The im­punity trap

Financial Mirror (Cyprus) - - FRONT PAGE -

Ours is a world of im­punity. Al­le­ga­tions of cor­rup­tion swarmed around FIFA for decades, cul­mi­nat­ing in mass in­dict­ments of FIFA of­fi­cials last week. Yet FIFA Pres­i­dent Sepp Blat­ter was re-elected four times, in­clud­ing af­ter the in­dict­ments were filed. Yes, Blat­ter has fi­nally re­signed, but only af­ter he and dozens of Fed­er­a­tion mem­bers once again showed their scorn for hon­esty and the law.

We see this kind of be­hav­iour all over the world. Con­sider Wall Street. In 2013 and 2014, JPMor­gan Chase paid more than $20 bln in fines for fi­nan­cial malfea­sance; yet the CEO took home $20 mln in com­pen­sa­tion in both 2014 and 2015. Or con­sider cor­rup­tion scan­dals in Brazil, Spain, and many other coun­tries, where gov­ern­ments re­main in power even af­ter high-level cor­rup­tion within the rul­ing party has been ex­posed.

The abil­ity of those who wield great public and pri­vate power to flout the law and eth­i­cal norms for per­sonal gain is one of the more glar­ing man­i­fes­ta­tions of in­equal­ity. The poor get life sen­tences for petty crimes, while bankers who fleece the public of bil­lions get in­vi­ta­tions to White House state din­ners. A fa­mous ditty from me­dieval Eng­land shows that this is not a new phe­nom­e­non:

The law locks up the man or woman Who steals the goose off the com­mon But leaves the greater vil­lain loose Who steals the com­mon from the goose.

To­day’s great­est thieves are those who are steal­ing the mod­ern com­mons – raid­ing gov­ern­ment bud­gets, de­fil­ing the nat­u­ral en­vi­ron­ment, and prey­ing on the public trust.

When the in­dict­ments against FIFA of­fi­cials were filed, the the cast 14 of char­ac­ters in­cluded not only mis­cre­ants from the sports world, but also some familiar play­ers: se­cret Swiss bank ac­counts, Cay­man Is­lands tax havens, shell cor­po­ra­tions – all of the fi­nan­cial ap­pur­te­nances that are lit­er­ally de­signed to shield the rich from scru­tiny and the law.

In this case, the FBI and US Jus­tice Depart­ment have done their jobs. But they did so, in part, by pen­e­trat­ing the murky worlds of fi­nan­cial se­crecy cre­ated and pro­tected by the US Trea­sury, the In­ter­nal Rev­enue Ser­vice, and the US Congress (ev­er­pro­tec­tive of Caribbean tax havens).

In some so­ci­eties and eco­nomic sec­tors, im­punity is now so per­va­sive that it is viewed as in­evitable. When un­eth­i­cal be­hav­iour by po­lit­i­cal and busi­ness lead­ers be­comes widely viewed as “nor­mal,” it then goes un­pun­ished by public opin­ion, and is re­in­forced as nor­mal – cre­at­ing an “im­punity trap.” For ex­am­ple, with politi­cians in the United States now so fla­grantly and re­lent­lessly on the take from wealthy donors, much of the public ac­cepts new rev­e­la­tions of fi­nan­cial im­pro­pri­ety (such as the Clin­ton Foun­da­tion’s morally du­bi­ous fi­nan­cial deal­ings) with a cyn­i­cal yawn.

The sit­u­a­tion in the global bank­ing sec­tor is es­pe­cially alarm­ing. A re­cent care­ful study of eth­i­cal at­ti­tudes in the fi­nan­cial-ser­vices in­dus­try in the US and the United King­dom showed that un­eth­i­cal and il­le­gal be­hav­iour is in­deed now viewed as per­va­sive. Some 47% of re­spon­dents said that it is “likely that their com­peti­tors have en­gaged in un­eth­i­cal and il­le­gal ac­tiv­ity,” and 23% be­lieved that their fel­low em­ploy­ees have en­gaged in such ac­tiv­i­ties.

The younger gen­er­a­tion has learned the les­son: 32% of re­spon­dents em­ployed in the fi­nan­cial in­dus­try for less than ten years said that, “they would likely en­gage in in­sider trad­ing to make $10 mln if there was no chance of be­ing ar­rested.” The chance of be­ing ar­rested for such malfea­sance is, alas, prob­a­bly very low.

Yet not all so­ci­eties or sec­tors are caught in an im­punity trap. Some so­ci­eties, most no­tably in Scan­di­navia, main­tain the ex­pec­ta­tion that their public of­fi­cials and busi­ness lead­ers should and will act eth­i­cally and hon­estly. In th­ese coun­tries, min­is­ters are forced to re­sign for petty in­frac­tions that would seem triv­ial in other coun­tries.

Con­vinc­ing Amer­i­can, Rus­sian, Nige­rian, or Chi­nese cit­i­zens that cor­rup­tion can in­deed be con­trolled might seem to be a fu­tile task. But the goal is cer­tainly worth em­brac­ing, be­cause the ev­i­dence is over­whelm­ing: im­punity is not only morally nox­ious; it is also eco­nom­i­cally costly and deeply cor­ro­sive to well­be­ing.

Re­cent stud­ies have shown that when “gen­er­alised trust” in so­ci­ety is high, eco­nomic per­for­mance is im­proved and life sat­is­fac­tion is higher. Among other rea­sons, com­mer­cial agree­ments are more eas­ily reached and ef­fi­ciently im­ple­mented. It is no co­in­ci­dence that the Scan­di­na­vian coun­tries rank among the world’s hap­pi­est and most pros­per­ous year af­ter year.

So what can be done to over­come an im­punity trap? Part of the an­swer is of course law en­force­ment (such as the FIFA in­dict­ments) and pro­tec­tion for whistle­blow­ers. Yet law en­force­ment is not suf­fi­cient; public at­ti­tudes also play a ma­jor role.

If the public ex­presses contempt and re­vul­sion for bankers who cheat their clients, oil ex­ec­u­tives who wreck the cli­mate, FIFA of­fi­cials who coun­te­nance kick­backs, and politi­cians who cozy up to all of them in ex­change for cam­paign funds and bribes, il­le­gal­ity for the few can­not be­come the norm. Public scorn might not end cor­rup­tion im­me­di­ately, but it can make life far less pleas­ant for those who are steal­ing the com­mons from the rest of us.

One can­di­date for US Pres­i­dent in 2016, for­mer Mary­land Gover­nor Martin O’Mal­ley, re­cently launched his cam­paign by ask­ing why not a sin­gle Wall Street CEO was con­victed of a fi­nan­cial crime in the wake of the 2008 fi­nan­cial melt­down. It is a good ques­tion, the kind that can help the US to over­come its im­punity trap.

Yet we can ask an even sim­pler ques­tion. Why are those same bankers still fêted by Pres­i­dent Barack Obama, in­vited to glit­ter­ing state din­ners, and rev­er­ently in­ter­viewed by the me­dia? The first thing any so­ci­ety can and should do is deny re­spectabil­ity to po­lit­i­cal and busi­ness lead­ers who will­fully abuse the public trust.

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