When criminals, kleptocrats, and other corrupt actors seek to launder their ill-gotten wealth, they usually require the assistance of professionals to obscure the funds’ illegitimate origins. These corruption “enablers” may be lawyers who structure corporate vehicles, accountants providing tax planning guidance, bankers investing the money through numbered and offshore accounts, real estate agents handling anonymous cash transactions, or educational and charitable institutions ignoring the criminal source of the fees and donations they receive.
Looking at sub-Saharan Africa alone, it is estimated that a gargantuan $88.4 billion USD is looted from the region on an annual basis (1), most of which ends up in institutions of the global north with the help of these professional intermediaries. While the roles enablers play in illicit financial flows (IFFs) are conceptually easy to understand, the numbers are staggeringly difficult to conceptualize. Despite decades of regulation, supervision, and codes of conduct for many of these professionals, enablers remain a key ingredient in IFFs.
A new report from the Governance & Integrity Anti-Corruption Evidence Programme (GI ACE) entitled “Global Finance and the Enablers of Corruption” reviews the body of evidence that seeks to demonstrate why and how enablers become involved in IFF schemes, what instruments exist to deter them, and how effective these instruments have been in practice. With ample use of case studies and news reporting, the report illustrates how regulatory frameworks do not operate in a vacuum, but within the context of distinct jurisdictions, and with real-world trade-offs related to privacy, security, and the resources needed for development, implementation and enforcement.
Two fundamental findings emerge from the research:
1) there is little doubt as to the involvement of these professionals in global money-laundering schemes, but
2) there is scant quantitative evidence that shows how best to curb their involvement without overly restricting access to their services.
Despite the challenges, the opportunity to attack the enabler problem has arguably never been greater. Data leaks and investigative reporting in recent years have illuminated the shocking scale and negative impacts of financial corruption and the pivotal role of these enablers. The FinCEN Files (2), Panama Papers (3), Pandora Papers (4) and Paradise Papers (5) along with other more localized investigations such as the Cullen Commission Report (6) in British Columbia, Canada, are just some examples.
Encouragingly, the involvement of enablers in IFFs is also garnering growing attention from key policy makers. In September 2022, the United States Financial Crimes Enforcement Network (FinCEN) announced new rules on beneficial ownership, requiring reporting companies to file reports with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity; and (2) the company applicants of the entity. Similarly, the UK published the Economic Crime and Corporate Transparency Bill 2022 on September 22, 2022, which contains provisions for regulators of the legal sector to be tasked with promoting the prevention and detection of economic crime.
Central to the recommendations in the GI ACE report, greater efforts and emphasis on communicating the importance of action to curb IFFs to a broad public audience needs to be done in ways that are relatable and compelling. IFFs can seem like an abstract problem, especially when we are speaking about dollar values in the millions, billions, and even trillions. The full impacts of this corruption can also feel especially remote to those in the Global North, who may live far from where the victims of the profit-generating crimes reside.
Furthermore, countering IFFs is a never-ending balancing act of principles. On one hand, confidentiality attached to a client’s affairs when represented by a lawyer is often considered a matter of democratic primacy. But, on the other, this same principle might be what provides the cover for certain lawyers to become enablers.
While new tools are being developed to counter IFFs such as beneficial ownership, unexplained wealth orders, asset recovery and repatriation, and several collective action programs among professional bodies, more research is required to determine the tools that are delivering results. We are in the stage where we’re trying new things, but the evaluation of these efforts is needed to ensure we continue down the right path of reducing the role of enablers in IFFs.
Footnotes
(1) United Nations Conference on Trade and Development (UNCTAD), (2020) “Economic Development in Africa Report 2020: Illicit Financial Flows for Sustainable Development in Africa” https://unctad.org/system/files/official-document/aldcafrica2020_en.pdf
(2) International Consortium of Investigative Journalists. FinCEN Files. https://www.icij.org/investigations/fincen-files/ (Accessed September 2022)
(3) International Consortium of Investigative Journalists. The Panama Papers: Exposing the Rogue Offshore Finance Industry. https://www.icij.org/investigations/panama-papers/ Accessed August 22, 2022.
(4) International Consortium of Investigative Journalists. The Pandora Papers. https://www.icij.org/investigations/pandora-papers/. Accessed August 22, 2022.
(5) International Consortium of Investigative Journalists. Paradise Papers: Secrets of the Global Elite. https://www.icij.org/investigations/paradise-papers/ Accessed August 22, 2022.
(6) Cullen Commission Final Report, Inquiry into Money Laundering in British Columbia, June 2022. https://cullencommission.ca/com-rep/