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FINANCE: Major Banks Grease Wheels for Corrupt Regimes

Marina Litvinsky

WASHINGTON, Mar 11 2009 (IPS) - Some of the world’s leading banks facilitate corruption in the poorest countries, charges a new report by Global Witness, an independent watchdog group.

The report, “Undue Diligence: How banks do business with corrupt regimes,” shows how by doing business with dubious customers in corrupt, natural resource-rich states, banks are facilitating corruption and state looting, which deny these countries the chance to lift themselves out of poverty and leave them dependent on aid.

“The same lax regulation that created the credit crunch has let some of the world’s biggest banks facilitate the looting of natural resource wealth from poor countries,” said Gavin Hayman, Global Witness campaigns director.

“If resources like oil, gas and minerals are to truly help lift Africa and other poor regions out of poverty, then governments must take responsibility to stop banks doing business with corrupt dictators and their families,” he said.

The report presents a series of case studies about bank customers in Equatorial Guinea, Republic of Congo, Gabon, Liberia, Angola and Turkmenistan. In these countries, the national resource wealth has or had been captured by an unaccountable few, whether for personal enrichment, to maintain an autocratic personality cult that violated human rights, or to fund devastating wars.

The banks doing business with these customers include Barclays, Citibank, Deutsche Bank, and HSBC. Nearly all of the banks that are featured in the report are major international banks and all of them make broad claims about their commitments to social responsibility. Yet, according to the report, there is a grotesque mismatch between rhetoric and reality.


Natural resource revenues offer a potential way out of poverty for many developing countries. But too often, resource revenues that could be spent on development are misappropriated or looted by senior government officials, or are used to prop up regimes that oppress their own people.

“Banks are providing the mechanism for natural resource corruption to take place,” said Anthea Lawson, campaigner for Global Witness.

Some of the evidence presented in the report includes the case of Barclays Bank, which kept open an account for Teodorin Obiang, the son of the dictator of oil-rich Equatorial Guinea, long after clear evidence emerged that his family was heavily involved in substantial looting of state oil revenues.

In 2004, Riggs bank collapsed as a result of a U.S. Senate committee investigation and federal criminal investigators’ findings that it had been holding accounts for President Teodoro Nguema Obiang, his family members, and his corrupt government.

Despite this, Teodorin, who as minister for agriculture and forests in his father’s government earns a salary of 4,000 dollars a month, still had an open Barclays account as of November 2007. The report notes that while his country remains one of the poorest in the world, he owns a 35-million-dollar Malibu, California mansion and has spent 6.3 million dollars on car purchases in the last decade.

Also mentioned is Citibank, which facilitated the funding of two vicious civil wars in Sierra Leone and Liberia by enabling the warlord Charles Taylor, now on trial for war crimes in The Hague, to loot timber revenues.

As evidenced by the current financial crisis, the report argues that when it comes to sticking to the rules, bankers are doing the minimum they can get away with. They aggressively exploit the loopholes and ambiguities in regulations and arbitrage their responsibilities to the lowest level.

This is happening despite a raft of anti-money laundering laws that require banks to do due diligence to identify their customer and turn down illicitly-acquired funds. But the current laws are ambiguous about how far banks must go to identify the real person behind a series of front companies and trusts.

By accepting these dubious customers, banks are, directly or indirectly, assisting those who are using the assets of the state to enrich themselves or brutalise their own people, says the report.

This report comes right before G-20 officials are set to meet on Mar. 14 in London to discuss the financial crisis.

“The G20 leaders must act on their promises to help the world’s poor. A key element of making poverty history is to stop the money being stolen or kept off-budget in the first place. Ducking this issue now leaves the global financial system open not only to further corrupt money flows, but to the destabilising influences that have caused such damage to the developed world’s economies,” said Hayman.

The report prescribes essential reforms to the financial regulatory system, which need to be adopted globally, with effective information sharing across borders. These include the adoption of explicit anti-money laundering laws that call on banks to identify the natural person behind the funds, investigate the source of funds, and refuse the customer if they present a corruption risk.

According to the report, while it is important that banks develop their own effective know-your-customer policies, leaving them to do it on their own without regulatory oversight will not work, because the avoidance of corrupt funds inevitably involves turning down potential business, and not all banks are willing to do this. The subprime crisis and ensuing credit crunch have shown, among other things, that allowing banks to self-regulate does not work.

Another recommendation is for greater cooperation between governments to ensure that national bank regulations become globally compatible, accountable and transparent, and are not hindered by bank secrecy laws. This must begin with reforms to the inter-governmental body that oversees the anti-money laundering regime, the Financial Action Task Force (FATF), which sets the global standard for the anti-money laundering rules that are supposed to prevent flows of corrupt funds.

Global Witness calls on FATF to use its powers to name and shame more effectively, open itself up to external scrutiny, and cooperate with other organisations and government agencies working on corruption.

Though Lawson said all the banks mentioned in the report were contacted by Global Witness and shown evidence in great detail, none have responded.

“Most wrote back in some form, but were not able to answer the questions (Global Witness had posed) citing client confidentiality,” said Lawson.

 
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