Major banks assist corrupt regimes

Some of the world’s leading banks facilitate corruption in the poorest countries, charges a new report by Global Witness, an independent watchdog group. The report, “Undue Diligence: How banks do business with corrupt regimes,” shows how by doing business with dubious customers in corrupt, natural resource-rich states,banks are facilitating corruption and state looting, which deny these countries the chance to lift themselves out of poverty and leave them dependent on aid. “The same lax regulation that created the credit crunch has let some of the world’s biggest banks facilitate the looting of natural resource wealth from poor countries,” said Gavin Hayman, Global Witness campaigns director.

The report presents a series of case studies about bank customers in Equatorial Guinea,Republic of Congo, Gabon, Liberia, Angola and Turkmenistan. In these countries, the national resource wealth has or had been captured by an unaccountable few, whether for personal enrichment, to maintain an autocratic personality cult that violated human rights, or to fund devastating wars.

The banks doing business with these customers include Barclays, Citibank, Deutsche Bank, and HSBC. Nearly all of the banks

that are featured in the report are major international banks and all of them make broad claims about their commitments to social responsibility. Yet, according to the report, there is a grotesque mismatch between rhetoric and reality.

Natural resource revenues offer a potential way out of poverty for many developing countries. But too often, resource revenues that could be spent on development are misappropriated or looted by senior government officials, or are used to prop up regimes that oppress their own people. Some of the evidence presented in the report includes the case of Barclays Bank, which kept open an account for Teodorin Obiang, the son of the dictator of oil-rich Equatorial Guinea, long after clear evidence emerged that his family was heavily involved in substantial looting of state oil revenues.

Also mentioned is Citibank, which facilitated the funding of two vicious civil wars in Sierra Leone and Liberia by enabling the warlord Charles Taylor, now on trial for war crimes in The Hague, to loot timber revenues. As evidenced by the current financial crisis, the report argues that when it comes to sticking to the rules, bankers are doing the minimum they can get away with. They aggressively exploit the loopholes and ambiguities in regulations and arbitrage their responsibilities to the lowest level.

This is happening despite a raft of anti-money laundering laws that require banks to do due diligence to identify their customer and turn down illicitly-acquired funds. But the current laws are ambiguous about how far banks must go to identify the real person behind a

series of front companies and trusts. By accepting these dubious customers, banks are assisting those who are using the assets of the state to enrich themselves or brutalise their own people, says the report.

This report comes right before G-20 officials are set to meet on Mar. 14 in London to discuss the financial crisis. The report prescribes essential reforms to the financial regulatory system, which need to be adopted globally, with effective information sharing across borders.