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TRAINSPOTTER: Chronicle of a banking scandal foretold

South Africa

South Africa

TRAINSPOTTER: Chronicle of a banking scandal foretold

All of a sudden, the governing class has woken up to the nefarious doings of the bad guys in suits. But last year, while 17 banks were colluding to rig the ZAR and rip off the country, PricewaterhouseCoopers published a report that was entirely — and we mean entirely — slept on. It laid bare the scale of the problem — a problem that everyone in power seemed intent to ignore, right up until it was politically convenient to do otherwise. By RICHARD POPLAK.

Last year, during a small break between assaults by the executive on the Treasury, the “professional services firm” PricewaterhouseCoopers (PWC) published a report entitled Adjusting the Lens on Economic Crime: Preparation brings opportunity back into focus”. Compiled by their survey department from data accumulated globally, the idea was to offer the fullest picture yet of how so-called “economic crime” — more accurately: white-collar douche-baggery — impacts corporations and governments across the world.

Spoiler alert: not so good.

The report was released before the big South African banks decided to jettison the Guptas from their vaults, which is to say before the Zumacrats started harping on about Caucasian Monopoly Capital — those same devils who’d made cadre after cadre rich beyond their wildest dreams, and who were now suddenly in the firing line after committing an accidental act of honesty. And so you’ll forgive the ANC-led government for passing over the PwC report, just as you’ll excuse every media outlet in the country for the same sin of omission: what did it matter at the time that 69 percent of South African respondents reported experiencing some form of economic crime, the highest rate in the world, when we were all getting along so swimmingly?

Trevor White, who leads PwC’s economic crime survey departments from (where else?) Mzansi, stated in the preamble that “economic crime continues to forge new paths into business, [while] regulatory compliance adds stress and burden to responsible businesses, and an increasingly complicated threat landscape challenges the balance between resources and growth”. Under cover of the publication’s preposterously cheerful tagline — “preparation brings opportunity back into focus!” — White and his team honed in on cybercrime, ethics and compliance, and money laundering. The resulting depiction is one of a formal global economy so rife with collusion, corruption, cyber-graft and gangsterism that the trillions stolen by governments is rendered charmingly benign by comparison.

The report itself is one of those hyper-professional documents peppered with stock photos of women looking intently into phablets, while elsewhere, swarthy men fiddle with knobs on hard drives. More horrific still are the top line stats that reveal corporate professionalism to be a chimera: over one in three organisations worldwide report being victimised by economic crime, while almost half “believe that local law enforcement is not adequately resourced to investigate economic crime, leaving the responsibility for fighting economic crime on organisations”.

(An extended parenthetical: the report barely bothers to distinguish between developed and emerging economies, because when it comes to white-collar criminality and the lack of will/ability to deal with it, there is no difference between, say, America and Afghanistan. If that sounds outrageous, check this out: the second highest rate of reported economic crime in the world, after South Africa, belongs to France, which lags behind us by a mere percentage point. As the report notes:

While most developed countries have seen increased regulatory attention – particularly around sensitive issues such as cybercrime, money laundering and bribery and corruption — the blurring of borders through the transnational nature of criminal activities is prompting a growing level of international cooperation in regulation and enforcement.

Lest an observer be tempted to fall into familiar thinking, these statistics demonstrate that economic crime is very much a diversified global issue — both in type of crime and across emerging and developed markets.”)

Because it’s the Future, cybercrime, according to PwC, has become the prevailing threat. But businesses and governments seem largely uninterested by the problem. “Less than half of board members request information about their organisation’s state of cyber-readiness,” states the report. The ancient idiots or ex-Cabinet ministers inhabiting board positions have never switched on a computer; they don’t know how to ask the right questions, let alone fix anything. This has led to hundreds of billions of dollars of cyber fraud in the last year alone, the costs of which are downloaded onto consumers or shareholders.

But cybercrime isn’t a South African problem — or rather, it’s not South Africa’s worst problem. The gap between internal and external fraud is closing, and if one were to take the PwC report at face value, fraudulent activity basically defines corporate culture. Not everyone is a crook, of course. But everyone is forced to deal with crooks. And many of those bad guys rise from within the organisation’s structures — 46% of fraudsters are either employees, or board members, or partners. As the report puts it:

More than half of internal perpetrators still originate from middle and senior management, but junior management also contributed a great deal to the perpetration of internal fraud in some regions. This points to a potential weakness in internal controls, whereby these measures serve as check-box exercises rather than effective processes embedded into an organisation’s culture. This is further suggested by the fact that 22% of respondents have never carried out a fraud risk assessment and a further 31% only carry out such an assessment annually.

In other words, dealing with fraud isn’t a priority, because fraud — like snorting coke, golfing and shooting dwarves out of cannons — is an entrenched part of management culture. Which ties in neatly with the statistic most pertinent to South Africa’s latest corporate scandal:

One in five banks have experienced enforcement actions by a regulator — failure to curb illicit business practices may lead to personal liability.”

Note the qualifier “may”.

What has become clear, as South Africans have had the chance to more closely peruse the Competition Commission’s findings on the bank cartels in this country, is how many repeat offenders were involved in futzing the price of our currency. What’s also clear is how the sprawl and size of financial sector multinationals contributes to fraud in countries far away from distant HQs. And while any banker in a half-decent suit will bitch about how post-2008 regulation has dumped on their profits and made life for them nearly impossible, regulations clearly haven’t done enough to clean up the industry — as PwC notes, it has made fraudsters more canny, and their crimes more difficult to discern.

The picture thus painted is grim in the extreme: fraud is embedded in corporations, while governments are often powerless to police it. South Africans have, once again, been reminded of the toll of this truism: we still don’t know just how much money has been bled from our economy by the big banks colluding to rig our currency, and nor do we know how much of it — or if anything at all — will be recovered. And even if something accidentally goes our way, we know that our various crime busting agencies — the stupid-ass Hawks primary among them — are more concerned with political bun fights than they are with protecting us from fraudsters, grifters and corporate scam artists.

Quaintly, PwC obviously believes that capitalism’s worst impulses can be policed and regulated away. (They can’t). There’s no way out of any of this until the system is first undermined, and then changed fundamentally. As the German economist Wolfgang Streeck recently pointed out in his essential How Will Capitalism End?:

Before capitalism will go to hell, then, it will for the foreseeable future hang in limbo, dead or about to die from an overdose of itself but still very much around, as nobody will have the power to move its decaying body out of the way.”

No one leading this country has any long-term vision for its future — it’s always been a place to rob and then leave. We are the Future: a post-society society, a society-lite. So it is unsurprising that our leaders are sans ideas on how best to extricate us from the clutches of corporate greed masquerading as “wealth creation”. Which, sadly, conjoins us with the rest of the global community huddling inside the carcass of a system that can no longer advance us, but for which we have zero workable alternatives.

The good news is that, as citizens of an interconnected world, we’re all going down the suckhole together.

The bad news is that the hole is bottomless. DM



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