There are many conversations taking place about why the US voted for Donald Trump and the UK voted for Brexit. The extent to which the electorate feels that the governing elite is “corrupt” has been overlooked, though ironically it was picked up by Trump himself with his promise to “drain the swamp”. As many as 70 per cent of EU citizens and US citizens consider their own political parties to be “corrupt” – a broad term which is based on a general sense that leaders are out for themselves rather than society as a whole.
But politically speaking, the US has used the international system to fight corruption over the last 40 years. President Obama made constant efforts to regulate the system of political lobbying, while seeking to extend the anti-bribery principles of the Foreign Corrupt Practices Act to first all OECD members and later all G20 countries. With the dawn of a new era due to start next year with Trump’s inauguration, how likely is it his administration will sustain that process? The short answer is unlikely, given his history – several bankruptcies, more than 30 court cases against him and his refusal to place his assets in a blind trust.
There are five main kinds of corruption. First, political finance. While all EU countries have fairly tight campaign finance laws they are often disregarded. Recent scandals involving the PP in Spain and the UMP in France match New Labour’s record in soliciting loans to the party to avoid the very rules it introduced under the Political Parties and Elections Act of 2000. In the US, “Citizens United” – the Supreme Court decision of 2010 – unravelled past attempts to limit corporate contributions to campaign finance and heralded a new era of “paying for policy”. The decision was heavily criticised by Bernie Sanders, and more modestly by Hillary Clinton, but it is highly unlikely that Trump’s nominees for the Supreme Court will seek to roll it back.
Second, the lobbying industry. Political lobbying has escalated to the point where it keeps up to 100,000 people busy in Washington despite the effort by Senator McCain and the then Senator Obama to control it. In Europe, there are approximately 10,000 lobbying organisations registered in Brussels. Trump’s alleged rejection of potential senior government leaders as having had no association with the lobbying industry is again very unlikely to go far: the funding of Congressional candidates means they have a symbiotic relationship with the lobbying industry.
Third, although the finance sector and the crash of 2008 has been subjected to an unparalleled array of analyses almost none of these have been prepared to identify corruption as a root cause. But the successful prosecution for “reckless lending” in the sub prime market, the clearly misleading ratings by the ratings agencies and the deliberate manipulation of the interest rate and forex markets were certainly wider symptoms of a corrupt system. The extraordinary creation of unsolicited accounts within Wells Fargo was another. Yet both the ECB’s Single Supervisory Mechanism and the UK’s Financial Conduct Authority have still failed to address the real issue of a corrupt banking culture.
In the US, Senators Sanders and Warren have sought to expose the failure of the major US regulators to focus on the same issue. Surprisingly some in Trump’s circle – most notably Steve Bannon – are on record as suggesting that some banking CEOs should have gone to jail. But the identity of likely candidates for Treasury Secretary belies this threat.
The interface between the on-shore banking sector and “secrecy jurisdictions” which facilitate shell companies was dramatically exposed in a series of leaks culminating in the Panama Papers. Estimates on the scale of funds held in these jurisdictions – including Switzerland – indicate a minimum of $10 trillion. The complicity of governments such as the UK in fostering this network is well established; less publicised is the role of several states in the US – notably Montana, Wyoming and Delaware – in facilitating the formation of shell companies on an automated basis on a huge scale. This regime, under threat but still very much alive, is one of the largest incentives to corruption by both corrupt political leaders and organised crime, as well as deliberate “transfer pricing” by multinational companies.
Obama has proved unable to overcome the objections of congressional representatives to making these arrangements transparent. It seems unlikely that a President who needs to hide his own affairs will push for transparency at state level.
Fourth, international bribery by western companies – supposedly a problem of the past following the OECD Anti-Bribery Convention of 1977 – continues to reflect low standards of business in emerging markets. Recent fines imposed on GSK in both the US and China and on Walmart in the US confirm the scale of the problem, even for blue-chip companies. Only four countries can be (optimistically) described as “compliant” with the Convention – measured by the number of cases under investigation – and it is clear that 25 out of 27 EU countries are far from diligent in taking action against their bribe-paying national champions. Trump, meanwhile, has described the US Foreign Corrupt Practices Act of 1977 as a “horrible act”.
Fifth, self-congratulation over the Paris Agreement on climate change has disguised the fact that corruption threatens the control of carbon emissions. In the US, lobbying by powerful corporations such as Koch Industries has weakened the Environmental Protection Agency (EPA) which is responsible for setting emission targets. While the Koch brothers did not back Trump they indirectly backed Congressional representatives who form a front hostile to the EPA – the key agent of the US government. Trump, as a non-believer in climate change, will certainly line up with the forces seeking to limit the power of the EPA.
Trump is a danger to the forces at work against corruption across the world, not only in the USA. His election occurs at a time when strong forces in the developing world such as Brazil, India and South Africa are embracing the need to address corruption as a threat to the nation state. For the West, led by the US, to step backwards on its commitment to fight corruption would be fatal to the global anti-corruption effort.
Laurence Cockcroft is a co-founder of Transparency International and co-author of the forthcoming book ‘Unmasked: Corruption in the West’
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