G20, is the Era of Bank Secrecy Truly Over?

Increasing evidence in recent months has shown that fraud and corruption may have played significant roles in causing the financial crisis, and they have been a prime reason for the serious decline in public confidence in both financial services and the bodies regulating them. In April 2009, the Group of 20 leading world economies set out an ambitious agenda that famously declared the “end of bank secrecy”. It aimed to reform the global regulatory framework, prevent further abuses and curb illicit financial flows. More than a year later, rhetoric has surpassed action.

The positive direction outlined at the G20 London summit in 2009 and reiterated in Pittsburgh in September of the same year, will be reviewed in Toronto from 26-27 June 2010. In order to ensure a sound recovery and deliver the promised reforms , there must be fast collective action and international cooperation.

The World Bank estimates that more than 64 million people who might have escaped poverty in 2010 will not, as a direct result of the crisis. Although developing countries are expected to drive growth in coming years, high unemployment and slow economic growth in the US and Western Europe continue to hurt people across the globe.

But as economies start to recover, there is concern that the opportunity to tackle systemic failures that caused the crisis will be missed if governments fail to act quickly, leaving room for future financial meltdowns. New bills are up for debate in the US while France, Germany and the UK have announced new policy directions. Yet, overall, there is a continued lack of concrete progress both nationally and internationally:

o  No anti-corruption measures are attached to crisis funds allocated by multi-lateral institutions

o  The conflicts of interest between rating agencies, auditors, and public and private institutions remain

o  Nothing concrete has been done to eliminate tax havens for illicit financial flows

o  Talk of curbing bonus and salaries at financial institutions has not resulted in legislation.

With developing countries set to account for nearly 60 per cent of the world gross domestic product by 2030, according to the OECD, it is essential that the G20 maintain its call to action in Pittsburgh for “collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential.”

·    Comprehensive cross-border regulations to mandate stronger corporate governance in financial services firms with particular reference to risk management, greater accountability of boards of directors, and the disclosure of financial products offered by firms to their clients

·    A single, understandable set ofglobal accountingstandards for asset valuation in financial services firms

·    Regular reporting by supervisory authorities of the condition of institutions that pose systemic risks because of their size or leverage

·    Strengthen and improve whistleblower protection procedures

·    Require companies to publish key financial and legal data in every country where they operate.

A strong accountability framework in the financial sector can be applied to all forms of global disbursements, from humanitarian aid to climate change financing. The G20 has made the latter a priority in its recent declarations, but as the first tranches of US $30 billion in fast-start climate change financing begins to trickle to recipient countries, TI is calling for strong governance measures that incorporate transparency and accountability to guard against fraud and safeguard current and future climate financing.

The financial crisis has shone a spotlight on the many areas within the financial universe where conflicts of interest pose a serious threat to financial integrity. Rating agencies rightly came under criticism for their lack of independence.

There are currently at least two proposals under discussion which would sever this link, or build in necessary safeguards. The European Commission is considering establishing a publicly funded body to act as a rater, and in the US there is discussion about an institution to oversee the rating agencies and their clients.

The cross-border flow of global proceeds from criminal activities, corruption, and tax evasion is estimated at between US $1 trillion and US $1.8 trillion per year. In London last year the G20 decided to act against tax havens and deploy sanctions to protect public finances and financial systems.

One year on, global lists have been created categorising compliance with different areas but nothing concrete has been done against tax havens. It is as easy as before the crisis to open an account in several off-shore institutions and hide financial flows. Corrupt acts and illicit gains can still be hidden in secret accounts and through shell companies. Transparence International France, for example, continues its battle to locate and repatriate millions of dollars in assets allegedly diverted illegally from three African countries. More worrying is the fact that the topic is slipping down the G20 agenda. In April, the UNCAC Coalition, a group of more than 190 civil society organisations led by TI that works to enforce the UN Convention against Corruption, called on the G20 to fulfil its commitment to tackle illicit flows.

It took just a few months to decide on massive rescue packages at the end of 2008. Decisions on much-needed regulations should not take years. The G20’s efforts to enact and enforce reform should keep pace with today’s globalised, lightning-speed world.