PARIS – The world is now less than a year away from the deadline to meet the United Nations Millennium Development Goals set in 2000. Extreme poverty has been halved, as promised. But more must be done to meet the health, education, environment, and gender-equality goals. What accounts for the lag in these areas?

One way to speed up the progress is to limit the large amounts of money illicitly flowing out of developing countries, where it could be invested, into assets and bank accounts in the OECD. Those receiving the money are as responsible for this tragic situation as those providing it; but we can stop, and reverse, these outflows.

An estimated $1 trillion, almost one-third of Africa’s GDP, leaves developing countries annually, though the true size of hidden transfers is, by definition, almost impossible to ascertain. We have only a hazy sense of where the money comes from, whom it belongs to, the routes it takes, and where it ends up.

One obvious cause of these outflows is poor governance in developing countries. But recent OECD research suggests that rich countries are also at fault for failing to devise and enforce adequate laws to track and prevent illegal money transfers.

Governments are concerned mainly with two types of illicit financial flows. The first involves cash from criminal activities such as human trafficking, drugs, smuggling, and corruption. The profits are laundered via intricate webs of shell companies into foreign banks and property, emerging in the form of respectable homes and legitimate businesses. The second involves legitimately-earned money seeking to evade taxes.

In either case, the illicit cash requires access to the global financial system in order to find a safe hiding place. It is not in a country’s interest to allow that. For starters, illicit financial flows deprive governments of tax revenues to fund health care, education, and other vital public services – either leaving the neediest without help, or forcing law-abiding taxpayers to cover the shortfall. Worse, once legitimized, illicit money is often used to fund further illegal activities, including civil wars and terrorism.

Money launderers and tax evaders can be stopped if they are exposed to the harsh light of financial transparency. Unfortunately, even the best-governed countries are unable to see the full picture.

Consider the case of the ferry Scandinavian Star, which caught fire en route to Denmark in 1990, killing 159 people. Despite a 25-year police investigation in Norway, the ship’s owners have still not been identified.

This should come as no surprise: 27 of the 34 OECD countries do not have sufficient corporate ownership information, and none is fully compliant with the Financial Action Task Force’s recommendations on preventing money laundering. The priority for tax and legal authorities must therefore be to discover who owns what assets, and where they come from.

Fortunately, there is growing political will to tackle these issues. The G-8 and G-20 recently agreed to share tax information. Governments have started to close loopholes and force companies to disclose full ownership information. 

The United Kingdom, for example, recently approved the creation of a public registry of company owners. At the same time, banks found guilty of assisting money laundering now face record penalties. HSBC, accused of laundering Latin American drug money, was fined $1.9 billion.

Britain’s new financial-crime investigators have also managed to repatriate $1.2 billion of the missing $4 billion that former Nigerian dictator Sani Abacha hid in Switzerland, Luxembourg, Jersey, Liechtenstein, Belgium, and the UK.

Such successes may deter crime, but only up to a point. An estimated $1 trillion in bribes to state officials continues to be paid every year by companies and wealthy individuals. 

Half of OECD member states have yet to see a single prosecution – a possible sign of progress, but more likely a symptom of apathy or impotence. If such crimes are not prosecuted and severely punished, dishonest companies will continue to flout the law, while responsible companies, having lost business after refusing to pay bribes, may start to rethink whether the ethical approach makes commercial sense.

We all have a role to play in changing attitudes and behavior. It is not enough to blame developing countries for their governance shortcomings; OECD countries must share the burden and fulfill their own obligation not to look the other way.

Corruption corrodes trust in our financial institutions, brings out the worst in even the best of us, and, when one considers its impact on ordinary lives, is morally repugnant. We must take our own rules and responsibilities more seriously.

Erik Solheim, a former Norwegian minister of development and minister of the environment, is Chair of the OECD Development Assistance Committee.

Copyright: Project Syndicate