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The Impunity Trap

Author(s): Jeffrey D. Sachs

The ability of leaders of powerful organizations to flout the law for personal gain is one of the more glaring manifestations of inequality. FIFA – which reelected its president just days after 14 former and current executives were indicted for corruption and fraud – is merely the most obvious recent example of this.

From Project Syndicate:

Ours is a world of impunity. Allegations of corruption swarmed around FIFA for decades, culminating in indictments of current and former officials last week. Yet FIFA President Sepp Blatter was re-elected four times, including after the indictments were filed. Yes, Blatter has finally resigned, but only after he and dozens of Federation members once again showed their scorn for honesty and the law.

 We see this kind of behavior all over the world. Consider Wall Street. In 2013 and 2014, JPMorgan Chase paid more than $20 billion in fines for financial malfeasance; yet the CEO took home $20 million in compensation in both 2014 and 2015. Or consider corruption scandals in Brazil, Spain, and many other countries, where governments remain in power even after high-level corruption within the ruling party has been exposed.

 The ability of those who wield great public and private power to flout the law and ethical norms for personal gain is one of the more glaring manifestations of inequality. The poor get life sentences for petty crimes, while bankers who fleece the public of billions get invitations to White House state dinners. A famous ditty from medieval England shows that this is not a new phenomenon:

 The law locks up the man or woman
Who steals the goose off the common
But leaves the greater villain loose
Who steals the common from the goose.

 Today’s greatest thieves are those who are stealing the modern commons – raiding government budgets, defiling the natural environment, and preying on the public trust. When the indictments against the 14 FIFA officials were filed, the cast of characters included not only miscreants from the sports world, but also some familiar players: secret Swiss bank accounts, Cayman Islands tax havens, shell corporations – all of the financial appurtenances that are literally designed to shield the rich from scrutiny and the law.

 In this case, the FBI and US Justice Department have done their jobs. But they did so, in part, by penetrating the murky worlds of financial secrecy created and protected by the US Treasury, the Internal Revenue Service, and the US Congress (ever-protective of Caribbean tax havens).

In some societies and economic sectors, impunity is now so pervasive that it is viewed as inevitable. When unethical behavior by political and business leaders becomes widely viewed as “normal,” it then goes unpunished by public opinion, and is reinforced as normal – creating an “impunity trap.” For example, with politicians in the United States now so flagrantly and relentlessly on the take from wealthy donors, much of the public accepts new revelations of financial impropriety (such as the Clinton Foundation’s morally dubious financial dealings) with a cynical yawn.

The situation in the global banking sector is especially alarming. A recent careful study of ethical attitudes in the financial-services industry in the US and the United Kingdom showed that unethical and illegal behavior is indeed now viewed as pervasive. Some 47% of respondents said that it is “likely that their competitors have engaged in unethical and illegal activity,” and 23% believed that their fellow employees have engaged in such activities.

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