5 practices to prevent and disrupt illicit financial flows

Six months into the COVID-19 pandemic, Transparency International found reliably documented instances of COVID-19-related corruption and misconduct across 17 countries and involving $1.1 billion in public funds. This money would have covered the cost of 50,000 ventilators.

The illicit financial flow of money and goods, covering everything from money used to fund terrorist activity to the proceeds of tax or sanctions evasion to the laundering of corrupt or criminally obtained profits, is widely recognized as "one of the greatest threats to a sustainable future." Illicit financial flows exacerbate many, if not all, of the world's most significant social, political and environmental challenges. They contribute to illegal resource extraction, resulting in substandard infrastructure, lead to underfunded social programs, and can deter investment where it is needed most.

While corruption and other financial crimes negatively impact high-income and low-income countries alike, the costs are often unevenly distributed, thus exacerbating global economic inequalities. For example, a recent UNCTAD report on tax avoidance found that each year "an estimated $88.6 billion, equivalent to 3.7% of Africa's GDP, leaves the continent as illicit capital flight."

Efforts to combat corruption and illicit financial flows need to hold a prominent place within the private sector. Private sector "gatekeepers," such as art advisors, bankers, accountants, lawyers and real estate agents, are essential for preventing and disrupting illicit financial flows. They must implement responsible practices in every aspect of their operations and collaborate across their industry and supply chains.

To support these gatekeepers, the Gatekeeper Task Force, convened by the World Economic Forum's Partnering Against Corruption Initiative (PACI) and Global Future Council on Transparency and Anti-Corruption, created a "Unifying Framework" of five core practices. The framework will serve to unite a broad array of professionals and reinforce or enhance existing corporate best practices and regulatory measures, helping crucial industries identify and respond to clients or transactions intent on furthering illicit activity.

1. Establish clear, concrete, and up-to-date policies.

For example, at Nedbank, financial crime risk management policies, including those related to money laundering, terrorist financing and sanctions, fraud, corruption and tax evasion, are annually reviewed and approved by the board and disseminated to all employees to read and acknowledge.

Nedbank performs individual risk assessments across the group for each financial crime type and holistically for a consolidated Enterprise-wide Integrated Financial Crime Risk Assessment. These policies provide a view of the threats and vulnerabilities that drive and create Nedbank's integrated and holistic financial crime risk and the effectiveness with which Nedbank manages the identified threats and vulnerabilities and where appropriate, on an integrated basis.

2. Promote effective due diligence.

For example, EY invests in specialized clients due to diligence teams to support colleagues as they navigate complex Know Your Client procedures. Helping the client risk assessment process, the group of more than 100 people performs sanctions screening, adverse media research, background and verification of identity checks.

3. Centre a culture of integrity through training and incentives.

To build a culture of integrity, a company must purposely set out to shape it. Leaders must talk openly and regularly about the importance of living ethical values. Training and incentivizing the right behaviors are crucial to ensuring responsible business practices, leading to more robust performance and sustainable growth. For example, JLL, through targeted training and global awareness campaigns, continually reinforces its core values of teamwork, ethics and excellence.

4. Foster a "speak-up" culture

For example, Baker McKenzie’s PointONE program underscores the commitment to ensuring that all employees work in an environment in which they feel able to speak up and voice their concerns internally. PointONE comprises Baker McKenzie’s behaviour policies - including policies on respect, inclusion and workplace behavior, as well as relationship at work and alcohol and prohibited substances policies – and sets out the expectations and avenues for people to raise concerns and access support, including through trained PointONE contacts.

5. Collaborate across industries and sectors

In 2016, the Slovak government adopted an innovative, beneficial ownership disclosure law that capitalizes on gatekeeper's expertise to root out corruption in public procurement and increase the transparency of public spending. The law requires companies awarded government contracts, receiving EU funds, or receiving an extractive license to register in a specially created registry for "Partners of the Public Sector."

This registry is publicly accessible and contains information on beneficial owners of the listed companies – but data cannot be self-reported by the company. Only an authorized professional intermediary (such as an attorney, notary, bank, auditor or tax advisor) can report information to the registry. Any authorized intermediary has a professional duty to verify the information and is jointly liable for the accuracy of the disclosure. Anyone can change the registered data at the registration court; the burden of proof of the accuracy of the data lies with the registered company.

"The novelty of the Slovak Law lies in the obligation of any private entity receiving public funds or dealing with public goods to register its beneficial owners via an individual gatekeeper, who is co-liable for the accuracy of the data," summarized Andrej Leontiev, Partner at Taylor Wessing, one of the authorized professional firms providing this service.

Support for the framework

The framework was launched on 2 June in conjunction with the first-ever United Nations General Assembly Special Session (UNGASS) against corruption. It echoes the UNGASS's emphasis on the importance of embracing an international and multi-sectoral approach to the fight against corruption.

António Guterres, Secretary-General of the United Nations, called for action against illicit financial flows as part of the response to the COVID-19 pandemic, highlighting the fact that the illegal outflow of funds "already deprive[s] developing countries of hundreds of billions of dollars every year."

"The transnational and multisectoral nature of illicit financial flows demands a transnational and multisectoral response," said Nicola Bonucci, Partner at Paul Hastings, Paris and Chair of the Gatekeepers Task Force. "We also believe that both self-regulation and government regulation are complementary tools to pursue efficient and honest markets."

Sol Krause, Financial Sector Specialist at the Stolen Asset Recovery Initiative, a partnership between UNODC and the World Bank added, "Offering up specialized professional expertise to kleptocrats, money launderers, and their allies is not a harmless, victimless crime. It directly results in diverted resources from public services, which means blocked opportunities and destroyed livelihoods for people in countries harmed by corruption. Private-sector-led actions outlined in the framework are critical for eliminating safe havens for illicit funds in financial centers around the world."

Julie Linn Teigland, EY EMEIA Area Managing Partner, concludes: "As gatekeepers translate this important framework into concrete actions, we can make significant progress on reducing the corrosive impact of illicit financial flows on markets and people around the world. Join us and let us collaborate to put the framework into practice. Collectively we can help build a better working world."

Companies that endorsed the Framework as of June 2, 2021:

Supported by:

The full list of organizations and companies that have endorsed the Framework can be found here. All gatekeepers are invited to publicly endorse the Unifying Framework and to begin or continue to take concrete steps towards implementation of the framework’s core principles and practices. Rather than a menu of options, the five practices should be understood as five equally important and mutually reinforcing components of the Unifying Framework. For more information about this initiative please contact Katja Bechtel at katja.bechtel@weforum.org