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Wednesday, January 30, 2008

A Global Partnership in the Fight against Corruption

Speech by Dr. Ngozi Okonjo-Iweala,Managing Director, World Bank Group

Countries, just like individuals, are shaped by the significant events they go through. These events usually trigger thoughts about the past, ways to seize the present, and how we look at the future. The death of former President Suharto may well be one of those defining moments for the people of Indonesia. To them, and to the Suharto family, I want to convey, on behalf of myself and the World Bank, my deepest sympathy for their loss. To the entire country, my appreciation for hosting this conference and for making good governance a fundamental goal of this administration. My strongest support in successfully achieving this goal.

Ladies and Gentlemen, I would like to use this opportunity to outline the key lessons we have learned in the fight against corruption. These are based on my experiences, both as Nigeria’s Minister of Finance and at the World Bank.

Corruption as a serious development problem.

The first issue I would like to note is how far we have come in such a short period of time. Today there seems to be unanimous consensus regarding the development cost of corruption.

We know that corruption:

Takes a disproportionate toll on the poor, by undermining the delivery of public services, such as health, education, and infrastructure;
Creates macroeconomic uncertainty, taints the financial sector, and worsens the investment climate.
Studies show that moving up from the lowest end of the corruption perception distribution to a position right the middle of the pack may result in an increase in investment by as much as 8% of GDP. Similarly, the per capita income growth may rise by over 1 per cent.

But these are cold numbers . The real cost of corruption should be measured by the effect it has on human lives. Every $100 million of stolen assets restituted to a developing country could fund:

Full immunization for 4 million children
Approximately 250 thousand water connections for households
50-100 million Artemisin based treatments for malaria

Over the five-year period of President’s Abacha misrule, an estimated US$3 to US$5 billion of Nigeria’s public assets were looted and sent abroad. Five billion dollars is more than what Nigeria spent in 2006 on education and health. This money could have provided anti-retroviral therapy for 2-3 million Nigerians infected with HIV–AIDS for ten-years. A small fraction of this amount could have supplied insecticide treated bed nets for all pregnant women and children in Nigeria.

Instead it was laundered through a complex network of over 70 shell companies and 32 banks in major offshore financial centers ending up in the personal bank accounts of what Swiss courts labeled a “criminal enterprise.”

The high development cost of corruption is something almost everyone agrees on today. However, as obvious as it may sound...
We shouldn’t forget that until 10 years ago, the bribery of foreign officials was considered a business expense.
We shouldn’t forget that it wasn’t until 1995 that Transparency International issued its Corruption Perception Index for the first time.
We shouldn’t forget that not long ago, some scholars thought corruption was nothing but a way of “greasing the wheels of public administration”.

I am not trying to preach to the converted. On the contrary, I want to highlight that despite the fact that corruption has been around for ages, it has been only during the last decade that it has climbed to the top of the international development agenda.

In 1996, World Bank President Jim Wolfenshon referred to corruption as a ‘cancer’ of development and it remains so today. Under the leadership of President Bob Zoellick, the World Bank remains deeply committed to tackling this major constraint to development.

Now that there is widespread recognition of the development impact of corruption, the fundamental question has become: How do we go about solving this problem?

There is no silver bullet. There are, however, lessons the World Bank has learned during the last decade.

First lesson: Good Governance is a Global Public Good that requires Collective Action.

A few weeks ago, Bali hosted a major conference on another public good—climate change. Good governance is also a global public good. Poor governance in one country inevitably spills over to others, and like a disease, infects it.

The landmark UN Convention against Corruption is the single most important international agreement reflecting this idea. The Convention provides an unprecedented step forward in recognizing the global responsibility in fighting corruption. For example, it includes provisions:

To help prevent corruption at home, by strengthening transparency in public financial management, including in procurement; meritocratic hiring of civil servants; open and participatory rule-making; right to information; and other measures.
To tackle transnational aspects of corruption, most notably by making it easier for countries to freeze and recover the proceeds of corruption located in foreign jurisdictions.

The delegations coming from all across the globe should have but one goal in mind: COLLECTIVE ACTION AGAINST CORRUPTION. Collective action against corruption requires the need to balance the burden of responsibilities. This is another fundamental point in the fight against corruption that has been overlooked. For too long the focus of anticorruption efforts has targeted developing countries.

Developing countries get named and shamed.
Developing countries are rewarded or punished based on compliance with standards set in the developed world.
Far too often, the public opinion in developed nations seems to forget that corruption is not a developing country problem only.

By no means do I want to relieve countries that suffer endemic corruption from their responsibility. However, corruption in developing countries is also the result of an enabling and permissive global environment. All countries are responsible for this environment, particularly those with greater economic and political leverage.

Developing countries might have a long way to go in improving transparency, accountability, and good governance. However, progress made by these countries will be deemed insufficient, as long as the international financial architecture provides a risk-free alternative for the concealment of stolen funds.

As long as kleptocrats think that they have a good chance of getting away with their theft, they will be looking for opportunities to steal. Viewed in this way, the failure of the international community to solve this situation actually sabotages (undermines) the efforts undertaken by developing countries.

At the World Bank, we realize that there are two sides to the corruption equation.

There is not only a bribe taker, but also a bribe giver. And this giver is often a foreign company, especially when the scale of the bribe is large.

We have learnt that the kleptocrat would not be able or willing to steal if it weren’t for the security provided by the convenient and anonymous international financial architecture.

The World Bank undertook a serious listening exercise in our partner countries. We visited nearly 50 countries and consulted with more than 3,200 people, and organizations including the private sector. A remarkable consensus emerged not only about whether but also how development organizations, such as the World Bank, should help combat corruption.

The Result?
The new Governance and Anticorruption, or GAC, Strategy of the World Bank. This participatory strategy has helped us identify a new business model for our governance work focused on:

Engagement at the country level tailored to country context.
Assistance to countries for the creation of capable and accountable states that deliver better services and results for poor people.

Systematic engagement with a broad range of stakeholders in government, business and civil society.

Strengthening anticorruption in our own World Bank policies and programs.
Supporting regional and global processes that help set standards in tackling transnational aspects of the problem.

As part of this last dimension of the Governance and Anticorruption Strategy, the World Bank launched, jointly with the UN Office on Drugs and Crime, the Stolen Asset Recovery Initiative, or StAR. We thank Mr. Costa and the UNODC team for their excellent colaboration in this endeavor.

The main goal of StAR is to help developing countries recover assets stolen by corrupt government officials and hidden in foreign jurisdictions.

This is a very serious problem.

Though numbers are hard to come by, an estimated $20-40 billion each year leaves developing countries as illicit flows of which a significant portion is corruptly stolen funds.

StAR will seek to assist countries in four possible ways:

Providing targeted technical assistance to countries seeking the recovery of stolen assets.
Working with major financial centers in lowering the existing barriers to asset recovery.
Generating knowledge management tools that would help raise awareness, inform policy makers, and promote best practices.
Monitoring on a voluntary basis the use of assets once repatriated.

I am very pleased with the progress that has been made on StAR. I would like to repeat the invitation made by Mr. Costa for tomorrow’s Ministerial Roundtable and for Thursday’s Technical Side Event on the StAR Initiative.

The Second lesson we have learnt is that there can be no free-riding in the fight against corruption.

Governments, the private sector, civil society groups, the international media, international organizations need to live up to their commitments. They can’t wait for the action of others as a precondition to start fulfilling their duties.

Allow me to use a real life example to illustrate this free-riding problem. Say Switzerland starts tightening its regulatory framework in the area of money laundering and lowering existing barriers to asset recovery, as it has been doing during the last years. What good would that effort be in itself if other jurisdictions don’t follow a similar path? Wouldn’t corrupt money simply fly to where it’s safer?

The international community gathered here today needs to avoid the trap of the lowest common denominator.

For instance, the Compliance Reports issued by the Group of States against Corruption (GRECO) show that parties to the Criminal Law Convention on Corruption have either “partly implemented” or “not implemented at all” nearly 50% of the recommendations made by the Evaluation Team. The difference across countries is significant with some countries falling short in as much as 75% of the recommendations.

The picture is no better when analyzing the same data for the OECD Anti-Bribery Convention. The 15 Follow-up Reports to the Second Evaluation Round show that countries have fallen short in over 50% of the recommendations. The difference across countries is even more dramatic.

The statistics highlighted above pertain to those developed countries whose leadership has ratified these conventions and also accepted to subject themselves to a peer review process. I can help but wonder what countries that have not ratified these conventions are actually doing.

There are still several developed countries that have not ratified UNCAC. For example, only 15 of the 54 jurisdictions classified by the IMF as offshore financial centers are parties to UNCAC. I would like to use this opportunity to call on all countries to ratify and implement the UNCAC. In particularly I would like to call on developed nations to exercise their leadership in this regard.

The previous examples highlight the fact that we cannot rely only on good will to overcome the free riding problem. If everyone must play its role then I would like to encourage the Conference of State Parties to adopt a comprehensive and independent third party review mechanism. I would like to encourage the Conference to provide the necessary means to the Secretariat so that it can help the international community overcome the free-riding trap. If we want countries to be serious about tackling corruption then a strong signal needs to come from the Conference.

If good governance starts at home then the Conference should provide the first example. The Conference needs to push countries to do their best. UNCAC needs a strong third party review mechanism.

Only this way we can help ensure that the rhetoric becomes a reality;
Only this way we can be certain that countries will live up to expectations;
Only this way we can avoid the trap of the lowest common denominator.

What can be done?

Developed countries can step-up the pace and undertake decisive and creative measures to facilitate the recovery of stolen assets. They could:

Facilitate non-conviction based forfeiture mechanisms;
Strengthen guidelines regarding the due diligence of Politically Exposed Persons;
Reduce the overly burdensome freezing process, for example by allowing a short preventive freezing period;
Pro-actively respond to mutual legal assistance requests.
Developing countries can also make substantial progress. They can:

Implement article 6 of the Convention regarding the establishment of independent anti corruption bodies.
Implement article 8 regarding public asset declarations for government public officials.
Implement article 9 regarding the establishment of transparent, competitive and objective procurement systems.

The way in which we thinking about corruption in World Bank projects is shifting significantly. We recently commissioned a Panel led by Paul Volcker, to review the operations of the department which investigates allegations of corruption, and are now in the process of implementing its recommendations to tighten the design and supervision of projects to take upfront account of the fraud and corruption.

Make no mistake, corruption undermines development. We at the World Bank do not see governance and anticorruption and development as separable agendas. They are a single agenda. It is the agenda based on the public being served by government. We need to do everything possible to help countries to fight poor behavior by building strong institutions. But this effort must be matched by actions in developed country financial centers to make bad behavior easier to detect and easier to rectify.

We call on the global community to work aggressively and in global partnership to achieve the full promise of UNCAC. Let’s hope that this Bali meeting will be a turning point in our common efforts.


Forget yourself for others, and others will never forget you.

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