Corruption is a first world problem, too

After years of debate and effort, the fight against corruption is beginning to overcome its perception problem. This is that rich countries are honest and poor ones are not. A turning point may have come at the recent G20 summit in Brisbane, where world leaders agreed to share tax information of “shell” companies that help shield illicit earnings from scrutiny.

Corruption has several manifestations and affects people’s lives in different ways. Widely, it undermines the rule of law, damages trust, hurts development and prevents governments from delivering on their duties. Poor countries have highly visible corruption, mostly because of underdeveloped governance frameworks and lax judicial systems. Rich countries may have more robust structures, but the forms of corruption within them are more sophisticated. In many ways this sophistication is more insidious, as it supports graft in emerging markets.

Illicit funds generated in the developing world have been known to find a warm welcome in the opaque banking, corporate and legal regimes of the developed world. Tax havens and bank secrecy laws too often offer a refuge for tainted money.

The G20 declaration is an attempt to tackle this culture. Known as “beneficial ownership transparency”, the new rules will require company owners to disclose their own names rather than the name of a company. By identifying the individuals concerned, governments will have a clearer idea about where funds are coming from. G20 governments have also agreed to share tax information about bank depositors by the end of 2018.

A report by Global Financial Integrity has assessed that developing countries lost $5.9 trillion to illicit financial flows between 2002 and 2011. These outflows, mostly to tax havens and opaque banking regimes, are increasing by 10% every year, which is why automatic sharing of tax information and reporting of beneficial ownership are critical. The measures will be applied equally to rich and poor countries, and if successfully implemented will strengthen people’s faith in multilateral frameworks.

The cooperation of the B20 and the business leaders of the G20 will be essential. The OECD Convention Against Bribery has already created momentum for change in international business through its recommendations. A combined effort from global corporations, national governments and multilateral agencies will be required for effective results. The debate should no longer be about high-risk countries but high-risk practices that enable the creation, movement and hosting of illegal funds.

Stronger multilateral coordination will help both rich and poor countries strengthen their anti-corruption frameworks, while local agencies within each nation need to develop innovative approaches to their own unique challenges.

In many countries, the mobile revolution is enabling citizens to monitor corruption. This should be supported by national governments via the enforcement of rules and delivery of justice. Those who escape penalty within national borders will find it difficult to survive once international cooperation on illicit funds becomes stronger.

Corruption is devastating across the board. While poor countries can tackle it by increasing transparency, rich countries should play their part by closing the door to illicit finances.

More on global corruption
Five ways to beat corruption
How transparency helps healthcare
Can technology tackle corruption?
Bill Gates on world corruption

Author: Pranjal Sharma is consulting editor of Businessworld, India  and a member of the Global Agenda Council on Transparency and Anti-Corruption.

Image: A young Iraqi girl holds out her money as she queues for the early morning bread at the bread factory in Baghdad. REUTERS/Kieran Doherty