Notes for Remarks by

Roy Cullen, Member of Parliament,

Etobicoke North

House of Commons, Ottawa, Canada

Conference on Parliamentary Oversight

of the

Sphere of Security, Defense and National Economy

Topic: Money Laundering and Corruption as New Threats to National Security

September 27^th-28^th, Kiev, Ukraine

Economic crimes, such as money laundering and corruption, are a threat to the development of new market economies and democratic principles and, because they are trans-national in nature, they are rightly dealt with by multilateral organizations like NATO.

The financing of terrorist activities, and related money laundering activities, threatens the peaceful co-existence of countries and people around the world. The events of September 11, 2001 clearly demonstrated this.

A huge economic cost is associated with bribery and corruption – a cost that is ultimately borne by all citizens.

In 1998 I was pleased to address the Parliamentary Assembly of the Council of Europe in Strasbourg on the topic of economic crimes. At that time, in my closing remarks, I said the following –

Since I made those remarks much has changed, but much, regrettably, has remained the same. I believe the challenges I described in Strasbourg still exist.

Of course, one cannot presume that all countries in Eastern Europe and the former Soviet Union have made the essential commitment to a market economy and democratic institutions. The absence of such movement would inhibit the nature and pace of any transformation. We do know, however, that for countries of the former Soviet Union to be embraced by organizations such as NATO, the WTO, the European Union, and others, these commitments must be real and good governance is an essential part of this.

Since 1998 there have been a number of developments, for example –

• Canada has acted on a number of fronts – including action on money laundering and terrorist financing - which I will briefly describe later;
• September 11^th, 2001 increasingly focused the world’s attention on terrorism, and the financing of terrorism; and
• Parliamentarians throughout the world are becoming more engaged in fighting corruption (more on this later).

First some context –

Corruption is defined by the World Bank as "The abuse of public office for private gain" and by Transparency International as "….the misuse of public power for private profit."

The World Bank, in its World Development Report 2002, states, "Across countries there is evidence that higher levels of corruption are associated with lower growth and lower levels of per capita income"

The economic costs associated with bribery and corruption are very real, and at the same time illusive. Transparency International’s Global Corruption Report estimates that a one unit increase in bribery or corruption (on a scale of zero to 10) would lower real GDP growth by 0.3 to 1.8 percentage points.

By the way, in my remarks I will use the terms bribery and corruption somewhat interchangeably. I perceive them to be largely one and the same – the difference being the quantum of the bribe, and to whom it is directed. I view bribes as smaller amounts directed to middle and lower level bureaucrats to facilitate certain actions. Corruption, in my parlance, includes rewards in addition to bribes – such as trades in power and influence - where the stakes are larger and directed at senior government officials and elected individuals.

In Uganda, it has been estimated that bribes increase a company’s costs by 8%. Bribes may also introduce greater health, safety and environmental risks when rules are ignored once money has changed hands.

It is sometimes argued that corruption is a cultural matter or endemic in certain societies! Maybe so, but that doesn’t make it right! It just tells you that it will be more difficult and take more time to route out. The INDEM Foundation in a 2001 report entitled Russia Anti-Corruption Diagnostics: Sociological Analysis argues that "corruption is little more than a social phenomenon, admittedly a very significant and harmful one."

As parliamentarians we have a large responsibility to take steps to ensure that bribery and corruption is not accepted as a societal norm. This can be accomplished in a number of ways. First and foremost we must lead by example; i.e. as elected people we should reject bribery and corruption and refuse to be a party to it. Elected officials can take a number of other steps - for example by ensuring that public servants are paid an adequate wage and have reasonable job security – so they can have the confidence to reject bribes. In some countries, such salaries and wages are kept deliberately low because public servants are expected to take bribes. This approach has to stop. Citizens are paying for this either way – either as an ‘on-site’ user fee or as a general tax.

We must accept that bribery and corruption are pervasive. They occur in many, if not all countries in the world, in varying degrees. Canada is not immune; however, in Transparency International’s 1999 Corruption Index, Canada was ranked ‘highly clean’ and scored 9.2 (out of 10) and was in fifth place behind Denmark, Finland, New Zealand and Sweden, and tied with Iceland. Ten represents a perceived level of corruption of ‘highly clean’ as seen by business people, risk analysts and the general public, while zero represents responses indicating ‘highly corrupt’. By way of contrast, Ukraine scored a 2.6, out of a possible 10 – clearly some work to do here!

Money laundering and corruption are unfortunate ‘bed-partners’. The proceeds from corruption and other crimes are often laundered to make the funds more accessible to the perpetrators. Corruption is often associated with organized crime. Effective anti-money laundering regimes have the effect of constraining corrupt activities as there are fewer outlets and means to benefit from these crimes. The chain, however, is only as strong as its weakest link, and this is why it is important for all countries to implement effective anti-money laundering regimes.

As Parliamentary Secretary to Canada’s Minister of Finance from 1999 to 2001, I had the responsibility and honour to shepherd our government’s anti-money laundering legislation through our parliament. This legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which was initially enacted in 2000, led to the creation of Canada’s anti-money laundering agency, the Financial Transactions & Reports Analysis Centre, or FINTRAC, which started up in November, 2001. FINTRAC is currently monitoring any suspicious financial transactions, as defined by regulation and guidelines. In October 2001 FINTRAC was given added responsibilities and resources to combat the financing of terrorist activities in Canada. Canada is now largely compliant with the anti-terrorism financing standards announced by the Financial Action Task Force.

The Financial Action Task Force on Money Laundering (FATF) is an inter-governmental body whose purpose is the development and promotion of policies to combat money laundering -- the processing of criminal proceeds in order to disguise their illegal origin. These policies aim to prevent such proceeds from being utilized in future criminal activities and from affecting legitimate economic activities.

The FATF currently consists of 29 countries and two international organizations. Its membership includes the major financial centre countries of Europe, North and South America, and Asia.

Canada’s parliament has also ratified the United Nations International Convention for the Suppression of the Financing of Terrorism with the enactment in December, 2001 of an Anti-Terrorism bill.

These initiatives in Canada have not been without controversy. The anti-money laundering legislation raised a number of concerns with respect to privacy issues, which had to be dealt with very sensitively. Our anti-terrorism legislation raised the ire of many who believed, and still believe, that their human rights were infringed upon. This is the careful work that legislators must perform to achieve a balance between these sometimes competing objectives.

I should add that Canada is a signatory to the OECD Convention on Bribery. Also, in 1991 Canada ended the tax deductibility of bribes in international business transactions. Surprisingly, this practice has not been eliminated in many other countries.

Led by Canada, the G-20 finance ministers and central bank governors agreed to an Action Plan on Terrorist Financing at their meeting in Ottawa on November 17, 2001. This Plan commits member nations to:

• Implement the relevant United Nations Security Council Resolutions and Conventions to freeze terrorist assets and stop the financing of terrorism;
• Work with international bodies to promote the adoption, implementation and assessment of standards to combat abuses of the financial system, including terrorist financing and money laundering;
• Provide technical assistance to countries that need help in developing and implementing necessary laws, regulations and policies to combat terrorist financing and money laundering; and,
• Establish Financial Intelligence Units and facilitate the exchange of information on terrorist financing and money laundering.

Bribery and corruption has both a demand and a supply side. It is therefore important for businesses to refuse to offer bribes. In this regard, the Canadian business community adopted an International Code of Ethics for Canadian business, which contains, amongst other things, a commitment to the following values – to human rights and social justice; to wealth maximization for all stakeholders; to the operation of a free market economy; and, to a business environment that mitigates against bribery and corruption.

The 1997 OECD Convention on Bribery, now signed by 35 countries states that "enterprises should not, directly or indirectly, offer, promise, give or demand a bribe or other undue advantage to obtain or retain business."

The Foreign Corrupt Practices Act in the U.S.A., which was passed in 1977, outlaws the payment of bribes by American firms to foreign officials, political parties, party officials and candidates. At the rate of less than two prosecutions per year on average since the law was passed, one has to question how effective this legislation is.

The institution of Parliament has a key role to play in fighting corruption. Parliamentarians can hold the executive branch of government to account for their spending and administrative actions. This important role can be achieved in a number of different ways –

• Through debates and questions in the legislature itself;
• Through the work of an auditor general, or accounts chamber, that reports directly to parliament;
• By enquiry and investigative work by a public accounts committee of parliament.

In addition, parliamentarians should use whatever power and influence they have to safeguard free speech, freedom of the press, and an active civil society of non-governmental organizations. In Canada Members of Parliament on the government side shudder when the Auditor General publishes his quarterly report because the media, the opposition parties and the NGO’s have a ‘field day’ with it embarrassing the government.

None of this is easy, especially in countries where the executive branch has most of the powers, either constitutionally or by convention through benign neglect. In Canada we are having a similar debate on this topic. The question is - has the Prime Minister’s office become too ‘presidential’? Many accept that Canada’s parliament has allowed the erosion of its power by omission.

Parliament in Canada, and in most parliamentary democracies, has four separate and distinct responsibilities regarding its accountability over government:

1. It approves legislative requests from government for programs and policies;
2. The government has to seek authority from Parliament (ways and means) for its policies on taxation in order to raise the funds necessary for government;
3. The government must seek approval from Parliament for spending authority (the Estimates process); and,
4. Government is required to report to Parliament and table a variety of reports on its performance.

This oversight role that parliament performs is absolutely crucial, and, if properly exercised, holds the government to account and should result in greater probity and prudence in its spending decisions. Corruption grows wherever accountability is weak.

Parliamentarians can also push for tax and regulatory reform. Those countries with more predictable regulatory regimes and lower levels of regulatory discretion have a better chance of minimizing or eliminating corruption.

Getting the institutions of government right is another area where parliamentarians can make a contribution. Corruption cannot be reined in by repression alone. Countries with presidential or semi-presidential systems have fewer built-in accountability mechanisms than parliamentary systems.

Parliamentarians, knowing that accountability promotes transparency and good governance, are now coming together to form an organization to combat, and speak out, against corrupt activities. The organization, to be known as the Global Organization of Parliamentarians Against Corruption (GOPAC) should come into being at a conference in Ottawa next month. This organization will be the umbrella organization to motivate, support, and organize regional chapters around the world such as North American Parliamentarians Against Corruption (NAPAC), Latin American Parliamentarians Against Corruption (LAPAC) Southeast Asian Parliamentarians Against Corruption (SEAPAC), and the African Parliamentarians Network Against Corruption (APNAC), etc. We have also been recently advised that a chapter has been formed in the Russian Federation. In fact, last October, a colleague of mine from the House of Commons in Canada, and myself met with members of the State Duma in Russia on the topic of governance; and this dialogue is continuing amongst parliamentarians and with Canada’s Auditor General and Russia’s Accounts Chamber. This work is being supported by the Canadian International Development Agency (CIDA) through the Parliamentary Centre in Canada.

The mandate of the regional chapter of GOPAC in North America – North American Parliamentarians Against Corruption, or NAPAC, will be to:

• Build the capacity of parliaments to exercise accountability with a particular emphasis on financial matters;
• Share information with international parliamentarians about lessons learned and best practices;
• Undertake projects and organize workshops focused on reducing corruption and promoting good governance; and,
• Cooperate with International Financial Institutions (IFI's) and organizations in civil society to build on current information and research that is applicable to parliamentarians.

So, parliamentarians are increasingly involving themselves in the fight against bribery, corruption and money laundering.

We understand the destabilizing influence of bribery and corruption, and the economic costs associated with it. We understand also how the financing of terrorism is a threat to international security. Governments must be held more accountable by parliamentarians and legislate whatever is required, respecting the privacy and human rights of citizens, to stamp out terrorist financing and money laundering.

Parliamentarians can work together with organizations such as NATO to find the solutions to these very difficult problems.

We can also support our governments in their efforts to assist countries like Ukraine to build capacity in local institutions, to develop sound governance models that work, and to assist with legislative solutions, as they are required.

I pledge my support to you in all of these endeavors.

I thank you for the opportunity to participate in this important dialogue and I wish you the best of luck in all of these endeavors.

Thank you.