Combating Global Corruption: Shared Standards and Common Practice?
Keynote Address: Alden McLaughlin
Premier, Cayman Islands
4 February 2014
COMBATING GLOBAL CORRUPTION: KEYNOTE ADDRESS BY ALDEN MCLAUGHLIN
It is both a privilege and a pleasure for me to be here, to engage in these discussions about this important matter. I hope that what I am able to offer today provides a unique perspective on the difficulties of recovering the proceeds of corruption. Indeed, it is a rare occurrence for a leader of an overseas territory to be given an opportunity to address anti-corruption initiatives not from a country viewpoint, where the ball is usually played with bat and pad close together, but to offer solutions from a global perspective. So I beg your indulgence if perhaps during my speech some of my short selection is a bit exuberant.
Straight off the bat, I believe it is important that we are able to have an honest conversation. I trust we can do so in the safety of this forum, because here we are all supposed to be on the same team.
I’ve been asked to consider whether the current global and domestic frameworks are adequate to recover the proceeds of corruption. My view, and I believe most of you will agree, is that they are not. This response is not intended to diminish the success of the frameworks developed by the UN, the Organization of American States, the Council of Europe, the OECD, the EU, the Financial Action Task Force (FATF) or the G20 Anti-Corruption Working Group. Rather, it reflects a recent FATF evaluation that while AML (anti-money laundering), CFT (combating the financing of terrorism) and anti-corruption efforts are mutually reinforcing, they are not always effectively integrated. Individually some countries have perfectly adequate legislative frameworks, but many others are still far behind the curve. On a global basis, a common system to detect and recover the proceeds of corruption is fraught with the complexity of trying to integrate several existing frameworks into a workable anti-corruption standard. Unfortunately, corruption thrives in complexity, because criminals are not constrained by the cumbersome rules of the supranational organizations or governments.
This leads me to what I believe is the real hard question, and one to which an honest answer is required: whether there really is a global compliance culture. Again, my answer is, regrettably, no. If all countries – and I speak also to those in the G20 – do not subscribe to a common rulebook for everyone and have the political will to play by the rules, then we will never be able to fully recover the proceeds of corruption.
I’ve also been asked whether the existing frameworks build relationships between the public and private sectors. My answer would be that it depends. In countries with a good compliance culture and regime, the answer may be yes, although the private sector may be wary of how much is too much. We must also consider at what point do the added costs of ever-increasing regulation reach the point of diminishing returns. I would add that governments too may find themselves torn between implementing compliance and meeting immediate budgetary needs.
Anti-corruption and tax transparency initiatives intersect at this point. Because business is global, in the absence of a truly global standard, it is far too easy for a company that is dissatisfied with legal and regulatory structures in one jurisdiction to simply move to another. Then there is the almost unmentionable issue of collusion between government officials and the private sector. Anti-corruption offences involving politically exposed persons are difficult to root out, even more so when immunity is claimed and when the private sector agents involved have huge profits at stake. Compounding this is the added factor that in some countries the private and public sectors engage in customary practices, such as facilitation payments, that while perhaps not illegal are certainly questionable ethically. Anecdotally speaking, no jurisdiction is reporting corruption enough through the anti-corruption mechanisms. Perhaps this is the result of a lack of understanding of the standards or, more worrying, it is a deliberate refusal to adhere to them because of these customary practices.
I would take a little time to speak about the anti-corruption frameworks’ effect on public-private relationships, because I believe this subject needs some more attention. In the Cayman Islands, we are fortunate to have a strong relationship with industry. We recently have taken steps to make it more collaborative. The public and private sector must work together as partners in order to combat corruption and to put a stop to illicit financial gains, and to recover financial gains from corruption. I’m glad to say that current global dialogue indicates that anti-corruption frameworks such as those developed by the FATF are acknowledging the importance of a strong and transparent public-private relationship in a more substantive way. This applies in the Cayman Islands as well.
But this does not imply that there are not concerns by business on the added costs of compliance and the fact that there is not always a level playing field. As increased responsibility for the development of a true culture of compliance is thrust upon or assumed by the private sector, the voice of the business community must be included in the debate – not just domestically but also at the international level – with regards to the direction of AML and CFT regulations and the fight against corruption. Speaking as the premier of an international financial services centre – one with an excellent compliance culture – I also hope that inviting more input from the private sector and civil society will result in anti-corruption policies, legislation and regulation that are less biased toward particular countries and that truly build relationships between the private sector gatekeepers and public sector and international bodies.
This ties into one of the last questions that I’ve been asked to consider: the obstacles to addressing the interface between corruption and offshore financial centres, and how they can be overcome. I will be forthright: no stronger interface exists between corruption and international financial centres than exists between corruption and every single country in this world. Finance is both global and digital, therefore corruption is global and digital. It does not solely reside in any particular geographic region or in any particular grouping of countries or peoples.
The most stubborn obstacle then that needs to be overcome in addressing the interface between corruption and all countries – not just the 98 identified by the US Department of State’s 2011 Money Laundering and Financial Crime Report – is the reluctance to acknowledge corruption as a truly global phenomenon. Corruption exists everywhere and so must be effectively addressed in all countries, big and small, developed and developing, onshore and offshore. It is not enough to simply acknowledge the issue. Lip service is one thing; implementation and action are quite another. This truth is so simple but it is inconvenient to acknowledge – inconvenient for political candidates who are looking for a scapegoat for mismanaged public finances and inconvenient for some of the news media that operate more as entertainers than as purveyors of the truth. It is inconvenient for many nongovernmental organizations. Although I do believe many of them have the public interest at heart, at times their passion overrides their analysis. Lastly, it is inconvenient for the public – people who are weary of the abuses of trust committed in political offices and corner offices but who often don’t have the time or inclination to read the many excellent technical reports that rate how each country complies with global standards. If they did, the spotlight and criticism would certainly widen to include all countries and not just the international financial centres.
So let me push the envelope with another truth. If we continue to dissemble in this manner, we will continue to be conquered, because the one segment of society that benefits greatly from the distortion of the truth is the criminals that we say we want to bring to justice. They are much less likely to operate in well-regulated jurisdictions like the Cayman Islands, where the spotlight is brightest and the attention greatest. They will simply migrate to where there is less sunshine. We are all aware of recent transparency initiatives but I don’t believe they will be enough if they are not globally developed, practiced and monitored. We must insist upon and adopt a truly global standard.
For a moment, I am going to shift from a global focus to a Cayman Islands perspective. I’m not speaking at this time for any country except my own. While we have benefited in many ways from the spotlight, the Cayman Islands is review-fatigued. We have been subjected to the most rigorous examinations and signed up for others, and consistently we have been found to be in compliance – in some areas, more so than developed countries. A gathering of this calibre knows this can be independently verified. Over the past 15 years we have alternately endured or welcomed this scrutiny because we believed that it would test and prove our legislative and regulatory strength. I reiterate: it has. Yet we have watched with curiosity and sometimes extreme frustration because no matter the outcome of the reviews and the assessments, the negative perception of Cayman persists, and is promulgated by some who do know better. I will leave it to you to determine why other countries until recently have managed to escape the level of investigation that we have had.
I know my time is drawing to an end and I thank you for your attention thus far. While I hope I have made several important points, I consider truth to be a cornerstone of them all, including this last one: what impact will recent transparency initiatives, for example, from the G8, have in practice? I say: not near enough, if they are not globally developed, practiced and monitored. Transparency requires – no, it demands – that the truth be acknowledged. If this acknowledgement is not forthcoming, all of the initiatives will be based on shifting, unstable ground, and efforts will not gain traction. The point of the global initiatives is not to eradicate corruption in 98 countries and jurisdictions; it must be to eradicate corruption in all of them. No country should be exempt from assessment. By speaking the truth regarding these assessments, governments and financial institutions may be able to regain the public’s trust and rebuild our local and global economies on a steadier framework.
In closing, I will leave you with a few ancillary thoughts. For anti-corruption frameworks to be effective, corruption must be repositioned as a global problem. We cannot cherry-pick countries to assess based on perception and target them as the source of the problem while allowing other countries to continue their practices with minimal scrutiny. Bringing together the public and private sectors as well as civil society to develop and monitor global anti-corruption efforts is worth further exploration. The cost of compliance must be minimized, without diluting the effect of the initiatives, for the private sector to fully take on its growing responsibilities. Standardization of anti-corruption initiatives will likely be the way of the future. As part of this, the peer review process should be applied, whenever practicable, to global initiatives. Encouraging political will to support and enact anti-corruption efforts, including dealing with the issue of immunity, will continue to be a major challenge. Again, truth will be the cornerstone of all effective global anti-corruption initiatives. Without it, the efforts will be too compromised by competing interests to fully succeed.
Members and friends of Chatham House, I thank you for the honour of being able to address this august conference.