Who is Corrupt, Really?

It's that time of the year that Transparency International publishes the Corruption Perception Index. Yes, the 2022 report is out, and anti-corruption nerds like myself pour through the rankings - I can't help it, I grew up in the Malaysian education system which meant that a difference between 1st and 2nd was a brand new bicycle or a box of shuttlecocks. Am I showing my age here? I know the stakes have risen since.

Denmark leads the world!

So yes, I looked at the top performers. Well done Denmark at coming up top with a neat score of 90, the only country to breach the 90 point threshold. Yes, Denmark, land of Lego, Carlsberg and the world's largest banking money laundering scandal. That Denmark.

Dankse Bank's Estonian branches had permitted the flow of over €200 billion suspicious transactions and despite warnings, the Danish board failed to act. Danish authorities charged three senior executives and then dropped the charges. In December 2022, Dankse Bank forfeited $2 billion to the US Department of Justice and $413 million to the SEC.

Who are the top scorers?

Each year, I play a game. What do the top scorers have that the middle and bottom performers don't?

Well, for one thing. Money. The less corrupt countries are what we have termed "developed countries". I chose to use the term Global North or West because they are not better than the Global South.

The countries at the top of the CPI chart are rich and can afford to provide quality healthcare, education, infrastructure to all its people. Things work so you don't have to slip a gratuity to get things done when you are desperate. There are 15 countries in that image above and you are likely to see who, despite being rich, is NOT there. Don't worry they are not far behind. I'll come to that in a bit.

Singapore, the clean nation

Singapore is the only Asian country in the Top 10. Singapore prides itself on being clean: clean from graft and litter. Singapore, which has had only three prime ministers since independence 60 years ago, and all from the same party. That Singapore.

Singapore is big on meritocracy but a little unclear on conflict of interest. Ho Ching, wife of prime minister Lee Hsien Loong was the CEO of Temasek Holdings from 2004 to 2021. She was appointed by his predecessor, Goh Chok Tong. Lee became prime minister a few months later.

Temasek Holdings is owned by the Singapore government and owns some of Singapore's largest companies, managing about US$496.59 billion in assets at the end of 2022. It is a controlling shareholder of Keppel, a conglomerate including one of the world's largest ship and oil rig builders.

In 2017, Singaporeans were shocked to discover that Keppel was being investigated by DOJ and the Brazilian authorities for bribing Petrobras to secure contracts. Keppel settled with DOJ by paying $433 million, at the time, the top 10 highest FCPA penalties.

While the Brazilian agent and a US in-house lawyer with Keppel were seen to be the "actors" in the bribery scheme, it was clear this was sanctioned higher up the ranks. Earlier this month, the Singapore Corrupt Practices Investigation Bureau (CPIB) announced that it would not prosecute six former senior executives of Keppel Offshore Marine involved Keppel's bribery of Petrobras. Instead they were given stern warnings.

According to my phone, this is what a stern warning looks like:

"When it comes to our national commitment to incorruptibility and the rule of law, we will be judged not just by what we say, but equally by what we do." Harpreet Singh Nehal SC

You can read Singapore senior counsel, Harpreet's analysis of CPIB's decision here on Singapore Law Watch: The Keppel bribery scandal Tests Singapore's Zero Tolerance Policy Towards Corruption

Well done Singapore for being the 5th cleanest country in the world!

Post Edit on Friday, 3rd Feb: The Singapore Law Watch (SLW) removed Harpreet's article on Thursday, 2nd Feb. I have posted the pdf on my LinkedIn page and posted the new link. It is disturbing that SLW may have been, or felt, compelled to do this. Singapore ranks 139 in the 2022 Reporters Without Borders, World Press Freedom Index (it was 160 in 2021). Remember that CPI is a "perceptions" index, so if the media and citizens cannot report or talk about corruption freely, people may be unaware of what is truly happening.

Who are the big FCPA offenders?

The FCPA is the US Foreign Corrupt Practices Act that extends across the world to address any corrupt act involving government officials other than US ones. As a former in house lawyer addressing business ethics in Asia, I love this law. Yet the irony is not lost on me that US domestic corruption laws are far weaker.

The FCPA Blog is my go to when I want to see the Top 10 most corrupt, so here's one they did up to May 2022:

These are the companies which paid the highest FCPA penalties - meaning that they had bribed or in some way paid foreign officials (foreign here is any person or entity linked to a non US government). These are companies in four of the top 10 least corrupt countries in the world: Sweden, Switzerland, the Netherlands and Germany. France is at no 21, while the USA is at 24.

Where did they bribe? 47 countries are named in the enforcement against the 10 companies. Almost all the countries are from the Global South, some are mentioned in 2 or even 3 cases:

• Mentioned in 3 FCPA enforcement actions: Brazil, China, Indonesia, Saudi Arabia, Uzbekistan
• In 2 actions: Germany, Malaysia, Nigeria, Russia, Venezuela?
• In 1 action: Argentina, Austria, Bahamas, Bangladesh, Cameroon, Democratic Republic of the Congo, Djibouti, Egypt, Equatorial Guinea, Ghana, Iraq, Israel, Ivory Coast, Kazakhstan, Kuwait, Mexico, Sri Lanka,, Taiwan, Tunisia, Vietnam.

Think about this. The money is taken from predominantly Global South countries where it is so needed. The WEF in 2019 calculated that "corruption costs developing countries $1.26 trillion every year". That is 12.6 times how much the Global North has pledged to pay the Global South every year to address climate change. And no, the Global North has not met this commitment.

Where does the money go?

Last week at Davos, chair of Transparency International, Delia Ferreira emphasised that corruption is a global issue and countries in the West cannot be enabling corruption elsewhere.

"The money that is lost to corruption in the countries, perceived as corrupt countries, ends in the London city, or in the antiques or art market in Geneva, or in the real estate of New York or in the luxury industry in Paris." Delia Ferreira

The Billion Dollar Whale, Malaysian Jho Low managed to do all of the above. Expensive property in Kensington, Monets, Van Goghs and Picassos in Swiss warehouses, prime estate in New York. As for Paris? He invited Ms Hilton to his explosive 30th birthday party in Hollywood - which caught the eye of curious LA reporters. For the uninitiated, this relates to the company with the highest FCPA penalty - Goldman Sachs whose executives conspired with Jho Low to move over $2.5 billion out of $6.5 billion of bonds raised for the Malaysian sovereign wealth fund 1MDB.

In our global financial system, where trillions of dollars move daily and huge institutional funds are looking for the next great investment, sovereign wealth funds can raise inordinate sums at the drop of a hat - in 1MDB's case, even without a track record or a plausible business plan.

Low's genius was he sensed that the world's largest banks, its auditors, and its lawyers would not throw up obstacles to his scheme if they smelled profits. It's easy to sneer at Malaysia as a cesspool of graft, but that misses the point. None of this could have happened without the connivance of scores of senior executives in London, Geneva, New York, Los Angeles, Singapore, Hong Kong, Abu Dhabi, and elsewhere.

Tom Wright & Bradley Hope, Billion Dollar Whale

Whales have to surface

"Whales have to surface to breathe, and that's when we catch them," said Michael Olmstead DOJ prosecutor, at the AMLP Conference in London in 2019. I had conducted a 1MDB case study there, and he later remarked that 1MDB was DOJ's most successful case since they set up the Kleptocracy Asset Recovery Initiative. They had got back the profits from the Wolf of Wall Street, made sure Leonardo DiCaprio surrendered his Marlon Brando Oscar statuette and hunted down the half a billion dollar yacht, the Equanimity in Bali, among other assets in London, the US, Australia and Switzerland.

Olmstead explained that criminals needed to enjoy their ill-gotten gains and their money typically surfaced in the West. Which goes back to Delia Ferreira's point - the Western countries should stop enabling corruption.

Corruption and Global Inequity

GFI (Global Financial Integrity) estimates that the annual value of trade-related illicit financial flows (IFFs) in and out of the Global South has amounted to, "on average, about 20 percent of the value of their total trade with advanced economies".

In the olden days, that might look like crooks carrying briefcases of cash, but it today's digital world it no longer looks like that. Unless you're in compliance or law enforcement, you might not be able to detect how easily money can be moved cross border, and typically undramatic - through marked up invoices, to accounts that find their way into offshore banks, depriving governments of much needed tax revenue.

According to UNCTAD’s?Economic Development in Africa Report 2020, "from 2000 to 2015, the total illicit capital flight from Africa amounted to $836 billion. Compared to Africa’s total external debt stock of $770 billion in 2018, this makes Africa a “net creditor to the world” ".

This is just from illicit financial flows. I'm not even referencing historical reparations for slavery and colonial exploitation, or today's exploitation of Africa for raw resources (then manufactured elsewhere and sold back to Africa at huge prices), or how Africa is used to offset carbon trading. Essentially Africa holds up the entire world, but this is not the narrative we are fed. We are told that we in the privileged West must save Africa, completely unaware that all along, Africa has been saving us.

Money that should remain with the countries and people who truly generate value, are instead hoarded away in offshore tax havens - depriving not just the Global South, but all governments, including in the West, like the United Kingdom with struggling healthcare, education, transport and utilities. While there are illicit flows, much of the offshore funds are tax avoidance schemes and are perfectly legal.

IMF notes that "tax havens collectively cost governments between $500 billion and $600 billion a year in lost corporate tax revenue" (2015/2018 figures) while individuals are holding as much as $8.7 trillion in tax havens, according to economist Gabriel Zucman?(2017). News over the past month has confirmed that super rich people have gotten richer over the covid years, so I can imagine these numbers are higher. At a time when inequity within borders (as well as cross border) have increased.

We've been focusing in the wrong place

So I ask, which countries are corrupt, and which countries can truly end corruption? The answers are not the same.

We've been doing it all backwards - we've been focusing on ending corruption in the Global South when really, the true corruption is right here on our doorstep (well if you are in the West). When we point fingers and say, oh look at how terrible corruption is in Brazil or Zimbabwe, while congratulating ourselves on our own "clean" country, we are denying that we are part of the problem and therefore we don't have to act.

I can see so plainly the difference where Malaysians staged 6 Bersih demonstrations (Bersih means clean), fighting tear gas and arrests, to demand fair and clean elections while here in the UK, the media won't use the word corruption when every week more corrupt acts by politicians including a former prime minister, are uncovered. In the West, we don't think of favours or "just a loan" to a leader with power, as corruption. Well, spoiler alert... it is!

So why don't we flip the CPI and look at the top performers and hold them accountable for corruption they enable overseas? Here are the top 30 cleaner countries, out of 180 countries:

Don't get me wrong. I can tell you the Transparency Internationals, compliance professionals, enforcement agencies of the world are doing exactly this. They KNOW where the problem is and what needs to be done. Western governments led by political parties dependent on the patronage of those who benefit from the way things are, lack the political will.

So we need to keep on speaking up and question narratives that push the problem of corruption onto poorer nations.

Corruption is a global problem and those of us in the West can and must address it.