City faces corruption crackdown as IMF investigates wealthy countries

“The City of London will come under the spotlight of the International Monetary Fund as part of a crackdown on corruption that will investigate whether Britain and other rich countries are taking tough enough action against bribery and money laundering.

In a hardening of its approach, the IMF said it needed to look at those giving bribes and financial centres that laundered dirty money as well as improving the existing clampdown on wrongdoing in poor countries.

London has won the unenviable reputation of being the global centre for money laundering, partly as a result of cases such as the Global Laundromat, under which British-registered companies and banks helped move at least £20bn of money from criminal activities out of Russia.

All members of the Group of Seven industrial nations – Britain, the US, Germany, Japan, France, Italy and Canada – together with Austria and the Czech Republic will be looked at by the IMF to see whether their legal systems criminalised bribery and have the right mechanism to prevent laundering of dirty money.

Christine Lagarde, managing director of the IMF, said: “The flip side of every bribe taken is a bribe given. And funds received through corruption are often funds concealed outside the country, often in the financial sectors of major capitals. It is quite possible for countries to have “clean hands” at home but “dirty hands” abroad.

“To truly fight corruption, therefore, we need to address the facilitation of corrupt practices by private actors. To do this, we will be encouraging our member countries to volunteer to have their legal and institutional frameworks assessed by the Fund – to see whether they criminalise and prosecute foreign bribery and have mechanisms to stop the laundering and concealment of dirty money.”

Lagarde said the willingness of the G7 plus Austria and the Czech Republic to allow their anticorruption regimes to be tested was a “a major vote of confidence in the new framework”.

The investigation will form part of the annual Article IV health check that the IMF conducts on every member country. Philip Hammond said in Washington that the size of the City of London meant he could not definitively say that there was no illicit money flowing through the UK financial system but that the government was working hard to reduce and eliminate illicit flows.

Lagarde said there was empirical evidence to show that high levels of corruption were linked to significantly lower growth, investment, foreign direct investment and tax revenues.

A country that slid down from halfway to three-quarters of the way down a league table of corruption and governance was likely to see growth of national income per head decline by half a percentage point or more.

“Our results also show that corruption and poor governance are associated with higher inequality and lower inclusive growth.” …”