James Cohen, Transparency International Canada
Why We Need to Connect Peacebuilding and Illicit Financial Flows: A Global Approach
By James Cohen
In the spring of 2016, while working at the US Institute of Peace, I was part of a well-attended meeting to discuss corruption and fragile states. At the head of the table were high ranking officials and academics. Around the table was largely the usual cast of characters from the State Department, and NGOs like Oxfam and Sentry. We were lucky enough to get someone from the Treasury Department as well. But what was truly interesting is that in the brief time we had to talk, there were a lot of theoretical remarks along the lines of, “This is how the FBI should trace illicit money trails.” Once nearly everyone had taken their turn, one person raised his hand and said “Hi, I’m from the FBI, and here is exactly what we can and can’t do.” The conversation dramatically shifted because we weren’t talking in the abstract anymore: we were hearing specifically the challenges and opportunities the FBI had to “follow the money,” including tracing money coming into the US and other global financial centers, and FBI cooperation with counterparts overseas.
That meeting was a short hour and a half, and there appeared to be an appetite for more. I discussed the meeting with relevant people in D.C., and even Ottawa, who couldn’t attend, and stressed the importance of keeping the conversation going with others who were there. Bringing practitioners together on a regular basis for open conversation on how they can work together is needed to address the complex nature of conflict and corruption, especially at a global scale. Unfortunately, however, as far as I know there hasn’t been much follow up. These sorts of open discussion meetings, as opposed to panel presentations, are disappointingly few and far between as it seems the peacebuilding community generally does not appreciate the interconnectedness of corruption within fragile states. I would argue that this is especially true on the specific issue of illicit financial flows. Why is this and what needs to be done about it?
Illicit financial flows, state fragility, and peacebuilding
Money and conflict go hand in hand, whether money started the conflict or keeps it going. This is why it is important for the peacebuilding field to collaborate with the illicit financial flows field: to factor in how money gets in and out of a conflict.
As I once heard, we can’t address a regional problem with a national solution. When it comes to illicit financial flows, however, even looking at a problem regionally can be too narrow. In order for kleptocrats to stash their stolen funds, criminals to launder money, terrorists to finance operations, and arms dealers to bust sanctions, states and financial institutions need to be willing to overlook their activities. Since the release of the Panama Papers, even elected officials in Western countries who thought all secrecy jurisdictions were Switzerland or tropical islands are coming to understand that their own countries are secrecy jurisdictions. In Canada, the term “snow washing” was being used by overseas intermediaries to potential clients, essentially saying: place your dirty money in squeaky clean Canada, and thanks to our opaque rules on beneficial ownership transparency, it will be cleaned like the pure white snow. In terms of tangible links between conflict affected countries, there is extensive evidence of financial flows out of South Sudan to Ugandan and Kenyan real estate, from DRC and other hot spots to London banks, and from Afghanistan development funds to Dubai real estate, to say nothing of the international criminal and terrorist networks cleaning money in key global financial hubs.
What do Vancouver, Dubai, Kampala, and London have in common? Dirty money stashed in property.
In recent years, steps have been made to plug the loopholes that allow for money laundering, namely addressing beneficial ownership transparency. The 2014 G20 commitments to beneficial ownership transparency set a benchmark for greater transparency, which some countries are thankfully working toward meeting. Most notably, the United Kingdom has led transparency efforts by establishing a public registry of corporate beneficial ownership information, even extending registries to UK overseas territories, and now introducing legislation on unexplained wealth ordinance. As an example of the usefulness of these tools for peacebuilders, the corporate registry was used by civil society investigators to identify an individual involved in a UK registered company that was facilitating sanction busting arms exports to South Sudan. The European Union’s Anti-Money Laundering Directive 5 may well establish public registries as the global standard, as all 27 EU members are now required to establish such a registry for companies (though not trusts). Canada and the US need to play catchup with our European partners.
Canadian Minister of Foreign Affairs Chrystia Freeland has started taking aim at corruption and conflict.
While progress continues in fits and starts in cracking down on the tools enabling global illicit financial flows, how well are the advocates for beneficial ownership transparency and improved anti-money laundering connecting with the peace and security sector? Advocates are certainly making their case. In the US, the military is an ardent supporter of beneficial ownership transparency, and a number of US politicians are citing anti-terrorism as a security goal. In Canada the security argument is a little less prevalent, but Foreign Affairs Minister Chrystia Freeland has flagged the need to address shell companies used by North Korea for sanctions busting. Finally, across a growing number of countries, the Magnitsky Act is establishing targeted sanctions as a tool to address the connection between human rights violations and corruption.
There are also organizations who are pushing the research on illicit international financial flows and conflict to the front of their work, such as Global Witness, the Sentry, the Global Initiative Against Transnational Organized Crime, and of course this blog: Corruption in Fragile States. It was encouraging to see the connection of conflict and corruption raised at a recent UN Security Council debate, however, the conversation did not appear to yield tangible results and was even rebuffed by a some delegates.
Connecting the practitioners
In terms of connecting these organizations and advocates with practitioners in peacebuilding contexts, I have experienced a lag, which is articulated by recent US Department of State turned Carnegie Endowment Fellow Abigail Bellows. As she writes, “Within the Department of State and USAID themselves, the cause of anticorruption has historically been buried at the expert level, with inconsistent senior-level attention.” She makes a number of recommendations on expanding the anti-corruption programmatic toolkit, including noting that the US intelligence community could scale up the collection of information on kleptocrats and their networks, sharing this information through classified memos.
This sharing could be extended to other peacebuilding partners, namely UN missions, granted that secure and trusted communication channels are established. Additionally, lines of communication should be open between peacebuilding units in the UN and financial regulators around the world for sharing observations on the ground and information on suspicious transactions in places like London, New York, Paris, Geneva, and Dubai. This global-local partnership is a large factor in the success of the International Consortium of Investigative Journalists’ ability to create an impact with the Panama Papers. Local journalists were able to add context and verification to the massive quantities of data.
Are new lines of communication needed between peacebuilding operations and financial centers?
Overall, more peacebuilding country assessments should incorporate analyses of financial flows and the illicit economic interests of elites into their analysis as well as recommendations on whom peacebuilding units should partner with outside of theaters of operation. Training for peacebuilding staff on global illicit financial flows would also help the effort.
Finally we come back to more in-person collaboration. It will be important to provide more opportunities, like the meeting I attended back in 2016, for open discussion to hear from a range of actors who normally are not seated together. These sorts of meetings allow for learning what each person’s organization or division can offer, testing assumptions, and even brainstorming how best to use tools like targeted sanctions and asset freezing. If we’re going to take on illicit financial flows as a driver of conflict, keeping our thinking and collaboration contained does us no favors.
About the Author
James Cohen is Director, Programmes and Engagement at Transparency International Canada. James’ career has included programme management and design, training, and research for organizations including the United States Institute of Peace, the African Centre for Justice and Peace Studies, the Geneva Centre for the Democratic Control of Armed Forces, and Transparency International Defence and Security Programme. James holds a Masters from the Graduate Institute of International and Development Studies, Geneva and a Bachelor of Social Science in Political Science from the University of Ottawa.