Radical steps must be taken to halt the renaissance of corruption, the most dangerous growth industry of our time - Business Comment - Business - The Independent

Radical steps must be taken to halt the renaissance of corruption, the most dangerous growth industry of our time

Global Outlook: The illegal privatisation of formerly democratic institutions is so dangerous

Today, corruption and the problems it produces are in the focus of policymakers worldwide.

By consensus, corruption threatens the proper functioning of the global economic system almost to the same extent it threatened the US economy in the Gilded Age at the end of the 19th century. The renaissance of corruption is linked to the financial rise of developing, emerging markets; to the expansion of businesses that are only interested in seeking advantage and not creating wealth; and to the exhaustion of the “third wave” of democratisation in the late 1990s.

But this provides only a partial explanation and does not supply a full understanding of the problem and its significance. We believe the time has come to distinguish clearly between the “everyday” bribery that takes place at the grassroots level and to some extent facilitates ordinary people’s lives in less developed countries, and the corruption that permeates all levels of the state apparatus and connects public officials with the entrepreneurial class.

Corruption, not bribery, is the most dangerous growth industry of our time since it creates international criminal networks and generates tolerance to all types of misbehaviour inside the developed and democratic countries.

This corruption is a consequence of illegitimate “privatisation” of the state and its turning into a kind of private property of the bureaucratic caste. In some countries, where tradition allows the authorities to become legally the owners of state assets (which applies, for example, to the Gulf monarchies), the problem does not arise in the same form as it does in Russia or the Democratic Republic of the Congo, where the rulers seek to strike a balance between the rules of counterfeit democracy and rampant aspiration to maximise their share of society’s wealth.

It is the illegal privatisation of formerly democratic institutions for acquiring private fortunes that is so dangerous for the West – and for several reasons. First, it undermines the people’s confidence in democracy (which is perfectly reflected by Russia’s experience); second, it provokes unrest, creating areas of instability (as happened recently, in Egypt or in Ukraine); third, it leads to the formation of a network of corrupt business interests.

We respect all the researchers who point to the enormous damage corruption causes to the citizens of developing countries (Lawrence Cockcroft, for example, estimates the direct cost of corrupt practices in Nigeria and Peru as reaching 5-6 per cent of GDP annually).  But we are convinced that the main source of corruption is the privatisation of public finances, and its most dangerous consequence is the investment of stolen money in the Western financial and property markets.

Politicians in Europe and America must focus on the problem of corruption in the developing countries, not so much because its solution can ease the lives of their citizens, but rather that it also threatens the basic foundations of the functioning of their own societies. The methods for fighting corrupt practices need urgent rethinking.

In recent years, the flow of dirty money from developing countries to developed ones is estimated to have reached $1trn annually. The developing countries’ elites deposit their money in the largest international banks, buy property in European capitals and send their children to study in Western universities. This strategy of turning a blind eye does not work – rather the opposite, it heightens the West’s dependence on corrupt regimes and reduces the negative perception of corruption.

Achieving a global convention against corruption unfortunately make little sense simply because there is no consensus. Decisive action is required to prevent the penetration of corrupt practices into the developed world. The analogy we suggest is with the EU laws on human rights – it does not extend worldwide but is followed successfully within the EU. We say the same approach should be adopted towards corruption.

We would suggest radical measures. First, to adopt an anti-corruption charter signed by the EU and North American states, as well as by Japan and other countries appearing in the highest ranks in anti-corruption rankings. Second, to impose a ban on opening bank accounts in the countries signing up to the charter, for companies registered in offshore jurisdictions. Third, to prohibit all the subjects from countries that have not signed the charter from acquiring real estate,  and setting up companies or taking over businesses in signatory countries. Fourth, to create a single database of corrupt deals and individuals. Fifth, to establish an international police force operating along the lines of Interpol, authorised to investigate and prosecute corrupt activities in the signatory countries.

This enforcement and investigative body would have the power to “join the dots” between different jurisdictions, and be able to tie together the corrupt person’s different bank accounts and business interests to build a complete picture of their activities. Given the high level of financial sophistication deployed to disguise the extent of corruption, it is essential that this international police force has substantial powers of arrest and seizure. There may be other measures as well. But these steps should not be considered as discriminatory vis-à-vis the non-charter nations – they do not restrict any trade with them, or investment in their economies, or their participation in international politics. But they may greatly help the West in not falling under the influence of corrupt elements; and they will highlight corruption and make the battle against it far more visible.

Moreover, the charter would be open for new signatories, so the corruption-prone countries will not be excluded from the developed world but rather will deliberately exclude themselves from it, by not wanting to accept international investigators and policemen operating on their territory.

The world will become much more clear and transparent if these reforms were implemented; if not, corruption may well evolve from the challenge it is today, into a truly established global practice of tomorrow.

Alexander Lebedev is the financial backer of The Independent and of Novaya Gazeta in Moscow; Vladislav Inozemtsev is director of the Centre for Post-Industrial Studies in Moscow and visiting fellow at the Centre for Strategic and International Studies in Washington

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