Towards a Corruption-free Caribbean: Ethics, Values, and Morality
An address by Dr. Ngozi Okonjo-Iweala at the University College of the Cayman Islands' conference.
THE issue of corruption is never an easy subject to talk about, let alone to tackle, but this conference on ridding the Caribbean of corruption is yet another testament that this "little university that could" is indeed making giant strides towards the development of the Caribbean region.
Corruption's debilitating effects are felt across the globe, contributing to poverty and hampering overall economic development, particularly in developing nations and perhaps, to a lesser extent, in more advanced economies. My country, Nigeria, has also suffered heavily over decades from the ills of corrupt practices, and I'm going to share with you some of our experiences and lessons that we learnt.
There are a number of ways through which corruption rears its ugly head in our world today, including:
Transfer pricing and international tax evasion, which occurs mainly through exports over-invoicing, and the circumvention of capital controls and taxes by global companies. Please note that I am not talking about legal tax deductions or taking advantage of loopholes allowed by law in various countries including here in the Caribbean. We may not like them, but several countries' tax systems do contain loopholes that are perfectly legal and companies and individuals take advantage of them.
I am talking of illegal activities by companies. We often forget that corruption is not peculiar to the public sector as is often misconceived but is also common to the private sector. Many large companies are guilty of transfer pricing and tax evasion. In fact, it is the single biggest form of illicit money flows from developing nations to developed ones, representing between 60 and 65 per cent of total flows, according to the Washington-based think tank Global Financial Integrity (GFI).
We have bribery and theft, which occurs when public servants demand payment under the table for rendering a service, and when a country or a state's budgetary resources are illegally diverted through inflated contracts that are siphoned off abroad or at home by policy makers, politicians and civil servants -- paraphrased in Nigeria as "evil servants".
According to the OECD, more than US$1 trillion is paid each year in bribes to public officials in both developed and advanced countries in exchange for advantages in international business. These are large numbers indeed.
There is the corrupt theft of natural resources, which occurs when a country's mineral and oil wealth is brazenly stolen and illegally sold for gain, and this has been rampant in sub-Sahara Africa. I'm sure you all know about the blood diamonds from Sierra Leone, which have cost the country significant amounts of resources.
In Nigeria, for example, we have been experiencing significant revenue shortfalls and this is as a result of oil theft and pipeline vandalism. We are losing about 100,000 barrels of oil per day to theft from onshore and swamp operations alone. When the pipelines are vandalised and the oil stolen, it leads to complete shutdown of entire pipelines with a total loss of output of 300,000 - 400,000 barrels per day. If you do the math it adds up to $12 billion of lost revenues for us last year.
This theft of oil resources is carried on with the collusion of corrupt individuals and criminals both inside and outside the country. The crude oil is siphoned off to refineries in Africa, Europe, and as far away as the Americas, and here in the Caribbean.
And lastly, we have the proceeds of drugs and narcotics trade, counterfeiting, racketeering, contraband, and other forms of crime, which account for about a third of global illicit flows.
All in all, the cross-border flow of the global proceeds from criminal activities, corruption, and tax evasion is estimated at between US$1 trillion and US$1.6 trillion annually, according to GFI. Developing countries lost $946 billion in illicit financial flows in 2011 alone, representing roughly 10 times the amount of official development assistance flowing in from advanced countries to support struggling economies.
Total outflows over a decade from 2002 to 2011 amounted to about US$5.9 trillion. A recent EU report puts the cost of corruption in the EU at about 120 billion euros annually. In sub-Sahara Africa, the resource drain over the past 30 years is almost equivalent to the region's current GDP of about $1.5 trillion, so one can imagine how corrupt practices constitute a major drag on the continent's development.
In fact, African finance ministers have been so concerned at this drain that we set up a high-level panel chaired by former South African President Thabo Mbeki to help us look at these illicit flows and how to curb them, judging that as a continent, if we can harness such flows, countries may not need aid. We have, in fact, listed such flows as part of innovative financing and are requesting help from Europe, the US, the Middle East, the Caribbean and other jurisdictions to repatriate these resources.
We also recognise that charity begins at home, and it is primarily up to us Africans to take action and place laws to curb such practices.
Let me now turn to the case of my country. For those of you who may not know, Nigeria is one of the most interesting countries to work in the world today. It is large, with 170 million people and 370 languages. The economy is largely driven by oil, but is increasingly diversifying and doing relatively well. It has been growing at seven per cent over the past decade -- one of the 10 fastest-growing in the world.
Our fiscal deficit is 1.9 per cent of GDP, and debt-to-GDP ratio is 21 per cent, inflation eight per cent, the exchange rate is stable and we have reserves of $40 billion. Nigeria is regarded as one of the new frontier nations, MINT, yet the country has, over the years, been plagued by the ills of corruption, which has cost Nigeria a lot over the years.
Estimates vary, but figures of over $300 billion in the past three to four decades are often talked about, much of it lost during the decades of military dictatorships and stolen from our oil wealth. I can give you examples of bribery and corruption debilitating to our development, some of which I have written about in my recent book Reforming the Unreformable: Lessons from Nigeria.
You must have heard of the recent seizures and freeze by the US Government of $458 million in Abacha assets. Over the five years of General Abacha's rule, from 1993 to 1998, an estimated $3 billion - $5 billion of Nigeria's public assets were looted and sent abroad by Abacha, his family, and his associates.
To put things in perspective, this is more than the entire GDP of the Cayman Islands, and several other Caribbean islands.
Looked at from another perspective, this is money that could provide anti-retroviral therapy for two to three million people infected with HIV/AIDS over a 10-year period, or supply insecticide-treated bed nets for over 200 million pregnant women and children, using unit cost estimates provided by the World Bank.
Such is the gravity of a dictator's corrupt acts which continue to unravel until today. The money was siphoned off through a series of shell companies and perfectly legitimate and well-known banks and about $20 million was traced to banks in the Cayman Islands.
We've also had a number of corruption cases in which foreign companies paid bribes running into millions of dollars to Nigerian officials to facilitate the award of government contracts. And the cost of this is inflated contracts and contract terms that are not in the country's best interest.
A World Bank Country Assessment of Nigeria's entire procurement system carried out in 1999 revealed that out of every dollar spent by the Government at that time, 60 cents was lost to corrupt practices. Such was our predicament and we had to take strong action to curb it.
More recently, we've faced a number of serious challenges. Our oil subsidy programme was fraught with corrupt practices. Several oil marketers overstated subsidy claims for importing refined petroleum products, while others presented outright bogus claims. By the time I came back to Government in 2011, our subsidy bill had risen from around $1.6 billion in 2006 when I left, to about $16 billion, which is nearly half of the Federal Government's budget.
Claims were made on about 60 million litres allegedly imported into the country per day, when actual daily consumption was far less than this. The number of fuel importers had increased from five in 2006, to about 140 by 2011 -- though many of them existed only on paper.
We also had problems with our fertiliser subsidy regime, where much of government-procured fertilisers, meant to be distributed to farmers at subsidised rates, were diverted and sold off in black markets, such that only 11 per cent of registered farmers actually received any fertilisers.
Our public service was plagued with several non-existent or "ghost" workers as we call them, and these were a huge drain on our resources with 46,000 ghosts identified so far in our clean-up of a public service of about one million. Senior civil servants included fictitious names on the government's payroll so that they could pocket the salaries and allowances of these non-existent individuals at the end of each month.
We even had ghost pensioners, who are ghost workers that retire and started to collect pensions. We have also experienced massive embezzlement of funds by officials managing public pensions, with hundreds of millions of dollars diverted into the private accounts of some government officials. And in the last two months, you may have heard that monies running into several billions of dollars may be unaccounted for by the national oil company -- the NNPC -- and corruption has been implied, though we will carry out a forensic audit of the accounts to ascertain this.
I've given you these examples from Nigeria to show that I'm coming from a tough place, a place that has suffered and still suffers heavily from corruption. But the key question is, what have we done about it? How have we tried to tackle such corruption and what institutions have we built to deal with it? The first step to fighting corruption is to recognise and acknowledge that it exists, and root it out.
Sweeping corruption under the table, refusing to have a conversation about it only allows it to fester like a sore wound that can then totally destroy. It is so sad that the international media today focus attention only on reporting instances of corruption, but the story of the fight against it, successful or unsuccessful, is often not told. Yet, there are important lessons to be learnt.
In Nigeria, our fight against corruption took off right after the return to democracy in 1999. On the realisation of the huge drain on resources corruption had become, our then president created two key institutions: the Independent Corrupt Practices Commission, set up in September 2000 to investigate and prosecute offenders in cases of corruption in public life: and the Economic and Financial Crimes Commission in April 2003, to investigate financial crimes in the public and private sectors.
These two organisations investigated several high-profile cases of corruption, and a number of Government officials, including an inspector general of police -- the head of the nation's police force -- state governors, ministers, and permanent secretaries, were brought to book in the early to mid-2000s.
For the first time, the Government was able to show serious and visible commitment to anti-corruption practices in public and private service. Some felt that these institutions were being used politically to witch-hunt enemies and, of course, such political interference is not good.
On the other hand, corruption, wherever found, is corruption, and deserves to be rooted out. Nevertheless, it's important that such institutions are free and seen to be free from political interference. A good example of this is the Ombudsman process in South Africa.
With strong political will and significant international pressure, we went after monies looted from the Nigerian treasury by Abacha and associates, much of which had been stashed away in secret bank accounts in the UK, Switzerland, Luxembourg, Liechtenstein, The Bahamas, and in the Cayman Islands, amongst others. It's been a hard fight of over 15 years using expert lawyers from Switzerland. And we are still at it.
We have had some support from the World Bank's Stolen Assets Recovery programme. The Swiss Government repatriated over $500 million of these monies in 2005 and 2006, when I was first finance minister, which were reinvested into power, health, education, roads, and water projects across the country. But estimates of our recoveries have risen to $2.5 billion now within Nigeria and from various countries, and I'm sure of another $1 billion or so frozen by the USA in various jurisdictions, and also held in Luxembourg, and Liechtenstein.
We are making efforts to recover these now. Despite the adherence to various international conventions, such as UNCAC, different countries and jurisdictions have made it extremely difficult to recover these monies, but we'll never give up.
On this problem of inflated contracts, we instituted a process of reviewing government contracts, together with new requirements for local and international competitive bidding for contracts, with a view to stemming the common practice of inflating government contracts. This review process, now popularly known as "due process", was carried out by a unit called the Budget Monitoring and Price Intelligence Unit, which was later institutionalised by the passing of the Public Procurement Act to become the Bureau of Public Procurement.
As at the end of 2012, total savings through the bureau's intervention was estimated at $2.5 billion of public resources that would have gone out under the table if not for this institution and its processes.
Regarding fertiliser subsidy fraud, we introduced a new system called the Growth Enhancement Support programme that enables private suppliers of fertilisers to sell directly to farmers through electronic vouchers or an E-Wallet system. Farmers get vouchers texted on their mobile phones. They go to private input dealers in their villages and these dealers get paid by the banks.
This new approach, now institutionalised, has saved the Government about $150 million a year in fraud, while also increasing access to fertilisers for farmers from 11 per cent under the old regime to about 70 per cent of registered farmers now.
On the petroleum subsidy payment regime, we started our reform process through the tough decision to reduce petroleum subsidy by nearly half. Many of you may have seen the heated demonstrations in January 2012. It was tough, but by rolling subsidies back we saved about US$6 billion a year that we put into development programmes.
Then we put in place a new verification process for petroleum imports which cut down recorded consumption from 60 million litres per day to about 40 million litres, and also pruned down the number of oil marketers from over 140 to about 48. These new processes are now institutionalised and have become the practice, thus helping us root out corruption among private oil marketers.
The big problem remains with our state oil company where deep reforms are needed to deal with the kind of mission or unaccounted for monies that have been topical recently. We have an instrument to handle this through the passage of the Petroleum Industry Bill, already in Parliament, which would commercialise and render more transparent the activities of the national oil company.
On pensions and ghost workers, we built institutions and introduced the use of technology through biometrics to enable us to curb fraud and corruption in these systems, and this has saved about $800 million from the weeding out of 46,000 ghost workers and pensioners. A point I want to stress in all this is that as we have fought corruption we have also built institutions and systems. I strongly believe that corruption thrives where institutions, systems and processes are absent, weak, or misapplied.
In addition, we have endeavoured to introduce as much transparency as we can in the way we do business. We publish the monthly revenue allocations of each tier of government -- local, state, and federal -- so that citizens can tell how much their government officials get to run services. This has led citizens to ask more questions of their local and state governments about service delivery.
We publish our budget in great detail and I believe Nigeria may be one of the few countries where citizens can question how much is budgeted for feeding the first family and their guests, and how much is slated to buy forks and knives in the State House.
Lastly, on the international front, we have fought successfully -- twice in 2004-2005, and in 2013 -- to clear our name with the Financial Action Task Force and we have now institutionalised our processes and systems locally with regard to our AML/CFT regimes so as to avoid inclusion on the FATF blacklist again.
It is important to note that the nature of corruption varies across countries -- and this variation is simply rooted in economies and institutions. On the one hand, resource-rich countries like Nigeria may be on the supply side of flows from corrupt practices, with billions of dollars flowing illicitly abroad because our institutions, rules, and regulations to deal with such situations are weak. Other countries, on the other hand, are on the demand side of these flows either because they promote a safe, secure haven with few questions asked or because they are seen as super attractive and secure for licit and illicit investment.
Several Caribbean countries seem to be on the demand side of cross-border flows. Analysis from the Boston Consulting Group shows that outside of Europe, the Caribbean is the largest offshore financial centre in the world, with offshore wealth amounting to nearly US$1 trillion in 2009, equivalent to 12 per cent global offshore wealth at the time.
The Cayman Islands is an example of one of the world's leading offshore financial centres, or tax-neutral jurisdictions in the Caribbean as you prefer to put it, dominating the global market for investment and hedge funds. The IMF estimates that nearly three-quarters of flows to Caribbean offshore centres find a home here in the Cayman Islands, while the remaining quarter goes to Barbados, Bermuda, Belize, The Bahamas, and the Netherland Antilles.
I know that much of the development of the financial industry in the region is due to the commendable efforts of the various governments at combating corruption and improving transparency. I know that the OAS Inter-American Convention against Corruption, which is the first international convention to address the issue of corruption, has long been ratified by several Caribbean countries, and the mechanism for follow-up on the implementation of the Inter-American Convention against Corruption has recorded significant progress in many of these countries, regardless of some implementation challenges.
I also know that the Caribbean Financial Action Task Force, which is an agreement by 29 states and territories of the Caribbean Basin to implement common counter-measures against money laundering and terrorism financing is also very active, having recently called for actions against Guyana and Belize for deficiencies in their Anti-Money Laundering and Combating Financing of Terrorism regimes.
Here in the Cayman Islands, the Anti-Corruption Law, which came into effect in 2010, has brought the island in line with international obligations under the OECD Convention and UNCAC. I know that last year the OECD lauded the Cayman Islands for its robust and transparent legal and regulatory regime.
The Cayman Islands is also taking steps to stem tax evasion by adopting new rules and regulations to reduce secrecy, such as the 2013 Tax Evasion Pact with the US, which requires it to tell the US Internal Revenue Service about Americans' offshore accounts worth more than $50,000.
But whilst most of the flows to the Caribbean's financial industry may be licit, the perception internationally is that the region is also home to a significant number of illicit flows and proceeds of corrupt practices. In its just released '2014 International Narcotics Control Strategy Report', the US State Department named several Caribbean countries, including the Cayman Islands, as major money laundering states whose financial institutions engage in laundering the proceeds from international narcotics trafficking.
According to another report by the United Nations Office of Drug Control, net inflow of cocaine-related funds into the Caribbean would amount to some US$6 billion, equivalent to 2.3 per cent of the region's GDP.
So in other words, this model of an offshore financial centre which has built a wealthy services economy for many Caribbean islands, including the Cayman Islands, has also brought a certain amount of unfavourable perception internationally and in some cases outright disrepute. This has happened because the world has changed considerably as a result of terrorism and financial crises.
Terrorist financing has brought a great deal of scrutiny of offshore financial centres, while the traumatic events of the recent financial crises and the attendant economic recession of most developed countries have had the same impact.
So in light of these, I guess the question before the offshore financial centres now is, what next? How do their economies evolve in future? How do they transact legitimate financial business whilst curbing illicit and corrupt financial flows? How best to identify the latter when it can come in many guises? These are existential questions I know you ask yourselves every day, and to which I also know you have to find answers.
The efforts at fighting corruption in the Caribbean as elsewhere, have to be relentless. "Know-your-customer" rules must become the bedrock of our business. We in African countries in particular will stand to benefit from these disclosures and demand side measures.
But this is not enough as we have found with rules and regulations in Nigeria. There is still a second question revolving around values, ethics, and morals that is much more difficult to resolve. And resolving this question of what is moral or not greatly facilitates our individual and collective abilities as communities to fight corruption.
Morality is about rationally right ways of behaving in society. As far as the distinction between good and evil, right or wrong is concerned, corruption is morally wrong. But this again depends on our values. Corruption breeds in a value system that elevates gain, whether material or non-material, above all. It destroys integrity and character.
Gone are the days when an individual's selflessness, courage, integrity, and moral uprightness are appreciated and rewarded. Nowadays, particularly in my country, more value is placed on the size of the pocket than on the size of the intellect or character, and this is why corruption persists.
Here in the Caribbean, you have to ask yourselves whether it is morally right to harbour the proceeds of corrupt acts or even crime. You need to ask what sort of a value system underpins this type of business and how can it change? You need to ask yourself whether you are even having the right kind of conversation about values, morals and issues such as corruption. Or is it all swept under the carpet as not fit for polite company?
How about your education system? And this does not only refer to formal education but also education at home by parents. Getting your value systems right, teaching ethics and morals to the younger generation is vital.
Aristotle, the Greek philosopher, once said that "good habits formed at youth make all the difference". While CS Lewis, the famous Irish writer, once said, "Education without values, as useful as it is, seems rather to make man a more clever evil". So you can send your child to the best school in the world, and he or she will still turn out a thief, an armed robber, or a drug peddler, if he or she lacks the right value system. At home, parents must take out time to educate their children on values.
Second, we must also consider the contribution of religion, which has historically proven to be one of the most powerful forces in promoting cultural change and ethical reform. In all my time, I'm yet to come across a faith that promotes corruption. Most faiths speak against the love or worship of money or materialism, which is the basis for corruption, while embracing ideals of true prosperity such as peace, co-operation, altruism, and dignity.
Religion contributes to the moral consciousness of the society. Professor of Theology Eddie Gibbs once wrote: "If we stopped to think the words we sing in our devotional hymns, we would choke on our insincerity. We either change our hymns or change our ways."
However, we need to look closely at how religion is used in the war against corruption because in our world today, religion is strong, but as I observe it, there is not religiosity.
So, distinguished ladies and gentlemen, to sum up, I don't know if we will ever have a corruption-free world either in Nigeria or in the Caribbean, but I can tell you that a combination of real-life tools coupled with enduring and supportive value systems can make a huge difference. Where there is political will, brave men and women willing to fight, a drive to build institutions and apply them properly, corruption can be fought. This must be coupled with strong incentives and disincentives to underpin behaviour.
For you in the Caribbean, and the Cayman Islands in particular, efforts to fight corruption and stem the demand for illicit flows may also scare away some legitimate businesses. But you have to take the chance to get it right.
As Christopher Columbus said: "You can never cross an ocean unless you have the courage to lose sight of the shore." I'm pretty confident that in the long term, the fight against corruption will be worth the effort for you here in the Caribbean and for us in Nigeria.
- Dr Ngozi Okonjo-Iweala is co-ordinating minister for the economy and minister of finance of the Federal Republic of Nigeria.
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