Three staffers from Papua New Guinea’s peak anti-corruption body are embroiled in a standoff that has brought into question the integrity of the organisation.

Police Commissioner David Manning has confirmed that he received a formal complaint.

Commissioner Manning said that initial inquiries were underway to inform the “sensitive investigation board’s” consideration of the referral.

That board itself is controversial, having been set up as a halfway point to decide if an investigation into a subject should proceed through the usual justice process.

Manning indicated if the board determined a criminal offence had occurred, the matter would be assigned to the National Fraud and Anti-Corruption Directorate for independent investigation.

Local news media reported PNG Prime Minister James Marape was being kept informed of the developments.

Marape has issued a statement acknowledging the internal tensions within ICAC and reaffirming his government’s commitment to the institution.

Long-standing goal
The establishment of ICAC in Papua New Guinea has been a long-standing national aspiration, dating back to 1984. The enabling legislation for ICAC was passed on 20 November 2020, bringing the body into legal existence.

Marape said it was a proud moment of his leadership having achieved this in just 18 months after he took office in May 2019.

The appointments process for ICAC officials was described as rigorous and internationally supervised, making the current internal disputes disheartening for many.

Marape has reacted strongly to the crisis, expressing disappointment over the allegations and differences between the three ICAC leaders. He affirmed his government’s “unwavering commitment” to ICAC.

These developments have significant implications for Papua New Guinea, particularly concerning its international commitments related to combating financial crime.

PNG has been working to address deficiencies in its anti-money laundering and counter-terrorism financing (AML/CTF) framework, with the Financial Action Task Force (FATF) closely monitoring its progress.

Crucial for fighting corruption
An effective and credible ICAC is crucial for demonstrating the country’s commitment to fighting corruption, a key component of a robust AML/CTF regime.

Furthermore, the International Monetary Fund (IMF) often includes governance and anti-corruption measures as part of its conditionalities for financial assistance and programme support.

Any perception of instability or compromised integrity within ICAC could hinder Papua New Guinea’s efforts to meet these international requirements, potentially affecting its financial standing and access to crucial development funds.

The current situation lays bare the urgent need for swift and decisive action to restore confidence in ICAC and ensure it can effectively fulfill its mandate.

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

Despite changing his citizenship to the Pacific state of Vanuatu, a Chinese man wanted for various economic crimes was arrested at Ninoy Aquino International Airport last week as he was about to board a flight for Singapore.

In a statement yesterday, the Philippine Bureau of Immigration Commissioner Norman Tansingco said Liu Jiangtao, 42, had presented himself for departure clearance at the immigration counter when the officer processing him saw that his name was on the bureau’s list of aliens with outstanding watchlist orders.

Records showed that Liu is one of 11 Chinese fugitives wanted for fraud, infringement of credit card management, capital embezzlement, money laundering and counterfeiting a registered trademark.

Bureau of Immigration prosecutors have filed deportation cases against the 11 fugitives.

Evelyn Macairan is a reporter of The Philippine Star.

Article by AsiaPacificReport.nz

The Bank of Papua New Guinea’s Financial Analysis and Supervision Unit has reported more than 5000 cases as a result of anti-money laundering and counter terrorist financing investigations still awaiting prosecution.

Acting governor for BPNG Benny Popoitai said the FASU had identified persons of interest and companies and referred them to the Police Fraud Unit for further investigation and prosecution. However, none have yet been prosecuted.

He said at this stage FASU, under BPNG, did not have the powers to prosecute these cases.

“We have a real issue, we have not been prosecuting anyone under the Anti-Money Laundering (AML) law.

“We have cases of leaders being prosecuted, that we have sent to the Ombudsman Commission and others to the police.

“If it’s a tax matter we refer them to the IRC [inland Revenue Commission], If it is Customs it goes to Customs.

“The issue is, we do not have the prosecution powers so we send the information to the law enforcing agencies to enforce,” Popoitai said.

Risk of being ‘greylisted’
He also cautioned that FASU was also at risk of being “greylisted” for doing business with corresponding banks.

“PNG joined the rest of the Anti-Money Laundering and Counter Terrorist Financing with the rest of the world in 2008.

“As a result of their review of our AML, they grey listed us in 2014 and so we got out of the grey list.

“They are going to visit us, to see if we are not ready, they will put us down [on] the grey list and doing business will be really tough because of the correspondence relationship with the banks.

“Some of the international correspondents will walk away,” he said.

Popoitai said the AML business was now under the National Coordination Committee chaired by himself and the Secretary for Justice to oversee what other government agencies do.

Marape calls for prosecutions
Prime Minister James Marape has asked if those who are found to be breaking the AML laws be referred to the Independent Commission Against Corruption Act (ICAC) for prosecution.

Popoita said they could only do that once ICAC was established.

AML law introduced a robust regulatory framework consistent with the Financial Action Task Force (FATF) standards to prevent money laundering and terrorist financing.

Under the Act, the Financial Analysis and Supervision Unit (FASU) collects, analyses and disseminates financial intelligence, and supervises financial institution and Designated Non-Financial Businesses and Professions (DNFBPs)

Members of Parliament under this Act are classified as the politically exposed persons (PEP) meaning their conduct of business for themselves, their family and employees are important as this is how the Act governs and ensures the PNG economy is protected.

Lorraine Wohi is a PNG Post-Courier journalist. Republished with permission.

Article by AsiaPacificReport.nz

Six suspects, including a woman, have been charged in connection with more than K1 million in cash seized at Komo airport in Papua New Guinea’s Hela province last weekend.

The six were charged on Monday with two counts each of money laundering and being in possession of state properties and were released on K2000 police bail each from the Tari police station on Monday evening, police said.

Hela provincial police commander Senior Inspector Robin Bore told the PNG Post-Courier yesterday that five men in their late 20s and 30s, from Papiali village outside Tari, were allegedly involved in the movement of K1.3 million (NZ$590,000 ) in cash and four single PNG Defence Force uniforms from Port Moresby to Tari on a chartered plane.

“A woman on the same flight was also charged with being in possession of a firearm,” Senior Inspector Bore said.

“The suspects were supposed to appear before court on Monday but because of the [PNG general election] polling scheduled for Monday, the courthouse was closed. They will appear for mention once the courthouse is open.”

He said all the cash and other seized properties were now locked away at the police station as exhibits for further investigation, as the police were still investigating.

On July 2, police in Hela, acting on intelligence reports, seized the cash and other property from the suspects when the plane touched down at Komo from Port Moresby.

‘No evidence’ for poll allegations
Police Commissioner David Manning told the Post-Courier in Hela that he was aware of allegations [related to the election] about how the money was to be used, but police had not found any evidence to support the allegations.

Police Commissioner Manning said the cash was still in police custody.

“It is a very serious allegation that we are putting to the five suspects we have in our custody and the onus is on us to ascertain those facts that will lead to further action to be taken,” he said.

Earlier, Prime Minister James Marape had denied any links with the cash, even though his eldest son Mospal was one of those arrested on that day.

“People are saying the money was meant to assist me, I can confirm that it is not my money, I do not need that money and I did not charter that flight,” he said.

“It is a company charter and for safety reasons they run checks at the airport, because my son was in the vicinity, police rounded up all of them.

“My son was part of a security detail that was providing security to reporters who had travelled to Komo and the Hides gas site.”

Marjorie Finkeo and Miriam Zarriga are PNG Post-Courier reporters. Republished with permission.

Article by AsiaPacificReport.nz

This last week I watched Push: The Global Housing Crisis on Al Jazeera, featuring Leilani Farha, Canadian lawyer and former United Nations special rapporteur on adequate housing. She is now leader of The Shift (the global movement to secure the human right to housing).

The central takeaway from this ‘Witness’ documentary is that the housing crisis is a global financial crisis (as opposed to the Global Financial Crisis of 2008).

The problem is essentially the concept of housing (and the real estate that it sits on) as more a form of financial wealth (‘financial wealth’ is an oxymoron, by the way; it means ‘wealth comprised of claims on wealth’) than a human right; as such, whether housing is occupied or not – or whether it is occupied by sojourners rather than residents – is incidental. In this financial view, all that matters is the dollar value attributed to assets, and that wealth is somehow generated through a bidding process that raises that dollar values of financial assets.

Managed Funds, especially Government (or government-mandated) Pension Funds

While we may emphasise the self-perceived entitlement culture of individual speculators in financial assets, the point of emphasised by Leilani Farha was the role of managed funds, which means that – indirectly – many of us, with savings ‘invested’ in these funds, are financial speculators without thinking of ourselves as such.

A particularly important class of managed funds is government funds, including and especially government pension funds. The worst kind of these funds would be the kind such as the New Zealand Superannuation Fund created by Roger Douglas in 1974 and thankfully disestablished by Robert Muldoon in 1976. The Canadian government pension fund is notorious in this regard. And New Zealand does have a smaller-scale government fund of this sort; it came to be known after its establishment in the 2000s as the ‘Cullen Fund’.

We can generalise here, by thinking of Sovereign Wealth Funds, many of which are classed as ‘pension funds’; and we can think of private managed funds – the mainstay of the financial industry – many of which (like KiwiSaver) are government partnerships with that industry. Governments, around the world, have a deep stake in the financialisation of real estate assets; both as governments, and in the private capacity (as speculators) of finance industry and technocratic and bureaucratic and elected elites. In the formal sense, as citizen holders of public equity, we are all speculators when government-directed funds are deployed in the speculative financial marketplace.

Yes, including the homeless and the underhoused among us; the deprivileged among us can still feel good that our unrealisable public equity increases as our housing and other material rights deteriorate. We own notional shares in the lands we are evicted from.

The way around this financialisation approach to ‘wealth management’ is the ‘pay-as-you go’ approach, which was last championed – in New Zealand – by Sir Robert Muldoon. New Zealand Superannuation is still largely funded – as it must be – out of current economic product; and not through the sale of financial assets that we hope can be converted by retirees into goods and services of a certain value. Further, pay-as-you-go is the essence of the Basic Universal Income, an income distribution mechanism based on democratic accounting standards (ie based on basic human rights); a mechanism that can form the basis for the re-engagement of the rapidly marginalising populations of each country in the world.

(The scandal of Covid19 is how the entitled minority of the world’s population has spread this virus to the disentitled – including the disengaged poor – infecting them, and killing them in numbers on a World War scale.)

Pandora Papers

Other stories this week underscore the conjoint problems of financialisation, inequality, and impoverishment. One such story is the release of the Pandora Papers’ leak to global media organisations.

These papers reveal a comprehensive story, not of illegality, but of uber-elite entitlement; of legal theft.

Control of price-appreciating financial assets, as revealed by these papers, is more than ‘mere’ tax avoidance. It is theft in the fullest sense of the word, in that it is increasing the claims of the entitled on the world’s finite economic output, thereby diminishing the claims of the disentitled, and pushing them into unsustainable survival practices. Financialisation is an entitlement mechanism, and it applies to both the demanders and the suppliers of financial products.

Entitlement is not only a problem of the uber-elite. Indeed, through our KiwiSaver accounts and the like, we all come to align ourselves to some degree with the highly entitled. Further, the highly entitled go well beyond the ‘one-percenters’; rather the top nine percent (or even the top nineteen percent) of the ’99-percenters’ tend to have an entitlement mindset towards property values and interest rates, even while blaming the conspicuous ‘one-percent’ for the world’s woes.

One test of entitlement culture is a person’s attitude to interest payments. People who believe that they are entitled to an interest ‘return’ on saved income over and above the inflation rate are people who believe that they are entitled, as a form of self-congratulation, to an increased share of the world’s goods and services. It was in medieval times clearly (and correctly) understood that it was sinful to ‘make money from money’. This is distinct from making a profit from investments, such as planting a crop, irrigating a field, retaining livestock for breeding, or learning a trade.

In reality, the ‘real rate of interest’ is sometimes positive; that’s when lenders (ie savers) are scarce and borrowers (including investors and willing governments) are abundant. Under those conditions – rare in the lifetimes of people alive today – a legitimate premium is payable to people holding rather than spending money. The reverse conditions are much more familiar – an abundance of unspent money, and an aversion to deficit financing – in which, naturally, the real rate of interest should be negative.

Indeed, it was the negative real rates of interest during the global Great Inflation of the 1970s and early 1980s, that rumbled the uber-entitled, and led to the global financialisation coup of the late 1970s and (in New Zealand) the 1980s; the world event that is commonly called the neoliberal revolution. Theft through financial chicanery has prospered ever since.

New Zealand’s Official Cash Rate (OCR)

The first raising of the OCR in New Zealand for several years is indicative of this entitled view that real interest rates (as an indicator of real financial returns) should always be above zero. As such, the management of interest rates is the illiberal intervention in the marketplace that is most used to support economic liberalism.

By and large, the New Zealand public falls for the argument that higher interest rates are needed to slow down the rate of increase of financial asset prices (eg of house prices). There is little evidence for this, and indeed the 2004-08 house price inflation was in large part a result of rising interest rates.

The problem is that genuine economic borrowers are discouraged by high or rising interest rates, and that rising interest rates make very little difference to speculative borrowers. Thus, when interest rates increase, increasing proportions of all borrowed funds are lent to acquire financial assets with a view to making returns through capital gain. (Capital gains’ taxes are rarely sufficient to offset this reality; the main driving force pushing money into speculation is reduced lending to the real economy.) This truth is clearly evident by a cursory inquiry into the behaviour of house prices during periods of rising real interest rates.

In addition to rising interest rates ‘inadvertently’ stimulating financialised markets, the countries which intervene to raise their interest rates the most find that their exchange rates increase, as foreign money increasingly treats domestic money as a speculative asset. While this currency appreciation may dampen inflation in these countries – while exacerbating inflation pressures in the countries with falling exchange rates – it also does much harm to the export industries of these countries. Export industries suffer the double whammy of higher borrowing costs and an appreciating exchange rate. Indeed, the aggressive raising of interest rates to engineer an appreciating exchange rate has all the entitlement hallmarks of a Ponzi scheme. (Just look at New Zealand in years such as 1987, 1995-97, and 2004-08. If you don’t believe me, look at Iceland in the years before 2008.)

We should note that if rising interest rates make any difference at all to the global rate of inflation, they indeed exacerbate rather than diminish inflation. The only proviso to this is that rising global interest rates also create global economic crises, such as 1929-31, 1979-82, 1989-93, 2000-01, 2005-08, and 2010-12. While rising global interest rates are inflationary – they raise business costs, including higher required rates of profit – global recessions are clearly deflationary. Higher interest rates only reduce inflation by creating recessions, an even worse problem.

Basic Principle

Consumption entitlements should be distributed as human rights, and not as greed premiums. They should be paid as we go, and not divvied out from greed funds. As it is, most entitlements are of the greedy, by the greedy, for the greedy. Inasmuch as we are incentivised to contribute to government-sponsored greed funds, most of us are a little bit greedy. We live in a greedocracy, not an economic democracy. A true democracy distributes public equity dividends – as the economy goes – as a human right.

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

A prominent Australian lawyer, Greg Sheppard, has been arrested by Papua New Guinean police and is facing a range of fraud charges.

Sheppard, a principal of Young & Williams Lawyers, was arrested on Tuesday in Port Moresby.

He was charged with two counts of misappropriation and another two counts of money laundering.

Police say the charges relate to Sheppard’s alleged involvement in the transfer of funds amounting to US$14.5 million (52 million kina) in 2018.

These funds were part of the US$75 million (K268 million) that were unlawfully withdrawn from a trust fund established to finance development projects in PNG’s Western province, the Western Province People’s Dividends Trust Account.

Sheppard, 65, was previously arrested and charged by PNG police in January in relation to the same criminal investigation.

At the time he was charged with two counts of conspiracy and another two counts of false pretence.

So far, the defendant has been charged with a total of eight offences.

Sheppard has done extensive work in PNG over recent years, recently representing the country’s former Prime Minister Peter O’Neill and Opposition Leader Belden Namah among other prominent leaders.

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

Papua New Guinea police have intercepted and confiscated almost K200,000 (about NZ$90,000) in K2 and K5 notes hidden in a container on a ship which arrived at the Lae wharf in a suspected money laundering case.

The cash, packed into three boxes inside the container full of bottles of water, was sent as a consignment to a company in Wewak, East Sepik,the last major town before Indonesia’s Papuan border.

Lae Metropolitan Superintendent Chief Inspector Chris Kunyanban said local police were tipped off by their counterparts in Port Moresby where the ship had sailed from.

READ MORE: Minister warns foreigners over fake passports, visas

There were 37,503 K2 notes totalling K75,006, and 24,601 K5 notes totalling K123,005.

Kunyanban said after receiving the tip-off from Port Moresby, police secured a search warrant from the district court in Lae and alerted the shipping company.

National crime investigation unit officers in Lae identified the container when the ship arrived on Friday.

“About 90 percent of the container contained water products consigned to a company in Wewak,” Kunyanban said.

Tightly packed with cash
The officers then found the three boxes tightly packed with cash which were placed at the back of the container.

He suspected that it was the work of syndicates involving locals and foreigners.

“Currently, Papua New Guinea is facing a mounting problem with different syndicates brewing which involve locals and foreigners,” he said.

He said money laundering was becoming a problem.

The cash will be kept at the Bank of Papua New Guinea in Lae.

“Police will work with the Bank of PNG to establish which law has been breached and further investigations will be carried out,” he said.

He warned businesses to be mindful of the way they run their operations.

“Especially when shifting huge amount of money from one place to another, be mindful that
shifting large amount of cash in such a manner is not advisable,” he said.

Jimmy Kalebe is a National newspaper reporter in Papua New Guinea.

Article by AsiaPacificReport.nz

The modern anti-money laundering system (which makes banks and other firms check identity documents and scan billions of financial transactions) doesn’t stop crime. Criminals keep up to 99.9% of the earnings from misery, and a scheme meant to ‘protect the financial system’ causes severe social and economic harm.

So, where did it all start to go wrong?

Good intentions and ‘voluntary coercion’

Today’s anti-money laundering movement began at a G7 summit in 1989. The seven big industrialized nations circumvented the usual treaty-based consensus to establish an ad-hoc body to use financial flows to help prevent drug trafficking. The Paris-based Financial Action Task Force (FATF) later targeted money laundering associated with other profit-motivated crime and terrorist financing. All worthy aims.

For many years, however, few nations signed up to the ‘compliance with rules based on standards’ model that FATF advocated. Rather than trying to develop an alternative model, perhaps better aligned with countries’ anti-crime efforts, FATF rated compliance with 40 ‘recommendations’ (then claimed to reflect the effectiveness of anti-money laundering regimes) and began a ‘name and shame’ campaign — publicly denouncing nations not ticking enough boxes.

FATF no longer needed to persuade countries that its prescription worked. Nor demonstrate how it helps reduce crime and the social and economic harms caused by serious profit-motivated crime like drug, human, wildlife and arms trafficking, fraud, corruption, and tax evasion. Assumptions that it ‘should’ do so, or assertions that it ‘would,’ was enough, apparently.

In any event, countries can’t afford to ignore FATF because banks use its ratings as a proxy for risk in their dealings with other countries. Sovereign nations are effectively forced to submit to evaluation and implement the laws that FATF demands, to maintain vital access to international financial markets.

Unsurprisingly, momentum to join the anti-money laundering ‘family’ rapidly escalated. Facing the risk of exclusion from financial markets, seemingly more countries than there are countries ‘voluntarily’ joined the anti-money laundering movement. With 205 participants, the anti-money laundering movement counts more jurisdictions than even the United Nation’s 193 nation-states. (Mainly because FATF includes semi-autonomous jurisdictions separately, like China and Hong Kong, the UK’s dependencies and overseas territories, and islands formerly known as the Dutch Antilles).

Despite the now global ubiquity of money laundering controls, FATF admits that it still “pressures” nations to meet its demands, if they want to “maintain their position in the global economy.”

But, whether it works, or not (I’ll return to that shortly), unilateral financial sanctions and the anti-money laundering system — both part of a policy arsenal available to few nations — cause significant harm, and disproportionately affect smaller and less powerful countries.

Measures meant to ‘protect’ the financial system also harm economies

Pakistan’s Prime Minister, a former international cricketer and cancer campaigner, Imran Khan, recently decried the “devastating” impact of illicit financial flows causing “poverty, death, and destruction in…the developing world.”

He rued billions of dollars leaving developing countries, siphoned into offshore accounts, tax havens and real estate in Western capitals, and denounced a lack of political will in those countries to help recover looted funds, “because they gain from it.”

As well as the economic damage Khan described — some might say due to Pakistan’s failure to meet FATF standards (and a recent empirical study suggests a correlation between terrorism financing and the incidence, scale and location of terrorist attacks) — the anti-money laundering system also inflicts harm.

Compounding Pakistan’s difficulties, an evaluation report (embargoed since August) was released a few days after Khan’s UN speech in September, excoriating the ‘effectiveness’ of Pakistan’s anti-money laundering regime. Reportedly after lobbying from powerful nations, FATF had earlier added Pakistan to its ‘grey list’ of countries with claimed ‘strategic deficiencies’ (in June 2018), so Khan presumably needed no reminder that the anti-money laundering system inflicts social and economic damage. (Wielding the stick of financial exclusion, there may be little perceived need for subtlety. In October, FATF gave Khan a reminder anyway, bluntly warning that it might blacklist Pakistan at its next plenary in February 2020).

In any event, a similar theme — of deliberate, devastating economic damage inflicted by powerful nations for political reasons — was expressed by many other leaders at the annual UN General Assembly in New York at the end of September.

Many Caribbean nations, for instance, voiced dismay about the use of the financial system to hinder the economic development of small countries that try to compete with powerful nations.

Dr Ralph Gonsalves, Prime Minister of Saint Vincent and the Grenadines, decried the “weaponizing of trade and the banking system” as a “thinly-veiled war [based on stereotypes and paternalism] against…developing States under the guise of…reducing illicit financial flows.”

Dr Timothy Harris, Prime Minister of Saint Kitts and Nevis, described “unfair” blacklisting and “de‑risking” (where global banks use blacklists and ratings as proxy risk assessments and cut ties with local banks) as an “existential threat” to small economies. Saint Lucia’s Prime Minister, Allen Chastanet, agreed, adding that small nations are grappling with restrictions imposed with no “credible evidence of wrongdoing” wreaking “irreversible damage.”

Mia Mottley QC and Dr Keith Rowley, the Prime Ministers of Barbados and Trinidad and Tobago spoke, respectively, about the “challenges” of blacklisting and “deep concern” over the loss of correspondent banks harming small nations, which, according to Prime Minister Gaston Browne of Antigua and Barbuda, continues the economic damage wrought by centuries of exploitation by slavery.

It is easy (and common) unreflectively to dismiss such protests as contrary to the expressed aim to protect the financial system. However, even trenchant supporters of the dominant anti-money laundering narrative might concede at least some merit in some complaints.

For example, professional advisers from the United States, United Kingdom, and other former colonial powers helped design financial systems now labeled ‘deficient,’ and their clients in those more prominent countries remain some of the most significant users of such services.

Moreover, countries like the US and UK offer many similar services to those for which smaller nations are disparaged (Delaware, anyone?) The United States also frankly admits that it’s a “major money laundering jurisdiction,” yet commands the default global currency and is big enough to avoid negative consequences of pejorative labeling. And more laundering likely takes place in a few big countries like the US and UK, untroubled by poor ratings and blacklists, than most other countries combined.

The reality, however, is that few other countries can avoid the impact of financial sanctions or poor anti-money laundering ratings.

Sudan’s newly installed Prime Minister, for instance, appointed in August after months of mass protests, sought the removal of sanctions punishing the Sudanese people for acts committed by the previous regime. Iraq’s President Salih called for action to combat corruption networks and regain stolen assets. Vanuatu’s Prime Minister, Charlot Salwai, denounced persistent colonial hegemony, and Cuba’s foreign minister condemned the “economic warfare” of “criminal” financial sanctions hindering his country’s progress.

Venezuela’s Vice-President, Delcy Rodríguez, a lawyer targeted with financial restrictions by multiple countries, described economic sanctions as the “preferred weapon of domination in the twenty-first century”, capable of wiping out the income of sovereign states “with the press of a single digital button”, and punishing innocent people and using their suffering “to bolster…hegemonic power.”

Disconcertingly from a Western viewpoint which considers democracies the strongest cheerleaders for democratic institutions on the global stage, it was Russia’s Foreign Affairs Minister, Sergey Lavrov, who championed equality in international relations. Concerned, apparently, with the fragmentation of the international community, Lavrov characterized the emergence of a ‘rules-based order’ as trying to replace established rules of international law with new ones based on self-serving schemes and political expediency favoring only some countries. He urged that global challenges should be addressed based on the inclusive nature of the UN Charter and the interests of all states.

It’s easy to dismiss grievances from ‘the usual suspects.’ Narratives about Russia’s ‘autocratic regime,’ Sudan’s ‘brutal dictatorship,’ Pakistan’s ‘support for terrorists,’ Cuba’s ‘refusal to move towards democratization,’ and Venezuela’s ‘illegitimate regime’ are well-rehearsed. Who has the time to check if reality is more nuanced than these familiar tropes from our own politicians and industry insiders? (Especially, if we’re honest, about countries we might perceive as ‘other’).

But, whether the ‘rules-based order’ is a force for good, as many Western nations contend, or risks undermining international law and equality between nations, as Russia claims, financial sanctions and the operation of the anti-money laundering system clearly cause harm. Deliberately.

Harms intended

Financial sanctions (mostly, US-imposed) and FATF blacklists, grey lists, and ratings all affect countries’ access to financial markets, with no apology for any damage caused. After all, severe restrictions are the point of such sanctions. As FATF explains, it “pressures” nations to meet its demands “in order to maintain their position in the global economy.”

It could be said that countries harmed by blacklists and poor anti-money laundering ratings are righteously punished for not adhering to norms of the rules-based order. After all, from a Western perspective, a rules-based order sounds comfortingly familiar and uncontroversial, like the rule of law.

But the ‘rules-based order’ increasingly prominent in recent years is ill-defined and plagued with differing assumptions. Simple questions reveal complex concerns. Who makes the ‘rules’? Can all countries participate equally in their development? Does the new ‘order’ disproportionately favor, or harm, some nations compared with others?

Disturbingly, in the anti-money laundering context the answers to such questions also convey overtones of rich vs. poor, big vs. small, ex-colonizer vs. former colonies, and ‘us’ vs. ‘them.’

A few years ago, for instance, Saint Lucia’s Prime Minister, Allen Chastanet, described the “painful example” of financial exclusion by powerful nations whose professional classes were “the very architects” of the economic development strategies for which Caribbean nations are being penalized. Moreover, the G20, which “designated itself” as the forum for collective international economic cooperation, excludes most countries. Ninety percent of nations are not members of that “unofficial and non-inclusive bloc,” so “were not involved in the solutions to the problems,” he added, “nor were we consulted on its appointment as the arbiters of our economic fate.”

Nonetheless, complaints by affected nations might still be dismissed as self-serving, if the anti-money laundering system works.

In other words, if enough discomfort forces countries to introduce or strengthen rules enabling a material impact on serious profit-motivated crime and terrorism, it might be worthwhile, at least in a collective sense. That, arguably, is the rationale of money laundering blacklists and ratings.

The only problem is the tyranny of truth: the anti-money laundering system doesn’t work.

Failure locked in

Despite trillions of dollars and 30 years of prodigious effort, the modern anti-money laundering experiment scarcely has the impact of a rounding error on criminal accounts. By UN measures, the ‘success rate’ of money laundering controls is inconsequential when authorities reclaim a puny 0.2 percent of illicit funds, allowing ‘Criminals Inc’ to keep up to 99.8 percent (my own research puts the figure at 99.9 percent, but who’s quibbling?)

Nonetheless, the practical reality is that reasoned criticism by suffering nations is unlikely to curb the use of economic sanctions. Instead, pressing other countries to the will of a more powerful force is a growth sport.

‘Naming and shaming’ alive and well

The European Union’s attempt to join the ‘name and shame’ World Series was denounced by the dominant player and criticized by countries labeled ‘bad.’ A new list of ‘external’ jurisdictions unilaterally declared ‘deficient’ —initially due to be re-issued this month — is still “on the agenda,” and is now expected in 2020. (Extending the ‘us vs. them’ theme, the EU only pejoratively labels ‘external’ countries, not its member states).

Although the EU methodology was heavily criticized, the system that it seeks to attach itself to remains astonishingly ineffective, for reasons persistently unaddressed. (Ironically, the European police agency, Europol, frankly recognized the scale of policy failure, but its finding that serious crime pays, seriously well, appears to have fallen mostly on deaf ears, like the United Nation’s earlier assessment).

Design flaws

There are many reasons for anti-money laundering’s failure. Most trace back to the rushed development of a compliance model unchanged in three decades, seldom questioned, and seemingly unquestionable. Perverse incentives also harm people trying to do what the system was originally intended to achieve. But the main problem is a persistent focus on the effort and activities to prove compliance rather than what’s needed to achieve better (crime prevention) outcomes.

For example, new ratings meant to fix the problem use the language of ‘effectiveness’ and ‘outcomes,’ absent a functioning effectiveness framework [research paper, free access to January 2020], thereby continuing the 30-year focus on effort rather than results. Despite FATF’s grandiose labeling of its flagship ratings ‘mutual evaluations’, a trio of professors found that there has been “minimal effort” at anti-money laundering evaluation, “at least in the sense in which evaluation is generally understood [in public policy and social science], namely how well an intervention does in achieving its goals.”

Moreover, the rating system’s tick-box mentality encourages a tick-box response to mitigate harms imposed by a system characterized more by good intentions and rhetoric than any cogent measure of effectiveness.

It is, therefore, unsurprising if ‘compliance’ is the unspoken objective of many governments (to ‘get the FATF tick’ and minimize adverse consequences from the system itself), rather than any meaningful crime prevention outcomes.

The hectic nature of anti-money laundering compliance also conceals the reality of poor outcomes. Complicated rules are designed like a giant stack of colanders to catch water, with each ‘gap’ ‘fixed’ by constantly extending money laundering controls to more transactions, businesses, and industries, and more ‘solutions’ touted (increased public/private sector collaboration, law enforcement integration, artificial intelligence, etc). With a steady stream of new ‘solutions’ constantly adding more colanders, it’s easy to miss the big picture, about how much ‘water’ the entire stack of colanders manages to catch. Most ‘solutions’ have some positive effect, but when all combined, over three decades, manage to trap less than one percent of criminal finances, the impact on crime seems marginal, at best.

Conclusion, and options for leaders

The anti-money laundering industrial complex affects every citizen — with higher fees and taxes to pay for hundreds of billions of dollars of compliance costs each year, plus the social and economic impact from serious crime, barely checked. It also makes banking difficult for millions of ordinary people and penalizes smaller, weaker nations, yet the modern anti-money laundering experiment is almost entirely ineffective.

Complicated laws, armies of regulators, and costly compliance tasks give the comfort of activity and feeling of security but don’t make us safe from serious crime and terrorism.

Authentic leaders keen to reduce the social and economic harms from serious profit-motivated crime and terrorism have a choice. They could blindly follow the orders of an unelected agency accountable to no country’s citizens, driven by a few powerful states, in order to get FATF’s tick of approval for implementing its standards, despite scarcely any impact on criminal finances.

Or, leaders might face up to the reality of anti-money laundering’s failure, and consider reframing the system to switch from less than one percent impact on crime into the 99 percent zone, as the G7 intended in 1989.

— — —

Postscript

If any leaders choose the second option, pragmatism suggests that they should still ‘get the FATF tick’ in the meantime.

(88 jurisdictions have so far been assessed in the current round of evaluations, and reports published. Many governments were surprised with lower than expected ratings, but a few — learning the unspoken lessons not recorded in any official guidelines — have begun to operate the system as it’s designed, if not intended, for better than expected ratings, irrespective any ‘real’ [empirical] risk, which, ironically, the current system doesn’t measure).

After all, retaining access to the financial system helps governments extend their own crime prevention capabilities, even if there’s no appetite to reframe the global anti-money laundering system for meaningful outcomes.

By Kalino Latu, editor of Kaniva News

The king’s noble and former Prime Minister, Lord Tu’ivakanō has been charged with passport offences, money laundering and bribery.

Police arrested the former Speaker of Parliament yesterday.

“Lord Tu’ivakanō has been charged with numerous crimes, including making a false statement for the purpose of obtaining a passport, perjury, acceptance of bribery and money laundering,” Police Commissioner Steve Caldwell said.

Kaniva News reported last year that Lord Tu’ivakanō and his wife, Joyce Robin Kaho, had been listed by the Tonga National Reserve bank as being allegedly involved in suspicious money transfers.

It followed with a claim by a former staff member at Parliament that Lord Tu’ivakanō used parliamentary staff to improperly transfer money overseas. The noble denied the claim.

“If that was illegal you know which place to take it up with. Anyone in the office of the Parliament is free to do the same thing,” Lord Tu’ivakanō said in response to the former staff.

Passports abuse
Prime Minister ‘Akilisi Pōhiva told the House during a debate in 2013, while he was leader of Opposition and Lord Tu’ivakanō was Prime Minister, that he had information that Tongan blank passports were being abused.

He described the mishandling of the Tongan blank passports as a “net that was thrown outside the circle of the Tongan authorities”.

In 2014, Kaniva News revealed e-mails between staff of the Ministry of Foreign Affairs which alleged Lord Tu’ivakanō ignored King Tupou VI’s warning not to issue any more diplomatic passports to Chinese national Sien Lee.

According to the e-mails, Sien Lee is a close friend of the Queen Mother.

At the time, the former Auditor-General, who is now Minister of Finance, Pōhiva Tu’i’onetoa, told Kaniva News Tonga’s passport scandal was one of the two biggest he had come across in the previous three years.

This morning the Police Commissioner said although he was confined by what he could say publicly, he took the opportunity to thank and commend the Passport Taskforce for their methodical and professional investigation.

“As criminal charges are now before a Court of Law no further comments
will be made at this time. The Passport investigation continues.”

Asia Pacific Report republishes Kaniva News reports by arrangement.

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Article by AsiaPacificReport.nz