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9 J. Fin. Crime 8 (2001-2002)

handle is hein.journals/jfc9 and id is 1 raw text is: ANALYSIS Corruption and the Financial Sector: The Strategic Impact John McFarlane BACKGROUND This paper discusses how corruption, in its various manifestations, has had - and continues to have - a very serious impact on the economic and political stability of the Asia-Pacific region. Why has corruption become such a hotly debated issue over the last decade? Allegations of corruption have led to the demise of governments or the ruling elites in countries such as Japan, Indonesia, South Korea and Thailand, and, in all probability, contributed to the end of the Yeltsin era in Russia. Wherever it exists, corruption is very damaging, not only due to its impact on commercial integrity and good governance, but because it goes to the heart of one of the most important human values - trust - without which democracy itself is threatened. However, trust is also crucial when it impacts on the financial sector because it challenges the economic probity of the state, and renders it vul- nerable to manipulation and theft by unscrupulous operators and criminal enterprises. This paper is set in the Asia-Pacific region, which was hit very hard by the East Asian economic crisis of 1997, and by using Japan as the principal case study, the author argues that when corruption gains a significant influence over the decision makers con- trolling the national economy, the consequences can be extremely serious. Most of the countries that were seriously affected by the financial crisis are now experiencing positive economic growth - some by as much as 6-8 per cent. Nevertheless, in spite of a predicted 3 per cent growth rate this year, the future of Indonesia remains very uncertain due to internal political, inter-ethnic and secessionist problems; and Japan has yet to introduce the reforms necessary to avoid some of the serious situations that contributed to its economic and political problems over the last decade. THE NATURE OF CORRUPTION Before discussing these issues in depth, it is neces- sary to offer some preliminary comments to set the scene. Corruption' involves at least three concepts: brib- ery, extortion and nepotism. Bribery is a form of corruption where a reward is given to pervert the judgment or influence the conduct of a decision maker.2 Another form ofcorruption is extortion invol- ving demands for gifts or favours in the execution of public duties, or by taking forcefully and unlawfully money or things of value to which the recipient has no right.3 Nepotism involves the appointment of rela- tives, friends or political associates to an office regardless of their merits and 'the consequences on the public weal'. There is a common thread running through these three types of phenomenon - the subordination of public interests to private aims involving a violation of the norms of duty and welfare, accompanied by secrecy, betrayal,- deception and a callous disregard for any conse- quences suffered by the public.4 Corruption can take other forms, including bureau- cratic corruption (officials taking bribes), political corrup- tion (which includes politicians taking bribes to award contracts, influence elections or provide patronage), grand corruption (involving the misuse of public power by heads of state, ministers and top officials for private pecuniary profits), and even noble cause corruption where the instruments of government (such as the intelligence services) may be used to pro- vide finance or other support for criminal activity, such as assassinating terrorists, providing secret arms supplies beyond the scrutiny of the political process, laundering secret funds, and so on.6 There is a close relationship between organised crime and corruption. In many cases where organised crime cannot achieve its aim through the use or threat © Emerald Backfiles 2007 Journal of Financial Cnme Vol 9. No.1, 2001. pp. 8-21 C Henry Stewart Publications ISSN 13590

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