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Crooked Crux

posted 26 Nov 2009 13:38 by Dick Pountain   [ updated 26 Nov 2009 14:16 ]
The events of the last year offer a lot of support to a popular view that all politicians, bankers, journalists and perhaps businessmen in general are crooks. No doubt this comes close to being true in some parts of the world, but for us in the developed West it's a counsel of despair that cannot survive closer inspection - if all politicians were in fact real crooks then they would never have allowed the press to disclose their petty expenses fiddles, nor rolled over so supinely once discovered.

Nevertheless an article in the current New York Review of Books called "Illicit Money, Can it be Stopped?" ( makes for deeply disturbing reading. The authors,  Eva Joly and Raymond Baker, explain how the colossal scale of money laundering, tax evasion and false commercial transactions taken together now account for over $1.5trillion annually, which would have paid for the US bank bailout, or several years of Obama's health reform plans. They describe the three main sources of these illicit money flows, which are bribery and theft; organized crime; and dodgy corporate dealings such as tax evasion and price fixing.

Bribery and theft are endemic in many parts of the world, often carried out at the very highest levels of government. The largest modern example is Russia, where oligarchs have stolen between $200 and $500 billion of former state assets since the "privatisations" of the early 1990s. Organised crime includes drug production and trafficking, people smuggling, prostitution and pornography. Corporate shenanigans mainly involve tax evasion by the establishment of offshore entities through which goods are sold at false prices - a carefully structured scheme can ensure close to zero tax liability in the country of production, a hidden profit in the offshore company, and even a loss offsettable against tax in the country of final sale.

What over 60% of these illicit money flows have in common is that they are disguised as international trade. To move dirty money abroad, you sell some commodity to a foreign customer at a falsely lowered price - they either give you a kick-back (agreed verbally and not invoiced) of the difference in cash, or else they are party to the false accounting, which makes the transaction almost invisible to investigation. Companies from Barclays and BAE to Enron and WorldCom have indulged in such practices, which may be quite legal given loopholes and weaknesses of international law. The Mafia buys up cover companies to use in laundering drug money by similar schemes. All such schemes depend upon pliable banking institutions, like those of Switzerland, Lichtenstein, Cayman Islands and Vanuatu to operate.

The article outlines some of the legal measures that governments like the EU and US, and the World Bank could (are in some cases are) taking to tackle these scams. What interested me most though is the picture it paints of a world economy in an advanced state of decomposition being slowly picked apart by predators and scavengers. The best exposition
of this state of affairs that I've read in recent years is by James K. Galbraith (son of the other J. K. Galbraith) in his 2008 book "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too" (Free Press). He suggests that, far from dismantling the social democratic institutions of economic control established in much of the West following WW2, neoliberal ideologues who have held power - in government, corporations and banks - for much of the last 30 years merely adapted them as levers with which to loot the economy. When Peter Mandelson claimed to be "intensely relaxed about people getting rich" he was equally relaxed about appending " legal means".


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