Corruption
Are the world’s “most corrupt” countries really poorer nations like Nigeria or Bangladesh that are the victims of massive outflows of dirty money? Or are they the countries that handle all that loot, like Switzerland, the United Kingdom, Luxembourg, or the United States?
Traditional definitions of corruption are too narrow. Organisations like the World Bank or Transparency International have created indices of corrupt states and industries which typically identify poorer African nations as the ‘most corrupt’ while ignoring the role of the offshore financial system in facilitating capital flight, grand larceny, bribery, tax evasion and so on. Nigerians aren’t helped much by being told that their country is among the world’s most corrupt nations. They are more interested to know where their money has gone.
In the past where someone might have stuffed a million dollars into a suitcase and headed for the border, modern banking means there is no limit to the amounts that can be stolen. But you cannot have corruption without financial secrecy and the offshore system of tax havens and secrecy jurisdictions are at the centre of it all.
Our Financial Secrecy Index shows the other side of the coin and the most important dirty money centres that we identify in our index are those ranked the ‘cleanest’ in more traditional indices.
At heart, corruption undermines the integrity of rules, systems and institutions that promote the public interest, and undermines confidence in those rules. Corruption is a systemic problem. But definitions such as Transparency International’s “the misuse of entrusted power for private gain” or the World Bank’s “the abuse of public office for private gain” are usually interpreted narrowly, encouraging excessive focus on individuals and transactions, rather than on the system. But whole societies can become corrupted. Indeed, it is not hard to argue that the entire global financial system has become corrupted, above all by offshore activity.
Awareness about this other side of the coin, however, is growing. In 2020, Transparency International drew attention to the importance of comparing the Financial Secrecy Index to their Corruption Perception Index to get a full picture of global corruption.
Many people associate corruption closely with bribery, but the systemic aspect makes corruption a much bigger problem. According to one measure by Raymond Baker, bribery makes up just about three per cent of corrupt cross-border illicit flows. Traditional definitions of corruption also encourage an excessive focus on the public sector, while ignoring the private sector. Yet much of what we identify as illicit or abusive financial activity – such as market-rigging or fraud – involves corrupt behaviour in the private sphere, usually protected by secrecy. A “pinstripe infrastructure” of offshore bankers, lawyers and accountants who welcome, facilitate and actively encourage these flows are a central part of the corruption problem.
We think a better definition of corruption is:
“Corruption is the abuse of public interest and the undermining of public confidence in the integrity of rules, systems and institutions that promote the public interest.”
The Tax Justice Network’s John Christensen explains how offshore tax havens promote corruption in an episode of Exposed Videos: “Grace’s corruption story”.
You can also watch Zimbabwean journalist Stanley Kwenda’s investigation for Al Jazeera, “How to Rob Africa”.