This is the essay on corruption that David Cameron didn't want you to read

At least until the recent scandals in football and athletics, most people would I suspect judge that the worst corruption in the world is a problem of bad governments in developing countries. Indeed, Transparency International’s (TI) “Corruption Perception Index” finds countries of the south consistently at the bottom levels of the Index; though TI explicitly recognises that the north is partly responsible for the corruption of the south as a bribe payer.

There is no doubt that there are problems of corruption in some governments in developing countries. The question is what should be done about it? Some want to wag fingers and deny any aid to some of the poorest people in the world; wiser heads understand that lots of the corruption originates in OECD countries and that it is when systems are weak – anywhere in the world – that some people will engage in corrupt behaviour. If we want to reduce corruption then we need to strengthen preventative systems in both OECD and developing countries.

It is important to remember that it was not until 1996, that the OECD – the club of rich countries based in Paris – recommended that bribes paid to public officials abroad should cease to be tax deductible. And it was not until 2002 that the UK implemented this recommendation. In fact the OECD treatyrequiring countries to legislate to make corrupt payments to a public official abroad, a criminal offence, was not agreed until 1997 – less than 20 years ago. The history of how this came about is very interesting.

At Watergate in 1972, burglars were caught breaking into the Democrat committee headquarters and it was then discovered that this was authorised by president Nixon in order to bug the headquarters of his electoral opponents. Congress therefore set up enquiries, and during the hearings, it became clear that large amounts of cash were provided by CEOs to fund the Committee for the Re-election of the President. One thoughtful congressman asked where in the company accounts such funds were provided for. It was then discovered that 400 publicly traded major corporations had slush funds which existed to pay bribes to public officials abroad, in order to obtain contracts.

In the wake of the national shock revealed by the dirty dealings over Watergate, the US Congress passed the Foreign Corrupt Practices Act in 1977. This made the US the first country to outlaw bribing foreign public officials abroad. After a little time, US businesses started to complain that it was unfair that others could compete through bribery and they could not. This led to a massive US effort to achieve agreement through the OECD, that countries should pass legislation to make it a criminal offence to bribe public officials abroad. The Treaty was agreed in 1997 and took effect in 1999, just over 15 years ago.

Importantly, the OECD put in place monitoring machinery to expose countries that failed to implement the treaty requirements. The UK does not come well out of the monitoring. In 2008 the OECD Working Group said that it was “disappointed and seriously concerned” about the UK's continued failure to address deficiencies in its laws on bribery of foreign public officials and on corporate liability for foreign bribery, which it said had hindered investigations. This led to a new Bribery Act being passed into law as recently as 2010. The new Act was welcomed by the OECD Working Group, but the government was being intensively lobbied by business interests over the details of implementation.

In February 2011 the chair of the OECD Working Group expressed his disappointment over the delay in the promised entry into force of the Act, originally promised for April 2011. At last in March 2012 the Working Group found that the UK had significantly boosted its foreign bribery enforcement efforts but needed to be more transparent when resolving cases. It also asked for a roadmap to extend the Convention to UK Overseas Territories.

By October 2014 Transparency International found that of the 41 countries, accounting for two thirds of world exports, that had signed the OECD Anti Bribery Convention, only four countries were "actively investigating and prosecuting companies that cheat taxpayers when they bribe foreign officials to get or inflate contracts or obtain licenses and concessions". Happily the UK had by then arrived at a state of grace and was found to be engaged in active enforcement alongside the US, Germany and Switzerland. The countries with little or no enforcement included Japan, The Netherlands, South Korea, Russia, Spain, Mexico, Brazil, Ireland, Israel and 12 others.

My own experience in government included an effort in 2000/01 to halt the sale by BAE Systems of an obsolete military air traffic control system to Tanzania. This was such a bad project that it was obvious that it could only have been agreed through corruption. Tanzania had recently been granted debt relief and one of the conditions was that it should obtain no loans unless they were concessional. The air traffic control deal was funded by a loan from Barclays which obviously broke this condition.

Eventually, as part of an investigation by the Serious Fraud Office, it wasexposed that BAE Systems had paid £8.5 million ($12.4) -- one third of the contract’s value -- to a middleman in Tanzania called Shailesh Vithlani. In 2010, the company agreed to pay £30 million reparations to Tanzania and was given a further fine at the Crown Court in Southwark for concealing payments “from the auditors and ultimately the public”. BAE Systems and the Serious Fraud Office argued that Vithlani had been paid to lobby for the contract. The judge said he was “astonished” at claims BAE Systems had not acted corruptly, court records show.

“I accept...that it is not now possible to establish precisely what Mr Vithlani did with the money that was paid to him,” Mr Justice Bean said. “But on the basis of the documents shown to me it seems naïve in the extreme to think that Mr Vithlani was simply a well-paid lobbyist.” He added that BAE Systems made payments with the intention that Vithlani would have “free rein to make such payments to such people as he thought fit” adding that they “did not want to know the details”.

The UK had been a major player in negotiating the 1998 EU Code of Conduct on arms exports which said, in addition to normal provisions limiting arms sales, that all EU countries would block arms exports that would seriously hamper the sustainable development of countries. Despite this I couldn't get support from Number 10, the Foreign Office, the Ministry of Defence or Departments of Trade and Industry to use the government licensing system to block the contract. I said at the time if BAE Systems and all those government departments would go to such lengths to support such an indefensible but relatively small defence export, it made one fearful of what they would do for bigger things.

Sadly, arms sales to Saudi Arabia are an example of bigger things. There is a long history of corrupt behaviour sanctioned by successive governments. As recently as 2006, the UK terminated a major foreign bribery investigationconcerning the Al-Yamamah arms deal between the UK and Saudi Arabia, for which BAE Systems was the main contractor.

At the time, the Serious Fraud Office was investigating an alleged £20 million slush fund designed to bribe Saudi officials. In autumn 2006, the SFO planned to look at certain bank accounts in Switzerland -- with the cooperation of the Swiss authorities -- to find out whether payments had been made to a Saudi agent or public official, according to a 2008 House of Lords judgement. This provoked an “explicit threat” by the Saudi authorities, the judgement noted, that if the investigation continued “Saudi Arabia would withdraw from the existing bilateral counter-terrorism co-operation arrangements with the UK, withdraw cooperation from the UK in relation to its strategic objectives in the Middle East and end the negotiations then in train for the procurement of Typhoon aircraft.”

After consultations with then-Prime Minister Tony Blair and the Attorney General, the director of the Serious Fraud Office Robert Wardle halted the investigation. He said that continuing would risk “serious harm” to the UK’s national and international security. The SFO announced the end of the investigation in a press release, quoted in the judgement: “It has been necessary to balance the need to maintain the rule of law against the wider public interest. No weight has been given to commercial interests or to the national economic interest.” Tony Blair said he took “full responsibility” for the decision.

In 2010, to settle allegations of bribery made about the Al Yamamah deal, the arms giant pleaded guilty to charges of false accounting in a U.S. District Court in the District of Columbia. BAE Systems was sentenced to pay $400 million (£277 million) in what then-Attorney General Gary Grindler called “one of the largest criminal fines ever levied in the United States against a company for business related violations.”

The story of British arms sales to Saudi Arabia is so murky, it’s worth reminding ourselves of just how bad it was, and that it continued from the late ‘60s until 2006, implicating every successive government.

According to a briefing by The Guardian newspaper on BAE in Saudi Arabia – part of a lengthy, groundbreaking investigation – the US warned at the outset, “Saudi requests for arms were not based on considerations of national security as much as private pressure by those most likely to profit from arms sales…”. But successive governments took no notice.

The first deal was made in 1967 under Harold Wilson’s Labour government. It was, according to the Guardian report, for 42 Lightning fighters plus a radar contract. The value was £104 million (today’s value, £1.7 billion). The commission paid by BAE was at least £7.8 million (£128 million in today’s values). These payments were authorised by government officials and were declared to three UK agencies. The Inland Revenue, in documents obtained by the Guardian, minuted privately that the “hard fact is that bribery is essential”.

The UK government became more involved with the next deal in 1973. Worth £253 million (modern equivalent £2.8 billion), according to Guardian research, it was for Strikemaster fighter jets, training and maintenance for the Saudi’s existing Lightnings. Made under Edward Heath’s Conservative government, the commission payment was over £30 million (£327 million today). This was the first time the UK government became directly involved in payments after the Saudis demanded a ‘government to government’ deal.

“The Ministry of Defence signed a contract with Saudi Arabia, and took the money from Riyadh. It then employed BAE as lead supplier with an officially controlled profit margin. But in fact the official ‘profit margin’ was a fiction,” theGuardian briefing said. “The prices were inflated and millions of pounds in ’commission’ were channeled by BAE into anonymous Swiss bank accounts…The government auditor concluded that the government was up to its neck in bribery.”

In taking the trouble to remind my readers of this sad history, I am not suggesting that the UK behaved any worse than other OECD countries. There are similar scandals in many comparable countries. What is important is that we face up to the fact that a massive responsibility for very large-scale bribery and corruption originates in countries like our own. We must also recognise that action to challenge such behaviour has been taken only very recently and is not properly enforced in most countries.

In December 2014 the OECD published an analysis of the cost of foreign bribery and corruption. The report analysed more than 400 cases worldwide involving companies or individuals from the 41 signatory countries to the OECD Anti-Bribery Convention, which were involved in bribing foreign public officials. The cases took place between February 1999, when the Convention came into force, and June 2014. Almost two thirds of cases occurred in just four sectors: extraction (19%); construction (15%); transportation and storage and information and communications (10%). Bribes were promised, offered or given most frequently to employees of state-owned enterprises (27%) followed by customs officials (11%), health officials (7%) and defence officials (6%). Heads of state and ministers were bribed in 5% of cases but received 11% of total bribes. In most cases bribes were paid to obtain public procurement contracts (57%), followed by clearance of customs procedures (12%). 6% of bribes were given to gain preferential tax treatment. In 41% of cases management-level employees paid or authorised the bribe.

If I may, I will digress for a moment. I would like to recall the advice I was given in 1977 when I left the Home Office and went to work as the director of a community organisation based in Handsworth in Birmingham. When I met with our auditor to discuss the financial systems and bookkeeping, I suggested we might keep a few pounds in a tin as petty cash to pay for milk and tea and other small items. He emphasised strongly something I have never forgotten, that I owed it to everyone who worked in the organisation to set up a system that could not be fiddled. It was impossible to know what pressures and temptations individuals might be subjected to. If systems were tight, no one could be tempted and it would be better for everyone. TI make this point clearly on its website: “people are as corrupt as the system allows them to be”.

When it comes to developing countries it is often the case that governments have over the years offered jobs in the public sector to more people than they can really afford. Over time, wages tend to decline to such a level that people cannot live on the income that they take home. We find that in such cases policemen start taking small payments from members of the public and minor officials make similar charges. The question each of us should ask ourselves is, if we were unable to feed our children with the salary we were paid, and such practices were widespread, should we be joining in? Such examples show

that petty corruption is usually a result of bad systems rather than morally defective people. The challenge for development is to help countries out of such a trap. There have been various programmes for public-sector reform in order to offer redundancy to older workers, slim down the size of the public service and provide better wages for those that remain. They tend not to be favoured by the commentariat.

Thus we must be clear that working for development, anti-corruption and good governance is not a question of hectoring from the moral high ground or denunciation and threats of the withdrawal of aid, but of helping to build systems that prevent such corruption. This is an important purpose of budgetary aid, so disliked by so many, where development funds are put into government budgets on condition of joint work to build well-organised public financial management and procurement systems. The prize from such work is that people in poor countries with weak institutions see aid well spent, help provided to build up the capacity of government systems, and their own tax revenues better protected and better spent.

In recent years, we have also engaged in Security Sector Reform, helping countries to organise their military, police and intelligence agencies effectively to deal with the real challenges they face, and to try to clean up defence procurement, which, as we have seen, has been a murky area for very many years.

The poorest and most fragile countries are often engaged in conflict or newly emerged from conflict, and they pose a real challenge for development.

The laudable aim of the government to work more in fragile states will impose greater risks that aid money may go astray. The task here is to help countries to build reliable government systems and this takes years of effort. Our experience in Afghanistan, and the terrible corruption that there is after more than 10 years of massive international aid, shows that we have many lessons to learn to get this right.

The 2014 OECD study of prosecutions for breaches of the Anti Bribery Convention found that Extractives was the biggest bribery sector. For the past five years (until February 2016) I have chaired the international Board of the Extractive Industries Transparency Initiative ( EITI ) which was established over 10 years ago to try to use transparency to improve accountability in this traditionally highly opaque and corrupt sector. A short description of this work helps to exemplify the challenge in working to reduce corruption in a major problematic sector.

Again, in this field, it is only in the last 10 years that concern has been expressed about resource wealth feeding corruption and conflict, and the failure of vast oil and mineral resources to lead to sustainable development and the reduction of poverty. In the Cold War years, western governments’ major concern was security of supply, and companies shared that concern together with an anxiety to secure their profits and avoid nationalisation. The World Bank, and other banks and investment institutions, cared only about the return on investment and not about the wider governance and social consequences of their investments in this sector.

Research evidence has been available since the founding of OPEC in the 1970s that, paradoxically, the discovery of oil and other natural resources, tended to undermine and not improve poverty reduction and economic development. For a long time explanation focused on currency appreciation and fluctuations in revenues. But as early as 1975 the Venezuelan oil minister, who was a co-founder of OPEC said, “I call petroleum the Devil’s excrement, it brings trouble... waste, corruption.... public services falling apart. And debt, debt we shall have for many years”. It was, again, only from the mid ‘90s onwards that the perverse outcome of oil extraction in developing countries came into the spotlight. This was because research identified bad governance as driver behind very dismal development in resource rich countries. The

research suggested that oil and mineral-rich states in the developing world were more likely to suffer from lack of provision of basic public goods, corruption, and civil war than comparable non-resource-rich countries, and also more likely to be poorer. These findings were generally referred to as “the resource curse” and this is a widespread reality. But countries like Norway and the UK in the case of oil, and Canada and Australia in mining, are not so cursed. It is clear that the problem is governance, not the nature of the resources themselves, although it is true that fluctuating prices, resource-depletion and the likelihood of currency appreciation do pose particular difficulties.

It is clear also that poor development outcomes were caused by the link between international and domestic factors, i.e. the interaction between multinational companies and their shareholders and investors, host governments and greedy elites. The work of TI and the OECD Convention on Combating Bribery were important influences on public debate as were Global Witness reports on egregious corruption in Angola. Global opinion turned against major companies, particularly oil companies, and denounced their behaviour. The old slogan that “the business of business is business” was no longer acceptable.

The Publish What You Pay coalition was formed initially from NGOs in the UK which has since spread to a worldwide movement. The idea behind the EITI is clear and simple: build a coalition of companies, governments and civil society at the international and national level, and require companies to report what they paid to governments and governments what they receive, and publish the figures so that the public can hold governments to account. It took a little time to recruit a board with representatives of each sector, to establish a secretariat, to draw up rules and procedures and a multi-donor trust fund in the World Bank to provide technical support. From 2006 on, the organisation grew quickly. There are now 51 countries implementing the EITI. Half are in Africa but it now includes a wide range of countries ranging from Peru, Mongolia, Iraq, Trinidad and Tobago and Norway, the US and UK.

There is no doubt that the EITI got off to a good start. The number of countries that volunteered to sign up to the reporting requirements grew steadily, as did the supporting companies and members of the NGO network. It is interesting to reflect on why all these different entities decided to join. They came together but each sector had slightly different motivation. The countries tended to want a reputation as a reformer so they could attract inward investment, the companies to prove that they did make payments to governments and the NGOs to try to ensure that the money was spent to help the poor. There have been declarations of support from the G8, the G20 and the United Nations General Assembly amongst others.

However a 2011 evaluation suggested that the simple pass/fail benchmark was inadequate as though reform was a simple matter of complying with basic EITI reporting rules and producing an EITI report. In addition academic commentators pointed out that a simple report of the amount of money paid by companies, and a reconciliation with government receipts, does not ensure that the original contract was fair, what was due to be paid was paid, that the money was properly spent, let alone that there are sensible plans to deal with price fluctuations and the economic consequences of exhaustion of resources.

This is the reason for the clause in the Dodd Franks legislation in the US, which plans to require listed companies to report their payments for oil, gas and mineral resources to governments in the developing world, country by country, project by project. The EU has introduced a similar Transparency Directive which is in the process of being implemented. We must conclude that a vague commitment to transparency is not enough to ensure good governance, and we cannot assume that multi-stakeholder groups on their own will have the capacity to build adequate systems of political accountability.

This is the reason also why EITI introduced more testing reporting requirements supported by all parts of the coalition at its conference in 2013 in Sydney. The new reporting standard requires transparency across the value chain including licensing system, state-owned enterprises and production levels. It also encourages openness on contracts and as full as possible reporting on beneficial ownership. There is a new requirement to provide an account of the overall context so that any concerned citizen could read the report and understand the importance of the sector and challenge of managing it to the benefit of future of their country. In addition, there is a new stress on making government systems more transparent and robust, rather than requiring more and more elaborate EITI reports. The aim of the EITI must surely be to encourage member countries to put in place transparent and robust government systems and to develop a more informed public debate in each country. Progress is being made but building strong and robust government systems and informed public debate takes time.

Multi-stakeholder governance is not for the fainthearted. Bringing together governments, companies and civil society in countries where they have rarely sat down together, can in very important ways help to build trust, dispel myths and focus on the real reforms needed to improve governance in the extractives sector. But on the International Board which has the same composition, campaigning northern NGOs tend to believe that the EITI should be used to discipline countries with imperfect systems, whereas those with development experience understand that reform takes place when local reformers want it and see the potential benefits.

This argument reflects that between those who see development assistance as a means to help countries build better systems and those want to withdraw aid to punish bad governance. No doubt these arguments will continue for a considerable time.

In addition to the challenges posed by the OECD Convention on Bribery, and initiatives such as EITI that work to help countries with very weak institutions build governance systems that prevent corruption, the issue of Illicit Financial Flows has recently pushed itself to the forefront of the international agenda.

This has been triggered partly by an increased focus on the prevention of money-laundering to fund terrorist organisations and also by public anger over tax evasion. In recent years the G8 and the G20 have urged countries to strengthen their anti-money laundering regimes, enforce greater transparency on company ownership and to exchange information in order to tackle tax evasion. It remains the case that every year, huge sums of money are transferred out of developing countries illegally. While such practices occur in all countries – and are damaging everywhere – they are probably larger in scale in developing countries because the institutions are weaker. And the impact in poor countries is worse because there are less resources available for investment and to fund public services. Estimates of the scale of this problem vary greatly but the OECD concludes that "there is a general consensus that illicit financial flows likely exceed aid flows and investment in volume”.

According to the 2014 OECD report "Illicit Financial Flows from Developing Countries: Measuring OECD Responses”, illicit flows involve money laundering, bribery by international companies, tax evasion and trade mispricing. In practice such flows range from private individuals transferring funds into private funds abroad without paying taxes, to highly complex schemes involving criminal networks. Most of the public attention has focused on the behaviour of kleptocrats such as president Abacha of Nigeria, or president Marcos of the Philippines. They and others like them looted their countries and after death were found to have large fortunes invested overseas in a wide variety of assets. Deeply guilty as these rulers were, part of the guilt lies with western institutions; the problem would not reach such massive proportions if it were not possible to move such ill-gotten gains out of the originating country.

In 2011 at an important meeting in Busan aimed at improving Aid Effectiveness, agreement was reached to "accelerate… efforts to combat illicit financial flows by strengthening anti money-laundering measures, addressing tax evasion and strengthening national and international policies, legal frameworks and institutional arrangements for the tracing, freezing and recovery of illegal assets". The G20 and G8 have taken forward this agenda. The most recent summit of the G8 hosted by the UK government at Lough Erne stressed the need to improve the exchange of tax information and knowledge of the real persons owning companies. To achieve these aims will involve a massive effort to help countries strengthen their tax systems in the countries in which the wealth is earned. This agenda also requires a cleanup of tax havens which is a particular responsibility for the UK with its large number of tax havens in its overseas territories.

Another example of how recently the international system has moved to tackle corruption is the United Nations Convention against Corruption (UNCAC) which was adopted by the General Assembly in 2003 and has been adopted by 174 member states.

It is the first global legally binding international anti-corruption instrument. It is extremely ambitious. In its 71 Articles divided into 8 Chapters, UNCAC requires that countries implement anticorruption measures aimed at preventing corruption, including domestic and foreign bribery, embezzlement, trading in influence and money laundering. The Treaty is also intended to strengthen international law enforcement and judicial cooperation, provide effective legal mechanisms for asset recovery, technical assistance and information exchange, and mechanisms for implementation. TI, which has played a

significant part in the negotiation of the Convention, said in its 2013 Progress Report on the reviews provided for under the Implementation Mechanism,

“It is important to recognise that the Implementation Review Mechanism must deal with daunting challenges that are orders of magnitudes greater than those of other anti-corruption treaties. These result from the UNCAC’s extremely comprehensive scope and its worldwide membership of countries with large differences in political and legal systems. What has been accomplished in three years is impressive, but the process is still evolving”.

The international efforts to reduce corruption that have developed over the past 20 years constitute a massive agenda which is being worked through in multilateral institutions, individual countries, companies and civil society campaigns. It will take years of reform to fulfil the commitments that have been made. But the prize is enormous.

If all these commitments are fully implemented,16 of the poorest countries in the world would retain their own wealth: their losses are estimated by the sober OECD as being worth as much as the total of international aid and inward investment to these countries. The result would be that institutions and government systems across the world would be cleaned up and we would have a safe, more equally developed world with more people having a fair chance in life. Corruption everywhere would be reduced because there would be fewer opportunities and great difficulties for the corrupt to move their money to safe hiding places. Tax evasion by companies and individuals would be massively reduced, so the public services will be more fairly funded across the world. This would surely be a morally preferable and safer world for all of us.

This essay was originally published on Open Democracy