Why The West Takes The Trophy In The Corruption Championship Game

by Rakesh Krishnan Simha - Apr 18, 2016 02:47 PM +05:30 IST

Why The West Takes The Trophy In The Corruption Championship GameThe Company Involved in Panama papers/Getty Images
    • Corruption in the western society is a historical fact as is elsewhere in the world.
    • Just that the avenues have shifted from petty bribes to siphoning money via more sophisticated routes like tax haven destination, accounting jugglery, lobbying and others.
    • The Panama Papers have finally exposed the extent of western corruption

How’s this for grand theft? The United States may have stolen nearly $40 billion kept by Iraq in good faith in American banks. These assets were “frozen” in 1991 after Saddam Hussein invaded Kuwait. In 2003 after its invasion of Iraq, the US unfroze the assets and flew in $20 billion in cash into the war-torn country. The money was supposed to rebuild Iraqi infrastructure which were destroyed in the first place by the US-led war coalition, but even today, Iraqi utilities and its once excellent hospitals are in a shambles.

The rest $18.7 billion remains unaccounted for. According to an Al Jazeera report from June 2011, “Piles and piles of shrink-wrapped US dollars came, but the cash coming in is not the important part — it is what happened to it after it got here. There are no documents to indicate who got it, where it was spent and what was ever built from it.” American contractors, lawyers, soldiers, pilots, banks, corrupt US diplomats and Iraqi politicians working for the West seemed to have walked away with the money.

An even bigger stash waiting to be looted is Libya’s. The North African country’s nearly $32 billion deposit held in a single American bank and $19 billion worth of assets in the UK together form the biggest sovereign wealth portfolio ever blocked.

The looting hasn’t started yet but that’s probably because the vultures are still circling. In an article dated 23 March 2011, The Washington Post practically salivates at how it took the US just 72 hours to locate and block Libyan assets. The western mouthpiece shamelessly boasts: “Instead of being a secondary measure, as in the past, economic sanctions have become a centerpiece of national security policy.”

No less sordid is the illegal transfer by the US of $8 billion in frozen Iranian assets to the Bank of England, and another $3.6 billion to the Federal Reserve. In 1981, Iran and the US signed an agreement known as the Algeria Declaration, which obliged Washington to remove the block on Iran’s assets. But not only did Washington not pay back a single cent, it in fact rented out part of Iran’s properties to Romania and Turkey, and built a parking lot after demolishing some Iranian-owned properties.

The US actually has an entire department devoted to such illegal cash grabs. The Office of Foreign Assets Control i.e. Ofac is probably one of the most powerful American government agencies no one’s ever heard of. The Ofac’s targets are set by White House orders to use financial tools against a specific country, and it even has an eerily named Office of Global Targeting. According to StratRisks, “The 170-person sanctions unit within the US Treasury Department, comprising mainly lawyers and intelligence analysts known as ‘targeters’, has extraordinary powers along with the ability to interrupt dollar transactions worldwide.”

When it comes to internal corruption, the United States again beats the rest of the world. Ten of the biggest Wall Street banks are facing a class action suit, accusing them of conspiring to limit competition in the $320 trillion (that’s trillion, not billion) market for interest rate swaps.

The banks accused are Goldman Sachs, Bank of America, JP Morgan, Citigroup, Credit Suisse, Barclays, BNP Paribas, UBS, Deutsche Bank and the Royal Bank of Scotland. These banks had rigged the system to siphon earnings away from the investor and into their own pockets. The banks basically pretended to be competing against each other, but they colluded to present interest rates that were higher than if they were really competing with each other to city councils or pension funds. This led to massive financial losses to cities across the United States. That translates into numerous public hospitals not being able to function properly, roads not maintained, day care centres not operating, night shelters working at half capacity, libraries closed and so on.

This epic scale of corruption in their own backyard is something that western agencies tend to ignore. When Transparency International publishes its annual index of corruption, few observe the irony in its rankings. The likes of Switzerland, Luxembourg, the UK and US which are havens for ill-gotten wealth are inexplicably in the least corrupt category. In an Orwellian twist, countries that have become storehouses for tainted cash are called clean.

The World Bank President Jim Yong Kim in a speech quoted an estimate saying “$20 billion to $40 billion are stolen from developing countries each year”. You think that’s a lot of money? Not according to Jason Hickel who lectures at the London School of Economics. He writes in Al-Jazeera: “It’s an extremely small proportion – only about 3 per cent – of the total illicit flows that leak out of public coffers. On the other hand, multinational companies steal more than $900 billion from developing countries each year through tax evasion and other illicit practices.”

The situation is so dire that the more than 30 percent of global foreign direct investment is booked through tax havens. “This is a massive – indeed, fundamental – cause of poverty in the developing world, yet it does not register in the mainstream definition of corruption, absent from the UN Convention, and rarely, if ever, appears on the agenda of international development organisations,” says Hickel.

The Panama Papers have finally exposed the extent of western corruption. According to Vox , “Even as the world’s wealthiest and most powerful nations have engaged in increasingly complex and intensive efforts at international cooperation to smooth the wheels of global commerce, they have wilfully chosen to allow the wealthiest members of western society to shield their financial assets from taxation by taking advantage of shell companies and tax havens.”

Again, the LIBOR i.e. London Interbank Offered Rate scandal of 2012 revealed the magnitude and extent of gaming by British banks that fix interest rates. When the scandal broke, more than $450 trillion in financial products were riding on LIBOR. That’s six times the size of the world’s GDP. It meant hundreds of millions of homeowners, investors and businesses were paying the wrong interest rate. If the rates were gamed by just 0.01 percent the total losses would have been in the region of $450 billion, or nearly two times the GDP of Greece(2012 figures).

FSA’s Martin Wheatley Delivers his Report Into LIBOR Reforms/Getty Images 
FSA’s Martin Wheatley Delivers his Report Into LIBOR Reforms/Getty Images 

But according to Hickel, “This kind of corruption is not entirely out of place in a country where a feudalistic royal family owns 120,000 hectares of the nation’s land and sucks up around $65.7 million of public funds each year. Then there’s the parliament, where the House of Lords is filled not by election but by appointment, with 92 seats inherited by aristocratic families, 26 set aside for the leaders of the country’s largest religious sect, and dozens of others divvied up for sale to multi-millionaires.”

Hickel may have a point. One of the greatest British thinkers of the modern era was discovered to be corrupt to the bone. In 1621 Francis Bacon, the Lord Chancellor and later a philosopher and author, was fined £40,000. What was his crime? The Lord Chancellor, who was responsible for the efficient functioning and independence of the courts, had accepted bribes from litigants.

In 1837 when Benjamin Disraeli got elected to parliament, a lawyer from his constituency accused the future British prime minister of bribing his way to power. It was embarrassing no doubt but the accusation was the least of his worries. “His electors did not mind the first charge. They lived on bribes,” writes biographer Robert Blake. Disraeli’s real crime was that he had promised the lawyer a bribe and not paid. That was a much more serious matter!

In the 19th century, bribery was institutionalised in Britain and Disraeli had nothing against it per se. He was just too cheap to pay up. In fact, in 1841 he dumped his original constituency and chose a cheaper seat with fewer voters requiring fewer bribes.

The legacy of corruption has continued into the modern era. But the West deluded by its sense of entitlement has portrayed the foreigner as immoral while depicting westerners as bearing the burden of honesty.

To be sure, there’s a reason why the West has been able to foist a negative image on the rest of the world. In the West the common man doesn’t have to pay bribes for routine things like a drivers licence, building permit or to incorporate a business. On the other hand, in developing countries paying off a government employee is the easiest way to get things done.

What the West has done is to make corruption invisible. Wall Street graft and money launderers are hard to see and harder to prosecute. Western politicians also make it harder to frame laws that will catch these crooks. Only one of the rogue traders nailed by the FBI for the financial collapse of 2008 ever saw the inside of a jail. The Panama Papers have exposed this underbelly of corruption that exists in the western world.

Rakesh Krishnan Simha is a New Zealand-based journalist and writes on defence and foreign affairs for Russia Beyond the Headlines, a global media project of Moscow-based Rossiyskaya Gazeta. He is on the advisory board of Europe-based Modern Diplomacy.

Rakesh’s articles on defence and foreign have been quoted extensively by a number of leading think tanks, universities and publications worldwide. He has been cited in books on counter terrorism and society in the global south.

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