Governments should name banks that took corrupt money from Gaddafi, Mubarak and Ben Ali

Read BBC Business Editor Robert Peston's blog on this call to governments.

The governments that have frozen funds controlled by Gaddafi, Mubarak, Ben Ali and their cronies should name the banks holding their assets, anti-corruption group Global Witness demanded today. A clear message must be sent to banks that doing business with corrupt dictators is unacceptable: first, those banks holding dirty money should be publicly named and then regulators need to devise a new system which stops banks from taking suspect funds in the first place.

Some $32 billion has been frozen by the US, $3.2 billion by the UK, and other countries such as Switzerland, South Africa, Japan and Austria have frozen funds connected with North African despots. This has been hailed by governments as an achievement, but it actually highlights the catastrophic failure of the anti-money laundering laws that are supposed to have kept dirty money out of the financial system in the first place.

Corrupt rulers control billions of dollars stashed in bank accounts, despite earning far more modest official salaries. By accepting this money, banks are propping up brutal regimes by allowing them to pay off political cronies, rig elections and terrorise their people.

“This rash of asset seizures offers belated recognition that these billions should never have been under the personal control of dictators. On what basis could the banks involved possibly have thought that the funds in these accounts were legitimately earned? The banks shouldn’t have taken the money, and governments shouldn’t have let them take it. These funds belong to Libya, Egypt and Tunisia and the people of these countries now have a right to know where their money is,” said Anthea Lawson, head of the Kleptocracy campaign at Global Witness.

Currently banks are required to do due diligence checks to ensure they know their customer’s identity and source of wealth. If they have concerns the money is illegally earned, they are supposed to file a report with the authorities. The problem is that banks are not motivated to dig deep into their client’s source of wealth because they might find something that makes it hard to accept the money, so they adopt a box-ticking approach to their due diligence checks.

Governments need to send a clear message that this behaviour by banks is unacceptable. As well as naming the banks that hold the frozen funds, they must devise, and effectively implement, a new approach which stops banks doing business with those dictators not currently making headlines. This must account for three key principles:

- If a bank cannot get its senior politician customers to explain their wealth, then it should turn down the money.  Senior officials should be able to explain how their assets were earned legitimately, especially if there is a significant difference between their official salary and their actual wealth. If they cannot explain there should be a presumption that that their funds are the proceeds of corruption. This concept of “illicit enrichment” is already recognised in international treaties such as the United Nations and the Inter American conventions against corruption.

- Banks and other investment managers should disclose full details of state assets that they manage. In a dictatorship where one individual, or a small cabal, exercises almost complete power over the state, there is a very thin dividing line between state and personal investments. For example, it appears that Gaddafi has significant personal control over the state funds invested in the Libyan Investment Authority. These funds may look like they belong to the state but are actually under the effective personal control of a ruler who has captured the state. The citizens of countries such as Libya have a right to know where state funds are being held and what they are being spent on.   

- Such measures should be accompanied by national registries that list the ultimate owner or controller of companies and trusts. Corrupt politicians hide their identity, and therefore their assets, behind complex webs of front companies and legal structures. This can make it very difficult for banks, or law enforcement, to find out who actually controls assets. 

“A new approach is need to tackle corruption and dirty money. This isn’t just about fast cars and luxury yachts. It’s what allows dictators to stay in power beyond the wishes of their people. Even if banks are technically compliant with the law, they are hiding behind regulatory failings to continue their profit-driven dirty pact with corrupt tyrants,” said Lawson.

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Notes to editors:

• Personal accounts of senior figures: Global Witness has recently shown how banks in London accepted bribe payments for corrupt Nigerian state governors several years after being reprimanded by the British banks’ regulator, the Financial Services Authority (FSA), for having accepted the Nigerian dictator Sani Abacha’s millions See International Thief Thief: How British banks are complicit in Nigerian corruption, October 2010.
• In our report Secret Life of a Shopaholic, we also showed how Teodorin Obiang, son of the president of Equatorial Guinea, bought a $35 million Malibu mansion, a $33 private jet and a fleet of fast cars despite his salary of $6,000 a month as a minister in his father’s government, and was able to transfer the money for these purchases into the US through American banks. 
• State funds: In 2006 Global Witness revealed how $3 billion of Turkmenistan’s gas income was at Deutsche Bank in Frankfurt under the effective personal control of then-president Niyazov. Deutsche Bank and the German regulator, BaFin, brushed off our concerns saying these were ‘state accounts’. However we had been told by a former chairman of the Central Bank that this money was treated by Niyazov as his ‘personal pocket money.’
• Banks doing business with tyranny: In mid-2008 Global Witness wrote to the (then) top 50 banks in the world to ask if they had a policy of not doing business with certain types of regimes, including highly corrupt and highly repressive regimes. Of the 16 which deigned to reply[1], all but one did not answer this question. Only Rabobank did, saying that it did not have such a policy. The full results of this survey were published in our report Undue Diligence: How banks do business with corrupt regimes.
• Previous failure: In the UK, the regulators have not learnt from previous failings. In 2001 the regulator, the Financial Standards Authority (FSA) revealed that British banks had accepted $1.3 billion of stolen funds from Nigerian dictator Sani Abacha. While the FSA released a report detailing catastrophic anti-money laundering failings at a number of banks, it refused to name which ones. 
• Article 20 of the United Nations Convention against Corruption and Article 9 of the Inter American Convention against Corruption set out the corruption offence of illicit enrichment.