Progress on Beneficial Ownership

July 21st, 2011

Big step forward for the World Bank today. After an arguably rocky history with the topic of illicit financial flows, one which is full of fits and starts, the World Bank has taken a large stride into the foray with a new, 196-page report: Barriers to Asset Recovery.

The study explicitly concerns reforms that will “enable the recovery of stolen assets” as the result of corruption. It is a topic which has been given a fair amount of attention lately, particularly in the wake of the Arab Spring. Ben Ali of Tunisia, Hosni Mubarak of Egypt, and Muammar Qaddafi of Libya all hid millions of dollars abroad, money that was frozen and publicized soon after revolutions began in their (respective) countries. Of course, as I’ve noted, injustice also lives outside the headlines. These three men are not the only leaders to steal money from their citizens and stash it abroad. And it is not only the men (and women) at the top levels of leadership who commit these crimes. In fact, proceeds of corruption escape the boarders of developing countries from nearly all levels of government.

The World Bank paper specifically addresses this issue and it also

…recommends eight strategic actions and other recommendations for policy makers, legislators and practitioners. They include the implementation of new policies and operational procedures to foster trust and mentor other jurisdictions, legislative reforms to facilitate freezing and confiscation of stolen assets, and better application of existing anti-money laundering measures.

So what does this have to do with illicit financial flows? A lot, actually. It turns out as part of these recommendations, the World Bank also notes:

Because criminals often use other individuals, attorneys, and legal persons to hide assets, such tools would be even more useful if they identify the beneficial owner of the account and any power of attorney related to the account. By helping to identify accounts, central bank registries…speed the work of law enforcement authorities in asset recovery cases.’ [emphasis mine]

This is a big step forward because requiring banks to identify the beneficial owners of accounts will aid developing countries (and developed countries, too) in recovering assets from not just corrupt leaders, but also criminals, tax evaders, terrorists and other transmitters of illicit financial flows. As the Task Force notes:

Financial institutions, including banks, are required to identify their customers as part of their account opening due diligence, but the true customer is often hidden behind layers of companies and trusts. Then, if money needs to be traced by investigators, these structures also make uncovering the true nature of transactions and tracing beneficial ownership and the origin of funds very difficult. The modus operandi of illicit financial flows are not aberrations but a part of a broad structural problem. [emphasis mine]

Those concerned with illicit financial flows have welcomed this report with open arms. David McNair, Christian Aid’s Senior Adviser on Economic Justice, has noted his organization is “pleased to see the Bank recognizing what it calls ‘excessive banking secrecy’ is part of the problem facing poor countries and that greater exchange of financial information between countries is part of the solution.”

Even if it is tacit (or possibly unknowing), the World Bank has taken a big step forward in the fight to curtail illicit financial flows. This is good news all around.

Written by Ann Hollingshead

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