Fighting Corruption After the Arab Spring

5CommentsJoin

Sign-up for free weekly updates from ForeignAffairs.com.

From Tunisia to Yemen, the corruption of Middle Eastern regimes has played a significant role in motivating the Arab Spring. Former Tunisian President Zine el-Abidine Ben Ali and his family now face trial in absentia for, among other crimes, money laundering and drug trafficking. Meanwhile, Egyptian courts have charged former President Hosni Mubarak with corruption and sentenced in absentia his former finance minister, Youssef Boutros-Ghali, to 30 years in prison on charges of corruption and embezzlement of public money. Frustration with cronyism and corruption is a key grievance of those protesting in the streets in Libya, Syria, and Yemen as well.

These corrupt leaders have managed to stash much of their collected wealth abroad, despite international obligations designed to prevent such looting. The Arab Spring has thus highlighted the inadequacy of current international efforts against corruption.

If global leaders are serious about strengthening anticorruption efforts in response to the Arab Spring, they should build on recent improvements in an unlikely place: Switzerland. Switzerland recently changed its law about returning corrupt funds and has led much of the international community in freezing the assets of certain deposed leaders, including Ben Ali, Mubarak, and former Ivory Coast President Laurent Gbagbo. Switzerland took these actions at least in part because it feared that its reputation as a haven for illicit assets could harm its ability to attract legitimate business. The United States and its allies should capitalize on such reputational sensitivities by promoting mutually enforced anticorruption standards and exposing those countries that fail to cooperate. This is the most promising path to inducing countries to prevent corruption and to excluding the proceeds of corruption from the global financial system.

Swiss banks became known as a top choice for corrupt dictators by holding the multi-million dollar accounts of, among others, former Nigerian ruler Sani Abacha, former Filipino President Ferdinand Marcos, and former Haitian strongman Jean-Claude Duvalier. Thus, it may come as a surprise that last October, Switzerland adopted what is arguably the world’s toughest law for repatriating the ill-gotten gains of corrupt politicians to the people of those countries, allowing the country to return potentially corrupt assets more easily.

Returning the fruits of corruption to their country of origin is a difficult undertaking. In the first place, the process of tracing and repatriation does not begin unless and until the corrupt regime is removed from power (obviously, a ruling regime depositing the money is highly unlikely to request such an investigation). Even when assets are located, legal obstacles often complicate repatriation. The new leadership in the country of origin may not be sufficiently independent of the old regime to pursue the matter, or may be unable to provide adequate proof that the assets in question were illicitly derived. As a result, only a relatively small amount of money has actually been returned to countries of origin. The World Bank estimates that corrupt regimes steal $20–$40 billion from developing countries each year; only $5 billion has been returned to those countries over the past 15 years.

The new Swiss law, known as the Restitution of Illicit Assets Act, took effect in February and addresses some of these problems by giving the Swiss government more freedom of action to repatriate questionable funds. For example, the new law shifts the burden of proof -- the countries of origin are not required to prove the illicit nature of the funds. In situations where the wealth of a politician in question has increased dramatically during his reign and corruption is endemic in his country, the new law requires the politician to prove that he earned his wealth legitimately. Beyond improving the likelihood of restitution in specific cases, this law might persuade corrupt politicians to place their illicit assets elsewhere.

Switzerland hopes that its strengthened restitution law will do just that. The Swiss Foreign Ministry Web site states that “it is in Switzerland’s fundamental interest to ensure that the assets of politically exposed persons obtained by unlawful means shall not be invested in the Swiss financial center.” This, the Ministry explains, is because “competition between financial centers is global. In long term, it is a financial center’s reputation and credibility that are the most important criteria with respect to competitors.”

Like other nations, Switzerland undoubtedly realizes that a reputation for shielding corrupt assets can discourage legitimate investors, who may be deterred by the lack of transparency or by the prospect of being stigmatized by placing their money in a known destination for corrupt funds. Investors may also fear that a jurisdiction’s poor reputation may attract greater regulatory and law-enforcement scrutiny. A suspect reputation may also complicate the ability of a country’s financial institutions to conduct business abroad, especially in the United States.