G20 Background Policy Brief

February 2012

Anti-Corruption
Please address comments and questions to: John Ruthrauff Director of International Advocacy InterAction jruthrauff@interaction.org 1.202.552.6523 Sue Pleming Senior Director, Communications InterAction spleming@interaction.org 1.202.341.6523

In November 2010, the G20 adopted a comprehensive Anti-Corruption Action Plan, addressing issues from enacting and enforcing anti-bribery laws to preventing money laundering to asset recovery measures. The proposed reforms are critical for achieving the Millennium Development Goals and protecting the worlds most vulnerable people. The G20 also agreed to annual public reporting, aiming to increase transparency and accountability. Public reporting by countries on anti-corruption progress enhances public oversight and increases pressure for greater reform. In accordance with its commitment, the G20 Anti-Corruption Working Group issued its first monitoring report in November 2011. While the report displays several examples of progress on anti-corruption issues, significant improvement is necessary, and the G20 needs to increase efforts in implementing and enforcing measures to reduce corruption. We therefore recommend the mandate for the Working Group be extended for an additional two years to oversee implementation of the commitments made in the Action Plan.

Summary of Recommendations
Comments and questions on specific recommendations should be addressed to the following individual(s): Shruti Shah Senior Policy Director, Law & Regulation Transparency International USA sshah@transparencyusa.org 1.202.589.1512

1. Implement and enforce laws criminalizing foreign bribery and prohibiting off-book accounts by the end of 2012. 2. Strengthen no safe haven and asset recovery policies and deny non-cooperative jurisdictions access to G20 financial systems. 3. Take practical steps towards establishing transparent, accountable public financial management systems, including for budget and procurement, by the end of 2012.

Detailed Recommendations
1. Implement and enforce laws criminalizing foreign bribery and prohibiting off-book accounts by the end of 2012. The World Bank estimates that corruption costs $1 trillion USD each year, and bribery by 2 public officials in developing countries totals as much as $40 billion USD each year.
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Furthermore, bribery undermines economic growth, diverts development assistance and subverts environmental, health and safety controls. It also threatens political stability and national security.

Consistent and vigorous enforcement of foreign bribery laws is necessary to effectively reduce foreign bribery in international business and development. In its 2010 action plan, G20 members pledged to enact and implement laws against international bribery, such as criminalizing bribery of foreign officials, and to begin more active engagement with the OECD Convention on Bribery of Foreign Officials. The Working Group reaffirmed these commitments in its first monitoring report. Individual countries have made some progress in enacting anti-bribery laws: China amended its criminal code to introduce foreign bribery as an offense, and India introduced a bill in parliament criminalizing foreign bribery. The United Kingdom passed the Bribery Act, which modernized and reinforced its foreign bribery offence. Russia enacted legislation improving the public governance in counteracting corruption and criminalizing foreign bribery. Similarly, Indonesia is drafting a new anticorruption law, which includes a foreign bribery offense. However, implementation and enforcement of anti-bribery laws must be improved. The most effective option is for G20 nations not already party to the OECD Convention on Bribery of Foreign Public Officials to become signatories and participate in its peer review process. Several large developing economies in the G20, such as China and India, are still not party to the OECD Convention. For those countries that are party to the Convention, enforcement is lacking. While the first monitoring report states that fifteen G20 nations have implemented the OECD Convention, only four members are actively enforcing it, according to the Transparency International Progress Report on the Enforcement of the OECD AntiBribery Convention.3 This also tracks to the annual report 2

from the OECD Working Group on Bribery.4 For the Convention to be a sufficient deterrent against corruption, there needs to be active enforcement and sanctions against delinquent companies and individuals. 2. Strengthen no safe haven and asset recovery policies. The G20 should deny non-cooperative jurisdictions access to G20 financial systems.

Global illicit financial flows present a massive outflow of wealth from developing nations, undermining development and sustainable growth efforts in these countries. Noncooperative jurisdictions offer safe havens for the proceeds of corruption, tax evasion and organized crime, and as such should not have access to the G20 financial systems. Further, corrupt officials should not be allowed to conceal the proceeds of their illicit gains in other countries. In the 2010 Anti-Corruption Action Plan, the G20, committed to take measures to prevent corrupt officials from accessing the global financial system and laundering the proceeds of corruption, as well as to prevent such officials from traveling abroad with impunity. Additionally, they committed to supporting the return of stolen assets. The Anti-Corruption Working Groups first monitoring report on the implementation of the Action Plan shows limited progress in this area: The first Financial Task Force (FATF) experts meeting was held on 27 February 2011, bringing together anti-money laundering and anticorruption experts. A revision of the FATF 5 recommendations is set for February 2012. In 2011, the Working Group carried out a review of existing practices related to denial of entry of corrupt officials into G20 countries and agreed to develop a set of common principles for denying entry in early 2012. The Working Group, with support from the World Bank and UN Office on Drugs and Crime (UNODC) Stolen Assets Recovery Initiative, has also made some progress to strengthen G20

capacity to support asset recovery efforts, including designation of contact points and agreement of a set of principles for asset recovery. Though there has been limited progress, steps that are more concrete are needed to stem the flow of illicit funds and facilitate the success of the World Bank and the UNODC. This should include ensuring that the FATF standards are effectively enforced, adopting and enforcing a legal framework for asset recovery and responsible repatriation, developing mechanisms to promote the transparent use of returned funds, and creating registers that disclose the beneficial ownership of companies and the beneficiaries of trusts. This information should be available to relevant enforcement authorities, both domestic and internationally. G20 nations also need to strengthen no safe haven policies. All G20 members should deny safe haven to corrupt officials, and those who have supported their corruption, in cases where the individual has been convicted of corruption or there is credible evidence to believe they are involved in corruption. Such cases should be subject to a fair and accessible appeals system. To ensure illicit funds do not enter G20 institutions, members should deny non-cooperative jurisdictions access to G20 financial systems and should implement sanctions against those jurisdictions. 3. Establish transparent, accountable public financial management systems, including for budget and procurement, by the end of 2012.

In 2010, the G20 committed to promote transparency and integrity in the public sector, including management of public finances, but listed few practical measures to achieve the commitment. In its monitoring report, the Working Group amplified this commitment, consistent with Article 9 of the UN Convention Against Corruption (UNCAC) and the OECD Recommendation on Enhancing Integrity in Public Procurement. The broadened recommendations include establishing and enforcing codes of conduct for public officials, and implementing financial disclosure systems. They also include measures for procurement transparency such as using predetermined criteria for public procurement decisions and creating a chain of responsibility for procurement. G20 countries should adopt and urge all countries to promptly enact the standards for procurement and public financial management consistent with Article 9 of the UNCAC and the OECD recommendation. These include developing and implementing principles for financial disclosure by public officials. Aid Flows Access to information about aid flows also is necessary to coordinate resources and to assess their impact. G20 leaders should keep their commitments to increase the transparency of international aid by publishing comprehensive, timely, and comparable information. The International Aid Transparency Initiative (IATI) meets these requirements. IATI is a voluntary commitment involving donor organizations, countries and civil society organizations. Signatories supply data about volume, allocation, and results of aid flow, which helps track aid flows in a standard format. While the U.S. governments intention to join the IATI is a step forward, all G20 countries should endorse this for increased impact. Fourteen members have not signed the Initiative, including major donors Japan and France.7 Further, as donors, G20 countries should require corruption-risk assessment and budget transparency in countries receiving significant budget support. All G20 countries should implement systems to make a 3

Public procurement Public procurement of goods and services, which averages 15 percent to 30 percent of Gross Domestic Product, is vulnerable to corruption. Such corruption typically costs about 10 to 15 percent of a contracts value and, in some cases, up to 50 percent.6 Transparent management of public finances, which permits public oversight, is necessary to improve the likelihood that limited resources are used as intended.

percentage of aid available for transparency, supervisory, and audit programs. Finally, in carrying out the above recommendations, the G20 Anti-Corruption Working Group should also operate with the highest degree of transparency and publish in advance the schedule of its meetings and agendas, make draft recommendations publicly accessible, and provide meaningful opportunities for civil society participation.

While the statement is not designed to be a consensus position of the contributors, it has been endorsed by InterAction leadership. The recommendations were developed by a team of task force members who are listed below. Global Financial Integrity Global Witness InterAction Oxfam America Transparency International USA

End Notes
1 The Costs of Corruption, The World Bank Institute. 8 April 2004. 2 Barriers to Asset Recovery, The World Bank. 2011. 3 Progress Report 2011: Enforcement of the OECD Anti-Bribery Convention, Transparency International 4 2010 Annual Report, OECD Working Group on Bribery 5 The FATF 40+9 Recommendations, together with their interpretative notes, provide the international standards for combating money laundering (ML) and terrorist financing (TF). 6 Handbook for Curbing Corruption in Public Procurement, Transparency International. 2006. 7 International Aid Transparency Initiative, http://www.aidtransparency.net/implementation