A global crackdown on corruption. The mere words are enough to make the heart sink. They conjure up, at best, images of inept and leaden-footed regulators closing old loopholes half as fast as financiers and lawyers exploit new ones, in a great game of legal whack-a-mole; at worst, it’s those who trumpet their virtue most loudly that are most guilty.
At U.K. Prime Minister David Cameron’s grandly-titled Global Anti-Corruption Summit Thursday, the room was predictably full of earnest frowns and the air thick with well-meaning declarations. The host sternly called it “the cancer at the heart of so many of the world’s problems,” while Christine Lagarde, the International Monetary Fund’s managing director, detailed in an essay a new study that put the annual cost of corruption to the world’s economy at between $1.5 and $2 trillion–roughly 2% of the world’s gross domestic product.
The ways in which corruption saps growth are many, said the IMF: it weakens the state’s ability to raise revenue, increases the cost of public procurement, raises the market cost of borrowing for any company perceived to be in a ‘corrupt’ jurisdiction, and makes government over-reliant on using the central bank to create the money that government fails to raise, creating a bias towards inflation.
“If you are pro-growth, you must be against corruption,” Lagarde warned solemnly in a message to the summit.
Some skepticism is allowable: Cameron has only recently been pressured into admitting his past use of offshore investment vehicles, while Lagarde is due to stand trial for “negligent” stewardship of public money while Finance Minister of France (the essence of the accusation is that she turned a blind eye to a big payoff to a businessman who was promising to support her boss Nicolas Sarkozy in the next election campaign). Both Cameron and Lagarde deny any wrongdoing.
But Cameron’s summit has produced a bit more than words. Under pressure to lead by example after the embarrassment of the Panama Papers, he has announced plans for new legislation that will stop off shores laundering money through the notorious London real estate market. The U.K. is setting up a public register where companies that own property will be required to disclose their beneficial owners (that is, the ultimate owner rather than the offshore-based shell company on the deeds of title). A similar register will be set up for companies that seek business contracts with the government. In a separate move, the U.K. is also looking at making its banks legally liable for the AML violations of their employees, in an effort to make them take their responsibilities more seriously.
The NGO Transparency International last year published research that showed how the U.K’s real estate market–in particular, London’s–had become a magnet for corrupt funds: at least 122 billion pounds’ ($176 billion) worth of property was held through offshore companies in jurisdictions with high levels of secrecy in 2014, it said.
“Anonymous companies are the getaway car for the corrupt, for criminals and for terrorists,” Martin Tisné, a U.K. government adviser at investment firm Omidyar, told the BBC Thursday. “If you steal a hundred pounds, you can put it under your mattress, if you steal ten million pounds, what do you do? You set up an anonymous company and buy a house in Notting Hill.”
Another 12 countries declared their intention to introduce similar registers Thursday. These included Nigeria, where the problem of graft in public contracting has been endemic for decades. Cameron had, embarrassingly, been caught on camera telling Queen Elizabeth earlier in the week that Nigeria, and Afghanistan (whose president Ghani was also attending the summit) were ‘two of the most corrupt countries in the world.”
Transparency International was among those who seemed reasonably impressed.
“The real issue of how corruption works — secrecy — is being tackled,” its chairman José Ugaz said in a statement. “More governments have committed to ensuring that information is made public making it harder for the corrupt to hide their illicit wealth. But we will need to see the laws in place and enacted before we can claim any victories.”
A large part of the remaining problem remains ultimately in Cameron’s backyard. Many of the world’s offshore financial centers, from Gibraltar to the Cayman Islands, are the remote remnants of the British Empire, and offshore finance is their only real export service. Neither the Cayman Islands nor the British Virgin Islands were at the summit (The Daily Telegraph reported that they weren’t invited for fear of causing Cameron embarrassment).
There are also mutterings at the behavior of the U.S., where states such as Delaware and Nevada still allow a high degree of confidentiality to companies and investors. The U.S. has also refused so far to sign up to an initiative backed by the G-20 to clamp down on tax evasion by making the tax authorities of every country automatically share relevant information with their peers (yesterday, the OECD announced that Panama and a handful of other recalcitrant offshore jurisdictions had finally signed up to it).