Corruption Lives

By | by Dr. Rachel Ehrenfeld
Tuesday, June 5th, 2001 @ 3:36AM

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The Principality of Monaco, a French protectorate, lives mainly off its financial industry, which like other tax havens has its share of dirty money. Despite Monaco’s claim that things are under control, it is under pressure from France to clean up its act and stop the “dirty money” and “money laundering,” as the Irish Independent described it in October. Negotiations between the French and the Monegasque authorities began in January, and the French expected “concrete measures within six months.” The conclusions should be made public any day now.

In the meantime, to look good, Monaco has hosted an international meeting dedicated to the fight against organized crime and corruption. One of the speakers, Vaclav Klaus, the former Czech prime minister and current speaker of the Czech Parliament, declared that the rich capitalistic countries, led by the U.S., are forcing their draconian rules on poor and developing countries so they can control them. He went on to argue that a different set of rules should apply to countries in transition, because they need all the money they can get. One would expect that, seasoned politician he is, Klaus would be able to recognize and admit that endemic corruption is at the root of his own country’s failure to develop a successful market economy. Instead, he called for differentiating between “Hard Corruption,” which is bad, and “Soft Favoritism,” which should be tolerated in developing countries.

It seems strange that it never occurred to Klaus that corruption is the principal reason for the flow of funds out of backward countries at almost the instant the aid-givers and investors put them in. In perhaps the most visible example, capital flight is so endemic in the former Soviet Union that the International Monetary Fund poured $20 billion into the hemorrhaging Russian economy to prevent total collapse. Yet the aid may not have curbed the problem. In November, the Russian Public Opinion and Market Research Center (ROMIR) and Gallup International survey found that as many as 27.8 percent of Russia’s elite place corruption atop its list of threats to stability. Russian governance’s historically tenuous grasp on moral authority positions the Putin government especially poorly for a crackdown on corruption, and the Russian people feel the crunch.

The billions that former Indonesian President Suharto stole from his country-some estimates are between $45 and $80 billion, by far higher than any other former head of state took-are still missing. Abdurrahman Wahid, who is the first democratically elected president in Indonesia, won because he promised to end corruption. Not only had he failed to institute much needed reform, but he’s about to be impeached on corruption charges himself. In the meantime, the IMF is under pressure to forward a payment of $400 million of a $5 billion loan to Indonesia, for fear of further destabilization.

The U.S. and most international organizations fund programs to combat corruption, with little to show for their efforts. World Bank President James Wolfensohn admitted recently that “money alone” could not diminish poverty, and that issues like social “safety nets” and improved infrastructure, as well as better economic and political programs, were needed. Strangely enough, he said nothing about the need to root out corruption as a prerequisite for further assistance.

Yet it is particularly important to emphasize it now, to confront the prevalent attitude among the elite of many poor and developing countries that a little corruption, or “soft favoritism” as Klaus claimed, is okay. The question is what can be done to fight these attitudes and combat corruption effectively.

American lawmakers took the first step in the fight against international corruption, enacting the Foreign Corrupt Practices Act (FCPA) in 1977. To fight the increase in drug-money laundering and the corruption it spread, the U.S. passed the Money Laundering Control Act in 1986. President George Bush continued to pursue international financial integrity by launching the G-7 initiative that led to the creation of the Financial Action Task Force (FATF), and the subsequent drafting of the 40 FATF recommendations against money laundering in 1990.

Those recommendations have effectively become the world standards for countries’ anti-money-laundering programs. But with the collapse of the Soviet Union in the early 90s corruption spread like the plague. Instead of democracy, we witnessed the democratization of corruption-more had access to the tills.

Not surprisingly, all international conventions and programs fail to make even a dent in corruption. Clearly, there has to be a pragmatic and effective way to handle this problem. I direct the New York-based Center for the Study of Corruption and the Rule of Law (CSC), which has developed an International Integrity Standard (IIS) that would provide an important tool to evaluate corruption. The United States, as the pioneer in the fight against corruption and the development of free markets, is the only power that can push forward such a standard.

Categories: ACD/EWI Blog, Anti-Corruption, Articles and Presentations on Economic Warfare, U.S. Policy

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