September 17, 2007— The World Bank has joined with the United Nations in a broad new effort to help developing nations recover billions of dollars of looted funds.
The initiative launched today estimates between US$1 trillion and US$1.6 trillion is lost each year to various illegal activities including corruption, criminal activity such as drugs, counterfeit goods, money, and illegal arms trade, and tax evasion.
In announcing the plan, Secretary General of the United Nations Ban Ki-moon, World Bank President Robert B. Zoellick, and Executive Director of the UN Office on Drugs and Crime (UNODC), Antonio Maria Costa, said a truly international effort is needed to ensure looted assets are returned to their rightful owners.
"Both developed and developing countries must work in partnership,” says Zoellick. “Developing countries need to improve governance and accountability, but developed countries should also stop providing a safe haven for stolen proceeds."
Corrupt leaders of poor countries skim as much as US$40 billion each year and stash their looted funds overseas. Once gone, they are extremely difficult to recover, as countries like Nigeria and the Philippines have discovered.
Nigeria spent five years repatriating half a billion looted dollars from Swiss banks.
But Nigeria’s wait was short compared to the 18 years it took the Philippines to recover US$624 million stolen by former leader Ferdinand Marcos.
In its joint report on stolen assets, the World Bank and the UNODC note the high financial cost of stolen assets, but the true cost of the “kleptocrats” goes much deeper.
Corruption at the highest levels of government degrades public institutions, especially those involved in public financial management and financial sector governance. It weakens or even destroys the private investment climate, and hampers delivery of basic health and education services, harming the poor the most, the report adds.
“The development impact of theft on a massive scale is devastating,” says Zoellick.
"There is a huge amount of illegally moving funds, funds that need to be deployed in the fight on poverty" adds Danny Leipziger, World Bank Vice-President for Poverty Reduction and Economic Management.
The report says every US$100 million recovered could fund full immunizations for 4 million children, provide water connections for 250,000 households, or fund anti-retroviral treatment for over 600,000 people with HIV/AIDS for a full year.
“There should be no safe haven for those who steal from the poor,” adds Zoellick. “Helping developing countries recover the stolen money will be key to fund social programs and put corrupt leaders on notice that they will not escape the law.”
G8, OECD should lead
Previous efforts to help countries repatriate funds were bilateral efforts and did not benefit from the assistance of the StAR plan, says former Nigerian Finance Minister Ngozi Okonjo-Iweala, now a Brookings Institution Fellow in Washington
As a result, developing countries experienced many obstacles in trying to recover assets, she says. Several countries on the receiving end of looted funds had no legal framework for returning them.
Former Nigerian Finance Minister Ngozi Okonjo-Iweala, now a Brookings Institution Fellow in Washington.
Many countries can freeze assets, but not return them, “so if a developing country discovers money, it could very well stay there and never come back,” adds Dr. Okonjo-Iweala, a contributor to the StAR report and member of a special Friends of StAR group composed of influential individuals from developed and developing countries formed to monitor progress and advise on the initiative.
To remedy this situation, the StAR plan urges G8 and OECD countries to ratify the UN Convention Against Corruption (UNCAC) and actively aid the efforts of developing countries to recover assets within their borders.
The convention, entered into force in December 2005, is the first legally binding global anticorruption agreement. It provides a framework for asset recovery, including mechanisms to prevent money laundering and to recover assets diverted through corrupt practices. Only half of the OECD and G8 countries had ratified the convention by June 2007.
In addition, the StAR plan recommends developed countries fund programs or directly provide developing countries with technical assistance that would enhance the capability of the criminal justice system—law enforcement, prosecutorial, and judicial authorities—to effectively prevent asset looting and recover the proceeds of corruption in accordance with internationally accepted legal standards.
Wealthy countries should also pressure emerging market countries serving as havens for stolen assets to ratify and implement the UNCAC.
The StAR Initiative will help:
develop capacity to respond to and file international mutual legal assistance requests.
adopt and implement effective confiscation measures, including non-conviction based confiscation legislation.
enhance transparency and accountability of public financial management systems.
create and strengthen national anticorruption agencies.
help monitor the recovered funds if requested by the countries.
Financial system regulating agencies should enforce penalties for financial institutions doing business with corrupt individuals and politically exposed persons without due diligence and establish clear guidelines regarding their treatment. They should also strengthen anti-money laundering regimes by enforcing Know Your Customer record-keeping, and reporting requirements especially in relation to politically exposed persons.
The nonfinancial private sector and non-governmental organizations can provide training for specialized asset recovery units in developing countries and engage civil society and media to help in monitoring use of recovered assets.
Under StAR, the World Bank and the UNODC can help countries prepare the often complicated and costly requests to recover stolen assets. The Bank and UN can also advocate for developing countries seeking return of assets and ensure the countries on the receiving end of stolen assets comply with the UN’s anticorruption convention, says Dr. Okonjo-Iweala.
Transparency International Chair Huguette Labelle participated in the launch of the Stolen Asset Recovery (StAR) Initiative and TI has issued a statement calling StAR "an important element of the Bank’s comprehensive attack on corruption," and "a wake-up call to those who steal and to those who facilitate or harbour stolen assets."