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 chief executives. 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 the US’ 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 behavior 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 chief executives and managers, pay the price. The fines are always a tiny fraction of the ill-gotten gains, implying to Wall Street that corrupt practices have a solid rate of return. Even today, the banking lobby runs roughshod over regulators and politicians.
Illustration: Yusha
Corruption pays in US politics as well. Florida Governor Rick Scott was chief executive of a major healthcare company known as Columbia/HCA. The company was charged with defrauding the US government by overbilling for reimbursement and it eventually pled guilty to 14 felonies, paying a fine of US$1.7 billion.
The FBI’s investigation forced Scott out of his job. However, a decade after the company’s guilty pleas, Scott is back, this time as a “free-market” Republican politician.
When US President 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.
Why stop at governors or presidential advisers? Former US vice president Dick Cheney came to the White House after serving as chief executive 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 US$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 chief executives 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 the members of the US Congress 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 behavior 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 e-mail 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 another 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 Sachs is a professor of economics and director of the Earth Institute at Columbia University. He is also special adviser to the UN secretary-general on the Millennium Development Goals.
Copyright: Project Syndicate
Could Asia be on the verge of a new wave of nuclear proliferation? A look back at the early history of the North Atlantic Treaty Organization (NATO), which recently celebrated its 75th anniversary, illuminates some reasons for concern in the Indo-Pacific today. US Secretary of Defense Lloyd Austin recently described NATO as “the most powerful and successful alliance in history,” but the organization’s early years were not without challenges. At its inception, the signing of the North Atlantic Treaty marked a sea change in American strategic thinking. The United States had been intent on withdrawing from Europe in the years following
My wife and I spent the week in the interior of Taiwan where Shuyuan spent her childhood. In that town there is a street that functions as an open farmer’s market. Walk along that street, as Shuyuan did yesterday, and it is next to impossible to come home empty-handed. Some mangoes that looked vaguely like others we had seen around here ended up on our table. Shuyuan told how she had bought them from a little old farmer woman from the countryside who said the mangoes were from a very old tree she had on her property. The big surprise
The issue of China’s overcapacity has drawn greater global attention recently, with US Secretary of the Treasury Janet Yellen urging Beijing to address its excess production in key industries during her visit to China last week. Meanwhile in Brussels, European Commission President Ursula von der Leyen last week said that Europe must have a tough talk with China on its perceived overcapacity and unfair trade practices. The remarks by Yellen and Von der Leyen come as China’s economy is undergoing a painful transition. Beijing is trying to steer the world’s second-largest economy out of a COVID-19 slump, the property crisis and
Former president Ma Ying-jeou’s (馬英九) trip to China provides a pertinent reminder of why Taiwanese protested so vociferously against attempts to force through the cross-strait service trade agreement in 2014 and why, since Ma’s presidential election win in 2012, they have not voted in another Chinese Nationalist Party (KMT) candidate. While the nation narrowly avoided tragedy — the treaty would have put Taiwan on the path toward the demobilization of its democracy, which Courtney Donovan Smith wrote about in the Taipei Times in “With the Sunflower movement Taiwan dodged a bullet” — Ma’s political swansong in China, which included fawning dithyrambs