Donald Trump is undermining the fight against corruption
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Version 0 of 1. Corruption is a curse. It stunts development, breeds conflict in fragile states, makes taxpayers in rich countries dubious about providing aid to poor countries, and gives crooked firms an advantage over those that play by the rules. Governments have become less tolerant of dirty business dealings over time, as Rolls-Royce has found to its cost. The aerospace company – one of the UK’s genuinely world class manufacturing firms – will this week announce one of Britain’s biggest ever corporate losses, in part the result of the £671m cost of settling bribery actions. The cases were brought by the authorities in Britain, Brazil and the US and involve allegations that Rolls bribed middlemen around the world between 1989 and 2013 to win contracts. Warren East, the company’s chief executive, has called the behaviour “completely unacceptable”. America has been at the forefront of the international fight against corruption ever since the passing of 1978 Foreign Corrupt Practices Act which sought to prevent multi-national corporations from bribing crooked officials in order to win contracts. There was an element of self-interest in this. The US was confident that in a fair fight its companies would win overseas contracts more often than not. Corruption simply allowed less well-managed firms to deprive US corporations of deals they would otherwise get. There has also been a recognition that the US will always be out-gunned when it comes to corruption. Despite Eisenhower’s famous warning about the influence of the military-industrial complex, the US system of governance has checks and balances that limit criminal activities. It has suited the US to present itself as the sheriff riding into town to sort out the bad hats. Up until now. Four weeks of Donald Trump’s presidency have put at risk four decades of progress in the fight against corruption and gladdened the heart of every kleptocrat around the world. What’s happened is this. Both houses of Congress have voted to gut a law that would have forced US oil, gas and mining companies to disclose their royalty, licensing and other payments to foreign governments. The law was a bipartisan initiative between Democratic Senator Ben Cardin and former Republican Senator Richard Lugar, and formed an amendment to the 2010 Dodd-Frank Act, the law designed to clean up Wall Street after the financial crisis. The Cardin-Lugar law compelled America’s financial watchdog – the Securities and Exchange Commission – to draw up tough transparency rules for energy and mining companies. Unsurprisingly, the big oil companies were strongly opposed to revealing what they were up to at such a granular level. The American Petroleum Institute, one of the biggest and best resourced lobbying groups on the planet, has opposed Cardin-Lugar from the start, but decided to play a long game. By dragging matters through the courts, the API succeeded in delaying implementation of Cardin-Lugar and as a result the new transparency rules – which would oblige companies to report annually on a project by project basis – were only due to come into force in 2019. To argue that easing up on the fight against corruption is good for business is to turn truth on its head The API’s strategy was to delay and hope that something would turn up. Now it has with Trump’s election. The new president has insisted that America has been harming itself with borders that are too porous, trade rules that are too lax, taxes that are too high, and red tape that is too onerous. He can expect the full support of his secretary of state, Rex Tillerson, the former boss of ExxonMobil, a prominent member of the API. The oil and gas lobby group has successfully portrayed Cardin-Lugar as another bit of excessive bureaucracy that will put American companies at a competitive disadvantage. Other countries will not insist on gold-plating anti-corruption rules in such a way, it has insisted. The SEC has now been told to go away and draw up new regulations because Congress says the original plan would have led to rising business costs that would have been bad for growth and jobs. This is nonsense. For a start, companies have all the information readily available and could easily adhere to the Cardin-Lugar law. The red tape argument is a red herring. But there’s a bigger point: to argue that easing up on the fight against corruption is good for business is to turn truth on its head. Corruption is actually very bad for businesses, which is why bodies such as the Paris-based Organisation for Economic Cooperation and Development have been so active in trying to tackle it. The cost of corruption is thought to equal more than 5% of global GDP each year – about $2.6tn (£2tn) – and is estimated to raise the cost of doing business by 10% a year. The $1tn paid out in bribes is a tax that is put to no good purpose whatsoever. It builds no schools or hospitals. Corruption is particularly high in the extractives sector. The cost of private sector corruption in developing countries was above $500 bn in 2012 – representing 3.7 times the amount of global official development assistance (ODA) disbursed. Jamie Drummond, director of the campaign group, One, described the decision by Congress as a “really worrying development” that needed to be fought. “It is pro-business and pro-private sector to fight corruption,” he added. All the recent evidence is that what the US does acts as an international benchmark. In 1998, other developed countries, prodded by Washington, signed an international anti-bribery convention that mirrored the US law. What’s more, the SEC and the Department of Justice have not pussy-footed around. They have enforced the law vigorously, imposing massive fines on wrong-doers. This enforcement action has encouraged the authorities in Europe to become more vigilant. The Cardin-Lugar law is a case in point. Europe saw what the Americans were doing and brought in energy transparency and forestry legislation of its own. Following the US lead, the European parliament approved legislation similar to the energy transparency law and included forestry companies to the other natural resources firms that must comply. A number of major extractive companies have publicly supported the SEC’s rule or the very similar laws in the EU and Canada. More than 120 companies have disclosed payments worth more than $150bn in more than 100 countries under the EU’s rules to date. Now the US has signalled that it intends to be less transparent and less rigorous in fighting corruption, companies in other developed countries will get the message. European-based companies are likely to start lobbying their governments for a similar regime to that which operates in the US. Let’s be clear. Cardin-Lugar would not have ended corruption, but it did ratchet up the pressure on those giving bribes and on those receiving them. Trump has been what Lenin called a useful idiot, the unwitting channel for a move that will be bad for development, bad for global security and bad for America. |