Author and journalist
Co-Founder of Transparency International
6 – 7pm, Wednesday 21st November 2012
Committee Room 15, House of Commons, London, SW1A 0AA
To attend please RSVP to:Jennifer.firstname.lastname@example.org
One of the gravest problems still facing many countries around the world is corruption in government. Whether it is in Greece or Chicago, Russia or Zimbabwe, corruption is not an abstract, victimless crime but a serious issue that needs to be tackled head-on.
It is however important not to let the bad news on corruption overshadow the good news on anti-corruption. There is a lot more progress being made towards curbing corruption than is widely realised, and understanding this is vital if we wish to reduce the damage inflicted by the corrupt bribe-takers and their co-conspirators, the bribe-payers. From the civil society activists on the front lines to the public prosecutors, investigative journalists, outstanding political leaders, think tank academics, and philanthropists – individuals are confronting corruption and thus changing history.
In his new book Waging War on Corruption – Inside the Movement Fighting the Abuse of Power, international journalist and founder of Transparency International Frank Vogl explores the exceptionally courageous work of many heroes in many countries in their fight to bring cases of injustice to the eyes of the public. Drawing upon his extensive experience in tackling this issue, Mr Vogl puts forward a case for why it is the incredible rise of public awareness not only of corrupt governments but of campaigns for reform that holds the key to eradication of corruption.
By kind invitation of Michael McCann MP, The Henry Jackson Society is pleased to invite you to a meeting with Frank Vogl, co-founder of Transparency International and a distinguished journalist and financial advisor. Mr Vogl will outline the main thesis of his book, arguing that it is time to convert discussion about the prospects of curbing graft and bribery from one of scepticism to one of cautious optimism and hope.
TIME: 6 – 7pm
DATE: Wednesday 21st November 2012
VENUE: Committee Room 15, House of Commons, London, SW1A 0AA
To attend please RSVP to: Jennifer.email@example.com
Frank Vogl is co-founder of both Transparency International (TI) and the Partnership for Transparency Fund (PTF). A former Vice Chair of TI, which has national chapters in 100 countries, Frank today is a member of the global anti-corruption organisation’s Advisory Council and serves as Advisor to the Managing Director. He is the Vice Chair of PTF, which has provided more than 200 grants to civil society groups in the last decade fighting corruption.
Frank was born in London and, on graduation from the University of Leeds, he started his journalism career at Reuters in 1967, first in London and then in Brussels. He served as the first European Business Correspondent of The Times (based in Frankfurt) from 1970-74, then as the U.S. Economics Correspondent of the Times (based in Washington DC) from 1974 -81. From 1981-1990, he served as the chief spokesman and Director of Information & Public Affairs at the World Bank. In the mid-1980s, he served as the Bank’s Acting Vice President of External Relations and as a member of the President’s Managing Committee.
Frank is President of Vogl Communications, Inc. in Washington DC – a financial and economics public relations firm. Most recently, he served as the spokesman for the major private financial services firms engaged in the restructuring of Greece’s sovereign debt. Frank’s earlier books have been on the German economy and on the economic prospects for emerging market countries. He writes and lectures widely on international economic developments and on corruption.
Frank is a member of the International Council of the New Israel Fund, former Trustee of the Committee for Economic Development, and former member of the Board of Directors of the US Ethics Resource Center.
Michael McCann MP
Good evening, ladies and gentlemen, and welcome to the Palace of Westminster, for those who haven’t been here before. My name is Michael McCann and I am Member of Parliament for East Kilbride, Strathaven and Lesmahagow, which is better known as a constituency just outside Glasgow, if that makes it easier for you. But can I say welcome to my fellow Mo brother. We are growing our mustachios for November – Movember I should say – for prostate and testicular cancer and shave on the 1st December so that I can get rid of it.
So we are going to hear from Frank in a moment, but perhaps if I could do some introductions first. Well of course Frank has written a book, “Waging War on Corruption”. And as a member of International Development Select Committee we are tasked with scrutinising the work of DfiD – the UKAid programme to ensure that taxpayer money is spent wisely. And part of the government policy programme is that it invests a lot of British taxpayers’ money in a lot of fragile and conflicted states. And therefore the key role we have in terms of IDC is to ensure that money is spent properly and doesn’t get into the wrong hands, which ties nicely with the whole concept of waging war on corruption. And when you’ve been to the countries like Democratic Republic of Congo, which is probably the most inappropriately named country in the world, you see the size and scale of the problem.
So, we are delighted to be here this evening with Frank, who is co-founder of Transparency International and Partnership for Transparency fund, organisations that spearhead the fight against corporate and political corruption around the world. And of course Frank is a highly regarded journalist and an author. He started his career at Reuters in 1967, first in London and then in Brussels. He served as the first European business correspondent and then as the US economic correspondent of The Times. From 1981 to 1990 he served as a chief spokesman and Director of Information & Public Affairs at the World Bank, another organisation which I know very well. And Frank is a president of the financial, economic and public relation firm Vogl and is based in Washington D.C. So I am delighted to have Frank this evening. His previous books were on German economy and economic prospects for emerging market countries. But you’ve been busy Frank, you’ve been in Leeds last night, you have few more events to do and we are looking forward to hearing you this evening. So I am going to pass floor to you. And after Frank gives us his thoughts, we will take questions. Word to you Frank.
Good evening. Thank you very much. Thank you for hosting this. Thank you all for coming. It is a great honour and privilege to talk about this subject, particularly here and particularly under the umbrella of The Henry Jackson Society. I went to Washington as a journalist for The Times, and in early 1974 there was a little story called Watergate and few other things going on. And one of the people I had the pleasure to meet was Senator Henry “Scoop” Jackson of Washington, who this society is named after. And it is really appropriate that we talk a little bit about him today in the context of what I would like to talk about.
He, to the great horror, objections of then Secretary of State Henry Kissinger was the sponsor of what to be known as Jackson-Vanik amendment, a law related to the governance of US-Russian trade, and which demanded emigration of Jews from the Soviet Union in return for basically normal trade status. Needless to say, that is no longer relevant. Jews, after the collapse of the Soviet Union, were allowed to emigrate. But it was maintained in the law to keep certain discipline on the Russians.
But last Friday, which brings us up to date, the House of Representatives passed a new US-Russian trade law, which will finally no longer see a Jackson-Vanik amendment in there, but instead they put in another amendment, which is called the Magnitsky Act. And my book partly talks about a man called Sergey Magnitsky, who almost exactly on this day was imprisoned in Moscow 4 years ago and almost exactly on this day was murdered in prison 3 years ago. First of all, the Sergey Magnitsky Act which will place restraints to certain Russian officials from travelling, especially travelling to the United States, is something I think Henry Jackson somewhere in heavens would certainly applaud.
Sergey Magnitsky was a lawyer, a young lawyer, he died at the age of 37. He represented a man called Henry Browder [William Browder], who has got a lot of publicity and lives in this country, I believe. He ran a company in Russia called Hermitage Capital and which as a result of a whole series of corrupt schemes found itself a victim of people, let’s say, close to the Kremlin, that is a nice polite way of putting it, whereby his firm lost $240 million. He was also forced to leave his business there and to flee Russia. And Sergey Magnitsky, his lawyer, stood up and said, “This is corruption, this is theft, this is what our state has done and this is unacceptable”. He was under an enormous pressure basically to recant or at least stop speaking the truth to power. And my book is really about speaking truth to power. And as a result he was murdered.
His mother Natalia Magnitskaya is a wonderful woman whom I had the privilege of meeting about a year and half ago and she has led a campaign together with other friends of mine who I’ll talk about in a minute, and human rights activists in Moscow who tried to force the government to reveal how he died in prison. The initial statement was that he died of various medical problems, and under an intense and very brave campaign, huge personal risks, they finally succeeded. And President Medvedev released a report that actually named the officials who were actually responsible for the death of Magnitsky. Needless to say, nothing has happened to those officials.
It is also worth talking about this for one more second before we talk more generally about corruption, because today is a very special day. Today, November 21st, is the day when a new law in Russia takes effect. Under this law, all civil societies groups in Russia who are in one way or another supported by foreign supporters, such as Transparency International Russia, which I will talk about in a minute, are now bound to declare publically that they are foreign agents under this new law. And they are now subject to a more recently passed treason law, which allows the authorities to pick basically anyone they like and accuse them of almost anything and it is punishable by almost 20 years in prison. It is a tough day there for people in Russia who are trying to promote human rights, democracy, open government, anti-corruption – exactly the values that Senator Jackson stood for.
So it is terrific to be here, to talk under the umbrella of the Henry Jackson Society and particularly with you here… And I have to confess that this book is dedicated to Transparency International and published by Transparency Fund, two anti-corruption groups that I helped to create, both of which were great recipients of money from DfiD.
Michael McCann MP
And it was really wisely spent, in fact we need much more, do tell the Select Committee.
Corruption is a universal problem, corruption creates poverty across the world. Corruption is a source of enormous injustice, enormous amount of crime. It distorts global business, it distorts global finance, it is a serious threat to global security. Our host just told me that he is going, next week, to Pakistan. Transparency International has really great people running TI Pakistan. This is probably the most dangerous place in the world, it is a place where there is an abundance of corruption, it is a place where effort to reduce corruption is a huge herculean task. But nevertheless there are people even in Pakistan who are trying to achieve that.
At this point we need to break up for one second to introduce the man who just came in, who is Laurence Cockcroft. Laurence Cockcroft is a co-founder of Transparency International and he is the founder of Transparency International United Kingdom. Most importantly, Laurence produced an excellent book on corruption which he decided to publish at exactly the same time as mine. So Laurence and I are debating each other. I thought is important to introduce Laurence to you.
Corruption causes enormous damage, enormous hardship around the world. And many people believe that it is a part of human nature, this a problem we can do nothing about. So when Laurence and I and a few friends in 1993 created Transparency International, the Economist ran a cartoon of Don Quixote and Sancho Panza tilting at windmills. What we used to say to various people, “Yes, we are out there, creating an organisation to fight corruption”. People said, “Oh, that’s nice, please carry on. That’s nice”. We fortuitously started Transparency International at the time when Cold War just ended and Berlin Wall had come down and there was a very intense debate about the true economic value and e volume of foreign aid. Before that it was widely abused in order to get our friends as opposed to Russian friends in the Cold War. But after the end of that Cold War there was intense discussion and public debate about the value of aid. And a suspicion, very wide suspicion, that so much aid was not fulfilling its task of reducing poverty because it was stolen by corrupt governments. That was one part of the debate and one part of the environment, the stage as we set up TI. So we started.
And now let me fast forward 20 years, through the fall of Berlin Wall to the rise of Arab Spring. Civil society – and I don’t just claim credit for Transparency International, there are a lot of people who have been at the vanguard in producing enormous amount of very positive change that is often underappreciated. In this 20 years, just consider, we started in 1993 and were the only international anti-corruption group at that time; today there are literally over a hundred civil society groups in many countries dedicated to fighting corruption. Here in the UK there are organisations such as Global Witness, which has done remarkable investigative work in the corruption area, there are many others. Oxfam was a great supporter of a lot of work in anti-corruption. 20 years ago this was just not the case; this was not on the radar screen. 20 years ago you could probably have counted on hands the number of serious academics really focused on corruption. Today, Transparency International research network has 5000 subscribers; we created a growth industry in academics.
20 years ago, one of the first targets of Transparency International was the World Bank. Peter Eigen, who is a colleague of mine from the World Bank, who was East African Director of the World Bank, he was the one who had an idea of setting up an anti-corruption group, and a founder really. I had worked throughout the 80s for the World Bank as a chief spokesman and we were horrified that the World Bank refused to even discuss corruption, as did all the bi-lateral aid agencies. 20 years on, where are we? We have numerous international conventions against corruption; we have United Nations conventions against corruption. UN would never have talked about this 20 years ago or even 10 years ago. We have the OECD Anti-Bribery Convention that criminalises for many countries the payments or bribes by a company to foreign official. We have the African Development Bank, Asian Bank, Inter-Development Bank, the World Bank and all the bi-lateral aid agencies today all stating that the real priority for them is to establish good governance on anti-corruption. So a remarkable change. In fact, the “Group of 20” summit in the last two years has published an action plan against corruption, something we wouldn’t really dream about 20 years ago. But the most remarkable achievement in my mind over 20 years is the creation of mass public engagement in many countries, dedicated to this cause. What started as a very elite idea – TI, for example, has over 100 national chapters, some of those chapters have a large number of members. 55 of those chapters, 55 countries have advocacy and legal advice centres which receive calls constantly from people who are individual victims of corruption and seeking some sort of assistance, some sort of help, some sort of redress. There is a Kenyan group that created a website ipaidabribe.com, which get over a million hits a year, and there are many others like that.
And in Arab Spring, starting in Tunisia and then in Egypt almost exactly two years ago, we saw tens of thousands of people brave brutality of secret police and militia – many people died – because they had reached a point where they felt they had to stand for their dignity, self-respect and against illegitimate government. And that is core. That is what corruption is really about. It’s about individual dignity, self-respect, about the horror of each day being humiliated as some many millions of people are. Particularly poor people will have to pay a small bribe to get the most basic services. There are tens of thousands of people, young people, who do not survive universities because they can’t pay bribes to the teachers to stay there. So many people have died because they couldn’t pay for the nurses or the healthcare. What I mean by pay, I mean bribes.
Public engagement against corruption is rising fast. Let me just touch on two issues, because I know there are many questions. People talk about money laundering, we could talk about defence contracting, we could talk about corruption in the oil and gas and mining sector – the extracting industries, we certainly could talk in regards to development assistance and how effective good governance programmes are. But I would like to focus on two particular aspects just here. One of them is business and another is security.
In terms of business, in the post-Watergate era in the United States it was discovered that Richard Nixon had secured an enormous amount of money in what was called Committee of Re-election of the President, better known as CREP, getting money from major corporations. Investigation started in the US Senate into these illicit payments, undercover payments. And it quickly turned to looking at how major American companies were paying bribes abroad to win business. It culminated with the disclosure that the Lockheed Company had paid huge bribes in Japan, including to the Prime Minister of Japan. The outrage was extensive from the left, from the right, and the Foreign Corrupt Practices Act was passed in 1977. And that be became the model in 1997 for the OECD act covering about 34 industrial acts. Prior to that act, just to give you an example, a German company could pay a bribe to a foreign government official and deduct it from its taxes. There was a legacy here, the act was passed through OECD, the convention was passed and then many countries passed laws or said they already had existing laws but the fact of the matter was that behaviour changes only slowly. Siemens of Germany – the largest European electronics company – continue to pay bribes across the world. It ignored the act. Maybe it didn’t seek its tax deduction but it continues to pay bribes on a massive scale. They were fortunately uncovered; Siemens was prosecuted and paid the largest fine of something like $1.6 billion as a result.
In this country the Serious Fraud Squad started to look into alleged illicit payments from BAE Systems. The investigation was terminated by Prime Minister Blair, primarily, he said, on grounds of national security. And this produced a great deal of concern among the UK’s OECD partners. And the OECD Secretariat, really led by one particular person who is Mark Pieth, a great friend of Transparency movement and who chairs a group on anti-corruption at the OECD, started to look closely at this and started to look at the UK law. And thanks to the great efforts of Laurence and TI UK and many members of Parliament, the British law has significantly improved and tightened. And I think companies in this country started to realise that not paying bribes abroad is worth their while because the penalties to being found out and prosecuted can be very severe.
The aid agencies for a very long time arrogantly assumed that there was no bribery on their particular loans and particular programmes. And World Bank eventually set up an independent inspectorate. They have found quite a number of companies that used bribes in procurement of government projects. They set up a blacklist, those companies are sanctioned and no longer get World Bank procurement or procurement from any other multi-lateral banks. So very gradually there is change. I say very gradually, because an enormous amount has to be done. There are still incredible amounts of cash that illicitly go through the global financial system. It goes through shell companies and we don’t know who the beneficiary owners are of those companies. Although it was revealed yesterday or the day before that a couple of those shell companies that were registered I think in Jersey actually belong to a very prominent former Brazilian politician who is now facing multiple charges both in Brazil and abroad. But those shell companies are used as one of the ways in which various offshore money centres hide illicit gains, often from corrupt leaders.
And when I say corrupt leaders we are talking about people who in some countries create what you can only call an embedded network of corruption. President Fujimori in Peru and General Montesinos, the head of the military in Peru, together had a whole huge network where everyone around them basically was on the take. And so when they stole from the treasury, some of the spoils had to be given down the chain to ensure the security of the top people and to cement this whole corrupt system. We see it in Zimbabwe today under Mugabe, we see it in various other countries. Maybe in China too and this is a very interesting subject that I talk about in the book. The new leaders of China started for the first time – I am talking about what they said on Thursday and Friday – to talk bluntly about corruption. Whether they do something about, we have to see.
But when Fujimori was finally prosecuted, the very gutsy prosecutor took him on, in the end prosecuted him, head of the military, 250 other very senior people including members of the Supreme Court, many members of the military, other public prosecutors, many members of Parliament – all were involved in the same network. Many multinational corporations know how those networks work, they work very closely with them and it is a constant struggle to try and create a world where you would have far less business corruption, where in other words competitive forces of free enterprise could really thrive, and a world where there is far less of illicit finance, a world in other words where financial market would also be honest and less rigged.
I think I raised some questions there and we will talk a bit more, but let me finally talk to you just about security for one second. I don’t know the answer here, I wish I did, but I have been for a very long time concerned about the fact that even though it is a post-Cold War era, the Western governments have often been very supportive of the use of essentially official bribes to win so-called friends in a very dangerous places. I am a US taxpayer and a lot of my money has disappeared in Iraq and a lot of my money has disappeared in Afghanistan. Last year the Central Bank of Afghanistan reported that $6 billion were shipped from Kabul airport out of the country, most of it to Dubai and other places. That is almost as big as the budget of Afghanistan. Why has the West supported this? In Pakistan a lot of American aid, military aid, aid from intelligence offices, a lot of it disappeared. The Americans know where it goes; the bank accounts of a lot of those politicians are quite well staked. It is amazing how many senior Pakistani politicians own apartments in Dubai for example. Why is it tolerated? We have reached the point where we are seeing supporting corruption.
This is the last point I want to make to you about public engagement. There used to be a time where perhaps all those deals could be secret. No longer. The really biggest change of all in the last 20 years was due to the internet. It is being due to the ways we communicate. Enormous amount of civil society groups were able to expand fast, to grow up and even to be creating network with others because of email, and because of the internet huge numbers of people have suddenly become aware of corruption in their own countries because of social media. People across Afghanistan and, interestingly enough, the US military has done a polling, people across Afghanistan and small villages know exactly of corruption of their own government and US support of that corruption. In Egypt – I was there a couple of years before the Arab Spring – you could talk to almost anybody who would say, “Why are you Americans continuing to support our completely illegitimate and corrupt government?”. And when Mubarak fell, there was a lot of concern in Washington about the fact that the US would have a great difficulty in a more democratic Egypt, maintaining its influence.
We in the West are no longer willing in these kinds of strategies to support these corrupt friends because their own citizens know about the corruption to a great extent. They are protesting, they are campaigning.
So let me leave you on a high note. I could have told you a great deal more about the problems of corruption in this world, from poverty to security, from freedom to business distortions, but we really came a long year in these 20 years. I would say we reached base camp, which is quite high at Everest, but we still have the rest of Everest to climb. The challenges are enormous but today there is greater momentum than ever before. Why is there so much momentum? It is because people are better informed, but it is also because of amazingly great few. Let me leave with two great notes.
One is about my friend Elena Panfilova in Moscow. She took her children to the shopping mall, shopping centre on the Saturday afternoon to buy some jeans. She turned around and she went to these two big thugs who had been following her all day and said, “Leave me alone! All I am doing here is shopping.” And she went back to her computer and, as she explained, in a fury bashed the keyboard to write a letter of complaint to the Minister of Interior. But she didn’t press ‘send’, she just left it there. And two days later, as she expected, she got a call from Ministry of Interior who said, “We hear you sent us a letter”. Because she knows her computer is hacked all the time, she doesn’t have to press ‘send’. She has friends who have been murdered, she has friends who have been badly beaten, she is remarkably brave and she is building a network and an organisation and she does it – and she could get a job in many other parts of the world – she does it because she believes that her society is only going to thrive and citizens benefit if corruption is reduced.
Finally Elena knows my book, which is lovely. But then I also wrote to [inaudible] who is one of the prosecutors of Fujimori in Peru. And asked [inaudible], could you read the section I’ve done on Peru, could you see if it is accurate, and if you really love my book, endorse it. And he sent me an e-mail straight back and said, “I would love to do this and I will. I am distracted right now, because they’ve just found a bomb under my car”. He continues quietly, forcefully to fight in his country for better life for the citizens and he sees that as the fight against corruption.
I could tell you of many other people from Sri Lanka to Zimbabwe, many other places where very brave, courageous people are leading mass public movements. This book is dedicated to them and it is about their stories and seeing in part through their stories about the challenges in corruption, but also the achievements. So fundamentally I think we’ve got momentum behind us, we’ve got the wind in our sails and we might not win the war but we made a lot of progress. Thank you very much.
Michael McCann MP
Thank you very much, Frank. Questions – the floor is open.
The question I have is to come back to one of the points about tax deductible payments for foreign organisation for potential bribes. The reason I ask, I potentially disagree with you that they shouldn’t be tax deductible. The reason is that in UK, and not only the UK, the tax law is so [inaudible] is that as an example, let me take any immoral job, prostitution is viewed to be immoral, government is keen to tax the prostitute. For example if the government was to take taxation for immoral deeds, should the immoral payments be also tax deductible? [inaudible] you are giving a bribe for your business and to utilise the tax term “holding exclusively for the purpose of business”, shouldn’t that also be tax deductible? Following from that, in some cases, those cases of corruption are forced onto organisations, for example payments to mafiosi if you are a small Italian restaurant in London, or Chinese restaurant, more likely, in Chinatown and the Triad gang comes to you says, “Now we want 10% of your earnings”, it is a bribe. It seems to me that deduction means you [inaudible].
Well, two things, very briefly. The tax deductibility that I referenced was on bribes by companies to foreign government officials. If a company wants to admit, in order to get its tax deduction, that it broke the law by committing a crime, I would have thought it raises a problem for the company. So I think it is a theoretical discussion. Every crime of corruption has a victim and people insufficiently [inaudible] whether they look at corporate bribery and they say, “Well they have to pay bribes because everybody else does it and anyhow it creates jobs at home” – some other stuff like that. It creates victims. When Halliburton, let me use as an example, its subsidiary KBR paid $180 million dollars in bribe to Nigerian officials, it got $2 billion contracts as a result. It led to tremendous distortion there, deprivation there. And people in Nigeria suffer. Nigeria should be a very wealthy country with all the oil that it’s got. And there are people there who do not have proper schools, proper healthcare and all the rest. And for me, supporting that corrupt system through paying bribes to corrupt government officials – which is what Halliburton does and companies around the world do – for me, that’s a crime and I don’t think you should get tax deduction for your crimes, so that’s my statement.
Extortion is an interesting issue. That is really a police matter in a way, but there is a part of corruption, which you touched, which I did not touch at all, which we can call petty corruption. There are many people, in very poor countries in particular, who are not paid a living wage. Survey by Transparency International shows that in many developing countries by far the largest amount of bribes is paid to the police, who extort the bribes from usually relatively poor people. And police is not being paid a living wage. It doesn’t make it right, in my book it is still a crime, it is something that we should fight against, but we need to find the remedy – there are also ways in which we provide public with its wages. And if we can’t do that then probably we would never get to the bottom of the extortion but I’ll leave others to talk informally on what happens in Chinatown.
Michael McCann MP
On that point, in some countries I’ve visited, the bribery and corruption are culturally embedded. So it seems to be the part of the wage system, the point that you were mentioning, that police is not being paid a living wage and therefore the public believe that the only way to access a system, it’s like a charging system that operates. So in terms of those cultural systems, how do we overcome them in order to…
I mentioned taking a [inaudible] and self-respect. Nobody likes paying those bribes and I will give a great example because it sort of touches on so many other things. I want to take one of the poorest countries, let me take Greece. Survey by Transparency International shows that on average, families in Greece per year spend up to $1800 – about £1000 – on bribes for basic public services, particularly number one in that list, medical service. They pay them and you talk to Greeks about that and they say to you, “Well we know the state has failed, we know many of these people really feel they need supplements to their income. We got used to paying these sorts of payments but nobody likes it. But we also know that if we don’t deal publically with the corruption at the top, this will never change down below”. And I think that’s part of the chain. So much money in one way or another is stolen higher up that the public services that should be free and good and efficient, public services that should be paid decently, are not getting it in many places, not in all countries obviously, but in a country like Greece it is certainly the case. There is massive tax evasion in Greece, there is serious corruption in Greece and it is part of the Greek economic crisis that I am afraid the media has not covered enough.
Michael McCann MP
We’ll take two questions. First the gentleman here.
Sir, I saw the Magnitsky Act but I would like to have your view on using anti-money laundering legislation, because we have evidence here that Magnitsky, that presumably [inaudible] business are connected with the scheme that are spread to other countries than Russia. Can we use anti-money laundering legislations to block accounts, put names of those companies on blacklists? Make sure those suspicious activities abroad [inaudible]
You can do all those things. I don’t think frankly that you would get to the heart of the problem, though, that way. You can do it, and start with just enforcement of banking regulations on ‘know your customer’. It is amazing to me how vast the deposits are here in the UK, not to mention in many other money centres, by people who would find it incredibly difficult if they would have to fill ‘know your customer’ form of explaining how they’ve got so much money so fast legally. It is very convenient for many people associated with global finance, and I should say here that I represent the Institute of International Finance, which is the largest association of banks for 22 years. So I understand that I may even be seen to have a conflict, but I do understand it a little bit and feel very strongly that banks have not done enough to ‘know your customer’, and regulators of banks have turned a blind eye to it to a very large extent. The regulators have turned a blind eye too often to loaned cash, because they see it benefitting their particular financial market, financial institutions. We are seeing today, perhaps we are at the tipping point of one area and that is to do with prosecutions – there is a major Justice Department investigation going on in the United States at HSBC, on the basis of a United States Senate report – a 370-page Senate report, so not a flimsy little document – on alleging massive assistance in HSBC in money laundering, Mexican drug cartel money into United States. Lloyds bank, Credit Suisse, IAG and, most recently, Standard Chartered Bank – all have been prosecuted in the United States for money laundering on behalf of Iran. There is a rising tide of prosecutions as well; it is not enough in Europe. Everybody knows what to do about money laundering. The action plan of the G20 summit has a lot in there, but governments are not enforcing and there is a lot of vested interest trying to prevent it. But certain sanctions you’ve mentioned, certainly one of a series that could be done.
Michael McCann MP
Gentleman at the back.
This is also a question about enforcing. I am lawyer in this area. We look across the world and see a lot of very low-crafted and well-crafted anti-bribery laws, we see huge variations in laws. The country that’s done best in enforcing is the US, using a system of self-reporting [inaudible]. In your view, is this the only way that these complex corrupt networks will be investigated effectively?
Well I don’t know about the only way. But it is quite interesting on enforcements, many of the countries that signed the OECD convention have not enforced in terms of major prosecutions themselves. But I am told there is far greater cross-border cooperation between prosecutors than ever before. And many of the US prosecutions have been the result of being able to obtain evidence in countries where before the OECD convention they could not get the evidence.
But it is not just prosecutions, let me get back to the word ‘transparency’. As part of the US financial reform law, a very important clause was introduced which has nothing to do with the finance and financial crisis. It has to do with transparency of royalty payments of oil, gas and mining companies in the United States to host governments, and as of 2014, under new rules, in the US, all extraction companies in the US, plus foreign affiliates in the US, plus foreign companies that are listed on American stock exchanges, have to report annually on all the payments they make to host governments for their assets. That won’t end corruptions, but once we get more information, then we can start to bring pressure in different ways. Once we know exactly how much money some… Let’s say the Obiang family of Equatorial Guinea, how much money is being paid by oil companies, it will be easier to trace what they’ve been doing with money, where it’s parked and why it is not going to the people of the country. It is not just enforcement. Enforcement is terribly important, but you also need to have greater transparency. How are you going to get all of this? I believe, from grass root’s public pressure. I think you can get laws passed and we’ve seen them and the conventions. But actually to get implementation, you need the grass root pressure on the politicians which then can we touch.
Michael McCann MP
Any other questions?
Where does the United Kingdom rank in the world in terms of corruptions?
Well it is a very good question and there are three different ways that I could think of in doing the ranking. Transparency International produces a Corruption Perception Index, a CPI. We started it in 1995, we keep on improving the methodology. It is a poll of polls, it is based on 40 different surveys, it is not just a random thing on how people perceive corruption. Out of 183 countries, Afghanistan, Somalia, Iraq and Burma, Myanmar – Burma is interesting because president Obama visited it this week – are the very worst. New Zealand, Iceland, some of the Scandinavian countries, come at the very top. And the UK ranks about 16th or 17th, it does quite well, it is not perceived to be corrupt. But it is bribes taken by corrupt officials.
Now we ask the second question, “What about British companies?” Are they paying more bribes than American companies or less than Canadian companies? Here again British companies score quite well and are considered to be relatively clean, whereas companies from China are seen at the very bottom. Scandinavians again come at the very top of the list. The Brits come above the middle, so very good again.
And then there is a third area, which I talked about without mentioning Britain per se. I talked about the US, about using aid funds, including military aid funds to influence foreign governments, and here clearly the US does far worse than anybody else. The French have quite a record in doing that. And if you look at how they behaved in Tunisia before Ben Ali was thrown out, it is a one vivid example. And I am told by British diplomats, there was a major review of British aid policies over the years, including military aid, and Britain as a result does far less of that than it used it, which is rather good news.
Michael McCann MP
We shall take Frank’s position about companies like Amazon, Starbucks. There was a large issue raised at the Prime Minister Question Time about the fact that they pay so little corporate tax because they are shifting around profits from jurisdictions where they pay less money. Is that being clever or is it corruption?
Well, for my book – Laurence actually in his wonderful book is broader – in my book, I confined corruption to abuse of public office for private gain. I am talking in terms of the private sector, about bribe paying to government officials. I am not getting into tax evasion or getting into all sorts of schemes – cartel schemes, bid rigging schemes that many companies engage in. I haven’t got into the place where they have to pay the least in taxes and where the regulation is in fact the most lax. So once we started after the financial crisis with the idea of a uniform, global set of standards, set of norms, it is now being gold-plated in all sort of places, and it is going to lead to exactly the same sort of thing that happened before. But it is not in my book, this is a subject for another day.
Michael McCann MP
Any other questions?
Do you think corruption being taught in public education system is enough?
I am sorry could please speak up.
Sure. Do you think corruption is being taught at a young educational age? Is it applicable, is it an area where children are kind of taught from the young age about corruption in the world? I don’t see this being taught to youngsters.
One of the people who created the Transparency International South Korea has long believed that you have to start with children, that you have to talk about integrity, that you have to talk about the political system and corruption to young people in schools in order to make a real difference. And he is probably right and they’ve done quite a lot of work in Korea and quite a few other countries to start doing that.
I was very heartened. I went to Leeds University last night. I graduated from Leeds a long time ago and it was a thrill to go back. And I found out that they have developed what they call a ‘Thread’ that is now applicable at least to 1/3 of all students in Leeds – and they have 33,000 students now – all at some point of their 3 years have to do ethics courses, whether it is medical ethics or engineering ethics or whether it pertains more to this particular area of what they study. And they put it in as a core part of so many parts of the curriculum, right across all disciplines in a belief that it is terribly important for young people coming out of school to have a sense of self-responsibility. And to constantly ask themselves when they are doing whatever work they have in life whether they are happy with their own conscience. And I say that because it was amazing in Germany how interviews with people in Siemens and other places, where business people would say, when being asked, “Do you pay bribes in your personal life?” – “Oh, no we would never dream of it!”. “Do you pay bribes while working at Siemens?” – “Oh yes, because that is normal business”. These are double standards, so I think education is very important.
I want to ask about corporate corruption. How would you proclaim and [inaudible] basically means corruption. And the other question, in the Transparency table, there is a huge correlation between corruption and [inaudible] in general and vice versa. To combat corruption you have to increase the standard of living. Question is how much corruption cause [inaudible]
Two questions. Let me deal with the second one first. If you look at China, which has been growing very fast over the last 25 years, clearly you can have significant economic growth and still have corruption. It is not an ‘end all’ proposition. You could argue that the distribution of income would be far fairer if there wasn’t the corruption and that they’ve got distortion there, seriously created by the corrupt system. And one of the reasons current leadership is so concerned about corruption, I believe, is because it created rigidities of the economic system they want to liberalise and this is an impediment. I believe you will not start to seriously arrest the corruption and reduce the corruption in many countries of the world until you get sustained growth. Sustained economic growth enables the reduction of informal economy and the growth of the formal economy. And within that, you can apply institutions of governance that are more transparent, more open, fairer, more competitive.
I think there is a huge change happening in Brazil today. And it is because of a significant growth of the formal economy in Brazil over the last 30 years because of a growth of a highly educated, middle-class, highly entrepreneurial class in Brazil that wants to operate without corruption because it believes that producing products, services that are highly competitive, would do best if they were not in a corrupt system and they are producing a lot of political pressure as a result. It is a very long journey, but I think without economic growth, I don’t think you can really deal in a sustained way in reducing corruption.
The United States, maybe it is a great note to end our conversation this evening… I have no idea what is the public approval rate of the Houses of Parliament and I won’t ask, but the United States Congress gets 7% approval rate. 7! A Gallup poll that was taken in July in the US shows that Americans are more concerned about corruption in Federal Government than in any other issue except job creation. Their concern about corruption comes above terrorism, it came above the budget deficit, it came above healthcare, which was a hugely discussed issue in the election.
The US has just seen $6 billion spent on the last election cycle. We don’t know where hundreds of millions of that 6 billion came from, because in 2010, the US Supreme Court reverted the post-Watergate legislation on transparency in campaign financing and has allowed anonymous contributions. There is a smell obviously to money that goes in very large quantities for political, particularly political campaigns. And we don’t know where that money came from. Americans are very distrustful of the whole system, we don’t know how to clean it up. In lobbying, last figure I saw, the amount spent by lobbyists in Washington actuated to more than a quarter million dollars per member of Congress per year. It is not that congressmen get all that money, but it is obviously expenditure. Official registered lobbyists now in Washington are somewhere about 40,000 and those are the guys who actually registered.
People are horrified about the excess to which lobbying has gone. Lobbying is a very important democratic right. It is absolutely right that the members of public have the opportunity to “discuss issues with elected Members of Parliament and to help educate them”. But when you cross the line, when you try to influence them by major campaign contributions, by major purchases of different kinds, you start to undermine the democracy itself. Americans are very concerned and it is sad that at the moment there is not a major movement in the United States that can do anything about it despite the appalling results. Everybody is furious about, everybody discusses it in public, but very little currently is being done. But certainly nobody suggests there is absence of corruption in our political system in the US, quite on the contrary.
Finally amongst the heroes, the good people as Elena, [inaudible] another hero in this book for me is Michael Patrick Fitzgerald, I don’t know if any one of you heard of Patrick Fitzgerald. Well, he just retired as a federal government prosecutor in the US. His very last prosecution was of former Governor Blagojevich in Illinois, this is a gentleman who is the third governor in a row of Illinois who finds himself in prison for corruption. This a governor, that when Barak Obama won the presidency in 2008 and had to leave the US Senate, and where the governor under our constitution can appoint somebody to fill out the Senate term of the Senator who’s left, Blagojevich basically had a private auction. He went to different people and said, “Would you like to have Barak Obama’s Senate seat? Because if you do I can assure that I have various good causes to contribute to.” And he was caught and it was just the tip of the iceberg of the corruption he was doing. Patrick Fitzgerald also went after the White House over matters of work directly to do with corruption, for the fact they were lying publicly and in the end Scooter Libby, chief of staff of vice-president Cheney, went to prison for contempt of court. There are people like Patrick Fitzgerald, who I believe are heroes in the US, in Brazil right now who are prosecuting these politicians very successfully, in Italy, in many other countries public prosecutors are willing to take a stand to go and enforce the law, despite the fact they live in an environment where pressures on them to be restrained, to basically overlook certain indiscretions are extremely great.
So I look at heroes, I look at civil society leaders, I look at investigative journalists, many of whom are losing their lives in uncovering corruption, and many of them take great risks. And I look at the public prosecutors. And I of course look at good Members of Parliament who are supporting us and supporting the cause of anti-corruption and I hope that DfiD continues to be a link in this cause. We’ve been concerned that DfiD somewhat changed its focus, but I am now a US citizen so I have to be careful. It has been marvellous that DfiD was so supportive of PTF and of TI and we are hugely appreciative. Thank you very much indeed.
Michael McCann MP
On behalf of the Henry Jackson Society, can I thank you very much for that extremely interesting discussion, and the opportunity we had to ask questions was most appreciated. We wish you well for the rest of the travel. Are you going back to the United States?
Michael McCann MP
We appreciate your time this evening and once again, ladies and gentlemen, can we show our appreciation? Thank you.
By the way, I just saw my book is in the Parliamentary bookshop.
Michael McCann MP
Available in all good bookshops!
Thank you so much.