The new IMF anti-corruption framework: 3 things we’ll be looking for a year from now

Last Sunday, the International Monetary Fund (IMF) unveiled its long-awaited framework for “enhanced” engagement with countries on corruption and governance issues.

The new document is a major step forward for the IMF in terms of both language and ambitions, for example including references to the links between corruption, inequality and the loss of trust of citizens. The Fund has also been commendably open in its process of self-reflection leading up to this point, for example questioning its own use of euphemisms such as “need for a level playing field” when addressing corruption issues.

The stated purpose of the new enhanced framework is to ensure that corruption issues are dealt with “systematically, effectively, candidly, and in a manner that respects uniformity of treatment.” This will apply to the IMF’s yearly reviews of its member countries, and also to the conditions which come with IMF lending programs. If properly implemented this new framework could mean a significant shift in the IMF’s engagement with anti-corruption.

That being said, some of the fundamental constraints of the IMF in this area remain in place. As IMF staff have made clear during discussions with civil society organizations, its primary mandate is macroeconomic stability, and it can only address corruption risks when they are severe enough to have a potential impact on the economy. The IMF will continue to avoid interfering in individual enforcement cases, and will not use its findings to publish rankings of its member countries.

Here are three aspects we at Transparency International will be looking at closely in coming months as the new policy is rolled out:

The new framework commits the IMF to a basic assessment of corruption and governance risks in all its member countries. Where it finds these to be severe (‘macro-economically critical’ in IMF speak), it will apply a more in-depth assessment and issue policy recommendations.

From an anti-corruption perspective, a summary of the basic IMF assessment in each country report would be a highly valuable resource, including in cases where they consider corruption risks as not severe.

For example:

“While country X’s corruption and governance risks were not found to be macro-economically critical, a number of significant risks and vulnerabilities in its anti-corruption institutional framework remain.

The rapid influx of overseas investment into the real estate market represents a major risk factor. Vulnerabilities include widespread exemptions to public procurement processes and the lack of resources available to the Financial Intelligence Unit.

Staff urges authorities to proactively address these issues as part of a comprehensive anti-corruption strategy.”

Featuring a brief standard section like the one above in a 70+ page country report would not dramatically alter the mandate of the IMF. At the same time, it would provide much-needed support to actors in the country advocating to address the issues, both within government and from civil society.

It would also signal to corrupt networks that the Fund is watching, both for anti-corruption progress as well as decline, while providing a basic public record over time of Fund engagement in each country. Lastly, being more candid about corruption risks and vulnerabilities with citizens, not just with authorities behind closed doors, may also help to restore public trust.

As the IMF paper recognises, corruption in one country is often facilitated by weaknesses in the anti-money laundering frameworks of another; what the IMF calls “spillovers”. In 2014, for example, Scottish shell companies played a key part in a $1billion raid on Moldovan banks involving corrupt judges and officials. It cost Moldova around an eighth of its annual GDP, almost bankrupting the economy.

In recent assessments, the Fund has not consistently addressed these types of spillover risk. For example, its latest report on Australia makes not a single mention of corruption, bribery or money laundering, despite widespread concerns about gaps in Australia’s anti-money laundering system –gaps with the potential to have a significant impact on the economies of other countries.

The new policy urges IMF members to volunteer to be assessed, irrespective of whether they themselves are experiencing “severe” corruption. On the same day as the paper was launched, the IMF announced that the G7 members plus Austria and the Czech Republic had already volunteered.

How successful will the IMF be in getting more countries to sign up? Will the remaining G20 members go next, for example?

At the high-level panel which accompanied the launch of the new framework, all participants including IMF director Christine Lagarde stressed the crucial role civil society is playing in fighting corruption.

Under the new policy, IMF staff will be tasked with assessing the quality of the legal and institutional framework that is charged with combatting corruption. This is not an area that can easily be tackled during a country visit, nor in which government self-assessments tend to be reliable.

Where there are concerns about issues such as discretionary public spending or anti-money laundering bodies lacking coordination and effectiveness, among many others, anti-corruption NGOs can provide up-to-date, evidence-based input regarding institutional vulnerabilities.

There are also precedents from other international institutions for this type of engagement. The OECD encourages civil society participation in its anti-corruption monitoring. The Financial Action Task Force (FATF), the global anti-money laundering body, has also included civil society input as part of its country visit procedures.

Over the last 20 years, governments and international institutions have made large numbers of anti-corruption commitments. Increasingly, the work of anti-corruption campaigners is focused on the essential (if sometimes boring) work of publicly tracking whether those promises are being put in place.

At Transparency International, we are already marking our calendars for 2019: what will the IMF have to show for the 1-year anniversary of its new anti-corruption policy?