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From Corruption to

Good Governance
Justice and International Mission Unit
Synod of Victoria and Tasmania
Uniting Church in Australia
2008
The Uniting Church Centre
130 Little Collins Street
Melbourne, Victoria
Australia 3000
jim@victas.uca.org.au
http://jim.victas.uca.org.au
Phone: +61-3-9251 5271
Facsimile: +61-3-9251 5241

From Corruption to
Good Governance
March 2008
z
This paper by the Justice and International Mission (JIM) Unit, Uniting Church in
Australia, Synod of Victoria and Tasmania contributes to the current debate about
increasing overseas aid to developing countries. The JIM Unit is a member of the
Micah Challenge campaign
Authors:
Dr Mark Zirnsak, Director, Justice and International Mission Unit
Ms Kerryn Clarke, Social Justice Offcer
Ms Annie Feith, Social Justice Offcer
Editors
Bessy Andriotis, UnitingCare Victoria and Tasmania
Cath James, Environment Project Offcer
Typesetting and design
Jesse Cain
Acknowledgement
The Justice and International Mission Unit would like to thank Ben Thurley of
TEAR Australia for examples of good governance at the local level in developing
countries and to Amanda Jackson of Micah Challenge for providing comments on
the draft of the report.

Executive Summary 6
Why should Australia be active in curbing corruption?
The role of wealthy countries in corruption
Defnitions
The role of human rights in good governance
Models of success
What attempts are being made internationally to deal with these problems?
Conclusion
Summary 8
Why should Australia be active in curbing corruption?
The role of international aid
Structure of the report
The role of human rights in good governance
Models of success
Australian Catholic Bishops Conference
The role of wealthy countries in corruption
What attempts are being made internationally to deal with these problems?
How does Australia perform in dealing with corruption?
OECD assessment of Australia
Summary of Australias performance
Conclusion
Recommendations on what Australia could do to combat corruption globally 18
Introduction 20
Good governance and corruption 22
2.1 Participation, equality and inclusion
2.2. Rule of law
2.3. Transparency and accountability
2.4. Effciency and effectiveness
2.5. Defning corruption
Theology of Corruption and Good Governance 24
Models of transition from corruption to good governance 26
4.1 Fighting corruption needs funding
4.2 Need to build demand for good governance
4.3 Integrating traditional governance with liberal democratic methods of governance
4.4 Good governance and respect for human rights
4.5 One size does not ft all
4.6 Examples of successful good governance projects and actions
4.7 Conclusion
Aspects of the global fnancial system that encourage corruption in developing
countries 33
5.1 Wealthy country bodies paying bribes
5.2 Tax havens and tax competition
5.3 Recovering looted funds from western nation bank accounts
5.4 Corruption in lending
5.5 Benefting from products obtained with the involvement of corruption
IabIe cf Ccntents
q
5.6 Corruption and multilateral development bank loans
5.7 Asian Development Bank: accountability and transparency?
What attempts are being made to deal with corruption? 43
6.1 UN Convention Against Corruption
6.2 OECD Anti-bribery Convention
6.3 Partnering Against Corruption Principles for Countering Bribery (PACI) Principles
6.4 Extractive Industries Transparency Initiative
6.5 The Equator Principles
6.6 Publish What You Pay and Publish What You Lend
6.7 The APEC Code of Conduct for Business
6.8 Actions against tax injustice
6.9 Stolen Asset Recovery (StAR) Initiative
6.10 International collaboration to deal with money laundering
How does Australia perform in dealing with corruption? 48
7.1 The Financial Action Task Forces assessment of Australia
7.2 OECD assessment of Australia
7.3 Australian Wheat Board bribery scandal
7.4 Recovery of funds stolen through corruption
7.5 Australian efforts to deal with tax havens and tax avoidance and evasion
7.6 Corruption under the occupation forces in Iraq
7.7 Allegations of Australian bodies benefting from corruption
7.8 Operation Wickenby
7.9 Australia leading by example
7.10 Dealing with imports produced with the involvement of corruption
7.11 AusAIDs approach to good governance
7.12 Tackling corruption for growth and development policy
7.13 Building Demand for Better Governance program
Conclusion 60
References 63

6
Why should Australia be active in
curbing corruption?
Corruption hurts countries, communities and
individuals. It is a threat to the economic stability and
security of countries whose resources have been
stolen or diverted. When a countrys health budget
is stolen, clinics are left without the medications they
need, hospitals are left without equipment, doctors
are left unpaid, and babies are not immunised. In
the words of Australias former Minister for Foreign
Affairs, The Hon. Alexander Downer, It is the poor
who suffer if funds are diverted through corruption.
The role of wealthy countries in
corruption
The relationship between aid and development
is complex and corruption and poverty are key
factors. Some have tried to argue that governments
in developing countries are corrupt and therefore
overseas aid is wasted or used to prop up such
governments.
One of the key factors often missing from the debate
is the role of wealthy countries. Some wealthy
countries can be seen to actively foster corruption,
reward it and seek to beneft from it. They do this
through:
providing tax havens to allow corrupt companies
and individuals to avoid paying their fair share of
tax;
allowing a whole industry of accountants, lawyers
and bankers to operate to assist rich companies
and individuals in avoiding paying their fair share
of tax;
lax banking laws that allow for money laundering
of funds stolen through corruption;
failing to assist developing countries in recovering
funds stolen through corruption that are then
deposited into investments in wealthy countries;
the failure of laws to deal severely enough
with bribery and, in some cases, even allowing
companies to claim bribes as tax deductions; and
1.
2.
3.
4.
5.
making loans to corrupt governments for
unproductive purposes, saddling developing
country communities with the repayments of
debts from which they have had no beneft.
Defnitions
Anti-corruption organisation Transparency
International has defned corruption as the misuse of
entrusted power for private beneft.
The Tax Justice Network has suggested that a
possible broader defnition for corruption would be
an activity which undermines public confdence in
the integrity of the rules, systems and institutions that
govern society is corrupt.
The role of human rights in good
governance
Effective promotion of good governance and
challenging corruption requires respect for basic
human rights. Corruption often fourishes in an
environment where basic human rights are violated.
The Australian Governments support for the
promotion and protection of human rights globally has
been mixed.
Models of success
Whilst there is no one model that will ft all
circumstances, there are some universally applicable
conditions that offer a society protection from
corruption - political and economic stability, strong
social infrastructures, respected institutions,
functioning systems of accountability and
transparency, and a relatively narrow equality gap.
Currently, donor funds for good governance programs
are largely directed to strengthening law and order
institutions, building national security, reforming
public sector administration and economic capacity
building. The majority of good governance projects
are not directed at the community level.
However, for a culture of good governance to
develop, there is a need to build demand for it within
the general community. Good governance requires
6.
Fxecutive $ummary

and fosters participation by the whole community


in decision making processes, especially the
disenfranchised and marginalised.
What attempts are being made
internationally to deal with these
problems?
There are a number of concrete initiatives being taken
internationally to shift cultures of corruption to those
of good governance.
These include:
UN Convention against Corruption (2003);
OECD Anti-bribery Convention (1997);
Asian Development Bank OECD Action Plan
for Asia-Pacifc;
The Partnering Against Corruption Principles
for Countering Bribery (PACI Principles), an
initiative of the World Economic Forum in
partnership with Transparency International
and the Basel Institute on Governance;
Extractive Industries Transparency Initiative
(EITI) (2002);
The Equator Principles;
Publish What You Pay and Publish What You
Lend; and
The APEC Code of Conduct for Business.
There are bodies that assist government agencies in
combating money laundering. The Financial Action
Task Force, the Egmont Group and the Asia Pacifc
Group on Money Laundering are three that Australia is
a member of.
In September 2007, the World Bank and the UN
Offce of Drugs and Crime launched a new effort to
assist developing countries in recovering billions of
dollars of looted funds, known as the Stolen Asset
Recovery Initiative.
Conclusion
While lecturing developing countries about
corruption, wealthy countries often play a role in
fostering, rewarding and benefting from corruption in
developing countries. Eliminating corruption globally
will require signifcant effort by all countries. It will
not be assisted by withholding aid from developing
countries. In fact withholding aid is likely to increase
corruption. Instead, aid needs to targeted in ways
that does not assist corruption and supports parts of
society that are seeking to tackle corruption.
The effort to eliminate corruption will need to include:
Building a global culture to respect basic human

rights;
A global effort to address tax competition, tax
havens and tax evasion;
Wealthy countries being willing to return funds
looted from developing countries;
Wealthy countries being willing to punish
bribery by companies and citizens that
operate from their country;
Governments of wealthy countries introducing
measures to prevent the importation of goods
produced through corruption, such as illegally
logged timber; and
A willingness to cancel odious debts, to
discourage those that would make corrupt
loans.
The Australian Government has made signifcant
efforts to assist in addressing corruption in developing
countries, including tackling the role that companies
from developed countries can play in fostering and
benefting from corruption in these countries. The
Australian Government has made commendable
efforts to tighten up domestic law to prevent money
laundering and fnancing of terrorism.
However, it remains to be seen in practice if the
steps taken are suffcient to prevent Australians from
participating in and benefting from corruption in
developing countries and then being able to keep
their ill-gotten gains in Australia.
Australias aid program also contains a number of
positive and well-thought through elements to combat
corruption and promote good governance in countries
that receive aid from Australia.
Regrettably, there are black marks on Australias
commitment to dealing with corruption, with Iraq
being the most prominent recent example. The
Australian Government appears to have largely looked
the other way with regard to many cases of alleged
human rights abuse in Iraq committed by US-led
forces. It also failed to take much action as Iraqis
were cheated out of billions of dollars of oil revenue
by mismanagement and corruption within the US-led
Coalition Provisional Authority.
Australia could also be doing more at the global level
to address tax competition, tax havens, tax evasion,
odious debts, and the promotion of international
standards to combat corruption and promote good
governance.

8
$ummary
Why should Australia be active in
curbing corruption?
Corruption hurts countries, communities and
individuals. It is a threat to the economic stability and
security of countries whose resources have been
stolen or diverted. When a countrys health budget
is stolen, clinics are left without the medications they
need, hospitals are left without equipment, doctors
are left unpaid, and babies are not immunised. In
the words of Australias former Minister for Foreign
Affairs, The Hon. Alexander Downer, It is the poor
who suffer if funds are diverted through corruption.
Curbing corruption is part of the means to creating a
more accountable, effcient and effective government.
It also allows for development that assists those in
poverty. Anti-corruption measures should focus on a
fairer distribution of resources for all in society.
Donor countries, including Australia, cannot expect
signifcant change in the short term. A long term
approach is needed.
The role of international aid
The relationship between aid and development
is complex and corruption and poverty are key
factors. Some have tried to argue that governments
in developing countries are corrupt and therefore
overseas aid is wasted or used to prop up such
governments.
In reality, without suffcient aid, poverty increases.
Poverty then encourages corruption and corruption
in turn undermines efforts to address poverty. This
cycle is not broken by withholding fnancial assistance
to impoverished communities. Instead, breaking the
cycle requires a more sophisticated approach to shift
a culture of corruption to one of good governance.
One of the key factors often missing from the debate
is the role of wealthy countries. Some wealthy
countries can be seen to actively foster corruption,
reward it and seek to beneft from it. They do this
through:
providing tax havens to allow corrupt companies 1.
and individuals to avoid paying their fair share of
tax;
allowing a whole industry of accountants, lawyers
and bankers to operate to assist rich companies
and individuals in avoiding paying their fair share
of tax;
lax banking laws that allow for money laundering
of funds stolen through corruption;
failing to assist developing countries in recovering
funds stolen through corruption that are then
deposited into investments in wealthy countries;
the failure of laws to deal severely enough
with bribery and, in some cases, even allowing
companies to claim bribes as tax deductions; and
making loans to corrupt governments for
unproductive purposes, saddling developing
country communities with the repayments of
debts from which they have had no beneft.
Structure of the report
The report is organised into sections that examine:
Defnitions around good governance and
corruption;
Lessons about what is needed to change a
society from one where corruption fourishes
to one in which good governance exists and
the opportunities for corruption are minimised.
This section also provides examples of where
corruption has been dealt with successfully and
good governance systems have been installed.
The ways that wealthy countries can foster,
reward and beneft from corruption.
International measures being pursued to address
corruption as a global problem.
Australias performance in relation to corruption.
This section looks at how Australia rates in
dealing with corruption; ways it seeks to address
corruption globally, and what inadequacies exist
and where is further improvement needed?
2.
3.
4.
5.
6.
1.
2.
3.
4.
5.
The needs of the poor are more important than the wants of the rich;
the freedom of the dominated is more important than the liberty of the powerful, and;
enabling marginalised groups to participate is more important than retaining a system
which excludes them.

The needs of the poor are more important than the wants of the rich;
the freedom of the dominated is more important than the liberty of the powerful, and;
enabling marginalised groups to participate is more important than retaining a system
which excludes them.
Australian Catholic Bishops Conference
Defnitions
Good Governance is defned by the United Nations
Economic and Social Commission for Asia and the
Pacifc as:
participatory, consensus oriented, accountable,
transparent, responsive, effective and effcient,
equitable and inclusive and follows the rule of
law. It assures that corruption is minimized,
the views of minorities are taken into account
and that the voices of the most vulnerable in
society are heard in decision-making. It is also
responsive to the present and future needs of
society.
Anti-corruption organisation Transparency
International has defned corruption as the misuse of
entrusted power for private beneft.
The Tax Justice Network has suggested that a
possible broader defnition for corruption would be
an activity which undermines public confdence in
the integrity of the rules, systems and institutions that
govern society is corrupt.
The role of human rights in good
governance
Effective promotion of good governance and
challenging corruption requires respect for basic
human rights. Corruption often fourishes in an
environment where basic human rights are violated.
The Australian Governments support for the
promotion and protection of human rights globally has
been mixed. For example, the Australian Government
has pressured the Government of the Philippines
over murders of human rights defenders, church
members, trade unionists, journalists, lawyers and
anti-corruption campaigners.
In contrast, with regard to the case of an Iraqi
allegedly tortured to death by US-led forces in Iraq,
the Department of Foreign Affairs and Trade has
stated that Government policy is, not to comment
on the actions of other countries in relation to matters
in which Australia has no involvement. In the latter
case, such a policy seems at odds with promoting an
environment which respects human rights and good
governance. This stance sets a very poor example
to the Iraqi authorities and the Iraqi people. Further,
such a policy is likely to undermine the commendable
programs the Australian Government has run to
promote human rights and good governance in Iraq.
Models of success
Whilst there is no one model that will ft all
circumstances, there are some universally applicable
conditions that offer a society protection from
corruption - political and economic stability, strong
social infrastructures, respected institutions,
functioning systems of accountability and
transparency, and a relatively narrow equality gap.
Currently, donor funds for good governance programs
are largely directed to strengthening law and order
institutions, building national security, reforming
public sector administration and economic capacity
building. The majority of good governance projects
are not directed at the community level.
However, for a culture of good governance to
develop, there is a need to build demand for it within
the general community. Good governance requires
and fosters participation by the whole community
in decision making processes, especially the
disenfranchised and marginalised.
Combating corruption requires being fexible and
adaptive to local contexts. For example, the use of
standard competitive tendering for demining projects
in Bosnia resulted in contracts being awarded to
commercial companies that cut corners on safety.
This resulted in an accident rate three times higher
than for non-commercial, non-government demining
organisations.
It also needs to be recognised that in weak states
in post-confict situations, effective systems of
governance are rarely established, and rules can be
bypassed through extra-legal mechanisms such as
bribery and favouritism.
1c
Local communities should be involved in the planning,
implementing and monitoring of aid projects, to
minimise the risks of corruption. Citizens need to be
empowered to hold their governments to account
especially for the delivery of basic and essential
services. There is a need to empower those people
who have the greatest needs and make sure they
have the ability to hold authorities to account. Donor
countries, such as Australia, have an important role to
play in facilitating this engagement in the aid projects
they fund.
Progress toward good governance will be most
effective using incremental approaches which respect
local social and political constraints, rather than
attempts at comprehensive reform.
The role of wealthy countries in
corruption
Corporations, individuals, and governments in
wealthy countries sometimes facilitate and beneft
from corruption in developing countries. In the words
of the World Bank and the UN Offce on Drugs and
Crime
1
:
While the traditional focus of the international
development community has been on
addressing corruption and weak governance
within the developing countries themselves,
this approach ignores the other side of the
equation: stolen assets are often hidden in the
fnancial centres of developed countries; bribes
to public offcials from developing countries
often originate from multinational corporations;
and the intermediary services provided by
lawyers, accountants, and company formation
agents, which could be used to launder or
hide the proceeds of asset theft by developing
country rulers, are often located in developed
country fnancial centres.
Bodies in wealthy country paying bribes
The World Bank estimates that US$1 trillion is paid in
bribes each year globally. Transparency International
is concerned that corruption in developing countries
is in fact sustained by bribes paid by Western
countries. A 1997 estimate of bribes paid by
international companies to do business in developing
countries put the fgure at US$80 billion per year,
more than the total overseas aid to these countries.
UN Offce on Drugs and Crime and the World Bank, Stolen
Asset Recovery (StAR) Initiative: Challenges, Opportunities and
Action Plan, The World Bank, June 2007, p. 1.
In some cases, wealthy countries have been slow
or reluctant to act on issues of bribery in developing
countries. For example, the OECD has criticised the
UK Government for taking into consideration the
possible impact on the UK economy, or its relations
with other states, before being willing to take forward
a bribery case. In fact, there has not been a single
prosecution of a UK company in the UK for bribery of
a public offcial in a developing country.
Tax havens and tax competition
Over the last two decades, tax competition has led to
a race to the bottom in corporate tax rates in many
developing countries that now have signifcantly lower
tax rates than OECD countries. In trying to attract
foreign investors, there has been a dramatic decrease
in tax rates for foreign owned subsidiaries and
affliates of trans-national companies.
Oxfam estimates that developing countries could
be losing annual tax revenues of at least US$50
billion as a result of tax competition and the use of
tax havens. The recovery of some of this revenue, if
used effectively, could have an enormous impact on
alleviating extreme poverty in developing countries.
Alex Cobham at the Oxford Council on Good
Governance has shown that poorer countries forego
US$385 billion in revenues per year as a result of tax
avoidance and tax evasion, nearly four times what
they get in foreign aid.
The Tax Justice Network estimated in March 2005
that there was US$11,500 billion held by individuals
in approximately 73 tax havens around the world. The
worldwide tax revenue lost as a result was estimated
at US$255 billion per year. With so much revenue
lost due to international tax evasion and avoidance
by large companies and wealthy individuals,
governments are forced to either reduce public
spending and/or increase taxation on less mobile
small companies or poorer individuals.
Banking secrecy and trust services provided by global
fnancial institutions operating offshore provide a
secure cover for laundering the proceeds of political
corruption, fraud, embezzlement, illicit arms trading
and the global drug trade. The lack of transparency
in international fnancial markets contributes to the
spread of globalised crime, terrorism, bribery of
under-paid offcials by western businesses, and the
plunder of resources by business and political elites.
Corruption clearly threatens development, and it
is tax havens that facilitate the money laundering
of the proceeds of corruption and all types of illicit
commercial transactions.
11
Tax havens create an illusion. Through the use of
nominees and trust arrangements, tax haven activity
can appear to take place nowhere, which means
it is accountable to no government, pays no tax to
anyone, and has no duty to report anything because it
can deny it is anywhere.
In combination, tax competition, aggressive tax
avoidance, tax evasion and the associated illicit
capital fight to offshore fnance centres imposes
a massive cost on developing countries. This cost
usually far outweighs the amount of aid received.
Recovering stolen funds from western bank
accounts
Developing country governments often have
diffculties recovering funds stolen through corruption
by past regimes, when such stolen funds have been
placed in the banks of wealthy developed countries.
A report by the Paris-based Comit Catholique contre
le Faim et pour le Dveloppement in March 2007
estimated that the value of wealth stolen by the most
prominent dictators over recent decades amounted to
US$100180 billion. The report found that only US$4
billion has been repatriated from wealthy countries
and a further US$2.7 billion has been frozen.
However, the UN Convention Against Corruption
contains detailed asset recovery provisions which
are now in force, but still need to be implemented by
countries that have ratifed the Convention.
Corruption in lending
Leaders of developing countries may take out loans
for corrupt purposes. The resulting debts can saddle
future governments, and the people of the country,
with the burden of paying interest on the loans as
well as repaying the principal borrowed. In effect,
fnancial markets may enable corrupt governments to
steal from the future. Another way fnancial markets
facilitate this kind of corruption is to provide loans
against secured assets. Valuable assets can be
converted into cash today without ever being publicly
sold. Future governments and tax payers are left with
repayment.
Governments of developed countries have largely
refused to recognise the concept of odious debt
being applied to the debts of developing countries.
Odious debt is applied when:
loans are made to illegitimate authorities, such as
undemocratic governments;
the loans are not used for the beneft of the
people under that authority; and
1.
2.
the lender should have reasonably known of the
frst two conditions.
In such cases the concept of odious debt is
applied and the loans are deemed to be illegitimate
and unenforceable. The Australian Government
has refused to accept that odious debts should be
cancelled.
Loans made for corrupt purposes increase a countrys
debt level while doing nothing to increase a countrys
capacity to make repayments.
Benefting from products obtained through
corruption
One of the ways that wealthy countries beneft
from corruption in the developing world is through
the receipt of goods obtained through corruption.
Products obtained through corruption are often
cheaper than if the products had been produced
through legal or legitimate means. Developing
countries are then cheated out of revenues they
would have otherwise received if the products had
been produced and sold legitimately.
Timber and wood products obtained from illegal
logging are an example of the types of products
that developed countries receive cheaply as a result
of corruption in the developing world. The World
Bank estimates that the global annual market value
of losses from illegal logging at over US$10 billion,
which is more than eight times the foreign aid
provided for sustainable management of forests.
Multilateral Development Banks dealing with
corruption
The World Bank has investigated 2000 cases of
corruption since 999, and sanctioned over 300 frms
and individuals. However, the World Bank has not
always assisted developing countries in their attempts
to combat corruption.
Meanwhile the Asian Development Bank (ADB) has
not published the list of companies blacklisted for
corruption in ADB funded projects.
The lack of transparency of the ADB in dealing with
corruption needs to be of signifcant concern to
Australians given that the Australian Government
White Paper Australian Aid: Promoting Growth and
Stability indicates that the Australian Government will
work with the ADB in areas of mutual interest.
3.
1z
What attempts are being made
internationally to deal with these
problems?
There are a number of concrete initiatives being taken
internationally to shift cultures of corruption to those
of good governance.
These include:
UN Convention against Corruption (2003);
OECD Anti-bribery Convention (1997);
Asian Development Bank OECD Action Plan
for Asia-Pacifc;
The Partnering Against Corruption Principles
for Countering Bribery (PACI Principles), an
initiative of the World Economic Forum in
partnership with Transparency International
and the Basel Institute on Governance;
Extractive Industries Transparency Initiative
(EITI) (2002);
The Equator Principles;
Publish What You Pay and Publish What You
Lend; and
The APEC Code of Conduct for Business.
In addition, the OECD issued a report in 1998 on
Harmful Tax Competition, which identifed harmful
tax practices, many of which are associated with tax
havens. The OECD approach has been to eliminate
harmful practices by obtaining mutual undertakings
between all parties. The OECD has only been partially
successful in its efforts largely because of conficts
between the tax havens it targeted, and the inability of
the OECD to stop countries within the OECD pursuing
the very practices the report identifed as harmful.
There are bodies that assist government agencies in
combating money laundering. The Financial Action
Task Force, the Egmont Group and the Asia Pacifc
Group on Money Laundering are three that Australia is
a member of.
In September 2007, the World Bank and the UN
Offce of Drugs and Crime launched a new effort to
assist developing countries in recovering billions of
dollars of looted funds, known as the Stolen Asset
Recovery Initiative.
How does Australia perform in
dealing with corruption?
Financial Action Task Force Assessment of
Australia (FATF)
The FATF is an intergovernmental body which sets
standards and develops policies to combat money
laundering and terrorist fnancing. Its Third Mutual

Evaluation Report on Anti-Money Laundering and


Combating the Financing of Terrorism, released in
October 2005, assessed Australias performance.
The report found:
That while Australias legal regime for dealing
with money laundering appeared to be
comprehensive, dissuasive and proportional,
it was not being effectively applied. In cases
where it has been applied, sentences appear
low.
There were no legislative or other enforceable
obligations regarding the identifcation and
verifcation of foreign government offcials
who deposit money with Australian fnancial
institutions and who have the greatest ability
to engage in large scale corruption.
There are no specifc obligations for fnancial
institutions to monitor complex, unusually
large transactions or transactions with no
visible economic purposes, or to further
examine these situations and set out the
fndings in writing.
That, although the Financial Transactions
Reports Act 1988 extends to overseas
branches of fnancial institutions, Australian
banks indicated that they would frst apply
the local laws. In several cases, local laws
prohibited full implementation of the Australian
standards due to local secrecy provisions.
The International Monetary Fund also conducted an
assessment of Australias fnancial sector, releasing
their report in October 2006. The assessment
examined Australias implementation of the Basel
Core Principles for Effective Banking Supervision. The
assessment found that Australia was Materially non-
compliant with Principle 15 dealing with prevention
of use of the banks by criminal elements.
In response to the FATF fndings, the Australian
Government stated that it had enhanced the ability
of the Australian Federal Police to investigate and
pursue money laundering. The Government has
also introduced comprehensive new anti-money
laundering and counter-terrorism fnancing legislation.
The legislation includes the following measures:
Financial institutions are prohibited from
entering into correspondent banking
relationships with shell banks or other fnancial
institutions that allow shell banks to hold
accounts with them.
All foreign and overseas branches and
subsidiaries have to comply with the
principles of Australian anti-money laundering

1
requirements.
Financial institutions are required to assess
the risk they are exposed to, the threat of
money laundering and terrorism fnancing and
then must take steps they deem appropriate
to address the risks.
Penalties for non-compliance with the regulatory
obligations by a company are as high as $11
million (100,000 penalty units, where a penalty unit
is currently $110) and $2.2 million for individuals.
Individuals that commit criminal offences under the
legislation will face up to 10 years imprisonment.
OECD assessment of Australia
According to an OECD report released in January
2006, Australian authorities demonstrated a strong
commitment to combating foreign bribery. However,
the report concluded that Australia needs to toughen
its stand on companies paying bribes or facilitation
payments to foreign governments.
The report stated that the Australian Tax Offce (ATO)
should implement better systems for detecting foreign
bribery transactions when conducting tax audits. The
OECDs bribery group urged that corporate fnes for
bribery be increased from the current maximum of
$330,000, and that sanctions such as disqualifying for
government contracts, be brought against companies
found to have bribed foreign offcials. It recommended
that the Australian government change whistleblower
legislation to protect public servants who, report
suspicions of foreign bribery and that it consider
introducing stronger whistleblower protections for
private sector employees.
The Australian Government is due to respond to the
OECD report in early 2008.
In December 2006 the Australian Taxation Offce
issued guidelines for its auditors to detect bribes in
payments companies make in developing countries.
The guidelines are based on OECD standards and will
require companies to record information such as the
amount paid, the identity of the foreign public offcial
who was paid, and details of what they were paying
for.
On 3 May 2007, the then Attorney General announced
that the government will tighten up the rules for being
able to claim facilitation payments to foreign offcials
as tax deductions and reduce the defences that can
be mounted against a charge of foreign bribery under
the Criminal Code.

Recovery of funds stolen through corruption


The Proceeds of Crime Act 2002 was introduced
by the Australian Government to be able to trace,
restrain and confscate the proceeds of crime against
Australian law. In combination with the Mutual
Assistance in Criminal Matters Act 1987 it allows the
Australian Government to register and enforce legal
efforts by foreign countries to recover money stolen
through corruption.
Australian efforts to deal with Tax Havens and Tax
Avoidance and Evasion
The Australian Taxation Offce (ATO) has expanded
its relationships with tax authorities in other countries
to address the misuse of tax havens. Australia is
a member of the OECDs Forum on Harmful Tax
Practices which aims to eliminate harmful tax
practices from both OECD member countries and
non-member jurisdictions, including tax havens.
In 2005-2006, the ATO provided over 1.5 million
income records under the automatic exchange of
information program (regarding dividends, interest
and unit trust distributions) to 42 treaty partners
aiding in efforts to prevent international tax avoidance
and evasion.
Australia is also a member of the OECDs Committee
on Fiscal Affairs, which was established to bring
together senior tax offcials from all OECD member
governments. Australia is part of a working party
established by the committee to monitor all matters
covering tax avoidance and evasion.
Corruption in Iraq
The Australian Government appears to have done
little to address signifcant levels of corruption under
the US-led administration of Iraq after the 2003
invasion of Iraq that overthrew the brutal regime of
Saddam Hussein. Billions of dollars went missing
after the US-led Coalition Provisional Authority was
installed, after the overthrow of Saddam Husseins
regime. Favourable contracts were then awarded to
companies close to the Bush Administration. The
result was that the Iraqi people were cheated of oil
revenue that was theirs and have subsequently been
deprived of vital services, such as healthcare clinics.
As of April 2006, the US Special Inspector General
for Iraq Reconstruction was investigating 72 cases of
alleged fraud, theft, bribery and corruption in Iraq.
There are no allegations of any corruption relating to
Australias direct aid program to Iraq.
1q
Operation Wickenby
The Australian Government has been conducting
Operation Wickenby to investigate internationally
promoted tax evasion and large scale money
laundering. The Operation has resulted in charges
against three Gold Coast businessmen and $17.9
million in extra tax being paid. The Australian Crime
Commission and the Australian Taxation Offce
have confrmed more than 500 people are being
investigated for participation in illegal arrangements
such as offshore tax havens. The investigation initially
focussed on Swiss accountant Philip Egglishaw, but
has since widened to cover more than 100 promoters
of international tax-evasion schemes.
Leading by example
If Australia wishes to urge developing countries to
address corruption, then it needs to lead by example
domestically. The new Federal Rudd Government
has promised to establish a Freedom of Information
Commissioner, to end the ability of Ministers to
be able to refuse freedom of information requests
through the use of unchallengeable conclusive
certifcates, improve whistleblower protection for
government employees, and not seeking to prosecute
journalists who publish material that is merely
embarrassing to government.
At the same time, the South Australian and
Victorian Governments are the only mainland state
governments that have refused to set up independent
anti-corruption commissions.
Tackling Corruption for Growth and Development
Policy
The Australian Government has developed a Anti-
Corruption for Development policy to guide the
development and implementation of all Australian aid
program activities aimed at countering corruption in
the region.
Launched on 30 March 2007 under the title Tackling
corruption for growth and development. A Policy
for Australian Development Assistance on Anti-
Corruption it outlines three elements to combat
corruption in the region: building constituencies
for anti-corruption reform; reducing opportunities
for corruption and changing incentives for corrupt
behaviour. Positively, the Australian Government
recognises that due to the complexity and political
sensitivity of corruption, the strategy will have a long-
term focus and will include some exploratory and
experimental elements as well as ongoing research.
The policy commits Australia to supporting efforts
to develop anti-corruption policies and plans in
countries that do not have them.
In terms of building constituencies for anti-corruption
reform, the policy recognises the need for large-scale
and sustained commitment to formal and informal
education of young men and women who will be
societys future politicians, judges, prosecutors, police
offcers, civil servants, regulators, entrepreneurs, and
labour and community leaders. The policy also states
that supporting gender equity in leadership positions
will contribute to a more just society and lower
tolerance for corruption.
AusAID will report on progress in implementing its
anti-corruption initiatives through the Annual Review
of Development Effectiveness, to be prepared by the
Offce of Development Effectiveness.
In the 2006-2007 fnancial year, the Australian
Government spent approximately $645 million from
the aid budget on anti-corruption and governance
measures in the Asia-Pacifc region.
Building demand for better governance program
The Australian Government has recognised in its
White Paper on Australias overseas aid program
that insuffcient demand for better performance or
reform is one of the most important obstacles to
institutional development in poor countries. The
Building Demand for Better Governance program
will support strategic partnerships to help augment
domestic demand for reform and accountability in
the Asia-Pacifc region. Australian aid has supported
the PNG Church Partnership Program and War
Against Corruption campaigns, support for national
human rights institutions, and partnerships with
Transparency International. Such support is planned
to be expanded with a particular focus on supporting
womens groups and building capacity in developing
countries for independent analysis of government
policy.
Summary of Australias
performance
The table below summaries Australias performance
in tackling and deterring corruption in developing
countries and preventing Australians and Australian
companies from engaging in corruption in developing
countries and benefting from it.
1
Table 1. Summary of Australias performance on combating corruption and promoting good governance
globally
Corruption or Good
Governance Issue
Australias Performance What more could Australia be
doing?
Assisting in building
demand for good
governance
Australia has assisted with free and fair
elections in the region. The White Paper
on Australias Overseas Aid includes
a program to build demand for better
governance through the aid program.
The Government has issued Tackling
corruption for growth and development.
A Policy for Australian Development
Assistance on Anti-Corruption
Australia needs to implement the
program in the White Paper and
through the Tackling corruption
for growth and development. A
Policy for Australian Development
Assistance on Anti-Corruption,
making sure both are adequately
funded.
Promotion and defence of
human rights
Mixed performance. Strong action in
countries like the Philippines and Sri
Lanka. Lack of willingness to tackle some
human rights abuses in countries like Iraq
and Indonesia.
Need for a consistent approach
to supporting a global culture for
the protection and promotion of
human rights.
Bribery The Criminal Code Amendment (Bribery of
Foreign Public Offcials) Act 1999 makes it
a criminal offence to bribe a foreign public
offcial, whether the offence occurs inside
or outside Australia. However, adequate
penalties have been lacking. Attempts
are being made to increase detection of
foreign bribery. Ability to claim facilitation
payments as tax deductions has been
reduced.
Need to ensure that penalties for
foreign bribery are adequate to
deter bribery.
Need to ensure adequate
protection for whistleblowers that
expose bribery.
Tax competition The Australian Government appears to see
competition between countries over tax
rates as legitimate, but at the same time
is part of international bodies examining
unfair tax competition.
Need to work for an international
approach to curb tax competition
that undermines the development
needs of fnancially impoverished
countries and assist developing
countries stem tax evasion.
Tax havens The Australian Tax Offce (ATO) has shared
information on best practice in dealing with
tax havens through the Seven Country
Forum on Tax Havens. The ATO is also
working with the OECD, the Global Forum
on Taxation and the Joint International Tax
Shelter Information Centre to deal with tax
havens. Operation Wickenby has sought
to tackle Australians using offshore tax
havens.
Need to support greater global
efforts to shut down tax havens,
which facilitate tax evasion, capital
fight and money laundering.
Money Laundering Introduction of comprehensive anti-money
laundering legislation and rules, closing up
many areas where there were previously
risks of money laundering.
16
Corruption or Good
Governance Issue
Australias Performance What more could Australia be
doing?
Recovery of stolen funds The Australian Federal Police and the
Attorney Generals Department are working
with governments in the Asia-Pacifc
region to strengthen local laws dealing
with money laundering and to recover the
proceeds of crime. The Proceeds of Crime
Act 2002 and the Mutual Assistance in
Criminal Matters Act 1987 can allow for the
recovery of funds stolen through corruption
and transferred to Australia.
Corruption in lending Australian aid has almost exclusively been
in the form of grants, not loans. Australia
has not supported the cancellation
of odious debts owed by developing
countries.
Discourage lending from Australia
towards projects of dubious
development beneft. Accept
the need for odious debts owed
by developing countries to be
cancelled.
Multilateral Banks Australia is in dialogue with multilateral
banks about corruption issues.
Ensure that multilateral banks are
transparent in the way they punish
corruption and that penalties are
adequate and applied in a fair
manner.
International Standards to
address corruption
Australia is party to the UN Convention
against Corruption and the OECD
Convention on Combating Bribery of
Foreign Offcials in International Business
Transactions. Australia supports and
promotes the Extractive Industries
Transparency Initiative. The Treasury
and the Department of Finance and
Administration are helping to strengthen
fnancial management systems in countries
in the Asia-Pacifc region. The Australian
Government states that it is already
actively encouraging countries to sign
up to international treaties to deal with
corruption and properly implement their
measures.
Increase efforts to encourage other
countries and corporations to sign
up to international standards to
deal with corruption and properly
implement their measures.
Receipt of goods
produced with the
involvement of corruption
The Australian Government has no
systemic measures to identify the
importation of goods that are produced
with the involvement of corruption. The
Government has promised to take steps to
identify illegally logged timber and restrict
its import into Australia.
The Australian Government should
identify types of imported products
that are likely to have been
produced with the involvement
of corruption and put in place
measures that apply pressure
for the corruption to be stopped
and those responsible brought to
justice.
1
Conclusion
While lecturing developing countries about
corruption, wealthy countries often play a role in
fostering, rewarding and benefting from corruption in
developing countries. Eliminating corruption globally
will require signifcant effort by all countries. It will
not be assisted by withholding aid from developing
countries. In fact withholding aid is likely to increase
corruption. Instead, aid needs to targeted in ways
that does not assist corruption and supports parts of
society that are seeking to tackle corruption.
The effort to eliminate corruption will need to include:
Building a global culture to respect basic
human rights;
A global effort to address tax competition, tax
havens and tax evasion;
Wealthy countries being willing to return funds
looted from developing countries;
Wealthy countries being willing to punish
bribery by companies and citizens that
operate from their country;
Governments of wealthy countries introducing
measures to prevent the importation of goods
produced through corruption, such as illegally
logged timber; and
A willingness to cancel odious debts, to
discourage those that would make corrupt
loans.
The Australian Government has made signifcant
efforts to assist in addressing corruption in developing
countries, including tackling the role that companies
from developed countries can play in fostering and
benefting from corruption in these countries. The
Australian Government has made commendable
efforts to tighten up domestic law to prevent money
laundering and fnancing of terrorism.
However, it remains to be seen in practice if the
steps taken are suffcient to prevent Australians from
participating in and benefting from corruption in
developing countries and then being able to keep
their ill-gotten gains in Australia.
Australias aid program also contains a number of
positive and well-thought through elements to combat
corruption and promote good governance in countries
that receive aid from Australia.
Regrettably, there are black marks on Australias
commitment to dealing with corruption, with Iraq
being the most prominent recent example. The
Australian Government appears to have largely looked
the other way with regard to many cases of alleged
human rights abuse in Iraq committed by US-led

forces. It also failed to take much action as Iraqis


were cheated out of billions of dollars of oil revenue
by mismanagement and corruption within the US-led
Coalition Provisional Authority.
Australia could also be doing more at the global level
to address tax competition, tax havens, tax evasion,
odious debts, and the promotion of international
standards to combat corruption and promote good
governance.
18
The Australian Government has a moral and ethical
obligation to do as much as it can to combat
domestic and global corruption.
The Australia Government can do more to combat
corruption and promote good governance by:
Continuing to fund anti-corruption and good
governance projects within developing countries
in the Asia-Pacifc region, including support for
anti-corruption campaigners.
Make sure that aid assists in the payment
of adequate salaries, as insuffcient income
increases the risk of corrupt behaviour.
When Australia provides aid in the form of
services in kind the Australian Auditor-General
and/or the Commonwealth Joint Committee
of Public Accounts and Audit should audit the
effectiveness of the aid.
International Anti-Corruption Standards
Encouraging more countries and corporations to
sign up to appropriate multilateral agreements to
combat corruption such as:
The UN Convention against Corruption (2003);
The OECD Anti-Bribery Convention (1997);
The Asian Development Bank OECD Action
Plan for Asia-Pacifc;
The Partnering Against Corruption Principles
for Countering Bribery (PACI Principles), an
initiative of the World Economic Forum in
partnership with Transparency International
and the Basel Institute on Governance;
The Extractive Industries Transparency
Initiative (EITI) (2002); and
The Equator Principles.
The Australian Government should encourage
those that have signed up to these agreements to
fully comply with their provisions.
Taxation reform
Supporting an international approach to taxation,
corruption and fnancial stability. For taxation
1.
2.
3.
4.

5.
6.
this means a framework that balances the need
to curb tax competition with a respect for the
ability of democratic governments to set generally
applicable tax rates and which empower poorer
countries to stem tax evasion.
Supporting an international agreement to share
information on tax administration and income
paid to citizens of one country who reside in
another to help poorer countries to stem tax
evasion
1
.
Providing assistance to developing countries to
ensure they can establish:
sound taxation systems;
rigorous procedures that require international
companies to account for what they do;
international enforcement procedures that
ensure international corporations pay what
they owe; and
sound career paths for key tax administration
personnel so that they stay in their jobs for
longer and are not lured away.
Whistleblower protection
Supporting programs which enhance the
protection of journalists and whistleblowers in
developing countries.
Strengthening whistleblower legislation to protect
public servants who report suspicions of bribery
in relation to foreign contracts and introduce
stronger whistleblower protections for private
sector employees that reveal corruption.
Dealing with bribery
Increasing penalties 30-fold for Australian
companies and individuals found guilty of bribing
foreign governments and offcials and ensure that
those found guilty are denied access to public
contracting opportunities (particularly through
Australias aid program).
Oxfam UK, Tax Havens: Releasing the Hidden Billions for
Poverty Eradication, 2000, http://www.attac.org/fra/toil/doc/
oxfam2.htm and Richard Murphy, John Christensen and Jenny
Kimmis, Tax us if you can, Tax Justice Network, September 2005,
p. 48.
7.
8.

9.
10.
11.
eccmmendaticns cn what AustraIia ccuId dc tc
ccmbat ccrrupticn gIcbaIIy
1
Ensuring that all cases of foreign bribery be
referred to the Australian Federal Police by
Commonwealth agencies.
Changing processes to ensure that politically
sensitive cases of foreign bribery are not
potentially delayed in being referred to the
Australian Federal Police by the notifcation to the
Minister of Justice and Customs.
Requiring an external auditor who discovers
indications of a possible illegal act of bribery
to report the discovery to management and, as
appropriate, to corporate monitoring bodies, and
the competent authorities
2
.
Ensuring that members of the Australian Public
Service, including AusAID offcials, who come into
contact with companies involved in international
business understand that the Australian Public
Service Code of Conduct requires them to report
to the Australian Federal Police credible evidence
of foreign bribery offences that they uncover in
the course of performing their duties
3
.
Introducing formal rules on the imposing of
civil or administrative penalties upon bodies
and individuals convicted of foreign bribery,
so that public subsidies, licences, government
procurement contracts and export credits can be
denied or terminated as penalty for foreign bribery
in appropriate cases
4
.
Establishing a policy for denying access to
contracting opportunities with public agencies,
such as the Export Finance and Insurance
Corporation (EFIC) and AusAID, as well as
provisions for the termination of such contracts
in appropriate cases where contractors are
convicted of foreign bribery after entering the
contract
5
.
2 Based on the recommendation under the section numbered
179 in OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
Business Transactions and the 1997 Recommendation on
Combating Bribery in International Business Transactions, 4
January 2006.
3 Based on the recommendation under the section numbered
179 in OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
Business Transactions and the 1997 Recommendation on
Combating Bribery in International Business Transactions, 4
January 2006.
4 Based on the recommendation under the section numbered
181 in OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
Business Transactions and the 1997 Recommendation on
Combating Bribery in International Business Transactions, 4
January 2006.
5 Based on the recommendation under the section numbered
181 in OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
12.
13.
14.
15.
16.
17.
Fully implementing the Action Statement on
Bribery and Offcially Supported Export Credits
agreed by the OECD.
Dealing with lending as corruption
Australia should accept the principle that those
debts that meet the criteria of being odious
should be cancelled.
Australia should commit to the principle of
creditor co-responsibility and ensure the
responsibility of any future bilateral and
multilateral lending involving Australia by:
Introducing guidelines that discourage lending
(or insurance of lending by EFIC, Australias
Export Credit Agency) towards projects
where there is dubious development beneft,
where there is an unacceptable risk of non-
repayment or where there are not adequate
human rights or environmental safeguards.
Advocating for the adoption of similar
guidelines at by the multilateral development
banks at which Australia is represented,
particular the Asian Development Bank.
Supporting local initiatives
Supporting the promotion of a global culture of
respect for basic human rights, so that those
seeking to tackle corruption are not subjected to
human rights abuses.
Providing assistance to communities to tackle
corruption and build good governance that build
a strong sense of local ownership and genuine
partnership.
Multilateral Development Bank Reform
Advocating for reforms of the World Bank and
International Monetary Fund (IMF) that enhance
democratic representation and transparency,
including elections by Board of Governors to all
board seats, publication of meeting transcripts
and a democratic, transparent and merit-based
process for selecting the World Bank President
and IMF Managing Director
Pressuring the World Bank, IMF and the Asian
Development Bank to deal promptly with
companies found to have engaged in corruption,
and with suffcient penalties to deter other
companies from engaging in corruption.
Business Transactions and the 1997 Recommendation on
Combating Bribery in International Business Transactions, 4
January 2006.
18.
19.
20.

21.
22.
23.
24.
zc
1
The following paper has been prepared by the Justice
and International Mission Unit of the Uniting Church
in Australia, Synod of Victoria and Tasmania as a
contribution to the current debate about increasing
overseas aid.
Corruption hurts local communities and individuals.
Corruption is a threat to the economic stability and
security of countries whose resources have been
stolen or diverted.
When a countrys health budget is stolen, clinics are
left without the medications they need, hospitals are
left without equipment, doctors are left unpaid and
babies are not immunised. In the words of Australias
former Minister for Foreign Affairs, The Hon.
Alexander Downer, It is the poor who suffer if funds
are diverted through corruption.
1

Those opposed to increasing fnancial assistance to
developing countries in reducing poverty often rely
on the argument that the governments of developing
countries are corrupt and that aid placed into those
developing countries will be wasted.
The Unit acknowledges that corruption is a
signifcant problem in some developing countries,
but certainly not all. Further, there is a cycle in which
poverty encourages corruption and corruption then
undermines attempts to reduce the poverty. This
cycle is not broken by withholding fnancial support
to impoverished communities, but requires a more
sophisticated approach to shift a culture of corruption
to one of good governance.
Further, wealthy countries can foster corruption
and reward it as they beneft from the corruption
themselves. Countries with lax banking laws may in
effect allow money stolen through corruption to be
laundered through their banking system. They may
also fail to assist developing countries in the recovery
of funds stolen through corruption. A number of
wealthy countries do not have adequate laws to
prevent companies based in their country from paying
bribes to offcials in developing countries where
the company may also be operating. Tax havens,
AusAID, Tackling corruption for growth and development. A
Policy for Australian Development Assistance on Anti-Corruption,
Canberra, March 2007, p. iii.
often in wealthy countries, have a whole industry
of accountants, lawyers and bankers dedicated
to assisting rich companies and individuals in the
corrupt avoidance of paying their fair share of tax.
The Royal African Society in London has stated that
Africa loses as much as US$148 billion a year in
corruption, a fgure that is accepted by the UN and
the World Bank, and which represents 25% of the
Gross Domestic Product of African countries. They
claim this money is rarely invested in Africa, but fnds
its way into the international banking system and
often into western banks.
Australia needs to ensure that the Australian banking
system is not a recipient of money taken in corruption
and that any such money must be repatriated to the
country of origin. The Australian Government also
has a role to play in encouraging other developed
countries to reform their banking sectors not to
accept money taken in corruption and to return stolen
assets.
Developed countries put staff and resources into
investigating funds related to drugs and terrorism
because these activities are seen to have adverse
effects on people. However, the same effort does
not appear to have been made with regard to money
connected to corruption. Yet, corruption may actually
kill or adversely effect more people than both drugs
and terrorism.
Transparency International has concluded that
corruption is undermining progress towards the UN
Millennium Development Goals, in particular the three
related directly to health: reduced child mortality;
improved maternal health; and the fght against
HIV/AIDS, malaria and other diseases. In their view,
With the target date for achieving the goals just nine
years away, the global community is already off target
to meet them and corruption is one of the primary
causes.
2

Curbing corruption is part of the means to creating a
more accountable, effcient and effective government.
It also allows for development that assists those in
2 Transparency International, Theft, bribery and extortion rob
millions of proper healthcare, says Global Corruption Report 2006
Media Release, 1 February 2006.
Intrcducticn
z1
poverty. Anti-corruption measures should focus on
a fairer distribution of resources for all in society. A
long term approach is needed where donors cannot
expect signifcant change in the short term.
In Section 2 of the report, defnitions around good
governance and corruption are explored. Section
3 provides a brief theological consideration of
Christianitys support for anti-corruption activities
and supporting good governance. Section 4 deals
with what general lessons exist about what is needed
to change a society from one where corruption
fourishes to one in which good governance exists
and the opportunities for corruption are minimised.
This section also provides some examples of
where corruption has been dealt with successfully
and good governance systems installed. Section
5 deals with the ways that wealthy countries can
foster, reward and beneft from corruption. Section
6 deals with international measures being pursued
to address corruption as a global problem, looking
at the development of international treaties,
agreements and programs to address corruption
and promote good governance. Section 6 does
not consider the multitude of local initiatives that
exist around the world to address corruption and
develop good governance, with a number of these
having already been addressed in Section 4. Finally,
Section 7 examines how Australia rates in dealing
with corruption. In what ways does Australia seek
to address corruption globally, but also what
inadequacies exist and where is further improvement
needed?
Most of the examples in the report are from the Asia
Pacifc region, but other global examples are used,
especially from Africa.
zz
2
Cccd gcvernance and ccrrupticn
working defnitions
The concept of governance is widely understood as
the process of decision-making and the process
by which decisions are implemented (or not
implemented). The World Bank and International
Monetary Fund (IMF) defne governance as the
manner in which public offcials and institutions
acquire and exercise authority to shape public policy
and provide public goods and services
1
.
Good governance is defned by the United Nations
Economic and Social Commission for Asia and the
Pacifc as:
participatory, consensus oriented, accountable,
transparent, responsive, effective and effcient,
equitable and inclusive and follows the rule of
law. It assures that corruption is minimized,
the views of minorities are taken into account
and that the voices of the most vulnerable in
society are heard in decision-making. It is also
responsive to the present and future needs of
society
2
.
2.1 Participation, equality and
inclusion
Participation in civil society includes the decision-
making processes of both men and women, across
race, religion, ethnicity and disability allowing the
concerns of the most vulnerable in society to be
heard and addressed. This would mean ensuring the
development of an organised civil society, as well as
freedom of association and expression.
2.2. Rule of law
Rule of law refers to the impartial enforcement of a
law by an independent judiciary and an incorruptible
and unbiased police force, both upholding the
protection of the human rights of all members of
society.
Development Committee, Strengthening Bank Group
Engagement on Governance and Anticorruption, World Bank and
International Monetary Fund, 8 September 2006, p. i.
2 United Nations Economic and Social Commission for Asia and
the Pacifc http://www.unescap.org/huset/gg/governance.htm
2.3. Transparency and
accountability
Transparency and accountability are inextricably
linked with each other and the rule of law.
Transparency and accountability are achieved when
rules and regulations are followed in an open and
traceable manner. In general, decision-makers and
implementers are accountable to those who are
affected by their decisions and actions.
The international non-government organisation
Transparency International (TI), founded in 1993
to campaign against corruption, has defned
transparency as, a principle that allows those
affected by administrative decisions, business
transactions or charitable work to know not only the
basic facts and fgures, but also the mechanisms
and processes. It is the duty of civil servants,
managers and trustees to act visibly, predictably and
understandably.
2.4. Effciency and effectiveness
Good governance must involve meeting the needs
of society through making best use of the resources
available, including development assistance as
a substantial resource for some countries. This
includes attention to the sustainable use of resources
and the protection of the environment.
One Christian perspective on ethical governance
argues that:
The needs of the poor are more important
than the wants of the rich; the freedom of the
dominated is more important than the liberty of
the powerful, and; enabling marginalised groups
to participate is more important than retaining a
system which excludes them

.
2.5. Defning corruption
Transparency International (TI) initially defned
corruption as, the use of public offce for private
3 Australian Catholic Bishops Conference, Common Wealth for
the Common Good: A Statement on the Distribution of Wealth in
Australia, Melbourne, Collins Dove, 1992.
z
gain. Its founders were motivated by what they saw
as a silence on the part of the World Bank over the
problem of corruption. TI later expanded its defnition
to, the misuse of entrusted power for private beneft.
This was seen as necessary in light of the privatisation
of public services such as water and electricity
where private companies were subsequently able to
monopolise the supply of these essential services
4
.
The German Federal Ministry of Economic
Cooperation and Development has defned corruption
as the behaviour of people who are entrusted with
public or private tasks and who, by failing to respect
their obligations, acquire unjustifed advantages.
5

The Tax Justice Network has pointed out that the
TI defnition is too narrow and has the possibility of
failing to capture tax evasion and falsifying of pricing
in imports and exports by private individuals and
companies. It has suggested that a possible broader
defnition for corruption would be an activity which
undermines public confdence in the integrity of the
rules, systems and institutions that govern society is
corrupt.
4 Hindess and Larmour, Transparency International and the
Problem of Corruption, http://apseg.anu.edu.au/pdf/plarmour/
ARC_project_plarmour.pdf, 2003.
5 GTZ UNCAC Project, Combating Corruption through
Development Cooperation, GTZ, Eschborn, Germany, February
2007.
zq
3
IhecIcgy cf Ccrrupticn and Cccd Ccvernance
The Christian faith and tradition has a long history
of condemning corruption and calling for those
in authority to act justly and fairly. However, at
the same time, both churches and those calling
themselves Christian have participated in and
facilitated corruption throughout history, both within
the churches themselves and in the wider community.
Even today, the Christian community continues to
be plagued by corruption scandals, especially in the
area of those in leadership positions in the church
misusing their entrusted power to pursue their own
sexual gratifcation. Where churches and individual
Christians have acted corruptly, facilitated corruption
or looked the other way it has been in rejection of
the teaching and life of the founder of the Christian
movement.
When facing questions of governance, the theological
confession in Jewish and Christian scripture affrms
that God is sovereign. All life, including human society
and politics, springs from that sovereign God.
The prime purpose of the prophetic tradition of the
Older Testament, which arose in times of Israels
monarchy, was to remind the political leaders and the
populace of Gods prior and sovereign claim.
The prophets in the Older Testament condemned the
corruption they saw in their societies, especially that
committed by rulers, the priesthood, the judiciary
and the wealthy. The pre-exilic prophets condemned
corruption amongst the priests, who, amongst other
forms of corruption, failed in their duties to the society
in not upholding the law of God
1
.
Israel was condemned by the pre-exilic prophets
for trampling the poor (Amos 2:7, 5:11, 8:4, Isa
3:15, Ezek 22:29). They took usury and excessive
interest and made unjust gain from their neighbours
by extortion (Ezek 22:12-13, 22:29). The poor were
forced to hand over grain (Amos 5:11). The people
of Israel were accused of cheating economically in a
range of ways; skimping on the measure, boosting the
price, cheating with dishonest scales, defrauding and
selling even the sweepings with the wheat (Amos 8:4,
Hos 12:7).
1 Hos 4:6, 4:8, Ezek 22:26, Zeph 3:4, Mic 3:11, Jer 5:31, 6:13,
8:10, Isa 28:7.
The powerful were accused of coveting felds and
houses and seizing them (Mic 2:2). The exploitation
of the poor was contrasted with the wealth of those
carrying out the exploitation (Amos 5:11-12, Jer 5:27-
28).
Rulers are also directly accused of economic
exploitation. For example, King Jehoiakim is
condemned by Jeremiah for forcing men to build
a palace and not paying them for their labour (Jer
22:13-14). Excavations have shown that at this
time a splendid palace was built mid-way between
Bethlehem and Jerusalem, at a time when economic
conditions for the people of Judah were poor
2
.
The prophets called on those in positions of power
and authority to behave in accordance with Gods law
and not to oppress the poor and defenceless
3
.
In the books of the pre-exilic prophets Israel was
to be punished for denying justice (Amos 2:7). The
leaders of the house of Jacob and Israel were
accused of despising justice and distorting what is
right (Mic 3:9). Justice was corrupted (Amos 5:7,
6:12, Hab 1:4) and Gods courts were trampled (Isa
1:12). Bribes were taken and the poor, orphans,
widow, alien and oppressed are denied justice in the
courts (Amos 5:12, Mic 3:11, Isa 5:23, 10:2, Jer 5:28,
Ezek 22:29). Perjury was committed (Jer 7:9) and
false testimony was used to deprive the innocent of
justice and to falsely make people out to be guilty (Isa
29:21).
The book of Ecclesiastes also warns against
corruption, stating Extortion turns a wise man into a
fool, and a bribe corrupts the heart (Ecc 7:7).
The church sees in Jesus Christ a confuence of
the sovereign claim of God and the loyal human
response. By his life and ministry Jesus announced
the reign (political claim) of God. In his life committed
completely to that God, he demonstrates a human
politics that depends entirely upon the governance of
God. The New Testament recalls that such undivided
loyalty cost Jesus his life. Paradoxically, the Church
2 H. Jagersma, A History of Israel in the Old Testament Period
(London: SCM Press Ltd, 1982), p. 177.
3 Lon Epzstein, Social Justice in the Ancient Near East and the
People of the Bible (London: SCM Press Ltd, 1986), p. 69.
z
understands that the complete self-giving of his death
is a full expression of Gods claim, expressed as a
sovereign love. That is to say, Jesus life and death
demonstrate a sovereignty and a governance which
consists of sheer, unlimited and unconditional love.
Jesus condemned corruption in the society around
him, especially of religious leaders. Probably the most
well known account in this regard is the over-turning
of the tables of the money changers and people who
sold things in the Temple in Jerusalem, where Jesus
condemns their making proft off people who come
to worship God (Mt 21:12-13; Mark 11:15-17; Luke
19:45-46; John 2:13-16).
Jesus warns his followers that they cannot be faithful
to God if they place store in fnancial gain, as You
cannot serve both God and money (Mt 6:24). He
states that whoever is dishonest with a little with be
dishonest with much and if you cannot be trusted in
handling worldly wealth, then you will not be trusted
with the true riches of the kingdom of God (Luke
16:10-13).
Jesus lists theft, greed and deceit, all aspects of
corruption, which make a person unclean (Mark
7:20-23).
He criticises the teachers of the law in his society for
using their positions to exploit widows, devouring
their houses (Mark 12:40, Luke 20:46-47).
Jesus states that those faithful to God seek to be
good servants to others and lord it over others (Mt
20:25-27, Mark 10:42-44, Luke 22:25-30).
He tells Zacchaeus, a tax collector, that salvation has
come to his home when Zacchaeus promises to give
half his possessions to the poor and to repay anybody
that he corruptly cheated back four times the amount
they were cheated (Luke 19:8-10).
John the Baptist tells tax collectors to collect only
what they are required to, as they often corruptly
enriched themselves by taking more than they were
entitled to, and he told soldiers not to extort money
(Luke 3:12-14).
In Pauls letter to Titus, he rebukes the members
of the Christian community on Crete that are being
corrupt through teaching for dishonest gain (Tit 1:10-
16).
In the books of James the rich are condemned for
their corrupt dealings with the labourers working
for them Behold, the wages of the labourers who
mowed your felds, which you kept back by fraud, cry
out; and the cries of the harvesters have reached the
ears of the Lord of hosts (James 5:4).
z6
4
McdeIs cf transiticn frcm ccrrupticn tc
gccd gcvernance
What are the suggested models of success for
countries being able to turn around a culture of poor
governance and corruption to a situation of good
governance with appropriate checks and balances?
The building of state capacity to openly and effciently
respond and provide for its citizens has become more
complex in an increasingly globalised world.
There is no one complete model which fts all
situations. An understanding of the specifc cultural
and social context is paramount in the development
of reform within a society that will create and sustain
a political culture of good governance. Even the
World Bank has acknowledged this point, stating
Governance challenges are far from uniform across
countries, so strategies must be differentiated and
strongly based on local knowledge, innovation on
the ground, and extensive collaboration with local
communities.
1

However, stable societies with strong social
infrastructures, respected institutions, functioning
systems of accountability and transparency, and
relatively narrow equality gap are better protected
against corruption
2
.
4.1 Fighting corruption needs
funding
Without adequate funding, developing countries may
be undermined in their efforts to combat corruption.
As long as government offcials, police, the judiciary,
health workers, soldiers and anyone else dependent
on the government for their income are not paid a
suffcient income to live, the risk of them engaging
in corruption is increased. Thus, anti-corruption
programs must be linked to ensuring adequate
salaries are paid, which has implications for the level
of aid that may be needed.
Development Committee, Strengthening Bank Group
Engagement on Governance and Anticorruption, World Bank and
International Monetary Fund, 8 September 2006, p. ii.
2 Vanessa Baird, Can the rot be stopped?, New Internationalist,
December 2006, p. 4.
4.2 Need to build demand for
good governance
Donor funds for good governance programs are
largely directed to strengthening law and order
institutions, building national security, reforming
public sector administration and economic capacity
building. The majority of good governance projects
are not directed at the community level.
In 2001, the OECD Development Assistance
Committee reported that approximately 70% of the
Australian Governments good governance programs
were directed at activities that focused on personnel
at a senior government or industry level. Very little
was provided for civil society and human rights and
programs that work towards building participation and
demand for good governance from the community
3
.
However, the anti-corruption policy of AusAID,
released in March 2007, indicates that the Australian
Government has recognised that systematic anti-
corruption reform requires local champions for
change and should be driven from within. High-
quality political leadership, encouraged by a strong
local reform movement, is critical to success.
4

It is hoped that this policy will lead to a greater
commitment of Australias efforts in anti-corruption
and good governance measures being directed to the
need to build greater demand to good governance at
the local level.
Good governance fosters participation by the whole
community in decision making processes, especially
the disenfranchised and marginalised and not simply
the dominant voices.
The UN Development Programme in the Philippines
has stated that in order to foster democratic
governance it is necessary to empower citizens,
especially women and disadvantaged sectors,
and provide them with opportunities to engage in
governance processes by:
3 Australian Council for International Development, Responding
to the Communitys Voice. Good governance and Development,
Harambee, March 2006, p. 10.
4 AusAID, Tackling corruption for growth and development. A
Policy for Australian Development Assistance on Anti-Corruption,
Canberra, March 2007, p. 7.
z
Enhancing their awareness and
understanding, knowledge and analytical skills
on policies, programs and mechanisms;
Increasing their access to public information;
Providing venues for policy dialogues;
Creating and expanding opportunities for
networking and linkage-building;
Strengthening their capacities to monitor
government and non-governments
performance and practices; and
Building their capacities to engage and
represent their constituents in governance
structures and processes
5
.
While the World Bank has recognised there is a role
for local bottom-up participatory reform, such as
community-driven development, it seems to believe
that such demand led governance should only be
pursued when opportunities for governance reform
at the national level are limited.
6
However, the Bank
acknowledges that civil society, non-government
organisations, the media and local communities have
a role to in holding governments and institutions
accountable. It states that it will work to support
participatory and transparency initiatives, enabling
citizens to access information and participate in
development of policies, spending priorities and
service provision; promote community participation
to improve local governance; and build media
capacity
7
.
As pointed out by Dennis de Tray, vice president
of the Centre for Global Development, and former
World Bank resident representative in Indonesia, aid
donors simply ensuring their projects are free from the
effects of corruption is not a way to build meaningful
good governance. In his words ring fencing donor
projects is a cop-out when it comes to fghting the
corruption that matters. It may make donors feel
good, it may be important to keep taxpayers happy,
but it does not lead to sustainable reductions in
5 UNDP Philippines, Country Programme Action Plan between
the Government of the Philippines and United Nations Development
Programme, 2005 -2009, p. 9.
6 Development Committee, Strengthening Bank Group
Engagement on Governance and Anticorruption, World Bank and
International Monetary Fund, 8 September 2006, p. ii.
7 Ibid., pp. v, 6.

corruption.
8
The Australian Government appears
to have realised this point and in the White Paper
Australian Aid: Promoting Growth and Stability it is
stated that each major aid activity will as a matter of
course, set out what it is doing not only to reduce the
risks of corruption to the activity, but also to reduce
corruption in the sector to which it applies.
9

Australias programs in both Papua New Guinea
and Solomon Islands have been criticised as
capacity building ending in capacity destruction.
The argument has been made that AusAIDs funding
of services under the concept of capacity building,
end up delivering it, thereby undermining the local
government and peoples ability to continue the
service once those providing it leave. The bulk of the
$247 million Australia spent in the Solomon Islands
in 2004 in aid was paid to Australians working there.
Australian salaries in the Solomons are much higher
than the locals, their offces are vastly superior, much
of their food and water is fown in from Australia, at
a great expense, and on average the most senior of
them are costing the Australian aid budget $600,000
a year
10
.
As Stewart Firth points out, The reason is that local
government never come to think of service provision
as theirs, but stand on the sidelines dealing with
the foreigner, coordinating aid projects and working
on the next submission for funds. There is a great
danger that something of this kind might happen
in Solomon Islands.
11
This does not enable the
local people to learn the skills necessary to run
a sustainable system of governance including
developing their own institutions specifc to their local
context.
8 Dennis de Tray, Corruption and Development: An Impolitic
View, 1818 Society Fall Luncheon, 16 November 2006.
9 AusAID, Australian Aid: Promoting Growth and Stability.
A White Paper on the Australian Governments Overseas Aid
Program, 2006, p. 60.
10 Stewart Firth, Towards Justice and Human Development in
the South Pacifc: how Australia can do better, The Don Dunstan
Lecture, The University of Melbourne, 2005.
11 Ibid.
z8
4.3 Integrating traditional
governance with liberal democratic
methods of governance
The Solomon Islands provides a key example of
state failure due in large part to the lack of ft of the
institutional design with the local political culture
12
.
The primary lesson to be learned here is that
introduced institutions and systems of governance
lack social foundations. Indigenous societies
throughout Melanesia had systems of governance
to uphold transparency and accountability, before
the arrival of Europeans. These cannot be ignored,
for as Hegarty et al writes, Local social systems and
structures of traditional governance have proved
resilient and adaptable, and continue to provide the
primary reference for most Solomon Islanders
13
.
At the same time it needs to be recognised that
these traditional Melanesian social systems will not
be effective at a national level without signifcant
modifcation.
Throughout Melanesia, indigenous understandings of
good governance clearly involve notions of equity.
Bernard Narokobi, a Papua New Guinean writer says,
good governance means:
taking good care of our land, our resources
and our relationships with one another and of
course with people who we regard as allies,
or friends in the working out of our common
lives. Good governance, good administration,
good management, a key to it is wisdom in
our societies. You have to be wise, you have
to be sensitive, you have to be cautious,
careful in what you say, what you do, and most
signifcantly in your distribution of food and pigs
you must be fair to everyone.
Liberal democracy, the governance model promoted
and implemented through development assistance
programs in Samoa and throughout the Pacifc, is
publicly adhered to by the Samoan Government.
This model attempts to deal with problems through
legislative and institutional reform, focusing on
improving instruments of government and on
enhancing the role of the private sector particularly
in service provision. It does so with little attempt to
integrate the traditional models of governance into a
national scale.
Samoas experience gives insight into the friction
that can arise between traditional governance and
2 D. Hegarty et al., State, Society and Governance in
Melanesia, Discussion, Research School of Pacifc and Asian
Studies, The Australian National University, 2004, p. 5.
13 ibid, 5.
Western forms of governance. Faasmoa (Samoan
way) and faamatai (way of chiefs) are the most
infuential factors in determining the leadership in the
local village structure of governance
14
.
This system today has its faws, and has not
prevented governance problems. Hyffer and Asofou
Soo see these as a result of:
a lack of correspondence between faasmoa
and liberal democracy;
a lack of general understanding and critical
assessment of the principles of liberal
democracy in Smoa;
a combination of misuse, abuse, or
misunderstanding of faasmoa; and
a lack of publicity and critical assessment of
the principles of faasmoa.
Huffer and Asofou Soo advocate for the use of
traditional and commonly understood concepts to be
employed in institutions of governance, rather than
the language of liberal democracy and rule of law
15
.
Development can be an imposition of western
values and concepts onto local, indigenous cultural
systems. This explains why the local people have not
internalised the new concepts into their daily lives.
While Samoan systems of accountability are founded
in people being able to see their leaders daily in the
village, the western systems of governance introduce
a level of division that needs to be addressed with
reference to local, indigenous understandings of
accountable governance.
With the events of recent confict in mind, Solomon
Islanders have little faith in their current governance
structure. In order to rebuild a democratic governance
system in which Solomon Islanders invest their
support, an integration of local indigenous concepts
of what governance and good governance entails
may be necessary
16
.
In recognition of the importance of understanding
traditional governance, AusAID is providing
research funding to the Australian Centre for Peace
and Confict Studies, based at the University of
Queensland, for a research projectTowards Effective
and Legitimate Governance: States emerging from
hybrid political orders. This research seeks to identify
aspects of modern state institutions, customary local
institutions and civil society institutions that have
the potential to form a hybrid political order in fragile
4 Elise Huffer and Asofou Soo, Beyond Governance in Samoa:
Understanding Samoan Political Thought, The Contemporary
Pacifc, 17 (2), p. 311.
15 ibid
6 Tarcisius Tara Kabutaulaka, Australian Foreign Policy and the
RAMSI Intervention in Solomon Islands, The Contemporary Pacifc,
17 (2), pp. 283-308.

z
states. This approach will be tested through a series
of case studies in Vanuatu, Papua New Guinea,
Bougainville (as an autonomous region of PNG),
Solomon Islands, Tonga and East Timor. AusAID
expects the work to challenge some of the usual
underlying assumptions about fragile states. It also
has the potential to contribute to international thinking
on state building in fragile states.
4.4 Good governance and respect
for human rights
Promotion of good governance requires the
promotion of respect for basic human rights.
Corruption often fourishes in an environment where
basic human rights are violated. Demand led
governance appears open to failure if an environment
exists where those who demand good governance
face severe human rights abuses such as murder,
extrajudicial execution or disappearance at the
hands of the security forces or those involved in
corruption. Demand led governance refers to when
the ordinary members of a society demand good
governance from those in government and the public
service.
Australias actions in the Philippines provide a
positive example of promoting human rights. The
Justice and International Mission Unit has a close
relationship with the United Church of Christ in the
Philippines (UCCP). The UCCP reports that moves to
combat corruption at all levels of government in the
Philippines are being undermined by the failure of the
security forces to protect human rights or even, as the
available evidence
seems to suggest,
being involved
in the murder of
community leaders,
church workers,
journalists, lawyers,
those involved
with opposition
political parties,
trade unionists and
Indigenous leaders.
The UN Development Program in the Philippines
has recognized the need to build an environment in
which basic human rights are respected if democratic
government is to be fostered. The Justice and
International Mission Units experience is that those
working in AusAID and the Department of Foreign
Affairs and Trade recognize the need for the:
active promotion of human rights; and
challenging of human rights abuses with local

authorities in the Philippines to assist in the


creation of an environment where overseas
assistance may have the opportunity to really
reduce poverty and combat corruption.
However, in contrast, the Unit has also raised issues
of human rights violations in Iraq. For example,
Uniting Church members have raised the case of
Akram Hanush al Rawi. In December 2003, Akram
Hanush al-Rawi, 49, was arrested by US forces. Two
weeks later his family were told to collect his body
from a nearby hospital. It is alleged that there were
bruises all over his face and body, his knees were
broken and his right arm was so badly ripped from
his body that it was attached by only a small piece of
muscle. The US authorities argued that he died from a
heart attack.
Replies from the Department of Foreign Affairs and
Trade to Uniting Church members stated:
We note your request to raise the case of
Mr Akram Hamush al-Rawi with relevant US
authorities. It is the Governments policy not to
comment on the actions of other countries in
relation to matters in which Australia has had no
involvement.
Such a policy seems at odds with promoting an
environment for respect for human rights and good
governance, in this case setting a very poor example
to the Iraqi authorities and the Iraqi people. Further,
it is likely to undermine the commendable programs
the Australian Government has run to promote human
rights and good governance in Iraq.
4.5 One size does not ft all
Combating corruption while providing aid means
breaking out of ideologically driven parameters, such
as a belief that competitive tendering will always
deliver the best outcome.
An example of the problems that can arise has been
demonstrated in a report on landmine clearance
in Bosnia by Landmine Action
17
. The report found
that while mine action tasks are contracted out to
7 M. Bolton and H. Griffths, Bosnias political landmines,
Landmine Action, London, 2006.
Companies from wealthy countries can also assist in creating an environment where
human rights abuses undermine anti-corruption efforts. In early 2007, US based
banana company Chiquita Brands International pleaded guilty to having made
payments of US$1.7 million to paramilitary groups, the AUC, in Colombia between
2001 and 2004. The payments had continued after the US-Government declared
the AUC groups to be terrorist organisations
1
. Amnesty International reported that
AUC groups were responsible for over 3,000 murders a year in Colombia, including
lawyers, journalists and human rights defenders.
1 Company paid terrorists, The Age, 21 March 2007.
c
introduce competition and save costs, this occurs
usually in the context of a weak state, which may
be unable to enforce discipline and the rule of law
on contractors. This means there may be strong
incentives for contractors to cut corners and
carry out risky practices to maintain a competitive
price. The report found that for every 100 mines or
pieces of unexploded ordnance found, commercial
demining companies operating in Bosnia had nearly
three times the number of accidents compared
with non-commercial non-governmental demining
organisations or government conducted demining.
It was stated that in some countries such problems
have been solved by constructing effective systems
of regulation that hold poor performing contractors
to account. However, in weak states in post-confict
situations, effective systems of governance are rarely
established and rules can be bypassed through extra-
legal mechanisms such as bribery and favouritism.
Once one company cuts corners and is able to bid for
contracts at lower cost, it can force other companies
to ruthlessly cut costs also. This creates a strong
incentive for companies to break safety rules for their
employees.
The report also found that the context of a weak
state means that money for landmine clearance, in
the case being considered, is open to being captured
by nationalist or criminal interests, which often
have positions of primacy in a conficted society. It
stated that advocates of privatisation have argued
that contracting out services will reduce corruption
and increase the rule of law by forcing effciency
and minimising politically motivated distribution
of resources. However, it is unclear in such an
analysis why a corrupt government should handle a
privatisation process more cleanly than it would run
the program itself.
In the case of Bosnia, the Serbian demining company
UNIPAK was owned by Radomir Kojic, who was
accused of organising the ethnic cleansing of non-
Serbs from Pale, supervising torture centres and
commanding a unit shelling Sarajevo. Between
1999 and 2003, UNIPAK received US$1.8 million for
demining, US$1.3 million being provided by the US
Administration. Radomir Kojic was arrested on 23
August 2006 in Pale by the State Investigation and
Protection Agency on suspicion of money-laundering,
tax evasion and abuse of offce relating to UNIPAK.
Banking documentation showed that within a single
day, Radomir Kojic channelled more than one million
euros in demining funds from his account in Slovenia
via Privredna Banka Sarajevo, a bank described by
the US as a money-laundering operation for Radovan
Karadzics protection network.
The report recommended that in response to such
challenges a confict sensitive and politically aware
approach to mine action is needed that:
pays attention to whom resources are
allocated, and their role in the political
context;
assumes the resource fows of mine action
funding will attract the attention of many
undesirable individuals and parties who wish
to proft from it;
understands that policies conventionally
considered wise may be hijacked and abused
by special interests; and
takes a principled and arms-length stand
from corruption and the illiberal political
economy of confict.
4.6 Examples of successful good
governance projects and actions
4.6.1 Microfnance project in Bougainville
The Bougainville Microfnance project that was set up
in the late 1990s under the Bougainville Transitional
Government and funded by AusAID has the support
of the local community as a successful, transparent
and accountable model. The scheme is designed
to address the fnancial needs of the people at the
community level. As such, it utilises local traditional
ways in terms of accountability and transparency.
As Agnes Titus from the Leitana Nehan Womens
Development Agency said:
It is a project that is just falling nicely on our
own way of life except for the fact that the
women are heavily involvedThe Microfnance
institution is the way they can address their
personal issues too, their family issues or their
community issues. And Im very confdent that
that is the way Bougainville will go at a time
when were talking about being an autonomous
state. Because I mean that is one of the best
ways people can really feel and articulate that
independence which we are always talking
about.
18

4.6.2 Partners in advocacy: HEED Bangladesh
Under HEED Bangladeshs Participatory Development
Program (PDP), groups are formed in order to
mobilise poor and marginalized people into forums
that generate cohesiveness and social and economic
18 www.abc.net.au/timetotalk/english/radio/stories/
TimeToTalkTranscript_418400.htm

1
power. These groups function as savings and
credit groups, providing poor families, particularly
women, with access to credit and income-earning
opportunities that would otherwise be denied to them.
They also provide education, awareness-raising and
empowerment around issues of critical importance to
the communities. HEED assists almost 3,500 of these
groups with over 57,000 members.
Group solidarity is enormously strong among the
members. The groups begin by making a roll-call and
noting who is absent. However, far from being the
least important members of the group because they
have no say in what the group discusses, absentees
become the most important members of the group.
The group discusses why they are absent and what
the group, can do to assist the absent member
through any fnancial, health or family diffculties they
are facing.
PDP groups meet to discuss legal and human rights
issues, particularly issues such as womens rights,
voting and democracy, divorce, dowry and family
law, along with health issues such as HIV/AIDS and
the problem of arsenic-contaminated water. A crucial
part of the work of these groups is to provide the
members with the information, skills and confdence
to understand and defend their own rights and
entitlements. To combat the violent and discriminatory
practices targeted against women that have risen out
of traditional approaches to child marriage, dowry
and divorce, women are informed of their rights under
state law and the support and redress mechanisms
available to them.
Local groups elect members to Ward Committees
(a ward is the local government area) and Union
Committees, where elected councillors meet as
joint members in these groups. These groups are
a powerful force for positive social change in their
communities by:
contributing to local dispute resolution;
raising awareness about issues and
encouraging observance of signifcant
international days, such as Womens Day and
AIDS day;
engaging with local government to ensure
the equitable distribution of important social
services, such as emergency relief, health
programs and girls education scholarships;
and
providing education and community
advocacy.
At these higher level forums (Ward and Union
Committees), the groups also organize community
leaders forums so that local social, political and legal

issues can be raised. In these forums the traditional


elite leadership is made more accountable to their
communities. There are many examples of this new
accountability fourishing; many local government
offcials have made commitments not to permit child
marriage and to provide greater levels of fnancial
accountability to the local community.
HEED also ran three workshops for journalists in
the different PDP areas in 2003-04, with about 99
journalists attending. These workshops offered
training and information about reporting on human
rights violations, the provision of public services and
issues of corruption and governance. The role of an
informed and courageous media is ever more critical
in Bangladesh at a time when violent attacks against
civilians, politicians, and journalists are on the rise.
HEED works to empower grassroots communities,
forge links between communities and government,
and enhance accountability by working with
community leaders and the media. By working at
all of these levels and empowering communities
to advocate for good governance and the
defence of basic rights, the seeds of sustainable
good governance and the development of poor
communities are being sown
19
.
4.6.3 Communities addressing corruption in
Uganda
During the early 1990s, a World Bank survey found
that only 2% of the grants made to schools by the
Ugandan Government for each attending student
were actually received by the schools. The survey
found the blockage was occurring at the district
government level. Schools however continued to
send the fees they charged to district government.
While the district government received money from
both the central government and the community,
schools were massively under-funded.
Once the discrepancy in allocated funds was
revealed, both the central government and local
communities used the power of public information to
hold district governments accountable. The central
government used newspapers and radio broadcasts
to publish the amounts they had transferred to
the district governments. At a local level, schools
maintained public notice-boards, announcing the
amounts of money they were receiving. Communities
also successfully called for schools, rather than the
district government, to hold authority for managing
the funds.
By 1999, the grants received by the schools had
almost reached 100%, although delays in transfers
19 Provided by Ben Thurley, TEAR Australia
z
persisted. The methods used to assist the community
to hold their district government responsible and
accountable were modest and simple. However, when
access to public information was made possible, the
community had the tools to fght against corruption
and achieve a pro-poor outcome
20
.
4.7 Conclusion
Australia and other donor countries in delivering
aid programs should seek to involve affected
communities in planning, implementing and
monitoring projects as citizens, to hold governments
accountable especially for the delivery of basic and
essential services
21
. There is a need to empower
those people who have the greatest needs and make
sure that they have the ability to hold authorities to
account.
Strategies to combat corruption and promote good
governance need to vary across countries and
communities and such strategies must be based on
local knowledge, innovation on the ground and strong
collaboration with local people. This approach has
been accepted in World Bank policy and within the
AusAID anti-corruption policy
22
.
In the words of Minister Downer Our approach must
be tailored to the individual circumstances of each
country. In this way, we can work together with our
partners to identify the local drivers of corruption, and
the best responses, to ensure that our assistance has
lasting impact.
23
The AusAID anti-corruption policy
recognises that donor priorities and responses must
be informed by local needs
24
.
The Institute of Development Studies at the University
of Sussex has argued that much more realism is
needed about the likely pace of change towards good
governance. It argued that incremental approaches
that respect local social and political constraints
have the potential to work better than attempts at
comprehensive reform. They were of the view that
the single most important message for policymakers
in the area of governance is to think less normatively
about what ought to be happening and much more
politically about what is actually happening and why
and to build on that
25
.
20 Australian Council for International Development, Responding
to the Communitys Voice. Good governance and Development,
Harambee, March 2006, p. 14.
2 Garth Luke, Can Aid be Effective when Corruption is
Present?, Make Poverty History and Micah Challenge Australia,
2006, pp. 20-21.
22 Development Committee, Strengthening Bank Group
Engagement on Governance and Anticorruption, World Bank and
International Monetary Fund, 8 September 2006, p. 5.
23 AusAID, Tackling corruption for growth and development. A
Policy for Australian Development Assistance on Anti-Corruption,
Canberra, March 2007, p. iii.
24 Ibid., p. 7.
25 IDS Policy Briefng, Getting Real About Governance, Institute
of Development Studies, University of Sussex, Issue 26, March
2006.

5
Aspects of the global fnancial system that
enccurage ccrrupticn in deveIcping ccuntries
Governments, corporations, and individuals in
wealthy countries sometimes facilitate and beneft
from corruption in developing countries. In the words
of the World Bank and the UN Offce on Drugs and
Crime
1
:
While the traditional focus of the international
development community has been on
addressing corruption and weak governance
within the developing countries themselves,
this approach ignores the other side of the
equation: stolen assets are often hidden in the
fnancial centres of developed countries; bribes
to public offcials from developing countries
often originate from multinational corporations;
and the intermediary services provided by
lawyers, accountants, and company formation
agents, which could be used to launder or
hide the proceeds of asset theft by developing
country rulers, are often located in developed
country fnancial centres.
5.1 Wealthy country bodies paying
bribes
The World Bank estimates that US$1 trillion is
paid in bribes each year globally
2
. Transparency
International has been concerned that corruption in
developing countries was sustained by bribes paid by
Western countries. A 1997 estimate of bribes paid by
international companies to do business in developing
countries put the fgure at US$80 billion per year paid
in bribes, more than the total overseas aid to these
countries
3
. The World Bank and UN estimate that
corrupt money associated with bribes received by
public offcials of developing and transition countries
is conservatively put at US$20 US$40 billion a year.
UN Offce on Drugs and Crime and the World Bank, Stolen
Asset Recovery (StAR) Initiative: Challenges, Opportunities and
Action Plan, The World Bank, June 2007, p. 1.
2 Penny Jackson, The Other Side of the Coin. The UK and
Corruption in Africa, Africa All Party Parliamentary Group, March
2006, p. 12.
3 Rose-Ackerman, S., The Political Economy of Corruption in
K. Elliott (ed.), Corruption and the Global Economy, Institute for
International Economics, Washington, 1997.
An insidious example of companies that originate in
wealthy country paying bribes to further their interests
at the cost of the lives of people in the developing
world is the continuing practice of infant formula
companies paying bribes to health professionals
in the developing world in order to promote their
products.
The World Health Organisation and UNICEF
recommend exclusive breastfeeding for babies up to
six months of age. The UNICEF Innocenti Research
Centre has estimated that the lives of up to two
million babies could be saved each year if all babies
were exclusively breastfed for six months
4
. The World
Bank has stated that exclusive breastfeeding for six
months is the single most effective measure that
could be implemented to reduce child mortality rates
globally
5
. Yet, the International Code Documentation
Centre of the International Baby Food Action Network
(IBFAN) continues to document infant formula
and baby food companies giving gifts to health
professionals as thinly veiled bribes to get health
professionals to get mothers to feed their babies the
companys products
6
.
These companies put their profts ahead of the lives
of babies in the developing world. There was a media
report of a company in the Philippines paying $13 to
health professionals for every ten babies they signed
up to their products. Undersecretary of the Philippines
Ministry of Health, Alex Padilla, was reported in the
media as saying that new mothers have often been
given infant formula by doctors and midwives in
the hospitals, on commission from the milk formula
companies
7
.
The World Health Organisation International Code of
Marketing of Breastmilk Substitutes requires under
Article 7.3 that No fnancial or material inducements
to promote products within the scope of this Code
4 UNICEF Innocenti Research Centre, 990-2005 Celebrating the
Innocenti Declaration on the Protection, Promotion and Support of
Breastfeeding, November 2005, p. xvi.
5 The World Bank, Directions in Development. Repositioning
Nutrition as Central to Development, 2006.
6 See for example Yeong Joo Kean and Annelies Allain, Breaking
the Rules, Stretching the Rules 2004, International Baby Food
Action Network, May 2004.
7 Connie Levett, Baby formula battle goes to Manila court, The
Age, 3 February 2007, p. 20.
q
should be offered by manufacturers or distributors
to health workers or members of their families, nor
should these be accepted by health workers or
members of their families. An estimated 16,000
babies lives are lost each year in the Philippines
because they are not adequately breastfed. Infant
formula sales in the Philippines are over $1 billion a
year
8
.
In some cases, wealthy
countries have been slow
or reluctant to act on issues
of bribery in developing
countries. For example, the
OECD has criticised the UK Government for taking
into consideration the possible impact on the UK
economy, or its relations with other states, before
being willing to take forward a bribery case
9
. In fact,
there has not been a single prosecution of a UK
company in the UK for bribery of a public offcial a
developing country.
There are some good news stories though. In the
US, the Foreign Corrupt Practices Act 1977 makes
it illegal for any US-based or US-listed company
to engage in foreign bribery. It extends to foreign
companies that issue their stock in the US. The
US Department of Justice and the Securities and
Exchange Commission are reported to have doubled
the number of investigations they are conducting into
overseas bribery in the last year. From 1995 to 2000,
the US Department of Justice averaged less than one
completed investigation a year. Early in 2007, three
subsidiaries of Vetco, a UK oil and gas provider, paid
US$26 million in penalties for having paid US$21
million in bribes to Nigerian offcials
10
.
5.2 Tax havens and tax
competition
Over the last two decades tax competition has led to
a race to the bottom in corporate tax rates in many
developing countries that now have signifcantly lower
tax rates than OECD countries. In trying to attract
foreign investors there has been a dramatic decrease
in tax rates for foreign owned subsidiaries and
affliates of trans-national companies.
Between 1983 and 1996 corporate tax rates for US
affliates operating in developing countries dropped
from 54% to 28%
11
. Poorer countries fnd it harder
8 World Health Organisation, Philippines.
9 Penny Jackson, The Other Side of the Coin. The UK and
Corruption in Africa, Africa All Party Parliamentary Group, March
2006, p. 31.
0 Patti Waldmeir, US cracks down on global bribery, The
Australian, 11 April 2007.
Oxfam UK, Tax Havens: Releasing the Hidden Billions for
Poverty Eradication, 2000 http://www.attac.org/fra/toil/doc/
oxfam2.htm
than wealthy countries to counter the effects of
tax competition. For example, between 1992 and
2004, the copper industrys total contribution to the
Zambian treasury fell from over $200 million to just
$8 million even though copper prices had climbed
by more than 25% and copper production remained
relatively stable
12
.
There is little evidence that
state and local tax cuts
when paid for by reducing
public services stimulate
economic activity or create
jobs. To the contrary, there
is evidence that increases in taxes, when used to
expand the quantity and quality of public services,
can promote economic development and employment
growth
13
. The economic impact of taxes depends
on the initial tax level, how the revenue is raised, and
how productively the money is spent
14
.
Oxfam estimates that developing countries could
be losing annual tax revenues of at least US$50
billion as a result of tax competition and the use of
tax havens. The recovery of some of this revenue, if
used effectively, could have an enormous impact on
alleviating extreme poverty in developing countries.
Oxfam has stated that: Northern governments
justifably press southern governments to adopt more
accountable and transparent budget systems, but
then create incentives for corruption by failing to deal
effectively with tax havens and other tax loopholes
15
.
Alex Cobham at the Oxford Council on Good
Governance has shown that poorer countries
forego US$385 billion in revenues annually due to
tax avoidance and tax evasion. This is nearly four
times greater than the total OECD countries foreign
development aid to poorer countries
16
.
The push by multilateral institutions such as the World
Trade Organisation and the International Monetary
Fund to liberalise trade regimes has led to a decrease
in revenue to developing countries through taxes
on imports and exports. Unable to increase the
relatively low tax revenue from direct taxes, such as
income tax, due to capital fight and tax avoidance,
2 Tax Justice Network website, International Tax-Co-operation
and Competition, http://weave.nine.ch/domains/taxjustice.net/
cms/front_content.php?idcat=102
3 Richard Murphy, John Christensen and Jenny Kimmis, Tax us
if you can, Tax Justice Network, September 2005, p. 5.
4 Fred Argy, Australias Fiscal Straightjacket: Eight myths about
tax and public debt which are holding us back, Centre for Policy
Development, Occasional Paper Number 4, Sydney, November
2007, pp. 3, 5-6.
5 Oxfam UK, Tax Havens: Releasing the Hidden Billions for
Poverty Eradication, 2000 http://www.attac.org/fra/toil/doc/
oxfam2.htm
6 Tax Justice Network, Dirty Money and Offshore: Magnitudes
and Measurements, http://weave.nine.ch/domains/taxjustice.
net/cms/front_contents.php?idcat=103
Oxfam estimates that developing countries
could be losing annual tax revenues of
at least US$50 billion as a result of tax
competition and the use of tax havens.

poorer countries have switched the tax burden on to


consumers through sales taxes. This is a shift of the
tax base to more regressive taxation as lower income
households spend a higher proportion of their income
on consumption
17
.
The Tax Justice Network estimated in March 2005
that there was US$11,500 billion held by individuals
in approximately 73 tax havens around the world. The
worldwide tax revenue lost as a result was estimated
at US$255 billion per year
18
. This is more than three
times what OECD countries provide to developing
countries as overseas aid. With so much tax revenue
lost due to international evasion and avoidance
by large companies and wealthy individuals,
governments are forced to either reduce public
spending and/or increase taxation on less mobile
small companies or poorer individuals
19
.
The OECD identifes three factors that characterise a
country as a tax haven
20
:
The country has no or very low taxes and offer
themselves, or are perceived to offer themselves,
as a place to be used by non-residents to escape
tax in the country where the non-resident lives.
There is a lack of effective exchange of
information to foreign tax authorities.
There is a lack of transparency in the legal and
administrative arrangements that apply. Secret
rulings, negotiated tax rates or other practices
that fail to apply the law openly and consistently
are examples of a lack of transparency.
Many havens are small islands states such as Jersey,
Liechtenstein, Cyprus and Malta in Europe; Labuan
and Singapore in Asia, the Seychelles and Mauritius
that serve India and Southern Africa, and Cayman
Island and Bermuda in the Caribbean. Additional
tax havens in our region include the Cook Islands,
Marshall Islands, Nauru, Samoa, Tonga and Vanuatu
21
.
However, there are also a signifcant number of
onshore havens that serve particular aspects of the
global market. The City of London hosts the offshore
Eurobond market, Belgium is a haven for corporate
headquarters, whilst Switzerland, Austria and
Luxembourg have insisted on their right to provide
secret banking facilities. The Netherlands is home
to almost 20,000 mailbox companies, corporate
7 Richard Murphy, John Christensen and Jenny Kimmis, Tax us
if you can, Tax Justice Network, September 2005, p. 6.
18 http://www.taxjustice.net
9 Richard Murphy, John Christensen and Jenny Kimmis, Tax us
if you can, Tax Justice Network, September 2005, p. 1.
20 Australian Taxation Offce, Tax havens and tax administration,
2004, p. 2.
2 Richard Murphy, John Christensen and Jenny Kimmis, Tax us
if you can, Tax Justice Network, September 2005, pp. 32-33.
1.
2.
3.
shells set up by foreign companies and wealthy
individuals who use them to reduce taxes on royalties,
dividends and interest payments. Globally some
1,165 companies use Dutch tax shelters to reduce or
eliminate taxes on royalties and patents.
Whilst OECD efforts to improve standards of
regulation and supervision in fnancial havens need
to be acknowledged, this focus neglects the issue
of tax avoidance, and well-regulated havens can be
attractive to money launderers as they provide the
cover of respectability
22
.
The 1998 OECD report Harmful Tax Competition: an
Emerging Global Issue notes that tax havens are a
harmful form of tax competition as they poach the
tax base of other countries, and also encourage the
race to the bottom by offering foreign capital a low or
no-tax alternative
23
.
An analysis by the World Bank and the UN Offce
on Drugs and Crime of looting by corrupt leaders in
developing countries found that the main techniques
used to launder the proceeds of corruption include
wire transfers, the use of shell corporations in bank
secrecy jurisdictions and direct deposits in the form of
cash or bearer instruments
24
.
John Christensen, formerly an adviser to the
government of the Channel Island of Jersey and now
director of the Tax Justice Network, was reported
in the media as stating that the failure of developed
countries like the UK, USA and Switzerland to clamp
down on offshore tax havens is responsible for more
hardship than any corrupt acts by developing world
leaders. I would place the United Kingdom high on
the list of most corrupt countries, he said, citing its
role as a tax haven and a defender of the tax haven
role of its overseas territories and dependencies,
as well as its dismal role in undermining the
effectiveness of the European Unions attempts to
close tax loopholes. He argued that there had been
too much emphasis on corruption in the developing
world and not enough on the abuse of offshore tax
havens by the wealthiest countries
25
.
In the view of the Tax Justice Network:
..banking secrecy and trust services provided
by global fnancial institutions operating
22 Oxfam UK, Tax Havens: Releasing the Hidden Billions for
Poverty Eradication, 2000 http://www.attac.org/fra/toil/doc/
oxfam2.htm and Lynnley Browning, Dutch tax laws give stars
shelter and satisfaction, The Age, 5 February 2007, Business p. 5.
23 Oxfam UK, Tax Havens: Releasing the Hidden Billions for
Poverty Eradication, 2000 http://www.attac.org/fra/toil/doc/
oxfam2.htm
24 The World Bank, Stolen Asset Recovery (StAR) Initiative:
Challenges, Opportunities and Action Plan, June 2007, p.23.
25 Duncan Campbell, Western tax havens slated as corrupt,
http://www.smh.com.au/world/western-tax-havens-slated-as-
corrupt.htm, Sydney Morning Herald, 5 September 2006.
6
offshore provide a secure cover for laundering
the proceeds of political corruption, fraud,
embezzlement, illicit arms trading and the
global drug trade. The lack of transparency
in international fnancial markets contributes
to the spread of globalised crime, terrorism,
bribery of under-paid offcials by western
businesses, and the plunder of resources by
business and political elites. Corruption clearly
threatens development, and it is tax havens that
facilitate the money laundering of the proceeds
of corruption and all types of illicit commercial
transactions.
26

Much of the work undertaken on tax havens,
and a large part of the tax planning industry,
involves exploiting legal loopholes for tax
planning purposes, which ultimately involves
tens, and maybe hundreds, of thousands of
trained accountants, lawyers and bankers in an
activity that is wholly unproductive and anti-
social.
27

Offshore fnancial centres are used as conduits
for rapid transfers of portfolio capital in to and out
of national economies which can have a highly
destabilising effect on fnancial market operations.
Many developing countries are then required to
hold large hard currency reserves to protect their
economies from fnancial instability. These reserve
holdings are an expense that few developing
countries can afford, but they have little choice in the
absence of internationally agreed measures to reduce
market volatility
28
.
Tax havens create an illusion. A company might
be registered in a tax haven territory, but almost
no information about it needs to be recorded with
the government of the tax haven. The names and
addresses of directors and shareholders are almost
never required to be on the public record and
nominee names are allowed. A nominee name is
a person who is paid a small fee to say they are a
director of a tax haven company when in fact they
have no real involvement in its operation
29
.
To add to the illusion, many tax haven companies
are owned by trusts and these trusts in turn are
set up offshore. The trusts are often in a different
territory from that in which the company they own is
registered. The trustees (who will, almost certainly
26 Richard Murphy, John Christensen and Jenny Kimmis, Tax us
if you can, Tax Justice Network, September 2005, p. 4.
27 Ibid., p. 25.
28 Ibid., p. 5.
29 Ibid., pp. 26-27.
also be nominees) will typically be located in a third
tax haven territory.
Within the tax planning industry it is generally
thought that involving three tax haven territories in
such a structure will make it very diffcult for outside
authorities to investigate what is really happening,
and who is benefting from it. This can achieve the
outcome that the tax haven activity appears to take
place nowhere, which means it is accountable to
no government, pays no tax to anyone and has no
duty to report anything because it can deny it is
anywhere
30
.
In the words of the Tax Justice Network: In the
secretive, parallel universe of tax havens, structures
can be set up to carry out real functions in the real
world but without any requirement for a transparent
legal presence that confrms their existence or the
nature of their activities. This creates the opportunity
for all sorts of illicit activities by:
allowing tax evasion to take place largely
undetected
31
;
facilitating capital fight; and
allowing other crimes such as money
laundering, drug traffcking, people traffcking
and so on to take place largely undetected.
The Tax Justice Network concludes In combination,
tax competition, aggressive tax avoidance, tax
evasion and the associated illicit capital fight to
offshore fnance centres imposes a massive cost on
developing countries. This cost exceeds aid fows by
a considerable order of magnitude and also distorts
investment patterns to the extent that it undermines
growth in developing countries whilst also stimulating
asset market bubbles in developed and developing
countries.
32

The use of tax havens is not restricted to companies,
but extends to wealthy individuals, even those who
have publicly campaigned for action to overcome
global poverty. Bono and the band U2 have been
criticised for hypocrisy for shifting their music
publishing company to the Netherlands from Ireland
in June 2006, a move which minimises their taxes.
During the 1990s, U2 used non-executive directors
who were resident in an offshore tax haven to limit
the tax paid by the four band members. U2 is also
criticised for keeping their fnancial affairs out of
public view through companies that publish shortened
accounts and trusts that do not publish accounts at
all
33
.
30 Ibid., p. 27.
31 Ibid., p. 27.
32 Ibid., p. 21.
33 Richard Tomlinson and Fergal OBrien, For all the talk, does
Bono put his money where his mouth is?, The Sunday Age, 4
February 2007, p. 20 and Lynnley Browning, Dutch tax laws give

stars shelter and satisfaction, The Age, 5 February 2007, Business


p. 5.
5.3
Recovering
looted funds
from western
nation bank
accounts
Developing country
governments often
have diffculties
recovering funds stolen through corruption by past
regimes, when such stolen funds have been placed
in the banks of wealthy developed countries. World
Bank President Robert B Zoellick has stated that
Developing countries need to improve governance
and accountability, but developed countries should
also stop providing a safe haven for stolen proceeds.
There should be no safe haven for those who steal
from the poor. Helping developing countries recover
the stolen money will be key to fund social programs
and put corrupt leaders on notice that they will not
escape the law.
34

For example, an estimated $3 - $5 billion was looted
from public funds and deposited in Western banks
by the Nigerian dictator Sani Abacha and his cronies
during the 1990s and laundered through banks in
the UK, Switzerland, Luxembourg, Liechtenstein,
Jersey and the Bahamas
35
. The subsequent Nigerian
government sought the help of the governments of
the UK, the US and the EU in recovering an estimated
US$2.2 billion of these funds. This recoup was seen
as vital in a country that has an external debt of
US$31 billion and where 30% of the population lives
on less that US$1 a day
36
. The government has had a
limited degree of success, with the recent recovery of
US$ 149 million from accounts in Jersey and the 2005
recovery of US$618 million from Switzerland
37
.
A report by the Paris-based Comit Catholique
contre le Faim et pour le Dveloppement (CCFD)
in March 2007 estimated that the value of wealth
embezzled just by the most prominent dictators over
recent decades amounts to US$100 180 billion
38
.
The report found that only US$4 billion had been
repatriated from wealthy countries and a further
US$2.7 billion has been frozen. Switzerland has
returned US$658 million stolen by Ferdinand Marcos
from the Philippines and US$80.7 million stolen by
34 World Bank Media Release, Bank, UN Join in Stepped-Up
Drive to Help Countries Recover Looted Assets, 17 September
2007.
35 The World Bank, Stolen Asset Recovery (StAR) Initiative:
Challenges, Opportunities and Action Plan, June 2007, p.18.
36 Oxfam UK, Tax Havens: Releasing the Hidden Billions for
Poverty Eradication, 2000 http://www.attac.org/fra/toil/doc/
oxfam2.htm
37 Afrol News, Nigeria recovers US $50 million looted funds,
http://www.afrol.com/articles/10641, 28 November 2005.
38 Antoine Dulin and Jean Merckaert, Tax Havens and Ill-Gotten
Wealth, Tax Justice Focus, Vol. 3, No. 3, 2007, p.6.
It is alleged that the Commonwealth Bank is running a multi-billion dollar business
in the tax haven of Malta, which has helped it wipe off millions of dollars of taxes. In
2005-2006 the Commonwealth bank operation in Malta, CommBank Europe, made a
pre-tax proft of $3.4 million and paid tax in Malta of $2.3 million equivalent to a tax
rate of 7.3%. The Commonwealth Bank said that Australian tax was also paid under
foreign company rules, which meant the Maltese accounts did not refect the full
amount of tax paid
1
.
Richard Gluyas, Which bank is big in Malta?, The Weekend Australian, 1-2 September 2007.
8
Peruvian dictator Fujimori. The US has returned to
Chile some of the money stolen by military dictator
Augusto Pinochet. France has so far not returned any
money stolen by dictators and deposited in France.
The World Bank reports that between August 2001
and 2004, Peru was able to recover US$185 million
stolen by Vladimiro Montesinos (the intelligence
police chief under President Alberto Fujimori) from
Switzerland, Cayman Islands and the USA. In July
2006, British authorities returned US$1.9 million of
allegedly illicit gains of Diepreye Alamieyeseigha,
governor of the oil-rich Bayelsa state in Nigeria.
In 2007, the Indonesian Government has pursued $59
million in a Guernsey bank account held by Tommy
Suharto, real name Hutomo Mandala Putra, the
son of the former Indonesian dictator Suharto. The
Indonesian Government has alleged the money was
stolen national funds that were laundered through
share transactions in Italian car-maker Lamborghini
and Tommy Suhartos own motorcycle group. The
account is through the French based bank Banque
Nationale de Paris. This looted money, deposited into
in developed country bank, in part, is alleged to have
come at the expense of Indonesias clove farmers
who were forced to sell their crops at a fxed low price
to Tommy Suhartos national clove distribution board,
which sold the cloves on to cigarette manufacturers.
The Indonesian Government estimates the clove
farmers were cheated out of around $180 million
39
.
39 Stephen Fitzpatrick, Court to rule on Suharto Jrs loot, The
Australian, 23 May 2007, p. 2; and Stephen Fitzpatrick, Freeze on
$59m in Suharto account, The Australian, 25 May 2007, p. 10.
Table 2: Estimates of funds stolen by dictators and
amounts recovered from wealthy countries
40
.
Country Dictator Period of
Rule
Estimated amount
stolen (US$ billions)
Amount repatriated from
abroad (US$ millions)
Philippines Marcos 1965 - 1986 5 - 10 658 from Switzerland in 2004
Mali Traore 1968 - 1991 1 - 2 2.4 from Switzerland in 1997
Nigeria Abacha 1993 - 1998 2 - 6 149 million from Jersey in
2004, and
618 million from Switzerland
between 2002 - 2005
Angola Dos Santos 1979 21 from Switzerland in 2005
Peru Fujimori 1990 - 2000 0.6 - 1.5 80.7 from Switzerland between
2002- 2004
20 from the USA in 2006
Haiti Duvalier 1971 - 1986 0.5 - 2
RDC - Zaire Mobbutu 1965 - 1997 5 - 6
Kazakhstan Nazarbaev 1991 - 1
Kenya Moi 1978 - 2002 3
Indonesia Suharto 1967 - 1998 115 - 35
Iran Pahlavi 1941 - 1979 35
The UN and World Bank have identifed that several
countries on the receiving end of looted funds have
no legal framework for returning them. Many countries
can freeze assets but not return them.
The proposal for an International Convention to
facilitate the recovery and repatriation of funds
illegally appropriated from national treasuries was
adopted in 999 by the African, Caribbean and Pacifc
heads of state and government as part of the Santo
Domingo declaration. However, the UN Convention
Against Corruption contains detailed asset recovery
provisions, which have now come into force.
5.4 Corruption in lending
Leaders of developing countries may take out loans
for corrupt purposes. The resulting debts can saddle
future governments, and their people, with the burden
of paying interest on the loans as well as repaying the
principal borrowed. In effect, fnancial markets enable
corrupt governments to steal from the future.
Another way fnancial markets facilitate this kind
of corruption is to provide loans against secured
assets. Thus, valuable assets can be converted into
cash today without ever being publicly sold. Future
governments and tax payers are left with repayment.
In government owned extractive industries, a related
practice is to forward-sell future output. In effect,
these sales represent borrowing against future
production, and they also provide a means by which
40 Antoine Dulin and Jean Merckaert, Tax Havens and Ill-Gotten
Wealth, Tax Justice Focus, Vol. 3, No. 3, 2007, p.8.

Peruvian dictator Fujimori. The US has returned to


Chile some of the money stolen by military dictator
Augusto Pinochet. France has so far not returned any
money stolen by dictators and deposited in France.
The World Bank reports that between August 2001
and 2004, Peru was able to recover US$185 million
stolen by Vladimiro Montesinos (the intelligence
police chief under President Alberto Fujimori) from
Switzerland, Cayman Islands and the USA. In July
2006, British authorities returned US$1.9 million of
allegedly illicit gains of Diepreye Alamieyeseigha,
governor of the oil-rich Bayelsa state in Nigeria.
In 2007, the Indonesian Government has pursued $59
million in a Guernsey bank account held by Tommy
Suharto, real name Hutomo Mandala Putra, the
son of the former Indonesian dictator Suharto. The
Indonesian Government has alleged the money was
stolen national funds that were laundered through
share transactions in Italian car-maker Lamborghini
and Tommy Suhartos own motorcycle group. The
account is through the French based bank Banque
Nationale de Paris. This looted money, deposited into
in developed country bank, in part, is alleged to have
come at the expense of Indonesias clove farmers
who were forced to sell their crops at a fxed low price
to Tommy Suhartos national clove distribution board,
which sold the cloves on to cigarette manufacturers.
The Indonesian Government estimates the clove
farmers were cheated out of around $180 million
39
.
39 Stephen Fitzpatrick, Court to rule on Suharto Jrs loot, The
Australian, 23 May 2007, p. 2; and Stephen Fitzpatrick, Freeze on
$59m in Suharto account, The Australian, 25 May 2007, p. 10.
Table 2: Estimates of funds stolen by dictators and
amounts recovered from wealthy countries
40
.
Country Dictator Period of
Rule
Estimated amount
stolen (US$ billions)
Amount repatriated from
abroad (US$ millions)
Philippines Marcos 1965 - 1986 5 - 10 658 from Switzerland in 2004
Mali Traore 1968 - 1991 1 - 2 2.4 from Switzerland in 1997
Nigeria Abacha 1993 - 1998 2 - 6 149 million from Jersey in
2004, and
618 million from Switzerland
between 2002 - 2005
Angola Dos Santos 1979 21 from Switzerland in 2005
Peru Fujimori 1990 - 2000 0.6 - 1.5 80.7 from Switzerland between
2002- 2004
20 from the USA in 2006
Haiti Duvalier 1971 - 1986 0.5 - 2
RDC - Zaire Mobbutu 1965 - 1997 5 - 6
Kazakhstan Nazarbaev 1991 - 1
Kenya Moi 1978 - 2002 3
Indonesia Suharto 1967 - 1998 115 - 35
Iran Pahlavi 1941 - 1979 35
The UN and World Bank have identifed that several
countries on the receiving end of looted funds have
no legal framework for returning them. Many countries
can freeze assets but not return them.
The proposal for an International Convention to
facilitate the recovery and repatriation of funds
illegally appropriated from national treasuries was
adopted in 999 by the African, Caribbean and Pacifc
heads of state and government as part of the Santo
Domingo declaration. However, the UN Convention
Against Corruption contains detailed asset recovery
provisions, which have now come into force.
5.4 Corruption in lending
Leaders of developing countries may take out loans
for corrupt purposes. The resulting debts can saddle
future governments, and their people, with the burden
of paying interest on the loans as well as repaying the
principal borrowed. In effect, fnancial markets enable
corrupt governments to steal from the future.
Another way fnancial markets facilitate this kind
of corruption is to provide loans against secured
assets. Thus, valuable assets can be converted into
cash today without ever being publicly sold. Future
governments and tax payers are left with repayment.
In government owned extractive industries, a related
practice is to forward-sell future output. In effect,
these sales represent borrowing against future
production, and they also provide a means by which
40 Antoine Dulin and Jean Merckaert, Tax Havens and Ill-Gotten
Wealth, Tax Justice Focus, Vol. 3, No. 3, 2007, p.8.












governments can be stripped of future revenues
41
.
Developed country governments have largely refused
to recognise the concept of odious debt.
Odious debt refers to loans:
made to illegitimate authorities, such as
undemocratic governments;
the loans are not used for the beneft of the
people under that authority; and
that the lender should have reasonably known
of the frst two conditions.
In such cases the concept of odious debt is applied
and the loans are deemed to be illegitimate and
unenforceable. The concept would help combat
corruption as lenders would have an incentive to
conduct proper due diligence, write strict loan
covenants, and then monitor loans to ensure that the
covenants are abided by
42
.
Loans made for corrupt purposes increase a countys
debt level while doing nothing to increase a countrys
capacity to make repayments. In effect, corrupt loans
dilute asset protection available to other creditors,
and they protect themselves by raising their required
interest rate. By holding creditors responsible for
corrupt loans in cases where lenders failed to do due
diligence, corrupt loans can be diminished and honest
lenders can lower their required interest rate
43
.
4 Thomas I. Palley, Lifting the Natural Resource Curse Foreign
Service Journal, December 2003.
42 Ibid.
43 Ibid.

5.5 Benefting from products


obtained with the involvement of
corruption
One of the ways that wealthy countries beneft from
corruption in the developing world is through the
receipt of goods obtained with the involvement of
corruption. Products obtained with the involvement
of corruption are often cheaper than if the products
had been produced through legal or legitimate
means. Developing countries are thus cheated out of
revenues they would have otherwise received if the
products had been produced and sold legitimately.
An example of this type of benefting from corruption
is from illegal logging. Illegal logging is thought to
be widespread in many major timber-producing
countries. By some estimates, in fve of the top ten
most forested countries on the planet, at least half of
the trees cut are felled illegally
44
.
Illegal logging is defned here as having taken place
when timber is harvested, transported, bought or
sold in violation of national laws. Illegalities can occur
throughout the chain of production from source to
consumer in activities such as, timber extraction,
illegal transport and processing through to illegal
export and sale, where timber is often laundered
before entering the legal market
45
.
The World Bank estimates the (global) annual market
value of losses from illegal cutting of forests at over
US$10 billion. This is more than eight times the total
offcial developmental assistance (ODA) fows to the
sustainable management of forests
46
. The Australian
Government quotes the OECD as stating that the loss
of assets and revenue in developing countries from
illegally harvested forests of up to US$23 billion a
year
47
.
As an example, ramin (Gonystylus spp.) is a species
of hardwood grown in Indonesia and Malaysia and is
used in expensive furniture, wooden blinds, fooring
and picture frames. There is little demand for it in the
countries where it grows. In Indonesia, 90% of the
ramin produced is exported to countries such as the
USA, Italy, Japan and the UK. Singapore, Hong Kong,
Taiwan and mainland China, are also prominent as
consumers or transit countries
48
.
44 D. Brack, Illegal Logging, Briefng paper, Energy,
Environment And Development Programme EEDP/LOG BP 07/01,
The Royal Institute of International Affairs, July 2007.
45 Royal Institute of International Affairs, Intergovernmental
Actions on Illegal Logging, 200, cited in Timber Traffcking:
Illegal Logging in Indonesia, South East Asia and International
Consumption of Illegally Sourced Timber EIA, Telepak Indonesia,
2001.
46 Ibid.
47 Kevin Rudd and Sid Sidebottom, Securing the Future of
Tasmanias Forestry Industry, ALP Media Statement, 23 July 2007.
48 EIA Internal Report, Ramin trade from Indonesia and
Malaysia cited in Timber Traffcking: Illegal Logging in Indonesia,
qc
The Environment Investigation Agency (EIA) and
Telepak Inodonesia have been monitoring the illegal
logging of ramin in Central Kalimantan, where some
of the last remaining stands exist in protected and
conservation areas such as Tanjung Putting National
Park and around the Sebangau River. Their analysis
of the production data of recent years, reveals a large
discrepancy between the legal production of ramin in
Indonesia and the amount processed and exported
by the timber industry and brokers
49
. They further
assert that timber factories have been established
based on a continuous supply of logs from Tanjung
Putting National Park
50
. Whilst the politicians and
military proft from direct involvement, or from
monthly stipends, the loggers often work in appalling
conditions, living in the swamp with mosquitoes and
leeches as part of the daily hazards, sometimes for
weeks on end. The loggers earn a payment of around
25,000 rupiah ($3.20) for each cubic meter of ramin
felled
51
. By contrast, a
buyer of moulded ramin
in the US can pay up to
US$1,000 a cubic meter.
Consumer countries
could exert a great deal
of pressure by moves to
exclude illegal products
from their markets. However, for real lasting
effectiveness, reform of legal and regulatory systems
as well as reform of laws outside the forestry sector
is an essential element of the mix, including those
dealing with land ownership
52
.
The Convention on International Trade in Endangered
species (CITES) regulates trade in fora and fauna and
is currently one of the only international mechanisms
available to control trade in threatened tree species.
The Indonesian Government has sought to have
ramin listed under CITES as a measure to combat
illegal logging. Whilst the effectiveness of this
measure is debateable
53
, it remains a potentially
important mechanism if used in conjunction with
other measures to tackle illegal logging
54
.
South East Asia and International Consumption of Illegally Sourced
Timber EIA, Telepak Indonesia, 2001.
49 EIA Telepak Indonesia, The Final Cut 1999, cited in in Timber
Traffcking: Illegal Logging in Indonesia, South East Asia and
International Consumption of Illegally Sourced Timber EIA,
Telepak Indonesia, 2001.
50 Timber Traffcking: Illegal Logging in Indonesia, South East
Asia and International Consumption of Illegally Sourced Timber
EIA, Telepak Indonesia, 2001.
51 Ibid.
52 D. Brack, Illegal Logging, Briefng paper, Energy,
Environment And Development Programme EEDP/LOG BP 07/01,
The Royal Institute of International Affairs, July 2007.
53 EIA and Telepak have documented ramin being smuggled into
Malaysia since the listing became effective.
54 Timber Traffcking: Illegal Logging in Indonesia, South East
Asia and International Consumption of Illegally Sourced Timber
EIA, Telepak Indonesia, 2001.
Accreditation schemes can also be effective in
combating illegal logging. For timber certifcation
schemes to be effective they must be transparent and
open to independent scrutiny
55
. At present, the Forest
Stewardship Council (FSC) is the only body with a
certifcation scheme which provides a credible chain-
of-custody to track the fow of certifed timber from
the forest to the shelf something which is essential
to avoid the laundering of illegal timber into the supply
chain.
5.6 Corruption and multilateral
development bank loans
In 2004-2005, the US Senate Foreign Relations
Committee under Chairman Richard Lugar, heard
testimony that over the past 50 years, borrowing-
country bureaucracies and contractors have stolen
more than $100 billion from the World Bank. In fact,
the amount of leakage
or theft from lending from
the World Bank, Asian
Development Bank (ADB)
and other multilateral
development banks (MDBs)
could total between 20
- 30%
56
.
By the World Banks own admission Within the Bank
Group there has been an inconsistent application
of governance and anti-corruption concerns across
country programs, sectors and member institutions.
Generally, Bank work does not yet have the required
staffng, skills, and incentives in governance and
anti-corruption to effect results-oriented changes at
the front lines of Bank Group operations, especially in
country offces
57
.
The World Bank has stated that when corruption
is detected in projects that it funds, it will publicly
punish corrupt frms and promote accountability by
government
58
. However, its history of acting in this
way has not always been consistent.
The World Bank has investigated 2,000 cases of
corruption since 999, and sanctioned 90 frms
and 148 individuals
59
. Referrals of corruption cases
by the World Bank to governments has resulted in
26 criminal convictions. The World Bank is the only
55 Ibid.
56 Bruce Rich, Bank Heist, The Environment Law Institute,
Washington DC, Reprinted by permission from The Environment
Forum, September/October 2005.
57 Development Committee, Strengthening Bank Group
Engagement on Governance and Anticorruption, World Bank and
International Monetary Fund, 8 September 2006, p. 6.
58 Ibid., p. vi.
59 Bruce Rich, Bank Heist, The Environment Law Institute,
Washington DC, Reprinted by permission from The Environment
Forum, September/October 2005; and Steven Welsman, New
World Bank boss must fnd cure for corruption cancer, The Age, 27
June, 2007, Business Day p.6.
The World Bank has stated that when
corruption is detected in projects that it
funds, it will publicly punish corrupt frms
and promote accountability by government.
However, its history of acting in this way has
not always been consistent.
q1
multilateral development bank (MDB) that published
a list of debarred frms. It debarred a company for the
frst time on 6 March 999. As of July 2007, over half
of the companies that have been sanctioned by the
World Bank are permanently ineligible to be awarded
World-Bank fnanced contracts.
However, the World Bank has not dealt appropriately
with corruption in all cases.
An example of how the World Bank has failed to deal
appropriately with a case of corruption comes from
Lesotho, where investigations that began in the mid-
1990s found that the chief executive of the Lesotho
Highlands Water Project had received $2 million in
payoffs from companies in G8 countries.
This project which dates back to 1991, has involved
the construction of large dams to supply water
to South Africa. Funded by the World Bank, the
African Development Bank and the European
Union, the project has resulted in loss of land and
resources for rural poor people. A 1999 World Bank
study concluded that upon completion, the project
will result in Lesothos rivers losing 90% of their
water, and becoming like wastewater drains, thus
endangering the health of an estimated 150,000
people living downstream. The government of
Lesotho would be paid $40 million annually for the
water sold to South Africa
60
.
The Lesotho investigations resulted in a bribery
conviction for the project head with a sentence of 15
years imprisonment. In 2002, the Lesotho High Court
convicted the Canadian frm Acres International and
the German frm Lahmeyer International of bribery,
and they were sentenced to pay fnes of $2 million
each. Both companies had been given World Bank
procurement contracts. Acres was banned from World
Bank contracts for three years in March 2004, but this
came over 30 months after an internal World Bank
probe concluded that Acres had paid for infuence,
reportedly allowing the company to commence big-
ticket Bank funded projects in Uganda, Palestine
and Sri Lanka in the interim
61
. Lahmeyer has only
had its contracts with the World Bank suspended in
November 2006 after Lesotho defeated Lahmeyers
appeal against its bribery conviction in 2004. The
suspension from World Bank contracts will last
seven years, but can be reduced to three years if
the company introduced a satisfactory corporate
compliance and ethics program and discloses any
other past misconduct
62
. Lahmeyer was awarded 18
60 Bruce Rich, Bank Heist, The Environment Law Institute,
Washington DC, Reprinted by permission from The Environment
Forum, September/October 2005.
6 Heenie Van Vuuren, Time to listen to Lesotho! The World
Bank and its new anti-corruption agenda, Institute for Security
Studies in Cape Town, South Africa, 11 September 2006.
62 Odious Debts Online, German frm barred by World Bank
World Bank contracts worth a total of nearly US$15
million after the Lesotho court found Lahmeyer
guilty of corruption. Four of these contracts, worth
a combined US$1.4 million, were granted since the
World Bank reopened its own corruption investigation
of Lahmeyer in August 2005
63
.
In 2004, the French company Schneider Electric SA
that had worked on the World Bank funded part of the
project, pleaded guilty to bribery
64
.
Despite promises made at a closed door meeting
as far back as 999 that it would provide fnancial
support to the Lesotho prosecutors in these cases,
the World Bank has left the impoverished state to pick
up the legal costs of these bribery cases
65
.
US Senator Richard Lugar proposed in 2005 a
Development Bank Reform and Authorisation Bill
(S.1129) that calls for reforms that bring greater
transparency and accountability at the MDBs.
Witnesses from environmental and poverty groups
have said that the anti-corruption measures
would also improve project quality with regard to
environmental and social impacts. The draft bill
was unanimously approved by the Senate Foreign
Relations Committee on 26 July 2005
66
. The bill
requires the US Treasury to establish a trust fund at
the World Bank specifcally to fnance the prosecution
of corruption related to development bank loans or
projects.
In November 2005, the Foreign Operations
Appropriations Act was signed into law by US
President Bush. The reforms it contains draw
upon the recommendations made by Senator
Richard Lugar, who led a two year investigation
into allegations of corruption in projects funded by
development banks. These reforms include measures
to seek fnancial disclosure by development bank
employees; to improve the quality and supervision
of bank loans; to strengthen whistle blower policies;
and to support the effciency of audit functions.
Development banks will be required to ban funding for
extractive industries unless the borrowing government
is able to provide the relevant public audits of
for bribery in Lesotho project, http://www.odious debts.org, 7
November 2006.
63 International Rivers Network, Corrupt Lahmeyer Debarment
Welcome but Late NGOs, Press Release 7 November 2006,
http://www.irn.org.
64 Bruce Rich, Bank Heist, The Environment Law Institute,
Washington DC, Reprinted by permission from The Environment
Forum, September/October 2005.
65 Heenie Van Vuuren, Time to listen to Lesotho! The World
Bank and its new anti-corruption agenda, Institute for Security
Studies in Cape Town, South Africa, 11 September 2006.
66 V. Bhargava, Combating Corruption in Multilateral
Development Banks: Executive Summary of Key Issues
and Recommendations Raised during the US Foreign
Relations Committee Hearings Over the May 2004 to April
2005 Period, www.worldbank.org/publicsector/anticorrupt/
CombatinginMDBsummary.doc, 2005.
qz
revenues and expenditures
67
.
Whilst this law requires US executive directors on the
banks governing boards to raise these reforms and
seek their adoption, it does not have any legal impact
on the banks as such, given that they are multilateral
institutions. According to Patricia Adams of Odious
Debts Online: Too many executive directors from
other rich countries would rather turn a blind eye to
the governance faws that cripple MDB development
efforts, but win MDB contracts for their countrys
frms.
68

The former Australian Treasurer, The Hon Peter
Costello, had indicated his support for some reform
of the World Bank to improve its governance. On 27
May 2007, he reiterated Australias strong support for
the G20 position that the heads of the international
fnancial institutions, including the World Bank, should
be appointed using an open, transparent selection
process with candidates not restricted by nationality.
Mr Costello proposed that a truly merit based
process, allowing the consideration of candidates
from any World Bank member country, should be
followed for current and future selections of the World
Bank President.
5.7 Asian Development Bank:
accountability and transparency?
At the Asian Development Bank (ADB) annual
general meeting in 2005, a coalition of civil society
groups from the Asia Pacifc region including Oxfam
Australia, discussed a variety of issues with ADB
representatives including anti-corruption, safeguards
and development effectiveness. In discussion with
non-government organisation (NGO) representatives,
ADB President Kuroda expressed his commitment to
working with NGOs.
ADBs transparency and accountability was
questioned by NGO groups in relation to the banks
new public communication policy. They claim that
project affected people are prevented from accessing
information. They also note that ADB staff often
show little interest and respect when project affected
communities wish to discuss their concerns. For
example, with the Melamchi Water Supply Project
in Nepal, project staff refused to explain how local
peoples water rights would be guaranteed, what
mitigation plan would be carried out, and why they
said that available alternatives were not appropriate
69
.
The NGO Forum concluded that despite ample
67 CIOB International News, U.S Congress demands greater
transparency from multilateral development banks, 25 November
2005, www.odiousdebts.org
68 ibid
69 NGO Press Release, 38th ADB Annual General Meeting 2005
Istanbul, Turkey, May 2005.
evidence of adverse impacts of projects on people
and the environment, the ADB continues to fnance
large infrastructure projects, fossil fuel power and
extractive industries without serious commitment
towards developing appropriate alternatives
70
.
Unlike the World Bank, despite pressure from donors,
the ADB has not published the list of companies
blacklisted for corruption in ADB funded projects
71
.
The ADB produces an annual report which states the
number of investigations that have been carried out
into alleged corruption around ADB funded projects
and the number of frms and individuals against which
sanctions have been imposed, without naming the
companies or individuals.
The ADB approved the Second Governance and
Anti-corruption Actions Plan in July 2006, which is
intended to improve the ADBs performance in the
implementation of the governance and anti-corruption
policies in the areas where the ADB is active.
The lack of transparency of the ADB in dealing with
corruption needs to be of signifcant concern to
Australians given that the Australian Government
White Paper Australian Aid: Promoting Growth and
Stability indicates that the Australian Government will
work with the ADB in areas of mutual interest
72
.
70 ibid
7 Reuters, ADB says wont publish list of corrupt frms, 9
October 2005, www.odiousdebts.org
72 AusAID, Australian Aid: Promoting Growth and Stability.
A White Paper on the Australian Governments Overseas Aid
Program, 2006, p.67.
q
6
What attempts are being made tc deaI with
ccrrupticn?
There are a number of concrete initiatives being
taken internationally in attempts to shift cultures of
corruption to those of good governance.
These include:
UN Convention against Corruption (2003);
UN Convention Against Transnational
Organised Crime (2000);
OECD Anti-bribery Convention (1997);
Asian Development Bank OECD Action Plan
for Asia-Pacifc (2000);
The Partnering Against Corruption Principles
for Countering Bribery (PACI Principles), an
initiative of the World Economic Forum in
partnership with Transparency International
and the Basel Institute on Governance;
Extractive Industries Transparency Initiative
(EITI) (2002);
The Equator Principles;
Publish What You Pay and Publish What You
Lend; and
The APEC Code of Conduct for Business.
In addition to those measures above, it has been
reported that the Bank of England wants London-
based hedge funds to agree to a voluntary code
of conduct to encourage greater transparency and
provide better governance. Germany attempted
to use its position as chairman of the Group of
Eight leading economies in 2007 to push for an
international register of hedge funds positions along
with compulsory rating of their investment strategies
by independent agencies. It was supported by the
European Central Bank.
Hedge funds are estimated to have $1,600 billion
under management
1
. A group of 13 of the largest
hedge funds recruited Sir Andrew Large, former
Bank of England deputy governor, to lead a study
into voluntary standards for the industry. The US
Administration has stated that it would prefer that
the hedge fund industry be left to develop its own
Ashley Seager, Central bank wants hedge conduct code,
The Australian Financial Review, 11 January 2007; and Wolfgang
Munchau, G7 waits and watches hedge fund locusts, The
Australian, 13 February 2007, p. 21.

voluntary Code of Conduct


2
.
The World Bank has promised to work with developed
countries, the OECD and the businesses to assist
developing countries to recover assets stolen through
corruption
3
.
In the USA, US Administration advocacy for its export
companies is dependent on US companies making
a no bribery undertaking in writing, or no bribery
warranty, which applies to it and its affliates
4
.
In France, President Nicolas Sarkozy promised in his
election campaign to put an end to the complicity
between the French Government and corruption
by French aligned leaders in Africa. In June 2007,
it was announced that police were investigating
allegations that two African heads of state, Omar
Bongo of Gabon and Denis Sassou NGuesso of the
Democratic Republic of Congo, had used millions of
dollars to purchase lavish properties for themselves
and their families in France. Both leaders were cited
during French criminal investigations into hundreds
of millions of dollars of illicit payments by Elf, the
former French state-owned oil company. The current
investigation is based on a French High Court ruling
that failure to justify the funding of possessions and
a wealthy way of life constitutes possible evidence of
crime
5
.
6.1 UN Convention Against
Corruption
In its resolution of 4 December 2000, the UN General
Assembly recognised that an effective international
legal instrument against corruption, independent of
the UN Convention against Transnational Organised
Crime was desirable. It established an ad hoc
committee for the negotiation of such a convention.
The resulting Convention was adopted by the UN
General Assembly on 31 October 2003.
2 Ralph Atkins and Hugh Williamson, Germany asks for code of
conduct, The Australian, 22 May 2007, p. 21.
3 Development Committee, Strengthening Bank Group
Engagement on Governance and Anticorruption, World Bank and
International Monetary Fund, 8 September 2006, p. vi.
4 Penny Jackson, The Other Side of the Coin. The UK and
Corruption in Africa, Africa All Party Parliamentary Group, March
2006, p. 28.
5 France to confront African embezzlers, The Australian, 22 June
2007.
qq
The UN Convention against Corruption contains
measures to prevent corruption in both the public
and private sectors. These measures include
enhanced transparency in the fnancing of election
campaigns and political parties. States that are party
to the Convention must endeavour to ensure that
their public services are subject to safeguards that
promote effciency, transparency and recruitment
based on merit. The Convention calls on countries
to actively promote the involvement of non-
governmental and community-based organisations,
as well as other elements of civil society and to raise
public awareness of corruption and what can be done
about it.
The Convention requires countries to establish
criminal and other offences to cover a wide range
of acts of corruption, if these are not already crimes
under domestic law. The Convention goes beyond
previous instruments of this kind, criminalising not
only basic forms of corruption such as bribery and
the embezzlement of public funds, but also trading
in infuence and the concealment and laundering of
the proceeds of corruption. Offences committed in
support of corruption, including money-laundering
and obstructing justice, are also dealt with.
Countries party to the Convention agreed to
cooperate with one another in the fght against
corruption, including prevention, investigation and the
prosecution of offenders. Countries are bound by the
Convention to render specifc forms of mutual legal
assistance in gathering and transferring evidence for
use in court, to extradite offenders. Countries are also
required to undertake measures which will support
the tracing, freezing, seizure and confscation of the
proceeds of corruption.
The countries that are party to the Convention agree
to asset recovery, which is stated explicitly as a
fundamental principle of the Convention. This is a
particularly important issue for many developing
countries where high-level corruption has plundered
the national wealth, and where resources are badly
needed for reconstruction and the rehabilitation
of societies under new governments. In the case
of embezzlement of public funds, the confscated
property is required to be returned to the state it was
stolen from. In the case of proceeds of any other
offence covered by the Convention, the property is
required to be returned to the country it was stolen
from, provided that proof of ownership or recognition
of the damage caused can be established.
However, there are some weak areas with regard to
the Convention. For example, there is no obligation
to make bribery and embezzlement in the private
sector a criminal offence. The Convention also
fails to forcefully tackle political corruption. At the
insistence of some negotiators, notably the United
States, transparency in political party fnancing was
downgraded to a mere recommendation.
Australia signed the UN Convention against
Corruption on 9 December 2003 and ratifed the
Convention on 7 December 2005.
The Convention entered into force on 14 December
2005 and as of November 2006 there were 140
countries that had signed the Convention, but only 92
of these had ratifed the Convention to be full parties
to the Convention. By June 2007, only half the OECD
and G8 countries had ratifed the Convention. As of
September 2007 only 3 of the 54 countries classifed
by the IMF as offshore fnancial centres have ratifed
the Convention.
The Australian Attorney-Generals Department has
stated that they seek to promote the UN Convention
Against Corruption to other countries whenever
they can. AusAID states that it supports the
implementation of the Convention
6
.
At the international level there is discussion taking
place to consider appropriate mechanisms or bodies
for reviewing implementation of the Convention
7
.
6.2 OECD Anti-bribery Convention
On 21 November 1997, the member countries
of the Organisation for Economic Co-operation
and Development (OECD) and fve non-member
countries (Argentina, Brazil, Bulgaria, Chile and the
Slovak Republic) adopted the OECD Convention
on Combating Bribery of Foreign Public Offcials in
International Business Transactions. The Convention
requires that parties to it criminalise bribery of
foreign public offcials, apply anti-money laundering
legislation to cases of bribery of foreign public
offcials, and assist other countries in the investigation
and prosecution of those involved in bribery of foreign
public offcials.
As a member of the OECD, Australia is a party
to the Convention. Australia has contributed
to approximately 15 OECD Outreach Technical
Assistance Workshops dealing with corruption.
6 Australias Overseas Aid Program 2007-08, Statement by The
Honourable Alexander Downer MP, Minister for Foreign Affairs, 8
May 2007, p. 32.
7 UN Conference of the State Parties to the UN Convention
against Corruption, Report on the meeting of the Open-ended
Intergovernmental Working Group on Review of the Implementation
of the United Nations Convention against Corruption held in Vienna
from 29 to 31 August 2007, CAC/COSP/2008/3, 12 September
2007.
q
6.3 Partnering Against Corruption
Principles for Countering Bribery
(PACI) Principles
The PACI Principles are intended for companies.
Those companies that sign on to them are committing
to the adoption of a zero tolerance policy on
bribery and the development of a practical and
effective program of internal systems and controls
for implementing that policy. In practical terms, this
means either implementing anti-bribery practices
based on the PACI Principles or, for companies with
established programs, using the PACI Principles to
benchmark existing practice.
The PACI Principles derived from general industry
anti-bribery principles developed in 2002 by
Transparency International, and a coalition of private
sector interests, non-government organisations and
trade unions, known as Business Principles for
Countering Bribery (2002).
The PACI Principles are designed to provide
companies of all sizes with practical guidance rather
than specifc prescriptions for developing their own
policy statements and programs for combating
bribery and other forms of corruption in international
business.
6.4 Extractive Industries
Transparency Initiative
The Extractive Industries Transparency Initiative
8

(EITI) supports improved governance in resource-rich
countries through the full publication and verifcation
of company payments and government revenues from
oil, gas and mining. Many countries are rich in oil, gas
and minerals. When governance is good, these can
generate large revenues to foster economic growth
and reduce poverty. However, when governance is
weak, they may instead cause poverty, corruption,
and confict the so called resource curse. The EITI
aims to defeat this curse by improving transparency
and accountability.
Some 20 countries have either endorsed or are
actively implementing the EITI, including Peru,
Trinidad and Tobago, Azerbaijan, Nigeria and Timor
Leste. Eighteen companies have signed up to the
EITI including BP, ExxonMobil, Newmont, Rio Tinto,
Shell, TOTAL and Woodside and NGOs supporting
the EITI include the Catholic Agency for Overseas
Development (CAFOD), the Publish What You Pay
coalition and Transparency International. The G8
committed to supporting the EITI in 2005. The
weakness of the EITI is that it is voluntary.
8 For more information visit http://www.eitransparency.org/
The Australian Government has stated that it will
support developing countries to implement the EITI,
and will also help developing countries extend similar
principles to the natural resources sectors, such
as forestry and fsheries
9
. However, the Australian
Government appears to be less willing to pressure
Australian companies to sign up to the EITI. For
example, the Australian Government has rejected
requests by the Justice and International Mission Unit
that it require Australian mining companies seeking
to operate in the Philippines commit to the EITI as
a condition for Australian Government support.
Currently, the Australian Government advocates to
the Government of Philippines on behalf of Australian
mining companies to gain access to conduct
operations in the Philippines.
6.5 The Equator Principles
Is a set of principles that are open to be adopted
by fnancial institutions to ensure that the projects
they invest in are developed in a manner that is
socially responsible and refect sound environmental
management practice. Current fnancial institutions
that have adopted the Equator Principles include
Barclays plc, HSBC Group, ING Group, ANZ and
the Westpac Banking Corporation. All up, the
current signatories provide more than 90% of global
project fnance. Details of the Equator Principles can
be found at http://www.equator-principles.com/
principles.shtml
6.6 Publish What You Pay and
Publish What You Lend
Resource rich developing countries often suffer from
high levels of corruption. The Publish What You Pay
campaign aims to help citizens of resource-rich
developing countries to hold their governments to
account for the management of revenues from oil,
gas and mining industries. The campaign involving
over 280 non-government organisations calls for the
mandatory disclosure of the payments made by oil,
gas and mining companies to all governments for the
extraction of natural resources
10
. Such disclosure
would include tax payments, royalty and license fees,
revenue sharing and payments in-kind, forward sales
of future revenues and commercial transactions with
government and public sector entities and would
be a condition of stock exchange listing. The US
oil companies have resisted Publish What You Pay,
claiming that corruption is a problem for governments
to deal with
11
.
9 AusAID, Australian Aid: Promoting Growth and Stability.
A White Paper on the Australian Governments Overseas Aid
Program, 2006, p. 61.
0 Garth Luke, Can aid be effective when corruption is present?,
Make Poverty History and Micah Challenge, April 2006, p. 26.
Thomas I. Palley, Lifting the Natural Resource Curse Foreign
q6
In a similar initiative, Publish What You Lend wants
governments to require by law that all banks,
fnancial intermediaries and business enterprises,
that make loans to or engage in forward purchases
with governments and state owned enterprises,
publish details of these transactions and report them
to the International Monetary Fund (IMF). The IMF,
the World Bank, multilateral development banks and
governments would also be required to report their
lending
12
.
6.7 The APEC Code of Conduct
for Business
At the Sydney APEC (Asia-Pacifc Economic
Cooperation) meeting on 6 September 2007 a Code
of Conduct for Business was launched, which is
a voluntary Code. The APEC Anti-Corruption and
transparency Expert Task Force plans to assist small
and medium enterprises to adopt and implement the
Code.
Companies that sign up to the Code commit not
to pay bribes and develop programs to prevent
bribery from occurring in all activities under effective
control. The Code forbids the payment of facilitation
payments. It requires that companies put in place
channels to allow employees to report suspicious
activities without fear of reprisal.
6.8 Actions against tax injustice
The OECD issued a report in 1998 on Harmful Tax
Competition, which defned the factors to be used in
identifying these harmful tax practices, many of which
it associated with tax havens. The OECD approach
has been to seek to eliminate harmful practices. It
has largely sought to do this by obtaining mutual
undertakings to do so, conditional upon agreement
between all the participating jurisdictions by 2005.
The OECD has only been partially successful in its
efforts, largely because of conficts between the tax
havens that it had targeted and its inability to stop
some of its principal member states from pursuing the
very practices the OECD has described as harmful
13
.
A total of 33 non-OECD participating partners have
committed to a program of eliminating harmful tax
practices. Some have entered into tax information
exchange agreements with OECD member countries.
These agreements will allow the countries party to
the agreement to request information on such things
as bank account details, benefcial ownership and
shareholder information. Three of the non-OECD
countries suspended their commitment to the
Service Journal, December 200.
12 Ibid.
3 Richard Murphy, John Christensen and Jenny Kimmis, Tax us
if you can, Tax Justice Network, September 2005, p. 39.
program, Andorra, Liechtenstein and Monaco
14
.
The UN hosts a little known committee called the
Committee of Experts on International Cooperation in
Tax Matters. This committee has met in several forms
since 967. To date it has had very limited infuence,
but it is the only global committee that considers
international taxation matters
15
.
6.9 Stolen Asset Recovery (StAR)
Initiative
On 17 September 2007, the World Bank and the UN
Offce of Drugs and Crime (UNODC) launched a new
effort to assist developing countries in recovering
billion of dollars of looted funds, known as the Stolen
Asset Recovery (StAR) Initiative.
The StAR Initiative recommends that developed
countries fund programs or directly provide
developing countries with technical assistance that
would enhance the capacity of the criminal justice
system to effectively prevent asset looting and
recover the proceeds of corruption in accordance with
internationally accepted legal standards.
The StAR Initiative aims to:
develop capacity to respond to and fle
international requests for assistance in
recovery of looted assets;
adopt and implement effective confscation
measures for looted assets, including in cases
where a conviction is yet to be secured;
enhance transparency and accountability of
public fnancial management systems;
create and strengthen national anti-corruption
agencies; and
help monitor the recovered funds if requested
by countries so that repatriated funds are
used for development purposes, such as
social programs, better education and
developing countries.
6.10 International collaboration to
deal with money laundering
There are bodies that facilitate international co-
operation to deal with money-laundering. The Egmont
Group of Financial Intelligence Units was established
in 1995 to facilitate cooperation in the exchange
of fnancial intelligence by its members, which are
government agencies charged with detecting money
laundering and the fnancing of terrorism. It currently
4 Australian Taxation Offce, Tax havens and tax administration,
2004, p. 8; and Jean Merckaert, Objective Doha: Tackling the
Havens, Tax Justice Focus, Vol. 3, No. 3, 2007, p. 3.
5 Richard Murphy, John Christensen and Jenny Kimmis, Tax us
if you can, Tax Justice Network, September 2005, p. 41.

q
has government agency members in 106 countries.
Australia is a member of the Egmont Group. The
Egmont Group was developing a Secretariat in late
2007.
The Asia Pacifc Group on Money Laundering (APG)
is a regional body with 34 countries being members,
8 countries being observers and 18 observer
organisations. It was founded in 1997. The APG
works to ensure the adoption, implementation and
enforcement of internationally accepted anti-money
laundering standards within the Asia-Pacifc region.
This includes assisting countries in the region to enact
laws criminalising the laundering of the proceeds
of crime and corruption and dealing with getting
countries to assist each other in the confscation of
laundered funds and extradition of those involved in
money laundering. It also provides guidance in setting
up systems for reporting and investigating suspicious
transactions and helping in the establishment
of government agencies to investigate money
laundering. Australia has been a member of the APG
since its foundation and the Secretariat of the APG is
hosted in Sydney.
q8
7
Hcw dces AustraIia perfcrm in deaIing with
ccrrupticn?
7.1 The Financial Action Task
Forces assessment of Australia
Australias performance on dealing with money
laundering and combating the fnancing of terrorism
was thoroughly assessed by the Financial Action Task
Force (FATF) which released its report, Third Mutual
Evaluation Report on Anti-Money Laundering and
Combating the Financing of Terrorism, on 14 October
2005.
The FATF is an intergovernmental body which sets
standards and develops policies to combat money
laundering and terrorist fnancing. It was established
in 1989 by the G7 and Australia was a founding
member. At the time of writing it has 33 members;
31 countries and governments and two international
organisations; and more than 20 observer bodies. A
list of all members and observers can be found on the
FATF website at http://www.fatf-gaf.org/Members_
en.htm
Money laundering is basically that funds generated
from illegal activities are introduced into the legal
fnancial system to disguise or obscure that the funds
have been generated from illegal activities. Usually,
the person doing the money laundering introduces the
illegally obtained funds into the fnancial system by
depositing them into a bank or by purchasing things
like cheques and money orders and then depositing
them into accounts in another location. The money
launderer then moves the funds around through a
series of transactions to try to hide their source.
This might be done by purchasing investments or by
transferring the money through a series of accounts
located in various banks across the globe, especially
to banks in countries that do not co-operate in
anti-money laundering investigations. The money
launderer then seeks to have the funds integrated
into the legitimate economy by doing something like
the purchase of real estate, luxury assets or business
ventures
1
.
The FATF assessed Australias performance on
countering money laundering and combating the
fnancing of terrorism against the FATFs Forty
FATF GAFI, Money Laundering FAQ, http://www.fatf-gaf.org.
Recommendations of 2003 and the Eight Special
Recommendations of Terrorist Financing 2001.
Overall, the FATF found signifcant levels of
compliance with its Recommendations, but there
were a number of areas of signifcant defciency
2
:
That while Australias legal regime for dealing
with money laundering appeared to be
comprehensive, dissuasive and proportional, it
was not being effectively applied, and in cases
where it has been applied, sentences appear
low.
There were inadequacies in the system of
identifying customers of fnancial services.
There were no legislative or other enforceable
obligations regarding the identifcation
and verifcation of politically exposed
persons. Politically exposed persons are
individuals who are or have been entrusted
with prominent public functions in a foreign
country, for example, Heads of State or
of government, senior politicians, senior
government, judicial or military offcials, senior
executives of state owned corporations,
important political party offcials. These
people are important to identify as they have
the greatest ability to engage in large scale
corruption.
There were no specifc obligations for fnancial
institutions to monitor all complex, unusual
large transactions, transactions with no visible
economic purposes, to further examine these
situations and to set out these fndings in
writing.
The provisions for suspicious transaction
reporting were generally adequate, but there
is a limitation of cash dealer defnition which
does not apply to all fnancial institutions.
Designated non-fnancial businesses and
professions
3
were not legally required to report
2 FATF GAFI, Third Mutual Evaluation Report on Anti-Money
Laundering and Combating the Financing of Terrorism, 14 October
2005, pp. 145-147.
3 Designated non-fnancial businesses and professions are
defned as casinos, real estate agents, dealers in precious metals,
deals in precious stones, lawyers, notaries, accountants and Trust
and Company Service Providers.

q
suspicious transactions to the Australian
Transaction Reports and Analysis Centre
(AUSTRAC). Further, there were inadequate
enforceable measures for fnancial institutions
and designated non-fnancial businesses
and professions to pay special attention to
transactions involving certain countries.
The only sanctions for AUSTRAC were
criminal sanctions and an injunction power.
The lack of intermediate sanctions, such as
administrative sanctions, means in practice
that formal sanctions were generally not
applied. AUSTRAC did not have the powers
to revoke the licence of cash dealers or to
disqualify persons from being a manager,
director or employee.
AUSTRAC had made limited use of its power
to designate countries as high risk.
That, although the Financial Transactions
Reports Act 1988 extended to overseas
branches of fnancial institutions, Australian
banks indicated that they would frst apply the
local laws, and that in several cases local laws
prohibited full implementation of the Australian
standards due to local secrecy provisions.
Most designated non-fnancial businesses
and professions were not covered under the
Financial Transactions Reports Act 1988 and
lacked effective regulatory and supervisory
systems for monitoring to ensure compliance
with anti-money laundering and counter
fnancing of terrorism requirements.
The lack of administrative sanctions coupled
with an absence of criminal prosecutions
of designated non-fnancial businesses and
professions suggested that sanctions are
generally not applied for breaches of anti-
money laundering and counter terrorism
fnancing requirements.
AUSTRAC had only conducted two
compliance inspection audits of banks in the
last four years.
AUSTRAC needs additional resources
to effectively fulfl its role as anti-money

laundering and counter terrorism fnancing


regulator under the revised FATF standards.
Amongst the recommendations by the FATF were:
That the defnition of cash dealer for the
purposes of having to identify who their
customers are be extended to the full range of
fnancial institutions.
The scope of account should be extended
to capture a wider range of products, services
or business activity so that customer due
diligence applies to all cases of establishing
business relations
4
.
That Australia should amend its legislation to
remove the possibility of accounts operating
below the threshold of $1,000/ $2,000 without
any verifcation requirements.
The regulation under the Financial
Transactions Reports Act not requiring existing
clients over 36 months to be re-examined for
identity and verifcation purposes should be
repealed.
Oblige fnancial institution to determine
whether the customer is acting on behalf of
another person, and if so, take reasonable
steps to verify the identity of that other
person.
For politically exposed persons have
appropriate systems to determine whether
the customer is a politically exposed person.
If so, obtain senior management approval for
establishing business relationship with such
4 Customer due diligence means:
1. Identifying the customer and verifying that customers
identity using reliable, independent source documents, data or
information.
2. Identifying who really owns the money, and taking reasonable
measures to verify the identity of the real owner of the money
such that the fnancial institution is satisfed that it knows who
really owns the money. For bodies such as trusts, this should
include fnancial institutions taking reasonable measures to
understand the ownership and control structure of the customer.
3. Obtaining information on the purpose and intended nature of
the business relationship.
4. Conducting on-going monitoring on the business relationship
and scrutiny of transactions undertaken throughout the course
of that relationship to ensure that the transactions being
conducted are consistent with the institutions knowledge of
the customer, their business and risk profle, including, where
necessary, the source of funds.

c
customers and take reasonable measures to
establish the sources of wealth and sources of
funds for such persons. Further, the fnancial
institution should conduct enhanced on-going
monitoring of the business relationship.
Amend the Financial Transactions Reports Act
to apply to all fnancial institutions.
In the event where a foreign branch or
subsidiary is unable to observe appropriate
anti-money laundering measures because this
is prohibited by local laws or regulations of
the host country, those fnancial institutions
should be required to inform Australian
authorities.
Put in place an administrative penalty regime
for those who are materially non-compliant
with respect to their obligations under the
Financial Transactions Reports Act.
There should be provisions clarifying
that offences by a cash dealer in specifc
contravention of Australias anti-money
laundering legislation can result in the
cancellation of a licence.
Designated non-fnancial businesses and
professions should be compelled to pay
special attention to transactions involving
certain countries, make their fndings available
in writing, and apply appropriate counter-
measures.
Australia should introduce administrative
sanctions for breaches of anti-money
laundering requirements by all designated
non-fnancial businesses and professions.
The International Monetary Fund also conducted an
assessment of Australias fnancial sector, releasing
their report in October 2006. The assessment
examined Australias implementation of the Basel
Core Principles for Effective Banking Supervision.
The assessment found that Australia was Materially
non-compliant with Principle 15 dealing with
prevention of use of the banks by criminal elements.
The Principle states: Banking supervisors must
determine that banks have adequate policies,
practices and procedures in place, including strict
know-your-customer rules that promote high ethical
and professional standards in the fnancial sector
and prevent the bank being used, intentionally or
unintentionally, by criminal elements.
5

In response to the FATF fndings the Australian
Government stated that it had enhanced the ability
5 International Monetary Fund, Monetary and Financial Systems
Department, Financial Sector Assessment Program, Australia.
Detailed Assessment of Observance of Standards and Codes,
International Monetary Fund, Washington DC, October 2006, pp.
28-30.

of the Australian Federal Police to investigate and


pursue money laundering. The Government has also
introduced new anti-money laundering and counter-
terrorism fnancing legislation and rules. which
included the following measures:
Before entering into a correspondent banking
relationship with an overseas fnancial
institution, a fnancial institution would
be required to carry out a due diligence
assessment of the overseas fnancial
institution. The due diligence assessment
needs to be carried out periodically.
Financial institutions are prohibited from
entering into correspondent banking
relationships with shell banks or other fnancial
institutions that allow shell banks to hold
accounts with them.
All foreign and overseas branches and
subsidiaries have to comply with the principles
of Australian AML/CTF requirements.
A reporting fnancial institution is required to
block payment of incoming funds transfer
instructions from an overseas counterpart
that do not include appropriate originator
information.
Financial institutions are required to assess
the risk that they are exposed to regarding
the threat of money laundering and terrorism
fnancing . They must then take steps they
deem appropriate to address the risks.
That AUSTRAC can enter into enforceable
undertakings with companies, under which
companies agree to take certain actions or
face remedial directions and face penalties.
Penalties for non-compliance with the regulatory
obligations by a company are as high as $11
million (100,000 penalty units, where a penalty unit
is currently $110) and $2.2 million for individuals.
Individuals that commit criminal offences under the
legislation, such as providing false or misleading
information or documents and forgery, will face up to
10 years imprisonment.
In addition all international transactions of any amount
must be reported to AUSTRAC.
As part of their risk management strategies and
policies that fnancial institutions are required to put in
place under the new legislation, they will need to deal
with the identifcation of politically exposed persons
(PEPs) who seek to do business with the fnancial
institution. There are commercial bodies that provide
lists of PEPs globally that fnancial institutions can
purchase.

1
At the time of writing, the Australian Government
continues in its efforts to address the issued raised
by the FATF. There is still work being undertaken
on addressing the issues raised around designated
non-fnancial businesses and professions and public
consultation has commenced.
A report by KPMG indicated that 70% of banks in
Australia had increased the number of suspicious
activity reports they make to the regulator, AUSTRAC,
since 2004 and 42% of banks say the number of
reports have increased substantially
6
.
AUSTRAC has also established 49 agreements
with international counterparts for the exchange
of fnancial intelligence
7
. For example, AUSTRAC
established a Memorandum of Understanding with
its equivalent in Indonesia, PPATK, in February 2004
and continues to provide technical assistance to
the PPATK
8
. The Australian Government committed
$10 million to be spent between 2004 and 2008 on
the South East Asian Counterterrorism Technical
Assistance and Training Program with Brunei,
Cambodia, Indonesia, Laos, Malaysia, Burma, the
Philippines, Singapore, Thailand and Vietnam. Part
of the program consists of AUSTRAC providing
mentoring, IT advice and training programs to
the countries involved in the program with regard
to countering money laundering and fnancing of
terrorism.
7.2 OECD assessment of Australia
According to an OECD report released in January
2006, Australian authorities demonstrated a strong
commitment to combating foreign bribery. However,
the report concluded that Australia needs to toughen
its stand on companies paying bribes or facilitation
payments to foreign governments.
The report stated that the Australian Tax Offce (ATO)
should implement better systems for detecting foreign
bribery transactions when conducting tax audits.
The OECDs bribery group urged that corporate
fnes for bribery be increased from the current
maximum of A$330,000
9
, and that sanctions such as
6 KPMG Australia Media Release, Bank staff are best defence
against $1 trillion money laundering threat, http://www.kpmg.com.
au, 9 July 2007.
7 AUSTRAC media release, Australias fnancial intelligence
network expanded following agreements with the Cayman Islands,
Sweden and Japan, http://www.austrac.gov.au/13jun07.html,
13 June 2007 and Australian Government Attorney-Generals
Department, A better mutual assistance system. A review of
Australias mutual assistance law and practice, http://www.ag.gov.
au/extraditionandma, 2006, p. 37.
8 AUSTRAC media release, AUSTRAC works with Indonesia to
combat money laundering and the fnancing of terrorism, 7 April
2007.
9 OECD, Directorate for Financial and Enterprise Affairs,
Australia: Phase 2. Report on the Application of the Convention
on Combating Bribery of Foreign Public Offcials in International
Business Transactions and the 1997 Recommendation on
disqualifying for government contracts, be brought
against companies found to have bribed foreign
offcials. The report recommended that the Australian
government change whistleblower legislation in order
to protect public servants who report suspicions
of foreign bribery and that it consider introducing
stronger whistleblower protections for private sector
employees
10
. The OECD report also said that
AusAID should ban bribery in the contracts and sub-
contracts it uses to supply aid
11
.
The Australian Government has not yet responded to
the OECD report and its formal response is scheduled
for early 2008.
It should be noted that the Criminal Code Amendment
(Bribery of Foreign Public Offcials) Act 1999 makes
it a criminal offence to bribe a foreign public offcial,
whether the offence occurs inside or outside of
Australia. Organisations and individuals can be
charged under Australian law on foreign bribery if they
have done the following:
Intentionally, knowingly or recklessly
committed the offence;
Expressly, tacitly or implicitly authorised or
permitted the payment of a bribe;
Existed with a corporate culture that directed,
encouraged, tolerated or led to non-
compliance with the law; and
Failed to create and maintain a corporate
culture that required compliance with the law.
Under Australias foreign bribery law, individuals can
be held criminally responsible for failing to create and
maintain a culture that requires compliance with the
law. It signifcantly extends the scope of corporate
criminal responsibility beyond the position of common
law. Likewise, an offence can be committed without
a bribe being actually paid offering or promising
a corrupt beneft (including non-monetary and
intangible inducements) in contravention of the law is
suffcient. This law also covers bribes paid or offered
through intermediaries
12
.
7.3 Australian Wheat Board
bribery scandal
The AWB scandal meant that Australia slipped to
third place in the 2006 Transparency International
Bribe Payers Index, which ranks countries whose
businesses are perceived to be least likely to pay
Combating Bribery in International Business Transactions, 4
January 2006.
http://www.oecd.org/dataoecd/57/42/35937659.pdf
0 Cited in Jennifer Sexton, Foreign bribes claimed off tax, The
Australian, 17 January 2006
AAP, Bribes claimed back on tax, The Age, 7 January 2006
2 Gerrie Lenting and Peter Kim, Taking corruption seriously,
KPMG Forensic Insight, Issue 10, May 2007, pp. 13-14.

z
bribes in their export markets. Previously, Australia
had ranked as the country whose businesses were
the least likely in the world to pay bribes.
At the start of May 2006, in the wake of the AWB
scandal, the Australian Taxation Offce announced
that it would scrutinise Australian businesses for
facilitation payments made on international deals.
It has been alleged that AWB made $300 million in
facilitation payments to the Alia trucking company,
which were later transferred to Saddam Husseins
regime. It is further alleged that AWB claimed income
tax deductions for the $300 million in company
expenses.
In December 2006, the Australian Taxation Offce
issued guidelines for its auditors to detect bribes
in payments that companies make in developing
countries. The guidelines are based on OECD
standards and will require companies to record
information such as the amount paid, the identity of
the foreign public offcial who was paid and details of
what they were paying for
13
.
On 3 May 2007, the then Attorney General announced
the Australian Governments response to Report
of the Inquiry into Certain Australian Companies
in relation to the UN Oil-for-Food programme by
Commissioner Terence Cole QC. As part of its
response the Attorney General announced that the
Australian Government will:
amend the Income Tax Assessment Act 1997
to align the defnition of facilitation payments
to the defnition in the Criminal Code to
allow deductibility only for minor facilitation
payments; and
amend Division 70 (Foreign Bribery) of the
Criminal Code to clarify that the defence in
section 70.3 against the charge of foreign
bribery applies only where the law of the
foreign country states that the advantage in
question is permitted or required, and that the
offence can be made out regardless of the
results of payment or the alleged necessity
of the payment. The Australian Government
would therefore amend the corresponding
provision of the Income Tax Assessment Act
1997.
The then Attorney General also tasked the Australian
Law Reform Commission (ALRC) on 30 November
2006 to investigate legal professional privilege
as it relates to the activities of Commonwealth
investigatory agencies. The relevance to corruption
in developing countries is the issue of Australian
companies that may attempt to misuse legal
3 Elizabeth Kazi, Bribes code sets frms on paper chase, The
Australian Financial Review, 14 December 2006.

professional privilege to hide corrupt activities from


Australian government bodies such as the Australian
Federal Police, Australian Securities and Investments
Commission and the Australian Taxation Offce. The
ALRC was due to report back to the government on 3
December 2007.
7.4 Recovery of funds stolen
through corruption
The Proceeds of Crime Act 2002 was introduced
by the Australian Government to be able to trace,
restrain and confscate the proceeds of crime against
Australian law. In combination with the Mutual
Assistance in Criminal Matters Act 1987 it allows the
Australian Government to
14
:
register and enforce foreign proceeds of crime
orders, including foreign forfeiture orders and
foreign restraining orders;
locate, restrain and seize the proceeds of
crime; and
allow funds recovered to be shared with a
foreign country, which means the funds stolen
through corruption can be returned in full to
the country they have come from.
These measures assist foreign countries in the
recovery of funds stolen through corruption and
transferred to Australia.
7.5 Australian efforts to deal with
tax havens and tax avoidance and
evasion
The Australian Taxation Offce (ATO) has expanded its
relationships with tax authorities in other countries to
address the misuse of tax havens by
15
:
sharing information and best practice with
Canada, France, Germany, Japan, the United
Kingdom and the US through the Seven
Country Forum on Tax Havens;
developing international solutions through the
OECD, the Global Forum on Taxation, and
the Joint International Tax Shelter Information
Centre; and
negotiating tax information exchange
agreements with key jurisdictions, in
cooperation with the Australian Treasury
department.
Australia is a member of the OECDs Forum on
Harmful Tax Practices which aims to eliminate harmful
14 Australian Government Attorney-Generals Department,
A better mutual assistance system. A review of Australias
mutual assistance law and practice, http://www.ag.gov.au/
extraditionandma, 2006, p. 19.
5 Australian Taxation Offce, 2006-2007 Compliance Report,
August 2006, p. 57.

tax practices from both OECD member countries and


non-member jurisdictions, including tax havens
16
.
The ATO signed a tax information exchange
agreement with Bermuda in November 2005. It also
provided technical assistance for major whole-of-
government projects in Papua New Guinea and
Indonesia. It contributed to 15 OECD outreach
technical assistance workshops in China, India,
Malaysia and South Korea
17
.
In 2005-2006, the ATO provided over 1.5 million
income records under the automatic exchange of
information program (regarding dividends, interest
and unit trust distributions) to 42 treaty partners
aiding in efforts to prevent international tax avoidance
and evasion
18
.
Australia is also a member of the OECDs Committee
on Fiscal Affairs, which was established to bring
together senior tax offcials from all OECD member
governments. Australia is part of a working party
established by the committee to monitor all matters
covering tax avoidance and evasion. The working
party looks at legal, policy and administrative
aspects of tax evasion and avoidance, particularly
exchange of information, unfair tax competition, new
technologies and compliance programs.
7.6 Corruption under the
occupation forces in Iraq
The Australian Government had been an active
participant in the 2003 war in Iraq which toppled the
brutal regime of Saddam Hussein, but at signifcant
cost to civilian lives and the on-going instability of the
country. However, the reconstruction of infrastructure
in Iraq under occupation of US-led forces, and
subsequently under the new Iraqi Government, has
been plagued by corruption, much of which has
involved the foreign companies awarded contracts by
the US-led forces.
The International Advisory Board for Iraq (IAMB), the
independent oversight body that holds the proceeds
of oil export sales from Iraq, surplus funds from
the OilforFood Program, and Iraqi assets frozen
abroad
19
found several indicators for misuse of
funds over oil extraction by the Coalition Provisional
Authority (CPA) that initially took over running Iraq
after the US-led invasion. The CPA was responsible
for the absence of oil-metering, inadequate
6 Australian Taxation Offce, Tax havens and tax administration,
2004, p. 18.
7 Australian Taxation Offce, 2006-2007 Compliance Report,
August 2006, p.59.
18 Ibid., p. 59.
19 International Advisory and Monitoring Board of the
Development Fund for Iraq, Report of the International Advisory
and Monitoring Board of the Development Fund for Iraq (http://
www.iamb.info/pdf/IAMBreport.pdf), p. 2.
record keeping, uneven application of contracting
procedures, insuffcient payroll records, deviation
from tendering procedures, and inadequate contract
monitoring
20
.
In thirteen months, the Coalition Provisional Authority
disbursed or obligated US$19.6 billion in contracts,
more than 90% of the Development Fund for Iraq
resources then available
21
. This money belonged to
the Iraqi people as it was money derived from the
sales of Iraqi oil.
One audit determined that the coalition government
could not account for almost US$9 billion from the
Development Fund for Iraq
22
. However, hearings
of the US Congress House Government Oversight
Committee formed the view that US$12 billion went
missing and no paper trial exists to explain what
happened to it, a view the former head of the CPA,
Paul Bremer, did not dispute. The US$12 billion
represents about a third of the Iraq reconstruction
budget for 2003
23
.
At least US$1 billion of money from the Development
Fund for Iraq (DFI) disappeared in dubious military
contracts
24
. Ali Allawi, Iraqs Finance Minister,
complained that these contracts were awarded
without bidding and the money was paid up front with
great speed out of the ministrys account.
There were other occasions in which companies
entered favourable, proftable contracts either with
or without a bidding procedure. Halliburton, Vice
President Dick Cheneys former company, had a no-
bid contract with the US Army Corps of Engineers
25
.
After raising her voice over this contract, Pentagon
contracting offcer Bunny Greenhouse was demoted.
Halliburton was found to have poor book keeping and
to have overcharged the army
26
. Before a report by
US military auditors about the millions of dollars spent
in Iraq could reach the United Nations, the Pentagon
ensured that Halliburton could edit the report before
releasing it
27
. Halliburton received over US$900 million
in contracts without having to compete for them.
20 International Advisory and Monitoring Board of the
Development Fund for Iraq, p. 3.
2 Global Policy Forum, War and Occupation in Iraq, June 2007,
p. 86.
22 Los Angeles Times, Bribes paid for $0 m deals, The Age, 20
April 2006, p. 10.
23 Tim Reid, Millions wasted in Iraq cash orgy, The Australian,
27 January 2006, p. 8; Michael Gawenda, Democrats lead witch-
hunt over Iraqs missing millions, The Age, 8 February 2007; and
Global Policy Forum, War and Occupation in Iraq, June 2007, p.
90.
24 Patrick Cockburn, What has happened to Iraqs missing
$1bn?, The Independent, 19 September 2005.
25 Philip Giraldi, Money for Nothing, The American Conservative,
24 October 2005.
26 Dan Robinson, Congress Wants Pentagon Documents on
Iraq Development Funds, Voice of America, 21 June 2005. (www.
voanews.com)
27 David Wood, Iraq reconstruction riddled with waste, audits
fnd, The Seattle Times, 4 July 2005.
q
A UN audit board asked that the US repay Iraq for
US$208.5 million for work claimed to have been done
by Halliburton subsidiary Kellogg Brown and Root,
on the basis the work either done at infated prices or
done poorly
28
.
Other key benefciaries from the lack of a bidding
procedure or biased bidding procedures were
Bechtel, Flour, Parsons and a handful of other large
US-based engineering companies with longstanding
Pentagon ties and strong networks of friends within
the administration
29
.
Custer Battles, a private company with connections
to the US-Administration, received a multi-million
dollar contract to secure the airport in Baghdad,
without having any experience in this feld. A bidding
procedure was not employed for this contract, nor for
a contract about providing security for the exchange
of Iraqi currency
30
. One of the companys principals,
Michael Battles, was a Republican candidate for
Congress in 2002.To handle its cash fow Custer
Battles set up a number of shell companies in
offshore tax havens in Lebanon, Cyprus, and
the Cayman Islands
31
. Company representatives
accidentally left at a meeting with US government
representatives a copy of a spreadsheet showing that
the company was vastly infating costs, overcharging
the US Government by at least US$6.5 million
32
. In
March 2006, Custer Battles was found guilty of 37
counts of fraud.
North Star Consultants, a company in charge of
reviewing the expenditures of CPA, did not perform
any of its tasks at all. Thus, the use of at least US $8.8
billion of Iraqi money is largely unknown. While it is
estimated that oil worth US$0 billion was offcially
extracted, an additional US$4 billion of extracted oil
was unaccounted for
33
.
In one case the US Special Inspector-General
for Iraq Reconstruction found that a US military
offcial gambled away more than US$40,000 of
reconstruction funds while accompanying the Iraqi
Olympic boxing team to the Philippines
34
.
The destination of unaccounted DFI money is largely
seen as Iraqi and US offcials and the contractors
28 Richard Baker, Australia challenged US over squandering
$20bn war spoils, The Age, 10 December 2005, p. 9.
29 Global Policy Forum, War and Occupation in Iraq, June 2007,
p. 91.
30 Philip Giraldi, Money for Nothing, The American Conservative,
24 October 2005.
31 Ibid.
32 Global Policy Forum, War and Occupation in Iraq, June 2007,
p. 92.
33 Guardian, So, Mr Bremer, where did all the money go?, 7
July, 2005.
34 Tim Reid, Millions wasted in Iraq cash orgy, The Australian,
27 January 2006, p. 8
offcially involved in Iraqs reconstruction process
35
.
As Congressman Cliff Stearns put it [As] we dig
deeper and deeper into this scandal we fnd it fraught
with fraud and abuse and it is much more widespread
than we thought
36
.
Media reports indicated that Neil Mules, former
Australian ambassador in Iraq, protested against
and questioned many projects that US offcials from
the CPA proposed in the weeks before control was
handed over to the new Iraqi interim government. Mr
Mules was a member of the CPAs Program Review
Board, which was made up of seven US, one British
and two Iraqi members
37
.
The internal advisory offce of the CPA, the CPAIG,
itself investigated 69 cases of criminal actions
including alleged theft, fraud, waste and assault.
Besides these a number of other cases that, because
of their sensitivity, cannot be included in this report
38
.
The US Special Inspector General for Iraq
Reconstruction has warned repeatedly of the
reconstruction gap between what the US promised
after the 2003 invasion and what it has delivered.
For instance, a contract to deliver 150 health centres
through Parsons Global produced only six after
spending US$186 million (which was 75% of the
allocated funding). Only 14 more will be completed
within the contract
39
. The US Special Inspector
General has warned there exists a gap between US
project outputs and the delivery of essential services
to Iraqis
40
.
In April 2006, the US Special Inspector General for
Iraq Reconstruction was investigating 72 cases of
alleged fraud, theft, bribery and corruption in Iraq
41
.
As of 1 May 2007, he had referred 28 cases to the
US Department of Justice for prosecution from which
there had been 0 arrests and fve convictions
42
.
A US contractor, Philip Bloom, was sentenced to 46
35 Guardian, So, Mr Bremer, where did all the money go?, 7
July, 2005, p. 3; and Patrick Cockburn, What has happened to
Iraqs missing $1bn?, The Independent, 19 September 2005.
36 Dan Robinson, Congress Wants Pentagon Documents on
Iraq Development Funds, Voice of America, 21 June 2005. (www.
voanews.com).
37 Richard Baker, Australia challenged US over squandering
$20bn war spoils, The Age, 10 December 2005, p. 1.
38 CPAIG, as quoted in Guardian, So, Mr Bremer, where did all
the money go?, 7 July, 2005.
39 Griff White, Halliburton loses US Army deal, The Age, 13
July 2006, p. 2; Ewen MacAskill, Huge fraud exposed in Iraq
contracts, The Age, 2 May 2006, p. 9 and Stuart W. Bowen Jr,
Ninth Quarterly report from the Special Inspector General for Iraq
Reconstruction, Special Inspector General for Iraq Reconstruction,
30 April 2006, pp. 9, 33.
40 Ewen MacAskill, Huge fraud exposed in Iraq contracts, The
Age, 2 May 2006, p. 9.
4 Stuart W. Bowen Jr, Ninth Quarterly report from the Special
Inspector General for Iraq Reconstruction, Special Inspector
General for Iraq Reconstruction, 30 April 2006, p. 9.
42 Global Policy Forum, War and Occupation in Iraq, June 2007,
pp. 94-95.

months in prison for paying more than US$2 million


in bribes to US offcials with the Coalition Provisional
Authority in Iraq
43
. He admitted providing money, sex
and designer watches to US offcials in exchange
for more than US$8.6 million in reconstruction
contracts. He must pay US$3.6 million in restitution
and forfeit US$3.6 million in assets. Bloom paid
bribes to Robert Stein, a civilian contractor who
controlled US$82 million
in reconstruction funds as
the comptroller
44
for the
coalitions headquarters
in Hilla. Stein pleaded
guilty to accepting bribes
in February 2006 and was
sentenced to nine years in
prison. US Army Reserve
offcers, Lieutenant-
Colonel Michael Wheeler
and Lieutenant-Colonel
Debra Harrison were also arrested in the case
45
.
Lieutenant-Colonel Bruce Hopfengardner pleaded
guilty to fraud and money laundering on 25 August
2006, having admitted to a conspiracy to steal from
reconstruction funds. He had received US$175,000
from Philip Bloom, as well as gifts including a car
46
.
The US Special Inspector General stated on 30 April
2006 that Corruption in the oil and gas sector is
a continuing problem that could have devastating
effects on both the progress of sector reconstruction
and on the overall status of the reconstruction and
democracy-building effort in Iraq.
47

However, US Presidential Executive Order 13003
(2003) gives oil companies virtually total exemption
from legal claims concerning their operations in Iraq
48
.
Iraqs Commission on Public Integrity, a government
anti-corruption agency, has investigated
approximately 3,000 cases of corruption of which 780
have been registered with Iraqi courts and around a
dozen have reached a verdict
49
.
Anti-corruption activities in Iraq are also carried out
by the Board of Supreme Audit and the 29 inspectors
general in the Iraqi ministries
50
.
43 Ibid., p. 92.
44 A fnancial controller
45 Los Angeles Times, Bribes paid for $0 m deals, The Age, 20
April 2006, p. 0 and Stuart W. Bowen Jr, Ninth Quarterly report
from the Special Inspector General for Iraq Reconstruction, Special
Inspector General for Iraq Reconstruction, 30 April 2006, p. 9.
46 Global Policy Forum, War and Occupation in Iraq, June 2007,
pp. 92-93.
47 Stuart W. Bowen Jr, Ninth Quarterly report from the Special
Inspector General for Iraq Reconstruction, Special Inspector
General for Iraq Reconstruction, 30 April 2006, p. 65.
48 Global Policy Forum, War and Occupation in Iraq, June 2007,
p. 95.
49 Solomon Moore, Corruption costly byproduct of war, The
Age, 25 May 2006.
50 Stuart W. Bowen Jr, Ninth Quarterly report from the Special
The Justice and International Mission Unit takes the
view that the Australian Government needs to be
taking more signifcant action in ensuring a curbing
of corruption by both those associated with the
US-led foreign forces in Iraq and by Iraqi authorities
and companies themselves and needs to be active
in urging the pursuit of the money that has been
stolen through corruption. The money stolen through
corruption under the US-
led CPA in effect cheated
the Iraqi people out of
vital reconstruction and
development funding, as
the money was derived
from Iraqi oil revenue.
There are no allegations
of any corruption relating
to Australias direct aid
program to Iraq.
7.7 Allegations of Australian
bodies benefting from corruption
Allegations have been raised that former Kenyan
leader Daniel Arap Moi and his family looted more
than $2.5 billion during his 24 year rule. It is also
claimed he funnelled this stolen money to nearly
30 countries, including Australia where a 10,000
hectare ranch was purchased. Properties were also
purchased in London and New York. None of Mr Mois
relatives or close friends has ever been prosecuted
for corruption and none of the stolen money has been
recovered
51
.
7.8 Operation Wickenby
The Australian Government has been conducting
Operation Wickenby to investigate internationally
promoted tax evasion and large scale money
laundering. The Operation has resulted in charges
against three Gold Coast businessmen and $17.9
million in extra tax being paid.
Revised tax assessments to the value of $65
million have been issued to people believed to have
underpaid their taxes, but these assessments could
still be disputed. The Australian Crime Commission
and Australian Taxation Offce have confrmed that
more than 500 people are being investigated for
participation in illegal arrangements such as offshore
tax havens. The investigation initially focussed on
Swiss accountant Philip Egglishaw, but has since
widened to cover more than 100 promoters of
Inspector General for Iraq Reconstruction, Special Inspector
General for Iraq Reconstruction, 30 April 2006, p. 7.
5 Kenyan leader looted billions, The Australian, 1 September
2007.
Corruption in the oil and gas sector is
a continuing problem that could have
devastating effects on both the progress
of sector reconstruction and on the overall
status of the reconstruction and democracy-
building effort in Iraq.
US Inspector General
6
international tax-evasion schemes
52
.
In January 2007 there were media reports that an
agreement, backed by new federal legislation, will
allow the Australian Tax Offce to share information
with the Australian Securities and Investment
Commission (ASIC) to allow for more effective
investigation of tax evasion and money laundering.
It is expected that the revamp will allow ASIC to use
tax information as evidence in criminal investigations
such as non-tax fraud on the commonwealth, identity
crime and terrorist fnancing
53
.
7.9 Australia leading by example
If Australia wishes to urge developing countries to
address corruption then it needs to lead by example
domestically.
The new Labor Federal Government has promised
to establish a Freedom of Information (FOI)
Commissioner, which it is hoped will increase
government transparency a key measure to combat
corruption and promote good governance.
54
They
have promised that they will end the ability of
Ministers to issue conclusive certifcates in response
to FOI applications
55
. The effect of issuing that
certifcate is to state that it is not in the public interest
to release a document. A decision by the High Court
placed conclusive certifcates beyond administrative
review.
With regard to whistleblower protection within
Australia, the new Federal Government has
promised A Rudd Labor Government will work with
Department heads, the Public Service Commissioner
and the Commonwealth Ombudsman to promote
a pro-disclosure culture within Departments and
agencies so that proper reporting and investigation
systems are put in place to deal with allegations of
corruption and misconduct.
56

Whistleblowers will gain legal protection where
the whistleblower has gone through the available
offcial channels, but has not had success within
a reasonable timeframe and, secondly, where
the whistleblower is clearly vindicated by their
disclosure.
57

52 Fiona Buffni, ATO plans joint attack on tax cheats, The
Australian Financial Review, 9 January 2007, p. 6; and Susannah
Moran, Poor results turn Wickenby into an embarrassment, The
Australian, 22 September 2007.
53 Fiona Buffni, ATO plans joint attack on tax cheats, The
Australian Financial Review, 9 January 2007, p.1.
54 Kevin Rudd and Joe Ludwig, Federal Labor New Laws
on Freedom of Information, Whistleblower Protection Open
Government after 11 Years Media Release, 26 October 2007.
55 Kevin Rudd and Joe Ludwig, Government Information.
Restoring trust and integrity, Australian Labor Party, Election 2007
Policy Document, October 2007, p. 7.
56 Ibid., p. 9.
57 Ibid., p. 10.
On protecting journalists from prosecution for
exposing government errors and corruption, the
new Federal Government has promised Working
with the Australian Government Solicitor and the
Director of Public Prosecutions, a Rudd Labor
Government will also ensure a protocol is in place
so that a responsible journalist presenting the news
in the public interest is not prosecuted by Federal
agencies where the information presented is merely
embarrassing to the government. This will not
cover reportage that jeopardises law enforcement,
national intelligence or security, military operations or
intelligence or diplomatic relations.
58

The last point is of concern as exposing corruption
by Australian government offcials or Australian
companies (in the latter case, the AWB scandal is an
example) can damage diplomatic relations with other
countries who are effected by the corrupt behaviour.
However, the threat of public exposure is a necessary
safeguard against corruption.
Prime Minister, the Hon. Kevin Rudd released new
Standards of Ministerial Ethics in late 2007 outlining
the level of ethical accountability that he expects of
Ministers in the Federal Government. Key elements of
the guidelines include:
that lobbyists will be required to register their
details publicly on a Register of Lobbyists
to be established by the Department of the
Prime Minister and Cabinet before seeking
access to ministers or their offces;
ministers will be required to undertake that,
when they leave offce, they will not seek
to have business dealings with members of
the Government, the Public Service or the
Defence Force on any matters that they dealt
with in an offcial capacity in the proceeding
18 months;
ministers will be required to divest themselves
of all shareholdings, other than through
investment vehicles such as broadly
diversifed superannuation funds or publicly
listed managed or trust arrangements;
ministers are required to declare and register
their personal interests; and
except with the express approval of the
Prime Minister, Ministers will resign or decline
directorships of public or private companies
and businesses on taking up offce as a
minister.
58 Ibid., p. 9.

7.10 Dealing with imports produced


with the involvement of corruption
Australia has no comprehensive system to
identify imports that have been produced with
the involvement of corruption. Clearly, it would be
impossible to do so for every item that is imported
into Australia. However, it should be possible to take
action with regard to areas where it is well known that
corruption is involved in the production of goods. For
example, it is well documented that many factories in
China are able to commit gross violations of Chinese
labour laws with the collusion of Chinese Government
offcials to produce goods for export.
The Australian Government should implement
measures that will pressure the Chinese Government
to enforce its own labour laws, to try to ensure that
imported goods from China are not produced with the
involvement of corruption.
The new Labor Government has indicated that it is
willing to take some action on timber imports that
have been illegally logged. It has promised to commit
$1 million to work with regional governments and
industry to
59
:
build capacity within regional governments to
prevent illegal harvesting;
develop and support certifcation schemes for
timber and timber products sold in Australia;
require disclosure at point of sale of species,
country of origin and any certifcation;
identify illegally logged timber and restrict its
import into Australia; and
argue for incentives within the emerging global
carbon markets for avoided deforestation and
better management of tropical forests.
59 Kevin Rudd and Sid Sidebottom, Securing the Future of
Tasmanias Forestry Industry, ALP Media Statement, 23 July 2007.

7.11 AusAIDs approach to good


governance
The Australian Governments objective for their
overseas aid program is To assist developing
countries to reduce poverty and achieve sustainable
development, in line with Australias national
interest
60
.
Supporting the growth and maintenance of good
governance is pivotal to this objective. AusAID has
identifed four key areas where aid can enhance
good governance in developing countries. These
are: improving economic and fnancial management,
strengthening law and justice, increasing public
sector effectiveness,
and developing civil
society.
In the 2006-2007
fnancial year an
estimated $645
million was spent
in the aid budget
on anti-corruption
and governance
measures in the
Asia-Pacifc region
61
.
A positive aspect
of the centrality of
good governance
to Australias approach to aid policy is the
acknowledgment that the state has to be a central
actor in alleviating poverty. This can be achieved by
sustainable development through building institutions,
effective and unbiased law and order systems, and a
participatory civil society.
A key positive involvement Australia has in our
region is supporting the development of democracy
through assisting the process of free and fair
elections in countries such as Cambodia, Indonesia
and East Timor. Such involvement has ensured that
the electoral procedure is followed with minimal
corruption in these countries. AusAID has supported
voter education programs, associated with electoral
assistance. These programs have been carried out in
Cambodia, Indonesia, East Timor, PNG, the Solomon
Islands and Vanuatu.
AusAID also provides support to the Centre for
Democratic Institutions, focusing on strengthening
political parties and parliamentary governance
through intensive training courses and workshops,
60 Australias Overseas Aid Program 2007-08, Statement by The
Honourable Alexander Downer MP, Minister for Foreign Affairs, 8
May 2007, p. 2.
6 AusAID Media Release, Australia Expands Efforts to Combat
Corruption, 30 March 2007.
As a specifc example, in late November 2007 the US National Labor Committee
(NLC) released a report, Today Workers Bear the Cross, exposing the Association
for Christian Retail (ACR) for selling crosses in the US manufactured in a Chinese
sweatshop. The NLC report found that crucifxes are being made at the Junxingye
Factory in Dongguan, China, by 300 400 women as young as 15 forced to work
regular 14 to 15.5 hour shifts a day, seven days a week. When an order is due a shift
can be extended up to 25 hours. All overtime in the factory is mandatory and anyone
who does not carry out the required overtime loses a full days wages. It is common
for workers in the factory to work over 100 hours a week, which includes 51 hours of
overtime. Workers in the factory are paid as little as 30 cents an hour, just over half the
legal minimum wage in China. After fees deducted for room and board, the workers
pay can drop to just 11 cents an hour. Anyone who gets sick and misses work in the
factory loses two-and-a-half days pay for each day they miss. The workers get no
paid sick leave, no paid maternity leave, no paid holidays and no health insurance, all
of which are required under Chinese labour laws.
8
underpinned by research, advocacy and regional
networking, with a main focus on Melanesia,
Indonesia and East Timor
62
.
AusAID has an existing policy that a contract will
be immediately terminated if it is established the
organisation the contract is with has engaged
in corrupt practices. AusAID also commissions
compliance audits that include provisions to identify
risk areas where fraudulent use of Commonwealth
funds could have or has occurred.
63

AusAID has also provided support for a number of
Transparency International national integrity studies
and has supported the Asian Development Bank/
OECD Anti-Corruption Initiative for the Asia-Pacifc
64
.
In the 2007-2008 fnancial year, AusAIDs anti-
corruption work was focussed on Indonesia, the
Philippines, East Timor, Papua New Guinea, Vanuatu
and the Solomon Islands
65
.
However, a media report indicated that an internal
assessment of the Governments Pacifc Governance
Support Program indicated faws in the program.
There had been underspending on the program of up
to 20% below the budgeted amount, that the program
failed to encourage longer term activities, has been in
confict with AusAIDs in-country programs and the
procedures, documentation and monitoring of the
program have proved unwieldy. The assessment is
reported to have stated that Few activities currently
seek to build truly regional capacities outside of
sustaining a shared policy dialogue
66
.
7.12 Tackling corruption for growth
and development policy
More recently the Australian Government has
developed an Anti-Corruption for Development
policy to guide the development and implementation
of all Australian aid program activities aimed at
countering corruption in the region. Launched on
30 March 2007 under the title Tackling corruption
for growth and development. A Policy for Australian
Development Assistance on Anti-Corruption
67
,
it was developed by a core group of agencies:
62 Australias Overseas Aid Program 2007-08, Statement by The
Honourable Alexander Downer MP, Minister for Foreign Affairs, 8
May 2007, p. 16.
63 AusAID, Tackling corruption for growth and development. A
Policy for Australian Development Assistance on Anti-Corruption,
Canberra, March 2007, p. 13.
64 Luke, Garth, Can Aid be Effective when Corruption is
Present?, Make Poverty History and Micah Challenge Australia,
2006, p. 27.
65 Australias Overseas Aid Program 2007-08, Statement by The
Honourable Alexander Downer MP, Minister for Foreign Affairs, 8
May 2007, p. 31.
66 Sean Parnell, Governance plan lacks coherence, The
Australian, 17 August 2007, p. 7.
67 The policy can be downloaded from the AusAID website at
http://www.ausaid.gov.au
AusAID, Department of Foreign Affairs and Trade,
the Attorney-Generals Department, the Treasury,
Department of Finance and Administration and the
Australian Federal Police.
The anti-corruption policy outlines three elements
to combat corruption in the region: building
constituencies for anti-corruption reform; reducing
opportunities for corruption; and changing incentives
for corrupt behaviour.
Positively, the Australian Government recognises
that due to the complexity and political sensitivity of
corruption, the strategy will have a long-term focus
and will include some exploratory and experimental
elements as well as ongoing research
68
.
The policy commits the Australian Government to
support initiatives that bolster transparency and
accountability. The Australian aid program will
help to improve budget processes, public fnancial
management and purchasing systems in countries
receiving assistance from Australia in order to make
corruption activities more diffcult to undertake
and easier to identify and prosecute. Australia will
continue to place Australian offcials in public sector
positions or senior advisory roles in governments
that receive Australian aid as part of a long-term
institutional partnership.
The policy commits Australia to supporting efforts
to develop anti-corruption policies and plans in
countries that do not have them. The Australian
Government will match Australian skills and resources
to the needs and priorities identifed for tackling
corruption in countries that receive aid from Australia,
taking account of local anti-corruption efforts, the
work of other donors, and ways to build on current
effective Australian interventions
69
.
The Australian Government recognises the
importance of providing assistance tailored to
countries specifc needs and capacities and that
implementation of effective means to fght corruption
entails considerably more than merely pursuing wide
ratifcation of conventions (though the Government
recognises that this is clearly important).
In terms of building constituencies for anti-corruption
reform the policy recognises the need for large-scale
and sustained commitment to formal and informal
education of young men and women who will be
societys future politicians, judges, prosecutors, police
68 AusAID, Australian Aid: Promoting Growth and Stability.
A White Paper on the Australian Governments Overseas Aid
Program, 2006, p. 6; and AusAID, Tackling corruption for growth
and development. A Policy for Australian Development Assistance
on Anti-Corruption, Canberra, March 2007, pp. 7, 9, 12.
69 AusAID, Tackling corruption for growth and development. A
Policy for Australian Development Assistance on Anti-Corruption,
Canberra, March 2007, p. 16.

offcers, civil servants, regulators, entrepreneurs, and


labour and community leaders. The policy also states
that supporting gender equity in leadership positions
will contribute to a more just society and lower
tolerance for corruption
70
.
The policy states that Australia and other
governments in the region have committed to fghting
corruption through regional and global reform efforts
such as the ADB-OECD Anti-Corruption Initiative for
the Asia-Pacifc and the OECD Working Group on
Bribery in International Business Transactions
71
.
AusAID will report on progress in implementing its
anti-corruption initiatives through the Annual Review
of Development Effectiveness, to be prepared by the
Offce of Development Effectiveness.
The policy states that the Australian Government will
strengthen its dialogue with international fnancial
institutions (particularly the World Bank and the Asian
Development Bank), international agencies (such
as the UN Development Programme) and global
organisations dedicated to promoting accountability
and anti-corruption measures
72
. However, the policy
does not commit the Australian Government to any
particular specifc outcomes from the strengthened
dialogue.
The Australian Government will continue to work
with international bodies, such as the World Bank, to
develop better measures of corruption and ways of
monitoring progress in combating corruption
73
.
7.13 Building Demand for Better
Governance program
The Australian Government has recognised in its
White Paper on Australias overseas aid program that
insuffcient demand for better performance or reform
is one of the most important obstacles to institutional
development in poor countries.
74

The Building Demand for Better Governance program
will support strategic partnerships to help augment
domestic demand for reform and accountability in
the Asia-Pacifc region. Australian aid has supported
the PNG Church Partnership Program and War
Against Corruption campaigns, support for national
human rights institutions, and partnerships with
Transparency International. Such support is planned
to be expanded through direct support to the relevant
organisations in partner countries and through
70 Ibid., p. 9.
71 Ibid., p. 14.
72 Ibid., p. 14.
73 Ibid., p. 16.
74 AusAID, Australian Aid: Promoting Growth and Stability.
A White Paper on the Australian Governments Overseas Aid
Program, 2006, p. 43.
partner Australian organisations, from development
non-government organisations, through to business
councils and universities. A particular focus will be
on supporting womens groups and building capacity
in developing countries for independent analysis of
government policy
75
.
A key aspect of the AusAIDs Building Demand
for Better Governance Program is engagement
with leaders and work on leadership. This work on
leadership is part of promoting good governance and
fostering effective and function states, and includes
support for:
the Pacifc Leadership Program, which will
work with a wide variety of current and
emerging leaders in the region to develop
their leadership potential and engage them
in improving standards of leadership and
governance;
a new regional scholarship for the Asia-
Pacifc region focused on developing future
leaders the Australian Leadership Awards
Scholarships and Fellowships; and the Global
Integrity Alliance, a new initiative with the
World Bank that brings together leaders
committed to integrity and systemic change,
at all stages of their professional careers.
75 Ibid., p. 43.

6c
8
CcncIusicn
While lecturing developing countries about
corruption, wealthy countries often play a role in
fostering, rewarding and benefting from corruption in
developing countries. Eliminating corruption globally
will require signifcant effort by all countries. It will
not be assisted by withholding aid from developing
countries. In fact withholding aid is likely to increase
corruption. Rather aid needs to targeted in ways that
does not assist corruption and supports parts of
society that are seeking to tackle corruption.
The effort to eliminate corruption will need to include:
Building a global culture to respect basic
human rights;
A global effort to address tax competition, tax
havens and tax evasion;
Wealthy countries being willing to return funds
looted from developing countries;
Wealthy countries being willing to punish
bribery by companies and citizens that
operate from their country; and
A willingness to cancel odious debts, to
discourage those that would make corrupt
loans
Compared to many other wealthy countries, Australia
has taken welcome steps against corruption. The
Australian Government has made commendable
efforts to tighten up domestic law to prevent money
laundering and fnancing of terrorism. However, it
remains to be seen in practice if the steps taken are
suffcient to prevent Australians from participating in
and benefting from corruption in developing countries
and then being able to keep their ill-gotten gains in
Australia. Australias aid program also contains a
number of positive and well-thought through elements
to combat corruption and promote good governance
in countries that receive aid from Australia.
However, there are black marks on Australias
commitment to dealing with corruption, with Iraq
being the most prominent recent example. The
Australian Government has been willing to look the
other way with regard to many cases of alleged
human rights abuse in Iraq committed by US-led
forces and as Iraqis were cheated out of billions

of dollars of oil revenue by mismanagement and


corruption within the US-led Coalition Provisional
Authority.
Australia could also be doing more at the global level
to address tax competition, tax havens, tax evasion,
odious debts, and the promotion of international
standards to combat corruption and promote good
governance.
The table below summaries Australias performance
in tackling and deterring corruption in developing
countries and preventing Australians and Australian
companies from engaging in corruption in developing
countries and benefting from it.
61
Table 3: Australias performance in tackling corruption
Corruption or Good
Governance Issue
Australias Performance What more could Australia be
doing?
Assisting in building
demand for good
governance
Australia has assisted with free and fair
elections in the region. The White Paper
on Australias Overseas Aid includes
a program to build demand for better
governance through the aid program.
The Government has issued Tackling
corruption for growth and development.
A Policy for Australian Development
Assistance on Anti-Corruption
Australia needs to implement the
program in the White Paper and
through the Tackling corruption
for growth and development. A
Policy for Australian Development
Assistance on Anti-Corruption,
making sure both are adequately
funded.
Promotion and defence of
human rights
Mixed performance. Strong action in
countries like the Philippines and Sri
Lanka. Lack of willingness to tackle some
human rights abuses in countries like Iraq
and Indonesia.
Need for a consistent approach
to supporting a global culture for
the protection and promotion of
human rights.
Bribery The Criminal Code Amendment (Bribery of
Foreign Public Offcials) Act 1999 makes it
a criminal offence to bribe a foreign public
offcial, whether the offence occurs inside
or outside Australia. However, adequate
penalties have been lacking. Attempts
are being made to increase detection of
foreign bribery. Ability to claim facilitation
payments as tax deductions has been
reduced.
Need to ensure that penalties for
foreign bribery are adequate to
deter bribery.
Need to ensure adequate
protection for those that expose
bribery.
Tax competition The Australian Government appears to see
competition between countries over tax
rates as legitimate, but at the same time
is part of international bodies examining
unfair tax competition.
Need to work for an international
approach to curb tax competition
that undermines the development
needs of fnancially impoverished
countries and assist developing
countries stem tax evasion.
Tax havens The Australian Tax Offce (ATO) has shared
information on best practice in dealing with
tax havens through the Seven Country
Forum on Tax Havens. The ATO is also
working with the OECD, the Global Forum
on Taxation and the Joint International Tax
Shelter Information Centre to deal with tax
havens. Operation Wickenby has sought
to tackle Australians using offshore tax
havens.
Need to support greater global
efforts to shut down tax havens,
which facilitate tax evasion, capital
fight and money laundering.
Money Laundering Introduction of comprehensive anti-money
laundering legislation and rules, closing up
many areas where there were previously
risks of money laundering.
6z
Corruption or Good
Governance Issue
Australias Performance What more could Australia be
doing?
Recovery of stolen funds The Australian Federal Police and the
Attorney Generals Department are working
with governments in the Asia-Pacifc
region to strengthen local laws dealing
with money laundering and to recover the
proceeds of crime. The Proceeds of Crime
Act 2002 and the Mutual Assistance in
Criminal Matters Act 1987 can allow for the
recovery of funds stolen through corruption
and transferred to Australia.
Corruption in lending Australian aid has almost exclusively been
in the form of grants, not loans. Australia
has not supported the cancellation
of odious debts owed by developing
countries.
Discourage lending from Australia
towards projects of dubious
development beneft. Accept
the need for odious debts owed
by developing countries to be
cancelled.
Multilateral Banks Australia is in dialogue with multilateral
banks about corruption issues.
Ensure that multilateral banks are
transparent in the way they punish
corruption and that penalties are
adequate and applied in a fair
manner.
International Standards to
address corruption
Australia is party to the UN Convention
against Corruption and the OECD
Convention on Combating Bribery of
Foreign Offcials in International Business
Transactions. Australia supports and
promotes the Extractive Industries
Transparency Initiative. The Treasury
and the Department of Finance and
Administration are helping to strengthen
fnancial management systems in countries
in the Asia-Pacifc region. The Australian
Government states that it is already
actively encouraging countries to sign
up to international treaties to deal with
corruption and properly implement their
measures.
Increase efforts to encourage other
countries and corporations to sign
up to international standards to
deal with corruption and properly
implement their measures.
Receipt of goods
produced with the
involvement of corruption
The Australian Government has no
systemic measures to identify the
importation of goods that are produced
with the involvement of corruption. The
Government has promised to take steps to
identify illegally logged timber and restrict
its import into Australia.
The Australian Government should
identify types of imported products
that are likely to have been
produced with the involvement
of corruption and put in place
measures that apply pressure
for the corruption to be stopped
and those responsible brought to
justice.
6
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6
68
From Corruption to
Good Governance
Justice and International Mission Unit
Synod of Victoria and Tasmania
Uniting Church in Australia
2008
The Uniting Church Centre
130 Little Collins Street
Melbourne, Victoria
Australia 3000
jim@victas.uca.org.au
http://jim.victas.uca.org.au
Phone: +61-3-9251 5271
Facsimile: +61-3-9251 5241