United Nations

GA/EF/3002
15 October 2002

SECOND COMMITTEE SPEAKERS LINK ILLICIT TRANSFER
OF FUNDS TO TERRORISM, DOMESTIC CONFLICT
AND CAPITAL FLIGHT

NEW YORK, 14 October (UN Headquarters) -- Illicit funds were used to buy weapons, finance terrorism and fuel domestic conflict, hindering sustainable development and political stability, Nigeria’s representative told the Second Committee (Economic and Financial) this morning as it considered corruption and the transfer of illicit funds.

Noting that corrupt practices and the transfer of illicit funds had contributed substantially to capital flight from developing countries, he said that of the estimated $400 billion that had been looted from African countries and stashed in foreign banks, about $100 billion was from Nigeria.

He urged nations to swiftly conclude talks on a comprehensive international Convention against corruption, stressing that such an agreement should include the lifting of private secrecy codes used in banking procedures -- which had often functioned in Africa as safe havens for corrupt clients.

Similarly, Pakistan’s representative called for the shutting down of such safe havens as offshore financial centres, anonymous accounts and stringent secrecy laws, which had impeded global anti-corruption efforts. He also noted that cumbersome legalities in foreign States as well as the scantiness of international instruments governing the transfer of illicit funds thwarted efforts to trace and return them. Obstacles remained even where bilateral agreements existed and local laws were adhered to, he added.

The representative of Antigua and Barbuda said that receiving countries -- particularly developing countries with limited resources -- should not bear the full cost of investigating and seizing illicit funds in the absence of an international instrument and inadequate legislation. Furthermore, if the receiving jurisdiction were to get little or nothing from the seizure of such assets, they would have no incentive to identify them or to cooperate with other jurisdictions, he added.

Introducing the report on corruption and the transfer of illicit funds, a representative of the United Nations Office for Drug Control and Crime Prevention (UNDCP) in New York said Member States had taken several measures to strengthen compliance in combating corruption. Those steps included the strengthening of international legal assistance; the harmonization of national laws with international legal standards; the strengthening of existing laws or the adoption of new laws against corruption and money-laundering; and the creation of special anti-corruption units and national anti-corruption programmes.

This morning’s meeting also included the Committee’s consideration of an agenda item on industrial development cooperation. Introducing the report on that topic, the Assistant Director-General for United Nations Affairs of the United Nations Industrial Development Organization (UNIDO) said the organization had spent some $85 million on technical cooperation and other programmes over the past year, compared to $69 million in 2000.

Addressing that subject, the representative of Guyana, speaking on behalf of the Caribbean Community (CARICOM), noted that the financial and capital outlays needed to build up industrial capacity were enormous. Pointing out that the estimated annual investment of $20 billion was well beyond the capacity of individual national treasuries. The CARICOM countries would continue to require international assistance in capacity-building as well as major injections of foreign direct investment to achieve sustainable development, he added.

Also speaking this morning were the representatives of Denmark (on behalf of the European Union), Venezuela (on behalf of the Group of 77 developing countries and China), Russian Federation, India, Libya, Namibia, Belarus, Peru, Dominican Republic and Indonesia.

A representative of the International Labour Organization (ILO) also spoke.

The Second Committee will meet again at 10 a.m. on Wednesday, 16 October, to consider the question of science and technology for development.

Background

The Second Committee (Economic and Financial) met this morning to consider industrial development cooperation as well as corruption and the transfer of illicit funds as it took up its general discussion on sectoral policy questions.

Industrial Development Cooperation

The Committee had before it a note by the Secretary-General (document A/57/184) transmitting the report of the Director-General of the United Nations Industrial Development Organization (UNIDO). The report describes industrialization as one of the most dynamic factors for accelerating economic growth and social advancement and a decisive determinant of productive capacity-building and key contributor to poverty eradication.

It also describes UNIDO's role in helping to establish and improve productive capacity in developing countries and economies in transition, which stimulates growth in the industrial sector, fuels expansion of trade and encourages investments. It notes that globalization and liberalization have significantly impacted economic and industrial performance in developing countries and economies in transition, creating winners and losers.

According to the report, a few developing nations have successfully mobilized and attracted domestic and external resources to increase economic competitiveness and integrate into the world economy. However, most developing countries have failed to achieve those objectives and have been bypassed by the globalization process, the report says, adding that globalization without creating and enhancing domestic productive capacity leads to marginalization.

The present international trend towards intensified globalization and accelerated technical progress makes the role of industry even more important for economic, social and environmental development, the report states. Industry, particularly manufacturing, drives economic growth, providing a breeding ground for entrepreneurship, fostering technological dynamism and productivity growth, creating skilled jobs and establishing the foundations for the expansion of both agriculture and services.

Describing UNIDO’s efforts to give women a greater role in industrial development, the report says that most of its women’s entrepreneurship development programmes focused on creating small and mid-sized enterprises, particularly in the food-processing industry. They provided training in food-processing technologies, hygiene, quality control and business management and created almost 350 permanent jobs. In 2001 alone, UNIDO undertook more than 200 group training programmes for 7,877 participants, of whom nearly one-third were women, the report adds.

It notes UNIDO's continuing promotion of its trade facilitation initiative for the least developed countries (LDCs), including a three-year programme funded by the European Union and covering the core requirements of the eight-member West African Economic and Monetary Union and is creating similar programmes for Central America and South Asia. In 2001, it expanded the technology foresight initiative in Latin America and Central and Eastern Europe. Consultations have been held on a similar progamme for the Southern African Development Community (SADC).

The report says that a programme was also drawn up for the Central American subregion in cooperation with the International Trade Centre. In addition, UNIDO has prepared regional trade facilitation/market access support initiatives for the Mekong Delta and South Asian Association for Regional Cooperation (SAARC) countries. In 2001, the agency expanded its technology foresight initiative in Latin America as well as in Central and Eastern Europe.

During the biennium 2000-2001, UNIDO concentrated on consolidating and stabilizing changes introduced in the previous years and on refining their potential, according to the report. Technical cooperation delivery has maintained overall stability and rose above previous levels to $84.9 in 2001, a figure that also demonstrates a considerable increase in the efficiency of agency. UNIDO is now able to render more assistance than in 1997 with a much smaller amount of financial and human resources, the report says.

The most significant change in programmatic activities was the introduction of demand-driven integrated programmes tailored to the needs of partner countries, the report states. Those programmes support country efforts by improving industrial governance and institutional infrastructure, strengthening small and medium-sized enterprises, upgrading technological capacities and enhancing skills and access to modern technology. They also help in building trade and export capabilities, adopting energy efficiency and cleaner production measures and promoting environmental management and in creating an enabling environment for foreign investment, the report says.

Those reforms have reinforced the confidence of Member States in UNIDO, the report says, adding that countries are no longer evaluating whether or not they will remain in the agency. South Africa joined in October 2000 and Monaco is also considering membership.

Corruption and the Transfer of Illicit Funds

Also before the Committee was a report of the Secretary-General on the prevention of corrupt practices and transfer of funds of illicit origin (document A/57/158), prepared by the United Nations Office for Drug Control and Crime Prevention (UNDCP).

According to that report, the fight against corruption, including the transfer of illicit funds, the return of such funds and stronger cooperation to eliminate money laundering is a top priority of the international community. To date, no specific international regulatory mechanism exists for monitoring and curbing the transfer of illicit funds. Moreover, many nations' laws are inadequate.

The Secretary-General considers the future United Nations Convention against Corruption a unique opportunity to take stock of feasible, workable solutions, and create a truly global instrument to address corruption, the report says. A global study on transferring illicit funds would greatly benefit the work of the Ad Hoc Committee for the Negotiation of a Convention against Corruption, it adds.

Noting that the need to combat corruption at all levels is underlined in the Monterrey Consensus, the report points out that corrupt practices seriously inhibit effective resource mobilization and allocation, absorbing resources meant for vital economic and sustainable development that are aimed at reducing poverty.

In an effort to reverse that trend, international organizations have put several measures in place to fight corrupt practices. The International Monetary Fund (IMF) has intensified its work against money laundering and extended itself to combat the financing of terrorism. It is also expediting its offshore financial centre assessment programme and has increased technical assistance to Member States.

The World Customs Organization (WCO) has made customs integrity a priority since 1993, calling for greater efficiency in customs administration and the elimination of corruption, according to the report. It has also developed a model code of conduct detailing attitude and behaviour standards for customs officials, including effective disciplinary measures.

Included in the report are statements from Azerbaijan, Bolivia, Brazil, Colombia, Croatia, Germany, Haiti, Republic of Korea, Mauritius, Mexico, Myanmar, Oman, Poland, Slovakia, Spain, Switzerland and Ukraine on progress in combating corruption and illicit funds transfer.

A first addendum to the report (document A/57/158 Add.1) contains additional statements from Bulgaria, the Czech Republic, Greece, Hungary, Jordan, Monaco, Pakistan, Sweden, Tunisia, Turkey and Ukraine. A second addendum (document A/57/158 Add.2) contains a statement from Slovenia.

Introduction of Reports

IRENE FREUDENSCHUSS-REICHL, Assistant Director-General for United Nations Affairs, introduced the UNIDO report on industrial development cooperation, noting the organization's improved performance over the past year, when it spent some $85 million on technical cooperation and other programmes, compared to $69 million in 2000. She said that globalization industry stimulated technological advances, carrying them across borders and thus promoting progress. Industry, therefore, was a powerful engine of structural transformation and a vital instrument in combating poverty and marginalization.

UNIDO's activities had been streamlined to help developing countries to achieve their national development targets, strategies and objectives and to increase their competitiveness, she said. The organization provided its services according to its dual function -– as a global forum and as a technical cooperation partner for developing countries and countries in transition. A range of technical cooperation and global forum services were intended to promote the three-fold objective of a competitive economy, productive employment and sound environment.

LUCIE HRBKOVA, Programme Management Officer for the United Nations Office for Drug Control and Crime Prevention (UNDCP) in New York, said that 30 countries had replied to the Centre for International Crime Prevention’s note seeking progress reports on the implementation of General Assembly resolution 56/186. Member States had taken several measures, including harmonizing national laws with international legal standards, strengthening existing laws or adopting new laws against corruption and money laundering, creating special anti-corruption units and national anti-corruption programmes, and strengthening international legal assistance.

She said that the Third Committee (Social, Humanitarian and Cultural) had considered the report a few weeks ago its discussion of crime prevention and criminal justice. Several Member States had welcomed the new initiative to develop comprehensive and effective international legal framework for fighting corruption, with various delegations stressing the importance, particularly for developing countries, of including mechanisms to prevent and combat the transfer of illicit funds in the proposed United Nations Convention against Corruption.

During a one-day technical workshop on "asset recovery" last June, she said, the Ad Hoc Committee for the Negotiation of the United Nations Convention against Corruption had discussed several problems associated with locus standi; the identification of parties and the role of individual victims in proceedings; the involvement or non-involvement of requested countries in distributing proceeds, or transferring them back en masse; the limitation period for civil action; varying standards of proof in civil and criminal cases; problems associated with immunity; and issues arising from assets held by third parties.

Statements

LUIS CARPIO GOVEA (Venezuela), on behalf of the Group of 77 developing countries and China, stressed the need to design national strategies that were consistent with conditions for integrating developing countries into the world economy, although risks arose from financial instability in those countries, which could lead to marginalization.

Highlighting the importance of strengthening industrial capacity as a means to increase competitiveness and promote development, he said that industrial development not only generated well being, but also led to the transfer of technology, opened up markets, and promoted infrastructure development. UNIDO and the United Nations Conference on Trade and Development (UNCTAD) had pointed to the need for changes regarding manufacturing, but that should be accompanied by the necessary development assistance. He encouraged the international community to shift towards a new vision that would promote the development of a solid industrial base.

Regarding corruption and the transfer of illicit funds, he said there was a need for good governance and solid government institutions in combating those problems. The Monterrey Consensus had recognized that corruption diverted resources from poverty relief programmes and development activities.

PIA STARBAEK SZCZEPANSKI (Denmark), speaking on behalf of the European Union, stressed the need to take an integrated approach and to redesign UNIDO’s service modules to strengthen its ability to meet the development targets of the Millennium Declaration. UNIDO must be capable of effectively supporting industrial development that was conducive to poverty eradication and sustainable development.

UNIDO should maintain its focus on interventions where the organization had clear comparative advantages within the framework of its existing mandate, she said. All States and stakeholders had an interest in streamlining in multilateral development efforts and avoiding their duplication.

She welcomed the news that UNIDO was stepping up its development efforts in the LDCs, particularly in Africa and encouraged the organization to further study the feasibility of undertaking regional programmes.

GEORGE TALBOT (Guyana), speaking on behalf of the Caribbean Community (CARICOM), said industrial development was integral to economic transformation and development in the small, open economies of that subregion. Their governments had set out comprehensive strategies for meeting productivity challenges, with emphasis on macroeconomic stability, incentives for enterprise development and innovation to facilitate growth and employment. Raising productivity was key to improving living standards and prosperity over time.

He said the past decade had seen strenuous efforts by the CARICOM countries to rebalance their development priorities in building their capacities to adjust to changing conditions. However, the financial and capital outlays to achieve that were enormous compared to resources. Some estimates indicated that addressing structural prerequisites would mean investing more than $20 billion a year, which was well beyond the capacity of individual national treasuries. To meet those and related requirements, CARICOM would continue to require international assistance in capacity-building as well as major injections of foreign direct investment (FDI) to achieve sustainable development. That not only meant access to new technologies, but also new management techniques, different forms of enterprise linkages and relations between industry and science as well as intensified information flows throughout the subregion’s economies.

Turning to corruption, he called on the international community to ensure that the approach to combating that question was comprehensive, transparent and accountable, particularly with regard to money laundering. CARICOM supported a non-discriminatory, transparent process with mutually agreed principles involving the participation of all in the decision-making process. He welcomed any process that considered all proposals aimed at transparency in implementing global standards of regulation and operation.

MUHAMMAD HASSAN (Pakistan), stressing the need to fight corruption at both the national and international levels, said his country had taken several preventive steps. However, the cumbersome and time-consuming legal and judicial requirements of foreign States, as well as the lack of comprehensive international instruments governing illicit funds transfers were thwarting efforts to trace and repatriate ill-gotten funds and extradite guilty parties. Obstacles remained even in cases where bilateral agreements existed and local laws had been adhered to, he added.

Pakistan supported the early finalization of the Convention, he said, stressing that it should cover the closure of safe havens such as offshore financial centres (OFCs), anonymous accounts and stringent secrecy laws, all of which had impeded global anti-corruption efforts. He recalled the speech by the President of Pakistan in the General Assembly, last September, in which he said that third world rulers, together with their minions, plundered the national wealth and were afforded easy access and safe havens to stash the loot in the developed world.

The Convention should also cover international cooperation and legal assistance to investigate and prosecute corruption-related offenses as well as trace, recover and repatriate proceeds, he said. Moreover, it should cover information disclosure, political integrity, corporate governance and transparency, and information-sharing on international monetary transactions. He added that investigations into the illicit financing of the 11 September terrorist events had clearly illustrated the need for foolproof measures that would preclude the concealment of illegal funds, uncover ill-gotten wealth, and prevent the flow of funds for criminal activities.

EVGENY STANISLAVOV (Russian Federation), commending the international effort to combat corruption and the illicit transfer of funds, noted that such crimes were linked to international terrorism. There was definitely an interest in the United Nations to confront such crimes, when one considered the work done by the International Centre for Crime Prevention in Vienna. The Centre was also studying the impact of illicit funds transfers on economic and political development in the countries where they occurred.

Russia was adopting firm measures to combat corruption and the transfer of illicit funds, he went on. In 2001, the country had passed a federal law to combat money laundering and, in 2002, a draft law to combat corruption. Russia had also signed the 1998 global anti-corruption convention, drawn up within the framework of the Council of Europe.

As a result of UNIDO’S reform, he continued, its role had been consolidated as an agency dealing with problems of industrial production based on sustainable development. Recently, it had expanded technical cooperation and changed the format of its programme activity. It had also introduced a comprehensive programme tailored to the needs of recipient countries.

SUSHIL KUMAR SHINDE (India) called upon the international community to support the industrialization efforts of developing countries through enhanced technical assistance, technology transfer and financial support. Describing FDI as an important vehicle for technology transfer, he said foreign investors should support local industry to improve production methods, particularly through joint ventures, increased local employment and technology transfer. Yet, according to the World Investment Report, overall FDI had dropped sharply in 2001 and the share sent to developing countries had fallen to 19 per cent in 2001, down from a peak of 40 per cent in 1994.

Noting with satisfaction that UNIDO’s structural reforms had improved the agency’s performance, he said that last year, the organization had provided more assistance to countries despite a reduced budget and workforce. He called for enhanced support for UNIDO.

Concerning United Nations efforts to prevent and combat illicit funds’ transfer, he stressed the need for enhanced international cooperation and mutual legal assistance, particularly in the repatriation of funds. Issues like legal ownership and victims of corruption should not delay repatriation to developing countries, he added.

ALI RAMADAN (Libya) said the challenges of globalization for economic development required countries to put the appropriate strategies and policies in place and mobilize the necessary resources. Those measures would allow developing countries to integrate into the world economy and to eradicate poverty. The international community must create macroeconomic conditions that would be conducive to creating development in those countries and start working to facilitate technology transfer as well as open up markets to developing nations.

Obstacles to achieving industrial development included a lack of resources and the lack of technology transfer, he continued. He called on the international community and financial institutions to facilitate technology transfer to enhance human and financial capacities in developing countries. He also urged UNIDO to improve its programme for human capacity-building and other relevant activities.

Regarding corruption and the transfer of illicit funds, he said his country had established many mechanisms to combat those phenomena. Libya called on the international community to consolidate efforts to promote institutional capacity and organizational frameworks to fight the illicit transfer of funds and return them to the countries of origin.

MARTIN ANDJABA (Namibia) applauding UNIDO's swift adoption of programmatic reforms, particularly demand-driven integrated programmes tailored to the needs of each country, said that integrated programmes were compatible with the New Economic Partnership for Africa (NEPAD), which called for domestic ownership of development programmes in developing countries.

He said food shortages resulting from drought in Africa, particularly in the Southern African Development Community (SADC) countries had made UNIDO's small-business programme for Women Entrepreneurship Development (WED) even more vital. UNIDO should continue to place a high priority on the development and timely implementation of integrated programmes, inter-African cooperation and high-level work visits and study missions to Africa in order to implement tripartite initiatives. At the subregional level, he stressed the importance of current talks between UNIDO and SADC to explore areas of assistance and technical cooperation.

ANDREI POPOV (Belarus), noting that globalization had clearly demonstrated the primary role of industrial development in providing sustainable economic growth and eradicating poverty, said that UNIDO, being a leader in its field, was making a constructive contribution to those goals. For example, it was developing a new and useful initiative to promote clean and safe energy for sustainable development. It also had a comprehensive programme for technical partnerships.

Referring to UNIDO’s work in resolving industrial pollution, he said it had achieved success in the environmental area and called on the international community to provide additional financing for that programme. By adopting a clearly defined position on such issues, the United Nations could help in reform and development in developing nations as well as economies in transition, he added.

Regarding corruption and the transfer of illicit funds, he noted that those crimes could significantly undermine political development and subvert economic security. In 1997, Belarus had adopted a law to combat organized crime and was currently finalizing special legislation. He expressed support for the future United Nations Convention on Corruption, which would allow for increased international cooperation in that area, and called upon the Organization to provide more technical and other assistance so that States could strengthen their national capacities to combat corruption.

CAROLINE LEWIS, International Labour Organization, said recent evidence suggested that the output, export and technological performance, and employment growth in the manufacturing sectors of developing countries was diverging. Evidence suggested that the countries most capable of financing research and development, as well as those possessing technological competence, labour discipline and trainability, competitive supplier clusters and good infrastructure would have the greatest competitive edge.

However, in the last two decades, nations had been more concerned with trade and finance liberalization than practical issues, she said. It was crucial that international trade and financial organizations recognize that and modify their strategies to suit the needs of individual countries.

The drop in FDI in many developing countries had exacerbated the problem, she said, stressing that domestic savings must be the main source of private and public funds for investment. Chile and other countries had demonstrated that increasing the cost of short-term capital movements could help reduce instability caused by illicit fund movements. The Asian financial crisis illustrated the importance of adopting redistribution policies, such as guaranteeing social protection accompanied by economic liberalization. She also stressed the importance of pumping more funds into the service sector, a crucial element in national development strategies, particularly concerning employment growth.

PATRICK LEWIS (Antigua and Barbuda) said that the complicated issue of illicit transfer and return of illicit funds had not been specifically regulated. Small-island developing nations with a highly dependent service industry were often faced with non-compliance issues with respect to such funds, which were unfairly cast upon it by developed countries. Antigua and Barbuda was committed to working with the international community to address corruption and the illicit transfer of funds.

However, he said his country opposed laying down firm rules about forfeited assets, which should be returned to the victim State. The intentional community must cooperate on that issue, but in the absence of an international instrument and inadequate legal legislation, the receiving country -– particularly a developing country with limited resources -– should not bear the full cost of investigating and seizing illicit funds.

The receiving jurisdiction must go to considerable expense in setting up the legislative, regulatory and enforcement machinery to identify and seize assets, he continued. Resources were heavily committed to requests made by foreign States, while very few requests were made by countries such as Antigua and Barbuda. If the receiving jurisdiction were to get little or nothing from those forfeited assets, they had no incentive to establish machinery for identifying and forfeiting funds or for cooperating with other jurisdictions.

OSWALDO DE RIVERO (Peru), pointing out that Latin American countries had been applying models set out in the Washington Consensus, including fiscal discipline and economic liberalization, said they implied macroeconomic equilibrium. However, they had neither produced growth in per capita gross domestic product (GDP) nor contributed to social equality in the region. According to the IMF report, 2002 was the third consecutive year of negative capital balance flow in Latin America and the Caribbean due to the drop in FDI. No doubt the rigidity of the Washington Consensus had blocked results, he said, adding that it had not produced the expected economic and social prosperity.

The recent slew of corporate scandals in developed nations had dampened Latin American’s faith in capitalism, he went on. Impunity had been granted to the perpetrators of corruption, making people cynical and discouraged by democracy. Since democracy was at risk, there was a need for honest capitalism to restore faith, he stressed, urging countries to comply with new measures to prevent the illicit transfer of funds.

O.A. ASHIRU (Nigeria) said corrupt practices and the transfer of illicit funds had contributed considerably to capital flight. Africa ranked highest in terms of capital flight, with an estimated $400 billion or more in funds being looted and stashed in foreign banks. Of that, an estimated $100 billion or more was from Nigeria. By the Nigerian Government's account, the nation's total external indebtedness stood at $28 billion, approximately 28 per cent of total funds siphoned out of the country.

He said Nigeria's Anti-Corruption Act supported the belief that corruption and the illicit transfer of funds impeded sustainable development and political stability. The misuse of ill-gotten wealth to acquire weapons, finance terrorism and fuel domestic conflict increased the urgent need to swiftly conclude the Vienna talks and adopt a comprehensive international convention.

Nigeria was in the process of submitting its progress report to the Secretary-General on national efforts to combat the transfer of illicit funds, he said, urging other Member States to promptly follow suit. Nigeria supported the lifting of private secrecy and confidentiality codes used in private banking as well as corresponding banking procedures, which, in Africa, had often functioned as safe havens for corrupt clients.

RAMON BLANCO DOMINGUEZ (Dominican Republic) said that promoting the productive capacity of developing countries as a condition for sustainable development was one of the essential milestones on the path towards improving competitiveness at the industrial level. Hopefully, there would be more direct support from the United Nations along those lines.

Regarding corruption, he noted that recent developments in the corporate world had shown that developing countries did not have a monopoly on corrupt practices. That problem must be fought through the establishment of fair, non-discriminatory and generally applied rules. Many cases of corruption had been identified in the Dominican Republic, but few people had been convicted due to legal manoeuvering. However, the Government was working hard to eliminate corrupt practices and eagerly awaited the future United Nations Convention against Corruption.

MAKMUR WIDODO (Indonesia), expressed regret over the terrorist attack in Bali over the weekend and that the Indonesian Government was working very hard to find the culprits.

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