The report contains recommendations concerning the measures to combat financial crimes, ensure financial integrity and improve the global financial system in 14 different areas. Most recommendations are also relevant to the fight against corruption.
The FACTI experts highlight that corruption and other financial crimes have no borders. However, a lack of trust among jurisdictions is getting in the way of effective prosecution, making it difficult to hold wrongdoers accountable. In addition, the sanctions for corruption crimes provided for by the national legislation are often insufficient to prevent offences from occurring in the future.
Therefore, the FACTI Panel calls for the development and adoption of international standards for settling the cases of transnational corruption. The FACTI Panel recommends that countries introduce in their legislation the widest possible range of enforcement tools to prevent impunity for transnational financial crimes, including illicit enrichment laws, non-conviction-based confiscation systems, reasonable limits on the so called internal immunity of officials, and a broad scope of money-laundering offenses. At the corporate level, it is recommended that businesses hold accountable all executives, staff and board members that foster or tolerate illicit financial flows in the name of their businesses.
The report stresses that the wealthy in different countries often exploit the right to privacy, hiding their ownership of assets, including proceeds of illicit activities. A basic tool for addressing these secrecy risks is to identify the natural persons who ultimately own, control or benefit from legal vehicles: their “beneficial owners”.
In this regard, the FACTI Panel recommends that international anti-money-laundering standards require that all countries create a centralised registry for holding beneficial ownership information on all legal vehicles and that countries make the information public. Beneficial ownership transparency can reveal that apparently legitimate and unrelated companies and trusts are in fact implicated in a global financial crime. It can also help in asset recovery, and help companies conduct due diligence and know who owns the entities with which they do business.
Besides that, enhanced transparency is needed in such area as public procurement and contracting systems which are particularly vulnerable to corruption and other illicit activities, also under the current circumstances of the COVID-19 pandemic-related emergency responses. According to the experts of the FACTI Panel, as a first step towards greater transparency, governments should put online for public review all emergency contracts issued in response to the COVID-19 pandemic and refuse future contracts with commercial confidentiality clauses or with entities that have not disclosed their beneficial ownership information.
The report underlines that only a tiny fraction of the proceeds of corruption laundered worldwide is repatriated. This is largely due to the fact that the whole asset recovery process remains extremely burdensome and lengthy for requesting countries, especially those that are seeking to recover assets stolen by formerly entrenched kleptocratic rulers who remained in power for decades and whose resources are drained.
Therefore, the experts call for ensuring the fairness of the recovery of stolen assets, primarily, by creating a multilateral mediation mechanism to assist countries in resolving jurisdictional disputes and other difficulties. Assets that are subject to return should be held and invested in escrow accounts managed by regional development banks, and some value may be added to funds that are subject to protracted negotiations.
Very few types of illicit financial flows are conducted purely by criminals. Most of them are enabled by a variety of professionals, including lawyers, accountants and representatives of financial institutions, as well as consultants, facilitators and other enablers.
The FACTI Panel insists that it is necessary to develop and agree global international standards for these professionals that should require, among other things, transparency and integrity in professional practice, make clear the obligation to report suspicious transactions to authorities, and ensure that enablers are held liable for illicit financial flows alongside criminals. Subsequently governments should adapt global standards to their national context by developing professional codes, ensuring appropriate control over their application and introducing effective, proportionate and dissuasive sanctions.
5. Civil society and media
The report states that citizens, workers, professionals, business leaders, journalists, researchers and others have a key contribution to make in enhancing the effectiveness of detection of corruption and other abuses and of their consequences. At the same time, those who report violations often suffer from reprisals also due to the lack of legal provisions necessary to protect them and/or ineffective enforcement of such norms.
The FACTI Panel calls on countries to eliminate any barriers in the domestic legislation to the participation of civil society in detecting violations and guarantee safe disclosures by developing minimum standards for protecting whistleblowers, anti-corruption advocates, investigative journalists and human rights defenders. As an option, the FACTI Panel invites states to consider incorporating these standards in a legally binding international instrument.
In addition, the FACTI Panel recommends that civil society is included in international policy making forums. Expansion of consultations beyond public experts will allow for more holistic representation and can improve policy making.
6. International cooperation and information sharing
Exchanging or sharing of information is crucial to effective enforcement of laws, rules, and applicable regulations, and is key to combating illicit financial flows. However, the existing level of cooperation between countries, characterized by delays and barriers may allow criminals to move funds out of the grasp of authorities. Some developing countries are even excluded from data networks, which undermines their capacity to combat illicit financial flows. The exchange of information between different authorities domestically may be equally challenging due to the lack of a clear list of data that can be shared.
The FACTI Panel calls for removing all barriers to the exchange of information domestically between public bodies and other entities, and for establishing international cooperation mechanisms between countries, including developing ones, also by creating networks of anti-corruption, law enforcement and other bodies, which would constitute a framework for the exchange of information to prevent illicit activities in a less formal environment, thereby facilitating the receipt of necessary data and reducing the time spent on their transmission.
7. Generate dynamism in policy making and enforcement
Dynamic changes in all spheres, including financial one, bring about new risks and require timely responses. In the context of digitalisation and the formation of global platforms it seems logical to develop approaches to mitigate such risks at inclusive multilateral bodies. At the same time, the report notes that the recommendations of international organisations have not yet been able to fully grapple with changes in the conduct of actors of the financial system and the rapidly evolving technologies. Therefore, the FACTI Panel call on international organisations to more actively conduct analytical work to swiftly react to emerging risks and to provide timely advice on how to mitigate them to all member states and stakeholders; governments, on their side, shall dynamically adjust their national systems in accordance with such recommendations.
8. Capacity building to combat financial crimes
The lack of necessary knowledge, skills and capacities is a major impediment to the fight against financial crimes. This problem is particularly acute in developing countries which often lack capacity to create financial integrity. Consequently, the FACTI Panel calls on the developed countries to provide necessary assistance to the developing ones and to this end it recommends that an international compact on direct financing of governments is created to provide, also directly, financial resources to the countries in need and international agencies and institutions that will assist them in capacity-building. Besides that, the FACTI Panel recommends that the international community finances the creation and maintenance of public goods that can lessen the cost of implementing financial integrity commitments, for instance, beneficial ownership registry software or artificial intelligence software for analysing suspicious financial transactions.
The experts of the FACTI Panel also point out that there is such an important problem as low effectiveness of adopted anti-corruption measures due to the lack of knowledge of their real impact on corruption, which is explained by the lack of attention towards research on this issue.
Besides financial support, the Panel calls for strengthening the capacity of the UN Office on Drugs and Crime to do research on anti-corruption, including in collaboration with other international organisations (the World Bank, the UN Development Programme, the International Anti-Corruption Academy and others). At the same time, such research should not be limited to the analysis of corruption itself and existing anti-corruption instruments, but they should also focus on the impact of practical employment of such instruments.
9. Data collection and publication
The FACTI Panel highlights that a successful fight against financial crimes may be undermined by the lack of neutral, authoritative bodies tasked with collecting, analysing and publishing different data, as well as insufficient quality of the very process of aggregation of such data, in particular, this is true for mutual legal assistance requests, including asset recovery.
In this context, the Panel suggests designating an entity to collect and disseminate data about mutual legal assistance and their results. This data will not only be able to feed into the implementation review mechanism of the UN Convention against Corruption (UNCAC) to assess the effectiveness of implementation but can also be used by senior officials in each country to judge the effectiveness of their own policies aimed at combating financial crimes.
Besides that, the FACTI Panel calls for designating an entity to collect and disseminate aggregate data on enforcement of money-laundering standards, including beneficial ownership information. This data can be helpful for comparative analysis for reviews of FATF Recommendation compliance at global and regional levels.
10. Implementation peer review
According to the FACTI Panel, implementation of international treaties aimed at combating financial crimes will require the development of effective peer review mechanisms that should contain the five components of an “ideal implementation review”:
- comprehensiveness, which means not only the development of relevant legal norms, but also effective compliance with them in practice, as well as the impact of compliance;
- inclusiveness, meaning that not only the government, but also civil society academics and the private sector should be included in reviews;
- impartiality, implying that all reviews should be immune from political bias;
- transparency, meaning that the outcomes of the review process should be accessible to the public; and
- monitoring, which means regular monitoring of the effectiveness of the review mechanisms employed.
Although none of the peer review systems fully meet these requirements, the FACTI Panel believes that the UNCAC implementation review mechanism (IRM) deserves special attention, because it has fallen behind on the five key metrics.
Therefore, the FACTI Panel calls for updating the IRM by bringing it in line with the criteria enumerated above and thereby enhancing its effectiveness.
11. National governance
The report stresses that in order to establish national financial integrity systems not only political will and financing are needed, but also a new, more creative approach towards interagency cooperation and coordination inside such whole-of-government systems along with the engagement of the private sector.
The FACTI Panel calls on governments to create robust and coordinated national governance mechanisms that efficiently reinforce financial integrity and publish national reviews evaluating their performance.
12. Global governance arrangements
The experts highlight that at present the global architecture for combating financial crimes is fragmented and uncoordinated: the patchwork of institutional arrangements presents challenges of coordination, while adherence to international organisations or agreements (the FATF, the UNCAC) does not produce the expected outcome. Moreover, specific multilateral mechanisms for combating financial crimes encourage the creation of small silos whose activities are focused on promoting their interests, which creates inequalities between their members and other countries.
Considering the fact that the financing for sustainable development issues are addressed by the UN Economic and Social Council (ECOSOC), the FACTI Panel calls for establishing a global coordination mechanism for financial integrity at ECOSOC. Furthermore, it suggests designing a mechanism to integrate the UNCAC COSP into this coordination body.
The FACTI Panel believes that the implementation of the aforementioned recommendations will improve control over international financial flows and release/save considerable resources that otherwise can be illegally moved from countries.
At the same time, some experts state (for example, here and here) that many of the recommendations submitted by the Panel are too general and broad, which will impede their practical implementation. Moreover, certain recommendations may contradict the national legislation of some countries or can be negatively perceived due to inconsistency with their domestic policy.
An illustrative case here is the recommendation suggesting the criminalization of illicit enrichment, which is considered by some countries as unacceptable. In this context, some countries such as the United States and Canada refused to even consider criminalising illicit enrichment and ratify relevant provisions of international treaties. In other countries, primarily, in Western Europe, the supreme courts opposed the criminalization of illicit enrichment: for instance, in 1994, the Constitutional Court of Italy struck down the provisions criminalising illicit enrichment, based on the fact that the presumption of the status of accused is inconsistent with the presumption of innocence; in 2012, under a preliminary review procedure the Constitutional Court of Portugal ruled that the law that would have criminalised illicit enrichment was unconstitutional; in 2019, the Constitutional Court of Ukraine adopted the same ruling (however, the approach towards the articulation of relevant norms subsequently changed and illicit enrichment was criminalised by a law).
Therefore, although the recommendations of the FACTI Panel are somewhat useful, their practical application will require deeper consideration of how to overcome potential obstacles to their implementation by specific countries, as well as further clarification of some of the measures suggested by the Panel.