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FinCENFiles: Why Taking Action Now is Essential to Protect Democracy

FinCENFiles: Por qué tomar medidas ahora es fundamental para proteger la democracia

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Tonusree Basu|

The COVID-19 pandemic has amplified the need for governments across the world to take urgent policy action on critical issues that protect people’s lives and livelihoods. At the OGP Virtual Leaders Summit last week, world leaders including German Chancellor Angela Merkel and Nigerian President Muhammadu Buhari, civil society champions like CIVICUS’ Lysa John and Integrity Watch Afghanistan’s Sayed Ikram Afzali, and development partners including the IMF, World Bank and OECD, unanimously laid out a shared vision for post-pandemic priorities – one that is based on more open dialogue, building public trust, safeguarding fair electoral processes and democratic freedoms, and developing a digital government that is grounded in human rights principles.  

Leaks like the Panama and Paradise Papers were shocking in the revelations they uncovered – of the entrenched networks of corruption that seeped through our socio-political and economic lives. Now against the backdrop of the COVID-19 pandemic, files leaked from the Financial Crimes Enforcement Network (FinCEN) take on even greater significance. The leaks throw into sharp relief the vast inadequacies of our current financial and regulatory systems to deliver an economy that works for all, and especially after this unprecedented crisis. The FinCENFiles show how money from violent crimes – drug and human trafficking – is laundered through banks in the absence of any scrutiny from the banks themselves, and absence of any preventive regulatory or oversight mechanisms put in place by governments. Money laundering fuels illicit criminal activities, drains money from public coffers that could fund essential public services like healthcare and education, and exacerbates inequalities. More importantly, as we have discovered recently, it also funnels dark money into disinformation campaigns and destabilizes electoral processes leading to erosion of democratic institutions. 

Protecting democracy and restoring citizen trust will remain out of reach if endemic corruption that hollows out these very democratic and governance systems is allowed to continue unabated. Many OGP members like Nigeria and Armenia have begun taking action on this and are working in partnership with local civil society partners and organizations such as OpenOwnership, EITI, Tax Justice Network to advance beneficial ownership reform. Parliaments now actively partner with OGP several member countries, taking legislative action to deliver landmark lobbying and beneficial ownership reforms. Currently, over 25 OGP members are advancing reform on beneficial ownership, 35 on conflict of interest, and 57 on anti-corruption and oversight institutions. The OGP Independent Reporting Mechanism has designated 56% of anti-corruption commitments as ambitious and over 65% as complete, showing us that while these give us reason for cautious optimism, there is still a long way to go. 

As OGP enters its 10th year, it is imperative for the political leadership within the Partnership to show ambition and take concrete actions on this. There are several things that OGP members could do to show tangible progress:

Promote corporate accountability – The appropriate national authorities in OGP countries should examine the relevant sanctions on banks in the short term, as called for by Transparency International and other civil society partners. Audit institutions should provide relevant and reliable information to act on; Parliaments should ask the right questions and demand not just debates, but decisive action. In the longer term, strengthening these financial accountability systems and oversight institutions at the national level – and sharing of financial data and information across the relevant agencies at the global level – are equally important.  

Implement reforms to end anonymous companies – The investigations by BuzzFeed and the International Consortium of Investigative Journalists (ICIJ) show that banks continued to process transactions of several companies even when they were unable to identify the true owners of the companies. It is evident that hidden company ownership remains among the weakest links in the global financial system, contributing to the ineffectiveness of banks to carry out the necessary due diligence. 

Illicit financial flows are a transnational problem and therefore beneficial ownership transparency needs to be pursued as a global norm, as countries in OGP’s Beneficial Ownership Leadership Group are advancing. In addition to strengthening national anti-corruption policy, countries need to work with global institutions like the Financial Action Task Force to ensure the necessary global standards remain fit for purpose to address new risks. 

Strengthen the overall anti-corruption reform agenda, engage oversight bodies – While creating beneficial ownership registers is important, it is not sufficient to tackle the scale of financial crime. Governments need to protect other systems of oversight to ensure that reporting requirements are not disregarded with impunity, those in power do not benefit from the money siphoned through corruption, owners of these hidden companies do not benefit from public contracts, and those who shed a light on these misdemeanours are adequately protected through strong whistleblower protection laws. Governments cannot deliver on this by themselves: audit institutions, parliaments and citizens must be empowered to play their part in the accountability ecosystem.  

Promote cross-sector partnership – While urgent reforms are needed both within the private banking system and by governments, this is not something we can leave to governments and the private sector alone. Independent media, like those part of the ICIJ, and civil society play a critical role to ensure that reliable information is shared with citizens in a timely manner, share the necessary expertise to implement these reforms and monitor compliance. 

Protect the enabling environment for civil society and the media – Finally, the role played by media and civil society remains conceptual if the enabling environment for them to function freely and effectively is restrained. In the wake of the COVID-19 pandemic, we have seen governments curtail civil liberties and take steps to oppress independent voices that hold them to account. According to OGP’s State of Open Government during COVID-19 analysis, which draws on key indicators tracked by our partners, as of August 2020, 16 OGP countries have restricted freedom of expression, one in four OGP countries has restricted media freedom, and one in five OGP members has suspended or altered access to informations proceedings in response to the pandemic. 

 An Open Response + Open Recovery necessitates transparency of company ownership to ensure money that should be spent on reform and reconstruction is not misappropriated for illicit activities and laundered. Currently over 30 OGP members are co-creating their OGP action plans, which will inform key policy actions that will guide the rebuilding of their socio-economic systems as they recover from the pandemic. We hope to see concerted policy action taken through these action plans. The pandemic has amplified calls to action to create open societies and open economies for all. To do that we need to ensure that public money is utilized efficiently and effectively to benefit all rather than a few and make our systems more resilient to crises.

 

Featured Photo: Expect Best from Pexels

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