--By Hom Nath Gaire 

 

A landmark report published last week by the Paris-based Organization for Economic Co-operation and Development (OECD) has found that the richest countries in the world are failing to comply with Anti-Money Laundering and Counter Terrorist Financing (AML/CTF) Regimes. The OECD study titled “Measuring OECD Responses to Illicit Financial Flows from Developing Countries” was published just one week after Global Financial Integrity (GFI), a US longtime authority on financial crimes, released its annual update on illicit financial outflows from the developing world. The study documented that the developed countries are highly responsible for steady increase in illicit financial flows from developing countries, most of which is being absorbed in the developed countries. 

 

For a long time, the traditional view in the developed countries was that illegal capital flight, money laundering and terrorist financing were problems only for developing countries. Similarly, they used to say that the corrupt governments and bureaucracy as well as poor business environments in the developing countries led capital to flee to their markets and promote money laundering. 

 

Accordingly, they were putting high pressure on developing and least developed countries like ours to obey all the Financial Action Task Force’s (FATF) recommendations on AML-CTF. 

 

However, “one of the most damning findings of the study is that 27 of the 34 OECD countries are either “non compliant” or only “partially compliant” with the FATF recommendations,” reads the report. The report also shows that none of the OECD countries are “fully compliant” with the standards on transparency of corporate ownership information, which aims to tackle money laundering by anonymous shell companies. The study indicates that most of the developed countries, which have been receiving the largest chunk of money that vanished from the developing countries, are in a rush to collect the illicit financial flows rather than help to restrain it. While policymakers in developing countries bear some of the responsibility for this problem, this is a two-way street. 

 

Chief economic advisor for the Ministry of Finance, Dr. Chiranjibi Nepal accepts the reality that the money drained from poor countries like Nepal is being received by the developed countries. “The high income countries have been absorbing the illicit financial flows in the name of offshore financial system, secrecy jurisdictions and tax haven lands,” said Nepal, suggesting that the developing countries should raise their voice collectively on FATF and other multilateral platforms. 

 

According to Krishna Hari Baskota, Secretary at the Office of the Prime Minister and Council of Ministers, although the degree of pressure on and anomalies in the developing countries in the name of ML/TF has been rising internationally, the OECD countries underscore their voice. “However, Nepal is in a safe zone now as per the criteria set by FATF,” said Baskota adding that this is a result of continuous efforts of Government of Nepal in policy formulation and enforcement to contain ML/TF. He further argued that the latest study should serve as a wake-up call to the world leaders regarding illicit financial flows and ML/TF. 

 

“Western nations established an offshore financial system comprised of tax havens, anonymous shell companies, and various trade-based money laundering techniques, and they have not done enough to remedy this system to date,” said Raymond Baker President of GFI in a comment on the OECD report. According to Baker, Illicit financial flows and money laundering are the most damaging economic problem facing the global poor, and they are growing at a terrifying pace. The FATF recommendations on beneficial ownership are only a first step towards eliminating the use of anonymous ‘phantom firms’ and effectively curtailing ML/TF. But the shameful reality is that every OECD member fails to comply with even these weak standards on corporate ownership transparency and most of them aren’t even close, according to the report.

 

According to the latest report of GFI, nearly USD 1 trillion drained from the developing world in 2011 with an annual growth rate of more than 10 per cent during the last decade i.e. 2002 to 2011.