrity through Nonviolence Practice

By Dr Roberto Baldoli, Fellow of the Center for European Governance, University of Exeter  and Claudio M. Radaelli, Professor of Public Policy, University College London

Fighting corruption through monetary incentives and sanctions has shown many limitations. Given certain conditions, this approach can even undermine social trust. The shift from anti-corruption to integrity is a key step to overcome these limitations and side-effects. Yet, the focus in the field of integrity is still on institutions or personal conduct. Can we imagine a different way to look at integrity, which creates resilient communities and builds strong institutions from the bottom-up? We make the case for nonviolence as practice.

The Oxford dictionary defines nonviolence as ‘the use of peaceful means, not force, to bring about political or social change’. This force for change is already playing an important but too often unrecognized role in fighting corruption. From the Philippines to India, from Afghanistan to Romania, nonviolent resistance unleashes people power against corrupted governments. Civil society manages to force corrupted governments to resign through stunning work of erosion of the social and political pillars that support corrupt power.

These achievements are important, but nonviolent practice offers more than this. The integrity debate is a perfect illustration of the causal effects of nonviolence. To see this, we begin by observing that nonviolence properly understood, and contrary to conventional wisdom, is not a protest, it is a constructive programme. When it responds to corruption, at the micro level it is embodied in practices that give power to individuals. The power to add to history, even if only with a single act of disobedience that says NO to what has happened until now, the power to offer a hunger strike as vehicle of a dialogue, the power to show how a given corrupt condition can change with a constructive programme. This builds up confidence, resiliency and vision of what is and ought to be. At the collective level, nonviolent practices build integrity bottom-up rather than through top-down implementation of principles, ethics and regulatory benchmarks.

 

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Corruption Hunters! SCSC alumni team up to recover and return illicit assets in Nigeria

Former Sussex students, Jonathan Benton and David Ugolor, are now actively taking the anti-corruption fight forward in Nigeria. They explain more about their work here.

We’re into the third year of President Buhari’s term in office, elections loom. For those not familiar with Nigerian politics, President Buhari was elected fair and square on an anti-corruption ticket. The last lot were awful. I (Jonathan) know, I investigated the person who was undoubtedly the most powerful woman in Nigeria (at the time), Diezani Alison Madueke, the former oil minister. Former Central Bank Governor, now the Emir of Kano State, Saraki, put the loss in oil revenues from corruption during her term in office at US$40bn. That’s right, $40bn!

David and I were post-graduates under Prof. Dan Hough and Dr Liz David-Barrett’s tutelage. Prior to Sussex, we were both active anti-corruption professionals, Sussex honed, tamed and educated us. David has over a quarter of a century of anti-corruption campaigning under his belt. I was a Scotland Yard detective who landed the best job in the world, head of the UK’s grand corruption and illicit money flows enforcement unit – the Proceeds of Corruption Unit, later the International Corruption Unit. It was such an amazing job I stayed there for nearly a decade.

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