perspective

Making corruption great again 

We all know corruption is bad for a society as a whole, which is why there are laws against it. But individual companies or people personally benefit from paying or taking bribes, so what’s stopping them: the fear of getting caught, or a desire to do business properly? Normally that’s a question we can’t definitively answer, but this spring the U.S. government — by pausing enforcement of its main anti-corruption law, the Foreign Corrupt Practices Act (FCPA) — gave us a perfect natural experiment.

“On the day of the executive order, former FCPA targets whose stocks are publicly traded experienced returns on equity markets that were about 0.69 percentage points higher than what would have been expected from stock market trends. The effects cumulated substantively, resulting in capitalisation gains for the portfolio of past targets of corporate corruption cases of about $39 billion and outsized returns to shareholders,” found three academics in a new paper titled ‘Making Bribery Popular Again?’.

The conclusion is clear. Investors thought that the threat to the future profitability of the 261 companies previously targeted for enforcement action was caused not by the corruption itself. What the investors didn’t like was the prospect of those companies being prosecuted for corruption. Once that threat was removed, they were happy to invest regardless of possible corruption. Interestingly, the average increase in the market capitalisation for the companies — $160 million — matched the size of the average fine previously imposed under the FCPA. Truly, capitalism is a magical thing.

To say that corrupt people and/or companies do well out of corruption may not sound particularly controversial, but this has important implications for how policies should be structured in a world where an important country has decided to stop doing the right thing. Enforcement matters and, if the U.S. has stepped back, everyone else needs to step forward.

The paper’s publication coincided with a report from Reuters looking at the impact on tax enforcement of the U.S. now that the government has sacked loads of tax enforcement agents and attorneys. Funnily enough, it isn’t great. Prosecutions have declined by 27%.

Again at the risk of being obvious: if you want people to be honest and to pay their taxes, you need to prosecute people that aren’t. Alternatively of course, if you don’t want either of those things, you can pause enforcement of key legislation, and sack everyone involved. After all, why bother going to all the trouble of changing the law when it’s so much easier to stop enforcing it? From there it’s a short hop to going full Kremlin and selectively enforcing the law against your enemies. Happy days.

It’s a sign of how grim global public debate has become that it’s genuinely refreshing that the UK’s new anti-corruption strategy so straightforwardly comes out and says corruption is a bad thing, and that the country will work harder to fight it. It’s a pretty good document, all being said, though it could be far more ambitious in how it tackles lobbying, abusive lawsuits, and conflicts of interest.

I was also sorry not to see firm commitments to toughen up rules around electoral funding: at the very least, there should be caps on donations, restrictions on the use of shell companies to disguise the identity of donors, and limitations on how foreign companies can route money into UK politics. “The strategy acknowledges that restoring trust in government is ‘the great test of our era’ yet it fails to address the elephant in the room,” said Daniel Bruce, the chief executive of Transparency International UK.

This is important. It doesn’t much matter how good the laws you pass to protect a country from dirty money are, if you don’t also secure its commanding heights against takeover by corrupt or ill-intentioned actors. Because they can then buy electoral victory and cease the enforcement of all those excellent laws, just like Trump did with the FCPA.

So it’s urgent that European democracies take steps to keep corrupting wealth out of their politics before it’s too late. We are accustomed to stories about Russian money, or Chinese money undermining democracy, but the White House’s national security strategy now explicitly states that America too intends to support European fascist (“patriotic”) parties. Liberal democracy is under attack from all sides and needs to get a lot better at defending itself.

An anti-corruption Oscars?

This is all a bit depressing, but it is the festive season so let’s cheer ourselves up a little. There are countless people toiling away at considerable cost to themselves to reduce corruption and to protect democracy, and they deserve a lot more recognition than they get. I’ve been talking to some friends about the best way to provide that, and obviously prizes are one idea.

The Organised Crime and Corruption Reporting Project (OCCRP) has traditionally given an award to the “Person of the Year in Organized Crime and Corruption” to highlight villains, such as Bashar Al-Assad in 2024, or Danske Bank in 2018. But it has clearly decided that there is already more than enough irony in the world now that Donald Trump has won the first ever FIFA peace prize, so it’s changed focus and collected nominations for “Anti-Crime and Corruption Heroes” instead. Winners are due to be selected this month. This is a good initiative, and I’m looking forward to seeing who they choose.

Elsewhere, there’s the Allard Prize and the ACE award (you may have questions about an anti-corruption prize supported by Qatar, considering some of the ways its government goes about its business, but the list of previous winners includes lots of good people). It would be nice, however, if there was something ritzy and glamorous, an integrity Oscars where people committed to making the world better could be celebrated like Hollywood A-listers.

So, this is where you come in. Send in ideas. How would it work? Who should be nominated? Who should decide the winners? What should they win? Which top-end venue should host the ceremony? Should Ricky Gervais be brought in to do an incredibly dull comedy ‘roast’? Should we invite an oligarch and/or financial institution to sponsor it in return for naming rights (“the HSBC Anti-Corruption Champion of the Year”)? How often should President Trump win before we give someone else a turn?

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.