Corruption is as old as human history. www.shutterstock.com

After huge corruption scandals in Malaysia and Brazil, Indonesia has just witnessed one of its regions losing more than 90% of its councillors as they are implicated in graft cases.

Looking through history, corruption seems inevitable.
 

Old myths on corruption

The Oxford Dictionary defines corruption as “dishonest or fraudulent conduct by those in power, typically involving bribery”.

Corruption originates from a Latin word : corruptus. The word is the past participle of corrumpere, meaning “mar, bribe, destroy”.

Corruption is as old as human history. The First Dynasty (3100–2700 BC) of ancient Egypt noted corruption in its judiciary.

The practice also existed in ancient China. In Chinese mythology, every household has a Kitchen God who watches the behavior of its members. A week before Chinese New Year, the Kitchen God ascends to heaven to present his annual report to the Ruler of Heaven, the Jade Emperor.

The fate of the household, whether this be reward or punishment, depends on this report. In an attempt to ensure a good report, many households smear a cake of sugar and honey onto the picture of the Kitchen God they keep in their homes before burning the image, which in Chinese mythology is how the Kitchen God can ascend to heaven to meet the Jade Emperor.

In a similar vein, Greek historian Herodotus notes the Alcmaeonid family bribed the Oracle of Delphi priestesses, one of the most powerful mystical forces of ancient Greek. Dating back to 1400 BC, people all over Greece and beyond came to have their questions answered by the Pythia, high priestess of Apollo. The wealthy Alcmaeonid family offered to lavishly rebuild the Temple of Apollo with “Parian marble” after it had been destroyed by an earthquake. In return, Pythia convinced the nation-state Sparta to help the family to conquer and rule Athens. Since it worked, Aristotle noted even gods can be bribed!
 

Corruptions around the globe

As the global economy expanded significantly during the 20th century, levels of corruption increased as well. It is difficult to estimate the global magnitude and extent of corruption since these activities are carried out in secret.

The World Bank estimates international bribery exceeds US$1.5 trillion annually, or 2% of global GDP and ten times more than total global aid funds. Other estimates are higher at 2-5% of global GDP.

Corruption permeates all levels of society from low-level public servants accepting petty bribes to national leaders stealing millions of dollars.

Transparency International estimates Indonesia’s former president Suharto siphoned off anywhere from $15 billion to $35 billion. The Philippines’ Ferdinand Marcos, Mobutu Sese Seko of Zaire and Sani Abacha of Nigeria may have embezzled $5 billion each.

Brazil’s greatest corruption scandal, codenamed Lava Jato (carwash), unearthed a vast and extraordinarily complex web of corruption. Directors of Petrobras, Brazil’s national oil company, used a slush fund to pay politicians who had appointed them to support the election campaigns of the governing coalition.

Lava Jato ensnared politicians and business leaders from 11 countries, ranging from Brazil to Peru. It sidelined Brazil’s most popular resident, Luiz Inácio Lula da Silva, now serving a 12-year prison sentence. The case forced the Peruvian president, Pedro Pablo Kuczynski, to resign when confronted with an impeachment vote.

Another major recent corruption case is in Malaysia. Former prime minister Najib Razak is being investigated for misappropriation from the Malaysian strategic company, 1Malaysia Development Berhad (1MDB), which he chaired. The US Department of Justice has alleged $4.5 billion was misappropriated from 1MDB. The lawsuit has referred to Najib as “Malaysian Official 1”, who is alleged to have received more than $1 billion in 1MDB funds. Najib, who was accused of using some of the money to buy jewellery for his wife, has denied any wrongdoing.

Corruption cases involving national leaders are not unique. In 2015, President Otto Pérez Molina of Guatemala was forced to resign after Congress stripped him of immunity because of his alleged role in a huge corruption scheme involving its national customs service.
In South Africa, the ruling African National Congress this year sacked President Jacob Zuma, who has been charged with corruption.

In 2017, South Korea impeached its president, Park Geun-hye, for bribery and other charges. In 2018, she was convicted of abuse of power, coercion and bribery and jailed for 24 years.
 

Corruption as a way of life

Corruption has become a way of life in numerous countries. In 2011, Transparency International (TI) reported that two-thirds of Bangladeshis and well over half of Indians had paid a bribe during the preceding 12 months.

In 2017, it further reported that globally one in four people had paid bribes in the previous 12 months to access a public service. Nearly 57% of people around the world felt their governments were doing badly to fight corruption. Only 30% thought their governments were doing well.

Another TI study in 2017 showed globally around one-third of people consider their presidents, prime ministers, national and local government officials, business executives, elected representatives and police officers corrupt.

Police officers are seen to be most corrupt in Sub-Saharan Africa (47%) and Asia Pacific (39%). This is a damaging indictment of the extent and magnitude of global corruption perceptions in this age of Homo corruptus (very spoiled and marred persons).
 

The impacts

Corruption severely constrains poverty alleviation and economic development. In 2017, nearly 10% of Asians, around 400 million, lived in extreme poverty. Corruption siphons off funds intended for poverty alleviation.

Countries like Bangladesh, China, India, Indonesia, Malaysia, Nepal, Thailand and the Philippines all face pervasive corruption problems.

If developing countries can control corruption and enforce the rule of law, the World Bank estimates per capita income could increase fourfold over the long term. On average, the business sector could grow 3% faster. Corruption is also a de facto tax on foreign direct investments, amounting to around 20%.

Controlling corruption can improve many socio-economic indicators, including reducing infant mortality rate by 75%.
 

What we can do?

International financial systems have made it possible for public officials to hide their ill-gotten wealth in tax havens. In 2014, the Panama Papers leaked 11.5 million files. These showed that two national leaders among 143 politicians, their families and close associates from all over the world were using offshore tax havens to hide their wealth.

Similarly, the Paradise Papers leaked 13.4 million files from two different offshore service providers and 19 tax haven company registries. It revealed offshore activities of more than 120 politicians and world leaders as well as financial engineering of more than 100 multinational corporations.

Controlling corruption requires strengthening institutions and promptly upholding the rules of law as some countries like Singapore have shown.

Singapore’s late prime minister, Lee Kuan Yew, recounted that corruption was commonplace in the civil service during colonial times. When his party came to power, its leaders enshrined anti-corruption as a development priority since it was considered a prerequisite for good governance. Even then, Keppel Offshore and Marine, a unit of conglomerate Keppel Corporation of Singapore, paid a staggering fine of $422 million to US, Brazilian and Singaporean authorities for paying bribes of $55 million to Petrobras and Sete Brasil. The bribes were paid between 2001 and 2014 to win 13 contracts.

President Xi Jinping of China has declared a war on corruption, which has targeted both “tigers and flies”, a reference to senior and low-ranking officials. Many powerful Chinese politicians and bureaucrats, who were previously considered untouchable, are now in jail because of corruption.

In India, virtually no major political leader has been jailed for serious corruption. This has given many powerful politicians and senior bureaucrats a licence to steal. A 2017 TI report noted nearly 70% of Indians who accessed a public service had to pay a bribe.

A silver lining is that over half of Indians now are positive about the government’s efforts to combat bribery. However, more than 40% felt corruption had increased over the preceding 12 months.

Developed countries are not immune to corruption either. The latest high-profile example is US President Trump’s campaign manager, Paul Manafort. He has been indicted on eight tax and bank fraud charges, with more charges yet to be judged. Trump’s personal lawyer, Michael Cohen, has pleaded guilty to eight violations of banking, tax and campaign finance laws. These may prove to be the tip of the iceberg.

Gandhi said: “The world has enough for everyone’s need, but not enough for everyone’s greed.”

As the world’s economy expands, the potential for corruption increases as well.

Corruption can never be eliminated. Whether we like it or not, it has always been a part of human nature and will continue to infect society. As the age of Homo corruptus continues, the best any country can do is to keep it to a minimum.

Bimal Pratap Shah, an independent consultant from Kathmandu, Nepal, contributed to this article.
 

Asit K. Biswas, Distinguished Visiting Professor, Lee Kuan Yew School of Public Policy, National University of Singapore and Cecilia Tortajada, Senior Research Fellow, Lee Kuan Yew School of Public Policy, National University of Singapore

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Trouble in paradise: Bermuda is at the centre of the Paradise Papers leak. shutterstock.com

Panama is generally considered among tax haven experts as one of the least reformed corners of the offshore world. International rules regarding tax evasion and avoidance are intended to help national governments to pursue their own offenders, but the Panama Papers revealed that the country was being used primarily by the business and political elites of countries like Russia, China and many more in Latin America and Asia; countries where the governments are closely linked to business and which are less likely to use tools provided by new international rules to pursue offenders. Hence, relatively few Americans or Europeans were caught in the Panama story. And Mossack Fonseca, the law firm at the centre of the leak has since been discredited.

The Paradise Papers reveal the goings on of the elites of the offshore world – this time in the supposedly highly-regulated havens of the Cayman Islands, Bermuda, Singapore and the like. All places that received a fairly clean bill of health during the OECD peer review process only a few years ago. The law firm at the centre of this new leak, Appleby, insists there is “no evidence of wrongdoing” in any of the revelations.

Nonetheless, the Paradise Papers will tell us a lot about the activities of business and political elites of well-regulated countries like the US and UK – implicating big multinationals such as Nike and Apple, and individuals including the British Queen.

The Queen’s private estate invested millions offshore. The Commonwealth, CC BY-NC-ND
 

1. Tax avoidance is a booming industry

Clearly, jurisdictions such as the Caymans Islands and Bermuda that levy no income tax, capital gains tax, VAT, sales, wealth or corporate tax, still attract a great deal of businesses. Why, for instance, has the Duchy of Lancaster, the Queen’s private portfolio, invested in two offshore funds, in Cayman and Bermuda? After all, the Queen pays tax only voluntarily.

A more charitable interpretation is that any big investor who is seeking to diversify their portfolio would inevitably end up using offshore funds. The papers show that about £10m (US$13m) of the Queen’s private money was invested offshore – a very small percentage of her wealth. There is nothing illegal about this but the ethics of it have been questioned.

Practically, the entire wealth investment industry – the industry that invests for the rich and the wealthy of our world – operates through the offshore world. And the reason why is simple. Each fund or transaction, or aeroplane or yacht, or whatever that one cares to register in the Caymans or Bermuda, is not subject to tax. And it’s hidden from public view.
 

2. Secrecy prevails through trusts

Despite a spate of new regulations, the Paradise Papers show that anyone who wishes to conceal their affairs from competitors, allies, governments or the public can still do so with great ease. And they can do so through the facilities of a “trust”, an archaic Anglo-Saxon instrument that serves as a foolproof shield from scrutiny.

We have learned, for instance, that Wilbur Ross, the US secretary of commerce, had commercial links to Vladimir Putin’s family, which operated through a system of linked trusts located in various offshore jurisdictions. I do not think that even the Mueller inquiry in the US into the Trump administration’s links with Russia could have pierced the veil of secrecy offered by offshore trusts.

But the leaked documents from law firm Appleby reveal that any complex business deals that would involve concealment and subterfuge would work their way through trusts. It is high time we do something about these trusts.
 

3. Highly complex tools are used

The Paradise Papers show how complex financial innovations such as the use of derivatives and financial swaps arrangements, can be used for tax avoidance. This is an area of avoidance that is normally not well understood and scantily studied.

New research colleagues and I are conducting, however, has found that cross-currency interest rate swaps are used pervasively in tax minimisation mechanisms. It is difficult to detect and involves a parent and subsidiary companies swapping a loan in one currency to another. This swaps the risks and the interest rate of the original currency for the subsidiary’s – a legitimate risk minimisation instrument. At the same time, this facilitates moving funds offshore to low tax jurisdictions.
 

4. The law needs to change

Many professional service firms operate through offshore jurisdictions. They all claim to be highly professional, following not only the letter, but also the spirit of the law.

But if these firms are not directly liable for the activities of their clients, the offshore world will continue to thrive. These firms take advantage of regulatory loopholes to arbitrate between different rules and jurisdictions in order to minimise taxation. The question is for how long such practices are going to be considered legitimate.

The Paradise Papers reveal how little the world really knows about the level of tax avoidance that takes place. UK citizens, for instance, can legally invest in offshore funds and set up companies in those havens. But they must reveal these holdings to the tax man. We do not know whether those named in the papers did, and we do not know whether the tax authorities will do something about those who did not. We only know that a lot is going through offshore. The Paradise Papers show that, despite promises of the opposite, opacity is still pervasive in the offshore world.
 

Ronen Palan, Professor of International Politics, City, University of London

This article was originally published on The Conversation. Read the original article.

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Daphne Caruana Galizia, 53, had just driven away from her home in Mosta, near the capital, Valletta, when reports said that the bomb exploded, sending wreckage spiraling over a wall and into a field.

Muscat said Caruana Galizia’s death resulted from a “barbaric attack” that was also an assault on freedom of expression. He described her as “one of my harshest critics, on a political and personal level,” as he denounced the attack as “unacceptable.”

Politico named Caruana Galizia one of 28 Europeans who are “shaping, shaking and stirring” Europe. She had exposed that Muscat’s wife, Michelle, as well as Muscat’s energy minister and the government’s chief-of-staff, held companies in Panama by looking into the 2016 document leak. Muscat and his wife deny that they held such companies.

Related: Panama Papers: Database Released, Dozens of Americans Listed

Opposition leader Adrian Delia called the killing a “political murder.” Caruana Galizia had been sued for libel because of articles she wrote on her blog, “Running Commentary,” and she had filed a report with police two weeks ago that she was receiving threats.
 

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