Centre for the Study of Corruption

In this second post on Tasmania, Robyn A. Lewis[1] and Professor Michael Johnston[2] examine corruption in Australia’s smallest state through the lens of the Elite Cartel syndrome, highlighting its sources and continued dominance.

Our previous post illustrates how Tasmania exemplifies the Elite Cartels (ECs) syndrome (Johnston, 2014)[3]: close-knit, collusive elite networks that perpetuate a distribution of public power and resources skewed in their favour. ECs provide an environment in which corruption can thrive and are an intrinsically corrupt way of organising a political economy.

EC dominance has a long history in Tasmania. The “Apple Isle” is small and somewhat insular and parochial. While universal adult suffrage began in 1903, today’s ECs’ predecessors evolved in the 1850s (Perry, 2001). Networking elites in business, government and the economy may not have set out to create corrupt schemes, but over time their convenient, self-serving alliances led to distinctive forms of corruption – an Elite Cartel syndrome, similar to Lessig’s Institutional Corruption (2013)^[4] featuring actions and inactions serving dominant interests, yet rarely breaking laws^[5].

EC influence raises a larger question: Australia is a prosperous modern democracy with relatively competitive parties and free, fair Federal and State elections. How do ECs remain entrenched without public outcry or ballot-box rejection? Part of Tasmania’s answer is that ECs – historically, ‘the way things work’ – continue to benefit political and business elites in very profitable ways, while those less well-connected miss out (Johnston, 2005). Other reasons are limited alternatives, and a self-perpetuating lack of transparency and accountability between elections.

Beyond bribery

Corruption[6] is still often equated with bribery, so when bribery is not news, and other forms of corruption poorly understood, for many there is little cause for concern, particularly when perception scores are good. Bribery largely dominated Hay’s (1973) analysis of Tasmanian corruption, including alleged bribery of Forestry Commission officials and the Forestry Minister by sawmillers in 1945; of the Premier, by road transport officials in 1947; the Treasurer in 1958; the Deputy Premier/Attorney General by bookmakers in 1972; and a state MP holding the balance of power, by  Federal Hotels and British Tobacco in 1973.

However, applying the lens of EC corruption highlights today’s less blatant forms of corruption which sustain informal but influential elite coalitions in business, government and others seeking to maintain the benefits of the status quo. Although often legal, largely due to lags in introducing new or updating existing legislation[7], Tasmania’s EC corruption remains socially demoralising and costly.

ECs operate, not primarily through bribery, but via collusion, obfuscation, bullying and secret deal-making, sidelining competitors and critics (Johnston, 2014; linked examples are Tasmanian[8]). Many EC activities are insidious, taking place out of public view; major scandals are minimised and bribery is generally unnecessary, for EC networks offer cheaper, more discreet and effective, and less risky ways to achieve desired outcomes. Often, EC influence works by inaction – by neglect or design – because policy changes or extensive public consultation can introduce delays and expenses, and disrupt an elite-friendly status quo.

Tasmanian state guidelines require community engagement in decision making[9], but terms of reference can be restricted, consultations may be inadequate, potentially misleading, or never occur. Consultation findings[10] may be preempted, published belatedly, concealed or ignored. Philp (2017) differentiated incompetence as another form of political failure, but incompetence can only explain so much. It also provides a fertile field for corrupt actors to exploit under inadequate scrutiny (Bozeman and Jung, 2022).

Adverse outcomes include restricted competition, valid public concerns omitted from planning and legislation, and pushing through ill-founded government decisions without social licence. Reduced accountability and transparency, regulatory failure and loss of trust (Cullen-Cox et.al., 2021), and further risks of corruption and reduced governance capacity may result (Graycar and Villa, 2011).

Much of what ECs do looks like ‘business as usual’ and is difficult to trace[11]. ECs seldom bring down whole regimes because often they are the regime. Particularly in smaller jurisdictions where elite networks can be tight (Veenendaal, 2019), EC collusion can keep controversy – and accountability – within ‘manageable’ bounds. ECs are tenacious in protecting the status quo, and in Tasmania it suits them to have governance systems lagging the rest of Australia[12].Ironically however, EC states can be vulnerable to influence from external actors[13] seeking to exploit economic opportunities and weak accountability, an added risk especially for Tasmania’s indebted economy.

Gunns Pulpmill – an ongoing legacy

A notorious case encapsulating EC influence is Gunns Limited, a timber-processing concern which in 2003 decided to construct a pulp mill in a northern Tasmanian nature conservation area. Designed to convert local timber[14] into over a million tons of export woodpulp annually, it would consume seventy million litres of water daily, and release effluent containing dioxins into Bass Strait and airborne emissions into a temperature inversion layer. Yet the State saw all industrialisation as beneficial, regardless of social or environmental cost (Beresford, 2015), alternative visions or competing objectives[15].

One might expect such a major project to require extensive, meaningful public consultation, but in 2004 the site’s conservation status was lifted and the project proceeded without social licence. In 2007 further approvals drew criticism from Tasmania’s Resource Planning and Development Commission. Gunns simply withdrew from their assessment processes, resulting in one possible outcome: the Commission was disbanded. Federal approval followed. 

The project was eventually scuttled, not by public interest considerations but by declining pulp and timber markets (Wells, 2010); in 2011 Gunns entered voluntary administration. There was an unsuccessful $100,000 bribery attempt by Gunns’ Chairman to a Labor MP to cross the floor and prevent formation of a Greens coalition. In 2013 Gunns’ Managing Director was convicted of insider trading. Such conventional corruption gained most public and media attention, but Gunns’ EC tactics  –  secret initial negotiations, favouritism, collusion, mutual back-scratching, and the lack of transparency, consultation or public approval – received much less, helping keep the proposal alive for seven years and forming a template that persists today.

Similar tactics have since been observed in other controversies at both state and local council levels. Disregard of public interest is a running theme in Tasmania’s governance, accelerating in the 1970s when public concern mounted over the environmental impacts of exploiting Tasmania’s natural resources including timber and hydro-electricity (including Lake Pedder[16]), and extending since to mining, windfarms, waterways/oceans, parklands, eco-tourism, property developments and more [17].

Wherever there is a ‘free’, inadequately-controlled public resource from which to profit, especially where governance requires reform, corruption can occur.

EC corruption is harmful

Every community has elites, often prominent in public service. But when networks become entrenched,  concealing key decision processes, stifling debate and driving threatening issues underground, democratic inclusion is lost (Warren, 2004) and inequality is worsened. Other tactics –  e.g. delay, restricting competitors, segmenting tenders below accountability thresholds, bypassing planning regulations – potentially benefit cronies.

Critics are marginalised or denigrated as “blockers”: challenging the consensus, and making valid complaints e.g. about poor planning, lack of vision, financial impacts or regulatory failure can result in bullying, exclusion and even violent disputes[18]. Legislation[19] can be delegated to individuals or NGOs to attempt to uphold. Meanwhile, directorships can be reserved for ‘captain’s picks’, and ‘revolving doors’ enable EC insiders to pursue cushy private employment or consultancies. Social division is reinforced.

EC corruption mostly benefits the well-connected[20]; for others it causes real harm to families, communities, and citizens’ right to be informed. Our third installment examines these costs, including a case that nearly derailed MONA, one of Tasmania’s most valuable cultural and economic assets. A fourth and concluding posting, on reforms, will follow.  

Bibliography

Bachrach, P. and Baratz, M.S. (1975) ‘Power and Its Two Faces Revisited: A Reply to Geoffrey Debnam’, The American Political Science Review, 69(3), pp. 900–904. Available at: https://doi.org/10.2307/1958398

Beresford, Q. (2015) The Rise and Fall of Gunns Ltd. New South Publishing. Available at: https://unsw.press/books/the-rise-and-fall-of-gunns-ltd/ (Accessed: 7 February 2025).

Bozeman, B. and Jung, J. (2022) ‘The Corruption-Incompetence Nexus: Analysis of Corrupt US Mayors’, Journal of Policy Studies, 37(2), pp. 1–12. Available at: https://doi.org/10.52372/jps37201.

Cullen-Knox, C. et al. (2021) ‘Perceiving Environmental Science, Risk and Industry Regulation in the Mediatised Vicious Cycles of the Tasmanian Salmon Aquaculture Industry’, Social Epistemology, 35(5), pp. 441–460. Available at: https://doi.org/10.1080/02691728.2021.1913661.

Flanagan, R. (2021) Toxic – The Rotting Underbelly of the Tasmanian Salmon Industry. 1st edn. Australia: Random House. Available at: https://jameshwhitmorereviews.com/2021/05/17/review-toxic-by-richard-flanagan/ (Accessed: 10 February 2025).

Graycar, A. and Villa, D. (2011) ‘The Loss of Governance Capacity through Corruption’, Governance, 24(3), pp. 419–438. Available at: https://doi.org/10.1111/j.1468-0491.2011.01535.x.

Hay, P.J. (1973) ‘Factors Conducive to Political Corruption: The Tasmanian Experience’, Political Science, 29(2), pp. 115–130.

Johnston, M. (2005) ‘Elite Cartels: how to buy friends and govern people’, in Syndromes of Corruption: Wealth, Power, and Democracy. Cambridge: Cambridge University Press, pp. 89–119. Available at: https://doi.org/10.1017/CBO9780511490965.006.

Johnston, M. (2014) Corruption, Contention, and Reform: The Power of Deep Democratization. Cambridge: Cambridge University Press. Available at: https://doi.org/10.1017/CBO9781139540957.

Lessig, L. (2013) ‘“Institutional Corruption” Defined’, Journal of Law, Medicine & Ethics, 41(3), pp. 553–555. Available at: https://doi.org/10.1111/jlme.12063.

Lindenmayer, D. (2024) The Forest Wars. 1st edn. NSW: Allen & Unwin. Available at: https://wildislandtas.com.au/products/the-forest-wars (Accessed: 15 February 2025).

Paar-Jakli, G. and Molina, A.D. (2024) ‘Democracy, Authoritarianism, and Political Corruption: Elite Cartel Corruption in Hungary and Italy’, Public Integrity, 26(5), pp. 520–538. Available at: https://doi.org/10.1080/10999922.2023.2256091.

Perry, P.J. (2001) Political Corruption in Australia – a Very Wicked Place? 1st edn. London, UK.: Routledge Revivals, Taylor & Francis.

Philp, M. (2017). Conceptualizing political corruption. In A. I. Heidenheimer & M. Johnston (Eds.), Political Corruption: Concepts and Contexts. 3 ed. Ch. 3 (pp. 61-75). Taylor and Francis. https://doi.org/1 0.4324/9781315126647-4

Veenendaal, W. (2019) ‘How Smallness Fosters Clientelism: A Case Study of Malta’, Political Studies, 67(4), pp. 1034–1052. Available at: https://doi.org/10.1177/0032321719828275.

Warren, M.E. (2004) ‘What Does Corruption Mean in a Democracy?’, American Journal of Political Science, 48(2), pp. 328–343. Available at: https://doi.org/10.1111/j.0092-5853.2004.00073.x.

Wells, G. (2010) ‘Economic Assessment of the Gunns Pulp Mill 2004 – 2008’, Working Papers [Preprint]. Available at: https://ideas.repec.org//p/tas/wpaper/10445.html (Accessed: 26 January 2025).

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[1] Robyn Lewis is an MA student in Corruption and Governance, Centre for the Study of Corruption, University of Sussex, UK.

[2] Michael Johnston is the Charles A. Dana Professor of Political Science Emeritus at Colgate University, in Hamilton, New York, USA.

[3] Also diagnosed in e.g. South Korea, Italy and Hungary (Paar-Jakli and Molina, 2024; Johnston, 2014)

[4] Also common but often overlooked in mature liberal democracies. See Thompson, D.F. (2018) Theories of institutional corruption. Annual Review of Political Science, 21(1), pp.495-513.

[5] Or if they do in Tasmania, they are not investigated nor prosecuted. See Flanagan R. (2021)

[6] The abuse of entrusted power for private gain which harms the public interest, typically breaching laws, regulations, and/or integrity standards. (Dobson-Phillips et.al., 2023)

[7] Including Tasmania’s Criminal Code Act (1924)

[8] Note: not all these examples may involve corruption but are potential examples of the types of behaviours described

[9] Although this is currently under threat at the local government level

[10] Also those of government inquiries etc

[11] Tasmania has a Right to Information process, but RTIs only cover written communications or those officially recorded. Results are often delayed and significantly redacted. The RTI process is currently under review.

[12] E.g. Tasmania is the only state/major territory with no ICAC.

[13] Interstate and international

[14] Both plantation timber, and controversially, native forests including old-growth trees (i.e. hundreds of years old)

[15] Such as the economically-important tourism industry, or Brand Tasmania, founded on a ‘clean, green’ image.

[16] Which saw the birth of the first Greens party in the world to contest an election, the UTG (United Tasmania Group)

[17] There remain exceptions, including a 1989 allegation against the Head of the Premier’s Department regarding the appointment of a controversial Ombudsman (Johnston v Alan Hanson Evans, 1992). However today’s influence is largely acquired in indirect, EC ways, aided by growing media monopoly

[18] A failure in implementation of local government regulatory processes allegedly contributed (State of Tasmania v Kerry Alexander Bilston, May 2018)

[19] Including the Federal Environmental Protection and Biodiversity Conservation Act (1999)

[20] And their employees and contractors, an often-overlooked factor

Robyn A. Lewis [1] and Professor Michael Johnston[2] examine the concept of Elite Cartels, and how it might be applied to the Australian state of Tasmania. This is the first of a short series of blogs on Tasmania.

How corrupt is Tasmania?

In short, no-one knows.  Corruption is usually concealed, and valid metrics for Tasmania are scarce. Analysts might consult Transparency International’s Corruption Perceptions Index (CPI) which ranked Australia 14th of 180 countries in corruption control in 2023, scoring 75 points of 100 (TI, 2024).  However, the CPI gives a single score for a country and does not disaggregate at regional or state level, which may mask or fail to capture what is going on in some areas.

Being a large, historically-diverse Federation whose states vary economically and socially, corruption in business-oriented New South Wales may vary from mining-dominated Western Australia or South Australia’s manufacturing and agriculture. Increasingly, corruption is therefore being analysed on a regional basis (Heywood, 2017; JANAR, 2024).  Within Australia, local influences, geography and historical factors are important (Perry, 2001; Graycar, 2015), particularly for understanding Tasmania, Australia’s smallest state.

Johnston’s typology identifies four mutually-exclusive syndromes: ‘Official Moguls’, ‘Oligarchs and Clans’, ‘Influence Markets’ and ‘Elite Cartels’ (Johnston, 2005; 2014).

The dominant syndrome in Australia’s largest states, as in most market democracies, is ‘Influence Markets’, where official powers, political influence and personal networks are traded or ‘rented’ to private interests contending over specific stakes such as contracts and favourable policy changes, and are power and wealth-oriented. This – and associated bribery – resembles what many Australians are likely to think of as corruption.

However, applying Johnston’s (2014) corruption typologies assessment suggests that Tasmania differs. Its syndrome of corruption, known as ‘Elite Cartels’ (hereafter ECs), is characterised by networks of elites (Osifo, 2018), as observed in Italy and Hungary (Paar-Jakli and Molina, 2023). These are often ‘old boys’ – in business, clubs, sports and professional associations, media, non-profit organisations, unions, academe etc – dominating decision making, frequently in both the public and private spheres.  Such networks typically by-pass, rig or distort formal or official channels such as public procurement and public appointments. One example of many in Tasmania – described by Barnsley as “crony capitalism” [3] – involved the notorious Gunns Pulpmill Project. This project should have received extensive public scrutiny on economic and environmental grounds but progressed for several years – thanks to its backers’ political connections – without public consultation or social licence, only being halted by financial difficulties, not by considerations of public good.

EC corruption is mostly legal; indeed, it can look a lot like ‘business as usual’, especially in an isolated economy with few benchmarks. Johnston notes that bribery is relatively uncommon, partly replaced by what economists Murray and Frijters (2022) describe as ‘grey gifts’ – why break the law if you can do deals with your allies?  ECs often practise corruption by inaction, public obfuscation, charades of consultation, and state capture (Dávid-Barrett, 2023) – blocking unwanted changes, keeping benefits and power within the cartels, and distorting public-interest outcomes. Corruption in the form of processes that should occur but do not, issues kept off the public agenda and decisions not made or taken behind the scenes are unlikely to affect perception-based scores. Instead, ECs often foster a de facto stability congenial to major economic interests, favoured investors or anyone with a stake in the status quo. Over time, they may even be accepted as the way things work, as is apparent in Tasmania.

Why is this corrupt?

One important clue to why this can be considered corrupt lies in what Warren (2004) called ‘duplicitous exclusion’ – denying citizens the chance to participate in decisions affecting their lives – which he sees as the essence of corruption in a democracy. EC players can readily secure business and contracts, exclude competitors, weaken or avoid public consultation processes, regulations and tendering procedures (Johnston, 2014). Insiders benefit from a casual, almost dismissive approach to transparency and accountability (Paar-Jakli and Molina, 2024). Over time they find it easier to pass advantages onto family, favourites and clients, excluding others.

Globally, there is a significant correlation between ECs and institutional or legal corruption as described by Harvard scholars Lessig (2013) and Thompson (2018).[4] EC corruption is thus subtle, inward-looking and tenacious, not least because it benefits the well-connected. Exclusion from “old boys’ networks” imposes penalties from which insiders are exempt.

Corruption costs

Whatever syndrome applies, it is hard to argue that Tasmania is benefiting from corruption. Even in a relatively well-ranking country like Australia, in 2018 corruption was estimated to cost 4% of GDP annually,  which has since increased.[5] Its effects are yet to be quantified in Tasmania, where State Government is the biggest employer.[6]

Costs are also indirect. By connecting interests across sectors, ECs can influence public policy and broader decision-making. Their self-serving stability and generally legal activities can restrict growth and skew public expenditure, discourage innovation (Dincer, 2019), handicap economic or political competitors and harm public health and the environment. Corruption also impacts small business and business confidence, workplace morale, brand and reputation.

How ECs Developed in Tasmania

Historical factors including distant colonial rule played an important role in the evolution of ECs in Tasmania (Perry, 2001).  Numerous corruption cases have occurred since Federation, recently including Edmund Rouse and John Gay and involving political and institutional corruption. But geographic, cultural and economic factors are also influential, including Tasmania’s relatively small population and less diverse economy which helps maintain a relatively static elite stratum. Historical isolation and limited clout in the national arena reduce scrutiny by Federal agencies and national news media.

An oft-cited issue is the lack of an anti-corruption agency (ACA) in Tasmania, instead having an under-resourced Integrity Commission with limited investigative and prosecution powers, which has referred only two people for prosecution and is often described as “toothless”[7]. However, this is as much a symptom of EC corruption as a cause. EC insiders have little interest in improving accountability and scrutiny, and the Tasmanian Government has been described as “the most secretive in Australia”. Their response when these types of issues arise appears to be to say nothing and hope the public forget or are distracted.

What can be done about Elite Cartels corruption?

All other states (and major territories) of Australia – except Tasmania – have an ACA known as an ICAC[8] (Independent Commission Against Corruption). Whilst a fully independent and resourced ICAC with greater scope and powers might help Tasmania address the law enforcement aspects of reform, it would also need a wider remit to address the broader problem. Successful public-sector corruption control depends on understanding how it works, must be multifaceted, and – as argued recently by Pyman and Heywood (2024) – implemented through strong leadership on a sectoral basis. Increased public education and awareness is also needed (Meagher, 2005), for in the relatively few cases where ICACs are effective (Heeks and Mathisen, 2012; Quah, 2015) they depend upon the sort of active reform agenda and popular support that ECs tend to suppress (Johnston, 2022).

Continuous monitoring by the media and public will also be essential. But because much EC power and dominance are won and exercised in legal ways, political action will be equally critical, including political advertising reform. Where ECs are entrenched and maintain a deceptive ‘business-as-usual’ atmosphere, creating political challenges is notoriously difficult. But political opportunities do sometimes arise, and it was recently proposed that Tasmania’s 51^st Parliament has a unique opportunity to commence reform.[9]

Increased external attention and scrutiny by the national press and civil society would also be of benefit, as would greater oversight by the Commonwealth Government in accounting for Federal expenditure within Tasmania.

Conclusion:

Tasmania has flown beneath the corruption radar for too long, with significant, unsustainable costs to development, prosperity, community welfare and the environment – and to Australia nationally, given Tasmania’s reputation as a “mendicant state”. However, by applying the lens of Elite Cartels corruption, its sources and consequences become more apparent, as do opportunities for reform. In general, to address a problem, you must first identify it. In future blogs we will explore specific cases of EC corruption in Tasmania, looking at effects and costs, and suggest ways to replace it with more open and responsive ways of governing and doing business, to the benefit of all.

Bibliography[10]

Dávid-Barrett, E. (2023) ‘State capture and development: a conceptual framework’, Journal of International Relations and Development, pp. 1–21. Available at: https://doi.org/10.1057/s41268-023-00290-6.

Dincer, O. (2019) ‘Does corruption slow down innovation? Evidence from a cointegrated panel of U.S. states’, European Journal of Political Economy, 56, pp. 1–10. Available at: https://doi.org/10.1016/j.ejpoleco.2018.06.001.

Grabovsky, P. and Larmour, P. (2000) Public Sector Corruption and Its Control. 143. Canberra, ACT: Australian Institute of Criminology, p. 6.

Graycar, A. (2015) ‘Corruption: Classification and analysis’, Policy and Society, 34(2), pp. 87–96. Available at: https://doi.org/10.1016/j.polsoc.2015.04.001.

Heeks, R. and Mathisen, H. (2012) ‘Understanding success and failure of anti-corruption initiatives’, Crime, Law and Social Change, 58(5), pp. 533–549. Available at: https://doi.org/10.1007/s10611-011-9361-y.

Heidenheimer, A.J. (2002) ‘Perspectives on the Perception of Corruption’, in Johnston, M. (ed) Political Corruption. 3rd ed. Routledge.

Heywood, P.M. (2017) ‘Rethinking Corruption: Hocus-Pocus, Locus and Focus’, The Slavonic and East European Review, 95(1), pp. 21–48. Available at: https://doi.org/10.5699/slaveasteurorev2.95.1.0021.

JANAR Anti-Corruption (2024) 32nd Virtual Roundtable on Measuring Corruption, ft. Lamar Crombach. Osaka, Japan (Measuring Corruption Roundtable). Available at: https://www.youtube.com/watch?v=B79uuW_-YO8.

Johnston, M. (2005) Syndromes of Corruption: Wealth, Power, and Democracy. Cambridge: Cambridge University Press. Available at: https://doi.org/10.1017/CBO9780511490965.

Johnston, M. (2014) Corruption, Contention, and Reform: The Power of Deep Democratization. Cambridge: Cambridge University Press. Available at: https://doi.org/10.1017/CBO9781139540957.

Johnston, M. (2022) ‘It takes a whole society: why Hong Kong’s ICAC cannot succeed alone’, Public Administration and Policy, 25(2), pp. 109–123. Available at: https://doi.org/10.1108/PAP-05-2022-0042

Laing, A. and Anon. (2023) ‘Costing Corruption and Other Efficiency Losses’, Artificial Fiscal Intelligence, 31 March. Available at: https://artificialfiscalintelligence.com/afi_home/costing-corruption/.

Lessig, L. (2013) ‘FOREWORD: “Institutional Corruption” Defined’, The Journal of Law, Medicine & Ethics, 41(3), pp. 553–555. Available at: https://doi.org/10.1111/jlme.12063.

Meagher, P. (2005) ‘Anti‐corruption agencies: Rhetoric Versus reality’, The Journal of Policy Reform, 8(1), pp. 69–103. Available at: https://doi.org/10.1080/1384128042000328950.

Murray, C. and Fritjers, P. (2022) Rigged – How Networks of Powerful Mates Rip Off Everyday Australians. Queensland, Australia: Pubilicious Pty Ltd. Available at: https://gameofmates.com/

Osifo, O.C. (2018) ‘A Network Perspective and Hidden Corruption’, Journal of Public Administration and Governance, 8(1), pp. 115–136. Available at: https://doi.org/10.5296/jpag.v8i1.12697.

Paar-Jakli, G. and Molina, A.D. (2024) ‘Democracy, Authoritarianism, and Political Corruption: Elite Cartel Corruption in Hungary and Italy’, Public Integrity, 26(5), pp. 520–538. Available at: https://doi.org/10.1080/10999922.2023.2256091.

Perry, P.J. (2001) Political Corruption in Australia – a Very Wicked Place? 1st ed. London, UK.: Routledge Revivals, Taylor & Francis.

Pyman, M. and Heywood, P.M. (2024) Sector-Based Action Against Corruption: A Guide for Organisations and Professionals. Cham: Springer Nature Switzerland (Political Corruption and Governance). Available at: https://doi.org/10.1007/978-3-031-59336-9.

Quah, J.S.T. (2015) ‘Evaluating the effectiveness of anti-corruption agencies in five Asian countries’, Asian Education and Development Studies, 4(1), pp. 143–159. Available at: https://doi.org/10.1108/AEDS-10-2014-0050.

Thompson, D.F. (2018) ‘Theories of Institutional Corruption’, Annual Review of Political Science, 21(Volume 21, 2018), pp. 495–513. Available at: https://doi.org/10.1146/annurev-polisci-120117-110316.

Warren, M.E. (2004) ‘What Does Corruption Mean in a Democracy?’, American Journal of Political Science, 48(2), pp. 328–343. Available at: https://doi.org/10.1111/j.0092-5853.2004.00073.x.

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[1] Robyn Lewis is an MA student in Corruption and Governance, Centre for the Study of Corruption, University of Sussex, UK.

[2] Michael Johnston is the Charles A. Dana Professor of Political Science Emeritus at Colgate University, in Hamilton, New York, USA.

[3] To be detailed later in this blog series.

[4] Discussed later in this blog series.

[5] To put this in perspective, 4% of Tasmania’s GDP of AUD 42.062 billion (CEIC, 2024) is AUD 1.682 billion, per annum, equivalent to over a football stadium, per year. Such a leakage can be catastrophic in a small economy like Tasmania’s (Laing et.al., 2023)

[6]  Costs are the subject of a later blog.

[7] Discussed later in this blog series

[8] IBAC (Independent Broad-based Anti-corruption Commission) in Victoria

[9] Discussed in a later blog article

[10] All other references are linked in text. A full Bibliography will be published at the end of this blog series.

Michael Hornsby, Impact Manager at Anti-Corruption Data Collective (ACDC) and David Szakonyi, ACDC co-founder, discuss the value that cross-sectoral collaborations might bring to complex, cross-border investigations into illicit financial flows and kleptocracy using leaked, commercial and public data sets. 

Picture the scene: you’re an investigative journalist and, out of the blue, a source offers you a treasure trove of data that exposes the inner workings of an opaque financial jurisdiction long suspected of enabling large-scale financial crime and corruption.  

Who would you call? 

For many journalists in this position, the answer has been an international media organisation with the ability to set up and coordinate collaboration across multiple newsrooms in multiple countries. This model has successfully underpinned many of the largest and most transformative cross-border collaborative investigations into offshore finance and corruption, such as the Panama Papers, Troika Laundromat and Pandora Papers. 

The involvement of diverse journalistic expertise from around the world helps to ensure that the most interesting and timely stories are extracted from the data. These massive collaborative projects have led to equally enormous impacts: toppling governments, sparking prosecutions, informing new sanctions, regulations, legislation and international frameworks, as well as catapulting the offshore world into the public consciousness.  

Despite this arguably successful track record, some journalists, like Frederik Obermaier, who together with Bastian Obermayer, received the Panama Papers and Pandora Papers (along with other high-profile leaks) have wondered how non-journalistic actors in the anti-corruption space, such as academics and civil society experts, can contribute to even greater impact by getting involved in collaborative investigations early on. 

New models for collaboration  

In November, the organisations behind two current Governance & Integrity Anti-Corruption Evidence (GI ACE) projects, along with the National Endowment for Democracy, convened experts from across journalism, technology, policy and academia at a Data against Kleptocracy workshop held in London. Our discussion focused on how journalists and data-savvy social scientists can better collaborate to investigate illicit financial flows and kleptocracy using leaked, commercial and public data sets.    

For one of these GI ACE projects, our organisation, the Anti-Corruption Data Collective (ACDC), is collaborating with the Platform to Protect Whistleblowers in Africa (PPLAAF) to mine the 2021 Congo Hold-Up leak from BGFI Bank in the DRC for fresh insights. Journalists from 18 countries pored over this dataset – the largest ever leak of financial records from the African continent – and exposed how the DRC’s former President Joseph Kabila and his inner circle laundered millions of dollars through the bank. 

The initial results from this collaboration are helping to prove the concept that we set out to test when Frederik Obermaier and David founded ACDC in 2020, together with the anti-corruption policy expert Zoë Reiter. By applying the kinds of big data analysis that informs much of contemporary social science research, we have been able to generate insights which were not available during the original wave of Congo Hold-Up reporting. For instance, by identifying previously unrecognised companies as highly likely to have been involved in money laundering through BGFI’s branch in the DRC. 

Data science approaches further allow us to evaluate the effectiveness of international banks’ de-risking policies in reducing money laundering and the banks’ exposure to it. We are also able to determine whether whistleblower revelations changed attitudes and appetites toward risk at BGFI in the DRC.  

Reaching this stage of the collaboration has meant overcoming several challenges, many of which were familiar to participants in the London workshop: Journalists and academics work on different timelines, they ask different questions of the data in front of them, and their organisations have different understandings of the ethical and legal questions around public interest, privacy and data processing.  

However, this nascent mode of collaboration has already seen some stand-out successes.  

What can we learn from early success stories? 

Matthew Collin, an economist at the EU Tax Observatory who is part of our team for the Congo Hold-Up project, has analyzed publicly available data from the Cayman National Bank and Trust (Isle of Man) that was initially received by the journalist collective Distributed Denial of Secrets. His work produced three new discoveries, helping pull back the curtain on the potential level of wealth contained in offshore accounts, the frequency of politically exposed persons (PEPs) controlling these accounts, and the critical importance of shell companies in providing the opacity to make it all happen.  

Our colleagues in the current GI ACE cohort from University of Exeter, OCCRP and University of Oxford have launched a similarly ambitious project that taps over 50 terabytes of administrative and leaked datasets. By developing new tools to process such massive reams of information, they’re contributing not just to our academic understanding of the role of professional enablers in facilitating illicit financial flows around the world, but also creating real value for journalists working with similar data down the line. 

The discussion in London made it clear that individuals, organisations and institutions in this space need varied types of support in order to pursue more collaborations, whether they receive and archive leaks, coordinate investigations or conduct academic research. Many teams are facing the same thorny problems in analyzing these large datasets, and there was widespread interest in creating platforms and workshops to better communicate lessons learned.  

But there is also a mismatch between the wealth of data waiting to be analyzed and the resources available to teams to pilot potential ideas and make their cases to journalists. GI ACE is an exemplary example of a program providing much-needed support to projects such as ours so that we can demonstrate the importance of these types of cross-sector collaborations. 

Additionally, to achieve the added value promised by academic insights, it is  crucial to bring empirical findings to policy makers and practitioners to help underpin and drive effective action. This often falls outside of the normal practice of both academics and journalists, highlighting the important role of civil society organisations and impact-oriented partnerships in making the bridge to end users.  

This nascent community of interdisciplinary practitioners will continue learning from each other and we see a clear mandate for developing this collaborative work further. Our hope is that in the future, one of the first calls a journalist will make after receiving a leak might be to a university. 

Originally posted as a Governance & Integrity Anti-Corruption Evidence (GI ACE) Programme blog.

Professor Robert Barrington applies the lens of corruption analysis to the Grenfell Inquiry report, asking whether prosecutions might be possible, and what the Inquiry tells us about the way in which the UK authorities address corruption. 

Back in July 2017, after Theresa May had announced that a public inquiry into the Grenfell tragedy, Transparency International (TI) wrote to the incoming head of the inquiry. The message was simple: “Although there is no evidence as yet that corruption has had a role to play, our experience from around the world is that there is a high risk that corruption will have played a role. This is certainly the perception of the public, and at very least this perception needs to be laid to rest. At worst, it is possible that corruption played a part in turning a small domestic fire into a very great tragedy“. TI proposed that corruption should specifically be included in the Grenfell Inquiry’s Terms of Reference. 

In the majority of countries in the world, one of the first questions to be asked in such a situation would be ‘who paid the bribes?’. This is because there is widespread recognition, backed by substantial evidence, that bribery is a common contributing factor to disasters. Two examples are: the Rana Plaza factory collapsing in Bangladesh, where public officials had been bribed to turn a blind eye to unsafe construction practices at a building that was fundamentally unsafe; and the Turkish earthquake, where bribery of officials had allowed sub-standard construction that meant the death toll in the earthquake was very much higher than it might otherwise have been. 

It is no coincidence that these examples both involve construction, which surveys across the world regularly pinpoint as one of the sectors with the highest levels of corruption. This is also in the case in the UK, where research shows that construction is the sector in which bribe-paying is most prevalent. 

Despite this, the UK has a very poor record of investigating corruption, even in public inquiries that are meant to be looking at it. The recent Tees Valley Review is a good example of how the UK is institutionally ill-equipped to spot corruption. There is a long-standing assumption that corruption is a problem that happens abroad but not within these shores. We have (unlike peer countries such as France and Australia) no anti-corruption agency. In the occasional surges of interest by the British government in tackling corruption, the activities are generally aimed at addressing corruption overseas and not corruption within the UK. 

Despite TI’s alert in 2017, corruption did not make it into the Grenfell Inquiry’s Terms of Reference (ToRs). Does this matter, when the report was so thorough and damning about so many things which were apparently much more core to the tragedy? Well, yes. Having corruption in the Inquiry’s ToRs would have mattered for two big reasons.

First, if you do not analyse the problem properly, it is much harder to find an appropriate solution. We still do not know if corruption was a factor at Grenfell, and therefore the anti-corruption solutions garnered from the last three decades of research, law enforcement and practical experience will not be applied.  

Second, there may be specific corruption-related offences that could be prosecuted under anti-corruption laws and which might not have been surfaced.  If you don’t look for it, you are less likely to find it. In the 1,700-odd pages of the report there is not a single mention of the words ‘bribe’, ‘bribery’, ‘corrupt’ or ‘corruption’. There is one lone mention [vol II, para 26.68] of a ‘corrupting’ influence, of which more below. Notwithstanding the notable absence of any analysis of corruption, the Grenfell Inquiry report did not pull its punches in other areas, which in themselves give some sense of where a corruption analyst might look with interest. For example:

• The Building Research Establishment (BRE) ‘held a trusted position within the construction industry […] However, from 1991 much of the work it carried out in relation to testing the fire safety of external walls was marred by unprofessional conduct, inadequate practices, a lack of effective oversight, poor reporting and a lack of scientific rigour’ [para 2.15]. ‘We saw evidence of a desire to accommodate existing customers and to retain its status within the industry at the expense of maintaining the rigour of its processes and considerations of public safety’ [para 2.18].
• The cladding materials companies were dishonest and colluded with the BRE: ‘One very significant reason why Grenfell Tower came to be clad in combustible materials was systematic dishonesty on the part of those who made and sold the rainscreen cladding panels and insulation products. They engaged in deliberate and sustained strategies to manipulate the testing processes, misrepresent test data and mislead the market. In the case of the principal insulation product used on Grenfell Tower, Celotex RS5000, the Building Research Establishment (BRE) was complicit in that strategy‘ [para 2.19].
• “The British Board of Agrément (BBA) is a commercial organisation that certifies the compliance of products with the requirements of legislation. The dishonest strategies of Arconic and Kingspan succeeded in a large measure due to the incompetence of the BBA, its failure to adhere robustly to the system of checks it had put in place, and an ingrained willingness to accommodate customers instead of insisting on high standards […] The underlying problem was that the BBA failed to manage the conflict between the need to act as a commercial organisation in order to attract and retain customers and the need to exercise a high degree of rigour and independence in its investigations in order to satisfy those who might consider relying on its certificates” [paras 2.42 and 2.43].
• The National House Building Council (NHBC) ‘was unwilling to upset its own customers and the wider construction industry by revealing the scale of the use of combustible insulation in the external walls of high-rise buildings, contrary to the statutory guidance. We have concluded that the conflict between the regulatory function of building control and the pressures of commercial interests prevents a system of that kind from effectively serving the public interest’ [para 2.50].

These extracts paint a damning picture, but do not mention corruption. So what happens if we do apply the lens of corruption analysis to what the report tells us about Grenfell? Even though the Inquiry did not examine corruption, the report does provide a substantial amount of information to allow such an analysis. 

As a start, we should clarify what is meant by ‘corruption’. Of course, not all things that go wrong are due to corruption, even though the term is readily applied on social media. That makes it even more important to choose a definition and apply it reasonably. The CSC defines corruption in a generic sense as ‘the abuse of entrusted power for private gain which harms the public interest’. This covers a multitude of activities seen in the Grenfell case, including conflicts of interest, regulatory capture and cronyism (for more precise definition of these terms, see the Dictionary of Corruption).

The best-known form of corruption is bribery, and this has particular relevance to the question of prosecutions in the Grenfell case because bribery can be prosecuted under the Bribery Act of 2010.  This defines bribery as when someone ‘promises or gives a financial or other advantage to another person, and intends the advantage (i) to induce a person to perform improperly a relevant function or activity, or (ii) to reward a person for the improper performance of such a function or activity’. 

Might this apply to the BRE, the BBA or NHBC, who were responsible for certification and accreditation, and their relationships with the ‘dishonest’ companies? The report describes as a ‘conflict of interest’ the process by which companies would funnel membership and other fees to one part of such outfits, while receiving undeserved accreditation from another. The report says ‘the practice of building control bodies and approved inspectors “working with” the industry rather than holding it to proper standards was corrupting, because it tended to undermine the independence of building control officers and approved inspectors‘ [Vol II para 26.68 – my emphasis]. 

The word ‘corrupting’ does a lot of heavy-lifting here, since there is no further exploration of which individuals were ‘corrupting’ which other individuals and whether this did, or was intended to, induce or reward an improper performance of function. 

If that were happening in Bangladesh or Turkey, campaigners would be saying that it looks very like a bribe and should be investigated as such. Given the Grenfell Inquiry did not look for bribery we cannot say in this case whether there is potential for a Bribery Act prosecution, but it should certainly be one avenue for the police to explore. 

On other aspects of corruption, the very under-used offence of Misconduct in Public Office might apply to any or all of those who held public office – officials (perhaps even Ministers) at the Department for Communities and Local Government and at the Royal Borough of Kensington & Chelsea RBKC) and its Tenant Management Organisation (TMO). The Crown Prosecution Service (CPS) says this requires ‘serious wilful abuse or neglect of the power or responsibilities of the public office held.’ The report is scathing about the government’s neglect of cladding fire safety risks over a number of years [paras 2.5-2.14] and accused the RKBC and TMO of ‘a persistent indifference to fire safety, particularly the safety of vulnerable people‘. Is this ‘serious wilful abuse or neglect of power’? The report does not tell us, but we can only hope that the language and analysis used in the report was designed to provide the foundation for a prosecution. 

A corruption analyst would also be look for other things: regulatory capture, cronyism, patronage, lobbying, the revolving door, to name but a few. But with the marginal exception of lobbying, the report is silent on these things too. That is without even delving into the more philosophical question of whether the role of private sector in providing public goods (which the report does cover in other contexts) increased corruption risk to an unacceptable level.

Where does this leave us? It was an Inquiry into ‘the circumstances leading up to and surrounding the fire at Grenfell Tower‘. The report, mainly by omission, suggests that corruption was not one such circumstance, or perhaps that it was insufficiently important to attach the label of corruption given the many other subjects covered in the 1700 pages. Bizarrely, therefore, the circumstances that have so many of the hallmarks of corruption do not bear that label. 

Perhaps it is no wonder that campaigners for the victims are dissatisfied. Without proper analysis of the problem, it is much harder to find an appropriate solution. Part of the solution is exemplary prosecutions, both to provide justice for the victims and as a deterrent to individuals and organisations from ever doing anything similar again. But based on the report’s emphasis, corruption-related prosecutions for the Grenfell tragedy look unlikely. 

The Grenfell Inquiry may be done and dusted, but it should leave anti-corruption campaigners with a sour taste. It could all so easily happen again. Where was the part of the UK’s anti-corruption apparatus that was insisting corruption should be in the Terms of Reference? Who will be assisting the police in applying the concepts of the Bribery Act to the report? Which part of the UK law enforcement ecosystem has the expertise, experience and resources to prosecute corruption-related cases? Where is the general anti-corruption law that allows a tragedy with so many hallmarks of corruption to result in prosecutions? 

In truth, the UK needs to reform its anti-corruption governance as a matter of urgency; we need a senior figure such as an independent anti-corruption commissioner to conduct the orchestra; and we need a general anti-corruption law to provide justice for victims when corruption is clearly at play but prosecutions are not seeming to follow. The resounding conclusion of the Grenfell Inquiry was that such a tragedy should never be allowed to happen again. In the absence of examining the role played by corruption, it is much harder to be certain that such a tragedy can be avoided in future.

Professor Robert Barrington looks at the intent behind flows of dark money into the UK – and concludes that the UK is ill-equipped to deal with the threat of strategic corruption. 

When lots of Russian money flows into London and the UK financial system, is there any malevolent intent behind it? Setting aside the unproven theories about Russian funding for the pro-Brexit campaign, there are plenty of examples that throw up red flags – such as the Lebedev peerage, the involvement of Russians as political party donors, oligarchs investing in strategic (though legitimate) businesses, and philanthropic donations to universities.  But these are red flags only because of the nationalities of those involved, not because of proven corruption.

The question of the intent behind such activities has arisen because the dealings of Russia in Ukraine – for some years before the invasion – have brought to the world’s attention an issue that has come to be known as ‘strategic corruption’. This is essentially the promotion of corruption in another country by a sponsoring government to further its national interest or foreign policy objectives. 

The concept of strategic corruption started to appear in the lexicon of corruption terms towards the end of the 2010s.  Alternative framings include ‘corruption as statecraft‘, used by Transparency International in a 2019 report; and the ‘weaponisation of corruption’. The term strategic corruption has gained wider exposure through being included in the US Government’s Countering-Corruption Strategy (2022), where it is defined as: “when a government weaponizes corrupt practices as a tenet of its foreign policy.” This echoes the description offered by a comprehensive article in Foreign Affairs (2020): “a country’s weaponization of corruption against other states in pursuit of national goals.” 

Russia’s involvement in various activities within Ukraine prior to 2022 – for example, in providing covert financial and other support for corrupt politicians known to support Russian influence over Ukraine – is often cited as an example of strategic corruption. However, many of its characteristics do not differ from those used by both sides in the Cold War to advance their national interests and foreign policy objectives.

There are several beneficiaries of strategic corruption, not all of whom may themselves be corrupt:  

• The sponsoring state which has enabled and promoted corruption in another country. The sponsoring state is a corruptor, but that does not in itself signify that the government of the sponsoring state is corrupt (although it may be).  
• Those within the ‘corrupted’ state who are the agents of the sponsoring state in carrying out the corruption. For example, a politician or public official who has been encouraged, supported, induced, or coerced by others to act corruptly. These agents may themselves be corrupt – if they are abusing entrusted power for private gain – or they may engage in other forms of wrongdoing, such as treason.
• The individuals who are corrupted, either directly by the sponsoring state, or indirectly by that state’s agents; they would usually be individuals who are abusing a position of entrusted power for private gain.  

Mechanisms for strategic corruption include:  

• Corrupt subversion of the political system through political financing or rewards to politicians
• Co-opting influential individuals through provision of jobs or other benefits
• Covertly supporting the promotion within key institutions of individuals who are known to be corrupt. 

Scholars and practitioners debate the question of intent. For example, when large quantities of cash are laundered into the economy of another country, it may be unclear whether that activity is in part or in whole intended to corrupt the destination country and its institutions. In such a case, if the money laundering is intended to corrupt the wider context, the activity would fall within the definition of strategic corruption; if corruption within the destination country is a by-product of the money laundering, it is contested as to whether this should be regarded as strategic corruption.  

Where does that leave the UK?  Of course, we do not have sufficient information on intent to be able to make a judgement about the large flows of money from Russia. But it is possible – indeed likely – that several things have been going on at once: 

• Money being parked in the UK as a safe haven 
• Money being infiltrated into the UK in order to gain influence or subvert key institutions 
• Money originally brought to the UK as a safe haven being re-purposed to curry favour with the Putin regime 
• Money originally brought to the UK as a safe haven being used in ways that promote or engender corruption as a by-product.

In a sense, it may not matter what the intent of Russia has been. The importance of the Russian case is that it highlights what could – very easily – be done by a hostile government through legitimate means. China, Iran, and other governments known to have used strategic corruption elsewhere would not have to do much work to find out how to deploy strategic corruption in the UK. It is exactly this kind of threat that has been worrying the authorities in the US – hence the FBI’s creation of a Foreign Influence Taskforce, among other initiatives.

What is the UK equivalent of such US initiatives? None, as far as we know. Might it fall within the remit of the Prime Minister’s Anti-Corruption Champion? Possibly, but that role has been empty now for fourteen months and counting. The truth is that this is one of the many areas related to corruption that is so low on the priority list of the UK government that there has been no coordinated or coherent response.

Further reading

Huss, O. and Pozsgai-Alvarez, J. 2022. “Strategic Corruption as a Threat to Security and the New Agenda for Anti-Corruption”. The Corruption in Fragile States Blog.  https://www.corruptionjusticeandlegitimacy.org/post/strategic-corruption-as-a-threat-to-security-and-the-new-agenda-for-anti-corruption.

Zelikow, P., Edeleman, E., Harrison, K. and Gventer, C.W. 2020. “The rise of strategic corruption”. Foreign Affairs 99: 107.

Frank Vogl (Adjunct Professor at Georgetown University, co-founder of Transparency International, Chairman of the Partnership for Transparency Fund) highlights the importance of a new report from The Sentry, a human rights NGO, on the role played by the Wagner Group in state capture. You can read his further reflections on state capture in this review of the seminal article on the subject by Prof Liz David-Barrett.

Many of us engaged in issues related to corruption have long been concerned about state capture. I would encourage everyone who is interested in the subject to read the new report by The Sentry, Architects of Terror: The Wagner Group’s Blueprint for State Capture in the Central African Republic.

We have seen elsewhere how military forces have captured key institutions of government and secured major business interests at the same time – from Myanmar to Egypt, from Pakistan to Iran. We have seen how highly corrupt influential groups of businessmen have bribed top government officials on a scale that has enabled them to massively steal from the state – for example, Zuma and his associates in South Africa. In so many countries, we have also seen how men like Orban in Hungary and Erdoğan in Turkey, and many more, have methodically replaced government workers with sycophants, illicitly secured national media control, undermined institutional checks and balances in government and so, in effect, captured the machinery of the state. 

Few anti-corruption specialists have, however, adequately looked at the monstrous form of state capture pursued by Russia’s Wagner Group in a number of countries in Africa. Under the explicit authority of the Kremlin, Russian commanders have forged blunt deals with several national leaders under which they will secure these leaders in power in return for rights to vast natural resources. The methods that the Wagner Group deploys include massacres, routine rape, destruction of homes, and the terrorising of national military troops so that they perpetrate extensive horrendous crimes under the direction of Wagner’s commanders. 

The Sentry’s important report contains a number of recommendations, including the designation of Wagner Group as a terrorist organisation by concerned governments, and the creation of “a coalition similar to the Global Coalition to Defeat Daesh/ISIS – critically including African states – to counter the Wagner Group’s malign influence on the African continent and elsewhere”.

We should all consider the humanitarian, governance and security implications of what the Wagner Group is now doing in Africa. It is not too late to counter the atrocities that are unfolding and the state capture that the Kremlin is orchestrating. 

Philip Trewhitt, formerly an investigator on fraud and corruption at the United Nations, gives an insight into the nature of such work and what lessons can be drawn for dealing with future scandals.

One day in the summer of 2004, I was running into a bunker in Baghdad to avoid some mortar fire. A normal day at the office at that time. When my phone started ringing I, for obvious reasons, chose to ignore it. It rang again a few minutes later. It was Paul Volcker, the former chairman of the US Federal Reserve now in charge of the investigations into breaches of UN sanctions imposed against the regime of Saddam Hussein – what became known as the UN oil-for-food scandal. He asked me to head up the Baghdad end of it. And so, I became a corruption investigator. For the next 18 months I worked with the best-qualified and most-motivated team I have ever been part of, drawn from across the globe. We achieved almost nothing. A couple of minor jail sentences; a few fines. But the numerous politicians and so-called human rights champions proved to have benefitted from kickbacks? The many well-known international companies who knowingly paid them, directly or indirectly? Pretty much zilch.

Fresh from that mighty success, I was asked to join a UN corruption task force in New York, with over 300 cases of fraud and corruption sitting on the books. A number of the cases I worked on showed clear criminality and were proved well beyond the required level for referral to law enforcement, yet few such referrals were made. Later, I worked on investigations for a succession of UN and other international agencies, either as staff or as a consultant. Once again, we proved the cases. Once again, very little resulted from this.

I should point out that is not fair to compare lack of action in the oil-for-food investigations with the failure to follow up internal investigations carried out by the UN and other international agencies themselves. The power to take action on the oil-for-food sanctions breaches was primarily in the hands of national authorities, who for the most part, and for a variety of reasons, had no interest in progressing cases. The international agencies do, however, have the power to take action on cases involving their own staff and contractors. I do not suggest that this never happened while I was involved. There were successes, just not very big ones, relatively speaking. If action was taken, it was generally too little, too late, or simply the wrong action. In combatting corruption, the grand proclamations and the mountain of policies were matched by a lack of ambition and action which was truly stunning, especially when investigators were providing solid grounds for taking action.

Operating in the most difficult and dangerous parts of the world, where corruption is often endemic and local authorities may be part of the problem, is not easy. Those working for the internal investigations bodies – mostly good, bright, motivated people – may reasonably point to the increased number of allegations coming in to the internal investigations as proof of their success in persuading people to come forward with concerns; they will point to substantially increased staffing of those internal agencies as evidence of the concerns being taken seriously; and they will produce annual reports filled with pie charts on different types of investigations ‘substantiated’ or ‘unsubstantiated’. They may also emphasise the type of allegations they have investigated and mention companies being ‘sanctioned’ or ‘debarred’, in other words prevented from doing business with the agency. What they will probably not be able to show, because it so rarely happens, is evidence of bad people going to jail.

Why not? There is no simple answer. It is not that those at the top of these agencies are mad, bad, irresponsible, lazy, self-interested or have built a career on studiously avoiding controversy. The key factor is that there are systemic faultlines in the way investigation bodies are structured and allegations are dealt with. The overriding goal for management is not to hold the guilty to account but the avoidance of reputational harm. There is a tendency to revert to the least confrontational response possible, particularly if the case involves government officials. It is widely acknowledged among the UN staff that stopping funds flowing to 10 or so countries in the world unless they sort themselves out would reduce corruption hugely, but the political costs are too high. There are other problems as well. Investigation mandates are too wide, conflating sexual harassment with systematic looting of projects, which makes it difficult for investigators to build up specialist expertise. Investigators face, in reality, a requirement to go well beyond the required level of proof, with those accused being accorded full rights and protections, but without investigators having comparable powers. The internal legal staff do not always help – for every one that offers a way forward there is another who whispers about threats to UN sovereign immunity if investigators are allowed to testify, or worries about being sued for libel.

Senior managers in international agencies are able to point to their robust anti-corruption policies. There are a certainly a lot of them out there. Everyone has a whistleblower protection policy. That did not stop a senior management official saying to me: ‘we shouldn’t be protecting scum’. Everyone has a ‘zero tolerance’ policy in relation to fraud and corruption. That did not stop another senior management official saying to me – in public – that he would expect me to be arrested if I tried to conduct an investigation in one of the countries for which he was responsible and that he would ensure the agency ‘would not lift a finger’ to have me released. (He added that it was ‘nothing personal’).

I left the UN around a decade ago, but have no reason to believe that things have changed in recent years. My advice to the donors who fund such international agencies is this: if you want to know whether an agency is taking corruption seriously, do not ask about policies or  ‘governance issues’ or ‘financial mismanagement’. Ask who is going to jail.

Laurence Cockcroft reviews Invisible Trillions: How Financial Secrecy Is Imperiling Capitalism and Democracy and the Way to Renew Our Broken System by Raymond Baker, writing that Baker offers a comprehensive overview of the danger that global financial secrecy poses to the capitalist-democratic system, even if he doesn’t provide perfect solutions: “an important book for anyone interested in the the cause and effect of the lack of transparency, the continuing role of secrecy in the modern world, and, above all, the consequent challenge to democracy itself.”

The various forms of secrecy which have come to characterise global capitalism have created threats to democracy in both high and low income countries. This secrecy hides numerous forms of corrupt behaviour by companies, banks and political parties, sustains inequality between and within nations  and is a major threat to existing and potential democratic systems. Raymond Baker’s Invisible Trillions maps out this theme, showing that western political systems are failing to address it, and proposes a set of measures which are feasible at both the national and international level without undermining the basic principles of capitalism. 

Baker has honed his argument over several decades. As a business practitioner in Nigeria in the early 1960s he quickly became knowledgable about the false invoicing which characterised the country’s international trade. He came to see that this would prove a fatal flaw in Nigeria’s economic development, transferring profits overseas and depriving the country’s exchequer of the revenue it would need, with ominous portent for the future of the oil industry. He spent several decades researching this phenomenon globally and in 2005 published Capitalism’s Achilles Heel : Dirty Money and How to Renew the Free Market System. In 2006, Baker was able to set up Global Financial Integrity (GFI) in Washington DC to carry out both further analysis and (more importantly for Baker) to campaign on this and related issues of transparency and corporate integrity. As such, he has been a key member of the informal coalition of NGOs active on this issue in the US and Europe. There are very few in this coalition who have his level of detailed knowledge of the mechanisms by which corruption, broadly defined, can flourish in a world of corporate secrecy.  

Baker fears that the phenomena which he described in Achilles Heel has exploded and is now a many-headed hydra. The starting point of Invisible Trillions is the gargantuan sum of illicit funds that flow through what he labels “capitalism’s financial secrecy system” from both the medium- and low-income countries of Latin America, Africa and Asia, as well as from Russia and China as the successful rich seek to deposit their funds in alleged safe havens – often via the world of the secrecy jurisdictions so actively supported by western governments, notably those of the US and the UK.

The mechanisms for this have been exposed in a series of leaks by the Investigative Consortium of Independent Journalists (ICIJ), amongst which the Pandora Papers showed that fifteen US states house more than two hundred trusts which in turn provide an anonymous home whose secrecy rivals that of more notorious places in the Caribbean. The vast gap between the flow and control of funds seeking a safe haven in the US is demonstrated by the fact that 99.9% of laundered funds are ultimately successful in finding a formal and authorised account in a US financial institution or legitimate property. It is this transition from illegal status to legal status which also lies at the heart of the phenomenon of illegally-sourced goods, such as oil ‘bunkered’ off Nigeria or timber illegally felled in Amazonia or DRC, which become legal as they reach the higher levels of the supply chain. 

While the phenomena described by Baker have long been recognized, his central argument is that illicit financial flows, tax evasion, tax avoidance, and schemes by corporations to hide revenues and profits all combine, “driving inequality, impoverishing billions, empowering criminals, enriching despots.” And, for good measure, he adds that the secret financial system leads to misallocations of finance to the point where the “trillions” are not invested productively, thus undermining potential economic growth. 

Baker offers a useful analysis of why there has been so little progress in fighting the financial secrecy system. Key issues are the lack of uniformity in collaboration between the various regulatory authorities fighting money laundering in Europe and the US; weaknesses in the new legislation addressing beneficial ownership; the ‘golden visa’ schemes which enable the corruptly rich to easily acquire citizenship in a range of tax havens; political party funding rules which are if anything increasingly loose – as was the defining case of Citizens United in the US  – allowing foreign donors to fund their target candidates; and the repeal of the US Glass-Steagall Act in 1999, which since 1933 had separated investment banking from commercial banking.  

Baker’s focus is more positive at the international level, highlighting the OECD, the World Trade Organisation and parts of the United Nations as being well ahead of the World Bank and the International Monetary Fund in trying to establish improved practice both within and between states.  

The alarm bell ringing loud and clear in this book is that the financial secrecy system has become so large and promotes such great inequalities of income and wealth that capitalism in this form now poses a core challenge to the survival of democracy. As he bluntly states: “The democratic-capitalist system is at risk.” 

Building on his analysis, Baker offers a roll call of activities for future action. The common theme is the imperative for an end to secrecy and an opening to transparency, with a direct impact on the quality of democracy. High on this list are corporate transparency (ending the practice by which companies can disguise even the existence of a subsidiary in a foreign jurisdiction), a convergence of trade and audit reports which would make trade mispricing (by invoice manipulation) impossible, an end to the defining characteristics of tax havens (perhaps now heralded by the new fifteen per cent minimum global corporation tax). Corporate governance with much stronger employee stakeholder role is also on the agenda. In the world of international finance, he calls for an end to financial products representing no real world assets (notably a range of derivatives) and a much more rigorous policing of auditors too long complicit in the behaviour of both multinationals and banks. Further, the book reverts to the broad theme of transparency trade and shows how the World Bank couid easily produce an annual report of progress in this area.  

Today, while there are greater efforts by governments on both sides of the Atlantic to develop approaches to reveal the true beneficial owners of the shell companies, no government has yet advocated closing down these entities. But then, as Baker argues on p.140, the complex structures that support the financial secrecy system are supported by Western governments and advocated for by powerful individuals and corporations who most benefit from the system. His overall synthesis is that: “A more equitable world cannot be realised while widespread secrecy pervades operations in one of the components of the democratic-capitalist equation, while the other component strives to operate with transparency.” 

The book’s strength, in addition to its warning of the risks to democracy and to capitalism, is its very comprehensive overview of the failure of reform to date of the trade, finance and banking sectors. Its roll call of actions is strong on conviction but the practical steps which are a condition for successful reform don’t always tie in with the analysis of why so little has been achieved in a meaningful way in the last twenty years. This is, however, an important book for anyone interested in the the cause and effect of the lack of transparency, the continuing role of secrecy in the modern world, and, above all, the consequent challenge to democracy itself.  

Frank Vogl, author of The Enablers: How the West Supports Kleptocrats and Corruption – Endangering Our Democracy, kindly commented on this draft. 

Laurence Cockroft is the author of Global Capitalism : Money Power and Ethics in the Modern World and (with Anne-Christine Wegener) Unmasked : Corruption in the West.  

Raymond Baker’s Invisible Trillions is published by Berrett-Koehler (USA) and available via Amazon (Hardcover, Audio and Kindle).