Looking to a new Libya

As Transparency International asks the G20 Anti-Corruption Working Group to prioritise anti-bribery laws, asset recovery and money laundering ahead of the Cannes G20 Summit, Transparency International’s Group Director for Research & Knowledge Robin Hodess reflects on relevance of the disastrous and destabilising impacts the failure to address corruption has had in Arab Spring countries such as Libya – and suggests how to prevent its recurrence in future.

The current conflict in Libya reflects the legacy of nearly 42 years of Gaddafi rule and its impact on the way the country has been governed. A priority for the new regime must be to prevent a repeat of the corruption that meant only a minority of Libyans profited from living in the country with the world’s eighth largest oil reserves.

As we have now seen, decades of official corruption – petty and grand – eroded public support for and trust in governments across the Arab world. In 2010 Transparency International published a report that concluded that nepotism, bribery and patronage are so common in Egypt, Lebanon and Morocco that they are widely accepted as facts of life.

So what is needed? Across the MENA region, government officials, the private sector, media, academics and NGOs have express the realisation that their countries need stronger mechanisms to ensure accountability of leaders and officials. They seek the creation of ombudsmen, to investigate citizen complaints. They demand greater freedom for civil society and the press and the introduction of whistleblower protection. Finally, they reflect a strong desire to see western governments do something about stolen assets. This last point forms part of our current call on the G20.Corruption will not go away over night in Libya or elsewhere in the region: root and branch reform of local institutions is needed. The international community has a particular role to play to help the people of Libya stop corruption in the future.

More transparent oil revenue

Libya’s oil wealth makes it a special case. To prevent a recurrence of the resource curse, future Libyan governments, oil companies and the international community who will be involved in rebuilding Libya must take steps to ensure transparency in the sector so that citizens can follow the money.

In the future, Libya should sign up to EITI, under which governments disclose their revenues from oil exploration and production. Detailed publication of payments by companies to governments on a country-by-country level allows citizens to hold governments to account.

Companies operating in Libya must do their part too. Oil and gas companies should realise that they too can also suffer from the resource curse. Since leaders who do not share resource wealth with citizens are increasingly not tolerated, the systems they uphold are vulnerable to civic unrest and conflict. Anyone who thinks this opacity is better for business should look at oil production in Libya: 1.5 million barrels a day in January 2011, a mere 60,000 per day in August.

Today, reporting of revenues by oil and gas companies on a country-by-country basis is far from a reality. A report Transparency International issued in March 2011 showed that of 12 analysed companies operating in Libya, only one operated with significant transparency, publicly disclosing its revenue payments to the Libyan government.

Western governments, home to many oil and gas giants, need to make sure oil companies operating in Libya act transparently, to enforce rules that will create more accountability. The US Dodd-Frank act already mandates country-level public disclosure for companies listed on the US stock exchange, and the European Commission is expected to propose similar measures. The devil is in the detail and in the enforcement: these new rules must be binding. In May 2011 the G8 Deauville summit disappointingly lacked strong commitments on country-by-country reporting; hopefully the G20 Cannes summit will do better.

A financial system less hospitable to stolen assets

The freezing of Libyan funds in February and March 2011 abroad revealed a tangled web of global assets invested throughout the world economy: from shares in prominent UK publishing companies and an Italian football club, to hundreds of top properties from London and Paris to the Spanish coast and Africa.

This shows that both banks and the regulatory bodies that govern them need to redouble efforts to explore the source of assets deposited by political exposed persons. If suspicious, there should be nowhere for this money to go. In many countries, banks have failed in their due diligence, and that is why we have set out a series of concrete measures G20 countries should take to prevent the corrupt from profiting from the opacity of the global financial system. As these assets are released back to a new Libyan leadership, it is now their responsibility to make the money trail transparent. Public money belongs to public spending to help people, not hidden in bank accounts.

In the long run, corruption takes its toll: in higher costs, lost contracts, and, in the worst cases, loss of lives. Libyan leaders, companies must begin to take the right steps now. It will take tremendous efforts from all to make this happen, to deliver the promise of the Arab Spring in Libya and elsewhere, but the goal is worthy!

Read the letter sent to the G20 here.