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

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Antigonistically Speaking – the Permeability of Governance

In a world too confused by the economic rise of China to question whether democracy will ultimately produce the best results for humankind; in a world where fighting between Sunni and Shia, between secular and religious, between Dinga and Machar dominates the news as much as Catholic and Protestant did in the UK not that long ago; in a world where the after-effects of the Arab Spring result in a literal chaos; in a world where street demonstrations in Turkey, Brazil, Thailand and elsewhere have threatened the rule of “law” – we need to question how our political institutions work and whether they are robust and durable enough to withstand the constant pressure that we put them under. In a “global” environment, in the so-called “west”, we should also question what political systems we are operating under – as we fit perilously into local, national, regional and global systems.

Around 441BC, Sophocles wrote Antigone http://en.wikipedia.org/wiki/Antigone -a Greek tragedy that, as a school kid, I could immediately appreciate – not through the tragic figure of Creon but through Antigone herself. She dared to push against the tyrannical rule of a king at a time when no-one else, let alone a woman, would dare to do so and lost her life as a result. Opposing the law that Creon laid down was, in her view, proper if that law was wrong – if it was tyrannical. I liked that as a pupil in a school where teachers could appear to be on the wrong side of tyranny.

In nearly 2,500 years since Sophocles wrote Antigone, humans have learned and unlearned the story many times. Because we focus on economics so much (i.e. how we generate wealth) we seem no longer sure whether there are other questions that we should be asking. As 2014 gets under way, maybe we should be questioning what the world needs in order to be Antigonistic – being able to prod the rule of law when that law or the implementation of that law is wrong and to understand where it is impossible to do so.

This is not just an argument for democracy but for a system of government and implementation that is permeable – allowing for change. We also should be asking how we fit into the various levels of government – local, national, regional and global.

It is also worth looking at how we understand where the permeability does not exist at all and where gentle prodding is not likely to succeed – for it is there that fractures happen.

Permeability

It is the ability of our human systems to be permeable (in normal times) that enables them to evolve as our needs change. It means that old-fashioned notions can be changed and that structures which are worn-out can be thrown away. When permeability does not exist, then tyranny wins out.

The permeability of authority is applicable to any organization or structure: from corporate to national government and beyond. In the 21st Century, as communication systems and capabilities continue to rise, how such structures take in information and change is a critical factor for our social existence.

The change in governmental structures from strong individuals (appointed by the gods) through the tyrannies of dictators and various forms of democracy can be seen in their permeability to new thoughts and to absorb the thoughts of others.

God-given rights to rule (whether Charles I of England or Louis XIV of France) were thought of as indisputable in the same way that the earth was thought of as flat. Such rights were disposed of in the 20th Century by political “truths” such as communism or fascism. These “truths” swapped god-appointed rulers for political dictators. Elsewhere, the “big man” tradition as shown by Idi Amin in Uganda or dos Santos in Angola is similarly impermeable to change or outside thought.

In China, the story of impermeability is writ large. The civilization state (Martin Jacques) has evolved at the top from god-appointed rule to political dictat but the impermeability remains. Whether the excuse is heavenly authority or communist or legalism, the ability of that nation’s leadership to restrict change through the impermeability of its structures remains.

The Permeability Grid

Any organization can be assessed as somewhere on the grid of permeability. At its worst extreme today, North Korea stands out – completely impermeable to any thought of change or even discussion, it embodies the lunacy of not just tyranny but of the inability to listen to any reason. This is not just about governing but also about the basic rights of its people. North Korea would get 0 on the scale of impermeability.

Of course, moving too far towards complete permeability is towards chaos. The other extreme (100 on the scale) would be where every thought is taken on board and acted on. This represents an organization that has no control – which some would find enjoyable even if chaotic – but often leads to mayhem. An example of this may be Waterworld  or some other dystopian view of the future, but the tendency here is that it leads towards strong group asserting themselves and veering back towards 0.

The balance between tyranny and chaos is commonly held to be democracy and open societies where the key parameters of society allow and enable freedom of thought and opinion with individual and group rights yet within structures that avoid chaos. This is not at the centre politically but may well be at the centre in terms of permeability.

 Slide1

This grid works in a similar way to complexity theory – the way that complex adaptive systems work. The tyrannies occupy the areas of stasis at the opposite end to chaos. In the middle, where real evolution happens, stands the “edge of chaos” – it is reasonable to assume that the best democratic, open societies or organisations exist here or should have ambition to do so. It is at the edge of chaos that real permeability exists – the ability of groups of people to listen, understand and adjust. This is where evolution happens without revolution.

The Common Threads blog has been all about how we are mired in rigid 19th Century establishments – even in democratic nations like the USA and the UK. There are a myriad of examples. Humans have evolved many ways to do itself down and ruling elites, wherever they are, enforce lack of permeability through many devices.  Even in supposedly open societies like the USA and UK, rigidity seems to be the natural default mechanism. This leads to poor voter turnout and reactions to Edward Snowden as we have recently seen.

Of course, these can be considered minor against other nations which vary from terror to corruption. South Africa, for example, has moved decidedly from one extreme – the tyranny of apartheid (terror) – but is in danger of side-stepping back into chaos.

Mandela shined a light into the darkness

The worldwide sadness that accompanies the death of a great man or woman shines some light into the cavernous darkness of those who do not live by the same high principles. This has been the case with the death of Madiba as was witnessed by the South Africa’s President Zuma when he rose to speak in front of his subjects in the memorial event in Johannesburg.

Jacob Zuma has been accused of corruption – millions of Rands of government money allegedly spent on his own property – an excess now termed Nkandlagate after the name of the region. The Guardian reported on this in November.

Yet, both fought the tyranny of apartheid – where a dictatorship of a minority (mainly of whites over blacks) could have been fractured by conflict but was changed by an eventual collapse of belief by the majority (under pressure from the rest of the world and its own black population) and nurtured to a peaceful outcome by Mandela.

Nelson Mandela was not one to overtly criticize those in the ANC that committed corruption. The ANC was his “home” but Mandela’s spirit of understanding and compassion must have been stretched to the limit when seeing his ANC brothers and sisters involved in enriching themselves at the expense of the mass of poor people in his country.

Andrew Feinstein, a former South African MP and ANC member, has written vividly on the post-Mandela corruption in South Africa in his book: “After the Party

Lighting up the shadows

Under Nelson Mandela’s giant shadow, there lies a worldwide web of corruption that is not just within the borders of his home country. As the boos rang out to embarrass Jacob Zuma, the question is whether they sounded loud enough to make a difference. Can the moments of reflection on Nelson Mandela’s life shine a light into the shadow so that those who see the problem act on it?

Throughout the world, corruption exists in many forms. The recent edition of Transparency International’s Corruption Perception Index showed that South Africa ranked 72nd (along with Brazil) out of 177 nations evaluated. Jacob Zuma and his compatriates may have corruption issues but there are (according to the Index) 105 countries in a worse state.

Nigeria – which is 144th on the 2013 list – has just recently seen a letter from the Governor of the Central Bank of Nigeria being sent to the President asserting that $50 billion of oil revenues has gone missing – representing 70% of the value of such revenues since 2012. Mr Sanusi’s letter calls for immediate audits of the oil accounts.

Whether or not the revenues have been misappropriated, the fact that the Governor of the Central Bank believes that they may have, this points to a society that is prone to corruption – and it is known to be on a grand scale.

Corruption can be seen as the brother of tyranny. Instead of terror, it provides a method of keeping the population quiet. Zimbabwe’s use of income from the Marange diamond fields ensures that the political leadership there is relatively secure and that real democracy / open society cannot permeate.

Angola is another example where Sonangol (the State Oil business) serves to ensure that oil revenues find their right place in the hands of the President and his family and retinues.

In both, terror accompanies the corruption of the resource curse and shows the methodology of keeping stasis – maximising the chances of ruling elites clinging to power and power over the resources of a nation.

How Do we Want to Live?

The rise of China and our continued reliance on economic growth / GDP as the only measure of our success as humans should give us pause – where “us” includes the Chinese as much as anyone else. If those of us in the democracies of the world believe that open societies are important, how important are they to us? How do they compare with a bit more GDP (knowing how unreliable GDP is anyway as a measure of wealth) and how unreliable is it to see economics as the foundation for the quality of our lives? How threatened are we by the non-democratic regimes elsewhere? Does China’s economic success of the past thirty years) threaten their internal structures or the rest of the world’s? Should we react to other nations’ lack of permeability – statis enforced by terror or corruption or legalism?

Common Threads has been about the impermeability of our legal, political, economic and social structures and changes needed in nations like the UK and USA. With the global economy upon us and with world-wide challenges such as climate change and resource scarcity; with G8 and G20 providing economic mechanisms for mutual dialogue; with Arab nations struggling to maintain the Arab Spring against the drive to stasis in places like Egypt and chaos as in Syria and Libya – how hard should we be pushing the “edge of chaos” – democracy – as the right answer throughout the world, knowing that this may cause us economic harm if the Chinese government, for example, don’t like what we say?

Is the alternative to motivating others to our ideals the fear that we could fall into the trap of impermeable extremism (as Golden Dawn in Greece would extol) or even the trap of Tea Party / Ayn Rand rigidity? China, Angola and many other states need an Antigone but it has to be more than brave students at Tiananmen Square. Antigonism will only work when our governments are brave enough to extol our open government world-wide.

Cutting through the Fog – Corporate Secrets and Beneficial Ownership

David Cameron promised last week at the Open Government Partnership Summit that companies registered in the UK would be obliged to reveal their ultimate ownership and that the public would have access to those records.

This was a major statement of intent: evidence that the UK was not going to condone the opacity of companies or owners that could possibly be engaged in criminal dealings or those who are perfectly innocent but choose to inhabit the same smog-bound territory of corporate secrecy.

Why the secrets?

More accountability is a hard-won struggle in an era where our secrets are open to secret services like the NSA and where government secrecy is hard to lessen, Through all this opening up, companies (and Trusts) operating on an international level have reatained an unwelcome ability to shield themselves from public view. At a time of real debate about privacy (Snowden, The Guardian, the NSA, Angela Merkel’s mobile), companies that seek privacy have remained relatively immune.

Companies are treated as individuals under the laws of most countries yet have the ability to hide their ownership and deal with their taxation (if operating multi-nationally) wherever they choose. This means, of course, that they usually choose what is right for them not for the wider society in which they operate. That is their remit. The recent shake-down of Starbucks, Google and others over taxation – which, to date, has yielded not much more than the voluntary promise of payment of a few tens of millions by Starbucks – was a tip of the iceberg moment. With corporate taxation in the UK heading downwards, the current government coalition seems determined to accept the Institute of Directors’ call for companies not to be taxed on their profits at all!

However, one thing about tax is that we can all see how much a large corporate pays in the UK (about a year after the event when it publishes its accounts). What we don’t see easily is where a company has overseas affiliates with which it “trades” – such as paying royalties for the use of its name – in secret jurisdictions where tax is often negligible.

This nonsense of transfer payments and royalties (which HMRC showed last week to the Public Account Committee it has no real understanding over) shifts massive amount offshore and out of the country where real business was done to tax havens.

The fear often cited that proper taxation would force companies out of the UK is nonsense. They do real and profitable business here – the UK is the world’s seventh biggest economy (or thereabouts). Why on earth does anyone believe that they would move away from doing business here? Can anyone imagine that Apple would close its Covent Garden store if they had to pay real tax in the UK rather than shift profits to where the name “Apple” is deemed by a tax expert to reside? Being afforded the space to sell its (excellent) products in the UK, to use our roads, lights, take on people educated here and all the other benefits of selling in the UK (which includes the iconic area of Covent Garden in London) are well worth the entrance fee of corporate taxation.

Offshoring the owners

However, David Cameron’s speech was not specifically about offshoring taxation – it concerned beneficial ownership issues and these are, of course, linked to taxation in a major way but it is much more than that.

The fog of hidden beneficial ownership means that companies are set up which can channel profits or simply flows of revenue to places where tax does not apply and where no-one knows the beneficiary. This is a typical and easy-to-organise ruse of the criminal world. For many years, criminal networks have laundered their revenues offshore – it used to be through the transportation of suitcases full of notes; these days, it is a little easier. This not just saves tax – it transforms illegal earnings into clean money that can then be brought back again into the real economies via the normal banking system.

With the improved ease of transmission of money across the world, it just takes complicit banks to enable the movement (along with some accountants and lawyers to get things under way) and, hey presto, money surfaces wherever it is wanted without anyone knowing.

Just watch the antics of Breaking Bad attorney Saul Goodman – now getting his own series. The essence of monetary manipulation is built around secrecy and contacts. Governments cannot easily stop the development of the latter, but they can do much to stop the former – making beneficial ownership transparent.

Lining Up for Secrecy – the Fog of War

To the vast majority of us, this is obvious, but to many it is a declaration of war. Many secrecy-led jurisdictions are concerned about their future. It is not just Cyprus where the dominance of “financial services” is far too big for the country – Cyprus became completely over-dependent on banking, Russia and lack of due diligence. According to the Tax Justice Network there are 73 secrecy jurisdictions around the world that they analyse.

Of these, a staggering 35 have some substantive connection with the UK. One of those is Jersey and Jersey Finance’s CEO, Geoff Cook, voiced his concern on Friday when he heard David Cameron’s pitch. In his blog he refers to the public register:

It is not yet clear what will be on such a register but unless this is adopted by the G20, I would confidently predict that  Mr Cameron is likely to have lots of friends in the AID world and insufficient food on the table at home.
Protecting business interests, trade secrets, safeguarding personnel from fringe, sometimes violent campaigning groups, from corrupt political elites and from criminals are all real and weighty concerns.  It is telling that the NGO community are happy to  subject those who have worked hard and done the right thing to a much greater degree of scrutiny than almost any other constituency in society.
There is little difference from opening up the private company arrangements of business owners to the public glare of NGOs, journalists, cyber criminals and the assorted flotsam and jetsam of the worldwide web, than for ordinary bank accounts. If the logic holds good do we not need to know the balance publicly of all personal bank accounts so that all can be sure we came by our cash by legitimate means?
We have nothing to hide in Jersey and we have been active supporters of government to government information exchange. However, the voyeuristic tendencies of politically correct elites should not be indulged and indeed will not be by the vast majority of countries, leaving the UK out on an uncompetitive, uncomfortable and potentially impoverished limb.

It is extraordinary that arguments for secrecy over beneficial ownership are now wrapped up in screams about safety from “violent” campaigning groups and cyber criminals. These are the words of fear – fear for a future that may have been predicated on the Cyprus model and lack of such due diligence.

Secrecy over beneficial ownership allows vast amounts of money to be electronically channeled out of not just the UK developing nations. That cannot afford the losses. Huge amounts of wealth properly owned by citizens of countries such as Guinea, DRC, Angola and others are secretly moved and laundered – often with the help of banks (who are now in the firing line of authorities especially in the USA). As TJN itself states:

Secrecy jurisdictions facilitate illicit financial flows.

Illicit financial flows stem from three major sources: bribery (corruption in its narrow sense), criminal activity and cross-border tax evasion. In doing so, secrecy jurisdictions and the secrecy providers operating through them play not only a major role in preventing the poorest countries from developing out of a state of dependency and poverty, but they help creating a criminogenic environment in which all sorts of crimes can thrive and feast on the fruits of breaking the law.

The crimes that are facilitated and whose financial reward is secured by financial opacity and the resulting secrecy comprise, but are not limited to: tax evasion, aggressive tax avoidance, money laundering, terrorist financing, drug trafficking, human trafficking, illegal arms trading, non-payment of alimonies, counterfeiting, insider dealing, embezzlement, fleeing of bankruptcy orders, illicit intelligence operations, insider dealing, all sorts of fraud, and many more.

Clearing the Fog

David Cameron has made a real commitment but there are real obstacles to further progress.

The first is implementation.

Those involved in celebrating the introduction of the Bribery Act in 2011 are rightly concerned that its implementation is suspect. As Jack Straw, then Minister of Justice, said in the original White Paper, there was unlikely to be many cases brought before judges as a result of the Act. This has been borne out in practice along with insufficient funding of investigations, low numbers of court actions and Bribery Act guidance that was aimed at stifling the Act’s powers. Proper and funded implementation of real transparency and public availability of that information is now key to ending secret beneficial ownership for UK-registered companies.

The second issue is around Trusts. These are not covered by the PM’s statement or commitment yet Trusts are a key secrecy weapon for criminal activity across the globe.

The third issue is that the commitment only applies to the UK. This will serve some purpose in helping to clear money laundering from this country but the UK should now use its leadership wherever it has influence. This is direct in the 35 secrecy jurisdictions mentioned above but also in other forums where the UK has any influence – such as the G20, EU, FATF (Financial Action Task Force).

The fog remains but the UK is beginning to spy a way through – taking a lead on an issue on which millions of lives depend outside the UK. It is not the problems of those in Jersey’s Finance Ministry we should most be concerned with but the problems of those in countries where massive corruption by those in power is facilitated by banks and secrecy jurisdictions – resulting in billions leaving the countries (far higher than Aid going in) and that means millions having to survive on a $ a day with no medical facilities let alone schools or economic opportunities.

Time to see above the fog.

Supporting entrepreneurs in developing nations

Top-down or bottom-up economics?

Sunday Times (6th October, 2013) reports:

 

“The London-listed miner founded by former England cricketer Phil Edmonds has won a breakthrough export licence in Guinea after appointing to its board a businessman with close ties to the president.”*

*Nb. refers to Sable Mining Africa – a British Virgin Islands incorporated, AIM-registered company

 

Market economics has achieved substantial results worldwide – mainly because of huge success in China (and, to an extent, India), the percentage of those deemed at the worst stage of poverty (those living on less than $1.25 per day) according to the World Bank has fallen dramatically in the last ten years, from over half in the developing world to 21%.

Despite this, around 1.2 billion people are still impacted by extreme poverty and many areas of the world remain blighted by lack of economic progress.

Forget GDP per capita numbers – it is irrelevant where all the proceeds go to 0.1% of the population. Equatorial Guinea has a per capita GDP of nearly $20,000 – yet, the vast majority of the population live in conditions of extreme poverty.

In post-conflict states and many others where there is poor access to economic opportunities for the majority of the population, extreme poverty stubbornly persists. There are many reasons for economies to be mired in lack of progress. As Dani Rodrik states in his “The Globalization Paradox”, “the most pressing problem could be a shortage of finance; it could be government practices (such as high taxes or corruption) that depress private profits; it could be high inflation or public debt that increases risk; it could be learning spillovers associated with infant industries that prevent private entrepreneurs from reaping the full social value of investments.”

Macro, Top-down attempts at change

Normally, the response has been for nations to work to remedy this on a macro-economic basis by implementing major, nationwide changes – often hand-in-hand with the IMF or similar. Countries in Latin America were good examples of this in the 1980’s. This led countries like Argentina to see rapid growth through the dramatic reduction in capital controls, for example, and then to debilitating recessions. The WTO model – opening up to huge changes quickly through the freeing of capital and exchange controls – relies heavily on the nation’s capability for being up to the job – overnight. The problem is that the rapidity of the change is usually too much, too soon. It often leads to rapid increases in fund flows – maybe inward as the search for investment grows and maybe outward as the indigenous population (maybe the top 1%) find better investment opportunities elsewhere – and upheaval.

While it is important that positive (and well thought-through) macro-economic change happens, Rodrik shows how important it is for states to nurture their manufacturing, design, distribution and other industries. China is held up as a prime example of this. It did not join the WTO until its economy was healthy and competitive.  The same is true about Taiwan or South Korea.

Micro revitalisation– tunneling through the transaction costs

The problem in many countries is that while there may be an appetite for economic progress at government level (where an understanding of economics may be poor to non-existent and the “appetite” may be for quick profits, legally or corruptly gained), it is bound up with difficulties. These often include entrenched positioning of those in power –  an elite that has vested interests in the status quo. This is clearly seen in resource-rich countries – where small elite groups manage to take over the profits of a country’s natural resources and the mass of the population sees no economic improvement. Countries like Angola have gone way beyond corruption – the dos Santos family now owns the country’s natural resources and the companies (like Sonangol) which manage their energy wealth; or in the Democratic Republic of the Congo – see Dan Snow Wednesday 9pm BBC2; or government and business collusion (such as alleged in the Sunday Times article mentioned at the start of this post. Guinea has just has just had elections – and is a country rife with corruption as noted recently by the Economist.

Of course, some wealth filters down into the wider country, but only so that the elite (and those associated with them) becomes fatter. This remains a tiny proportion of society.

In such countries, there remains a massive desire for economic advancement through their own efforts amongst the people despite all the problems put in their way.

Organisations like the World Bank, GEM, GEDI and others are researching, for example, these obstacles to entrepreneurship and economic advancement worldwide. All show the huge desire of people to fend for themselves and not to rely on handouts from top-down aid.

GEM (Global Entrepreneurship Monitor – http://www.gemconsortium.org/) produces an annual assessment of global entrepreneurship activity; GEDI (The Global Entrepreneurship and Development Institute) also ranks countries by their ability to be entrepreneurial and works on a macro basis to provide ideas on improving economic performance. GEDI works with large multi-nationals and claims that:

“Entrepreneurship-focused support not only improves the business environment, creating economic value, it kicks off virtuous cycles that create waves of social value.”

The World Bank itself produces rankings in its global “Doing Business” listings. Along with such as Transparency International’s Corruption Perception Index and countless economists, it is a continuous process to develop new macro-economic methodologies.

Rodrik himself was asked by the South African Government in 2007 to address the problem of unemployment and developed significant opportunities for real improvements in “social value” – which benefits the many not the few.

In many countries, though, macroeconomic policies do not work. William Easterly strongly makes the case that it is not the “planners” (with their top-down policies) that work for poor nations but the “searchers” – those providing bottom-up opportunities. Indeed, the annual studies show that entrepreneurialism is higher in poor countries than the rich ones. This is partly due to less opportunity to find employment but is also down to the natural and instinctive ability of humans to fend for themselves exists throughout, when the incentives are apparent and not made impossible.

Micro-economic incentives and opportunity provision are always required. These incentives may be financial or they may be educational or they may be motivational. They may be needed to provide networks and distribution facilities. There may be the need for leadership skills training or the development of manufacturing or design skills. Each nation or region or even city may well be different.

If the natural tendency to trade (so common in all countries) is allied to the skills and abilities needed to create, develop and manufacture together with some motivation and belief in the future, then real progress can be made – allied to the profit motive that underpins the market economy.

Fighting through the mayhem

The big question is how? There are a number of ways to do this – but, all rely on somehow creating the entrepreneurial business ethic and safe passage through the morass of so-called “transaction costs” which are often traumatic in countries where wealth is uneven or normally unobtainable. It also requires the desire to build an economy that is wider than an elite – where trading does not just enrich a tiny bunch.

The transaction costs may be how long it takes to register a company or gain permission to sell products or find the training and skill-up or find staff or understand royalty and tax issues or accounting problems. It may be that there is rampant corruption that stifles progress or downright intimidation. It may be that women are not allowed to participate.

All these and many more factors are grouped together to dramatically hinder progress. To resolve them takes a bottom-up approach – which has to be allied to changes on a national / macro scale. These changes must focus on, for example, eradicating corruption, developing proper taxation systems, ensuring that tax is collected and used for public good.

The bottom-up approach can be successfully done by the hardest working acting on their own – and there, of course, are examples of businesses that progress despite all the problems thrown at them.

It may, though, be provided with external help – but, this is generally through business arrangements where companies operating from developed nations see opportunity – again, mining in Guinea is an example. This is often where natural resource recovery takes place – where the Chinese now dominate throughout Africa – but where the mass of local populations doesn’t benefit. This is the case for energy and other natural resources like wood and minerals or gold.

There is another way just beginning. This is where organisations from the economically developed world (some may be social enterprises, some may be charities) that have business ability and seek out those bursting to improve their economic lives that also show some capability. By analyzing the obstacles in their way and providing an “economic tunnel” through the mayhem – for example, through training, networking, distribution channels, financing, motivation, skill development – small pockets of entrepreneurialism can be assisted to grow.

This “micro-economic tunnel” will be different in each country or region or city, but there are already examples where social entrepreneurs are providing enablement into countries that face the harshest of obstacles – like Afghanistan. Recently, two, different examples have been shown in that country – both encouraging the development of inherent capability in different ways – one through perfume, one, Future Brilliance, through jewellery design and distribution into the global marketplace.

With examples provided on a daily basis that show how lack of economic opportunity provide incentives for corruption and even terrorism, more needs to be done at the micro-level where real people with real capability and drive can be provided with the tools and incentives to thrive and provide social value. The days of top-down aid and macro-focused solutions may not be at an end, but bottom-up opportunity is the lifeblood of a nation’s success and needs to be nurtured.

 

1.2bn people still attempt to live on less than $1.25 per day. 

 

“Entrepreneurship-focused support not only improves the business environment, creating economic value, it kicks off virtuous cycles that create waves of social value.”

Jeff Kaye is a Director of Future Brilliance http://www.futurebrilliance.net

 

 

Business and bribery – globally speaking

A couple of weeks ago, I posted “Everyone should be allowed to bribe”

https://jeffkaye.wordpress.com/2012/05/27/everyone-should-be-allowed-to-bribe/

and received a lot of good feedback. From business people, from NGO’s, from those in countries where the bribes take place and impact the most, it is clear that this is a major concern.

The NGOs’ position is understood – bribery is bad, it is illegal in most countries, it does irreparable harm, it distorts the market, and it creates poverty in those countries, which cannot afford to exacerbate intolerable economic conditions.

For those in those countries where bribery takes place, the impact is felt acutely. It is not just that money is wasted on bribes that could be spent elsewhere; it is not just that money is wasted on products and services that are bought only because of the bribes. Just as critical is the fact that the country may see bribery and corruption as the norm – nothing is done without a bribe – it is a mafia-type culture where favours and reward for favours are the norm. This is a distortion of the market that leads to those in certain positions benefitting and the rest (those outside the inner circles) are deprived of economic well being (maybe no housing or food) and deprived of being part of a moral centre to their lives.

The Business of Bribery

For large businesses operating out of countries with well-developed legal structures, bribery and corruption is now officially not on the agenda – reputational losses are, in the main, far too severe to allow a short-term gain to be allowed if through bribery. The problems that Wall-Mart is suffering from alleged facilitation payments in Mexico is a case in point – the legal hassles, the continuing publicity, the constant press all drain the company and, overall, question the economic sense of the payments (which may well not be illegal under the Foreign Corrupt Practices Act – FCPA).

For large organisations operating in corruption-endemic parts of the world, the situation is fraught with danger. A business operating in the UK or USA, for example, would be acting illegally if bribing overseas. Yet, there are many instances where it appears that business takes a calculated risk – using money to influence decisions that (even if found out and prosecuted) may well represent a reasonable return on investment overall. These companies may well be in mining or construction, or defence – industries prone to bribery opportunities where the dangers are continuous.

For small to medium-size enterprises (SME’s), the situation is hugely risky. Many complain that meeting the requirements of the UK’s Bribery Act are severe and highly costly. Lawyers require large fees for sifting through the processes of any business to “ensure” that “Adequate Procedures” are in place. Many have gone too far and maybe spending too much in ensuring no bribery takes place.

For others, there remains the feeling that bribery is not a bad thing – it is the norm, they say, for doing business in certain places and British business (or American or whoever) should not be crowded out by parsimonious governments led by the nose by the NGO’s.

For these businesses, they are competing for the survival of the company (in their minds) – why does the UK not “get it” – that “we are not on a level playing field with the Chinese and others who allow their firms to do what they want when overseas?” Arguing that it is unethical produces a wry smile – and a call to deal in the real world where business is tough and economic conditions tougher. A business does whatever it needs to do.

From 19th Century business ethics to 21st Century Globalisation

A parallel with the business of bribery was the rise of industry in the 19th Century and how the demand for health and safety procedures were crowded out and resisted by businesses that saw this as an affront to their rights to do business. The laws allowed child labour and working conditions modeled on workhouses – prison-like conditions.

In 1833, the UK introduced a law that ruled that:

  • Children under nine could not be employed in textile factories.
  • Children aged nine to thirteen could work a maximum of nine hours per day and 48 hours per week.
  • Young persons aged thirteen to eighteen could work a maximum of 12 hours per day and 69 hours per week.
  • Night work for children and young persons was not permitted.
  • Children were to attend school.
  • Four independent factory inspectors were to be appointed.

This was the beginning of a movement that business owners felt would wreck their businesses.

We can now look back on the waves of pressure in both directions that pushed for better working conditions on one side and the status quo on the other.

But, the world changed – developing countries realized that to be prosperous meant developing the so-called middle class and that all parts of society had to be covered – not enslaved by appalling conditions. While risks still persist in many industries in the UK and other developed nations, the focus has moved.

Globalisation has meant that we now source so much of our goods from overseas and this means that Asia, for example (mainly China) now represents our supply base just as the under-9’s did before 1833. Our natural resources (from which the British Empire rose up) are still derived from many of those countries, which were plundered in the 19th Century.

Yet, the norms that we require in our own countries are not the norms in our supplier base – even if we obtain the benefits. When a UK retailer is discovered using child labour in one of its overseas suppliers, there is an outcry and their reputation suffers. Our consumerism does not, in the main, take precedence over what we see as basic ethical norms – which have changed in the last 180 years.

So, bribery and corruption is no different. Early 19th Century England was a place where bribery was endemic. We have, for the most part, cleaned up our act at home. This ethical state was not transposed to the work we do overseas for many years – in 2001, the costs of overseas bribes remained tax deductible in the UK. Now, the situation has changed – the ethical state has changed in law – if not yet in practice. Globalisation does not mean we should hide our eyes from the rest of the world – we are now all part of the same economy (just as the textile workers and their 9 year-old children were in 1833).

Taking business beyond bribery

The laws are in place but business (operating under difficult economic conditions) and business people feel under pressure. Passing a law does not mean that it becomes easy to deal with it. There are a number of changes that we need to see made.

  1. SME’s feel under pressure because they have been scared by the Adequate Procedures requirement in the UK – which means that individual Directors are unlikely to be prosecuted even if someone in their firm is guilty of bribery if there exist processes, which mean that the bribery charge is shown to focus on a rogue element. Lawyers and others have made the most of this – firms are hit by high charges if their risk assessments show them vulnerable. The answers lie in common sense (like all business decisions) but also, for many who think themselves vulnerable, for Chambers of Commerce and other business organisations (CBI, IOD) to go to their aid by working with government and NGO’s (like Transparency International) to educate wherever possible.

I have myself chaired conferences in the Bribery Act – I hesitate to state the percentage of companies that have been to such conferences, but I bet it is a low one.

2. Working for a US corporation for many years, I had to sign-off every three months that I was unaware of any bribery going on in my business. We should have the same in the UK – this should be done for all companies audited, where a document should be signed off every year by the Board. For those companies that are too small for an audit, there should be a statement that is sent in with the Balance Sheet to this effect.

3. For companies that are subject to bribery requests and / or intimidation, there has to be somewhere to go just like the Embassy if an individual is imperiled. Every embassy should have a commercial attaché or equivalent that is trained in the Bribery Act and knows how to deal with the issue. This entails pressure on host governments as well as alerting the issue to UK Authorities – as it is anti-competitive and will hurt British firms in the short-term. It also requires links between the Embassies and industry groups to channel information and to act on it.

4. The Governments that are signed up to the OECD Anti-Bribery Convention have to seriously and continuously pressure those countries that aren’t to enter into a world wide anti-bribery agreement – it should be a WTO requirement for trade that countries make their firms bribe-free and that supplier nations work towards bribe-free regimes. This should also include those regimes that have surpassed bribery and where small groups have taken over the resources completely. Angola comes to mind (Sonangol controls the energy industry and is vitally owned by the governing clique) but South Sudan (one of the poorest nations on earth) is bemoaning the loss of $4 billion through corruption in its oil sector.

Business Ethics good for Business

Business has to deal with many challenges – and external challenges can be the hardest. I have seen businesses in aerospace and defence positively transformed because of the adoption of good ethical practices. CSR has focused many large companies on to going beyond what is legally required to what is right. That usually makes for good business as consumers are far more “savvy” and can change their buying habits very quickly.

For small businesses (maybe part of a supply chain where the end-consumer is not in sight), it is just as important. Large companies are responsible for their supply chain, too under the Bribery Act. There is not much escape.

The Bribery Act took 200 years to get into Law – it is very unlikely to be overturned. The 21st Century world is one economy – each nation and group of nations are linked by trade flows, supply and demand, financial flows, people flows. Just like CO2 emissions, one country impacts another. Bribery may be an unseen crime – it is a crime nonetheless, but, like in regard to health and safety (and child labour laws) we move on.

“Everyone should be allowed to bribe”

I had an interesting discussion the other day at a Fundraising event. Sitting opposite me was a businessman who also does a tremendous amount of work for charity. We got into a discussion on corruption – specifically, bribery. The discussion centred on how “the Bribery Act was causing business a lot of trouble” and that the UK “as always” was taking it seriously whereas other countries would not. We would therefore be undermined and lose business.

I argued differently. Working for Global Witness since 2007 (I left in late 2011), I had played a small part in working to get the Bill into law, then to ensure the guidelines made sense and have since worked with organizations like the Chartered Institute of Management Accountants (CIMA) to provide guidance (I wrote their guidance on the Act) and chaired their Bribery Act conference at St Paul’s Cathedral in 2011.

The businessman, actually a very interesting, successful and intelligent individual, suggested that, to make it fair, “everyone should be allowed to bribe” as much as they liked.

It was a Fundraising event, so not the time for a row – nevertheless, it reminded me sharply about how the world works and how it is split between those who understand the chaos that endemic bribery causes and those that see only the micro-economy (through the eyes of individual businesses) rather than the macro-economic chaos and individual misery that bribery causes.

We live in a disjointed world

I have recently been involved in the filming of a documentary on corruption that will go out later this year. So, although I have left Global Witness (which campaigns against natural resource-related corruption and conflict), I have stayed in touch with the issue.

It is easy when involved within an NGO to forget how business folk (as I counted myself for many years) can disassociate themselves from wider issues. I spent most of my career in business and those who are very successful are completely focused – like an athlete focused on winning a gold medal at the Olympics. The best are relentlessly single-minded in the pursuit of gold – the best business people are similar. This means that they are completely focused on what benefits their business.

This is why the US Chambers of Commerce have been waging a war on the Foreign Corrupt Practices Act (FCPA) for some time. The USA has, since the FCPA was brought into being in 1977, been way ahead of the field in anti-bribery law. This has heated up recently as the US authorities have piled into those who are believed to have breached the Act and, mainly through out of court settlements, have gained hundreds of millions of $ in fines and caused real change in US companies and how they operate outside the US especially.

But, the Chambers of Commerce believe that this puts the US at a disadvantage as other countries don’t have similar laws, they believe, or flout them.

Of course, this is no longer the case in many parts of the world. The OECD Anti-Bribery Convention was signed up to by 39 countries and the Convention is a tough one. As a result, the UK was eventually shamed into all-party support for anti-bribery legislation and the Bribery Act was the outcome – which came into law in July, 2011. It is actually a tougher law than the FCPA – making facilitation payments illegal, for example, and making the bribery of anyone (including government officials) a criminal act if it affects a decision. However, if a company has good processes and trains its staff well (Adequate Procedures), Directors of the company are unlikely to be prosecuted. Let’s face it, the funding of prosecutions is also likely to mitigate against major cases being developed.

However, the Act has led to a large industry being developed in training and in new processes. I was on the working group in the UK that brought in guidance for the not-for-profits (charities and NGO’s) in the UK (under the auspices of Transparency International and Mango) so saw very clearly how every organization (business or not-for-profit) could be affected by the Act.

This new anti-bribery industry has seen a number of lawyers move from the Serious Fraud Office (SFO) to private industry – confirmation if needed for business people that the whole thing is a cash generator for law firms and those in them and nothing more.

The equivalent of the “revolving door” that has been denigrated for years when politicians or civil servants enact laws or make project decisions and then move to senior positions in companies, is now taken as a serious concern by business people who see the same situation used against them! There is an irony there somewhere.

Corruption hurts

Business people see anti-bribery legislation as a problem. It makes business (in their opinion) more difficult in the same way that early 20th Century business people saw health and safety legislation as a problem. I am sure that many business people in the 19th Century saw government money being used to build the sewer system in London as a huge drain on their wealth and a public use of funds that proved that their wealth creation was being used against them – even if for the public good.

So, it must be galling to see anti-bribery legislation (which is international in concept and which is aimed at benefitting the poor in the poorest countries) put into force. In the USA, business is working to erode the law that has been in place successfully for 35 years – a law that has led the world. In the UK, there is irritation (maybe mounting anger) at the Bribery Act. And its implementation costs.

Business folk (and I was one for many years) see the short term and their bottom line. They find it hard to associate themselves with the wider questions about how corruption transfers wealth from the mass of people to a few – as, say, in Angola; how it ensures that money is spent on items that are not needed – very expensive air traffic control systems  in Tanzania, for example; how it adds to the price that poor nations pay; how nations like Nigeria are completely beholden to corruption as was England in the 18th Century – a nation where every job, every hospital appointment, every legal decision is likely to be subject to payment / bribes. Look at Greece and its current malaise – not paying tax is a symptom of a society corrupted – so much of the economy is bribery-induced – the black market is a corrupt market and leads to short-term benefits and long-term disaster.

Values are not for sale

The Bribery Act is now in place in the UK; the FCPA has been tried and tested in the USA for 35 years; 39 countries have signed up to the OECD convention. Yet, we probably face a bigger problem. The growth of nations such as China, India and Russia face us with enormous challenges as each nation is, in its own way, a centre of corruption.

China has adopted a Confucian posture – hit hard at home to rid itself of the endemic corruption that is at the centre of its totalitarian heart while allowing corruption to exist where it trades – such as in Africa. The Confucian spirit allows it to leave alone the nations with which it does business at the same time as Western nations attempt to apply governance to aid budgets. This is a time of real challenge and western countries should be working more than ever to instill values not just trying to compete for short-term gains. It used to be “if we don’t bribe, the French will”;  now the same phrase is directed at China, Russia and India (the home of www.Ipaidabribe.com).

We should not allow our values to be for sale for short-term benefits even in times of economic stress.

Is Bribery good for Business?

There are examples of businesses that have high values and most do not engage in bribery. Usually, those with the highest values are large businesses that know their CSR will be shaken by reputational problems. It makes business sense not to take the risk – bribery is bad for business.

Medium to small businesses, where the main opportunity for employment growth exists in most countries, are less concerned with CSR – which most think of as meaningless nonsense. Societal issues are way down the list of priorities – international issues are nowhere.

Hemmed in (in their view) by unjust legislation on all sides that seeks to choke off the spirit of enterprise, small businesses fight to survive daily. To them, bribery may be a necessary part of life. So what if people overseas suffer as a result – jobs are created for British firms and if we don’t do it, someone else (like the Chinese) will.

Globalisation in this context means nothing but cheap supply chains, cheap overseas labour and opportunities for exports. Globalisation does not mean we should take account of international problems.

Like 19th mill owners who fought sanitation bills as bad for business, who (in the main) were not interested in the health of their workers, who were only constrained by legal changes, many business people will only react to changes in the law because they are focused on their business and anything that adversely affects that business is bad – by its very nature. Bribery may allow business to take place – if a British company is not allowed to do it, business may well be lost.

Is bribery good for business? Of course not – just like the death of a worker because of shoddy safety systems, just like the gradual reduction in bullying at work because most acknowledge it is not needed – we inherently know that bribery (the corruption of people to make decisions go our way) is abhorrent. The impact is grotesque and cannot be justified even for a few extra short-term jobs.

Relentlessly focused business leaders know that bribery is wrong (at least most do) and, apart from the most extreme libertarians, understand that globalization means that the rules of business engagement are going to be made international. We cannot for long assume that developing countries will, for long, expect to be treated as the working class of 19th Century England. The class structure of international business will, over time, lessen just as we have made changes to our own class structure in Europe and North America and elsewhere.

Good business cannot “allow everyone to be bribed”. It is not just an ethical position, but a business one. Business should be undertaken on a level playing field where no-one bribes – we should be striving to ensure that bribery is minimized not allowed everywhere. Rules or norms are basic for societies to function. In a global society, the norms need to be widely applied. Bribery is bad – we all know it. Business leaders, here and in the USA, should be leading the fight – not over-reacting and running in the opposite direction.

Good Global Citizenship and Tax Havens

Barclays was cornered this week in the UK by Her Majesty’s Revenue and Customs into paying back around £500 million for entering into a tax avoidance scheme – despite signing up to a Government scheme not to do such things. Bob Diamond now looks foolish after his vow to make Barclays a good citizen.

For many years, it has been “OK” for companies and high income earners to shield their earnings behind tax avoidance schemes. Since the introduction of welfare states across the world, companies and individuals have sought to minimize the tax that society needs to work through the system. They have systematically sought to challenge the efforts of democracies to manage the tax base. In some countries like Greece, there has been a tacit buy-in by Governments (and those in Government with their fingers in the till) to allow tax to go unpaid. This leads inexorably to financial chaos and, as we now see in Greece, to progressive civil strife and poverty. This is what has happened in Africa for so long – the wealthy shield their income from the State (who are paid off to look away).

In those countries which do make a real effort to collect taxes, the best tax avoidance comes through the use of tax havens and the real killer for economic equity is the way the world accepts tax havens as a reasonable and acceptable part of our global economy.

David Cameron and many others talk a lot about fairness: the fairness that makes bankers bonuses almost a criminal offence. But, this is two-faced. While George Osborne says that the HMRC will work towards killing off general tax avoidance schemes, we have in our midst a main centre of tax avoidance – the City of London.

Nicholas Shaxson wrote brilliantly in his book “Treasure Islands” about the tax havens that bedevil the world of finance and economics. Tax havens distort, they do not equalize.  Tax havens provide the wealthy (individuals and corporates) alongside the wealthy criminals and wealthy terrorists with the ability to shield themselves from legitimate taxation. Providing a legitimacy to tax havens (and allowing them to proliferate worldwide – even shielding them as the UK does the Cayman Islands and elsewhere) creates massive market distortions and inequalities. Legitimate and democratic tax collection is continuously stymied by the tax havens – just a step from the wealth-grabbing in Angola or the tax avoidance mentality that is Greece.

Taxation is a central plank of democratic society.  While the Tea Party and similar libertarians might rage against central government tax and tax collections as a scourge of society, we know that society is centred on a democratic ideal of the wealthy properly financing the society on which it depends to provide a basic source of welfare to the poor and sick, for defence, for infrastructure. Society is more than just the wealthy and privileged creating an elite life. Angola is a good example of how fortunate elites manipulate the wealth of a nation to appropriate its total wealth and Sonangol (its so-called publicly owned oil company – really commanded by its country’s leadership who reap its financial benefits) has been built to achieve the grabbing of oil and energy wealth from the citizens.

The nations that democratically elect their leaders (and, it is to be hoped the new rich of China and Brazil and others) should take heed to the dangers posed by the examples of the wealth grabbers in the energy-rich nations. It is here, in the UK (City of London, Jersey), the USA (such as the state of Delaware) as well as the better known haunts of the Dutch Antilles or the Cayman Islands, where huge financial flows (from the legitimate wealthy alongside the illegitimate) travel in order to reduce the legitimate tax take of the countries in which the wealth is created. Tax havens are wealth destroyers.

Wealth is destroyed by tax havens because they eat away at the main body of a nation – its mass of people, its true wealth creators. Education and education systems suffer dramatically because taxation is unavailable to finance schools. Health systems suffer for the same reasons – in the UK, where we have moved vast sums to the NHS in the last Government, cut-backs are now biting as the tax take is diminished along with economic growth. In poorer countries, the wealth shift is much more dramatic.

Ambassador Nancy Soderberg (appointed by President Obama earlier this year) was in London this week to campaign for Argentina to live up to its duties in economic areas. She mentioned its lack of adherence to the Financial Action Task Force  (FATF) requirements for responsible national supervision of illegal financing – Argentina was placed on FATF’s grey list over corruption issues. But, FATF and other international bodies have failed to oversee a sustained reduction in how financial flows travel the world and to institute a level of good citizenship on a worldwide scale amongst our companies and wealthy individuals.

While steps have been taken to reduce terrorist financing and, to a much smaller extent, the benefits of illegal drug trafficking and gambling and prostitution, very minor shifts have been made in (a) defining what global good citizenship means (b) reducing tax havens and the financial flows through them.

The G20 states from time to time that tax havens are to be reduced in scope but the battle against them has hardly started. Tax avoidance on a grand scale is as bad as grand corruption (maybe bigger in scale): two sides of the same coin. Good global citizenship requires a new definition to be made – where a global consensus is sought to reduce hugely the ability of companies and individuals to create their wealth in one place and move it offshore to save tax. This simple example of good global citizenship is a cornerstone to increasing wealth creation on a wider scale. It is not socialism but realism and pragmatism. It is good citizenship.