Corrupt but legal: Institutionalised corruption and development finance

Is corruption defined solely within the boundaries of what is legal? Is the deterioration of our democratic societies limited to officially acknowledged crimes such as bribes, money laundering and fraud? The answer is no, according to Counter Balance’s latest report 'Corrupt but legal' published today, on the occasion of the International Anti-Corruption Day.

Tracing back the history of the concept of corruption, the analysis challenges the standard view of corruption as we know it. It sheds light instead on lawful, routine, accepted practices that constitute the bread and butter of our economic system, but represent nonetheless the decay of democratic politics as promoting the anti-social gain of a few. In this context, the authors suggest to reclaim the words 'corruption' and 'corrupt' in a broadened sense, closer to the original meaning of 'morally unsound, rotten, infected'.

The paper digs into recent examples of 'corrupt but legal' practices among public financial institutions in the US and Europe, with a particular focus on the European Union’s main financial institution, the European Investment Bank (EIB).

From the promotion of public-private partnerships (PPPs) and the financial support provided to private equity funds to the rules on conflicts of interest, the world of development finance has given way to a distorted privatized vision of the 'public interest'.

Counter Balance‘s own experience of monitoring European public financing institutions reinforces this view. The dominant narrow approach to corruption has allowed numerous complaints against institutional capture to be dismissed as 'groundless', since they do not infringe the current European legal framework.

The report is a call to various stakeholders, including academics, NGOs and decision-makers to integrate the fight against 'legal corruption' into their work, alongside the most needed struggle against illegal forms of corruption and economic crime.

Xavier Sol, director of Counter Balance, said: “As a civil society organisation committed to strengthen public bank’s resistance to corporate capture and accelerate their democratisation, we see it necessary to open up a space for fundamental reforms in the business model of an institution like the EIB”.

Nick Hildyard, the author: “This is a story about corruption that has no need to hide in the shadows because it is perfectly legal; indeed, in many cases, it passes for 'good governance'. From revolving doors to public-private partnerships, democracy is being corrupted for private gain, posing a systemic challenge that can no longer be swept under the carpet.”