* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
Unmasked: Corruption in the West (I.B. Tauris & Co. Ltd., 2017) has arrived at the right moment. Laurence Cockcroft and Anne-Christine Wegener, both deeply involved in anti-corruption movements, are turning the light onto corruption in western countries. What else would you call Donald Trump’s continuing involvement in his personal investments and his refusal to release his tax returns to the American people? For a half century we have enjoyed criticizing developing country kleptocrats for their venality. Now the litany of outrages focused on us in these pages is sobering to say the least.
The authors put chapter and verse to the “mask of normality” that characterizes “the buying of influence and the selling of power.” The Citizens United case decided by the U.S. Supreme Court in 2010 effectively eliminated limits on corporate contributions to political action committees and even directly to political parties. Chief Justice John Roberts found it wrong “to restrict the political participation of some in order to enhance the relative influence of others.” What he got and America got is enormously elevated influence from the wealthy, often with their identities shielded behind anonymous entities. The election of Trump and a cabinet of billionaires is the direct result.
Money in politics is corrupting Europe as well. The party of Helmet Kohl in Germany utilized an illegal financing structure through much of the 1980s and 1990s. In France two ex-presidents, Jacques Chirac and Nicolas Sarkozy, were indicted in recent years for campaign corruption. Silvio Berlusconi in Italy had 30 corruption and tax evasion cases against him during his years in politics. Spain, Hungary, Poland, and the Czech Republic have vividly exhibited the evils of private money purchasing political power. In the UK, the City of London, financial center of the nation and its far-flung territories and dominions, maintains an extraordinary level of control over both the Conservative and Labor parties.
Corruption within the banking sector produced the financial crisis of 2007/8. Earlier in America’s savings and loan crisis of the 1980s and 1990s, a thousand S&Ls were closed, along with 1,600 small commercial banks. The remedy was painful but investors paid the price for their profligacy. Not so in the financial crisis. Public money bailed out the banks after they indulged in the most flagrant hyping of mortgage securities. Some banks, seeing the overpriced market, even took positions against what they were selling to their customers. The rating agencies—Moody’s, Standard & Poor’s, and Fitch—handed out AAA ratings on securitized mortgage packages with abandon. Banks in the UK, Germany, the Netherlands, and Norway rushed to buy these overrated assets, which spread the crisis globally. We have still not fully recovered from this debacle. Yet the banks have managed to curtail restrictions put in place with the Dodd-Frank legislation and are once again speculatively trading for their own accounts, now in high risk derivatives at a level ten times global GDP.
Is there an overarching explanation for the corruption now permeating western political and economic systems? Yes, as a matter of fact—secrecy. Over the last half century we in the West have created and expanded a shadow financial system for the specific purpose of moving money from poor to rich. As long as it was primarily moving money from poor countries to our rich countries we welcomed the system. But now exactly the same system is moving money from poor people to rich people within the rich countries.
At the heart of this system are shell companies, disguised so that no one knows who are the real owners. They number in the millions across the globe, more incorporated in the United States than anywhere else. Imagine this; in a frantic race to the bottom, 50 states now permit the establishment of corporations where the citizens of the state do not have the right to know what is being authorized on their behalf.
In addition to shell companies, the shadow financial system hosts nearly 100 tax havens and secrecy jurisdictions around the world, all of which can send money, usually disguised as to origin and ownership, to and from banks in the richer countries. Money laundering techniques are certainly not limited to criminals. Every scheme used by drug dealers, human traffickers, and counterfeiters has its origins in the commercial world.
We are paying a high price for the shadow financial system moving and secreting money accumulating into the trillions of dollars. This reality undermines our efforts to fight transnational crime, reduce poverty, enhance security, and achieve political stability.
What is the answer? As Cockcroft and Wegener say, “an end to secrecy” is the necessary step.
