CONSTITUTIONAL MECHANISMS TO PREVENT AND MITIGATE FINANCIAL CRISES

by Dr. Dayanath Jayasuriya,
President’s Counsel

It cannot be gainsaid that corruption, gross mismanagement of funds and weak control systems are the root causes of most financial crises faced by nations where foreign currency has been siphoned off to tax havens around the world that welcome ill-gotten wealth. Dubious methods are used to obtain commissions or divert allocated funds from planned or on-going projects and circumvent anti-money laundering and due diligence controls to park the funds in jurisdictions that shield the true beneficial owners. These incidents happen in both developed and developing countries and in some instances the inflow of tainted funds to the former countries overshadows the outflow of such funds to tax havens.

Increasingly, it is recognized that existing traditional constitutional structures in many countries are grossly inadequate specifically to prevent and mitigate corruption and gross mismanagement of funds and strengthen weak control systems. Countries that have been working on constitutional reforms have hardly addressed mitigation and preventive measures as the focus has been diverted to issues such as the role and powers of the executive President, Prime Minister and other minsters; the balance between the executive, the legislature and the judiciary and separation of powers; the supremacy of Parliament and oversight role of the judiciary; public trust; power to impeach or remove members of the executive, legislature and the judiciary and so on.

Issues are country specific and no two countries can resolve these issues in an identical manner. The discourse on these issues has a long history without any definitive answers. Parties have either won or lost general elections or referenda based on their ideological points of view. The issues enumerated above are basically political decisions and constitutional amendments which seek to change the basic structure of the Constitution often require a two thirds majority in the legislature and endorsement at a referendum.

Even though quite a number of countries have set up anti-corruption bodies through constitutional amendments, studies on the impact are few and far between. An acute shortage of US dollars has a ripple effect resulting in the unavailability of fuel, essential medicines, rice and imported food items and most importantly the inability to honour debt obligations.

Without passing any value judgments on the causes of the debt crisis in any country, this article offers some generic provisions that could be included, as suitably amended by the Legal Draftsman, in any constitution to facilitate resolving pending financial issues.

= The Minister in charge of the subject of Finance must submit monthly a report to the Speaker on the current financial status and the Speaker must arrange for copies to be distributed and convene a sitting on a priority basis and allocate sufficient time for a debate. Where critically important issues have to be brought to the attention of the Members of Parliament, the Minister may at any time submit any supplementary report. Within three days of the conclusion of a debate, the Minister must make a statement as to whether any proposals for policy changes made during the debate will be accepted or not, giving reasons if the answer is in the negative.

= Draft agreements with foreign government and corporate bodies that seek to pledge state owned properties in exchange for loans or commodities shall be tabled before Parliament by the relevant Minister in charge of the subject at least three days before the due date for signature and shall proceed to finalize such agreements after taking into consideration any proposals made by Members of Parliament and civil society representatives. A copy of each signed and sealed agreement shall be tabled in Parliament. Agreements should provide for the Auditor-General to monitor the proper disbursement and utilization of funds and bring any deviations or discrepancies to the notice of the relevant Minister who shall keep Parliament notified. Agreement should also provide for zero tolerance for corruption and similar illegal or unethical practices.

= The UN Convention against Corruption will be deemed to be part of the domestic law of the country and measures prescribed in the said Convention shall have legal effect notwithstanding the absence of corresponding domestic legislation.

= The Supreme Court shall on the basis of an application before it or ex more motu (of its own accord) direct the agencies responsible for anti-corruption or anti money laundering to cause investigations into alleged complaints that have implications for the country’s financial system. On the basis of the findings, the Court shall direct the Attorney-General to institute appropriate legal action.

= The Speaker shall constitute a committee headed by the Prime Minister with a representative from each political party represented in Parliament to review the recovery process in the financial services and related sectors. The committee shall meet at least once in two weeks and the Prime Minister must apprise the House on significant decisions.

= No person who has been convicted by a court of law for corrupt practices shall be entitled to seek elections to be chosen as a Member of Parliament or continue to serve as a Member of Parliament, if already selected.

= In the course of his work, should the Auditor-General come to a finding of corrupt practices that had caused a loss of revenue to the State or any public institution, the Speaker shall forward the findings of the Auditor-General to the Attorney-General for further action.

A priority for any country on the brink of bankruptcy is to design mechanisms that would help to garner the support of representatives of all political parties. This would demonstrate the existence of good governance practices which is a precondition to seek loans and grants and instill a sense of confidence among foreign investors. Trying to get political mileage through cheap stunts will only be counter-productive in this context. Countries seeking to grapple with foreign exchange crises must demonstrate a strong sense of resilience and unity.

(Dr. Jayasuriya is the author of Mechanics of Constitutional Change: The Sri Lankan Style. He appeared with Mr. K. N. Choksy P. C. for the judges of the Special Presidential Commission that made findings of abuse of power etc. on the part of former Justice Minister Mr. Felix Dias Bandaranaike whose civic rights were subsequently taken away by Parliament.)