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Prosecuting Covid-19 corruption is hard. This is why.

Hello, and welcome to Oligarchy. We are tracking how Covid-19 and the world’s response to it is affecting the super-rich — and what that means for power and politics.

A SECOND PANDEMIC

As I have repeatedly highlighted in this newsletter, Covid-19 is not bad for everyone. It may be killing hundreds of thousands of people, devastating communities, and destroying prosperity but – for oligarchs, fraudsters, crooked officials, dodgy lawyers and their assistants – it’s a gold mine. Governments are desperately spending money to support businesses and hospitals, without the time to conduct the usual checks on where that money goes, which means it’s easier to steal than ever.

Even in wealthy, well-resourced countries, there are worries over how rules on public spending have been bypassed. In places with already entrenched corruption, the pandemic has unleashed a feeding frenzy, which could fatally undermine efforts to fight the disease. Under the circumstances, it’s clear that tackling this kind of corruption should now become even more urgent than it was before – but how should the world go about that?  

It is obviously foolish to expect the same law enforcement agencies that are stealing money to investigate, arrest and jail themselves. Once a country has been overwhelmed by kleptocracy, there is no honesty left in its public services. But it is not foolish to expect major Western countries to investigate bad behavior by their own companies, or to prevent stolen money from entering their financial systems. If someone steals money from a hospital, they shouldn’t get to spend it in Manhattan, Madrid, Monaco or Mayfair.

Of course, it is easier to write that in a newsletter than it is to turn it into policy. Obtaining evidence that can convince a judge or a jury is hard at the best of times, and particularly so when officers have to obtain it from half a dozen tax havens, as well as a country owned by the very oligarch they’re targeting. If you’re counting on usable evidence from Russia, you’re effectively granting the Russian legal system a veto over what happens in your own courts, and that’s not what the battle against corruption should look like.

So, instead of trying to bring the bribe-takers to justice, you target the bribe-payersdomestic companies that bribe officials overseas. But this causes a second problem: if Western countries prosecute companies that pay bribes, but kleptocracies do not, that means kleptocratic companies can out-compete those that try to play by the rules. Naughty companies get shut down, and evil companies benefit.(As I wrote in an earlier newsletter, this double-standard has not gone unnoticed by Donald Trump, who has reportedly called it “unfair” that American companies are unable to pay bribes. Foreign Corrupt Practices Act prosecutions have decreased precipitously since he took office. )

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CLUB FED, DEFERRED

The increasingly common answer to this dilemma, or an answer to it anyway, is the Deferred Prosecution Agreement (DPA), sometimes known as the non-prosecution agreement, or as conditional non-debarment, or, to one American writer, as Club Fed, Deferred

These began life in the United States, but were very rare until the early 2000s. They became more common after the implosion of the Arthur Andersen accounting firm, and have become practically commonplace since 2007-2008, the once-in-a-lifetime financial crisis that came before this one.

They have since spread to the U.K., France, Canada, Singapore, Japan and elsewhere. 

Providing that a company cooperates with investigators, fulfills its promises to reform, and pays a fine, a deferred prosecution agreement means it can escape alive, and governments don’t have to worry about destroying a profitable corporation.

Why am I writing about this now? Because last month G4S, a British outsourcing company, agreed to a Serious Fraud Office (SFO) DPA for the kind of squalid dishonesty in public contracts that has spread around the world as quickly as the coronavirus. And if this is the future, it’s a bit worrying.

  • “The SFO and UK Courts have abandoned the original criteria for earning a ‘get out of jail’ card with a DPA – which was that companies had to come clean and confess wrongdoing. G4S sat on its hands until it got found out and then dragged its feet some more,” said an analysis sent to me by Spotlight on Corruption.

And why is that a problem?

  • “There’s little incentive now for companies to come forward and repent if they know they can still get a sweet deal with the SFO if they don’t,” Spotlight said.

And why would officials have agreed to this? It would seem that some companies – like hulking teenagers in their last year at school — are just too big to be told off. It was Britain’s justice ministry that G4S defrauded, yet the ministry wrote to the Security Fraud Office (see paragraph 30) asking it to go easy on G4S because, “exclusion of the company would have a detrimental effect on the market for provision of prisoner and escort services and of new prisons”.

The government was asking a court to go easy on a company, because that company was helping the government. That is surely not what the battle against corruption is supposed to look like. And, this is an increasingly widespread phenomenon. 

HSBC, Europe’s biggest bank, agreed to a non-prosecution agreement with U.S. prosecutors in 2012 after being caught laundering hundreds of millions of dollars for South American drug cartels. It paid a huge fine, said it was sorry, and was put on probation for five years, which looks like a lot of punishment. However, if it had been indicted, it would have been driven out of business altogether, meaning the agreement was a very good outcome and, in theory, should have transformed it into a better bank.

But then, in 2018, it agreed to another DPA (after defrauding clients) and, in 2019, yet another (after helping clients evade taxes). It hasn’t been given a fourth last chance this year yet, but it’s only August so there’s plenty of time. 

If I tell my kids they won’t get ice cream if they don’t tidy their room, and then go ahead and give them ice cream anyway, then do it again, and again, there’s increasingly little incentive for them to tidy their room. The same logic works on mega-corporations.

There’s a second problem too, which is that increasingly companies ‘fess up, pay their fine, agree to be good, but no actual people get jailed for what those companies did: for example with the supermarket Tesco, and the aviation giant Rolls-Royce. Corporate entities paying fines, but their managers staying out of jail, is surely not what the battle against corruption is supposed to look like either.

And there’s one final problem to note too, which is that there are worrying signs that countries are beginning to compete, rather than cooperate, in bringing the corrupt to justice. In a case involving Monaco-based Unaoil, British investigators are claiming that their U.S. counterparts essentially stole their investigation, by promising relatively lenient treatment for their two suspects, and thus securing their agreement to plead guilty in Texas, rather than face trial in London. 

It’s bad enough that tax havens compete with each other to make life easier for tax dodgers and kleptocrats, without prosecutors getting into the game too. If we’re going to successfully treat the pandemic of financial crime unleashed by Covid-19, we’re going to have to do better than this.

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WHAT I’M READING

I’m off on holiday, so I’m taking a crime novel to re-read on the beach. “Rather be the Devil” by Ian Rankin is not just a brilliantly taut thriller from the master of Edinburgh noir, it also features many thousands of Britain’s most notorious money laundering vehicles, Scottish Limited Partnerships, and a suitably nasty Russian mobster. I can’t wait.

See you next Wednesday,

Oliver

The story you just read is a small piece of a complex and an ever-changing storyline we are following as part of our coverage. These overarching storylines — whether the disinformation campaigns that are feeding the war on truth or the new technologies strengthening the growing authoritarianism, are the crises that Coda covers relentlessly and with singular focus. We work with dozens of local and international reporters, video journalists, artists and designers to bring you stories you haven’t seen elsewhere, provide you with context missing from the news cycle and illuminate the continuity between the crises we cover. Support Coda now and join the conversation with our team. No amount is too small.

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Oliver Bullough

Oliver Bullough is an author and journalist from Wales, who specializes in writing about financial crime, often when it has links to the former Soviet Union. His most recent book is Moneyland, why thieves and crooks now rule the world and how to take it back, and he is currently trying to write another one despite lockdown.