Public officials using legal loopholes to engage in corruption –World Bank/UN report

Public officials are using loopholes in legal and institutional structures to indulge in all forms of corrupt acts, a new study by the Stolen Asset Recovery (StAR) Initiative of the World Bank and the United Nations Office on Drugs and Crime (UNODC) has revealed.

According to the study entitled “The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It,” corrupt public officials and their associates conceal their connection to ill-gotten funds by exploiting legal and institutional loopholes that allow opacity in companies, foundations and trust-like structures.

The acts by these public officials, the study noted, makes it difficult for investigations to establish the origin and ownership of stolen assets and also identifying where legal entities operate and have business relationships due to lack of access to information on beneficial ownership and the use of complex and multi-jurisdictional corporate structures.

The study, released October 24, 2011, examines how bribes, embezzled State assets and other criminal proceeds are being hidden via legal structures, including shell companies, foundations and trusts.

In her foreword on the study, Dr Ngozi Okonjo-Iweala, former Managing Director of the World Bank and now Nigeria’s Minister of Economy and Finance, said “As recent history shows, these issues are not hypothetical, they are real. Under the leadership of President Obasanjo, I initiated Nigeria’s efforts to recover stolen assets. I know firsthand from that experience how corrupt officials hid their assets behind innocent sounding corporations and trusts.”

Dr Okonjo-Iweala continues “Similarly, this report is firmly rooted in reality. It is based on documentary research, interviews with corporate registries, bankers, investigators, and other experts who confront this issue every day in the course of their work, and a “mystery shopping” exercises with relevant corporate service providers in multiple jurisdictions. The study highlights the weaknesses in the system that leave these structures open to manipulation and abuse. It provides a series of practical and balanced recommendations on how these weaknesses can be addressed.”

David M. Luna, US Director for Anticrime Programs, Bureau of International Narcotics and Law Enforcement Affairs, at the third workshop of Trans-Pacific Network on Dismantling Transnational Illicit Networks in Phuket, Thailand, October 27, 2011 said the World Bank estimates that about $1 trillion is spent each year to bribe public officials, causing an array of economic distortions and damage to legitimate economic activity.

The study cited the Kenya Anglo-Leasing case in 2002, where the government invited bids to replace its passport printing system, which was fraught with financial irregularities.

Despite receiving a bid for €6 million from a French firm, the study said the Kenyan government signed a contract for five times that amount (€31.89 million) with an unknown U.K. Shell company, Anglo-Leasing and Finance Ltd. with a post office box in Liverpool.

The study recommended that policymakers must step up ongoing international efforts to uncover flows of criminal funds and prevent criminals from misusing shell companies and other legal entities.

“We need to put corporate transparency back on the national and international agenda,” said Emile van der Does de Willebois, the World Bank senior financial sector specialist who led the StAR research team. “It is important for Governments to increase the transparency of their legal entities and arrangements and at the same time improve the capacity of law enforcement.”

By Ekow Quandzie