Opinion Havens on earth

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.

The magnitude of the problem suggests that a better approach to combat looted funds starts with preventing assets from being stolen and laundered in the first place. That would place a significant requirement on financial centers and their financial institutions. Absent prevention and early detection,there will always be safe havens for the corrupt.

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 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 financial crisis has spurred the international community to reduce the financial system’s exploitation by the unscrupulous. The G-20 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. It recognised 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.

But much more is needed. At the World Bank Group we are working together with UN 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. Financial institutions must become a central part in efforts against theft to ensure there are no financial safe havens for stolen funds.