Anti-corruption: The missing ingredient in the G20’s sustainable development push

Corruption sabotages sustainable development. For decades, we have seen corruption drain critical resources from fragile states, impede the response to health crises and undermine social protection spending with severe implications for poverty and inequality levels. As security, social and climate crises mount, so too does the need for new public resources, and the protection of those same funds from corruption.

With Brazil’s G20 presidency nominating sustainable development and inequality reduction as key issues for 2024, Transparency International expected that the G20 would recognise the critical importance of anti-corruption to advancing its priorities and mobilise other leaders to commit to commensurate actions. However, just like in previous years, we see corruption is being given the silo-treatment and pushed to the margins of the G20 agenda. This pattern is sadly familiar, setting the G20 leaders up to once again duck a global systemic challenge which holds back sustainable development and inequality reduction.

In 2016, with the launch of the G20 Action Plan on the 2030 Agenda for Sustainable Development, the G20 explicitly recognised corruption as an obstacle to sustainable development and committed to “add value to existing international efforts to reduce corruption, recover and return stolen assets, enhance transparency and reduce illicit financial flows (SDG 16).”

To this end, the G20 plays a critical role in advancing commitments and actions on financial integrity. The G20’s comparative advantage lies in its ability to coordinate reforms to tackle cross-border corruption and illicit financial flows – especially as many G20 economies are themselves the main destination for stolen funds from low- and middle-income countries. As systemically significant economies, the G20 members have a responsibility to urgently fix the loopholes in their frameworks that allow the cross-border flows of illicit funds which undercut sustainable development.

To give the G20 its due, a ministerial meeting on anti-corruption is scheduled for 24 October, which is an opportunity to push forward the G20’s coordination of financial integrity reforms. There is also the ongoing official-level work of the G20’s anti-corruption working group, where critical financial integrity issues have received some airtime and with which Transparency International has welcomed the chance to engage in 2024.

However, the G20 is ultimately a forum that marches to the drumbeat of its leaders. It is not enough for leaders to simply endorse the output of officials and ministerial meetings. In previous years, leaders’ failure to prioritise anti-corruption efforts eroded the G20’s credibility and undermined its ability to confront global challenges. And then there are roadblocks to G20 coordination on financial integrity that can only be overcome through leaders’ pro-active intervention. If the status quo remains unchanged, where G20 anti-corruption work is simply name-checked at the end of leaders’ communiqués, then any attempt by the G20 to value-add to sustainable development and inclusive growth efforts will be fragile and weak.

To break this cycle of inertia, the G20 must bring its anti-corruption work out of its current silo and elevate it as a critical issue for G20 leader summits and declarations, in 2024 and beyond. This year, lower-order treatment of anti-corruption is already evident in recent G20 ministerial declaration on reducing inequalities and the documents establishing a Global Alliance against Hunger and Poverty – neither of which incorporate language or actions that connect with the G20’s anti-corruption workstream – a missed opportunity given how crucial financial integrity is to these respective agendas.

Transparency International is calling on leaders to do more than recommit to tackling corruption at the end of their communiqué. G20 leaders have been reaffirming their resolve to fight corruption for well over a decade now. Even as far back as their seminal 2009 Pittsburgh Summit, G20 leaders noted the importance of preventing illicit financial flows to protecting resources being mobilised for development. But until leaders take the harm caused by corruption – not least on sustainable development – seriously, then the delivery of meaningful, coordinated financial integrity actions across the G20 will remain elusive.

In thinking about how G20 leaders can effectively promote sustainable development and inequality reduction, it helps to consider how corruption interacts with sustainable development efforts.

Corruption wreaks significant harm upon sustainable development efforts in three key ways: (1) it diverts public expenditure; (2) skews decisions over resource allocation; and (3) it is hugely detrimental to resource mobilisation. In the latter case, revelations from the Panama Papers and the Pandora Papers investigations as well as cases such as the 1MDB scandal show how stolen public resources have moved with too much ease across borders, passing through or ending up in many of the G20 countries.

We know that illicit financial flows drain massive amounts of funds from public budgets, outpacing aid and investment in many countries, while undermining the institutions responsible for combating these abuses. This loss of public funds further undermines just fiscal systems and reduces resources available to governments to provide key public services and social protection programmes. Illicit financial flows are also associated with a consolidation of wealth on a global scale, fuelling greater inequality both within countries and between developing and advanced economies.

Given the variety of ways in which corruption undermines sustainable development, it follows that, beyond mobilising new resources, a comprehensive response should also include stronger governance, transparent and accountable public financial management systems, enhanced financial integrity, strong institutions and oversight mechanisms as well as civil society engagement.

However, within the landscape of multilateral forums, treaties, agencies and mechanisms set up to tackle corruption, it is neither feasible nor sensible for the G20 to duplicate work better suited to other processes and instruments. Instead, the G20 is better off honing in on where it can specifically add value to complementary efforts.

Because of its global influence, diverse membership and capacity to coordinate international efforts through leader-led resolutions, the G20 is particularly well-positioned to tackle cross-border corruption and illicit financial flows – scourges on sustainable development that urgently require a coordinated global response. Significantly, many G20 economies are both primary destinations for illicit financial flows and key players in setting international standards. This gives the G20 not only a comparative advantage but also a responsibility to coordinate financial integrity reforms which close the loopholes that allow illicit financial flows to thrive.

Anonymous companies and trusts have been the go-to vehicle of the corrupt and criminals wishing to conceal their conflicts of interest, political connections and ownership of assets. Yet ten years after launching the G20 High-Level Principles on Beneficial Ownership Transparency, G20 countries have made slow progress, with five members (Australia, Japan, Mexico, Russia and South Korea) still without beneficial ownership registers. Even in countries with these registers, issues such as lack of verification and enforcement continue to undermine transparency.

Beneficial ownership transparency should not stop at corporates, however; the G20 should also establish effective beneficial ownership transparency frameworks for all types of legal entities, trusts, investment funds and categories of assets favoured by the corrupt, including high-value assets such as real estate and luxury goods.

Professionals across G20 jurisdictions are often implicated in enabling the offshoring of wealth and the laundering of illicit funds. For example, the United Kingdom and the United States – along with Switzerland, this year’s guest to the G20’s Financial Track – feature in the top five jurisdictions in Transparency International’s recent review of cases in which professionals operating in the non-financial sector have facilitated illicit financial flows out of Africa. Additionally, none of the G20 members currently have a highly effective regulatory or supervisory regime for gatekeepers, with three G20 members (Australia, China and the United States) receiving a score of zero in the Financial Action Task Force’s (FATF) recent Horizontal Review of Gatekeepers’ Technical Compliance Related to Corruption.

Given the systemic significance of G20 economies to the global financial system, the G20 must go beyond simply recommitting to FATF standards, but instead prescribe specific, targeted measures to address the existing gaps in frameworks and to increase effectiveness of related rules across the G20. This includes the need to mitigate loopholes created by gatekeepers in G20 countries providing services on behalf of foreign clients in third jurisdictions.

Effectively combatting illicit financial flows requires robust cross-border cooperation, yet many investigations into corruption and money laundering are stalled by difficulties in obtaining information from foreign jurisdictions. The G20 must streamline legal processes like Mutual Legal Assistance (MLA) and promote cooperation channels among financial intelligence units (FIUs), law enforcement and anti-corruption bodies. These agencies should also have direct and unfiltered access to company, trust and real estate ownership records.

Especially as the G20 countries look to scale up international tax cooperation, they should increase their efforts to improve cross-border cooperation and intelligence-sharing to prevent, detect and prosecute financial crime – from cross-border corruption to money laundering to tax abuse cases.

As the Rio Summit draws near, Transparency International urges G20 leaders to recognise that anti-corruption is foundational to achieving sustainable development and reducing inequality. Financial integrity measures such as transparency in corporate and asset ownership, the regulation of gatekeepers, and improved cross-border cooperation are all too important to be left on the margins of G20 discussions, but progress in these areas requires more than the G20 leaders’ rubber stamp – it is contingent on their ownership and commitment to champion such reforms.

It is clear that there are divisions among the G20 membership, and Russia's continued membership in particular may present a challenge to advancing critical conversations on anti-corruption and illicit financial flows. The G20 needs to overcome this challenge if it wants to make progress.

Ultimately, though, it is time for G20 leaders to drive forward sustainable development, and to give all countries a fighting chance against inequality through bold and coordinated actions for financial integrity.