Advanced economies with “good governance” are facing alarming incidents of
business corruption at the highest levels.
by Jeffrey Sachs
Al Jazeera (May 05 2011)
Two years after the US financial crisis, not a single Wall Street
executive has faced jail time
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The world is drowning in corporate fraud, and the problems are probably
greatest in rich countries – those with supposedly “good governance”.
Poor-country governments probably accept more bribes and commit more
offenses, but it is rich countries that host the global companies that
carry out the largest offenses. Money talks, and it is corrupting politics
and markets all over the world.
Hardly a day passes without a new story of malfeasance. Every Wall Street
firm has paid significant fines during the past decade for phony
accounting, insider trading, securities fraud, Ponzi schemes, or outright
embezzlement by CEOs. A massive insider-trading ring is currently on trial
in New York, and has implicated some leading financial-industry figures.
And it follows a series of fines paid by America’s biggest investment
banks to settle charges of various securities violations.
There is, however, scant accountability. Two years after the biggest
financial crisis in history, which was fueled by unscrupulous behaviour by
the biggest banks on Wall Street, not a single financial leader has faced
jail. When companies are fined for malfeasance, their shareholders, not
their CEOs and managers, pay the price. The fines are always a tiny
fraction of the ill-gotten gains, implying to Wall Street that corrupt
practises have a solid rate of return. Even today, the banking lobby runs
roughshod over regulators and politicians.
Corruption pays in American politics as well. The current governor of
Florida, Rick Scott, was CEO of a major health-care company known as
Columbia/HCA. The company was charged with defrauding the United States
government by over billing for reimbursement, and eventually pled guilty
to fourteen felonies, paying a fine of $1.7 billion.
The FBI’s investigation forced Scott out of his job. But, a decade after
the company’s guilty pleas, Scott is back, this time as a “free-market”
Republican politician.
When Barack Obama wanted somebody to help with the bailout of the US
automobile industry, he turned to a Wall Street “fixer”, Steven Rattner,
even though Obama knew that Rattner was under investigation for giving
kickbacks to government officials. After Rattner finished his work at the
White House, he settled the case with a fine of a few million dollars.
But why stop at governors or presidential advisers? Former Vice President
Dick Cheney came to the White House after serving as CEO of Halliburton.
During his tenure at Halliburton, the firm engaged in illegal bribery of
Nigerian officials to enable the company to win access to that country’s
oil fields – access worth billions of dollars. When Nigeria’s government
charged Halliburton with bribery, the company settled the case out of
court, paying a fine of $35 million. Of course, there were no consequences
whatsoever for Cheney. The news barely made a ripple in the US media.
Impunity is widespread – indeed, most corporate crimes go un-noticed. The
few that are noticed typically end with a slap on the wrist, with the
company – meaning its shareholders – picking up a modest fine. The real
culprits at the top of these companies rarely need to worry. Even when
firms pay mega-fines, their CEOs remain. The shareholders are so dispersed
and powerless that they exercise little control over the management.
The explosion of corruption – in the US, Europe, China, India, Africa,
Brazil, and beyond – raises a host of challenging questions about its
causes, and about how to control it now that it has reached epidemic
proportions.
Corporate corruption is out of control for two main reasons. First, big
companies are now multinational, while governments remain national. Big
companies are so financially powerful that governments are afraid to take
them on.
Second, companies are the major funders of political campaigns in places
like the US, while politicians themselves are often part owners, or at
least the silent beneficiaries of corporate profits. Roughly one-half of
US Congressmen are millionaires, and many have close ties to companies
even before they arrive in Congress.
As a result, politicians often look the other way when corporate behaviour
crosses the line. Even if governments try to enforce the law, companies
have armies of lawyers to run circles around them. The result is a culture
of impunity, based on the well-proven expectation that corporate crime
pays.
Given the close connections of wealth and power with the law, reining in
corporate crime will be an enormous struggle. Fortunately, the rapid and
pervasive flow of information nowadays could act as a kind of deterrent or
disinfectant. Corruption thrives in the dark, yet more information than
ever comes to light via email and blogs, as well as Facebook, Twitter, and
other social networks.
We will also need a new kind of politician leading a new kind of political
campaign, one based on free online media rather than paid media. When
politicians can emancipate themselves from corporate donations, they will
regain the ability to control corporate abuses.
Moreover, we will need to light the dark corners of international finance,
especially tax havens like the Cayman Islands and secretive Swiss banks.
Tax evasion, kickbacks, illegal payments, bribes, and other illegal
transactions flow through these accounts. The wealth, power, and
illegality enabled by this hidden system are now so vast as to threaten
the global economy’s legitimacy, especially at a time of unprecedented
income inequality and large budget deficits, owing to governments’
inability politically – and sometimes even operationally – to impose taxes
on the wealthy.
So the next time you hear about a corruption scandal in Africa or other
poor region, ask where it started and who is doing the corrupting. Neither
the US nor any other “advanced” country should be pointing the finger at
poor countries, for it is often the most powerful global companies that
have created the problem.
_____
Jeffrey D Sachs is Professor of Economics and Director of the Earth
Institute at Columbia University. He is also Special Adviser to United
Nations Secretary-General on the Millennium Development Goals.
The article was first published by Project Syndicate:
http://www.project-syndicate.org/commentary/singh13/English
The views expressed in this article are the author’s own and do not
necessarily reflect Al Jazeera’s editorial policy.
http://english.aljazeera.net/indepth/opinion/2011/05/201151114933102548.html