Latest FT book review

Yesterday the Financial Times published my review of JC Sharman’s The Despot’s Guide to Wealth Management.

Ever thought who the fellow customers of your bank might be? No doubt the vast majority are decent, hard-working people but could they include foreign leaders who have embezzled many millions from their impoverished countries?

Nowadays it is unlikely that a respectable bank would cultivate such a situation knowingly. But it can and almost certainly does happen through the lax implementation of regulations or the successful disguise of the sources of stolen assets.

A similar situation exists in relation to lawyers and property professionals. No doubt a small minority is involved in facilitating this vast siphoning of assets and some know exactly what they are doing.

JC Sharman, a professor of international relations at Cambridge university, is interested in the role of western governments and financial institutions in facilitating grand corruption. The “grand” here refers to political leaders and senior public officials. The Despot’s Guide to Wealth Management: On the International Campaign Against Grand Corruption is not about small-scale theft but about the proceeds of kleptocracy: government by corrupt rulers.

The book’s strength derives from its avoidance of the common error of reading history backwards; looking for the particular characteristics of the present in the past. He shows that, contrary to what many might assume, international corruption was not always a pressing concern. On the contrary, it was only in the 1990s that western leaders started discussing it in earnest.

In the previous period, up until the end of the 1980s, the main western foreign policy imperative was to counter the influence of communism. The west was willing to tolerate kleptocrats if the leaders involved were allies against Soviet influence. These included Ferdinand Marcos, president of the Philippines, and Mobutu Sese Seko, president of the Democratic Republic of Congo.

Of course western countries sometimes still turn a blind eye to dictatorial allies. However, the consensus is that such inaction is wrong even though some might regard it as necessary in some cases.

Since the 1990s, a plethora of institutions has emerged to help tackle grand corruption. These include international organisations such as the OECD and the World Bank as well as non-governmental organisations such as Transparency International and Global Witness. They have support from western governments and sometimes receive funding from philanthropic bodies such as George Soros’ Open Society Foundations.

Sharman is an ardent supporter of the turn against international corruption but is sharply critical of its implementation. He argues that, as far as it is possible to estimate, only a tiny proportion of such assets are recovered and the costs involved are enormous. There are several reasons for this lack of effectiveness, including realpolitik, the commercial incentives operating on banks and the inherent difficulty of international legal action.

Instead he favours an emphasis on alternative anti-kleptocratic measures to bolster prevention and deterrence. These include giving non-governmental organisations a greater role in tackling corruption and targeted financial sanctions.

Yet Sharman’s approach underestimates some fundamental challenges. For a start the west’s drive against grand corruption is, in a sense, not about enforcement. It emerged as part of an attempt to find a mission, or what Sharman calls moral leadership, with the end of the Cold War. Western politicians can all too easily make themselves feel good while winning points back home by using international conferences to denounce foreign kleptocrats.

Sharman also pays scant attention to the consequences of undermining the sovereignty of poor countries still further. It would appear that he suggests having a list of criteria which if met would designate particular countries as being systemically corrupt. The sentiment is no doubt well-intentioned and understandable but it should be recognised that it means subjecting national governments to external sanction.

As a result, poor countries would have even less control over their affairs than they do at present.

The Despot’s Guide to Wealth Management: On the International Campaign Against Grand Corruption, by JC Sharman, Cornell University Press