How Corruption Drives Inequality

The Paradise Papers, and the Panama Papers before, have laid bare the financial secrecy that permits large-scale proceeds of corruption, tax avoidance, and criminal activity to be laundered, shifted around the globe, and stored out of view from authorities. The Azerbaijani Laundromat, a scheme exposed in September 2017 involving UK-registered shell companies, shined more light on how those at the top can use financial secrecy to launder vast sums through the global financial system and further widen the gap between “elites” and the rest of society.

Transparency International (TI), a global nongovernmental organization against corruption, cites several additional cases where UK companies and properties have been used to process and store the proceeds of money laundering and grand corruption. Hampstead mansions, luxury yachts, and fine art are monuments to lost funding for healthcare, education, or infrastructure. In other cases, corruption has diverted revenues towards corporate profits. Alleged corruption in a Shell oil deal came to light earlier this year that is believed to have deprived Nigeria and its people of $1.1 billion.

Such large-scale illegal diversions of public funds are a particularly egregious mechanism through which corruption drives inequality. And the problem is not simply bribery. Corrupt patronage networks can prevent fair access to economic and political power, serving to further the wealth and power of ruling elites, exacerbating inequality.

In many countries, everyday petty corruption is also driving inequality. Examples from TI’s work are sadly plentiful: from new mothers in Zimbabwe denied vaccinations for their babies unless illegal “consultation fees” are paid, to families in Cameroon whose children faced expulsion from school because they could not afford to pay illegal fees demanded by the head teacher. When citizens are forced to pay bribes in order to access public services that should be free of charge, the poor and marginalized often suffer the most.

Corruption also drives inequality in Western democracies. In 2009, 103 construction companies were fined a total of £130 million (US$176 million) for rigging bids to inflate the cost of major building projects in England, including publicly funded projects to build new schools and hospitals. Worryingly, since this case, successive UK governments’ efforts to “cut red tape” have actually decreased the state’s ability to detect corruption, such as when they abolished the Audit Commission, which was responsible for independently auditing local public bodies.

The terrible fire at London’s Grenfell Tower in June 2017 brought this issue — and several others relating to inequality — to the fore. There have been allegations of bribery and fraud and serious concerns about lack of oversight and accountability throughout the complex supply chains involved in the refurbishment and fitting of fire safety equipment. The inquiry will examine specific issues such as fire safety equipment, but unfortunately will not specifically ask whether corruption played a role.

Could this be symptomatic of a complacency towards corruption, be it in more “obvious” forms such as bribery, or in more nebulous — and harder to prove — forms such as inappropriate lobbying activities?

Whatever the level of complacency, how can we halt corruption as a driver of inequality? Here are three areas of possible action, along with some examples of how TI is contributing:

Corruption must be exposed. Transparency takes away hiding places for corruption and decreases the opportunity for it to happen. It gives citizens the information they need to hold those in power to account. For example, TI is campaigning for greater transparency over the true owners of companies of the sort used in the Panama Papers scandals and the Azerbaijani Laundromat.

We need to end impunity.  Effective laws, when properly applied, can bring the corrupt to justice. In the UK, TI has successfully campaigned for two key legal powers that can rein in corruption around the world: the Bribery Act (2010), and Unexplained Wealth Orders, a tool to tackle suspected proceeds of corruption from anywhere in the world that are stored in UK assets such as property. These laws are on the statute book and, in the case of the Bribery Act, are already being used. But laws on paper alone do not fight corruption, and in order to end impunity law enforcement must have sufficient resources to pursue complex and lengthy cases. This requires political will.

By empowering citizens, more people can drive change. In many contexts, the best solutions to corruption are local and people-powered. Around the world TI facilitates participatory democratic acts such as social audits and citizen-led monitoring of public procurement. Such acts can help amplify and give voice to those who are most acutely affected, and create positive narratives that corruption can be addressed.

From enabling illicit accumulation of wealth by global elites to denying people access to basic services, corruption often drives inequality, both within national boundaries and internationally. But around the world, people are organizing and speaking out to hold those in power to account. It is their dedication and fearlessness that inspires many of the anti-corruption activists I know, and makes us certain that together we can continue to achieve change.

Louise Russell-Prywata is an Atlantic Fellow for Social and Economic Equity at the London School of Economics. This commentary was originally published on the Atlantic Fellows Blog.