Aug 17, 2015

The Looting Machine & The Modernization of Corruption

Today’ Q and A is with Tom Burgis, Investigations Correspondent at Financial Times and author of “The Looting Machine: Warlords, Oligarchs, Corporations, Smugglers, and the Theft of Africa’s Wealth”  available here. As Tom States in his Amazon forward,  “The Looting Machine tells the story of how Africa’s great natural wealth has become its curse, of what life is like for those who live under that curse, and of how shadow states across the continent have, in cahoots with multinational corporations and tycoons from east and west, harnessed Africa’s treasure to their own oppressive interests.” I would add that it is a compelling work with troubling and relevant findings, which I would consider as required reading for front-line personnel and compliance personnel who have the responsibility to manage corruption risk in Africa.

Tom, thank you for allowing me the opportunity to engage with you in this Q and A. I often share that at the front-lines of international business, corruption can look like a win-win as business personnel, corrupt officials, and the intermediaries who bridge the two, might think “who is getting hurt here?” While I speak to that front-line perspective as nothing but an illusion, you bring this dynamic to life in your writing. I hope that in this exchange, we can bring that reality to the compliance community who often operate far from the regions which you so well describe.

Early in your work, you state that the “looting machine has been modernized.” Is part of that modernization designed to circumvent anti-bribery, proceeds of crime, and money laundering laws?

TB: By saying that the looting machine’s been modernized, I really mean it’s been globalized – and it’s gone offshore.

The comparison is with the old commercial conquistadors. People like Rhodes. Broadly, they looted Africa under national flags. Congolese rubber, southern African diamonds, west Africa slaves: they were all carried off with the more or less explicit consent of imperial powers. Through the Cold War, that link between exploitation and national political goals remained. To an extent, it does today: Washington, Paris, London, Beijing: all are content to form alliances with despots to ensure access to natural resources (just look at the French presence in Gabon, America’s in Equatorial Guinea or China’s in Sudan). But increasingly, the looting machine is controlled by transnational networks. By that, I mean networks of local rulers, security bosses and officials, itinerant middlemen, and multinational business. Just look at Sam Pa’s Queensway network: it encompasses connections to Chinese intelligence, shadow African government’s like Robert Mugabe’s and blue chip western companies including BP and Glencore.

You reflect upon due diligence processes, which is a major industry unto itself, as “manufacturing deniability.” If I had one question to ask today, this would be it: Can you share with us more about what that means, and what compliance personnel should take away from your cautionary description.

TB: I’m talking about a process that, like tax avoidance schemes or time-wasting in football, has become detached from its proper purpose. It’s about adhering to the letter, rather than the spirit, of good conduct (and in some cases, of the law). A lot of due diligence is done to tick the boxes. A lot of it is cursory.

And a lot of it appears designed to “manufacture deniability”. That is, its purpose is to be able to demonstrate to any regulators that might subsequently make enquiries that efforts were taken to avoid corruption, rather than a genuine attempt in good faith to avoid contributing to the corruption that does such damage in Africa’s resource states.

The vast majority of the people I speak to who work in due diligence – and there are a great many people of intelligence and integrity in the business – are disillusioned with what their industry has become. Those doing on-the-ground investigative work feel that information they uncover is frequently dismissed as it goes up the chain (through the business intelligence company, the law firm, the compliance department and, ultimately, the executive level) if it doesn’t fit the pre-ordained outcome that the client wants. I would suggest a statutory footing for the most important due diligence work. If companies were liable for, say, failing to establish the beneficial owners of their partners before proceeding with a deal that was subsequently revealed to be corrupt, the scope for “manufacturing deniability” would be dramatically reduced.

In your chapter “It is Forbidden to Piss in the Park,” you describe a situation where “the political economy of the roadblock has taken hold.” When I read that passage, I thought of small, petty bribes. So for someone in the field who might think of small bribery as “the way things get done around here,” and part of the “norm of corruption,” again, where no one gets hurt, what would you say? And what if that front-line manager thought of small bribery as somewhat altruistic in helping some poorly paid and trained public official to “make ends meet.” What might be your response?

 TB: It’s an understandable instinct and certainly a different one from the big-ticket corruption designed to secure an illicit competitive advantage. Someone in fear for their life at a roadblock might well pay a bribe (though that would probably be more like extortion than corruption). But it is possible to say no and still get the form or the permit or the visa or the import license – or indeed, the oil block. It requires patience.

I sometimes detect a whiff of racism in the justifications for petty bribery: “These guys just don’t get how we work, so we need to cut through the red tape…” That is no sort of argument. Every bribe further corrodes the notion that public office is for delivering public goods, not personal advantage. Law enforcement should focus on the biggest forms of corruption, for sure. But perpetuating petty bribery perpetuates the overall system.

That was the point of my story about the Congolese roadblock. It’s part of a shared psychology that comes into play in countries where the state has collapsed. If the big man is capturing territory (Katanga, say, or chunks of eastern Congo controlled by warlords) and squeezing rent from it in cahoots with foreign partners, that provides a model all the way down to the guy with the AK controlling the most remote junction.

In the chapter “Incubators of Poverty,” you state “oil has so corrupted Nigeria that, for those trying to make an honest buck, the outlook is dispiriting.” So, for today’s readers who want to make “an honest buck” in Nigeria, or regions with the same integrity and transparency issues, what’s a company to do?

TB: What is required is courage and good faith. I know plenty of people doing business in Nigeria – foreigners and locals alike – who have both. We often get tangled up in meaningless business jargon when addressing questions like this. We know instinctively if a transaction involves using corrupt means to gain an advantage. Patience helps, too. If you come to London with a big American accent and ask a taxi driver to take you somewhere you can’t pronounce properly, that taxi driver will take you for a ride. The same goes in Nigeria. Get to know the place before leaping in to business.

Later in the chapter you speak of networks which “fuse private interests with public officials; they operate in the underbelly of globalization, where criminal enterprises and international trade overlap.” Given the increase in FCPA and Anti-Bribery enforcement, are these networks being destroyed, diminished, or to use your words, “modernized.”

 TB: It is always hard to say, because, by definition, we only hear about the cases that become public. But history suggests that corruption evolves in response to threats. Just look at how cash bribes have given way to the use of offshore front companies and concealed equity stakes in projects granted to officials.

You reflect on the work of the World Bank, the IMF and other global financial and aid intuitions as being players in “resource ventures of dubious merit.” Can those institutions that were designed and chartered to aid in development really be such a part of the resource curse?

TB: Yes. As I outline in the book, the International Finance Corporation in particular has repeatedly been involved in resources projects that have proved highly damaging. That is not to say that there are not lots of bright people and good intentions within these institutions. I think partly the problem stems from a reluctance, in an era where economic growth often appears to be the only political goal, to accept that one of the biggest industries of the world economy comes with a terrible toll.

In the chapter “God Has Nothing To Do With It,” you speak of how “transactions are structured in an effort to enrich officials without crossing the threshold of illegality.” Is that a contradiction? Isn’t enriching officials in itself an illegal act, or is it somehow as you describe, a “safe sex transaction!”

TB: That goes to my earlier point about the letter and the spirit of the law. It is possible to exploit loopholes and give a technical impression of propriety to what is in fact a transaction that improperly enriches officials. It’s about intent and following the money.

Finally, in “Complicity” you quote one of Nigeria’s young musician’s as saying, “Don’t think you’re not involved.” So if you were addressing a meeting of commercial managers from any one of the Looting Machine regions that you describe, how would you advise them? How would you try to engage them as individuals?

TB: Honestly. And I’d encourage them to listen to more African hip hop. That’s where you hear the best arguments against corruption.

Tom can be reached via e-mail at [email protected] as well as twitter at @Tomburgis

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One comment


  1. Very interesting piece. I think the due diligence conversation is more complicated than this.
    I think that clients have become much more demanding about human source intelligence, which is a reaction to the due diligence industry’s history of recycling rumors and having weak methodology. The problem is that getting precise information is difficult without breaching confidentiality or FCPA provisions in the actual gathering of the information. I like the idea of needing to establish beneficial ownership before proceeding with a deal, though the paperwork can still be manipulated so I’m not sure it solves the actual problem which is often proxy owners and front men. At what point do we say the client should have known?
    Another issue is that the regulatory environment focuses on technical bribe paying for commercial advantage – which also has a racist tinge as that is only a big problem in certain markets, whereas lobbying and nepotism and so on are problems everywhere. If you have a major PEP involved in your deal, then the need to pay such bribes in fact melts away. Grand corruption and state capture is not the focus of the FCPA, and raises a number of geopolitical strategic questions that no one is prepared to answer…..

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