NAMIBIA ECONOMIC SOCIETY

1. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - NAMIBIA ECONOMIC SOCIETY Financial Crime in Namibia: It’s Evidence, Economic Effects and Countering Mechanisms in Namibia Presenter: Mr. R. Ritter 20 June 2007 Nampower Convention Centre

2. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Agenda • Setting the scene 2. Conventional response • In search of the moral economic man or economy. 4. Conclusion and Recommendations

3. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Setting the Scene • Lessons to be drawn from increasing governance failures, corruption, financial crime, money laundering and terrorist financing. • It seems we are at loss to meet the growing need for ethical orientation. • We have to realize that moral behaviour does not fall simply from the sky as a manifestation or wish of some naïve idealism. We have to work for it!

4. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Conventional Response • The heart of the defence against financial crime and money laundering is the “know your customer principle”. • A Financial Institution should know the true underlying beneficial owner of the funds. • Have effective legislation in place. • Regulators of Financial Institution must adopt a risk-based approach. • Governance – Financial Institutions must have owners and controllers with integrity. • The extension of special obligations to lawyers.

5. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Conventional Response • We should not be shy on detering financial crime and money laundering. Criminals will be attracted or gravifate to the most secret, opaque or lax jurisdictions. Especially in an common monetary area. • Defences against financial crime require constant attention and co-operation. • The Institutional quality and the willingness must be present (Police, ACC, Justice, Bank of Namibia and NAMFISA).

6. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Is the Moral Economic Man Elusive? • Unethical behaviour • Ethical behaviour • Weak moral character • High relative cost of ethical behaviour • Strong moral character • Low relative cost of ethical behaviour

7. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Beyond Economic Rationalism • “The social responsibility of business is to increase it profits” Milton Friedman, (1970). • “Financial failure can destroy individual companies. Moral failure will destroy capitalism”. Sir Geoffrey Chandler, (2002). • It seems that economic rationality has “emancipated” itself from moral philosophy. • A process mirroring the disembedding of the economy from society.

8. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Ethics should be the normative – not economics • Today economics and the market sees itself as normative economics or ethics without morals. • Aristotle already emphasized that the economy should not play an instrumental role ( as it currently does), but rather be arranged in the sequence of ethics, politics an economics. • This triad illustrated (see next slide) conceptually that the economy remained embedded in superordinate models of a well-ordered society (politics) and derived its normative orientation from ethics and the res republica.

9. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Ethics Economics Ethics Economics dis- embedded from politics and society Towards a new Political Economy through a critique of economic reason Politics Politics Politics Economics Ethics Economics From Moral Philosophy to Economism - and back Pre Adam Smith Today Desired Future

10. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Which System Debate? • It is not an economic system debate. • Society should not be embedded in economic rationality. • The search for ethics is a search for a well-organized just society of free and equal citizens. • Ethical arguments should be driven by the question of futurability of the current behaviour. Integrity and Legitimacy.

11. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Ethics as a normative on the third dimension • Free market Social Planned Economy Democracy Economy

12. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - The dual nature of the corporation . . . . . . . . . . . . . . . . . . Company Business System • is forced to be competitive in the market • strategic-functional perspective on how to be successful • responsible to shareholders Lifeworld System • as a societal actor has to base its actions on legitimacy • normative perspective on legitimate and a sense-making pursue of success • responsible to society (stakeholders)

13. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - Toward a post-conventional level of moral development • The hypothesis is that a normative descriptive ideal is that economics must be embedded in society. • There must be critical and constructive dialogue between society and Namibian businesses. • It should be realised that moral behaviour can only be legitimised by the use of good arguments (J. Habermas, 1981). • Moral point of view > economic point of view

14. NAMFISA NAMIBIA FINANCIAL INSTITUTIONS SUPERVISORY AUTHORITY - Safeguarding the Nation's Wealth! - RECOMMENDATIONS • The discourse must continue • Society can influence business towards more responsible behaviour by: • Legal sanctioning • Social sanctioning • Social praise • The law enforcement agencies must be willing and able to adress financial crime. • Whistle blowing and transparency