Think Before Casting the First Stone Against Corruption

In a recent article for the Huffington Post, Transparency International’s Huguette Labelle makes the excellent point that “you can't beat poverty if you don't stop corruption.” She is absolutely correct that corruption keeps people poor, and that bribery takes a terrible toll on development efforts. Creating a governance goal as part of the post-2015 development agenda would help not only to expand rights and accountability, but to advance the rest of the sustainable development goals as well.

However, it is important to distinguish between the petty bribes and protection rackets that are, for too many people around the world, a part of everyday life, and the large scale tax-evasion and trafficking schemes that plunder natural resources and drain public coffers. Both types of corruption – and it may be more of a continuum than a dichotomy – victimize ordinary people, especially the poor, and threaten their livelihoods. But whereas the first type is often rooted in the failure to pay living wages (or any wages at all) to public sector employees, and the bribes they solicit from average citizens generally recirculate within the local economy, the second type is facilitated by a global marketplace for dirty money, and causes a net loss in the country’s resources. 

A new report from Global Financial Integrity shows that nearly $1 trillion was sapped from the developing world in 2011 through crime, corruption, and tax evasion – a dramatic increase from past years, and more than 10 times the total official development assistance that went in. How can this happen? Shady corporations and unscrupulous officials game the system and hide their stolen or undeclared assets overseas, often using the cover of an anonymous shell corporation registered in the United States or Europe. We must take care not to lay too much of the blame for this deplorable situation at the doorstep of the developing countries when our own laws and policies make us fully complicit in corruption on a grand scale.  

The UK has taken this issue head-on by committing to collect information on who really owns companies, and to hold this information in a central registry that is fully open to the public. UK Prime Minister Cameron made this announcement after the Department for Business, Innovation & Skills concluded a 2-month public consultation that involved the release of an 89-page discussion paper explaining the advantages and risks of each proposed policy change and a list of 72 specific questions for consideration. Email responses to these questions were welcomed from all interested parties, domestic and foreign.

We in the United States could learn a lot from this process. USAID has significantly strengthened its consultation mechanisms, starting with the release of its draft urban services policy for public comment last March, followed by the publication of draft policies for biodiversity and nutrition (although they weren’t widely advertised, none are mentioned on USAID’s “Transparency” page, and it’s just about completely impossible to find them using USAID’s own search engine). The State Department ought to follow suit, starting with the second Quadrennial Diplomacy and Development Review (QDDR), now reported to be under way.

Meaningful consultations are one important element of transparency, and are essential for holding governments accountable to their citizens. But they don’t replace the need for open data, in this case on corporate ownership and financial flows as well as aid budgets. By continuing to allow companies to reap the benefits of our laws without collecting, maintaining, and publishing basic information about who really owns and controls them, we undermine the fundamental goals of our own foreign assistance.  As the High-Level Panel on post-2015 development recommended, “It is time for the international community to use new ways of working, to go beyond an aid agenda and put its own house in order: to implement a swift reduction in corruption, illicit financial flows, money-laundering, tax evasion, and hidden ownership of assets.” Reducing corporate secrecy would be an important first step to understanding the global financial flows that shape the development landscape.

Diana Ohlbaum is senior associate (nonresident) of the Project on Prosperity and Development at the Center for Strategic and International Studies in Washington D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Diana L. Ohlbaum