Tuesday, November 21, 2006


ON 20th November I attended the launch of the British Foreign Office anti-corruption film 'Crimes of the Establishment'. The film is a welcome initiative, and the launch offered a useful opportunity for discussion about the UK's role in tackling corrupt practices.

However, the focus of both the film and the discussion at the launch was largely on bribery of public officials and embezzlement by kleptomaniacs, and no mention was made about the role of financial intermediaries and Western firms using their political power to extract fiscal incentives from developing countries, or using offshore finance centres to operate trade mispricing schemes for profits laundering purposes. When I raised questions on this subject it was clear that British officials have still not grasped the essential issue, which is that for so long as Britain and its Crown Dependencies and Overseas Territories continue to provide secrecy space by allowing non-disclosure of beneficial ownership of companies and trusts, this country will remain a nexus for the facilitation of corrupt practices.

Coincidentally, last week US Senator Carl Levin shifted the focus of the Permanent Sub Committee of Investigations to examine the role of shell companies in enabling money laundering and corruption. Over two million companies are formed annually in the US without disclosure of ownership. The vast majority of these will be used for correct purposes, but a significant proportion will not. In evidence to the Sub Committee a senior official said: "This domestic transparency gap is an impediment to US law enforcement and the enforcement of tax laws in other countries."

Exactly the same applies to Britain. We cannot pretend that the proliferation of new statutes and agencies in recent years will be adequate to tackling the supply side of corruption without taking robust measures to scrap offshore secrecy. It is time to recognise that legitimate business has no need for secrecy. On the other hand, countries that allow non-transparent corporate structures and secret trusts are inviting criminality. So whilst I welcome the release of 'Crimes of the Establishment' I nevertheless hold to my view that the British Establishment remains committed to policies which foster corruption both in Britain and abroad.

John Christensen


Tuesday, November 07, 2006

Transparency International's Anti-Corruption Suggestion Box

Transparency International has just published the results of its 2006 Corruption Perceptions Index. TJN has previously commented on the inadequacies of TI's approach. We have also separately logged our concerns about the sponsorship link between the CPI and Ernst & Young, a globalised financial services company with offices in many tax havens(see Perceptions. Whose perceptions?. To give credit when it is due, TI has partially responded to our criticisms by inserting comments about the facilitators on the 'supply side' of the corruption chain:

"But the transaction is often enabled by professionals from many fields. Corrupt intermediaries link givers and takers, creating an atmosphere of mutual trust and reciprocity; they attempt to provide a legal appearance to corrupt transactions, producing legally enforceable contracts; and they help to ensure that scapegoats are blamed in case of detection"

This comment is followed up with recommendations which indicate that TI is moving away from its overweening pre-occupation with sinners in the public sector and is accepting that there might be systemic problems amongst private sector players, including financial intermediaries and their professional associations. These recommendations include:

Promotion and, where necessary, adoption of corruption-specific codes of conduct by professional associations for their members, for instance the International Bar Association, International Compliance Association, and professional associations for accountants,

Public education to ensure that honest intermediaries better understand their role;

Legal or professional sanctions for legal, financial and accounting professionals that enable corruption;

Greater scrutiny of the role of insufficiently transparent financial centres in facilitating corrupt transactions.

Drawing tax havens and offshore finance centres into the corruption debate is long overdue, but this doesn't go far enough. TI needs to publicly acknowledge that corruption extends to issues unrelated to bribery, including tax dodging which costs developing countries far greater revenue loss than bribery.

I have argued elsewhere that the perceptions index perpetuates a false impression of corruption. This matters because it impacts on country credit ratings and attractiveness for investors. So TI has an obligation to get these things right. The current index draws on the wrong perceptions from the wrong sources.

I do not dispute the pernicious impact of bribery on developing and developed countries, but I do dispute the narrowness of TI's definition of corruption. Far greater weighting needs to be attached to the role of financial intermediaries and other facilitators in aiding and abetting corrupt practices, and tax dodging should be rated as highly, if not higher, than bribery in terms of its impact on tackling poverty and undermining pro-growth development strategies.

TI has started to acknowledge the importance of these issues. Further progress is required. As far as I am concerned the jury remains out as to whether the Corruption Perceptions Index can be modified to take account of the serious and valid criticisms we have raised.