Members of Congress are rightly outraged over evidence that Russian officials have misused and diverted International Monetary Fund (IMF) loans that were intended to help Russia recover from its economic turmoil and institute reforms. However, such abuse of IMF assistance transcends the problems in Russia. Immediate congressional action is needed to restrict loans by international financial institutions, such as the IMF and the World Bank, from going to countries that have a high level of corruption and to make those who approve the loans more accountable for their decisions.

In response to allegations of Russian money laundering, House Banking and Financial Services Committee Chairman Jim Leach (R-IA) introduced the Foreign Money Laundering Deterrence and Anticorruption Act (H.R. 2896). The bill seeks to address corruption in the U.S. financial system by expanding domestic banking regulations on foreign banks and depositors. But H.R. 2896 will not solve corruption problems in other countries or prevent foreign governments from misusing or diverting U.S. taxpayers' dollars that are received from international financial institutions.

The U.S. banking system did discover and report inappropriate activities by Russian banks and individuals. However, the misuse and diversion of IMF funds was facilitated by the fact that the Clinton Administration had failed to act on widely available information one extensive corruption, capital flight, and the haphazard nature of the reforms in Russia. Despite such evidence, the Administration continued to support increased international financial assistance to the Kremlin.

In April 1999, for example, the Administration was alerted to allegations of money laundering of up to $10 billion through the Bank of New York and Republic Bank of New York, which possibly involved IMF funds. Still, the White House worked to secure a new $4.6 billion IMF loan to Russia, approved the following July. The Administration did not even require the Russians to investigate the allegations or provide full disclosure of past violations. Thus, endemic corruption has been facilitated by the Administration's disregard for misuse of IMF funds.

Congress must look beyond the U.S. financial system to address this problem. It can use its powers and influence to prevent international assistance to governments that refuse to establish minimum transparency standards and institute obstacles to corruption. And Congress should hold those U.S. officials who support making loans to known corrupt governments responsible for their decisions. Specifically, Congress should:

• Require formal recorded votes for every IMF financial decision.
  H.R. 2896 would require the U.S. representative to the IMF to vote against loans for countries with a high level of corruption that are not implementing good governance and anti-corruption measures. Unfortunately, the IMF rarely votes on loan decisions. Karin Lissakers, U.S. Executive Director at the IMF, admitted in congressional testimony on April 21, 1998, that the IMF voted on only about a dozen of over 2,000 financial and procedural decisions during her first four years at the IMF. Formal, recorded votes on all financial issues would help enforce congressional mandates on lending.

• Spell out corruption report requirements in any legislation.
  Congress should expand the scope of the proposed report in H.R. 2896 to include all nations that are likely to borrow from the IMF or the World Bank and specify the information the report will cover. Specifically, Congress should define what constitutes a high, moderate, or low level of corruption and require a report rating countries accordingly.

• Require international financial organizations to use Western financial auditing practices, due diligence procedures, and fiduciary duty standards.
  Such standards are required of private financial institutions in the U.S. and Europe. Today, lenders execute exhaustive due diligence procedures and handle investors' funds with care; they are liable legally if they fail to do so. Private borrowers are subject to extensive audits prior to, during, and after receiving any credits, and the same should apply to beneficiaries of international financial institution loans.

• Demand that the IMF, World Bank, and all other such institutions to which America belongs, implement protections for whistleblowers.
  The lack of protection discourages employees from reporting illegal or suspicious activities.

• Require a moratorium on new disbursements to governments suspected of corruption until an investigation is conducted and completed.
  Recipients of international aid should be required to comply fully with audits and corruption investigations by the lending institutions before any new loans are approved or disbursements of existing loans are made.

• Insist that all documents relating to an international financial institution's loan decisions, compliance measures, and progress reports on economic reform packages are placed in the public domain.
  The IMF and World Bank rarely release information on their loans to the public. This includes analysis of potential loan recipients, compliance with loan conditionality, and reports on questionable activities. Taxpayers have the right to know how the recipient governments spend their tax dollars.

• Hold U.S. officials who oversee these loan decisions to the same standards as private-sector lenders.
  U.S. representatives at the international financial institutions and the Secretary of the U.S. Treasury should be held legally accountable for failure to exercise due diligence if they approve loans to highly corrupt governments.

• Pare back the immunity from prosecution provided IMF and World Bank officials to enable countries to prosecute them for corruption.
  Today, these officials enjoy immunity from civil and criminal action.

Corruption and misuse of Western assistance is not unique to Russia. It is endemic in many IMF and World Bank loan recipients. U.S. policymakers should take steps to prevent American tax dollars from being misused or stolen. The first step should be a full investigation of the corrupt activities and implementation of strong accountability measures.

Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs and Dr. Ariel Cohen is Research Fellow in Russian and Eurasian Studies in the Kathryn and Shelby Cullom Davis International Studies Center at The Heritage Foundation.