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The Despot's Guide to Wealth Management:
On the International Campaign against Grand Corruption
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CORRUPTION is never far from the front page. In recent weeks, thousands of Romanians protested against plans to decriminalise low-level graft, and Rolls-Royce was hit with a £671m ($835m) penalty for alleged bribery. Meanwhile, long-running corruption scandals continue to roil political and corporate leaders in Brazil and Malaysia. The growing attention has spurred governments to pledge action, as dozens did at a global anti-corruption summit in London last year.
Jason Sharman, professor of international relations at Cambridge University, is particularly interested in “grand corruption”: the theft of national wealth by kleptocratic leaders and their cronies, often in poor (albeit resource-rich) countries. It is a subject he knows well, having spent over a decade studying the offshore centres and vehicles—shell companies, for example—that are used to hide ill-gotten gains.
The list of light-fingered leaders who feature in “The Despot’s Guide to Wealth Management” is long. It includes various dead ones, such as Nigeria’s Sani Abacha, Mobutu Sese Seko of Zaire, Indonesia’s Suharto and Ferdinand Marcos of the Philippines (whose shoe-loving wife, Imelda, graces the book’s cover). These four alone ran off with an estimated $55bn. More recent examples include the pre-Arab spring leaders of Egypt, Libya and Tunisia, and Viktor Yanukovych of Ukraine. The overall amount that has been pilfered is anyone’s guess, given the murkiness of offshore finance. Estimates for Egypt under Hosni Mubarak range from $1bn to $70bn. One complicating factor is that much of the money is siphoned off through “legal corruption”, in business ventures that comply with local laws, often because of legislative tinkering by pliant parliaments.
For a long time governments, even in the rich world, seemed uninterested in bringing kleptocrats to book. That began to change in the 1990s, as a result of two things. The end of the cold war took away a reason to turn a blind eye to theft by heads of client states. That coincided with a shift in thinking among makers of development policy, who began to view corruption as one of the main causes of poverty. Mr Sharman also credits the rise of anti-corruption NGOs and institutions that offer practical help to track down former leaders’ loot, such as the Stolen Asset Recovery Initiative, a joint UN-World Bank project.
America has pushed the anti-corruption agenda hardest, with strong laws (such as the Foreign Corrupt Practices Act and the Patriot Act), a determination to enforce them—with help from a special anti-kleptocracy unit in the Justice Department—and congressional backing. Senate investigations have highlighted the role of banks, lawyers and other “gatekeepers” in enabling grand corruption. America, Britain and Switzerland are especially attractive destinations for foreign wealth because of their sophisticated financial centres. All three have made strides in tackling corruption, but many gaps remain.
Anonymous shell companies, dubbed the getaway cars of financial crime, are legion in America. Britain also maintains a network of opaque offshore satellites, including the British Virgin Islands. Police and regulators are keen to know more about them, but lack funding. Switzerland has shed some of its secrecy and passed laws to ease asset recovery and repatriation, but implementation tends to be patchy; Mr Sharman thinks weak laws and strong enforcement do more good than strong laws and weak enforcement. He also includes a chapter on his native Australia which, he concludes (with help from a private investigator hired to sift through corporate records), is “able but unwilling” to stop inflows of iffy money from China and Papua New Guinea.
Many of the difficulties in recovering stolen assets relate to the border-crossing nature of the theft. The “mutual legal assistance” process, used by governments to request or share information about bank accounts and company ownership, is clunky and unreliable. Mr Sharman laments the “inherent difficulty of international legal action in a world of sovereign states”.
Investigations become more challenging when the country where the alleged corruption took place refuses to co-operate (usually because those under suspicion still wield power). American prosecutors made only limited headway in their high-profile case against the free-spending son of Teodoro Obiang Nguema Mbasogo, president of Equatorial Guinea since 1979. To their credit, America and Switzerland seem undeterred by such blocking tactics as they probe the still-unfolding 1MDB scandal in Malaysia.
Even when both sides are willing, difficulties abound. Mr Sharman describes a host of problems afflicting asset-recovery efforts after the Arab revolutions in 2011, from basic transliteration headaches to proving under the laws of the host country that funds in a particular account were acquired through corruption (which, given money’s fungibility, is especially difficult if the account-holder also has legitimate businesses). Egypt found itself in a frustrating situation. It needed to find “the specific location and nature of stolen assets abroad to recover them”, yet countries holding them would co-operate only once Egyptians had located these assets. The authorities in Cairo became so frustrated that in 2012 the government sued the British Treasury after it had denied 15 of Egypt’s requests for legal assistance.
So far, little money has been returned to Cairo. This fits in with the broader pattern. As of 2014, the worldwide amount of looted state wealth that had been repatriated stood at just $4.5bn, compared with hundreds of billions believed stolen. Even seizures of criminal proceeds in America are a mere “pin prick”, according to an official. But although the extra anti-corruption efforts have not translated into a big increase in recoveries, they may still have a deterrent effect—just as speed limits make a difference to people’s driving, even though only a few drivers are fined.
Mr Sharman ends with some suggestions for strengthening the fight against the mega-thieves: tougher penalties for firms that help them, especially banks (fines are paltry, except in America); blacklisting of the worst kleptocracies, with their officials denied physical or financial access to the West; and greater use of tax policy, especially in light of the recent wave of international tax-transparency agreements. Like Al Capone, most corrupt officials are also guilty of a tax crime. The fact that these are still only proposals shows just how far there is to go.
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