Corruption

A recent Economic Community (EC) Home Affairs report on Corruption produced compelling evidence of an epidemic of corruption across all the 28 EC countries. “Corruption was found to be deeply entrenched in the minds of the people in Europe” to the extent of $180 billion dollars a year and growing. 76% of all the EC people surveyed across all 28 countries believed that corruption was wide spread. It also found, no surprise, governments “lacked the political will” to take any serious action either to remedy the situation or reverse this trend. Countries such as Spain, Greece and Italy recorded over 90% of the people believing corruption was integral to their culture. Whereas, countries like the Nordic countries (Sweden, Norway and Denmark) recorded only around 30% believing corruption was entrenched. It is interesting that those countries with weaker and damaged economies and with broken democratic processes fared the worst and that their GFC recovery mode continued to suffered from corruption to an even greater extent. The report estimates that global corruption accounts for 5% of global GDP (Gross Domestic Product), which equates to some $2tillian being lost to corruption.   Demark, with the lowest level of corruption, has an average life expectancy for ordinary people of 80 years, with 93% of their population being regarded as “educated”. In comparison, the worst country for corruption was Somalia where the average life expectancy was only xx years with only yy% of their population being regarded as being educated.  The plight of the poorer countries was more pronounced and the extent of organised crime was higher in countries with high corruption levels. Such levels of corruption across Western Society has become endemic to their way of life and the mindset of the people involved – both the takers of corruption money and suppliers of money for corruption favours. It probably comes as little surprise that EC governments struggle to solve this endemic problem because of their own broken democratic processes. Only by ordinary people, caught up in this vicious cycle of suppliers of money for corruption favours, bringing about a gradual shift in their cultural mindset can a shift in their demand participation side begin to solve this problem. But how such a change in the mindset shift could possibly begin to address this corruption epidemic is the subject of the step that follows – an awakening to how ordinary people can be empowered to solve this entrenched problem.

Australia is not immune from corruption. Australia has similar corruption issues and the recently complete Royal Commission into corruption across Government (both parties), Unions and Business in the Construction industry illustrated. More on this as the Royal Commission terms of reference as agreed?

Those countries with the greater awareness of their countries’ corruption (for the first time in known history) are taking to the streets in protest. Their assessment of the root cause is the “physiology of their cultures” and the people’s mindset that their country “thrives on this culture”. Their feeling is that their country requires corruption to succeed, which is clearly not true. Again further evidence that the source of most of the big hard problems facing our world today start in the current mindset of individuals extrapolated on a massive scale. Is it little wonder governments lack the political will to address the size and growth of corruption?   As in the US, powerful lobby groups are intent on protecting and growing their super-rich, to continue controlling the bulk of the wealth in their countries to the general detriment of the poor, and despite their awareness of these serious imbalances in their countries’ wealth distribution. Government is powerless in its attempts to properly represent the will of the people, so by default they must be seen to be trying albeit ineffectively.

A serious outworking from entrenched corruption in society is its impact on Foreign Aid. Over recent years Foreign Aid money has poured into countries like Africa. Former World Bank economist, Dambias Moyo (in her book “Dead Aid”) suggests that much of the $1.06 development trillion aid injected into Africa has left the poor worse off than before, because corrupt governments have siphoned off benefits and refused to make the necessary policy changes need to improve the lot of the poor. In total over the last 60 years the richer nations (like US, UK, Australia, etc) have spend $5 trillion on aid, yet 50% of ordinary people in the world live on less than 50 cents a day. In contrast over the last 20 years it has been the investment in pro-growth & business friendly policies not aid that has lifted 1 billion people out of extreme poverty (ie.living on less than $.25 per day) , mainly in China. The economic rise of Asia was the greatest change in human welfare ever to occur on Earth. Across Asia 50% of the population is under 25. 9 out of 10 jobs in Asia are created by the private sector. Initiatives that also create new jobs is essential to the on-going success in moving people out of poverty. Corrupt governments that fail these styles of poverty outcome tests are highly unlikely to see their people rise out of poverty. No amount of compassion and good intentions will change that.

It has been shown that the best aid for extreme poverty is that directed specifically at women & girls. The reason for this is touched upon in the section on “women’s inequality” where the opportunity gap is largest and the extent of the care they are able to bring about for their children and others in need is greater. The real heavy lifting in poverty stricken countries is achieved via prudent human capital investment, freeing up markets (eg. FTA, like China is working towards) and building infrastructure that underpins economic growth. In future aid should not be judged on money spent but outcomes achieved in reducing poverty. Aid producing outcomes like better nutrition, education, healthcare and availability of basic consumer goods is the best means to changing the lives of ordinary people, namely the poor.

The Panama Papers

In more recent times an enormous cache of 11.5 million documents were leaked to the media by whistle-blowers exposing the fourth largest offshore services of a Panamanian law firm – Mossack Fonscea (co-founded by Ramon Fonseca).  For over 40 years the law firm Mossack Fonscea has been operating out of remote tax havens like those in Samoa, Cayman Islands, Virgin Islands, etc.  Mossack Fonscea has been delivering its services primarily to the wealthy all over the world, including many Australians.  The cache of documents includes emails, banking details and client records dating back 40 years and reveals the inner workings of the law firm Mossack Fonscea renowned for its secrecy and regard for privacy. 

Secrecy and privacy can be a valuable commodity for the wealthy and criminals.  Understandably the leaking of “The Panama Papers” has sent shock waves through the communities of the rich and famous.  The Panama Papers leak extracted personal information from the databases of the Mossack Fonseca law firm.  It implicates 12 national leaders (like Russian President Vladmir Putin the king of Saudi Arabia, Icelandic Prime Minister, Sigmundur Gunnlaugson), 143 politicians plus notable Australian firms like Wilson Securities. Most people and organisations named in this documents are acting legally in looking for the lowest tax deals they can get.  Iceland’s Prime Minister, Sigmundur Gunnlaugson, resigned immediately the content of The Parama Paper were revealed.  People such as these are attracted to the declared business model of tax haven firms like Mossack Fonscea:- “We will allow you to engage in practices for a small fee that would otherwise be illegal in your host country.”  It therefore becomes a matter of ethics and morals rather than criminality.  According to the not-for-profit International Consortium of Investigative Journalists, over $A32 trillion dollars have been lost to such practices globally; money ordinarily collected in their host country as potential revenue for schools, hospitals and the disadvanataged.  And that staggering loss does not include that lost by Multi-National Corporations operating out of off-shore countries (like Apple, Google, Amazon, etc.) to avoid declaring real profits earned in their host country but declared in a tax haven country that does not require the extent of tax to be paid. 

Mr. Fonseca first created 6 companies in Samoa back in 2011. Today over 240,000 shelf companies have been formed without a single conviction for any wrong doing.  There are more than 1,000 Australians with links to Mossack Fonseca; 800 of which are under investigation by the ATO because of these links well documented in The Panama Papers leaked from the Mossack Fonseca law firm’s own database.  The most common practice is to hide assets (held in host countries) but have them recorded as being owned by shelf companies operating out of tax haven countries so that the legitimate taxes owed in the host country can be avoided. This type of practice is encouraging and breeding corruption, like money laundering.  

Many nations (like Australia) seek tougher sanctions against countries that rely on dirty money deals.  Unless the issue is addressed at the global level there will always be another tax haven country prepared to provide these services.   Unfortunately many countries fear that the immensity of the money operated in tax haven countries is so significant that financial authorities are thwarted by the prospect of forcing such practices underground and losing their substantial investment revenue flows.  Mossack Fonseca’s success relies on a global network of accountants and prestigious banks that hire the law firm to manage the finances of their wealthy clients. Banks are the big drivers behind the creation of hard-to-trace companies in tax havens.  Commerzbank, HSBC and Societe Generale are all clients

  Corruption Awakening

 

 

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