Commercial banks ‘the largest facilitators of corruption and fraud’ in PNG say the police
PNG has four commercial banks – Bank South Pacific (BSP), Westpac, ANZ and Kina (formerly Maybank) – which is owned by Rimbunan Hijau.
The Papua New Guinea Financial Intelligence Unit has described these banks as “the largest facilitators or ‘gatekeepers’ of corruption and fraud” in PNG and detailed their resistance to assisting authorities to do more to disrupt corruption.
This is explained in a paper – Applied Forensic Accounting – Experiences from PNG Financial Intelligence Unit [520kb] – published by the FIU in 2012.
The paper also outlines the enormous scale of the corruption in PNG, the devastating impact of the routine theft of public funds on service delivery and poverty and the inability of the police to do anything about the problem as there is a complete breakdown in the law and justice sector.
The Financial Intelligence Unit was set up as part of the PNG Police in 2007 under the Proceeds of Crime Act. It has a tiny staff of only six – and not all those positions are always filled. The FIU was established, not as part of a coordinated effort to tackle domestic corruption, but in response to PNG’s obligations to the South Pacific Forum to tackle transnational crime. The FIU is very limited in its scope, supposedly focusing just on cash transactions and the proceeds of crime – rather than the far more obvious and serious disbursement of illegally acquired funds and the misuse of government cheques.
The paper describes corruption as systemic and systematic in PNG. This is backed up by PNG’s ranking of 145th out of 175 countries in Transparency International’s 2014 Corruption Perception Index.
According to the FIU, the Public Accounts Committee has stated there is a culture of impunity and no fear or risk of detection or punishment for those who steal public funds. This has created a situation where an impoverished and disillusioned people are deprived of basic services. Illegal and improper practices are rife across the entire spectrum of government and at every level. The police seem incapable or unwilling to investigate or prosecute financial crime.
The FIU paper says corruption flourishes because those in positions of responsibility have the motive – very low wages compared to cost of living and family / wantok pressures – rationalization – everyone else is doing it so why not me – opportunity – very weak or non-existent controls, lax governance and poor diligence in the banking sector – and capability – the necessary knowledge and ability to commit fraud.
The FIU says it can do little to reduce motive or capability and has therefore focused on altering the rationalization by trying to reduce the perception that nobody notices the corruption and there is no risk of detection and by restricting the opportunity for corruption through banking rules that make it harder to place the proceeds of corruption into the banking system.
The greatest challenge facing the FIU it says has not been detecting the offences and offenders but dealing with the huge number of offenders and preventing repetition of their offences. The number of offenders is too large, the FIU too small and the court system too slow to have any measurable effect using criminal prosecutions.
The lack of motivated and adequately resourced police force and court system also means that trying to control the corruption by going after the money and seizing the proceeds of crime is not seen by the FIU as a viable option as it would rely on a sufficient number of cases going through the court system. This in turn would also need a functioning public service that could provide access to sufficient information, documentation and other evidence.
Therefore the FIU has concluded the most practicable method of addressing corruption is to tackle the facilitators of the fraud – the commercial banks.
The FIU focused on two methods, encouraging the banks to report significant cash transactions and exercising due diligence in relation to government cheques.
Significant cash transaction reports focus on public servants who make large deposits well in excess of legitimate earnings. A first round of reporting identified a significant number of government employees who were repeatedly depositing amounts well in excess of their annual salary. However the banks did very little in response.
Due diligence on government cheques is a response to the fact that huge amounts of money are stolen using these instruments by people obtaining the cheques by illegal means. According to the FIU the banks claim they do not have the staff, skills or systems to allow them to differentiate between legitimate and illegitimate cheques and do not have the resources to vet them all.
The FIU implies the banks have effectively refused to cooperate and feel they are being asked to act as policemen when it should be the government’s responsibility to stop corruption. This is contrary to the fact that under the law the banks have an obligation to seek all the information they need to ensure funds they receive are not the proceeds of crime.
A collapsed public service and inadequate legislation and funding means the FIU has been forced to try and develop processes to disrupt corruption that do not rely on the criminal justice system, the agencies of the public service or require significant funding. Unfortunately the commercial banks have put up their own barriers that have further undermined the efforts of the FIU.