Banks, Illegal Financial Flows and Management of Frozen Assets Yaoundé, Cameroon June 6, 2014 GODFRED PENN LEAD COUNSEL & ADVISOR TO THE GENERAL COUNSEL AFRICAN DEVELOPMENT BANK GROUP
INTRODUCTION & OUTLINE ILLICIT FINANCIAL FLOWS (IFFs), AFRICA Q U REGIONAL DISTRIBUTION OF IFFs I DRIVERS OF IFFs IN AFRICA C THE DEVELOPMENT IMPACT OF IFFs K INTERNATIONAL LEGAL FRAMEWORKS ON IFFs MANDATE OF THE FATF R U MANAGEMENT OF FROZEN ASSETS-THE ROLE N OF MDBS D THE ROLE OF THE AFDB GROUP O AFDB GROUP GAP I & II W PREVENTING IFFs IN PRIVATE SECTOR TRANSACTIONS N ANTI-CORRUPTION SANCTIONS REGIME MOVING FORWARD AFRICAN DEVELOPMENT BANK GROUP 2 Tuesday, December 16, 2014
Illicit Financial Flows in Africa “Illicit financial flows involve the transfer of money earned through corruption, kickbacks, tax evasion, criminal activities, transactions involving contraband goods, and funds transferred in violation of exchange controls” Source: Joint Report by AfDB and GFI (2013) Source: African Financial Markets Initiative Website AFRICAN DEVELOPMENT BANK GROUP 3 Tuesday, December 16, 2014
GLOBAL The United Nations Office on Drugs and Crime (UNODC) conducted a study to determine the magnitude of illicit funds generated by drug trafficking and organised crimes and to investigate to what extent these funds are laundered. The report estimates that in 2009, criminal proceeds amounted to 3.6% of global GDP, with 2.7% (or USD 1.6 trillion) being laundered. Tuesday, December 16, 2014 4
Regional Distribution of Illicit Financial Flows in Africa Africa lost between US$1.2-1.4 trillion through illicit financial flows over the period 1980 - 2009 The regions of West & Central Africa, North Africa and Southern Africa, together accounted for 95% of total cumulative illicit outflows from Africa over that period Source: Joint Report by AfDB and GFI (2013) Tuesday, December 16, 2014 5
Drivers of Illicit Financial Flows in Africa Embezzled rents and royalties from natural resource extraction activities Tax evasion, tax havens, secrecy jurisdictions Lack of transparency and accountability in financial systems and budget processes Bribes and kickbacks in public procurement Trade mispricing such as underpricing and overpricing of imports and exports Money laundering Lack of resources to monitor financial systems and enforce applicable laws AFRICAN DEVELOPMENT BANK GROUP 6 Tuesday, December 16, 2014
Development Impact of Illicit Financial Flows In 2009 illicit financial flows out of Africa were three times the amount of official development assistance received Illicit financial flows are a form of capital flight, which results in reduced levels of local investment Illicit financial flows exacerbate income inequality Illicit activities jeopardize the integrity of the national financial system and weaken financial institutions Weak and unregulated financial systems can further deter access to foreign investments and markets The issue of illicit financial flows is particularly important now as Africa is receiving less official development assistance from developed countries 7 Tuesday, December 16, 2014
INTERNATIONAL LEGAL FRAMEWORKS There are legal instruments that regulate the tracing, freezing, seizing and confiscation of instrumentalities and proceeds of crime. E.G.: 1998 UN Convention on Illicit Trafficking in Narcotic Drugs and Psychotropic Substances (Vienna Convention) 1999 International Convention for the Suppression of the Financing of Terrorism 2004 UN Convention against Transnational Organized Crime (Palermo Convention) 2004 UN Convention against Corruption AFRICAN DEVELOPMENT BANK GROUP 8 Tuesday, December 16, 2014
INTERNATIONAL LEGAL FRAMEWORKS Financial regulation standards are also set by the Basel Committee on Banking Supervision, for banks the International Organisation of Securities Commissioners (IOSCO), for securities firms and markets the International Association of Insurance Supervisors (IAIS), for insurance companies. Other self-regulating bodies, such as the International Federation of Accountants or the Wolsberg Group of Banks, have also set standards for their own area. AFRICAN DEVELOPMENT BANK GROUP 9 Tuesday, December 16, 2014
THE FATF The Financial Action Task Force (FATF) was established in 1989 by the G-7 countries to respond more effectively to Money Laundering (ML). The FATF Forty Recommendations require the criminalization of ML. In addition, the recommendations call on countries to adopt legislative and other measures in order to: freeze, seize and confiscate criminal proceeds; waive bank secrecy laws to permit financial institutions to monitor and report suspicious transactions; protect those reporting these transactions from civil and criminal liability; establish financial investigation units; and, cooperate fully in international law enforcement efforts to combat ML. AFRICAN DEVELOPMENT BANK GROUP 10 Tuesday, December 16, 2014
THE FATF The FATF Special Recommendations require countries to criminalize: the financing of terrorist organizations terrorism and terrorist acts and to designate these new offences as ML predicate offences The FATF is also involved in monitoring the progress of members in complying with its recommendations. AFRICAN DEVELOPMENT BANK GROUP 11 Tuesday, December 16, 2014
The Role of Multilateral Development Banks As financial institutions operating in the global financial system, MDBs must tighten fiduciary safeguards and establish and maintain internal procedures to prevent and detect corruption and money laundering Examples: Develop effective internal policies, train and educate employees, implement effective audit functions Provide financial and technical assistance to member countries wishing to implement international standards for anti- corruption and anti-money laundering measures Support member countries with financial sector reforms to strengthen banking supervision and regulation of financial institutions Coordinate, cooperate and exchange best practices with other MDBs to harmonize efforts for combatting illicit flows 12 AFRICAN DEVELOPMENT BANK GROUP Tuesday, December 16, 2014
ROLE OF AFDB GROUP ① GAP I was based on the Bank Group’s Medium - Term Strategy (MTS), 2008-2012, 1 st GOVERNANCE ② The Bank’s key focus was and has been on STRATEGY improving economic and financial governance on the continent by supporting actions which strengthen Public Financial Management (PFM) and by improving a Business Enabling Environment (BEE) at the country, sector and regional levels AFRICAN DEVELOPMENT BANK GROUP 13 Tuesday, December 16, 2014
ROLE OF AFDB GROUP UNDER GAP I With the central objective of assisting African countries to build capable and responsive states, the Bank’s work in governance also targeted the specific needs of fragile states by encouraging them to increase transparency and accountability in the management of public resources. Governance indicators have shown steady improvements. EG. According to the Bank Group’s “ Development Effectiveness Review on Governance ”, published in 2012, across the 14 countries where the African Development Bank Group invested in revenue systems, tax revenue rose from 10.5% to 14.7% of GDP, while tax rates for businesses declined from 94% of commercial profits to 54%. AFRICAN DEVELOPMENT BANK GROUP 14 Tuesday, December 16, 2014
AFDB GROUP’S GAP II To respond to the continent’s accelerating transformation, the new Bank Group Strategy for 2013-2022 has two core objectives: (i) achieving inclusive growth; and (ii) gradual transition to green growth. The Bank aims to support Africa’s transformation through five core operational priorities one of which is Governance and Accountability (G&A) which provides the strategic platform for GAP II. GAP II builds on the achievements of the first “Governance Strategic Direction and Action Plan (GAP I)” for 2008 -2012 AFRICAN DEVELOPMENT BANK GROUP 15 Tuesday, December 16, 2014
AFRICAN DEVELOPMENT BANK GROUP 16 Tuesday, December 16, 2014
AFDB GROUP’S GAP II Strengthening governments’ capacity for transparent and accountable use of OBJECTIVES public resources and citizens’ ability to hold Governments to account 3 CORE Improving outcomes in the sectors and citizens’ ability to monitor them Promoting a business enabling environment which supports Africa’s socio-economic transformation, job creation and financial inclusion AFRICAN DEVELOPMENT BANK GROUP 17 Tuesday, December 16, 2014
AFDB GROUP’S GAP II GAP II is built around three STRATEGIC strategic pillars: (a) public sector PILLARS and economic management, (b) sector governance, and (c) investment and business climate. A cross-cutting objective supporting the three objectives aims to reduce corruption in both the public and private sectors. AFRICAN DEVELOPMENT BANK GROUP 18 Tuesday, December 16, 2014
Recommend
More recommend
