56667 The World Bank PREMnotes june 2010 nuMBeR 151 puBlic secTor governance Salient Issues in Income and Asset Disclosure Systems: Lessons Learned from the Field in Preventing Conflict of Interest and Combating Illicit Enrichment Ruxandra Burdescu, Gary Reid, Stephanie Trapnell, Dan Barnes, Modest Kwapinski, and Tammar Berger "Income and Asset Declaration systems can be a powerful tool to prevent corruption and detect the theft of public assets. . . . We should never forget the reason we create these systems. As part of an overall anti- corruption strategy, they help ensure that scarce resources are spent honestly and wisely. In this way, we help citizens get the health care, the education, the roads and the quality of life they have paid for and de- serve. And . . . this attention to good governance acts as a reinforcing foundation for prosperity and sta- bility."­ Otaviano Canuto, PREM vice president Asset disclosure (AD) systems--also referred tionally, between policy makers and practition- to as financial disclosure or asset declara- ers is essential for such benefits to materialize. tions--can play two important roles within Recent empirical work on AD policies broader anticorruption efforts: prevention and practices highlights five key trade-offs and enforcement. On the prevention side, that must be addressed, and it suggests prin- AD requirements can help bring to light con- ciples that should guide policy makers as flict of interest risks faced by public officials they address those trade-offs: who file ADs, thereby facilitating the avoid- 1. limit coverage to improve odds of success; ance of conflict of interest situations. On the 2. set modest and achievable expectations, enforcement side, AD requirements can pro- rather than ambitious objectives that are vide one more source of information that unlikely to be met; may be used in the investigation and prosecu- 3. provide resources commensurate with the tion of suspected illicit enrichment cases, mandate; thereby aiding asset recovery efforts. Effective 4. prioritize verification procedures to align collaboration, both domestically and interna- with available resources; and FROMTHePOVeRTYReDuCTIOnAnDeCOnOMICMAnAGeMenTneTWORK 5. balance privacy concerns with public ac- These indicators can be found on the cess to declarations. recently launched AGI data portal and the PAM-AGI Web site, both of which provide Background and AD Reference powerful tools to explore consolidated data Tools and indicators on governance in client In an effort to broaden the approach to asset countries, including the AD legal frame- recovery and to link it properly with gover- works in 87 countries. (For a select number nance and anticorruption strategies, the Sto- of descriptive AGI-PAM statistics, see box 1.) len Asset Recovery (StAR) Initiative--a part- nership between the World Bank and the Actions to Address Key Trade-offs United Nations Office on Drugs and Crime-- in Design and Implementation of AD commissioned the preparation of a guide Systems for policy makers and practitioners in the As mentioned at the beginning of this note, field of asset and income declarations. The in the context of work on AD policies and project was developed in partnership by practices, there are at least five key trade-offs StAR and the Public Accountability Mecha- and several principles that should guide pol- nism under the Actionable Governance In- icy makers and practitioners when address- dicators (PAM-AGI) initiative in the Public ing those trade-offs. They are detailed below. Sector Governance Group of the World Bank. The report Income and Asset Declarations: Tools Limit coverage to improve odds of success and Trade-Offs was presented in November The extent and breadth of an AD system's 2009 for consultations in Doha during the VI coverage can compromise its effectiveness, Global Forum on Fighting Corruption and particularly if resources devoted to that sys- the Third Conference of the States Parties to tem are limited. Limiting coverage to posi- the United Nations Convention against Cor- tions most at risk for significant conflicts of ruption. interest or illicit enrichment can provide an In an effort to identify how best to de- important option for ensuring a system's ef- sign and implement an AD system, that re- ficacy and cost effectiveness. It is imperative port recognizes that each country ultimately that governments craft an approach that must design a system that is tailored to the takes into account the need to limit coverage environment in which it will function. As so the capacity of the implementing agency such, the study analyzes some of the trade- is not overstretched and to target that cover- offs faced by policy makers and practitioners age where the risk of corruption or conflict alike in designing and implementing an op- of interest is greatest. timal AD system in a particular context. That report complements the Public Set modest and achievable expectations, Sector Governance Group's development of rather than ambitious objectives that are AGI, which include a set of indicators for unlikely to be met both the legal framework and implementa- Realistic expectations about the outcomes of tion of AD systems. These indicators are an AD system can significantly improve the sys- available to World Bank staff for monitoring tem's credibility with stakeholders, thereby en- and evaluating AD policies and procedures hancing its odds of success. The failure of AD and for engaging in dialogue with client systems to live up to expectations--particularly countries; they also are available to other in- if swift and comprehensive outcomes were terested parties outside the Bank. promised--can ruin the sustainability of re- 2 PReMnOTe june 2010 form efforts. For this reason, it is of fundamen- dependent from other entities, provide for tal importance that expected outcomes be adequate resources to support the system, achievable. To address this challenge, policy and ensure continuity of funding; but the makers may limit coverage, set realistic time unit also needs to have properly trained per- frames for reaching clear milestones, and sonnel, secure and functioning facilities, avoid promising to significantly reduce cor- and the ability to monitor the system. ruption and/or successfully prosecute corrup- What is typical in practice is modest or lit- tion cases with the AD system alone. tle financial support for AD implementation. In many cases, this is symptomatic of broader Provide resources commensurate with the budgetary constraints for the government. In mandate the Kyrgyz Republic, for example, several Without adequate resources, even the best- staff expressed a concern that financing from designed AD system functions poorly. Not the budget is not adequate to address the only should an AD unit's budget remain in- number of declarations received. The salaries Box 1: The Limits of Good Practice Whereas most countries with an AD system apply B.3). Although nearly 60 percent of countries identify the "good practice" elements of an AD legal frame- an agency tasked with verification or review of decla- work, there are some notable exceptions: Less than rations, no more than 30 percent of countries specify 30 percent of countries specify in legislation the ex- explicit criteria for his responsibility in the legislation. plicit criteria for verifying the content of declarations (figure B.1). Only 11 percent of countries with an AD Figure B.2. Where Are Declarations Accessed? framework require free provision of declaration con- agency tent. Fully 40 percent of countries fail to specify a lo- (hard copy) cation at which declaration content may be accessed (figure B.2). Fully 82 percent of countries fail to spec- online ify how long AD records must be maintained (figure official gazette Figure B.1. How Is Declaration Content Verified? media (print/online) 70 Share of sample with a legal not specified 60 framework for AD (%) 50 0 5 10 15 20 25 30 35 40 45 40 percent 30 20 Figure B.3. How Long Are Records Maintained? 10 < 6 years 0 6­10 years head of ministers MPs civil 10+ years state servants not specified explicit criteria and standards are established to verify accuracy of declarations 0 10 20 30 40 50 60 70 80 90 a specific agency is responsible for percent verifying content of declarations Source: Public Accountability Mechanisms (PAM) Initiative, Income and Asset Disclosure legislative indicator dataset, 2009: https://www.agidata.info/pam. june 2010 PReMnOTe 3 of the officers of the Civil Service Agency-- out declarations can easily become nothing like those of all other civil servants--are quite more than a meaningless formality. However, low in comparison with the cost of living. AD verification is one of the hardest parame- Beyond mere monetary resources, it is ters to implement. For that reason, it is wise also important to consider the staffing needs to take a multitiered approach to verification, relative to the number of declarations to be beginning with the first tier and encompass- collected or analyzed. For instance, Mongo- ing the succeeding tiers as resources and au- lia's Independent Agency Against Corrup- thority permit. These are the suggested tiers: tion (IAAC) has a dedicated 10 staff mem- · Tier 1: Simple checks for both completeness bers who are directly responsible for the and consistency of the information contained declarations of the 256 highest public offi- in submissions. Irregularities or inconsis- cials (a 1:25 ratio); ultimately, they are re- tencies within a single AD form or in AD sponsible for a total of 52,000 declarations forms over time can alert an experi- (a 1:5,200 ratio) submitted each year. For enced reviewer to potential breaches of comparison purposes, Kyrgyzstan has a staff ethics or criminal behavior, particularly of 4 responsible for 17,000 declarations if the law allows the reviewer to follow (1:4,250 ratio), Argentina has a staff of 12 re- up and seek clarification or corrobora- sponsible for 34,000 declarations (1:2,833 tion. If resources prevent undertaking ratio), and Croatia has a staff of up to 27 re- these simple checks for all declarations, sponsible for 1,800 declarations (1:66 ratio). tier-1 checks on a high-risk subset of the As these numbers suggest, the ratio of per- declarations can provide significant sonnel to declarations can vary wildly among benefits at a fraction of the cost. countries. The key issue is what these staff · Tier 2: Cross-checking data with other sources are expected to do with those declarations. of related information. A careful cross- Argentina has tried to institute an elec- checking review can reveal discrepancies tronic system for verifying the declarations, between asset declarations and other easing the demands on individual staff. sources, such as property registries, tax Mongolia has decided to focus resources on declarations, and other databases. To be the declarations of the top 256 officials effective, the AD agency needs to have there, and to devolve some responsibilities the authority and the capacity to con- for the remaining declarations to ethics offi- duct such checks, and the information cials within individual government agencies. from external sources needs to be avail- Other countries, recognizing the staffing able and reliable. shortages they may face, have chosen to con- · Tier 3: Computerized pattern recognition centrate on submission compliance rather checks. Electronic AD review systems than verifying the accuracy of declarations. equipped with data-mining software en- These are significant trade-offs that must be able implementing agencies to conduct considered when designing and implement- random and risk-targeted verifications of ing a system. asset declarations and to "red-flag" pat- terns or irregularities that might escape Prioritize verification procedures to align the notice of even the most diligent re- with available resources viewers. Electronic submission and verifi- A well-designed AD system requires timely re- cation procedures thus can significantly view of the content of declarations by a quali- enhance the effectiveness of AD systems fied and impartial official. Without monitor- by enabling reviewers to select and prior- ing and verifying data, the process of filling itize specific risk categories. 4 PReMnOTe june 2010 All three of these verification tiers can be Box 2: Highlights of Some AD Systems facilitated by establishing user-friendly submis- Guatemala's Probity Law ensures complete confi- sion systems that ensure information is provid- dentiality of asset declarations, except by court or- ed in a consistent format (making it easier to re- der. This ban extends to government entities, in- view). In an information technology­enabled cluding the Prosecutor's Office. Given the limits this environment, capturing returns in electronic places on the use of the declarations, it might be form can automate checks of completeness preferable to improve interagency cooperation for the purpose of criminal investigations, rather than and consistency. Such uniform formatting to ban access to declarations. and electronic filing can reduce delays caused Similarly, the AD system in Macao, China, re- by incomplete or incorrect declarations and mains completely confidential. However, declara- reduce content verification costs. tion information has been used successfully to prosecute corrupt officials charged with illegal en- Balance privacy concerns with public access richment, and so it may contribute to public faith in the system. It is important to note, however, that to declarations this system has achieved its level of success in an Even in countries where the AD mechanism environment characterized by a strong rule of law. is acknowledged as a powerful tool to prevent On the other side of the spectrum, Hong Kong, conflicts of interest and to combat corrup- China; Kyrgyzstan; and Mongolia use a tiered pub- tion, the tension between granting public ac- lic access model, granting access according to the cess to asset disclosure information and an of- seniority of the declaring official. Mongolia, in par- ticular, requires investigations of any official's asset ficial's right to (or concerns about) privacy declaration if an allegation of inaccuracies on the often emerges as a controversial issue. Al- declaration is lodged against the official by any though citizen privacy is accepted in some member of the public. countries as a fundamental individual right, privacy rights may hinder the effectiveness of some disclosure systems--particularly those ance and implementation. The AD system that lack rigorous verification procedures and was designed to enable verification of decla- therefore depend all the more on public rations from the most senior 5 percent of scrutiny for effective enforcement or systems public officials, and the systematic and tar- in countries where the enforcement of laws geted audit of the other 95 percent of offi- against illicit enrichment is weak or unreli- cials on the basis of risk. The categories of able. In an attempt to resolve the debate be- risk include declarations that demonstrate tween public availability and privacy, some ex- significant changes in asset values over time perts suggest that a distinction be made (revealed through electronic data mining), between different categories of information and employees of certain ministries where the contained in a financial disclosure. Such a risk of engaging in corruption is higher (such distinction would allow public access only to a as taxation departments, customs agencies, subset of that information--namely, informa- and the like). tion deemed not to compromise privacy Although sanction enforcement chal- rights or personal security. (See box 2 for lenges remain--largely because of bottle- country-specific examples.) necks in the court system--some of Argenti- na's procedures may represent good practice. Snapshots of AD Implementation The country's experience is also a good ex- Contexts: Argentina and Mongolia ample of (1) an AD system whose proce- Since its passage in 1999, the AD system for dures have been adjusted and honed over Argentina's executive branch of government time through learning by doing; (2) a strong has achieved significant success in compli- framework for coordination between the june 2010 PReMnOTe 5 verification and investigation functions of ment such requirements with a systematic the AD system; and (3) the power to targeting of verifications, even if the system- conduct investigations into underlying acts atic algorithm is simply a random sample of of corruption, in which asset declarations all filings. may play an important part. Mongolia's experience is a good exam- About the Authors ple of gradual implementation of an AD sys- Ruxandra Burdescu is special assistant to the World tem in its early stages. The law created IAAC, Bank managing director. Gary Reid is lead public sector which is responsible for managing the AD specialist in the World Bank Public Sector and Gover- program. Entering its third year of existence, nance Anchor of the Poverty Reduction and Economic Management Network. Dan Barnes, Tamar Berger, IAAC has achieved significant progress in Modest Kwapinski, and Stephanie Trapnell are gov- relatively little time, reporting a 99.9 percent ernance consultants with the World Bank. submission compliance rate. Despite its suc- cess on this front, IAAC has faced some chal- The conference edition of this report is available at lenges with regard to resources and obtain- http://siteresources.worldbank.org/EXTSARI/Resources/ ing cooperation from outside agencies and 5570284-1257172052492/ADincomeasset.pdf?resource banks. urlname=ADincomeasset.pdf. This note is adapted from Although granted authority to verify any that publication. For the full report, see http://web.world- declaration at its discretion, IAAC is specifi- bank.org/WBSITE/EXTERNAL/TOPICS/EXTSARI/0,, cally required to analyze the declarations of menuPK:5570290~pagePK:64168427~piPK:64168435~ officials who are the subject of an official theSitePK:5570285,00.html. The AGI data portal can be complaint. Because this approach is not a reached at https://www.agidata.info, and the PAM-AGI particularly systematic approach to "risk- Web site is https://www.agidata.info/pam. based targeting," it is a good idea to comple- This note series is intended to summarize good practices and key policy findings on PREM- related topics. The views expressed in the notes are those of the authors and do not necessarily reflect those of the World Bank. PREMnotes are widely distributed to Bank staff and are also available on the PREM Web site (http://www.worldbank.org/prem). 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