The trillion dollar question: the IMF and anti-corruption one year on

New research from the International Monetary Fund (IMF) shows that curbing corruption would deliver an additional US$1 trillion in tax revenues annually across the world, money that could support much needed investments in health, education and infrastructure.

It is no wonder then, that, at the time of fears of trade wars, threats of new economic shocks and warnings of a global economic slowdown, at its annual Spring Meetings the IMF has again signalled a clear ambition to take a lead on tackling corruption.

This is evident through the public commitments it made at the 2016 UK Anti-Corruption Summit and during the High Level Segment of the 2018 International Anti-Corruption Conference (IACC), as well as launching a new framework for “enhanced” engagement with countries on governance and corruption issues after receiving input from civil society.

The Fund committed to dealing with corruption “systematically, effectively, candidly, and in a manner that respects uniformity of treatment” in its reviews of member countries - a vital mechanism for identifying and addressing corruption.

In turn, we at Transparency International committed to check how the IMF is progressing one year later. A key concern for us was ensuring meaningful engagement with civil society and consistent input from civil society anti-corruption experts.

Although the IMF is increasingly including corruption aspects in various streams of its work, for this initial assessment we focused specifically on the yearly reviews the IMF produces for each of its member countries – so-called “Article IV” assessments (available here). We looked at 60 of the reports published since the announcement of the new enhanced anti-corruption framework and compared them to the most recent previous report available for each country.

The IMF is undoubtedly being more outspoken about the issue. Mentions of 15 key terms like “(anti) corruption” “money laundering” and “bribery” have more than doubled across the 60 country reports. Mentions of the term “corruption” increased by over 220 per cent.

At the same time, references to corruption are unevenly distributed across countries. While country reports for South Africa, Malaysia or Brazil have forty or more mentions of corruption, others like Portugal, Singapore and Malta have none.

It is not enough to just mention corruption. What we would like to see is the IMF also making specific, actionable, and time-bound recommendations to tackle corruption. To analyse this, we took a closer look at the 10 reports with the most mentions of corruption and related terms.

The results show that where it does address corruption, the IMF is capable of delivering very concrete anti-corruption recommendations.

In its Malaysia report, for example, the IMF says: “…efforts to strengthen the asset declaration system should be stepped up, in particular expanding the coverage of high-level officials and improving mechanisms for verification, sanctions and public access.” For Peru, the IMF also makes detailed recommendations, including: “creating a beneficial ownership registry; and ensuring customer due diligence for politically exposed persons.”

Even though we would like to see these recommendations being time-bound more often, this is a very encouraging finding as it suggests that, if this approach is extended to more countries, over time the IMF may become a critical source of pressure for reform at the national level.

However, in our experience, recommendations from international bodies alone are rarely sufficient to lead to actual change. Sustained civil society engagement to hold governments accountable is also essential. Unfortunately, openness to civil society continues to be the weakest area in the IMF’s country reports.

To understand why this matters, let’s turn to the IMF report on Malta.

Published in February 2019, the report includes numerous mentions of anti-money laundering, but none of corruption.

This omission is quite remarkable considering the number of sources pointing to serious reasons for concern. A European Commission report also published in February 2019, includes over 20 references to corruption in Malta, including “no significant steps have been taken to strengthen enforcement of the anti-corruption framework”. A detailed second report on Malta in April 2019, this time by the Council of Europe (GRECO), goes even further, noting an “unprecedented wave of controversies concerning the integrity of senior government officials up to the highest level”.

If this wasn’t alarming enough, last year Transparency International and Global Witness highlighted risks in Malta’s Golden Visa (residency and citizenship by investment) scheme. The Daphne Project, a coalition of investigative journalists working to complete investigations begun by the late Maltese journalist Daphne Caruana Galizia, who was murdered by a car bomb in 2017, has found multiple cases of suspicious high-level deals.

Anti-corruption experts in civil society, both in Malta and beyond, could have pointed the IMF review team in the direction of these recent and ongoing reports.

This is just one instance of how civil society can contribute to IMF country reviews. But we can also help the IMF analyze institutional weaknesses and make specific recommendations for reform. Once the IMF’s findings are public, civil society can hold national authorities to account.

When the IMF Spring Meetings convene again next year, there are two additional things we would like to see clear progress on. First, greater clarity is needed on how and when the IMF assesses corruption to be “macro-critical”; in other words, how it determines whether corruption is at a level that may have a negative effect on the economy. And second, explicit recognition of cases where money-laundering failures in one country can have a negative spillover effect on others. A primary candidate for this type of analysis in 2019 would seem to be Denmark.

While recognising and welcoming the significant progress already made, we will continue to push for greater openness towards civil society input to IMF assessments. Only by working collaboratively can we address corruption and return that US$1 trillion to the public purse.

We would like to thank Erik Post and Michael Montafi for excellent background research contributing to this feature.