Corruption and the international financial system

Corruption and the international financial system
http://www.u4.no/helpdesk/helpdesk/query.cfm?id=217

Query:

How do corrupt or undemocratic regimes use the international financial system to support the exploitation of their state's assets in order to enrich themselves?

Purpose:

We are conducting a project to review our government’s abilities to implement effective financial sanctions against corrupt regimes, for abuses of human rights or democracy. This information is meant to help design and incorporate possible smarter sanctions against corrupt regimes.

Summary:

Corrupt regimes use the international financial system in two major ways, both to divert national wealth for their own benefit and to conceal the proceeds of corruption and illicit gains. Without access to the international financial system, they wouldn’t have the means and incentives to loot state’s assets on such a scale.

To hide stolen money, corrupt leaders use similar money laundering techniques and subterfuges as those used by tax evaders, terrorist and organised crime groups. These include unscrupulous wire transfers, the use of a complex web of shell corporations and trusts in bank secrecy jurisdictions, as well as a wide range of elaborate legal and financial schemes devised to route illicit flows into the mainstream banking system and conceal the true ownership of the funds.

The looting of state’s assets and laundering of the proceeds of corruption would not be possible without the complicity of a complex network of professionals such as bankers, lawyers, import-export agents, accountants and other financial intermediaries that exploit the highly secretive and under-regulated global financial structure to protect their clients’ interests.

Case studies from Pakistan, Mexico and the Republic of Congo – among others - illustrate how illicit flows and state’s assets looting are made possible by loopholes in the international financial system, global financial opacity and the lack of enforcement of due diligence requirements both in secrecy jurisdictions and in major financial centres.

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Full report (PDF)

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