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State’s Luna in China at Euro-Asia Economic Forum

26 September 2013

U.S. Department of State
Remarks by David M. Luna
Director for Anticrime Programs, Bureau of International Narcotics and Law Enforcement Affairs
Xi'an, China
September 26, 2013

As Prepared for Delivery

Why Combating Corruption and Illicit Trade is Critical to Market Prosperity, Economic Growth, and Sustainable Futures

Good Morning.

It is an honor to join you here at the Euro-Asia Economic Forum in the booming city of Xi’an. Over the next twenty minutes, I hope to shed light on one aspect of economic growth that is fundamental to all others: preventing corruption and illicit trade from limiting the potential of open markets and a sustainable future.

Before I begin, I would like to thank the organizers of this conference: the People’s Republic of China, the Executive Committee of the Euro-Asian Economic Forum 2013, the Shanghai Cooperation Organization (SCO), and our host, the Municipal Government of Xi’an.

I would like to also extend a warm welcome from the United States to the delegates attending the event from across Asia and Europe.

Navigating Current Global Risks and Challenges

Given the rich history of Xi’an, one of the Four Great Ancient Capitals of China, and a flourishing center of economic, cultural, scholastic and artistic talents, there is perhaps no city in the world that understands the complexities and vital significance of cross-border trade better than Xian.

It is here that the Silk Road began over one thousand years ago, and it is here that major multinational corporations from around the world, including some of the top Fortune 500 companies, have chosen to invest today. And akin to its historical legacy, Xi’an continues to serve as a hub of commerce, innovation, and higher-learning institutions.

It is therefore also fitting that we have gathered in Xi’an to discuss economic growth, prosperity, and sustainable development, as well as the challenges that globalization has brought to bear on our economies and institutions. Rapid change can bring inefficiency as well as neglect to human capital, national assets, and natural resources as key players try to adjust.

Ladies and gentlemen, we live in a time of both great promise and great peril.

To manage change and mitigate risk, we must understand the adverse effects that corruption, illicit trade, and other global threats can have on economic growth and millennium development goals, as well as efforts to expand prosperity across all communities.

This forum, among other similar fora, can help us realize the importance of building a sustainable future, one characterized by open governance and competitive markets. But to reach our destination — economic freedom and inclusive, green, and sustainable markets — we must commit to an ethical blueprint for greater prosperity that restores our planet and reinvigorates our economies.

How we navigate through this fog of threats to security, governance, and the global economy will determine our fate — whether we progress as one community of “mutually booming” nations, or bring about further gloom.

In the past decade, we have borne witness to an array of large-scale disasters and risks in this region and across the globe that test and threaten to limit our ability to evolve into modern, technologically-advanced societies that advance the frontiers of investment.

From the scourge of transnational organized crime to violent natural disasters, from financial crises to large-scale corruption, these traumatic experiences remind us daily of our primary imperatives: to ensure the safety and security of our communities and economies, protect our ecosystems, and develop policies that lead to measurable improvements in the lives of our citizens.

In this ever-changing world, we need to move beyond a reactionary attitude to change and disaster — we need to adopt smarter, proactive approaches to the harms of market forces, forces of nature, and our own ethical failings.

We must build a community of responsible governments, businesses, and civil society organizations, working together to build market resiliency, safeguard government integrity, and turn our cities, such as Xi’an, into vibrant hubs of innovation and economic growth.

Regional Integration, Economic Partnerships, and Shared Prosperity

Ladies and gentlemen, collaboration only leads to a mutual boom if we first lay a shared foundation of effective anti-corruption mechanisms and a robust rule of law based on transparency, good governance, and accountability. Thus the theme of this year’s forum, “From Collaboration to Mutual Booming” is very timely.

The United States looks to the Asia-Pacific region, not only because of our security interests in the region, but also because the region has become the principal gateway for exports, capital mobilization, innovation, and foreign direct investment in both high-growth and emerging business markets.

If we include India, other economies in South Asia, and members of the Shanghai Cooperation Organization that are here in Xi’an this week, we are looking at more than five billion consumers of tremendous market potential. Together, we can harness this potential to create new jobs, increase investment, and expand economic growth.

We have previously seen how these integrated approaches to investment and trade on one hand, and good governance and market transparency on the other, have led to profound transformations that have helped millions of our citizens climb out of poverty, and assisted some economies transition into emerging markets and modern commercial centers.

As the United States rebalances toward the Asia-Pacific region, we remain further committed to regional economic integration, working across partnerships to build these dynamic hubs of commerce and ingenuity that are financing economic growth and better lives through open markets, open governance, and open societies.

In recent years, U.S. exports to economies in the Asia-Pacific region grew much faster than exports to the rest of the world. Due to the dynamism of these markets, a five percent increase in exports to APEC and ASEAN economies, for example, would add hundreds of thousands of jobs to the U.S. economy.

U.S. multinational firms and businesses such as General Electric, Caterpillar, the Coca-Cola Company, among many others, continue to expand across markets and sectors, infusing billions of dollars in strategic investments, expanding their reach and transporting some of their best executives to Asia. American businesses are contributing to the economic development of many economies and local communities, encouraging transparency and good governance in this region.

As we emerge from this current financial climate, it will become more critical than ever to sustain economic growth by bringing our economies closer together to increase trade and investment technology advances, and create new jobs.

The United States is proud of our commitment made to the Asia Pacific and of the role that we have played in this region’s progress as a major trade and investment partner to many APEC, ASEAN, and Pacific Islands economies.

The efforts of APEC, ASEAN, the SCO, the East Asia Summit, and other regional initiatives, complement each other and support our shared economic goals.

Last week I was in Bali, Indonesia where the United States and other economies were preparing for the APEC Leaders’ and CEO Summits which will take place next week and where economies have been finalizing numerous ideas and deliverables that will lead towards greater market resilience and inclusive sustainable growth, and plans for shared development and common prosperity.

APEC’s 21 member economies today account for 55 percent of global GDP and 43 percent of world trade. For the United States, APEC accounts for 58 percent of U.S. goods/exports, and seven of our top trade partners are in APEC.

ASEAN now represents a $2 trillion economy of 600 million people. These are remarkable figures and a major potential market to tap into for investment, trade, and market integration in places like Burma, Cambodia, and Vietnam.

In Bali, U.S. President Barack Obama will work with Chinese President Xi Jinping, and other APEC leaders, to advance APEC’s objectives concerning economic integration and free and open trade and investment, in order to build a dynamic, growing, and harmonious Asia-Pacific community.

The United States looks forward to China’s hosting of APEC in 2014, and hopes that all economies continue their commitment toward regional integration and economic growth.

Corruption Undermines a Growth and Prosperity Agenda

We can and should be optimistic about economic recovery and growth, but we must be realistic about the remaining trade barriers and market disruptions that can derail commitments made to economic integration and a green sustainable future.

Capital is a coward in volatile, unpredictable, and insecure markets. Corruption and illicit trade destroy our local communities, economies, and markets. Governments need to be alert to signs of corruption and abuses of power, and actively engage to meet the demands of citizens for integrity, transparency, and accountability.

No economy is immune from corruption, nor can any economy combat it alone.

Widespread corruption deters foreign and domestic investment, distorts market competition, threatens consumer safety, and raises the cost of public services and infrastructure projects. Corruption of public officials undermines legal and judicial systems as well as public trust in government.

Combating bribery of public officials in cross-border transactions must be a priority made by all governments in order to level the playing field for all of our businesses. Bribery in international business undermines free and fair competition and perpetuates a culture of underinvestment and corruption.

The United States continues to work for effective implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and other OECD anti-bribery measures, and we encourage major exporting economies to join the OECD Working Group on Bribery and accede to the Anti-Bribery Convention.

We encourage governments to take proactive steps to enforce these measures by investigating and prosecuting persons who offer, promise or pay bribes to foreign public officials, just as U.S. enforcement agencies do under the Foreign Corrupt Practices Act (FCPA).

Where appropriate, we are also raising concerns with foreign governments about fairness, transparency, and the prompt resolution of disputes, including bribe demands, as these affect the operating environment for American and other multinational companies.

Experience has shown that markets that exhibit rule of law and strong anti-corruption controls are most conducive to business and most attractive to investment and trade.

With China, we have had excellent anti-corruption dialogues, exchanges, and fruitful diplomatic cooperation. Bilateral efforts within the China-U.S. Joint Liaison Group on Law Enforcement Cooperation’s Working Group on Anti-Corruption (JLG ACWG) reinforce our collaboration in other multilateral and regional fora to strengthen cooperation on anti-corruption, including the denial of safe haven, asset recovery, and mutual legal assistance.

We look forward to working with our Chinese counterparts to help strengthen enforcement and promote compliance programs pursuant to our common commitments to fight international bribery, and we encourage China to participate in the OECD Working Group on Bribery, with an eye toward accession to the Anti-Bribery Convention.

Both countries are meeting tomorrow here in Xi’an for the China-U.S. 8th JLG ACWG, where national and provincial leaders will come together to discuss how to further strengthen bilateral and multilateral cooperation to combat corruption, bribery, and illicit trade.

In APEC, the United States, China, and other economies are leading efforts to develop communities of integrity that can enable institutions to fight corruption more robustly. Through our joint efforts in APEC, we hope that over the next two years, we can elevate a commitment to effectively fight transnational bribery and ensure integrity in global markets and supply chains. These are critical areas for sustaining our shared prosperity and protecting the reputations and brand names of internationally-recognized products of both American and Chinese companies.

Working together, the United States and China can set an example in leading efforts to prevent and combat corruption and bribery internationally including through the APEC Anti-corruption and Transparency Working Group (ACT), the G20 Anti-corruption Working Group, and processes related to the UNCAC and UNTOC, and other multilateral fora—while strengthening integrity and promoting responsible governance across the region.

We hope that in 2014 China can elevate the APEC agenda on combating corruption and encourage the APEC Anti-Corruption Network (ACT NET) to make fighting bribery a top priority in its work program.

Illicit Trade: Shutting Down Illicit Markets and Building New Investment Frontiers

The illegal economy – or as some have referred to it: “the dark side of globalization – is a threat that we must be vigilant about and safeguard against. This illegal economy includes narcotics trafficking, wildlife trafficking, human trafficking, illegal logging, counterfeit consumer goods such as apparel and medicines, money laundering, and other illicit enterprises.

According to some estimates, the illegal economy accounts for eight to 15 percent of world GDP, and in many parts of the developing world, it may account for several times this estimate. The estimated annual costs and revenues generated by transnational illicit networks and organized crime groups are staggering:

• Money Laundering: $1.3 to $3.3 trillion, between 2 and 5 percent of world GDP

• Bribery: Significant portion of $1 trillion

• Narcotics Trafficking: $750 billion to $1 trillion

• Counterfeited and Pirated Products: $500 billion

• Environmental Crime (illegal wildlife trade, logging, trade in CFCs, and toxic waste dumping): $20 to $40 billion

• Human Trafficking: 20.9 million victims globally, $32 billion annually

• Credit Card Fraud: $10 to 12 billion

Simply put, illicit trade is a barrier to economic growth. It stymies legitimate markets, sabotages global supply chains, depletes natural resources, and endangers market security. We all experience the evil effects of illicit trade every day:

• When governments cannot afford to provide vital public services because legitimate revenue streams from legitimate commerce are being siphoned away by corrupt officials, smugglers, and criminals;

• When businesses suffer from the loss of revenue from counterfeiting or black market distribution of their products;

• When men, women, and children are trafficked and exploited, leading to the breakdown of families and communities, degradation of human capital, threats to public health, and extortion and subversion of government officials; and

• When illicit financial flows and dirty money enter the global financial system, eroding the integrity of legitimate markets while giving false hope to victimized communities that illicit enterprise can replace fair and open markets.

Legitimate commerce loses out as the illegal economy expands. If we are serious about expanding economic growth and financing market booms, we must shut down the illegal economy and illicit markets.

Instead of harmful counterfeits and illicit products that pose hazards to our people, we need to work together to build more dynamic economies focused on innovation, competitiveness, and above all, a brighter future.

Protecting our Environment

We cannot separate these goals from environmental stewardship. We need to take responsibility to create societies that protects our environment and ecosystems, that responsibly deal with climate change and deforestation, and the illicit trafficking of environmentally-sensitive products.

Excessive exploitation of our national resources, over harvesting of environmentally-sensitive products such as fisheries and forests, or consumption of endangered wildlife, or wildlife products have detrimental consequences to our health, safety, and livelihoods that can impact the long-term potential of eco-revenues and eco-systems.

Harming our environment also harms humanity. Environmental security issues will indeed be one of the largest challenges facing all of us in the coming decades including the impact of rapid development, deforestation, climate change, and the impacts that natural disasters and pandemics will have on food supplies, water levels and fisheries, and other geo-political and security pressures.

Given that we are a global community, consuming the equivalent of one-and-one half times our planet’s existing natural resources, at this rate of consumption, our ecological footprint is detrimental and unsustainable.

Ladies and gentlemen, we have reached a point where we have no choice but to work together. It is only through partnership and collective action that we will achieve environmentally sustainable growth and increase societal resilience to global risks such as natural disasters, environmental degradation, pandemics, corruption and bribery, and illicit trade.

We must harness our own citizens’ knowledge, oversight, and passion by creating an environment where they can work side-by-side with government to address these issues. The experience of the United States is that civil society strengthens our society’s efforts, complements government resources and presses government to do better in these areas. The enabling environment is one where governments stress transparency and formal and informal avenues for citizen engagement, input, and partnership. It is one where individuals can work to expose corruption and other forms of malfeasance through the peaceful expression of their views without fear of detention, arrest, and retribution. It is one where civil society groups can organize and operate freely, and where the media operates without fear or undue influence.

Public-private partnerships are equally important. The OECD Task Force on Charting Illicit Trade and the World Economic Forum’s (WEF) Global Agenda Council on Illicit Trade and Organized Crime are two fine examples of innovative programs focusing on ways to engage businesses and other civil society partners towards collective action to combat corruption and illicit trade.

The private sector can no longer remain on the sidelines of these issues. It is key to providing solutions for a technological approach and innovation. They should work with governments to open up new possibilities by leveraging their expertise, resources, and leadership. As Secretary of State John Kerry underscored earlier this year at the World Economic Forum’s “Breaking the Impasse” summit: “foreign direct investment – private investment, leveraged investment, visionary investment – has the ability to be able to change the world.”

Let’s unleash this potential and allow for markets to blossom.

Conclusion: Working Together to Build Sustainable Futures

In closing, a commitment to integrity is a smart investment. We need to create free market and transparency-based platforms that have few barriers to trade and investment. By promoting openness and economic growth, we can expand business to confront under-employment in developing economies, create new jobs, put more money in people’s pockets, and increase prosperity.

Saving the planet is good business practice too. We must work together to save endangered yet vital ecosystems and habitats that ensure the sustainability of our communities, markets, and biodiversity.

By working together to fight corruption and illicit trade, we can help people to meet their potential and realize their aspirations for a brighter future: a better education, better healthcare, and better access to housing, food and water, and other subsistence needs.

We must be honest with ourselves. Corruption remains a concern to many, especially when people see with their own eyes that prosperity is not equally shared across the board, or when they experience first-hand abuse of power, or read about the luxurious lives of those entrusted to uphold the public interest.

If we do not work together, we will collectively destroy our chances at achieving a sustainable future for our children and grandchildren. We will have failed to seize the opportunities to improve the state of the world and provide an enduring leadership to help people achieve better lives.

We must act now. The United States will serve as a partner in the region to promote stronger and deeper regional economic integration, to help realize our common trade and investment interests. I am honored to be here and for the invitation to participate at this forum.

The United States and China are at the crossroads of a high-tech, digital age and e-commerce frontiers that are powering today’s international trade and economic growth. Together and in collaboration with our partners here today, we will work together to preserve and protect our earth, our world heritage, our human capital, and our capital markets to invest the dividends of peace towards a more global community of prosperity.

The future is ours to build together through open governance, open markets, and open societies.

Our journey together is a reward that benefits all economies.

Xie Xie.