Corruption, Compliance & Criminal Regimes: An Interview with Sarah Chayes
Sarah, thank you kindly for participating in this Q and A. I call readers’ attention to your new book Thieves of State, Why Corruption: Threatens Global Security. (Amazon Link here). Today will be part I of our II part interview.
For those who are not familiar with your background, let me summarize. An award-winning NPR correspondent, you set aside your journalism career to stay in Afghanistan after covering the fall of the Taliban to “try to make a difference,” as you have put it. Toward the end of a decade on the ground in Kandahar, you were tapped to serve as special advisor to two commanders of the international troops (2009-2010) and then the chairman of the Joint Chiefs of Staff (2010-2011). Now, as Senior Associate in the Democracy and Rule of Law Program at the Carnegie Endowment for International Peace (link), you focus your research on the security implications of severe corruption.
Your Awards include the chairman of the Joint Chiefs of Staff Distinguished Civilian Service medal, Tufts University’s John Mayer Award for global citizenship, the Bulletin of the Atomic Scientists’ inaugural Ruth Adams award for writing in international security, and Oprah Winfrey’s Chutzpah Award.
In Afghanistan, I might add, you worked as an entrepreneur, launching a manufacturing cooperative that produces natural skin-care products for export. (www.arghand.org) That could be the topic for another whole blog: How to Expand Your Business in an Active Theater of War!
So, as the entire focus of my blog is corruption and compliance from the front line, your front-line, let me share, is breathtaking: as a journalist, an entrepreneur trying to run a business in one of the most corrupt environments on earth, and then a high-level government official, seeking to develop strategic anti-corruption policy. Sarah, that is the front-line of compliance and corruption!
You don’t pull punches, either. You shine a light on realities that many with anticorruption responsibilities would rather not discuss. This is a work that addresses, as you put it, “systemic corruption and all the reasons that can be dreamed up for ignoring it.” Sarah, you don’t pull the curtain back on the front lines of corruption, your book puts an RPG right through it!
In other words, readers, this is the antithesis of the type of abstract, expository text that abounds in the compliance field. This book is down there in the oak-tree-roots of reality. I hope that today’s Q and A will be widely distributed to those at the front-lines of international business, who deal with these issues in their personal and/or business lives.
My struggle here, Sarah, is where to start. If I were leading an overseas sales team I would require each member to read your work and submit an essay entitled “The Consequences and Implications for our Work of Corruption.”
So, lets dig in.
Q: Early in your book you state that “Perhaps corruption is not, in fact, a boring topic to think about, but rather a threatening one. Perhaps this issue, in some profound way, challenges people’s worldviews.” You then add that corruption “is almost too conceptually challenging to contemplate.” Sarah, I am intrigued by those statements and their implications. Can you elaborate?
Sarah: First, thanks so much, Richard, for that overly kind introduction. What I really hope to do here is make people think twice. Spark a debate. So I am grateful to you for this interaction.
The statement above results from long perplexity. I just could not figure out why what seemed to me — and to victims of corruption all over the world — obvious, namely, that acute corruption makes its sufferers so angry that many of them are driven to violent extremes, seemed to be such an impossible notion for Western decision-makers to grasp.
So I began to wonder whether there wasn’t some sort of psychological resistance at work.
And I came up with the following hypothesis. Americans, in terms of their attitudes to the political economy, can be divided into roughly two groups. There are those who fundamentally believe in government. They think that government helps order society, ensure minimally fair rules of the game, and protections for the losers, and provides public goods that the free market can’t be relied on to furnish. Of course, the people who work in government don’t always perform optimally, improvements are constantly necessary. But the basic institution of government is valuable. For those people, my thesis is challenging because I am saying that in many countries, the government is not functioning as a government at all, but rather as a criminal organization bent on extracting maximal resources for personal gain. That is an almost impossible concept for people in this first group to take on board.
The second group of Americans scoffs at the first group. ‘Of course the government is the problem,’ they argue. The solution, in their view, is to reduce government’s meddling, unfetter the market, unleash people’s entrepreneurial genius, and let the laws of competition rule. But what this book shows is that the push to privatize, deregulate, and impose structural adjustment on many developing countries played right into the hands of the criminal elites, who simply privatized publicly owned assets into the hands of their cronies. The aggressive free-market ideology of the 1980s, in fact, may well be to blame for the wave of egregious corruption on display today.
My thinking, in other words, hits Americans on both sides of the political divide where they live. It is extremely discomfiting to each of their world-views.
Q: Sarah, I would like to reference a quote that, while referring to the context of Afghanistan, still resonated with me. You stated, “I have always been perplexed at the sham regret, and authentic eagerness, with which so many have embraced helplessness as a rationale for inaction.” Do you still feel that way, and if you do, why?
Sarah: I do. Let me take the example of Nigeria, which has been preoccupying me of late. According to a carefully documented memorandum the then-governor of the central bank submitted to the Nigerian senate in Feb. 2014, between ten and twenty billion dollars in oil revenues had gone missing over an 18-month period ending July 2013. That central bank governor by the way, Lamido Sanusi, is the only one in the world who not only bailed out the banks during the financial crisis, but also disciplined the bankers. Sixteen top executives were sacked, nine stood trial. He was credited with singlehandedly saving the Nigerian financial industry, won The Banker Magazine’s top central banker of the year award.
So Sanusi calls in the managing directors of the banks over which he has regulatory authority, and tells them they will have to open their books to his examiners so they can start tracing some of these missing billions.
Within days he is fired.
A few months later, Boko Haram militants kidnap a bunch of girls, and U.S. officials are fulsome in their expressions of support to the Nigerian president — the same person who has been syphoning off the billions. How many people have died due to the non-expenditure of that money on public health, decent roads, sewage systems, etc.? How many Nigerians have committed suicide when faced with unbearable tradeoffs due to the cost in bribes of basic public services?
Though rightly cautious about working with a military known for its human rights abuses, the U.S. was quick to mobilize military resources to try to help counter Boko Haram. But to date, nothing has been done to try to trace or seize those massive stolen assets, or sanction officials known to be part of the heist, or make it harder for the ill-gotten gains to be enjoyed here in the U.S. The U.S. ambassador has been arguing against such an approach, worried that it might damage relations with Abuja.
My question is, why should we be so concerned about our relations with a criminal regime?
Q: One area which you address, and which I have shared in my own front-line perspective, is the segmenting of corruption between “high level misdeeds,” and “petty corruption.” As you well stated, “such a formulation profoundly misunderstood the character, impact and structure of acute corruption.” Thank you! In my view, thinking that low-level corruption is nothing more than “how things get done around here,” can lead to great peril for businesses. Sarah, if you were sitting with a front-line sales manager in a territory with a low-integrity reputation, who is in constant contact with requests for petty bribes, what would you share to impact the thinking? Would you share your model of criminal organizations where “every level paid the level above, and the men at the top had to extend their protection right to the bottom?”
Sarah: There are two questions here. One has to do with the notion of a “culture of corruption.” I heard that all the time with regard to Afghans. But I only heard it from Westerners. Afghans were screaming about corruption. They couldn’t bear it. Of course, the subset of Afghans with whom most Americans — government officials and businesspeople alike — mostly dealt were making out. So it was in their interest to soothe foreigners with the notion that it’s just “how things get done around here.”
What international businessmen miss is that they can afford to pay those “petty bribes,” and get their work done. But for ordinary citizens in these countries, the bribes represent a potentially crippling ad hoc tax. I met an Uzbek journalist who was eating his heart out over whether to sell his car so his son could get into university. Though his grades were high, there was no way to secure a place without a major bribe. But the journalist desperately needed his car to work.
So, by playing along with this system, international business is reinforcing it, and making life much harder for the locals. Those locals see what’s going on, and eventually come to resent the foreigners whom they see as enabling this system and extracting their piece of the cake. No wonder people get violently angry at international business interests.
The second part of the question has to do with vertical integration. Many people choose to think that “petty corruption” is just the work of the cop on the street — poor guy, he doesn’t get enough salary to live on anyway. He’s just trying to make ends meet. That’s true. But the corruption doesn’t stop with him. In nearly all the countries I have looked at, people BUY their positions in the police. Now why would a person go into debt to buy a job with a lousy salary? Because — with the bribes they can extract — the job is so lucrative. The candidates usually have to pay a lump sum, but then also a monthly cut of their take to their superiors. Those superiors pay their superiors, and so-on up the line, all the way to the minister of the interior…who also benefits from fantastic opportunities to facilitate drug smuggling, or customs fraud, or whatever.
To reiterate: we are not talking about governments that are plagued by some corruption here. We are talking about sophisticated, vertically integrated criminal organizations that are masquerading as governments.
And businesspeople seeking to engage in these environments should think about it that way. I’m not saying the answer is always to shun them. But investors should think about it the same way they would think about doing business with the Medellin cartel. They should think about risk to their investment, because once they’ve accepted the principle of an extra-legal toll booth, they have implicitly accepted the notion that the toll will be extracted repeatedly, or raised, or that they suddenly won’t be allowed to pass even if they pay the toll. All bets are off once you get onto that ground. Also there is risk at the hands of irate locals — as oil majors have experienced in many contexts.
They should think about their reputational risk too, as more and more Western consumers become alert to this type of abuse, the way they have become alert to labor standards in countries manufacturing our consumer goods.
And they should think about corporate social responsibility in broader terms. If this type of corruption is indeed fueling security threats, such as terrorism, then don’t they have a responsibility not to enable it?
Well, that seems like an appropriate place to break and I look forward to sharing the second part of our interview in a few weeks.