Sovereign Wealth Funds, Social Arrears and the Role of Corruption

by Christiana Ochoa

[Christiana Ochoa is Associate Professor of Law at the Maurer School of Law at Indiana University Bloomington]

I would like to supplement, rather than critique Patrick Keenan’s contribution to our deepening interest in and knowledge of sovereign wealth funds. For those of you who have not read the article, I recommend it. In it, you will find a chart presenting the official development assistance and SWF assets under management for a number of countries. What strikes me about this chart is that a third number for each country might support Keenan’s core argument (that a before being permitted to invest in SWFs a government might first, or at least conterminously, be required to invest in its social and physical infrastructure) at the same time as supplementing that argument.

I would suggest that each country’s corruption rating should inform how we interpret the numbers Keenan provides. Searching out those numbers, here’s what I found (for just a handful of the countries in his chart):


Development Assistance (in millions)

SWF Assets under Management (in millions)

Corruption Rating (among 180 countries, from Transparency Int’l Corruption Perception Index 2008)





























What this makes me think is that in addition to the theory of social arrears on which Keenan rests his argument, it would be helpful to consider the likelihood that the investments will eventually redound to the benefit of the SWF-country’s citizens. In the case of countries like those I included above, there is good reason to believe that endemic corruption will prevent citizens from enjoying the full benefits of their country’s resources, without regard to whether the profits from those resources are invested in SWFs or not. At the same time, however, there were also countries, like Chile, on Keenan’s chart with ratings of 23 (only five points more corrupt than the United States). These countries appear to be relatively accountable to their citizens and that should provide some comfort that their citizens will enjoy the profits from the sale of their resources, either now or, if the profits are invested in SWFs, at some point in the future.

Keenan has argued elsewhere that “the wealth created from SWFs can be compared with the revenues that come from the sale of natural resources.” This being the case, I would suggest two additional potential strategies that emerge from corruption-related work for ensuring that the profits from SWF investments benefit the SWF-country’s citizens. First, the financial reporting framework established by the Extractive Industries Transparency Initiative (EITI) might be useful in ensuring more full information about the amount of money invested, the location of the investments and the profitability of SWF investments. This would i) provide valuable information about the “downstream” uses of the profits garnered by extractive (and other) industries, ii) would increase the SWF-country’s financial accountability to its citizens and iii) has the potential of making the EITI’s impact more long-lasting and robust. Second, I’ve been watching the current efforts to “tag” oil with real interest. The idea is that the successes of the Kimberly Process might be replicated to diminish the vital role oil plays in funding violent conflicts. And, while I suspect that tagging money is at least as hard as tagging oil, good forensic accounting might have a real role to play in ensuring that the profits from SWFs actually benefit the citizens on whose behalf they are purportedly invested.

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