Economics, Politics, Russia, Top Stories, United Kingdom, World Affairs

Corruption: Greasing the Wheels of the World

One December evening in the late ’90s, I met a friend in a Moscow restaurant. I drank two zero-alcohol beers that night—an eccentric posture, in a Russian-Georgian restaurant—and then drove back to my borrowed flat in a car lent to me by my successor as the FT’s Moscow Correspondent. In Russia, no alcohol is permitted at all when driving—a law fashioned, it would seem, to allow the city’s GAI (Gosurdarstvennaya Aftomobilnaya Inspektsiya, or state traffic police) to supplement their low pay. As I was passing one of the new luxury hotels, a thick bundle of clothes propelled on boots and topped with a badged fur shapka waved his stick before my windscreen and motioned me to pull over. He told me to wind down my window, and stuck his head in. “Dikhnite!” (“Breathe!”) he instructed. Then he smiled, stepped back, saluted, and told me to get out of the car.

He asked for my passport, and as he looked at it he told me I had been drinking. Yes, I admitted, but only zero-alcohol beer. He laughed a little. Nyet nyet nyet, he said. There was a pause. This was, as I knew well enough, a pause not for reflection but for donation. I was an easy mark; journalists’ cars have yellow plates, with a large “K” for Korrespondent before the number designating their country—001, in this case, for the UK. I had asked a colleague for the going rate should I find myself in just such a situation. It had been $20 in my time, in the first half of the ’90s. Now, he said, it was $50. I had a civic thought. I had not broken the law. Time to take a stand. I repeated, more emphatically, that I had consumed no alcohol. He could check at the restaurant nearby. He shook his head sadly. This is serious, he said. We must go to the station. He got into the car and brusquely directed me.

At the GAI headquarters, he took me into the only illuminated room where a late middle-aged woman in a stained white overall sat behind a desk watching a TV fixed to the wall. The GAIchik saluted her, addressing her as “Comrade Doctor,” and announced that I had been brought in on suspicion of driving drunk. From her demeanour and the general smell of vodka, I thought my suspicions of her were better grounded. She removed an ancient breathalyser from a drawer, repeated the order to “breathe,” turned her back so I was unable to see the dial and then informed the GAIchik that I was indeed intoxicated. My companion marched me into a separate room and said: This is a serious crime. It is Friday night. We can do nothing with your case until Monday. You will remain in custody until then. You may call your embassy. At the station tonight they will draw your blood (a feared procedure then due to possible infection).

My civic stance wilted. The car was not mine. I had appointments. I was leaving in a few days. Is there a way of doing this more quickly? He looked at me with affection. There is a way! he said. $150. I said that was too much. He said it should be $200, but that he would accept $150. It was a punishment for flouting the rules. I had the money. I paid, as I had before in similar situations, or to get better office space, or to secure a seat—or standing room (those were the days!)—on a full plane. Most Westerners can go through life without paying a bribe, and can believe in the honesty of the bureaucracy, the judiciary, the police because, with exceptions, it exists. For me, the events of a December night became a story in a repertoire of how Russians comport themselves—for all their high culture, the moral seriousness of their greatest writers, and the arrogance of the Communist claims of a better society in the making, they lack our public manners.

But that’s a smugness too easily won. To be sure, honesty in public office is a great boon, and it was hard won by dour Victorian politicians, pulling 19th century government out of the clutches of institutions like the Circumlocution Office (in Dickens’s Little Dorrit). But contemporary corruption is no respecter of Victorian reforms, and the descendants of the Circumlocution Office in finance houses, merchant banks, tax havens, and complex financial instruments thrive to be much greater, in the self-regarding democratic states, than anything imagined by Charles Dickens. Corruption remains a growing problem, and not just in the undemocratic parts of the world.

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The fish rots from the head, but the tail has rotting rights too. Comrade GAIchik had such rights—and rights they were/are, though not codified. Many in the Soviet Union and the Soviet bloc states of Central Europe took the view of Berthold Brecht’s Mother Courage—”Thank God for corruption! … As long as there’s corruption, there’s hope. Bribes! They’re man’s best chance.”

There was some control in the Communist era. Bribery was not, of course, included in Communist morality—indeed, it was one of the many activities Communism was designed to expunge—and so a reforming leader at any level could crack down on it if he or she felt minded to do so. But common sense would, ultimately, prevail: Things went better with bribes. They went even better with a pervasive, taken-for-granted, rarely mentioned practice of blat, which the British-Russian University College London Professor Alena Ledeneva has worked hard to illuminate. Untranslatable as a word, Ledeneva defines it as “the use of personal networks and informal contacts to obtain goods and services in short supply, and to find ways around formal procedures.” These networks presupposed—indeed created—endless chains of debt and credit. I showed you where to get Czech shoes last month, now you tell me where to find Georgian wine for my party this month.

Blat was both high and low, as were its opportunities and risks—it could be and was punished, but in highly differentiated ways. A Soviet saying held that “someone was punished for taking a nail while another smuggled in lorry-loads.” In her 1998 book Russia’s Economy of Favours, Ledeneva writes that “the general instruction never applied equally to everybody. Different status in the face of the law was, perhaps, one of the most subverting aspects of the system, for it violated the idea of social justice and undermined peoples’ belief in legality.”

In this way, belief in the Soviet Union and its form of communism was comprehensively undermined, and replaced from the early 1990s by a kind of capitalism—part state-controlled, part anarchic, and increasingly corrupt. The GAI officers grasped what that meant for them, as did many other gatekeepers who could decide a particular person’s particular fate at a particular moment. The Russian nouveau riche could be hugely generous if they felt like showing off before their friends, or indeed the respectful gatekeeper, or they could get you fired, if you made your hankering after a bribe too persistent. A foreigner, usually with no Russian, was nearly always good for a few dollars (“That’s the way things are done here!” he would later say, with a rueful shrug). The occasionally inconvenient state morality was gone, and capitalism—which all peoples in Communist states had been taught to believe was a criminal system—was now officially recommended as a better way of life.

Capitalism was and is a better system than Communism, and the hosannas as the latter collapsed were loud. But it is as corruptible as a command economy. It’s just that, when combined with democracy (and the Chinese system tells us it doesn’t have to be), that corruption tends to be more visible, and in theory more reformable. Three decades after the collapse of the Soviet system, the issue of corruption is again—sporadically—recognised as one which can undermine people’s belief in legality.

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According to the Swedish academic Bo Rothstein, corruption had been left largely untouched by scholarly examination until the last two decades, when it became too widespread to ignore. Rothstein’s own position on this topic is uncommonly strict—in October 2017, I wrote about his resignation from the Blavatnik Institute in Oxford, in protest against the Russian oligarch Len Blavatnik, whose £75m donation had founded the institute but who had subsequently donated $1m to Donald Trump’s inauguration fund.

Even before Trump’s term began, Rothstein saw the president-elect as a threat to democratic values. In the light of the Trump administration’s bungled Ukraine operation and the campaign’s equally hapless post-election manoeuvres, Rothstein’s judgement now looks sound; depending on what Trump’s post-presidency career brings, it may yet look better still. His lonely gesture, however, did shine some light on the equivocal nature of university funding. Institutions accept money from almost any quarter, on the basis of a usually implicit understanding that the donor will not influence how the money is spent and the university will not investigate how he or she got the money. Is that corruption? Well, it’s the price of money, a susurration of discomfort with which universities are prepared to live. But not Rothstein.

Rothstein believes that a prevailing, heavily US-influenced view of the state as a predatory actor has meant that private corruption is lightly punished, scantily probed, and thus is in urgent need of strict policing. In the 2017 book he co-authored with Aiysha Varraich, Making Sense of Corruption, Rothstein objects that “how to tame the beast [the state] has been the central focus, not what the animal can achieve.” He’s a Swedish social democrat, and one of the reasons his country is ranked among the least corrupt in the world is because of this angular (if state-supported) probity. The only academic with whom I spoke who agreed with his decision to resign over Blavatnik’s donation to Trump was the president of the Stockholm School of Economics, Lars Strannegård. “I think he was right to do it. Things which a year ago were thought not even to be allowed to be said are now daily announced from the White House. This strikes at the core of what universities do. It is like when you dip a watercolour brush into water—the first time it is slightly darkened, then more, and more until it is completely dark.” That’s a good way of describing how corruption spreads, from a perfectly manageable slightly embarrassing arrangement to a “completely dark” cavern in which anything goes.

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But Rothstein’s claim that states aren’t interested in corruption isn’t true now, if it ever was. Most democratic governments have anti-corruption units. The IMF, the World Bank, the OECD, the World Economic Forum (Davos), the European Union, the United Nations all have groups dedicated to its study and reduction. The identification and measurement of corruption is central to the work of large NGOs like Transparency International (TI) and Global Witness, and TI produces annual charts mapping changing perceptions of corruption in all the world’s countries. In the most recent such exercise, Denmark and New Zealand share the top spot (least corrupt) while Somalia, South Sudan, Syria, and Venezuela cluster around the bottom. Economies in conflict zones reliably see the growth of corruption because commodities are scarce and desperate people are forced to bribe for what there is.

On this showing, both the UK (joint 12th with Australia, Austria, and Canada) and the United States (joint 23rd with France) fall comfortably within the top quartile of the 179 states on the ranking. But the ranking disguises a vast and growing inequality in countries both West and East, which saw the richest one percent of the world’s population increase its wealth from one third of everything to half in the first decade of the third millennium. As Oliver Bullough writes in his 2018 book Moneyland, within that blessed circle, “the 0.5 percent of Russians who have more than $180,000 saw their wealth increase by an astonishing $687m. The top 10 percent of Russians own 87 percent of everything: a higher proportion than in any other major country—pretty stark for a country that was communist just three decades ago.” And that inequality deepens corruption.

Even for those who have seen corruption at work and grasped something of its scope, Bullough’s much praised book is a shock. It opens with an extended description of the vast estates and accumulated wealth left by former Ukrainian President Viktor Yanukovych when he fled a revolt in 2014. Yanukovych’s main private residence was piled with gold, silver, and precious antiques and icons, which Bullough describes (with uncharacteristic alliterative overindulgence) as “a temple of tastelessness, a cathedral of kitsch, the epitome of excess.” It was opened as a kind of freak show following his departure, and ordinary Ukrainians living on meagre salaries flocked to gaze upon what he had stolen from them.

But Bullough also highlights the indispensable part that democracies, especially the UK and the US, have played in all this. He runs (or ran, before the pandemic) London Kleptocracy Tours, a journey by bus around the richer parts of London where the kleptocrats live, their palatial homes and wealth hidden behind layers of companies and fronts that make tracing (and thus taxing) the true owner hugely difficult. There are around 100,000 properties in the UK which are owned offshore, and the income due to the government runs into many billions. In an essay entitled “Stage Hands” posted on the Hudson Institute’s website, Bullough notes:

[This] is our problem in the West in at least three respects. Firstly, and most importantly, it is simply wrong to assist theft. Secondly, we are undermining our own nations’ security by buttressing regimes that are hostile to us, while disenchanting their citizens, who are increasingly likely to conclude that we are as hypocritical as their governments say we are. And thirdly, what Western enablers do is in a sense more egregious than what foreign kleptocrats do, because in the West we have a genuine, institutionalized rule of law, while kleptocrats operate in systems where no real rules exist. The result is that Western enablers effectively undermine democracy in foreign countries, even as Western governments lecture those same countries about civil society and the rule of law.

“More egregious than what foreign kleptocrats do”; there’s a jolt to our illusions of probity, a reproach to stories—like that of the GAIchik—which implicitly assume a superior Western morality. These trails, and much else, are followed in Bullough’s regular blog, Coda Oligarchy which makes for compelling but often depressing reading. A recent post shows that modest efforts by the Ukrainian presidency of Volodymyr Zelensky to tackle corruption in that tormented land have been further reduced by order of the Kyiv Administrative Court to fire Artem Sytnyk, director of the anti-corruption agency, which was battling to establish itself as an effective force.

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It could be worse. Both the UK and the US do at least collect taxes—large amounts, in fact—from the rich and the very rich. In some countries, Bullough reminds us, the state cannot find, or does not even try to find, the rich in order to tax them, since the government is itself kleptocratic, or so intimidated by violent criminals (as in Mexico) as to be rendered helpless. In such places, the tax income comes almost exclusively from the lower ranks.

Furthermore, investigative journalists have, contrary to widespread belief, tended to become more numerous and more courageous, even with the reduction of newspapers and the rise of the net and social media. Bullough is an outstanding example of the kind of reporter who uncovers corruption and tax evasion, such as the Panama Papers story that chronicled (legal but unsavoury) tax avoidance practiced by wealthy politicians and officials in very poor countries. But the Papers also revealed tax evasion, fraud, and avoidance of sanctions. The whistleblower who leaked nearly 12 million documents from the offices of the law firm Mossack Fonseca remains anonymous because of his (or her) fears for their life, but has said that the decision to disclose the material was taken because of the consequences the revealed activities had on equality in the world. The leak came first to the German journalist Bastian Obermayer, a reporter on the leftist daily Süddeutsche Zeitung, who asked the International Consortium of Investigative Journalists to help him trawl through the massive cache of documents to make sense of their scale, country by country.

This was acutely embarrassing for some. In the UK in 2013, the Financial Times discovered a letter from David Cameron, then prime minister, to the president of the European Council, Herman Van Rompuy, requesting that offshore trusts not be subject to the same transparency conditions as shell companies. The Panama Papers showed that his father had an offshore trust in Panama. Three years later, Cameron admitted that his father had held such a fund with Mossack Fonseca, and he had inherited the fund after his father’s death—though he had sold it for £31,000 before becoming prime minister in 2010.

In France, still more embarrassing: the budget minister Jérôme Cahuzac, in charge of a long running investigation into tax fraud, was found to have held undeclared assets in an account in Switzerland, then in Singapore. He resigned his post, and was later jailed. On the far-Right, members of the Le Pen family were also found to have benefitted from undeclared investments held in Panama. Marine Le Pen, estimated to have benefitted to the tune of millions of Euros, did not, however, resign from the leadership of the Front National (now the Rassemblement National).

What resignations and apologies there were came from politicians and other public figures in democratic countries. Revelations of alleged corrupt practices by the former president of Ukraine, the wealthy Petro Poroschenko, by Vladimir Putin, president of Russia, and by a range of high officials in the Chinese Communist Party, including the brother-in-law of the president, Xi Jinping, were not followed by public resignations or apologies, and all mention of the story in the Chinese media was suppressed.

India, meanwhile, was left relatively untouched by the leak. Nevertheless, several wealthy business leaders, and the Bollywood celebrity Amitabh Bachchan, were implicated, and denials of impropriety were followed by the announcement of a government inquiry in 2016. No details have subsequently emerged but corruption in India appears to be growing. The awarding of telecom licences in 2008 was shown to be significantly fraudulent and cancelled by the Supreme Court—the Central Bureau of Investigation later estimated a loss to the state of $4.6bn. Fraud was also uncovered among senior politicians in various states, and in March 2010, the head of the anti-corruption body P.J. Thomas was forced to resign following allegations of corruption, which he denied. A 2014 survey by Ernst and Young India concluded that companies “have been struggling with an upsurge in fraud and corruption.”

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The Moscow GAIchik’s response to my folding a frail tent of civic virtue—there is a way!—has resonance around the world. The melancholy fact is that corruption is presently outstripping anti-corruption. Most of the broad facts, if not the complex details, are known. Books have been written, punchy documentaries made, and websites established aimed at covering particular issues as well as global patterns of corruption. The temptation is greater than the fear.

It is unrealistic to expect authoritarian leaders to tackle corruption, not least because they usually benefit from it. A report on corruption in Russia authored by the opposition figures Boris Nemtsov and Vladimir Milov estimated that corrupt money flows in Russia were then worth around $300bn. That was a quarter of the country’s GDP at the time, much of which was enjoyed by Putin and his closest associates. The report was widely discussed, and corroborated by subsequent Western research, especially the late Karen Dawisha’s 2010 book Putin’s Kleptocracy: Who Owns Russia? (dropped by its original publisher, Cambridge University Press) and Catherine Belton’s 2020 book Putin’s People.

In February 2015, Boris Nemtsov was shot dead while crossing the Moskvoretsky Bridge near the Kremlin. In June 2017, five men from Chechnya were found guilty of agreeing to kill him for 15m roubles (c. $200,000), and received long sentences. His many thousands of supporters believe that his report on corruption made him—after an appropriate passage of time—a dead man walking. Corruption, and its unmasking, is dangerous, when the stakes are high for the corrupt—especially when they are the government. When it reigns, from the palaces of the governing and wealthy elite to the freezing streets, its eradication is among the hardest tasks faced by a troubled world. More power to those who take it on.


John Lloyd is a contributing editor to the Financial Times and co-founder of the Reuters Institute for the Study of Journalism at the University of Oxford. His latest book is Should Auld Acquaintance Be Forgot: The Great Mistake of Scottish Independence (Polity Press).

Photo by Serge Kutuzov on Unsplash