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The business of corruption

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Corruption is more than the abuse of public office for personal gain. Ministers, officials and policemen who accept bribes or substantial gifts and the givers of such “sweeteners” are corrupt, but corrupt practices permeate many businesses and sports.

Corruption is not limited to countries such as Nigeria and Afghanistan, which British Prime Minister David Cameron, in an unguarded comment, caught on camera, before the London summit meeting on corruption, described as “fantastically corrupt.” At the conference, the Nigerian president, in a riposte to his British host, demanded that more should be done to return to Nigeria the funds sent through international banks in London by corrupt Nigerian nationals. The role of the banks in laundering money from corruption was an important theme at the conference and there was general agreement on the need for much greater transparency and in particular exchanges of information about the beneficial owners of companies registered in tax havens.

While some British dependent territories were represented and defended their record over transparency, the British Virgin Islands, which features so frequently in the leaked Panama Papers, was conspicuous by its absence and statements issued on its behalf did little to satisfy its critics. Some American states such as New Jersey have also failed to clear up their procedures. More needs to be done by both the British and U.S. authorities to ensure that money launderers and kleptocrats are exposed and forced to pay financial penalties.

Russia was represented at the London meeting, but denied accusations of corruption involving Russian oligarchs and President Vladimir Putin’s entourage. China defended the draconian action it was taking to eliminate corruption in the party, but did not explain how this can be achieved fairly in a country without a fully independent judicial system.

Corruption is endemic in many cultures especially where exchanging gifts is a traditional practice. Generosity to friends and relatives does not involve corruption. But giving and receiving expensive gifts or lavish hospitality at least suggests corrupt intentions on the part of both the giver and the receiver. That is why ministers and officials in democratic countries, and in official organizations, are obliged to report such events and refuse or return such gifts.

A gift in anticipation of a favor is more obviously corrupt than a gift thanking one, but much depends on the nature of the favor. It may often be no more than common courtesy to mark appreciation with a small gift as one would if one receives hospitality. But company rules banning expensive gifts and lavish hospitality need to be applied strictly.

Construction projects are particularly liable to attract corrupt practices. As the Japanese construction industry is notorious for its cozy relationships with Japanese politicians, the Tokyo authorities need to be particularly careful to ensure transparency in awarding contracts for the 2020 Olympic Games.

Construction contracts should be awarded through open and transparent competition on the basis of decisions made by a panel of independent assessors. But how independent are the assessors and how are they chosen? Price cannot be the only criterion. Delivery and quality are also of paramount concern. But how do the assessors balance all the factors?

In business, good relations with suppliers are vital and selection should be made on a careful assessment of such factors as price, quality and reliability, and not on personal favors. But companies need to get to know their suppliers through formal and informal meetings to assess them. So networking and partying are important elements in business, but need to be carefully controlled by managers and boards to ensure that they do not lead to corruption.

If a company becomes corrupt in its relationships and its prices rise and quality falls, it should in a market economy face increased competition. But competition can be limited by many factors including cartels, price fixing and other anti-competitive measures, which are conducive to the development of corrupt practices. Transparency and effective competition are necessary if corruption in business is to be curtailed.

Sport is now a huge international business dealing with vast sums of money. Its practitioners and managers are among the wealthiest people in the world. Success or failure is not just a matter for individuals. It involves national pride and prestige. Governments are accordingly increasingly involved. Doping was once largely confined to the sleazier elements in horse racing. Now it has been revealed as a significant element in almost all Olympic sports. The adoption of effective anti-doping measures must now be the number one priority for all these sports.

Soccer is the most popular spectator sport in the world and is fertile soil for corruption. Successful players earn astronomical sums and are exchanged between clubs for breath-taking fees, and clubs with their huge grounds and multitudes of vociferous supporters are vast money making businesses. A player for a particular club is very unlikely these days to have much if any connection with the area in which the club is situated or even with the nation to which the club belongs.

FIFA, which is supposed to bring the national federations and clubs together, has been notoriously corrupt. Attempts are being made to clean up the organization, but there is little optimism that the decisions to award the 2018 World Cup tournament to Russia and the 2022 tournament to Qatar will be overturned despite the evidence of corruption in reaching these decisions and despite the removal from office of Sepp Blatter, its chairman, who is widely believed to have encouraged and condoned corruption by FIFA officials.

Corruption is not a victimless crime. All of us as taxpayers and consumers are forced to pay more for services and goods because of corruption and the fraud with which it is allied. Resentment against corruption and over the huge and growing disparity between rich and poor is likely to increase further and is potentially destabilizing. The national tax authorities and the banks need to do much more to catch the big fish.

Hugh Cortazzi served as Britain’s ambassador to Japan from 1980-1984.