Book review: Game of Mates

By Phil Soos, cross-posted from LF Economics

This is LF Economics’ first review of a book, entitled Game of Mates: How Favours Bleed the Nation by economists Cameron K. Murray and Paul Frijters. The name is a play upon the wonderful TV series Game of Thrones and rightfully so, given both are about how a small number of wealthy and highly-connected individuals, often operating within a cluster of powerful networks, rig rules, policy, laws and ideology for their personal and class benefit.

Game of Mates is a gold mine of information on the racket of rent extraction for a number of reasons. First, it provides background on how the game slowly evolves (Chapter 1) by contrasting the hard-working Aussie Bruce with the connected insider and rent extractor known as James. By using the power of networking and soft corruption, the wealthy James (the 1%) is able to rip-off Bruce (the public) legally without violating the rule of law.

Second, the book goes on to detail the largest state-backed legal thefts carried out by the corporate sector for the benefit of rentiers. This term means those who obtain rents (unearned wealth and income over and above what is justified by perfectly-competitive markets). Unfortunately, Australia is a haven for robber barons, siphoning massive and illegitimate mountains of rents from the property market (Chapter 2), transportation (Chapter 3), superannuation (Chapter 5), mining (Chapter 7) and banking (Chapter 9) for the benefit of owners and managers.

The gargantuan level of graft which is currently taking place in our economy is not to be underestimated. Australia has the world’s largest tax expenditures to GDP ratio, feeding the property and superannuation industries. Our household debt to GDP ratio is the second-highest, explaining the sky-high land prices and super-profits our state-protected oligopolistic banking industry siphon annually. While there has been much commentary around the banks’ profiteering, it pales into comparison with those generated by the heavily-subsidised, rent-extracting mining industry over the last decade.

Transportation is heavily interconnected with the property market, and has devolved into private monopolistic tax farms, delivering substandard services while charging usurious fees. Private bankers can charge double the interest rates and fees relative to direct public funding (which would actually require no interest costs at all). An additional consequence are the gifts given to property developers and speculators via the uplift of land values around new development sites. The economist Michael Hudson has covered this issue extensively.

Superannuation is a leviathan, taking 9.5% of workers’ pay on the pretext of reducing the burden on the age pension in retirement. Whatever the intentions of the Hawke-Keating government by enacting this scheme, it now exists for two reasons: the system allows the parasites in the financial sector to cream off around $25 billion annual in fees and provides a funnel for high-income earners to reduce their taxes (hence the hefty super tax expenditures). Only minor reforms have been enacted to stem the generosity of superannuation.

The perverse polices which promote the upwards redistribution of wealth are achieved legally by exploiting grey areas within politics, law and regulation (Chapters 4 and 8). Soft corruption is quite distinct to the issue that we focus on, namely control fraud. This is the outright and illegitimate breaking of the law where controllers of the firm use the institutions they manage as a weapon and shield to engage in widespread looting. The Australian banking and financial system is an obvious example.

Game of Mates helps to reveal the absurdity of what is falsely called free-market capitalism, as it is thoroughly infected by rent extractors. Recent research has demonstrated that Australia’s private sector is dominated by cartels of monopolists, duopolists and oligopolists to an even greater extent than the US, the latter of which is often considered the home of crony capitalism. This is no mean feat.

Whoever said there is no such thing as a free lunch (perhaps it was Milton Friedman or someone he quoted) is speaking an utter absurdity. The term ‘free lunch’ doesn’t do justice in describing the epic levels of legal grift in our economy. Indeed, it should be termed ‘free banquets’ as we argued in our article Australia’s Real Lifters and Leaners.

The process of extracting free banquets has gained pace since the neo-liberal reformation of the economy by the Hawke-Keating government, lurching from the centre-left to the centre-right on economy policy during the 1980s. The Howard government continued and magnified these rackets when in power between 1996 and 2007. It should be important to note that these policies can hardly be termed ‘neo-liberal’ when they are not new and often have little to do with economic liberalisation. Perhaps neo-feudal capitalism is a better term.

Unfortunately, the Rudd and Gillard governments did little to reverse this deleterious state of affairs. The current batch of statist reactionaries in power have every interest in continuing the game, while attempting to attack marginalised and disadvantaged groups at every turn, though the leadership is floundering. Abbott (King Joffrey) is gone, Turnbull is in the process of committing suicide (King Tommen), so who will rise up and take power like Queen Cersei?

The reactionary narrative is necessary to divert attention away from those who benefit from Australia’s far larger welfare system as the government runs two welfare systems. The first and much smaller one is the social welfare system that assists those who are in need. In contrast, the far larger welfare system provides assistance to the wealthy, based on inverted principles: those who need assistance the least get the most.

This capitalist welfare system is composed of unearned wealth and income, extracted from the public and passed down tax-free to the next generation of the 1% who continue the game of neo-feudalism. For these vested interests, the game consists of a virtuous positive feedback loop between wealth and rent-seeking.

The Game of Mates is about detailing the methods of redistribution from the poor, labour, productive competitive business and the environment into the pockets of those who benefit the most from non-work. There are some data on how much the wealthy steal from everyone else (Chapter 13). Hint: the redistributions are massive in scale and yet do not quantify the full extent of the rent extraction taking place.

In addition, apart from criticising the upwards redistribution of wealth, they advocate solutions to rectifying these problems (Chapter 14). This can be done by reclaiming the value of the free banquets for the public, disrupting the coordination and networks used by rentiers, and shattering the myths peddled to justify their wholesale theft.

This book is a very timely addition to the emerging research in Australia and elsewhere which explains the processes and estimates the amount of wealth and income siphoned off by these schemes of legal theft. At 204 pages, it is not overly long and is makes for an easy read. Fortunately, the authors avoid the often opaque writing style and jargon often found in the economics and financial academic literature.

If one wants to understand how the country is being looted by the minority of the opulent for their own benefit, look no further.

Read more at gameofmates.com

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Comments

  1. Even StevenMEMBER

    Just bought two copies – one for me, and one for someone who needs a rude awakening.

  2. Have convinced one other person to buy this book so far. Will continue the fight.

    • boomengineeringMEMBER

      Gleebooks, wish I knew that still waiting for mine (since the first one to buy) from Amazon at double the price.

  3. GunnamattaMEMBER

    The below is a rant I posted on a Macrobusiness post a couple of years ago.

    It was about Australian corporate involvement in offshore corruption, and has its origins in something I wrote about Russian corruption (and guidance for employees and managers of a large multinational about what forms corruption takes and how to deal with it there).

    Australia doesnt really have the tip level of corruption (the sort of thing best known for Egypt or Turkey) but I tend to see it as being replaced by the service charge that Australians pay for almost everything – ie the corporate world has appropriated the tip.

    I see what Cameron writes about as being reflective of the type 2 and type 3 corrupt practices I refer to below. The permissions and kickbacks. The interesting thing for me is that whereas the US and UK and EU have fairly overt anti corruption provisions Australia’s tend to be buried, and it is this burying, and refusal to clarify and make them overt which makes them ideal ground for legal barneying and trading (of the type we see with the ATO and bringing large corporates to pay tax) which will undermine due process and due outcomes wherever there is a will (and a purse) to do so – and of course there always is.

    May help some to relate what Cameron is writing about to a larger global phenomena (which is everywhere)

    ‘Nothing the God of Business Visas wouldn’t let me into heaven for…..’ -: Why we should take bribery and corruption in other parts of the world seriously and be alert to its beneficiaries coming here

    Corruption and us

    Australian’s generally don’t ‘get’ corruption. They don’t know precisely what it is, they don’t know how it works, and they don’t know who are perpetrators and beneficiaries – and they don’t want to know. They don’t think it affects them all that much, and they generally do think that if it results in the bringing in of ‘wealth’ to Australia from offshore, then the individuals bringing it in may be distasteful, but that there is some sort of upside to the extra money. Australians aren’t inclined to hold Australian corporate leaders to account when dubious activities have taken place offshore. Finally they recoil at the idea they should ask questions about the funds pouring into Australia – particularly into Australian real estate – and how they were generated. Australia is a nation that puts in the short steps on corruption from every angle.

    This self-Teflon understanding is regularly underlined. The sweeping under the carpet of corruption claims involving activities by RBA controlled companies Securency and Note Printing Australia in the early 2000s (which were the subject of a 4 Corners report as recently as 2014), repeated claims about the activities of Australian listed Leighton Holdings (and its former parent, Austria’s Hochtieff) in 2014-2015, which have resurfaced this week in connection with a Fairfax look at the activities of Unaoil, and even the little remarked upon departure of ASX head Elmer Funke Kupper, in relation to bribes paid to the family of a Cambodian Prime Minister when he was head of Tabcorp, less than 2 weeks ago. No public explanations, not much media, and certainly no charges. We can lose the head of the ASX, can have Australia’s most venerated current affairs programme come out with a convincing report suggesting something somewhere was awry within the RBA aegis, and now a Fairfax expose yet again suggesting that something smells about activities carried out by Leighton (now known as CIMIC) – but the general attitude seems to be one of move along. Oh, how Arthur Sinodinos must wish he had been connected with something happening offshore, or the Obeid family wish they were looked at as the mining activities of Australian companies offshore.

    Conversely those being fingered in the public eye by ICACs and corruption claims in Australia must surely wish that they could conduct their activities offshore and simply bring the proceeds to Australia. In the last 5 years more than $40 billion has been invested in Australian real estate by Chinese nationals, bringing money from one of the most notably corrupt environments in the world (and that’s before we get to other notably corrupt environments providing investment flows to Australian real estate – including India) and how many times has Austrac or any other regulatory body ever publicly stated that it had halted a transfer because the funds being moved were the benefits of corruption? How many times has the Foreign Investment Review Board ever denied permission to a buyer of Australian real estate because it thought there may be something suspicious about the money involved? Even now, nearly a year after the ATO announced that it was running a programme to data match foreign buyers, FIRB approvals, cash movements and taxes paid, how many people can the Australian public assume have been identified as having purchased Australian real estate illegally or with funds which are the benefits of corruption?

    The current unspoken (to Australians) but clearly understood (to the corrupt anywhere else in the world) position of Australia is that if Australians are responsible for any activities offshore then the Australian authorities are not really interested in knowing about it or holding people to public account. Similarly, if there is anything corrupt happening offshore affecting others, then it is none of Australia’s business asking questions about it and Australia will happily place the beneficiaries of corruption ahead of its own law abiding and tax paying people in purchasing housing or Australian economic assets – provided the corruption is practiced enough to avoid legal process in the nation in which it occurs.

    Corruption and them

    Sadly that isn’t where corruption ends, and the Australian position on anti-corruption laws and policing processes – both by Australians offshore, and where the proceeds of offshore corruption come here – mean that Australia is an accessory to global corruption, and that the only people not really aware of this are Australians. Australia has no overt foreign corruption legislation such as the United States Foreign Corrupt Practices Act, the United Kingdom’s Bribery Act, Canada’s Corruption of Foreign Public Officials Act, or the European Union’s Convention on Corruption. These very broad and sweeping powers, expressly identify that any (yes any) activity by anyone (in any jurisdiction) which furthers corruption (directly or indirectly) violates the legislation, that there is no need for the individual to have ever been in the United States (or UK, EU, or Canada), and that even activities legal in other jurisdictions may be in contravention.

    Australian politicians (in particular) have regularly maintained that existing Australian laws deal with corruption in Australia and offshore by Australians and that there does not need to be any specific legislation identifying what corruption is or what is a benefit of it. The fact that there has not been a successful prosecution under existing Australian law of either an Australian carrying out a corrupt practice elsewhere, or a foreign national seeking to further corruption in Australia suggests otherwise. Even legislation such as Australia’s Anti Money Laundering legislation (introduced in 2007, which only affects one aspect of corruption, and then only obliquely) is still not a responsibility for real estate agents Draft provisions for a second tranche of AML provisions have been under consultation for nearly a decade, with no statement on the progress of those consultations. AUSTRAC, the regulator of capital flows does not generally look at the origins of financial flows into Australia.

    When it comes to bribery and corruption for much of the world it is often not small cheese; it is a major culture shaping phenomena pervading transactions at almost every level. In the known cases, what happened with the RBA a decade ago, or what transpired with Leighton or Tabcorp a zillion miles away, may seem minor – and we can be sure that whoever was involved would certainly like everyone to think that way. The beneficiaries of corruption offshore are no more enthusiastic about those paying their bribes, or taking part in schemes which they benefit from, being looked at for probity purposes than they are about direct claims of corruption in those nations – where, more often than not, journalists and those aware of corrupt activities are regularly silenced.

    Their corruption and us

    Quite often the corrupt will go to somewhere where the corruption they are party to at ‘home’ is unknown to enjoy the fruits it provides – Australia is an ideal location for this. There will be plenty of organisations keen to see the upside in foreign nationals bringing ‘wealth’ into Australia to buy real estate, school places and qualifications, and a range of lifestyle assets without asking questions about how that ‘wealth’ has actually been earned. Those with the cash to spend like questions not being asked, an Australia has a proven record in not asking them.

    Anyone with any familiarity with the business and administrative world outside Western Europe or North America will know that for much of the world corruption is the fountain of wealth of the elite, and the circumstances surrounding the RBA subsidiaries, Tabcorp and Leighton have been party to that, the same as Real estate agents and financial advisors and banks are party to that when they help foreign nationals bring ‘wealth’ into the country.

    Indeed once you see it in operation in other parts of the world it can have an impact on how you see the elites in the developed world, and their wealth acquisition processes – when all is said and done the corruption you can see there (often quite overtly) is just a more blatant form of rentseeking which seems to be what Australia is devolving back towards. The elites in the corrupt parts of the world aren’t stupid, they know that the only thing keeping them the elite is access to the exercise of power, particularly violent power, whether state sanctioned or not, and that sometimes the access to that power can shift suddenly and violently. Logically enough, they prepare for that possibility and look for safe havens and exit strategies for that moment when their access to whatever power and corruption ends – cue North America, Western Europe, Australia and New Zealand.

    Their Corruption and our immigration

    Australia, with a migration program now skewed towards rewarding those with access to significant funds to bring to Australia (often far more significant in those other nations than in Australia) is effectively often importing the beneficiaries of bribery and corruption in other parts of the world – sometimes the directly involved, but far more often the friends, the family and connections of those directly involved, who can often claim they don’t know about the source of the funding which makes their access possible, but who will universally shy away from questions about it. That’s because in many parts of the world you don’t ask questions like that, because everybody in that part of the world knows, and it is a stain which seeps into societal consciousness: so much nicer to be somewhere cleaner and safer, where nobody even thinks about such things. The beneficiaries of bribery and corruption elsewhere in the world, along with migrants representing a far better ethos and commitment, sit alongside us in traffic, dine in our restaurants, slip their children into our schools, and bid at our auctions, in the hope and expectation that once ensconced nobody will ever ask about how the funds were achieved.

    More pertinently, once in Australia, or anywhere in the western world, it is all too often the case that the fountain of wealth in some other corrupt homeland continues to call the shots, continues to fund individuals, and continues to corruptly extract wealth from one nation to use elsewhere. Over time unaccounted for wealth shapes behaviours and expectations here too.

    The RBA, Securency, Note Printing Australia, Leighton, Tabcorp – our possible corruption offshore

    The RBA Securency, Note Printing Australia issue which ASIC sought to distance itself from happened a decade or more ago, would probably never have led to a major criminal punishment (given the feebleness of the then applicable Australian anti-corruption laws, and the illuminating reticence of any Australian authorities to appear proactive in looking at the issue) and was probably never a major outlay when seen from Sydney, Canberra or Melbourne (although it would have been for recipients in Nepal, Malaysia, etc).

    But if we are to accept the basic contention of the 4 Corners report about 18 months ago we need to accept that someone in the RBA or connected with the RBA had established a network of agents in a number of nations around the world, with a view to promoting a product they wished to commercialise. Someone somewhere will have an understanding of the genesis of that network, and it is more than likely there will be file records indicating when disbursements to that network commenced, as well as who authorised them and on what basis, and, more importantly, the culture in which a decision was made to disburse funds.

    Leighton (which changed its name to CIMIC in 2015) is somewhat different in that it was the Australian listed subsidiary of Hochtief, which has extensive operations across Eastern Europe, Central Asia, and the middle east. Hochtief and Leighton build very large infrastructure things – stadiums, stations, airports, terminals, bridges and the like. The only buyers for these are ultimately governments, and drawing a line between what is corrupt and what isn’t in the selling of infrastructure, services or equipment to governments anywhere– from defence equipment to the Saudi’s, to utilities in Africa, through to IT services to the Australian government – can raise a disturbing number of questions, which governments and beneficiaries of corruption tend to be united in preferring were not asked publically. Large infrastructure builders everywhere often have a whiff of the corrupt practice about them.

    If an RBA subsidiary was found to have indulged in something which was corrupt practice (anywhere in the world) then under the US legislation it could face sanction against any operations it had in the US or any of its people going there. In the context of the RBA trying to commercialise that technology that alone could be an issue, but if the RBA had its links cut with the Fed or ECB or BoE then the implications multiply. On top of that you could also wonder if that was a factor in the price at which one of the subsidiaries was palmed off two years ago – one would assume there was a prior claims provision in that contract. Sure, we can be certain that it would never get that far – Australia is one of the developed worlds ‘in’ crowd, and there is a case for saying that if mistakes were made then the organisations involved have learned from them. But at the same time every time we don’t look and don’t verify and don’t establish the probity of an issue which has a claim made against it (let alone establishing probity for risk management, managerial discipline, corporate or administrative accountability purposes, which would all have their own emphases on identifying and verifying actions and behaviours) then we establish a plausible raison’d’etre for behaviours which we know to be corrupt, and which reward corruption in those parts of the world where it is an overt and everyday experience; encouraging that corruption to come to us, and at the same time agreeing to the visitation of the corruption on other peoples – both of which have their own unintended consequences.

    what happens offshore stays offshore?……..

    If we tend to view activities ‘in light of the domiciles the alleged activities are said to have occurred.’ then what we are effectively doing is saying that it is OK to be corrupt there (wherever there may be) and nothing should happen from that here. That approach actually hinders the fight against corruption in those nations. For a long time major international companies argued basically this line about their activities in Russia and Central Asia, inter alia, and what was found, and what triggered a significant change of heart about the subject in the US was that organisations would effectively play jurisdiction chasey (set up subsidiaries to take part in dubious practices in jurisdictions where it either wasn’t a crime or wasn’t policed), and that often the direct beneficiaries of the corruption would establish operations within ostensibly clean jurisdictions which acted as a form of protection for ultimately corrupt practices when governments affected by corruption tried to actually do something about it (just google up any number of Russians in the UK or US, and why the Russians would like to lay their hands on them, the same would apply for virtually every country east of the EU).

    Often the corrupt people have ‘companies’ in the clean jurisdictions which then get them business visas, migration visas and the like – and which then turn the fight against corruption into diplomatic bargaining, with the US and UK having a legendary track record in billionaire ‘asylum seekers’ their legal systems prevent facing Russian law for jurisdictional/diplomatic reasons when their own law enforcement officials know the individuals stink. I have had it put to me that Australia, which historically had a good track record of dealing with the matter (politely turning the dubiously wealthy away – and I personally have taken issues to immigration and consular officials and suggested that if an individual was given any form of visa I would go public with information I had available about individuals) is increasingly seen as a softish touch, with business visas and real estate purchases now seen as easily doable regardless of the provenance of any funds involved.

    You won’t get an argument from me that it is a big part of what appears to be business in many parts of the world. But if it is Australians or Australian companies are going to be taking part in activities in these parts of the world then they should have to account for their activities and they should be pinged and do time and pay if they are found to…..

    – have done something knowingly corrupt, or

    – even not made an attempt to establish that what they were doing was genuinely not corrupt.

    How few Australian companies actually go offshore to participate

    The other thing to note here is that because so few Australian companies engage with the rest of the world, in the rest of the world, there isn’t a widespread awareness of both the complexity of corruption and how to handle it in Australia. Australian companies tend not to do things anywhere else – sure they might sell things to the rest of the world, but rarely do they build, develop, or sell things in other countries – sure we sell commodities to anywhere, but handling of that largely ends at the dock in Australia (if we leave out the Singapore tax avoiding Marketing activities – although note the sales process is the one which has tripped the RBA and the Wheat Board some years ago – but you don’t see Australian corporates developing their own infrastructure and distribution chains in many other locations. One of the things you notice with big global players, which do build, develop, and sell things in other countries, is just how alert they are to issues of corruption and bribery. There are boards of directors, compliance groups and networks, training for lower level managers (particularly those involved in purchasing and land development) so they know the range of forms of corruption, corporate guidelines so the people affected even recognise it, for it generally isn’t obvious: here the line of ‘it happens elsewhere so we ignore it’ prevails, so nobody ever asks about it, nobody ever thinks about it, and everybody assumes it happens somewhere else, and that in turn makes it a fertile world for corrupt practices to evolve in.

    Corruption and Bribery 101

    For the uninformed, when operating in these places almost nobody in their wildest dreams would come up to you and say ‘I want you to pay me a bribe’ – that isn’t how it works. Corruption and bribery is well enough hidden (and only idiots assume that the people holding out for a payoff are idiots), while at the same time perfectly clearly understood by those taking part in it.

    There are 3 basic types of bribery/corruption one is likely to find in the Middle East, Russian speaking world, Central Asia (I don’t know much about how it plays out in China/Asia/India/Latin America but have been very well informed that it is broadly similar almost everywhere).

    The tip – common or garden variety corruption (even if it doesn’t seem that way)

    Low level gratuities/presents/tips is the first – just the basic slip someone 10 or 20 whatevers (dollars, roubles, euros) for doing something, almost always small fry. What you find is that in many places the payment is virtually second nature for almost everyone, usually reinforced by rigid procedures, laws, and rules ( which are often there as a means of preventing corruption), and getting around them, where invariably the first level recipients are lowly paid (although these will often – think low level customs and migration control types in particular, almost any type of low level bureaucrat, police, medical/hospital types – slip some up their reporting trees) and where the managements of those systems, recognising that their punters are lowly paid, tend to encourage/look the other way at the practice for employee retention/performance purposes. Indeed it would be true to say that whole systems evolve to provide opportunities for low level people to get tips, which makes the payment of them feel essentially like a service charge (in circumstances where many organisations don’t officially have them).

    A good example of this is the electricity which went off in my apartment in this world some years ago. I called the local council types (who manage the power there) and sometime later some people turned up to take a look. One of them identifies the issue – wire A needs to be connected to point B. A swarthy descendant of Ghengis Khan explained to me as he was filling in the form, that he would report the fault, but that for a small fee his boys would sort the issue then and there. Five minutes and 500 rubles later we were swapping kangaroo and shark stories with lights on. I would have certainly paid more because I wasn’t a local, but I would have certainly paid far more again if I hadn’t spoken the lingo well enough to let them know I knew the game, or had they thought they may put one over me (there is an American businessman somewhere who paid a 1000 USD on the spot fine to Russian police somewhere for going out of his hotel without his passport a couple of years ago – I know one of his underlings to whom he confessed to having made the payment – that sort of thing encourages an attitude of ‘They are English speaking, they are rich, if it comes off we get a good payoff, so let’s try something, and if there is any hassle we blame language difficulties later on’).

    I asked him what would happen if I hadn’t paid and he told me that he would have filled in the form and submitted it to the depot office. At some point later the office would have called me to organise a time to come and fix things – if they hadn’t been able to get hold of me, I would go to the bottom of the pile, or if the caller had been freaked out by me being a foreigner (it happens) or if we couldn’t sort a time, and so on. Then I knew that if I did this whatever team which came out would discover some other issue, which could easily mean my original issue couldn’t be sorted (unless I paid them of course) and so on. Far simpler and easier to just shell out and get the result then and there – and that is what most people do. It is this type of payment that most people visiting this world experience, which conveys a sense that corruption could be part of being there. But it is usually fairly harmless (although it can be a right pain). What it does often do is establish a precedent, a first step on the road to something more substantial.

    The official clearance

    A far bigger form of corruption, type 2, which anyone attempting to ‘do’ anything experiences, is the encouragement of facilitation payments when seeking permissions/certificates/approvals/licences or interaction with regulatory bodies (tax for starters). Think anyone looking for a health or engineering certificate for a building, customs clearance, have their books audited for tax or labour purposes etc. What often happens here is a company fills in the forms, puts in its application and then hears nothing, or it may get the forms back while being told they are incorrectly filled, or may be asked for more information (which may or may not have been asked for initially), and this can happen more than once, sometimes over a timeframe far far longer than anything anyone would think remotely normal. For example when a company looking to build a plant wonders why a planning approval (or a shop being fitted out cleared for OHS purposes) they had figured might take 2 weeks hasn’t happened after 3 months they may have someone suggest, when they ask why things are taking so long, that someone could expedite the process ‘for a payment’ (or even small gift – I recall one office awaiting an HSE clearance in Almaty sorted its problems when the secretary of the person issuing the approval received flowers, after being tipped off to the possibility by the office alongside).

    Sometimes the company seeking approval may find that, after being told everything would be OK, right at the last or most inopportune moment they find they don’t have what they need (cue recollection of an IKEA mega complex opening, in Russia, being deferred indefinitely, because car parking wasn’t appropriate, then later the lighting wasn’t certified, and then sanitation certification (which had been given) had expired and had to be done all over again, or, my favourite, millions of dollars worth of exotic fish, intended for an aquarium the developer thought had ‘high level approval’, expiring in 35 degree heat on a runway when the local customs suddenly declared their paperwork wasn’t appropriate and weren’t aware of any high level approval) .

    A significant ‘cut’ may also be a factor in importing things (customs in some central Asian nations love their cut of everything coming over the border – shippers move whatever they like, customs gets 5-10-15% or whatever) or exporting things (shipping things – particularly rail and truck – can involve expecting to have large volumes go missing). For a project manager or engineer trying to complete something on time sometimes there is a lot of temptation to try and expedite things rather than explain to head office what the issue is. What also creates confusion is the large number of circumstances where a company proposes going to a location, building something, and ostensibly has the support of the local administration, usually at a high level, and assumes that because of this all procedural issues will be either expedited or waived altogether, when this is rarely the case. Where any project is being supported by an administration the nature of that support should be spelled out in a contract wherever possible. The best bet is to wait it out, make sure you have good in country legal advice, and get official verification of all regulatory timeframes and processes, but you would be amazed how many projects don’t actually do this.

    In some of these places tax officials have a fearsome reputation also (quite deservedly – I once asked an attractive young woman at a party what she did for a large company [Australian connected it so happens] involved in outdoor advertising, and she replied straight out ‘I organise payments to the tax bureaucrats’ and when I asked if that meant she was a taxation accountant she disabused my quaint notion by adding ‘No my boss is, he tells me how much to give and I write their names and put the money in envelopes and give it to them.’) meaning that should they take their time examining the books there can be an urge to pay them to go away – they know this and may well be awaiting it. Customs inspectors, any form of corporate watchdog (anti-monopoly types), local government inspectors can all be in the same league. On top of that there is often also a general confusion about the law – meaning that all of these can conceivably be in a position to make it up as they go.

    Complex corruption – The kickback, the sling or the joint venture with suspicious partners, roundabout shipping and invoicing

    The third type of corruption is the kickback – whether the kickback be something simple or far more complex. Invariably a risk with any type of government or para government or regional government or official organisation procurement process, it can also occur with large companies – particularly if they are in some way state controlled or controlled by an oligarch of some sort – and it can take all sorts of amazing forms, can be monumentally pernicious and is the form which leads to the most spectacular benefits (for corrupt individuals) and costs for the publics in these nations.

    It may be a simple ‘You sell widgets worth $100 to our public organisation/department/branch at a cost of $130 and the end user will buy them from this company’ or sometimes (particularly in the context of many large projects involving a range of parties and sub contractors) ‘Your company commits to using XYZ service provider, or sub contractor, [and the extra cost of this contractor will be built into the final cost of the product your provide – but there is strangely no ‘price competition at that level so the extra price doesn’t really matter]’ where the middle organisation, or service provider organisation is privately owned by brother, father, girlfriend, best mate, associate, whatever, of the public official making decisions about who ‘wins’ the tender.

    It may be a more complex ‘joint venture’ proposal to link up with some organisation in a third market in exchange for the right to sell products to the public, or it may be that the public will only buy through a certain company, but they want a particular product, so why don’t the maker and the buyer create a ‘joint venture’. More than a few companies find themselves in joint ventures with local outfits – to whom they invariably leave the handling of local bureaucrats – without doing the due diligence they should, or even asking what it is the other side of the JV actually does. I sat down with an accountant out from London to look at the books of a JV on behalf of an English parent company one day who had inadvertently been given the wrong spreadsheet to peruse and had realised the JV was being used to facilitate a major transfer pricing scheme for a Russian JV parent company, while ostensibly providing management and administrative consultancy services for the joint venture (day to day running of which was largely left to the Brits after they provided the funds to pay off administrative officials, and had employed the connected who wanted to be employed in the JV).

    On top of that I know of more than a few international companies paying sons daughters significant others of procurement officials education costs in expensive internationally renowned schools, the same as I know a few companies organising kin of such public officials work and migration visas to ‘western’ nations in exchange for making sales. Elsewhere it may be apartments in Florida or Spain or Cyprus – Facilitation payments may take many forms. For large scale engineering projects (football stadiums, airports, major roads, bridges hydroelectric facilities) it may be a prime contract in exchange for oversight (and the right choices) of sub-contractors. I have seen TV channels pay ludicrously for satellite access on the basis of contracts through third parties, which, of course, are connected managements of the TV station.

    A factor with kickbacks for large global companies is that they often don’t seem to affect anyone (particularly within the company trying to make a sale) – when all is said and done they are public officials stealing from the public in those nations, with foreign services/product suppliers just being a conduit, so therefore these in the past have taken the view of ‘that is just doing business here’ and played along. And usually there are some wonderful banquets provided, you will get an interesting trip staying in nice hotels and the nicest looking assistants to help you get around (and in more than a few cases outright procurement and prostitution).

    Other factors in the corruption mix – straight out criminality, unclear administrative regimes, dubious courts

    Against the backdrop of these three basic categories into which you could put corruption or bribery there are a range of other factors at play – starting with just outright theft and criminality without even dressing it up as corruption. That comes with invariably shaky administrative processes, dubious laws and legal enforcement processes (including many areas/subjects where there are no laws or no enforcement) against a backdrop (which we should remember) of virtually every nation in this world having had a major regime/approach/economic policy change within the last generation. Property rights are very tenuous, are backed first and foremost by application of power (often potentially violent, and invariably intimidatory). More pertinently you should remember that anyone coming in from outside to do business in this world is coming in to do business with those who have been ‘victors’ in societal change. The simple presence of international companies in this world doing business provides legitimacy, and in this regard it detracts from any view of others in society for whom the existing regime may lack legitimacy – the asset acquisition process of many people with considerable assets in this part of the world may lack legitimacy in the eyes of others in this world. That in the first instance should not be the concern of any business, but that doesn’t mean it cannot cause issues.

    Beyond all that property rights which may not operate the same way as elsewhere or have an unduly rigid or unreliable registration system (in some places you can own land but not the buildings on it, or the people selling it may not own it, or may not be able to sell it with the purpose you have in mind, or maybe there are claims against the site from some time past), and countless countries have corrupt legal systems or officials (it has been known for gunmen to simply walk into a building and say ‘this is ours now’ and boot whoever thought they were managing/owning out). Corporate seals and laws can sometimes be changed and are.

    Corruption and the God of business visas

    Some years ago I was advising a businessman who was planning to IPO his company (about which there had been significant probity claims in the English language media). I explained that when dealing with English media he would invariably face questions about these claims. In the course of giving him some practice on how to deal with these I asked him ‘Mr XXX what do you say to claims that your company has been involved in corruption both here and in Europe? He replied (and he had a good sense of humour, good English, and we shared an interest in the film ‘Bladerunner’) in a Roy Batty style voice, ‘Nothing the God of Business Visas wouldn’t let me into heaven for…..’ We had a good laugh at the time but his point was well made, and has provided much of the backdrop for almost every discussion with wealthy individuals about migrating to the US, EU, Britain or even Australia ever since – because I have tended to the view – not always, but certainly more often than not – that the point he was making was implicitly recognised by all of them

    Taking the people not the capital

    My personal view is that I would rather take the sons and daughters of the mug punting tradesmen, impoverished hack workers, and downmarket shopkeepers, than anyone who has put together the millions to get a business investment visa to Australia, or even someone who has a connection in a local government, a ministry, a state owned enterprise, or a large business paying off someone in the political administrative world in some other nation to facilitate their wealth. I would much rather take skills as the basis for migration, than any capital, because when all is said and done, all capital is tainted, but the capital in the parts of the world most desperate to get it to Australia is probably more tainted. And I don’t think people should be bringing significant funds into Australia, or applying for migration to Australia on the basis of their wealth, without that wealth being questioned, and without the onus being on the individuals in question to establish its bona fides, rather than Australia to establish that there is something dubious about it.

    Australia in the here and now……..

    The basic take away is that determining corruption and its beneficiaries is never ever simple and that anybody involved in any form of corrupt practice knows that complexity becomes obscurity, obscurity becomes plausible deniability, plausible deniability becomes legal argument, and the legal argument can provide legitimacy.

    Not asking questions in a regulatory/administrative sense – Australia’s baseline position in dealing with capital inflows making real estate purchases (in particular) – is the least resistance option for anyone with the benefits of corruption to manage ( why not take a punt on sending it to Australia if you think Australian authorities won’t ask more often than they will? Or if they will ask less questions than other jurisdictions? Or if diplomatic issues will mean that people wanting to ask questions in one jurisdiction will not ask regulatory authorities in another jurisdiction about what they know? ). It encourages the deployment of the proceeds of corruption in Australia.

    This is currently the Australian way.

  4. I was going to post this article on Linkedin … But that would have been a career limiting move … with the mates being in control that is?

  5. Mates are better than Union Scum I guess…at least they generate the work and income for others.