Financial Secrets and Lies

Natural resources are a major potential source of wealth for developing countries; in 2010, the total value of mineral and fuel exports from Asia, Africa, and South and Central America was roughly 15 times higher than the aid that they received. But, all too often, self-serving politicians deny citizens their right to benefit from their country’s natural resources, using opaque or secret transactions to steal or siphon off assets.

Yet the ICIJ investigation neglected a crucial point: money laundering and financial secrecy do not take place only offshore. On the contrary, the United States, the United Kingdom, and other mainstream financial centers are at the heart of the action. Indeed, most of the shell companies implicated in the World Bank study were registered in the US. And British, American, and European banks are routinely reprimanded (but rarely prosecuted) for handling the proceeds of crime. Just last year, it was revealed that HSBC enabled Mexican drug cartels to through the US financial system.

The inclusion of financial transparency on the G-8’s agenda at its meeting in the UK in June is a step in the right direction. In an age of strained public budgets and widespread austerity, it is not surprising that politicians finally recognize the potential benefits of tackling financial corruption, and British Prime Minister David Cameron should be congratulated for taking a leadership role. Now he must keep the at the World Economic Forum in Davos earlier this year to push for more transparency on who owns companies; on who’s buying up land and for what purpose; on how governments spend their money; on how gas, oil, and mining companies operate; and on who is hiding stolen assets and how we recover and return them.

The G-8 and the rest of the international community must identify companies’ owners and beneficiaries in existing corporate registries and make the information public. The European Commission estimates that open registries would cost less than the current, opaque system. Likewise, the British government has suggested that an open registry would save the UK and its businesses roughly £300 million ($460 million) annually by simplifying due diligence for financial institutions and reducing domestic financial crime.

At this year’s meeting, G-8 leaders should develop an effective action plan that focuses on the causes, rather than the symptoms, of poverty, and that lays the groundwork for a system that protects citizens from the depredations of corruption and bad governance. A genuine commitment to increasing financial transparency would carry huge potential benefits for the world’s poorest people, while fostering more equitable economic growth worldwide.

Gavin Hayman is Director of Campaigns at Global Witness.

Copyright: Project Syndicate, 2013.

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