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  • Writer's pictureInternational Lawyers Project

Understanding Global Financial Secrecy: A Look at the Symposium on Systems of Financial Secrecy

By Megan Musni and Mary Ongore


In-person attendees at the Symposium on Systems of Financial Secrecy held at the London School of Economics and Political Science on 21 February 2024


The London School of Economics International Inequalities Institute and Open Ownership collaborated to hold the Symposium on Systems of Financial Secrecy on 21 February 2024. The Symposium brought together practitioners and academics working on various issues related to financial secrecy who shared research and policy developments in their working areas.


What is Financial Secrecy?


Financial secrecy refers to the hiding of assets by individuals or corporations to evade tax, engage in illegal movement of money, or the evasion of rule of law generally. This is achieved through using complex financial mechanisms and tools to avoid accountability such as anonymous shell companies, offshore financial systems, tax havens, free trade zones, secrecy jurisdictions, citizenship by investment, and use of human traffickers to ferry money across borders or deposit money in foreign banks.

 

International Lawyers Project (ILP) contributed two presentations to the Symposium, specifically on illicit financial flows and on corruption, described below.  

1. Financial Institutions that make Rules on Illicit Financial Flows and their Impact on Developing Countries


ILP’s Legal Manager for Sustainable Finance, Mary Ongore, presented on some of the lesser-known financial institutions that make rules on illicit financial flows.  Despite the limited involvement of developing countries in those forums, they are often first implementers. Overall, she discussed six of these institutions, the role they play in making standards that touch on illicit financial flows, and finally how their decision-making structures exclude developing countries from giving input during standard setting.


Mary Ongore, ILP’s Legal Manager for Sustainable Finance, presenting on the financial institutions that make rules on illicit financial flows and their impact on developing countries


Mary begun the session by setting out the role of the Financial Action Task Force (FATF) in making recommendations for addressing the use of the international financial system for money laundering and terrorist financing. She highlighted that although most developing countries are represented in the FATF bodies responsible for disseminating the relevant standards, only eight Global South members are represented in the FATF rule-making body.


She then touched on the Bank of International Settlements (BIS) which supports the pursuit of monetary and financial stability through international cooperation. Unfortunately, the main decision-making bodies at the BIS have very little representation from developing countries. Its Board of Directors, for instance, has no members from Africa, while its general meeting of member central banks has only three members from Africa.

 

The Basel Committee on Banking Supervision similarly is a global standard setter for prudential regulation of banks and provides a forum for cooperation on banking supervisory matters. The Basel Committee however comprises 45 representatives from 28 jurisdictions. Of these, only one is African, emphasising the lack of representation of developing countries that are often first implementers.

 

The Financial Stability Board is the global agenda setter on issues of financial stability. However, its plenary is the sole decision-making body. While it has six regional consultative groups from developing countries, these do not have a voice in the plenary.

 

The International Accounting Standards Board (IASB) is the global accounting standard setter. Of its 14 board seats, just one is allocated to Africa and one to Latin America.

 

Finally, the International Organization of Securities Commissions (IOSCO) is the global stand setter for securities regulation. The IOSCO board is the governing and standard setting body and is comprised of 35 securities regulators. Yet only three African countries are members of the board.

 

Having acknowledged the limited involvement of developing countries in standard setting, the presentation concluded with the recommendations that these bodies should not conduct their work in obscurity and that their membership should be more globally representative.


2. Sanctions and National Security

ILP’s Programme Director for Governance and Accountability, Steph Muchai, presented ILP’s first of its kind empirical study on the impact of sanctions undertaken in collaboration with Anton Moiseienko of the Australian National University. The research was launched last year in three key jurisdictions: London, Canberra, and Washington, D.C. In depth case studies were published soon after.


Steph Muchai, Programme Director for Governance and Accountability, ILP, presenting on ILP’s sanctions impact research


The sanctions impact research analysed the aftermath of the twenty earliest corruption-related sanctions designations under the US Global Magnitsky Programme. The research provided findings and recommendations on what Magnitsky-style corruption sanctions can and do achieve based on empirical evidence. 

 

Key findings of the research are that sanctions have led to asset freezes, travel bans, domestic criminal investigations/prosecutions, loss of political influence, job loss, and behaviour change, and that some banks and other companies have ceased business with sanctioned individuals.

 

The resulting key recommendations to governments based on these findings are that:

  • Governments should not assess the effectiveness of sanctions purely in terms of measurable outcomes, such as the amount of assets frozen. However, they should conduct regular reviews of the impact of their sanctions, even though such a review will necessarily involve imprecise, subjective assessments;

  • Governments should seek to identify and publicise corporate networks associated with targeted individuals;

  • Governments should prioritise individuals who rely on the international financial system and therefore are more likely to be affected by the designation when determining appropriate targets for Global Magnitsky sanctions;

  • Governments should develop a clear understanding of the added value that a potential designation would have in the circumstances where those whose wrongdoing have already been addressed by domestic justice systems.

 

The session was well received with participants engaging on the impact that the sanctions tool has had beyond asset freezes and travel bans. Also discussed was the potential bias of this tool based on foreign policy concerns and how the tool can better be applied more rigorously.

 

The Symposium was attended by 50 people in London, UK, and over 100 attendees online. Both practitioners and academics had strong discussions identifying and strengthening linkages between different approaches to research and practice on financial secrecy. For more information on the Symposium, please see the event report here.



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