Posted here on 10th September 2021
The countries most affected, and the industries where so much of the corruption takes place, need to be at the forefront of putting in reforms
By Helen Clark, former New Zealand Prime Minister and Chair of the Extractive Industries Transparency Initiative (EITI)
Illicit financial flows affect development for the rich and poor alike globally. The United Nations found that the people of Africa lose around £88.6 billion in illicit capital flight every year at a time when the continent faces costs of more than $200 billion just to deal with the COVID-19 crisis and governments can ill afford to see such wealth sent abroad.
Regrettably, around half of this sum is estimated to relate to transactions in the extractive industries – mining, oil, and gas – where investors frequently set up complex webs of companies and use anonymous ownership arrangements to hide corrupt deals.
Nor is this just a problem for Africa; low-income countries around the world are believed to lose up to a trillion dollars of revenue each year as a result of corrupt deals.
Given the necessity of minerals for the energy transition, it is welcome that this issue is gaining more prominence internationally. In June 2021, G7 leaders confirmed their commitment to transparency and international action against corruption.
But the countries most affected, and the industries where so much of the corruption takes place, need to be at the forefront in putting in place the reforms and systems which will shine a light on the shadowy structures often used to rob low-income countries of the means for development.
Over the next five years, the initiative I chair – the Extractive Industries Transparency Initiative (EITI) – will work with transparency group Open Ownership to make beneficial ownership registers a reality in more countries through a Programme funded by the BHP Foundation. To date, seven resource rich countries across three continents – Mexico, Zambia, Ghana, Mongolia, Indonesia, Nigeria, and the Philippines – have agreed to take part.
Corporate leadership is also required. This week, a range of companies have committed to support transparency by disclosing information on the beneficial owners of companies and subsidiaries, and rigorously assess this data as they undertake due diligence on partners and suppliers.
Systems for publishing contracts and information are not a guarantee against corrupt deals, but they do enable journalists, anti-corruption bodies, and prosecutors to gather evidence of malfeasance and bring it to light.
One recent example is a deal concluded in the resource-rich Democratic Republic of Congo (DRC), where businessman Dan Gertler, currently under U.S. sanctions for alleged corruption in mining deals in the DRC, was able to buy a substantial share in a major cobalt project through a chain of companies, none of which bore his name. The transaction was only identified when contracts on the project were published, providing evidence of his involvement and of the terms of the sale.
Publishing and maintaining comprehensive registers of beneficial owners is a complex task, to which over 110 countries have already committed.
Implementing the necessary legal reforms is one step, but robust technical approaches are also required. Data must be collected, verified, and published in a way that is easily accessible, enabling analysis such as that recently undertaken in Colombia where thousands of data points were compared to link extractive contract holders with politically exposed persons.
Under the programme, expert technical teams will work alongside governments and other stakeholders in focus countries to support reforms, ensuring greater access to beneficial ownership information. Systematic disclosures of this information will enable cases of corruption and mismanagement to be more easily identified and addressed.
We look forward to updating on our progress over the next few years. Beneficial ownership transparency is one of the best weapons we have to fight illicit financial flows and corruption. We are calling on every government and extractive company to commit to this agenda.
If we succeed, the prize is large. It means countless billions of dollars going not into the pockets of corrupt officials or businessmen, but rather into economic and social investments to drive sustainable development.