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High on CPI but not completely clean

Deadly drugs are produced clandestinely in many parts of the world because they are in great demand in the rich countries. Similarly, corruption is thriving unabated universally including in developing countries because the output can be easily hidden in the coffers of the rich countries with no questions asked.

Take for instance the world’s richest country, the USA, ranked by Transparency international at 67th position. In the US corruption is apparently at its worst in almost a decade. In the annual Corruption Perceptions Index (CPI), the United States fell from a high of 76 in 2015, out of a maximum possible score of 100, to a low of 67 in 2019.

According to Cailey Griffin and Amy Mackinnon (TI Report: Corruption in U.S. at Worst Levels in Almost a Decade, published on Jan. 28, 2021) a series of really bombshell exposés by media outlets are demonstrating how much dirty money is flowing into the United States’ financial system. A joint investigation published by BuzzFeed News and the International Consortium of Investigative Journalists last year had revealed how major banks had knowingly allowed trillions of dollars of suspect financial transactions to go ahead, enabling drug kingpins, kleptocrats, and terrorists to move corrupt cash around the world.

Transparency International’s ‘Trouble at the Top’ series for the 2020 Corruption Perceptions Index, includes a list of the top 25 countries on the CPI and their corruption challenges, an overarching analysis of the root causes of corruption in these countries.

According to this series (CPI 2020: Trouble in the top 25 countries, dated Jan. 28, 2021) the United States (67) ranks second on the Financial Secrecy Index, sandwiched between the Cayman Islands and Switzerland, and accounts for more than 20 per cent of the global market in offshore financial services. The FinCEN Files also revealed that US$1 trillion in suspicious funds was laundered through US banks, exposing significant gaps in US anti-money laundering rules. Companies paid a record-setting US$2.9 billion to resolve charges that they bribed foreign officials.

In France (69), former President Nicolas Sarkozy is currently awaiting a verdict for having allegedly bribed a judge to gain information on yet another campaign finance violation prosecution. While Sarkozy is the first French president tried for corruption, the landmark case is no outlier in French politics.

From the Karachi bus bombing affair (May 8, 2002), which was linked to both a suicide bombing that killed 15 and a misappropriation of arms sales that implicated the French Prime Minister Édouard Balladur, to a 2007 campaign finance investigation with connections to former Libyan dictator Muammar Qadhafi, France has plenty of corruption scandals that mix high-level politics, campaign financing and human rights abuses. In fact, many assets linked to corrupt individuals often end up in France.

The United Arab Emirates (71) has been heavily criticized by the Financial Action Task Force (FATF) for its inadequate anti-money laundering framework. The country’s chaotic approach to registering companies makes it incredibly difficult for law enforcement to detect who is behind a suspicious company when thirty-nine different registries operate across the seven Emirates.

The UAE also has weak financial supervision and investigative powers when it comes to cross-border crimes. The Emirates is suspected to be involved in a number of shady deals, including the Luanda Leaks in Angola and state capture in South Africa, where the Gupta family stands accused of stealing US$7 billion in government funds, in what has been described as a “modern coup”.

Despite few examples of vote-buying in Japan (74), a recent survey, Global Corruption Barometer – Asia, found that 82 percent of Japanese citizens think government corruption is a big problem. In addition, a 2018 report found that Japan has weak rules on company ownership, and unfortunately, not much has changed since. Japan’s track record in combatting foreign bribery is also extremely poor.

While the UK (77) is the first G20 country to launch a public register of beneficial ownership, a loophole in the law allows foreign companies to purchase real estate anonymously.

In the meantime, rich businesspeople linked to autocratic regimes are allegedly continue purchasing property via shell companies.

Hong Kong’s (77) legal and enforcement systems continue to hamper efforts to combat foreign bribery, where companies or foreign officials can only be prosecuted if the exchange takes place in Hong Kong. Home to billionaire Joseph Lau who is wanted in Macau for bribery and money laundering, Hong Kong promotes a business environment where shell companies and corruption can flourish.

According to a recent report from Transparency International Canada (77), one-third of the 100 most valuable residential properties in Greater Vancouver are held through structures that hide their beneficial owners. Nearly one-third of these properties are owned by shell companies, while at least 11 per cent have a nominee listed on title.

Australia (77) faces several corruption challenges, including anonymous company ownership and money laundering. As a result of a 2006 law, properties can be bought and sold without due diligence and real estate agents, lawyers and accountants are not required to report suspicious activities. Investigations show that real estate can open the door to money laundering and grand corruption.

Luxembourg (80) ranks sixth on the 2020 Financial Secrecy Index and is an attractive destination to those wishing to invest in loosely regulated alternative investment funds or store arts, gold and other assets in a free-port. Foreign bribery is another challenge in Luxembourg, where little to no enforcement exists, and a major financial holding company is currently under investigation in Italy, Argentina and Brazil for foreign bribery and money laundering.

Loopholes in Germany’s (80) beneficial ownership register leave the country open to abuse, like in the recent case of Czech Prime Minister Andrej Babiš. Weak financial supervision across sectors, including real estate, banking, etc., continue to contribute to large corruption scandals, including Deutsche Bank and Wirecard.

The Netherlands (82) still has much work ahead to comply with the new EU Directive for Whistleblower Protection and advance anti-corruption efforts. In addition, the Netherlands has all the ingredients for a tax haven because of its mix of beneficial fiscal arrangements available to international corporations.

Norway (84) is yet another Scandinavian country entangled in an international money laundering scandal. Similar to its neighbours, weak anti-money laundering supervision is a major issue that may lead to dirty money entering the country, and if left unchecked, could continue to facilitate corruption.

Historically, Switzerland‘s (85) banks have attracted corrupt individuals from across the globe including Uzbekistan, Venezuela, Malaysia and Brazil to name a few. The country falls short of international minimal standards to prevent money laundering, including for non-financial services regarding companies and trusts and real estate transactions. Furthermore, whistleblower protections are very weak in Switzerland and criminals and their enablers run little risk of being caught.

Similar to other Nordic countries, weaknesses in Sweden’s (85) anti-money laundering supervisory framework means the country could serve as a point-of-entry for dirty money in the EU. This weak financial supervision highlights the need for a more harmonised approach to supervision across the EU, as well as an EU-wide independent anti-money laundering body.

Singapore (85) consistently performs well on the CPI compared to its regional counterparts, but high levels of secrecy in the corporate and financial sectors, coupled with weak financial supervision, make it a very attractive place to park dirty money.

Finland (85) scores high on the CPI but isn’t spared from corruption. Gaps in the country’s anti-money laundering supervisory framework could make Finland, along with other Nordic countries, very attractive to corrupt individuals and money launderers. In addition, Finland demonstrates little to no enforcement against foreign bribery.

New Zealand (88): The country’s reputation easily distracts from corruption risks it must still address. For instance, New Zealand doesn’t have a register for beneficial ownership and falls short on whistleblower protection. In addition, recent elections highlighted a lack of regulation and opaque funding of digital ads that affects political integrity. There is also an urgent need for greater transparency around procurement, particularly that arising from COVID-19 responses.

While Denmark (88) has a public sector that may well be exemplary when it comes to anti-corruption, it does not mean this top scorer is completely clean. Denmark’s anti-bribery laws have significant limitations and the Danske Bank scandal highlighted how weak supervision in the financial sector allowed millions in suspicious funds to enter the European Union (EU).

The following eight countries are also high on CPI and lax on regulations but not as popular with the corrupt looking for a safe place to park their dirty money:

Austria (76), Belgium (76), Estonia (75), Iceland (75, Ireland (72), Uruguay (72), Bhutan (68) and Chile (67).

M Ziauddin, "High on CPI but not completely clean," Business Recorder. 2021-02-03.
Keywords: Social sciences , Financial system , French politics , Human rights , Uzbekistan , Venezuela , Malaysia , Brazil , CPI , EU

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