Financial deception or complicity with evil ?

5th Annual European Economic Crime Conference

Frankfurt, 19 November 2008

Your Excellencies,
Ladies and Gentlemen,

Bankers are getting a run for their money these days. Their greed, arrogance and deception have shaken people's confidence in their profession and the trust of the institutions that conspired with them to cause the crisis -- hedge and investment funds, insurance companies, rating and audit agencies. During September and October, within about 60 days, the world's financial architecture as constructed in the past 60 years, collapsed. And we are just at the beginning of the drama, as jobs, markets, revenues and production are also being destroyed by the crisis.

Complicity with evil?

Not only have bankers created monstrous financial instruments whose size, complexity and ownership nobody could understand or master. So many of them have engaged in something both stupid and diabolic. They have allowed the world's criminal economy to become part of the global economy. Investment bankers, fund managers, commodity traders and realtors - together with auditors, accountants and lawyers - have assisted syndicates to launder the proceeds from crime and become legitimate partners to business. In most cases the predicated crime was mafia-type: namely, violence against individuals, business and property. In other cases the predicated crime was corruption: namely, a silent yet pernicious violence against national treasuries and against public services that remain unfunded.

Greedy banks have taken in and hidden this blood money. Complex financial instruments have made financial markets deliberately less transparent and more accessible to wrong-doing. Thanks to bankers, accountants and lawyers, criminal groups have become multinational corporations: a sort of mafia borghese, or white collar syndicate. Today, the financial crisis is providing an extraordinary opportunity for even greater mafia penetration of cash-strapped financial houses: with the banking crisis choking lending, these cash-rich criminal groups have emerged as the only sources of credit. Nobody seems to have challenged Roberto Saviano's assertion, made in the book and film Gomorra, that "it is not the Camorra that chooses finance, it is finance that chooses the Camorra".

In other words, Ladies and Gentlemen, the world today is facing more than one type of economic crime, the result of more than one compromise between bankers and their conscience. How can we help?

Global instruments against global threats

We can turn the crisis into an opportunity. Greater rule-based commitment to integrity and greater oversight are not only essential for restoring confidence in the financial sector: they can also curb economic crime. No need to re-invent the wheel, but only to apply the UN anti-Crime conventions (UNCAC and UNTOC).

Take article 12 of the UN Convention against Corruption (UNCAC). It lists what the private sector should do to strengthen integrity:

- Accounting and auditing standards to preserve the foremost public good: trust in the businesses that handle peoples' money. I am appalled at the colossal stupidity of governments that (while preaching competition and free markets) allowed the merging of rating agencies into monopolies that, eventually, cheated the public and colluded with crooked business.
- Codes of conduct for private and public officials, to strengthen integrity, prevent conflicts of interest, and safeguard good practices. This is long overdue, especially in countries where this is a revolving door of officials moving between jobs in the private and public sectors.
- Transparency about the ownership and management of privatized entities: no more shell companies or dodgy tax havens, and no more public money siphoned off into commercial ventures through the inappropriate granting of subsidies and licences (particularly in tendering processes);
- Independent internal auditors are needed to prevent off-the-book accounts, false documentation and the destruction of financial records. Shredding evidence amounts to shredding trust.
- Bribes should not be written off as a tax deduction. I invite more companies, and not only those in the extractive industry, to Publish What They Pay.
- Closer cooperation between business and law enforcement can help report suspicious transactions, especially by politically exposed persons.

To improve the capacity of member states to implement such measures, UNODC and Interpol are establishing an International Anti-Corruption Academy that will open for business (just outside Vienna) next year. Help us launch this timely undertaking.

Money laundering and asset recovery

What about another major type of economic crime: money laundering? Again the UNCAC can help. For example, it imposes the need for measures to Know Your Customer, and to enable information exchange among financial intelligence units to detect suspicious cash transactions across borders.

Most of all, UNCAC calls for domestic supervision of financial institutions. This was ignored in the free-wheeling days of easy money. Now, the world has finally realized the need for oversight. I am glad that the G-20 have made tighter anti-money laundering regulation a priority of their Action Plan.

Is it too late to get back the money that has been stolen? Not really. Thanks to the UN conventions against organized crime and corruption, banking secrecy can no longer be an obstacle to investigating, freezing and confiscating the proceeds of crime. Priority now is to ensure that this sacrosanct principle is respected by all jurisdictions, including the thus-far non-cooperative ones, so as to recover cash stashed offshore, or transformed into boats, planes, villas, and cars.

My Office has teamed up with the World Bank to launch the Stolen Asset Recovery (or StAR) Initiative. The aim is to help States get their money back, and lower the risks of assets being stolen in the future. In its first year, StAR was active in five countries, and others have asked for help. I appreciate the explicit support for StAR from the G-20 in their Washington Declaration.

New frontiers in economic crime, yet uncontrolled

Ladies and Gentlemen, allow me to refer to another, and newer economic threat - identity-related crime. It is invading our privacy and stealing information about our health (biometrics and DNA profiles), wealth (bank accounts, cards, credit risk) and business (forgery and counterfeiting).

For owners, whether individuals, corporations or communities, identity information is the result of long-term investments that require, and deserve, protection. For third parties these assets have a market value, and therefore are the possible target of malicious acts. In the wrong hands, this information can be used to commit fraud and forgery, enable illicit transactions, launder money, tamper with public safety, even perpetrate terrorist acts. This is a growing problem in our increasingly globalized and computerized societies.

Are we ready to face it? I do not believe so. In order to cut the supply of data obtained through theft, forgery, hacking, or skimming financial transactions, we need to work with the public, media, unions and businesses. The public needs to be prompted to increase vigilance when making financial transactions, or using the internet. Partnership between business and trade unions can reduce the threat to incomes and jobs, stemming from forgery and counterfeiting. Governments have a vested interest in protecting their budgets from losses incurred by illegally obtained social benefits or procurement contracts.

Multilateral institutions can help even more. They can promote agreements that shield the public against misuse of the internet, while protecting what has become humanity's most powerful means of communication, trade and investmement. Especially urgent are measures to avoid large-scale cyber-attacks (and we have witnessed a few, recently) that paralyze government administrations and economic sectors. This point is essential: because of the trans-national nature of ID-related crime, and especially of cyber- crime, if we don't tackle the problem everywhere, we won't solve it anywhere. Therefore, we need multilateral understanding and common oversight to avoid, in the years to come, a cyber-equivalent of the current financial crisis.

G-20 leaders have called for greater surveillance of cross-border firms. In this spirit, I suggest that we review whether current international agreements on identity-related crime are fit for purpose, and see how we can build on existing instruments like the UN-TOC Convention, and on regional arrangements on cybercrime. The current regulatory vacuum is being exploited by criminals (and terrorists) at great costs to companies, individuals, and to public security.

Stop the rot

Ladies and gentlemen, the financial crisis is the result of greed -- and the resulting willingness to compromise with evil. Improved safeguards and stronger oversight of the commercial, financial and cyber-markets, will protect legitimate business and reduce crime - whether perpetrated with a Kalashnikov, a computer keyboard, or a toxic financial instrument. It's an opportunity we cannot miss.

Thank you for the invitation to address this conference and I appreciate your attention.