24 September 2021

New York & London Lead The Global Financial Centres Index 30 While Asia/Pacific Centres Falter

The 30th edition of the Global Financial Centres Index 30, was published today by Z/Yen Group in partnership with the China Development Institute (CDI). The launch webinar for GFCI 30 linked London and Busan.

New York held onto the top position in the index and has now been in first place for three years.

London remained in second place, while Hong Kong and Singapore in third and fourth position both fell 25 points in the ratings.

Overall the average rating fell 12.9 points (2.05%). While a small change, this is the third consecutive fall in the average rating.

The fact that overall ratings continue to fall against the levels that we saw in 2019 reflects the continuing uncertainty around international trade, the impact of the covid-19 pandemic, and geopolitical and local unrest.

Asia/Pacific centres generally fell in the ratings in GFCI 30, and assessments from people based in Asia/Pacific suggest that they judge Chinese centres in particular less favourably than before. This might suggest that the economic gains in the region arising from covid-19 may be levelling off.

North American centres performed well in GFCI 30. This is likely to reflect renewed optimism about the US and Canadian economies as they move forward from the pandemic.

The relatively strong performance of New York and London suggests that the financial services sectors in these cities managed to sustain their performance despite radical changes in working practices during the last 18 months.

Kigali and Lagos join the index for the first time, recognising the growth of financial services in Africa.

The top 20 centres in GFCI 30 are shown in the table below.

FinTech

New York and Shanghai retained first and second positions in the GFCI 30 FinTech ranking, with London rising two places to third place.

In the top 40 positions, Western European centres performed well, with most gaining rank position.

Professor Michael Mainelli, Executive Chairman of Z/Yen, said:

We see two patterns in the results for GFCI 30 – confidence in the recovery of the North American and Western European economies following the shock of 2020; and a levelling off following the rapid rise of Asia/Pacific centres and their economic stability in the covid-19 pandemic. Competition remains tight. Outside the top two centres, only five points on a 1,000 point scale separate the centres ranked third to eighth.

15 September 2021

Democracy Capture and the Shadow State in Africa

On World Democracy Day, September 15, 2021, the Ghana Center for Democratic Development (CDD-Ghana) and Democracy in Africa (DIA) release two major reports about the capture of supposedly democratic political systems by private networks that work in their own interest, rather than that of the public.

Using evidence from new interviews, data collection and network mapping, a team of 10 researchers will report the extent to which political and economic decisions in African democracies are shaped by individuals or groups that are often unelected and work to subvert the formal institutions of the state to push their own interests and agendas. Together, the reports demonstrate that in many – but not all – African countries some of the most important political and economic decisions are not taken by individuals accountable to citizens, but by networks comprising insiders in the executive, political fixers, the president’s family, judges, businessmen, senior civil servants, military leaders, and international financiers, among others. In a number of cases, these networks traverse national borders, either through deep ties to international companies or through integration into transnational organized criminal networks, so that significant resources are taken out of the country. 

The reports also demonstrate that the extent of democracy capture varies significantly. It is relatively lower or less pronounced in countries such as Ghana, with an experience of multiple transfers of power through competitive elections, and much higher in states such as Zimbabwe where the government has never changed hands. The shape that networks take also varies tremendously and no two shadow states are the same:

In Uganda, the shadow state is run by an axis of President Museveni’s family and the country’s “military aristocracy”, along with a select number of interlocutors in the business community.

In Benin, things look very different, as President Patrice Talon has exploited the weakness of the legal system, the judiciary and the legislature to turn one of the continent’s most vibrant democracies into a near one-party state.

In the DRC, the international military alliances around former President Joseph Kabila played a critical role in creating a shadow state that was intimately connected to transnational smuggling networks.

In Zambia, the security forces have been less relevant and instead democracy capture has been driven by the nexus between civilian politicians, government officials, and private businessmen.

In Zimbabwe, the importance of the military has grown since the early 2000s, penetrating further areas of the state and the economy, raising questions about whether President Emmerson Mnangagwa or army leaders really hold power.

Understanding how democracy is captured is critical because it helps to explain the lack of progress in many countries towards democratic consolidation, how poorly performing governments are able to remain in power, why development programmes often fail to meet the needs of ordinary citizens, and why the gap between the “haves” and “have nots” continues to grow.

Key insights and findings include:

The way that “billionaire judges” in Nigeria make fortunes by taking bribes to exonerate political leaders and criminal organizations, facilitating corruption and creating a culture of impunity that undermines both democratic accountability and the rule of law.

How security officials, bank managers, electoral officials, judges and journalists collude with members of the ruling party to prevent opposition parties from being able to effectively campaign in elections in countries such as Mozambique, Uganda and Zimbabwe, preventing a transfer of power.

The way the police and military in the DRC set up command posts near newly productive mining shaft, not to protect workers but instead to issue unofficial “taxes”, so that some mine operators have to pay 40 regular fees – only 9 of which are official levies of the national government.

How companies with connections to the ruling party and the military in Zimbabwe have used their connections to artificially create a fuel shortage that has enabled them to inflate their prices at the expense of motorists, creating major challenges for businesses and ordinary citizens.

The way that Presidents such as Uganda’s Yoweri Museveni issue tax waivers to their business allies in return for financial contributions to their election campaign “war chest”, denying the Treasury hundreds of millions of dollars in revenue, and reducing the funds available for health and education.

How the partial capture of democracy in Ghana has contributed to the emergence of a distinctive class of super privileged Ghanaians, who have become rich in part due to their privileged access to the state, including governing and opposition party politicians and their cronies in the business sector and leadership of state bureaucratic and parastatal agencies.

According to Professor H. Kwasi Prempeh, Executive Director of CDD-Ghana, “Rather than a government of the people, by the people and for the people, democracy in Africa, including the legitimacy it confers on governments, appears captured to serve interests other than the people’s, thus leaving many people increasingly questioning democracy’s relevance. The future of democracy in Africa depends on our ability to reverse this picture.

On his part, Nic Cheeseman, Professor of Democracy at the University of Birmingham said, “the growth of shadow states – powerful networks of unelected individuals that use their access to the government to pursue their own interests at the expense of the public – represents the most significant political challenge facing African countries today, and is the root cause of the democratic backsliding that we have seen in many states over the last ten years”.

John Githongo, a noted Kenyan anti-corruption campaigner was also of the view that “these reports represent the most comprehensive and insightful analysis of the way that democracy and economic and subverted in Africa available to date. They reveal that shadow states and democracy capture are the root causes of corruption, inequality and development failure.

The countries covered in this project include Benin, the Democratic Republic of Congo, Ghana, Kenya, Mozambique, Nigeria, Uganda, Zambia, and Zimbabwe.

Democracy Capture in Benin, Ghana, Kenya, Mozambique, and Nigeria

The Shadow State in the Democratic Republic of Congo, Uganda, Zambia, and Zimbabwe

13 September 2021

Basel AML Index 2021: Four things holding back the global fight against money laundering

Released today, the 10th annual edition of the Basel AML Index raises grave questions about whether jurisdictions are serious about tackling their money laundering and terrorist financing (ML/TF) risks, and what is holding them back.
The Basel AML Index is an independent annual ranking that assesses ML/TF threats around the world and the capacity of jurisdictions’ anti-money laundering and counter financing of terrorism (AML/CFT) measures to address their risks.

The average global money laundering risk score increased from 5.22 to 5.3 out of 10, as assessed across all 110 jurisdictions in the 2021 Public Edition of the Basel AML Index. Even among jurisdictions whose risk scores improved this year, none managed to improve by even one point out of 10. Half of improvements were 0.3 of a point or less.

What is holding jurisdictions back from effectively tackling their ML/TF risks and avoiding being the weak spot in regional and international financial systems? This year’s Basel AML Index report looks at four areas of AML/CFT policy that urgently need more attention.

1 – A STRONGER RESPONSE TO THREATS FROM VIRTUAL ASSETS

The use of virtual assets such as cryptocurrencies is exploding – for legitimate as well as illicit purposes. This year’s Basel AML Index report analyses data from the Financial Action Task Force (FATF) on how jurisdictions are responding to ML/TF threats related to virtual assets.

The answer: not well at all. Most jurisdictions assessed or re-assessed in the last year have worsened their scores for technical compliance with FATF Recommendation 15 on virtual assets and virtual asset service providers. Average compliance levels have dropped by 10 percentage points globally.

2 – EFFECTIVE PREVENTION, NOT JUST ENFORCEMENT

Previous editions of the Basel AML Index have lamented that many jurisdictions have AML/CFT systems that are mostly compliant with FATF technical recommendations but are ineffective in practice.

This year’s report looks at the distinction between compliance with technical recommendations vs effective implementation. Does the problem prevail for both prevention and enforcement?

The analysis reveals that:
  • once again, jurisdictions score rather badly for effective implementation across the board;
  • the discrepancy between technical compliance and effective implementation is even worse in relation to prevention.
These findings should ring an alarm bell for policy makers. Jurisdictions should invest more resources in the prevention of ML/TF, without reducing resources for enforcement.

3 – BENEFICIAL OWNERSHIP TRANSPARENCY

Beneficial ownership transparency is directly related to the effectiveness of a jurisdiction’s AML systems and the essential role of these systems in preventing, detecting, prosecuting and sanctioning financial crimes.

The Basel AML Index report analyses the implementation of beneficial ownership registers around the world. It shows how slow and ineffective implementation of beneficial ownership transparency measures continues to provide safe havens for dirty money.

This is damaging for individual jurisdictions, but more importantly undermines all global efforts to combat money laundering.

4 – ADDRESSING ML/TF VULNERABILITIES BEYOND THE FINANCIAL SECTOR

The final issue highlighted by the Basel AML Index data analysis is the generally weak application of AML/CFT preventive measures by lawyers, accountants, real estate agents and other designated non-financial businesses and professions non-financial entities (DNFBPs).

This means that there is a significant risk that such businesses and professions remain open to abuse by criminals and corrupt individuals wishing to launder their money. Moreover, there is increasing concern among regulators that:
  • some DNFBPs are advising and assisting criminal clients with hiding and laundering illicit funds;
  • as some high-profile cases have shown, accountants are used as intermediaries to avoid scrutiny.
At a minimum, more supervision over DNFBPs is urgently needed. Certain jurisdictions should also tighten their regulatory framework – and ensure that it is effectively enforced – over selected groups of DNFBPs in line with their risk exposure.

Regional deep dives

For a second year, the report offers profiles of money laundering risks in different regions.

Our regional infographics show how jurisdictions score in relation to each other – and in too many cases let their neighbours down.

Policymakers should analyse their respective jurisdictions’ risks and make plans for serious reform. No jurisdiction is doing well. We call on all jurisdictions to step up their game.

01 September 2021

EIA - The Italian Job: How Myanmar timber is trafficked through Italy to the rest of Europe despite EU laws

Italy has been exposed at the heart of an ongoing trade in illicit timber from Myanmar, in defiance of both EU trade regulations and sanctions imposed in response to the violent military coup earlier this year.

In this report, EIA identifies a total of 27 Italian timber traders importing teak timber products.