Sovereign Wealth Funds: Corruption and Other Governance Risks

Sovereign wealth funds (SWFs) have existed for more than a century, typically as state-sponsored financial institutions to manage a country’s budgetary surplus, accrue profit, and protect a country’s wealth for future generations. Yet, for economies of the Organisation of Economic Co-operation and D...

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Bibliographic Details
Published in:Policy File 2024
Main Authors: Vittori, Jodi, Kumar, Lakshmi
Format: Report
Language:English
Subjects:
Budgets
Corruption
Finance
Rule of law
Sovereign wealth funds
Online Access:Request full text
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Summary:Sovereign wealth funds (SWFs) have existed for more than a century, typically as state-sponsored financial institutions to manage a country’s budgetary surplus, accrue profit, and protect a country’s wealth for future generations. Yet, for economies of the Organisation of Economic Co-operation and Development (OECD), SWFs only burst into public consciousness in the mid-2000s, when widespread concerns arose that SWFs with large amounts of capital could control strategically important assets and threaten the national security of countries where they deployed their investments. In the 1990s, SWFs held $500 billion in assets, but by 2020, they had more than $7.5 trillion in assets under management (AUM), equal to about 7 percent of the global AUM of $111.2 trillion. Globally, prior to 2010, there were only fifty-eight SWFs. Today, however, SWFs have become an increasingly fashionable type of state-owned entity to set up, and there are currently 118 operating or prospective SWFs. In the African continent alone, prior to 2000, there were only two SWFs. Since 2000, sixteen new SWFs have been set up. What is particularly concerning about this dramatic growth is that SWFs have been established not just in countries with strong rule of law and civil liberty protections but also in countries marked by high corruption risks, insecurity, violence, and weak or absent rule of law. The chapters that follow include case studies of SWFs from Africa, Asia, Europe, and the Middle East to demonstrate that there are systemic governance issues and regulatory gaps that can enable SWFs to act as conduits of corruption, money laundering, and other illicit activities. This compilation also provides a compelling narrative that highlights the need for clear policies on the management of SWFs, lending weight to the recommendations included in the closing chapter. For SWFs to achieve their full potential, this compilation urges reform not only at the institutional level of the SWF but also across the variety of entities and jurisdictions that make up the supply chain of SWF activity.