Americanism: A World Menace

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As part of my research for a book that I hope to publish in late 2020 (its predecessor, All the People, is due for publication on 28 February, 2020), I read Americanism. It was published in England in 1922. I wrote a review on Goodreads and repeat it below. The quotation from the book is shown in italics. One had to remember that this was written a century ago, but, in the age of Trump (and Brexit / Farage) you have to pinch yourself to realise how much pertains to 2019. It is a sombre realisation that, while we may have, the much of the world, benefitted materially in the past century and progress has been made in the areas of human rights, so much of the underlying tensions in society remain as they did when William T Colyer wrote this book:


When William T Colyer wrote Americanism, he was an Englishman in the United States, having emigrated there with his wife, Amy, in 1915. They had fled England a week after they married, wishing to have no place in a land that was willing to go to war to defend the ruling class against similar others (like the Prussians). William and Amy saw England as the old land, ruled by the wealthy few and they saw the United States of America, the land of Independence, of Tom Paine, of the Declaration of Independence, of the Constitution as a free land where they could be free.

William and Amy were, in 1915 when they boarded the Carpathia, socialists. They believed that the land of freedom would welcome them. By the time William wrote Americanism, they had become Communists, joining the newly-formed Communist Party of America in 1919, just two years after the Russian Revolution. They worked with Communists like John Read to expand the following in the country in a era now known as the Progressive Era, when, up to and just beyond WWI, the trend was to human rights over big business and corruption. This all changed when the Soviets took control of Russia and fear took over America. The Red Raids of the Attorney General Charles Palmer in 1919 and 1920, when crowds of American police and federal agents (under the control of the 24 year-old J Edgar Hoover) rounded up alien Communists throughout the USA and sent them into prison, bound for deportation.

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William and Amy were arrested in their home in Wellesley, Massachusetts on the morning of 2nd January, 1920 and detained in Deer Island Prison in that state. They were held separately and amongst the hundreds in over-crowded and infested prison facilities. They were then subject to detailed questioning and sentenced for deportation. A band of human rights lawyers then managers to overturn that ruling but they had always accepted that they were Communists and, in 1922, mere membership of that organisation went against them and they were deported back to England, where William completed the book and had it published.

Americanism is a polemic, aimed at showing how the United States was a profound let-down to William and Amy, where the powerful aims of Paine and those that fashioned the American ideals of the Declaration of Independence and the Constitution have been derailed. Perhaps a quote is the best measure of the book’s aims (page 158-59):

“Preceding chapters have given us the picture of a country in which democracy has become a synonym for machine politics; in which liberty, if not dead, is ant any rate hibernating; in which ‘law and order’ walk hand-in-hand with the foulest corruption; in which the working-class is deprived of what are elsewhere regarded as elementary human rights; in which the schools and colleges are definitely given over to the task of preparing the young to accept these conditions without complaint; in which religion avows itself a mere bulwark of invested capital; in which the prevailing ethical standards are dictated by the requirements of salesmanship, and cheap sentimentalism stands cheek by jowl with almost unbelievable grossness; in which the natives supposed themselves a chosen people and reject with contempt whatever of good is brought to their shores by aliens; and in which the capitalist class is now more powerful than anywhere else in the world.”

William proposed that Communism, as he saw the future under Lenin, would conquer such evils. In the same way that he and Amy were naive about the potential in the USA, they shared a naivety about Communism and, when Stalin replaced Lenin after the latter’s death in 1924, they left the Communists Party and rejoined the Labour Party in England. William stood as a candidate in general elections for it and the Independent Labour Party.

The book is well summarised in the quote above, showing a range of examples that enlarge on the proposition: that Americanism is as potentially destructive as Prussianism, the precursor to WWI, had been. It is a powerful proposition and many of the issues that William outlines (shown above) remain to this day. Yet, against those detriments, the America of the 1940’s that, eventually, came to Europe’s aid in WWII against the tyranny of Naziism and the Japanese, the America of human rights that William saw for himself in the 12 lawyers that helped him (for a time) to oppose deportation is not called up in his story. Amy and William had strong beliefs developed over many years that they had hoped to see fulfilled in America. Their dreams were dashed and this book portrays that sense of expectations destroyed.

Yet, its focus on the demons that, one hundred years after the Red Raids of 1919-20, have been rekindled under Donald Trump (the hatred of aliens, corrupt politics, democracy in chains) highlight problems that remain in the wealthiest country on the planet. That this is now amplified by a short-termism and business ethic that refuses to acknowledge the climate destruction that it is engendering, simply amplifies the issues that William T Colyer portrays in Americanism. It is a book that is almost 100 years’ old yet its story is surprisingly current.

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Unmasked – Corruption in the West

Unmasked – Corruption in the West

by Laurence Cockcroft and Anne-Christine Wegener

 

Yesterday, 9th December, 2016, was International Anti-Corruption Day and many newspapers and journals used it to publicise the most venally corrupt nations, often those in Africa and the Middle East viz. NY Times.

 

These are developing nations, highlighted by Transparency International’s Corruption Perception Index, where those affected by corruption are most at risk of its exploitation by their leaders.

 

What Laurence and Anne-Christine have done is to shine a light on the developed West, where corruption remains a standard and where the mechanisms that enable corruption around the world, such as highly proficient banking systems, legal and accounting expertise, sophisticated technologies, exist to maximise the ability of those throughout the world to illegally and immorally syphon billions, possibly trillions, of dollars, pounds and euros away from legitimate ownership.

 

This is an important work that provides the bedrock of understanding for those who are interested in dealing with corruption to dig further into the subject. It highlights the enormous degree of corruption in the Americas and Europe, from political to banking, from sport to business to organised crime in a highly readable way but one that provides important information, not gloss. It also shows the huge challenge where, even in highly developed, wealthy economies, the desire to have more seems undiminished.

 

Laurence was a founder of Transparency International (TI) and Anne-Christine was a deputy director of Transparency International’s worldwide Defence and Security Programme (DSP). I am privileged to be both a Trustee of TI-UK and Chair of DSP, so I know the contribution both have made and also the huge work that still needs to be made.

 

The book is an important balance for the anti-corruption world. Corruption is not just in poor countries and, where grand corruption is concerned, the West is involved with the developed world anyway in financing the corruption and in enabling aspects of it such as money laundering. Together with the corrupt practices that appear to be endemic in the West, such as in lobbying, sport, political favours, business, crime-related, the West has a massive anti-corruption agenda to fulfil and knows it.

 

Three things, amongst many, cry out for action. First, there is the need for politicians and business people at the highest level to be far more active and vocal in this area. This includes their associations, such as Chambers of Commerce in the USA that are actively trying to water down the Foreign Corrupt Practices Act to dumb down the level playing field and make corruption easier. Beyond this, politicians in wealthy countries are too devoted to increasing GDP at any cost and the danger is growing that the ethics of doing business will be adversely affected as a direct consequence of the inequalities caused by the banking crash of 2007/8. Brexit and Trump are such outcomes and, viewed from the anti-corruption side, harrowing in their potential.

 

Second, the resources that are provided to implement and manage the laws that politicians might deliver on are woefully inadequate for the task. If legislatures enact new laws to strengthen anti-corruption norms, it is the execution of the laws that fail so often through inadequate expertise and sheer money provided.

 

Third, it is time for anti-corruption to be seen as a positive economic benefit. Corruption is bad for the wealth of the broad population, assisting only those at the top of the tree. In a world that seeks to reduce inequality and where voters are making their positions clear that they will not tolerate their position for much longer, intelligent politics and business (and development aid) means reducing corruption becomes more important. It is a key method of increasing economic well-being by ensuring that enormous flows of corrupt money stays in countries that require it as well as in the economies where it can be properly used rather than syphoned into a tax haven bank account where it remains as dead money. In an age where the velocity of money is slowing, corruption remains a cause of economic decline.

 

Unmasked comes as at important time, just as the world is turning in on itself. The West should learn the lessons that are described so well in the book and use this difficult period to ensure that the first gear in which it has for so long been engaged is kicked into second and upwards not into reverse.

A People’s Charter for the Banks

 

In 1842, Feargus O’Connor led the working people of the United Kingdom into a general strike on behalf of the People’s Charter. The Chartists’ aim was for the House of Commons, then run by the elites of the landowning class plus some merchants and millowners after the 1832 reforms, to become more democratic. The six proposals were:

 

  1. A vote for every man over 21 years
  2. Secret ballots
  3. No land qualification for voters
  4. Payment for Members
  5. Equal constituencies
  6. Annual ballots

 

It took many years for the first five to be enacted and many more for women to achieve equality (something not even envisaged by the Chartists). The Chartists failed to drive change because the British economy continued to improve and the other motors for change (such as Trades Unions) were continuously provided with small (even if sometimes significant) improvements in factory conditions, better hours, better wages and the like. This meant that pressure for change in the way that the Chartists demanded were stifled by more practical changes that were seen to immediately impact the working classes.

 

However, the impact of elites continuing to run the country and ameliorated only by small improvements in conditions was (in hindsight) bound to result in extreme consequences. The First World War was a consequence of elites throughout Europe playing a game decidedly different to the vast majority of people and using them as mere playthings – whether in armies or in factories.

 

The BBC’s current six-parter, Tolstoy’s “War and Peace”, shows clearly who was in charge in 1805. That continued throughout Europe until 1918 at least after millions of lives were lost.

 

It may seem difficult to equate the financial crisis of 2007/8 and the consequences of that crisis to the class crises of the nineteenth century but the similarity of elites that are unwilling to give up any power over the economy remains. The elite may now be different (although bankers held great power in the nineteenth century as well) but the way that Banks and their allies in Governments in the UK (Conservative as well as Labour) see the rest of the country as mere playthings is no different.

 

A new film is about to hit the screens in London – “The Big Short”. Based on Michael Lewis’s book of the same name, published in 2010, it portrays the banking world in the USA as completely indifferent to the problems faced by society as they pursue their own, short-term gains and bonuses. Government is either unable or unwilling to address the problems because the banks are so important to the country – too big to fail – and also because most in Government do not understand what to do.

 

Just as the mill owners of the early nineteenth century were seen by landowners as a necessary partner for the future, Governments see bankers and banking in the UK as necessary for themselves. This means that they tolerate all but the very worst abuses.

 

The FCA – Financial Conduct Authority

 

The FCA is the organization that Parliament developed under the Financial Services and Markets Act 2000 to oversee the financial system. Part of its remit is:

 

The reduction of financial crime.

(1) The reduction of financial crime objective is: reducing the extent to which it is possible for a business carried on—

(a) by a regulated person, or

(b) in contravention of the general prohibition,

to be used for a purpose connected with financial crime.

(2) In considering that objective the Authority must, in particular, have regard to the desirability of—

(a) regulated persons being aware of the risk of their businesses being used in connection with the commission of financial crime;

(b) regulated persons taking appropriate measures (in relation to their administration and employment practices, the conduct of transactions by them and otherwise) to prevent financial crime, facilitate its detection and monitor its incidence;

(c) regulated persons devoting adequate resources to the matters mentioned in paragraph (b)

(3) “Financial crime” includes any offence involving—

(a) fraud or dishonesty;

(b) misconduct in, or misuse of information relating to, a financial market; or

(c) handling the proceeds of crime.

(4) “Offence” includes an act or omission which would be an offence if it had taken place in the United Kingdom.

(5) “Regulated person” means an authorised person, a recognised investment exchange or a recognised clearing house.

 

All this is within a framework of law that sits the financial community within itself. By this I mean that the regulator is charged with the above but only insofar that it does not harm banking competitiveness and so that the resources of the FCA are used efficiently under Section 2 of the law. While consumer information is called up in the law, there is no balancing of the “reduction” of financial crime against the needs of the consumer and nothing about how the financial system and banking in particular is to be used to benefit the overall British economy.

 

This means that the FCA is bound by rules that err on the side of the banking and financial fraternity – a financial brotherhood – and does nothing to impact the financialisation of the economy to which I referred in a previous blog.

 

Evidence of the ability of Government to “rebalance” the objectives of the law in favor of the banks is the recent decision of the FCA to shelve its report on the culture of banking and for it to work on an individual basis with banks (behind the scenes). As Michael Lewis’s book and the film so amply shows, culture is at the heart of the problem. The FCA’s step backwards under acting Head Tracey McDermott appears to be sold evidence of its inability under the current law to be effective on behalf of the British economy unless it has a leader within the FCA with enough integrity of his or her own to challenge the banks on behalf of all consumers and all those potentially impacted by wrongdoings of the banks – like Martin Wheatley. Ms McDermott is now no longer in the running for the Chief Executive position. Does anyone on the shortlist that Chancellor of the Exchequer, George Osbourne, has interviewed come up to those exacting standards: someone that has the integrity to see through the shortcomings of the Financial Services and Markets Act 2000 (FSMA 2000) and is able to bring the banks into line so that they serve the economy?

 

I doubt it as this Government has shown repeatedly that it is hell-bent on balancing the books at the expense of all else – even if that means allowing banks to keep the economy from re-balancing to an economy that uses banks and finance from one where the banks suck the rest dry.

 

This means that the law needs to change. It is so important that the UK is “de-financialised” (like an addict that needs to be properly drawn from drugs) that we should seek the FSMA 2000 to be brought up to date with a Charter for economic improvement so that, at the very least, the FCA has to minimize financial crime not just reduce it and so that, in any decisions it makes, the needs for economic well-being override the considerations in Section 2 that could lead to favouritism towards bank and those individuals within that system.

 

Because it has never been shown that a massive banking system does anything other than reduces the ability of other industries to survive because it raises exchange rates, raises property values, sucks the best people into it, restricts business loans because of short-terminism, pays for short-term advantage and (often) criminality at the expense of good business decisions and overly impresses economically uneducated civil servants and politicians with their results.

 

The lessons of an elite taking hold of an economy and leading it to disaster have not been learned. The lessons of 1842 that led to the First World War and the lessons of 2007/8 have been sidelined as this Government now has a majority in the first-past-the-post House of Commons (still undemocratic) and a Chancellor who has decided that bashing the banks has gone far enough. He has done this without any notion of economic objectivity whatsoever.

 

We now need a People’s Charter for Banking and De-financialisation – maybe just two elements to start with:

 

Change the Financial Services and Markets Act 2000 to:

 

  • Section 6 – Minimize criminal wrongdoing not “reduce”
  • Section 2 – Add an over-riding requirement so that any decision of the FCA has to show that it is taken in regard to overall economic well-being of the country not just to the financial industry.

 

Just like those that had been left out of the elite ruling classes of the 1830’s and 1840’s, those that are not allowed entry to the financialised sector, i.e. the mass of people – the British public, need to challenge how decision-making in that sector, now taking far too much of the British economy and with very disputed benefits to the mass of people (just like early capitalism) need to agitate for change.

In the 1840’s, the Chartists were successful only in bringing the issues of the working class to the attention of the ruling classes. They did not succeed in most of their demands. It took decades until those demands were met and eighty years before women were given the vote. This country still has a House of Lords and unrepresentative democracy in the Commons as a result of first-past-the-post: we are very conservative. Nevertheless, when British people have their backs to the wall, they react. The FCA is putting British people’s back to that financial wall by their inability to tackle banking as it should be tackled – at the centre. With a pending recession in the UK – in the midst of austerity – this is a dangerous situation. Time to make changes.

 

 

 

 

Don’t Look, Won’t Find

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Don’t Look, Won’t Find – Money Laundering in the UK

Transparency International – UK just published “Don’t Look, Won’t Find” which exposes enormous gaps in the UK’s ability to stop illicit money coming into the the country.

The report shows how all sectors, from banking to the enablers of money laundering like the accounting firms, legal firms, company registration firms to the sellers of final products and services like auction houses, private education, fail the test of oversight and reporting on a consistent basis.

This means that huge amounts (tens of billions of £’s) enter the country illegally from China, Russia, Africa and elsewhere – depriving those countries of the money they need and, as a by-product, pumping up house prices in London.

I had the privilege to Chair the Advisory Committee for this report – part of the Corrupt Capital project at TI-UK which aims to uncover how London (a major financial centre) needs to work hard to rid itself of corrupt capital that enters its system here and in the many tax havens to which it is connected world-wide.

Those who have written this report have done an excellent job of uncovering the chaos that exists in oversight and reporting systems in the UK.

 

Don’t Look, Won’t Find

Kids Company – Reserves of Discomfort

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The Financial Times  provides a good understanding of some of the financial woes that beset Kid Company.

As the article shows, Kids Company had only £400k in reserves at the end of 2013 and its Trustees wrote in their audited accounts that this was a major risk.
The Founder says that she argued with Government that they should do more (i.e. give more) to help this situation but Kids Company received over £12 million in 2013 of voluntary unrestricted income. This means that Kids Company management (and the Board of Trustees) decided themselves how to allocate the money between active use and reserves. The Government (at least in this instance) had no burden upon it to allocate money to reserves – Kids Company had adequate funding to do this and should have made this allocation for the benefit of the future of the organisation, its mission and the kids that it supports.

It decided to fund short-term need (always pressing) against long-term viability and got away with that for a long time. Eventually, like a business that overtrades, it goes bust. That is making your organisation unsustainable and for an organisation of this size with this amount of voluntary unrestricted funding (a level that so many well-run charities would welcome) to commit this offence is maddening – it is anger inducing.
For the auditors to simply then sign off the accounts with no comment is appalling. The Trustees knew the situation and commented on it in the accounts in 2013. They were not (yet) insolvent but could read the runes. The auditors should have commented further.
For Government to keep putting money in without understanding the financial problems and not requiring Kids Company to allocate resources to reserves is unsettling. Surely someone in Government could have spoken to a charity finance person and understood the reserves issue (plainly in front of them) and made it a requirement of their funding to have Kids Company allocate more of their voluntary unrestricted income to reserves. Nothing appears to have happened.

This is not unusual in the sector – urgent needs are there to be met and Trustees not strong enough to argue for longer term needs. Trustees have a legal responsibility not just to write sentences in the accounts but to safeguard the organisation from collapse that they could have averted.

Six months’ breathing space at a lower level of operations could have allowed Kids Company to have resurfaced and kids and families still could be getting support in some of the UK’s hardest hit areas. Management and Trustees should look to themselves and no one else for the answers to problems in such a situation; auditors should be more pro-active; Government more discerning.

For the Charity sector as a whole, understanding the need for reserves and the prevention of “over-trading” is a fundamental need. Many Trustees are not up to understanding this requirement; many management staff are unsure how to balance the urgent needs of their beneficiaries in the short-term with those of organisational sustainability. Unfortunately, that is their job. The Charity Sector is not good at this – and every Charity is different. The mission of most charities are worthy enough for Trustees and senior management (and finance people) to try to learn something from this – reserves are not just for show, they have a place in sustaining charities and mitigating risk. It is not enough just to know you have a risk – a charity must take action.

Finally, it is a sad reflection on our times and our country that Kids Company had to undertake its mission in the first place. Its Founder was right in that she saw Government abstaining from its legitimate role in society – a 21st Century society not a 19th Century one. This abstinence then propelled Government (Labour and Conservative) into its Big Society mission – like a wealthy philanthropist giving money to the starving poor. This is Dickensian in the extreme and Kids Company should not have been needed. Many charities do work which are above what we would consider Government to be properly able to do – I suspect that some of the outcome of this will be that in this Dickensian, 19th Century Age of Austerity, we need to reflect more pro-actively on what we ask Charities to do and what we expect from the State.

Is FIFA-world just a microcosm of the real one?

Russia's president Vladimir Putin (left) and Fifa president Sepp Blatter

FIFA-world: a virtual world where you get ahead by what you pay and stay ahead by denying the evidence

“When we get bribed, we stay bribed.”

Jon Stewart on his Daily Show in the USA – his take-down of Sepp Blatter and FIFA. The legal onslaught on FIFA-world  has been 24 years in the making – 24 years before the legal process (headed by the US Attorney General Loretta Lynch) went into motion. As Stewart remarked, “even Switzerland” itself had moved on FIFA.

Yet, Sepp Blatter was overwhelmingly affirmed by FIFA delegates for another four years – on the votes of Africa, Asia and Platini’s France amongst others. This was despite the obviously dangerous legal claims made against many senior employees and representatives of FIFA by the US and Swiss legal authorities. This was despite the fact that Blatter has been President of FIFA for so long – it has been on his watch.

The President of FIFA has (under its latest statutes) the following responsibilities:

32. President

The President represents FIFA legally.

He is primarily responsible for:

a)  implementing the decisions passed by the Congress and the Executive Committee through the general secretariat; 

b)  supervising the work of the general secretariat;

c)  relations between FIFA and the Confederations, Members, political bodies and international organisations.

Only the President may propose the appointment or dismissal of the Secretary General.

The President shall preside over the Congress, the Executive and Emergency Committee meetings and those committees of which he has been appointed chairman.

The President shall have an ordinary vote on the Executive Committee and, whenever votes are equal, shall have a casting vote.

If the President is absent or unavailable, the longest-serving vice-president available shall deputise.

Any additional powers of the President shall be contained in the FIFA Organisation Regulations.

As FIFA’s legal representative on planet earth, it seems clear that Blatter would be held accountable for all its actions whether he knows about them (and he claims a complete absence of knowledge) or not. Yet, FIFA members, by a great majority, supported his continued Presidency.

For some of us, this seems absurd. For those of us brought up under democratic systems, where wrongdoing in an elected body is normally punished by the voter, the inability of FIFA to sort itself out appears naïve as does the apparent understanding of the electorate. Yet, to many of those who voted for Blatter, their response was entirely logical.

How FIFA-World Seems to Work

The world has changed over the last fifty years to an extent that is now becoming highly visible. Until the 1950’s, the great western powers and the USSR held military power (hard power) over the rest of the world. One by one, states outside this power block became politically independent. Asian economic power-houses like Japan grew quickly and then China began its sustained and dramatic economic renaissance. After the break-up of the Soviet Union, instead of democracy, economic power brokers developed (with Putin at the top of that tree).

While we understandably focus on military and security threats posed by those like ISIS, the world has been moving on – with economic growth at the centre (softer power).

However, instead of the west’s domination, there are now various centres of economic power – such as China, India and Brazil – which are breaking down long-established norms.

These norms (such as the desire by Western nations to link good governance with economic aid) are under real threat as newly enriched nations like China care less about the good governance of its supply and customer base outside China than it does internally and less than the stated aims of the earlier economic hegemonies.

This compounds the pent-up pressure on the governments of the newly developing world that may be tired of the continuous pressure put on them to do more of what the west wants them to do – such as reduce corruption and improve good governance. This is not the reaction necessarily of their people (most are completely sick of the bribery and corruption that exists, often sick of the absence of real democracy and the absence of real representation) but in many parts of the world, the people do not have a say.

Also, populations are torn between a natural desire to see things properly run (good governance) and feeding their kids or having a roof over their heads. Elsewhere, like in Russia, the government has a rigid control over their people. The same is true in China.

Finally, nations are now (because of their own economic strength and because of alliances with those like China) less likely to fold against the old hegemonies of the USA and Europe.

For all these reasons, FIFA-world seems symbolic of the new world order that is taking place where an organisation that has been corrupt for so long is able to maintain good relationships with its supporters through its economic success and the ability to pass on that financial success to a range of nations and individuals – upon which it also survives. It pays to support Blatter – even if you are in receipt of dirty money.

Despite pressure from the west (notably the UK – via, mainly, its newspapers like the Sunday Times while government was just as mercantilist when London was in the running for the World Cup), FIFA refuses to change from the inside. As there is no ability to march into Switzerland and take over the company by force (the 19th Century ideal), the only method remaining is via international law as applied by the US Attorney General and the Swiss. It has taken 24 years to get to this stage.

What could we be learning from FIFA-world?

This microcosm represented by FIFA-world must have lessons for the new real world order but it is not easy to overcome the concern that fifty years of working towards better governance (e.g. where we have seen increases in the number of democracies throughout the world) is under threat.

The natural focus on material wealth as the highest priority for all nations and all people is understandable. Worldwide poverty indicators are reducing (even if mainly from Chinese economic success). As Maslow showed so clearly in the 1930’s, most people focus on material wealth creation well before there is a serious thought given to quality of life issues.

MAslow

This is clearly seen in practice as the world pursues economic gains even in those countries that are already wealthy. Even the safety and maintenance of nature and the environment becomes translated into a form of costed “natural capital” so that it can enter into our economic thinking. If it has no valuation methodology, then humans seem unable to evaluate it. If we can’t count it, we can’t imagine it, apparently.

This means that issues like corruption are treated as secondary to economic benefit or economic security in most nations. It is no longer just a case of saying “Corruption is bad, stop!” because the complexity of the each situation means that, in the short term, those who gain through corruption and / or being part of a corrupt environment do not visualise the problems quickly enough. Moral crusades are not high enough on Maslow’s hierarchy (which was developed for marketing purposes but serves as a useful tool elsewhere).

Even the use of legal sanction by the USA, while applauded by many in developed nations, is not so well received elsewhere. Blatter knows how to utilize this reaction by appealing to the sensitivities of nations that do well out of FIFA economically and see themselves (as nations and individuals) threatened economically by the ending of corruption. This is not much different from oil-rich nations like Angola preferring to sell to China than the west – because no-one in China is demanding good governance from Sonangol, the dos Santos-owned oil company. It is similar to tribal leaders in Afghanistan that react badly to the west’s demands for an end to corruption in that country.

Those legal sanctions operating in the West (through a range of anti-money laundering devices, FCPA, Bribery Act and the like) can have great power when used against corporations. They are now extra-territorial in scope and can remove any one nation’s or company’s ability to protect themselves from legal onslaught. However, in the UK, for example, implementation of laws such as the Bribery Act are completely under-resourced so reliance has been placed on the US to widen its military policing role to one of legal challenge – where an individual using US assets (banking, currency or legal) is liable.

Such legal sanction needs to be policed (a) by more than just the USA and (b) in a way that is not seen as hegemony by former military world powers.

The first requires resources and a willingness to attack the problem; the second is far more subtle – a need to assess how to convince the world that corruption is hugely damaging to economies, sectors or society and even security (as is seen in Nigeria, Iraq, Afghanistan and many others vulnerable nations where armed forces are depleted by funding being ransacked by a few elites) when the benefits are clearer than the problems.

As an article in today’s National Post in Canada shows so well, giving the World Cup to a country well down Transparency International’s Corruption Perception Indicator (CPI) is asking for trouble. Yet, not giving the World Cup to such nations (which are developing nations in need of such investment and focus) until they have cleaned up their act would be seen to be counter-productive – and construed as anti-poor. There is no support for such a move.

What needs to happen is that good governance is seen as a central tenet of major corporations and of governments (national and local) and, for this to happen, a huge and relentless shift needs to take place in the way the non-FIFA world works so that the real economic needs of people are met while the ugly needs of vested interests that stand to gain through corruption are not.

For corruption to be minimized should be seen as one of the world’s major aims – where we need nations to meaningfully sign up to this in the same way as we sign up to human rights as corruption erodes human rights as well as any impediment known to humankind.

FIFA-world is a microcosm of how the real world tolerates corruption and the 24-year corruption story in FIFA is by no means finished. We need to learn from that story not just to fix FIFA-world but to fix the way the world tolerates corruption.

Note: I am a Trustee of Transparency International – UK

“Blind Eye” Culture in Business

A good article written by Rowan Bosworth-Davies and posted on Linkedin today prompted me to respond favourably as follows:

This article has a shown a good understanding of “blind eye” corruption that is, unfortunately, at the top of many banks and many businesses. It could be argued that HSBC, Tesco, GSK and many others (from the UK alone) pushed bottom line growth at the expense of ethics and (often) the law while senior management profess no knowledge whatsoever of the problems that were under way in their companies.

When I wrote “Last Line of Defense” 15 years ago, I tried to explain in the book the process that a business (written there as a fictionalised US defense and aerospace business) went through that propelled it to commit corrupt acts while keeping the boss clean. Having worked in that industry, it was something that I had seen at first hand and 15 years’ later, it persists. Businesses are subject to major stresses and opportunities that drive them to the edge of acceptability.

For large companies, the penalties need to be huge to stymie the desire to do wrong and they need to be enforced. Prevention is the best cure, of course, but that depends on rigorous independent scrutiny by NED’s /Independent Directors that has not showed itself to work at HSBC.

It needs external auditors who should be required to carry out audits of potential corruption and the company’s adherence to processes that prevent it.

It requires leadership that drives in a culture of ethics throughout.

It requires a business that makes it clear that is has to know that each area adheres to its ethical culture and where there are no areas of secrecy – again, as is claimed at HSBC.

The banking crises and the problems at Wall-Mart, Tesco, GSK and elsewhere show that the problems that bedevilled the Defense and Aerospace industry (and may still do in some areas) is common throughout finance and elsewhere. This culture is one that has been tolerated by Governments – especially in the UK where prosecutions are not made if there is doubt of success. This is a problem in corruption and money laundering that makes top business people complacent. Only in the USA does there appear to be a drive to resolve this problem – at least via prosecution.

So and so’s. How Some Banks Con

What does HSBC stand for? What do we do about it?

“so and so” – an undefined person considered beneath contempt

  • So, HSBC is shown by the BBC to have systematically organized illegal tax benefits for hundreds or thousands of its customers through its Swiss subsidiary. No surprise.
  • So, HMRC (the UK’s tax collection agency) has recovered only £135 million since that time in tax and penalties out of billions that are illegally saved each year. No surprise.
  • So, HMRC and this government agreed with the Swiss authorities (after the leaks about HSBC were found) not to prosecute except where the cases would be virtually guaranteed to succeed. No surprise.
  • So, the then Sir Stephen Green (now Baron Green), then HSBC’s CEO at the time is not talking and the Conservatives (via the chief Secretary to the Treasury – David Gauke) say that there is no evidence that he directly knew of what was going on. No surprise.
  • So, the Conservatives demand to know why Ed Balls, now Shadow Chancellor and then City (of London) Minister did nothing at the time. No surprise.
  • Anyone see the actions that the issues and finger-pointing provoke? Just politicians ranting at each other while the poor taxpayer – those “so and so’s” who have been squeezed mercilessly since the banking industry exploded in 2007/8 – is left with the bill – lower wages and austerity.

Meanwhile, the real “so and so’s” who should have been prosecuted and some doing time in prison are seen as outside the justice system – no longer within the law despite proof of a multi-billion pounds swindle on the UK.

So what?

Well, there has been extreme tax fraud – no-one denies it. Even HSBC accepts that they have had to make major changes in their banking practices – although, according to staff who have left HSBC this did not really make any progress until well into 2011.

Sir Stephen Green may well not have known the specifics. CEO’s of big banks (and most large organisations) are sheltered from the bad things going on but it is no defence to state that they did not know “specifically”. CEO’s are appointed as heads of such organisations and set the tone – the culture – of any organisation. As such, they are culpable for any major misdeeds that occur. In his excellent book on RBS, Shredded, Ian Fraser takes apart any claims that CEO’s can be said to have stood outside the fray. Maybe RBS was even worse than HSBC but senior management set the culture and reap the rewards of profits – Sir Stephen would have benefitted personally from the gains made through tax fraud in the Swiss subsidiary and, if he did not know what was happening (just as Henry II is alleged to have made the claims about Thomas Becket’s murder in 1170), then his lack of pro-activity in finding out would have been a joke. We don’t seem to have learned much in 845 years!

Anyway, if Sir Stephen Green knew nothing and is as innocent as a puppy, then how can Ed Balls (City Minister at the time) be accused of knowing everything by the people who then appointed Sir Stephen Green (now Baron Green of Hurstpierpoint) to Government in 2010?

Is there really a case against Ed Balls when the good Baron knew nothing, apparently? David Gauke sounded ridiculous on BBC Radio 4’s Today programme today because he was being so. Stupid political points were being made when the “so and so’s” who rule the world (the bankers) are freed from the rigours of the law (and any ethical codes) and continuously benefit.

Public Accounting for the “So ands so’s”

So, Margaret Hodge (the Chair of the British Parliament’s Public Accounts Committee – PAC) states that she will bring those responsible before her Committee. She states, quite properly, that the UK is not “aggressive enough” is tackling these issues. Even though the issues occurred during the previous Labour Government’s period in office, Mrs Hodge states very clearly that Stephen Green has a responsibility – he either “knew” of the tax dodges or was “asleep at the wheel” – quite right!

The PAC should now (seven years too late) point to what should be done: not just who is culpable but how the UK will recover the lost tax and how the UK will not stand for repeated situations. The USA fines banks billions of dollars. The UK (with the political establishment too much in hock to the banks and the civil servants and HMRC too timid and weak) does almost nothing but whimpers about no-one being responsible and it being too difficult to prove.

Which “so and so’s” are running the madhouse?

Isn’t it time that those who have suffered so much from the banks’ failures begin to see some recompense? This is not a desire for revenge but failures of this size have not led to a discernible change in this country’s culture or efforts to ensure such failures do not recur.

HSBC seems not to have been penalized for tax avoidance schemes and a culture that would not be tolerated even at Tesco. The UK has a need to change the way it deals with abhorrent schemes and aberrant behaviours. Politicians and those who work in the public sector need to feel the pressure that the public wants them to be under – pressure that needs to result in the defence of public needs. If it does not, then Syriza in Greece was an outcome of such lack of public interest and UKIP in the UK is another (although not quite the anti-aberrant banking behavior that is needed). If this Government does not ensure that the “so-and-so’s” aren’t allowed to run the country, then May’s general election in the UK will see an even more angry electorate ditching them.

13th Century – Magna Carta; 21st – a new “Great Charter”?

‘to no one will we sell, to no one deny or delay right or justice’.

Magna carta

On 15th June, 2015, Magna Carta will be commemorated. It will be 800 years since King John of England affixed his royal seal to the document at Runnymede – alongside the Thames in southern England. Magna Carta was an agreement between King John and English nobles that sought to overturn the singular rule by a despotic monarch and set the scene for the gradualist changes that resulted in democracy.

Magna Carta emphasized the rights of the individual over the state (even if those individuals in 1215 were just a few nobles).

That fight between the state (and those who want to capture the state for themselves) and the individual is unresolved 800 years later despite successive waves of change.

While in the West we consider the balance between the State and individuals to be rational and where the rights of individuals are upheld by rules such as The Human Rights Act, there is a perpetual seeking after new balances when threats appear or when certain groups capture more of the State. In the USA, for example, this balancing resulted in the splitting of responsibility between Executive, Legislature (itself into two parts) and Judges – which Fukuyama now calls a “vetocracy” which is more and more in the pay of key sectors that know how to manipulate decisions.

More widely, nations like China and Russia have never allowed significance to a balance between the state and individual rights. China, especially, has for 2000 years emphasized rule by law rather than rule of law – where the State (or those that consider themselves to be the State) is above the law. Xi Jinping’s recent attack on corruption appears to be but the latest attempt by one person and his clique to dominate the state.

More recently, like a laser beam to the head, the murders in France of journalists at Charlie Hebdo, of a Muslim policewoman close by and, later, at a Kosher deli, have highlighted that the individual and the rights of any individual are consistently challenged by states and those purporting to act on behalf of a state (or, in this case, an entity that stood before the state or that, in some cases, acts as a state – here, a religion).

The death of King Abdullah of Saudi Arabia reminds us of the total submission of individual rights in that country beneath the rule of one family – under the aegis of the Wahhabi sect of Islam.

Individual Rights

The battle between the State (whether represented by an elite or an ideology headed by a group purportedly representing that ideology) and individuals is a battle that clearly still rages. The rights of the individual against such groups are key to the different mindsets that distinguish real freedom from all other forms of government and governance.

The spectrum is a wide one but State (with a wide definition of that word) “ownership” ranges from political or quasi-political (such as China) to dictatorial (Equitorial Guinea, Angola) to religious (ISIS) to monarchic / theocratic (Saudi Arabia) to such “democracies” where voting is rigged (such as Zimbabwe and Afghanistan) to enable elites to maintain themselves in power.

This is not a battle between different nations but one where the rights of individuals are challenged by state or state-like bodies.

Whereas we may not see the actions taken against journalists in Turkey by the Erdogan regime to be in any way similar to extreme violence as has just happened in France, it is on that spectrum. Between states that defend the rights of individuals and those which violently oppress them (and subsume them to the so-called state or a religion) lies many variations – but, all can slide in the wrong way to extremism.

The extremists who claimed to be Islamists are one extreme; Erdogan’s government is dangerously edging in that direction as freedom of the press is a crucial embodiment of individual freedom.

Corruption at the Heart

Sarah Chayes has just published “Thieves of State”. It is an extraordinary book that, through her own experiences as a journalist and then on the staff of various military commanders from the US and in places like Afghanistan, enables her to show clearly how corruption is at the heart of so many national and international upheavals. From Afghanistan to Egypt, from Tunisia to Nigeria, governance has been geared towards corruption and becomes the mechanism of government.

Sarah’s aim is to show how the corruption flow in those countries is not top-down, but bottom-up, where so-called “facilitation payments” lead up the chain to larger corruption at the top – whereby nations recast themselves as mafias but, now, emasculating nations.

She shows how Karzai was able to do this in Afghanistan; how the military do this in Egypt; why this was the norm in Tunisia.

Individualism and the right of individuals to have justice have no place in such states. The state is simply a mechanism to suck the benefits of society through corruption to a few at the top who become extremely wealthy and some further corrupt benefits to those further down to makes ends meet. The vast majority of society suffers through lack of funds and the thieving of funds meant for development – for policing, for security, for health services, for education and for the rest of what we in the West would call normality.

This is why the Arab Spring promised so much but gave so little. Only in Tunisia has the promise started to be met. The strength of people in such a country is to be applauded and the recent election of Beji Caid Essebsi in a free and open election to be warmly welcomed.

Similarly, the people of Sri Lanka made a momentous decision at the ballot box by throwing out President Rajapaska and electing Maithripala Sirisena – a man dedicated to fighting corruption and nepotism.

Yet, as Sarah Chayes has shown, outside of these countries, either corrupt states remain ruled by corrupt kleptocrats or the fight back is via religion. Boko Haram and ISIS claim to be against the ways of the West as they see it – the corruption that is embedded in Nigeria or Iraq. At this extreme, even education is seen as the mechanism by which individuals grab the capability to enter into the corrupt system. Chayes views the connivance of the USA in that corruption (she mentions the suitcases of cash that the CIA provided to Karzai as but one example) as leading to the success of terrorist organisations in gaining credibility amongst many people in countries like Iraq because they see this as the only way out of the corruption that wrecks their lives.

Working on the disease

Yet, it is 800 years since Magna Carta – an agreement between a king that believed in his own divinely-given rights as usurping all others and a group of wealthy noblemen that wished to garner some rights to themselves. From that time, many of us have progressed to where individual rights are now enshrined in law and also in practice.

Yet, as recently as the 17th Century, England was riven with corruption – it was endemic. Samuel Pepys, the renowned diarist of that time, spent six years to work corruption out of the Royal Navy – which was crumbling under the weight of bribery and nepotism – notably, the sale of position and procurement. Although Pepys was not innocent of corruption himself, as his biographer, Claire Tomalin has written, his own honesty went some way to right some wrongs. England gradually, through the 18th and 19th Centuries, eroded corruption from its core but it was not an overnight demolition. Chayes’ example of Singapore and its ability to eradicate corruption almost overnight is a good case of a small nation challenging itself and succeeding. Elsewhere, it takes longer

Chayes focuses sensibly on the role of not just organizations like the military within corrupt nations but organisations outside like the CIA in understanding the drivers against the halting the disease of corruption and the complete erosion of justice. However, as the West (via organisations like the OECD and the US FCPA) progressed after World War II to a consensus on governance and how governance would become part of the stated requirement for development assistance, this has, more recently, been unsettled by the rise of China – which has appeared to care little for such governance considerations – notably in its dealings with African states.

This unsettling of the post-WWII consensus (despite Xi Jingping’s drive to eradicate the disease in China – which many suggest is more politically motivated than anything else) is a major challenge that can be added to Sarah Chaye’s list of issues to be assessed when developing an anti-corruption programme.

A “Great Charter” for the 21st Century

Sarah Chaye’s book puts corruption at the heart of the problem that besets the world.

  • While climate change (with its own problems of solution and understanding) has been seen as a world-wide challenge that has to be resolved;
  • while health concerns are the subject of huge technological research and financial resolve;
  • while economic prosperity is the subject for everyone at all times;
  • while nature conservation and the future of human life on this planet is a central consideration of all;
  • while terrorism is dislocating masses, murdering thousands, displacing millions – often through the guise of extreme forms of religion – and requires regular government action;
  • corruption plays a role in all the world’s key areas of collapse but has far less formal acknoweldgment.

From small-scale facilitation payments to large scale national strangulation, corruption inhibits and destroys.

The world now needs a charter for the 21st Century that marries the rights of individuals and justice (started with the Magna Carta in 1215) to the rights of individuals and communities to be unhindered by corruption. We now need a formal acknowledgement of its central corrosive ability that destroys nations, destroys security and completely disallows individual and community justice to take place.

“To no one will we sell what is not ours to sell”

“From no one will we take what is not ours to take”

 

‘to no one will we sell, to no one deny or delay right or justice’.

The Corruption Agenda gets into Higher Gear

Last night, 20th November, Transparency International – UK (the UK chapter of the world’s largest anti-corruption NGO) held its Annual Lecture. TI had invited Jose Ugaz several months ago and in the meantime he had been elected Chair of the world-wide TI organisation. It was in this new role that he addressed an audience of several hundred people in the Canary Wharf office of Clifford Chance.

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TI has been, for many years, known for its excellence in research (something we cherish in the UK), for its excellent people amongst over 100 chapters world-wide and, in the UK certainly, an ability to influence at the highest levels.

Recently, we were delighted by the Prime Minister’s pledge on beneficial ownership (the development of a register of all company owners in the UK).

A New Gear for Corruption

Jose Ugaz has a great background (bringing Fujimori to jail in Peru along with 1500 other successful prosecutions for grand corruption there – in effect, unravelling the overthrow of a state by an elite group that rules through corruption) and made a great speech.

The cornerstone of this speech was that, on the shoulders of TI’s success over the last 20 years, it would now be more forceful in attacking grand corruption and in bringing to book those responsible (ending impunity). This is a change for TI – not noted for its forcefulness in attacking individuals but more for its focus on changing systems. It will be a challenge as it develops and understands fully how to manage the process.

However, the approach has received tremendous support within TI and, from last night’s reception, this is also supported by those with an interest in the subject.

The World has changed

The timing of this re-emphasis is important. Not only is the world still reeling from the shocks of the financial disasters of 2007/8 but much of the world’s legal framework against corruption is in place. From the FCPA (introduced by the USA back in the 1970’s) to the  OECD anti-bribery convention through to the UK’s Bribery Act of 2010 and many other laws introduced in China and elsewhere, the word is out – that bribery and corruption are a central part of the world’s problems whether because of the billions annually stolen from the poor that deprive them of food, shelter, healthcare, education and so much else or because of the huge security issues that result from corruption in armed forces that allow situations to develop as badly as in Nigeria and Iraq.

The stage is now set for the implementation (understanding that laws will need to keep up with changes in the world). Implementation means the carrying out of the law on an international scale.

Making the anti-corruption laws work

It has taken over 20 years to bring in the legal changes that are now in place. While not perfect (and still fought by many such as Chambers of Commerce in the USA), they provide a basis for real change.

However, as Jose Ugaz was at pains to point out in his speech, levels of corruption world-wide are probably higher now than they were 20 years ago. This needs a focus on priorities (which he believes to be grand corruption – involving life changing amounts or having major adverse impacts on those defrauded – and “no impunity”) and means a change in several areas.

For TI, this will mean focusing on real cases of grand corruption and bringing those responsible before public opinion and many to court.

It also means, in my view, an emphasis on the ability of law enforcement agencies throughout the world and on the governments that fund them to make the laws work. This means prioritising and funding those agencies to detect, investigate, solve, charge and convict – not from time to time but as the norm in the same way that we in the UK would expect murder, violent crime, major robberies and other crimes to be resolved.

This will be a real challenge too – many countries in the world do not have effective judicial systems or effective law enforcement – much of which is corrupt.

That is partly why a move has been made to develop an International Anti-Corruption Court on the same basis as the International Criminal Court – notably by American Judge Mark Wolf.This is worth pursuing even if it will be hard to achieve.

Sometimes, you know that change is in the air. Corruption is now endangering whole nations – from Russia to Ukraine, from Mexico to Iraq, grand corruption is endemic. But, there is also a sense that the time is right for some action. Jose Ugaz showed that the approach can work and now leads an NGO that is fixed on the goals that he is now setting.

It was a great speech that was highly motivational. As we all know, words have to lead to actions – just as the words in all the laws that are in place in so many places now have to lead to enforcement and implementation.

 The writer is a Trustee of Transparency International – UK