Grand corruption is not asking for a few dollars here or there. It means stealing millions from public funds or shaking down companies for huge bribes. But once someone steals the money, that money needs to be cleaned before the criminals can use it.
As a result, grand corruption often crosses boundaries, relies on complex legal structures to achieve secrecy, and thrives in undemocratic spaces. However, those committing grand corruption would not be able to thrive if they did not have access to the markets of world’s democracies. This is where OGP can help.
This blog will first examine the “how” of grand corruption—the methods used, the sources of ill-gotten funds, the professional services enabling such crimes, and how perpetrators retaliate against those trying to hold them accountable. The analysis will then move to the efforts to uncover grand corruption and possible solutions to prevent and detect such crimes.
To illustrate these concepts, this blog will explore the story of the Gupta brothers, who famously used the South African government as their personal slush fund with the cooperation of high-level government officials and professional accounting and PR firms.
Accusation of state capture
South African authorities accused the Gupta family of orchestrating large-scale bribery, embezzlement, and contract fraud, manipulating state-owned enterprises to secure lucrative deals for their businesses.
Pictured: Cape Town, the wealthiest city in South Africa (Credit: Ashley Jurius via Unsplash)
Blowing the whistle
Investigative journalists and whistleblowers uncovered the scope of criminal activity. Former government official Mcebisi Jonas exposed the Guptas’ offer to make him Finance Minister in exchange for influence.
Pictured: Church Square in Pretoria, South Africa, where the Ministry of Finance is located (Credit: Kyle Philip Coulson via Unsplash)
Looking at Grand Corruption
It is important to understand who is committing these crimes and where open government can play a role to prevent or address them. To tackle that, we took a look at 40 cases of corruption around the world to get a sense of any patterns. Fourteen stories were from the Organized Crime and Corruption Reporting Project, 16 from Understanding Corruption: How Corruption Works in Practice, five from Stanford University’s Foreign Corrupt Practices Reporting Act (FCPA) Clearinghouse, and five from other sources. The cases occurred on all continents, in countries rich and poor. Most notably, however, was that almost all cases crossed national boundaries at some point.
For details on the cases and the limits of this review, please see the “Note on Case Selection” box below.
Notes on case selection
Each case highlights a known or alleged case of grand corruption. These cases are not necessarily representative of “corruption” worldwide, nor of grand corruption in particular. They are all cases that have been, at least, in part exposed publicly, even if they were not acted upon. Consequently, they do not represent the large chunk of grand corruption that has gone undetected.
We all pay for white collar crime, including grand corruption.
Not all white collar crime is corruption—the definition also includes fraud and embezzlement. Nonetheless, it is worth taking a look at the estimated monetary and non-monetary costs of white collar crime.
As the cases that follow show, this criminal activity subverts democracy and the rule of law. It also bends public priorities to private interests.
A Focus on Corruption
Corruption and money laundering make up a significant portion of white-collar crime.
- Corruption covers numerous crimes, including public fraud, illicit activities to avoid regulation, embezzlement, contracts fraud, willful accounting violations, campaign finance violations, and influence peddling and bribery. “Grand corruption” occurs when there is a misuse or abuse of high-level power, a large scale or large sums of money, or harmful consequences. It is different from petty corruption.
- Money laundering: Once a crime has been committed, the proceeds are now “dirty money” that need to be laundered—cleaned and put back into the economy where it can be used to buy nice things like cars, vacations, and houses. Money laundering is a crime in itself in many jurisdictions. In others, it is an “accessory crime,” which must be accompanied by another crime (known as a “predicate” crime).
Above the law? The special problem of state capture
A small number of the cases reviewed did not technically break laws or have not yet faced legal consequences.
- State capture: Three of the cases are clear-cut cases of corruption, but individuals have not yet been charged. This is the case for the recent governments in Guatemala and Turkey. Other cases of clear embezzlement, such as in Equatorial Guinea and Angola, managed to escape sanctions for considerable amounts of time.
- Enablers: Professional services firms, too, seem to thrive in the legal gaps.
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- Bell Pottinger has carried out numerous suspect communications, including running interference for the three Gupta brothers. Though it has avoided legal consequences for misinformation, the firm has been expelled from its professional services organization.
- Similarly, Mossack Fonseca, the law firm at the center of the Panama Papers leak, avoided legal liability though it has since shut down.
- Distorted decisions: There was evidence to suggest that numerous other activities did not trigger law enforcement because, while corrupt, they are not illegal. These included the capture of state assets at below assessed values, handing out jobs, and influence peddling.
Predicate Crimes: The Corrupt Act
How did that money get dirty in the first place? For the remainder of the cases (36), here are the most popular crimes. For a detailed look at the cases, check out the database that forms the foundation of this blog.
Sources of Ill-Gotten Wealth
If you are going to steal, the money needs to come from somewhere. In the cases examined, the following were the most popular places to steal from. Ensuring that each of these areas of expenditure have adequate public oversight and opportunities for whistleblowers is essential.
The Getaway: Money Laundering and Professional Services
Once someone has dirty money, they need to get it clean. There is solid evidence that money was exchanged in 31 of 36 cases to launder it.
- Crossing borders: Of the 31 cases, there is solid evidence that one party exchanged money across borders.
- Enablers and gatekeepers: There was clear evidence that financial and legal services were regularly used. The number of cases with enablers is probably undercounted. This is because public reports and records only rarely name law firms or communications consultants that aid the corrupt. Of course, there are notable exceptions.
- Secrecy jurisdictions: Money laundering and shell companies passed through different jurisdictions multiple times. The British Virgin Islands (BVI) came up multiple times. The Tax Justice Network ranks the BVI first on its Corporate Tax Haven Index and 9th on the Financial Secrecy Index.
A web of shell companies
The Guptas laundered their illicit funds through entities like the Dubai-based company Tequesta Group Limited, moving money across borders via a complex network of shell companies and offshore accounts to obscure its origins.
Pictured: The skyline of Dubai (Credit: Mohd Hammad via Unsplash)
Media manipulation and disinformation
The Guptas hired the British communications firm Bell Pottinger to launch a campaign that discredited their opponents and incited racial tensions in South Africa. Bell Pottinger had extensive links to various corrupt schemes worldwide (see graph below). It has since disbanded. McKinsey, a global consulting services firm, remains charged with aiding corruption and capture in the country.
Pictured: A luxury hotel in Mayfair, one of London’s wealthiest neighborhoods (Credit: Samuel Regan Asante via Unsplash)
Getting Even: Retaliation
Ending corruption requires independent, competent authorities and safety for non-governmental actors. This protection of civic space is core to the goals of open government.
- Falsification: In nearly a third (28 percent) of cases, the perpetrators obstructed justice, destroying or falsifying documents, compromising judges, or perjuring themselves or others.
- Intimidation: Roughly one in six (17 percent) perpetrators intimidated whistleblowers or retaliated against witnesses in some way. One in ten cases had documented evidence of harassment by a third party—often non-state actors.
- Strategic litigation: One in six (17 percent) perpetrators carried out strategic litigation against watchdog organizations—whether journalists, civil society, or regulators—often under defamation or libel laws. Some portion of this number also aimed to exempt individuals from the law or have a law annulled. A high profile case of this was Roman Abramovitch, who sought to have assets unfrozen following the full-scale invasion of Ukraine.
- Politically motivated prosecution: One particular type of retaliation shows up more in instances of state capture—when organized crime essentially takes over a government. This is politically motivated prosecution. A full one in eight cases involved the use of public prosecutors (as opposed to private litigation) against watchdog organizations.
- Disinformation: In one-in-ten cases, perpetrators actively spread disinformation. Sometimes this was about themselves, but often about accusers.
Non-Governmental Actors Play an Important Role in Detection
Less than half of cases were discovered through traditional law enforcement measures. This is important, as it means that open government approaches matter. Audits and suspicious activity reports alone cannot expose serious crimes.
Rather, as the table below shows, tipsters, leaks, journalists, NGOs, and whistleblowers clearly play a significant role in identifying major cases. This shows that government-only approaches are not up to the task of rooting out grand corruption. Rather, it requires an “all hands” approach with open government.
The implication is that open government reforms need to include civic space as well. This includes protecting whistleblowers, promoting civic space for NGOs and reporters. In addition, this requires a more serious consideration of the role of leaks, which only seem to be growing, but which may exist in gray areas of the law.
Less than half of cases were discovered through traditional law enforcement sources
Where are they now?
After fleeing South Africa, the Gupta family has reportedly taken refuge in Dubai, evading multiple international arrest warrants and law enforcement efforts.
Pictured: A sign depicting Atul Gupta as part of a protest against former president Jacob Zuma (Credit: Discott via Wikimedia)
Open Government Solutions to Grand Corruption
These cases of grand corruption cross boundaries, rely on complexity to achieve secrecy, and thrive in undemocratic spaces. However, they would not have the oxygen to thrive if they did not have access to the world’s democracies. This is where OGP can help.
The world’s democracies benefit from closing off their own economies to ill-gotten gains. This levels the playing field for their businesses, lowers real estate prices, and removes risk from investing in poorer countries.
To do this, the lesson is that OGP countries can act in the following areas:
- Protect civic space: Take steps to protect – and reward – the journalists, NGOs, and whistleblowers who uncover so much of corruption.
- Ensure the independence of law enforcement: Ensuring that law enforcement is responsible first to the law and to the public, rather than the powerful.
- End financial secrecy: Disclosing beneficial ownership of assets.
- Strengthen oversight of public procurement, licensing, and major government funds: Contracts and publicly managed funds account for the majority of cases of grand corruption. Require open contracting processes, competitive bidding, and clear public transparency of the management of these funds.
- Enhance the integrity of gatekeepers: Expanding customer due diligence rules to the legal, financial, and communications professions.
