News 19th Oct 2017

How corruption drives inequality, and what we can do about it


Louise Russell-Prywata

Head of Development

Louise is currently Head of Development here at TI-UK, as well as an Atlantic Fellow for Social & Economic Equity at LSE. She can be found on Twitter here.

Dominic Kavakeb 
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From enabling illicit accumulation of wealth by global elites, to denying people access to basic services, corruption – the abuse of entrusted power for private gain – often serves to drive inequality, both within national boundaries and internationally.

The Azerbaijani Laundromat is the latest example of those at the top laundering vast sums of money through the global financial system. By now it comes as no surprise that the UK played an important role: four of the companies that enabled this giant money laundering scheme were British, with the true beneficial owners hidden behind layers of corporate secrecy.

This Laundromat is far from a lone example; TI-UK’s work cites several cases where UK companies and properties have been used to process and store the proceeds of money laundering and grand corruption. Hampstead mansions, luxury yachts and fine art sit monument to lost funding for healthcare, education or infrastructure. In other cases, corruption has diverted revenues towards corporate profits. Alleged corruption in a Shell oil deal came to light earlier this year that is believed to have deprived Nigeria and its people of $1.1billion.

Such large scale illegal diversions of public wealth are a particularly egregious mechanism through which corruption drives inequality. And the problem is not simply bribery; corrupt patronage networks can prevent fair access to economic and political power, serving to further the wealth and power of ruling elites, exacerbating inequality.

In many countries, everyday petty corruption is also driving inequality. Examples from TI’s work are sadly plentiful: from new mothers in Zimbabwe denied vaccinations for their babies unless illegal ‘consultation fees’ are paid, to families in Cameroon whose children faced expulsion from school because they could not afford to pay illegal fees demanded by the headteacher. When citizens are forced to pay bribes in order to access public services that should be free of charge, corruption perpetuates inequality, with the poor and marginalised suffering the most.

Corruption also drives inequality closer to home. In 2009, 103 construction companies were fined a total of £130million for rigging bids to inflate the cost of major building projects in England, including publicly funded projects to build new schools and hospitals. Worryingly, since this case government efforts to ‘cut red tape’ have decreased the state’s ability to detect corruption, for example the abolition of the Audit Commission, which was responsible for independently auditing local public bodies.

The terrible fire at Grenfell Tower brought this issue – and several others relating to inequality – to the fore. There have been allegations of bribery and fraud, and serious concerns about lack of oversight and accountability throughout the complex supply chains involved in the refurbishment and fitting of fire safety equipment. The Inquiry will examine specific issues such as fire safety equipment, but will not specifically ask whether corruption played a role.

Could this be symptomatic of a complacency towards the occurrence and impact of corruption within the UK, be it in more ‘obvious’ forms such as bribery, or in more nebulous – and harder to prove – methods such as inappropriate lobbying activities? On the subject of lobbying, TI-UK’s research shows there are significant gaps in the regulation of political lobbying. Two thirds of the UK public surveyed in TI’s Global Corruption Barometer believe that the wealthy often use their influence on government for their own interests. But the relationship between opaque lobbying activity and inequalities is complex and deserving of a separate blog.

So how can we halt corruption as a driver of inequality? Here are three areas of action, along with some examples of how TI is contributing:

1. Exposing corruption – transparency takes away hiding places for corruption and decreases the opportunity for it to happen. TI-UK is campaigning for transparency over the true owners of companies that own property in the UK, and secretive company formats such as Scottish Limited Partnerships.

2. Ending impunity – effective laws, properly applied, can bring the corrupt to justice. TI-UK has successfully campaigned for two key legal powers in the UK: the Bribery Act (2010), and Unexplained Wealth Orders, a tool to tackle suspected proceeds of corruption in UK assets such as property. These laws are on the statute book, and in the case of the Bribery Act is already being used. But laws on paper alone do not fight corruption, and in order to end impunity law enforcement must have sufficient resources to pursue complex and lengthy cases – this requires political will.

3. Empowering citizens to drive change – in many contexts, the best solutions to corruption are local and people-powered. Around the world TI facilitates participatory democratic acts such as social audits and citizen-led monitoring of public procurement. In order to prevent corruption from driving inequality, we must create a broad and inclusive call for change that amplifies and gives voice to those who are most acutely affected.