'Truth spoken without moderation reverses itself'
This blog is a source for intellectual exploration. It includes a list of alternative resources and a source of free books. The placement of an article does not imply that I agree with it, merely that I found it thought-provoking. There are also poems and book reviews. Texts written by me are labelled. Readers are free to re-post anything they like.
Sunday, June 14, 2015
Paul Mason - Global cybercrime has infected the very soul of capitalism with evil
The global financial system could have been designed to make
life easy for tech-savvy crooks and criminals. And the damage they are causing
As we lug our heavy satchels on to the stage, there is a
moment of mutual recognition. A cop, a security specialist, a man in the
electronic-payments business and a journalist: we’ve all learned that you don’t
check your laptop into a cloakroom, no matter how swish the venue.
“I’m off to the Far East tonight,” says the security guy. “I
have to pick up one of my firm’s disposable laptops and cellphones.” According
to the industry adage, the only use for a laptop once it has been in China is
to give it your firm’s security team, so they can study who has “had a go” at
We are at a swish venue in the City to discuss something
that has rightly become an obsession in the financial sector: crime. Bankers
refuse to put a figure on it, but the amount currently being lost to cybercrime
globally is certainly in excess of $100bn a year, and could be quadruple that.
The crime syndicates, often based in Russia and its
satellites, with technical infrastructure in places such as Vietnam or the
Philippines, use a combination of malware and identity theft to steal large
amounts of money from savers, companies and banks. But then, in one of the
bitterest ironies of modern times, they must convert the proceeds of digital
crime into money and assets, owned by a real, identifiable human being. And it
is here that organised crime does its most lethal damage. It infects the
central nervous system of capitalism with evil.
The methods are laid out by barrister Stephen Platt in a
startling new book,Criminal Capital. Platt argues that the old conception of money laundering
is wrong, and indeed the term misleading. In old the law enforcement textbook,
criminally acquired cash is first placed in the financial system, using small
deposits or front companies; then it is “layered” – ie moved around companies,
trusts and investment funds whose common attribute is that they are registered
on a small island; then it is spent on assets that hold value, yachts being the
vehicle of choice.
But Platt points out that, with the advent of digital
financial systems, crime has changed. There’s no need to “place” criminal cash
in the legitimate finance system if the criminality has taken place inside that
very system. From the crime itself, to the avoidance of detection, the spending
and storing of the proceeds: it can all be done on a laptop while the cops are
still asking each other how to trace an IP address.
What facilitates the criminality is the complex structure of
corporate finance. And at the centre of the complexity are so-called “corporate
service providers”. These can, completely legally, provide you with a
registered office that masks your true location, and directors for you company
who you will never meet. Then there are trusts and investment funds – again legitimate
vehicles whose complexity makes them an ideal target for crooks. If you add in
the concept of “offshore” – island jurisdictions where the financial
regulations are well known to be on the lax side – the possibilities for
deception are complete.
If it had been designed by crooks to facilitate crooks, the
international financial architecture would look exactly like it does. There
would be frantic, earnest policing and regulation at the centre, with dogged
cops lugging their satchels into meetings to avoid being bugged or hacked. Yet
at the periphery, and at the level of fine detail, the system would be
Now add in the human factor. The vast majority of financial
professionals have never committed crime, nor even malpractice. Their culture –
especially in Britain – has a gentility that goes deeper than veneer. And yet –
in the words of Bank of England governor Mark Carney last week – “unethical
behaviour became the norm”.
Carney’s crackdown on bad bankers, announced last week, was not
aimed at organised crime but at “market manipulation” – that is knowingly
ripping off clients and the general public by traders colluding with each other
to distort competition and line their own pockets. But if an entire generation
came to tolerate unethical behaviour at the core of the system, and if the
system itself is so complex that it facilitates crime then there is – as Platt
points out – inherent systemic risk.
The premise of all financial regulation is that bad money
corrodes good money; that crime and manipulation are dysfunctional to the
market because they levy an unearned “rent” from the law abiding and industrious
people who have generate the profits in the first place.
The problem is, there might be so much bad money in the
system, and so many bad people, that to remove them eviscerates the system.
If so, we have reached the limit of what can be done with
rules, professional codes, cyber-sleuths and prosecutions. If the problem is
complex architecture, then the answer has to be simplification. If the problem
is a network of defiant offshore jurisdictions, then they should be isolated to
the point of economic collapse. If the problem is people – and the City has
become the primary destination for a global, semi-hereditary elite – then get
But there is a yawning gap even in that tough logic. And it
comes back to the reason four weary blokes in suits are prepared to haul their
bags around rather than entrust them to a concierge. Some states, including
very powerful states, actually encourage and profit from the corruption of high
finance. When you cling to your laptop, or use a disposable one, that’s what
you are up against.
At the moment the west acquires the moral backbone to impose
a kill or cure solution onto financial complexity, the world economy will
bifurcate. Forget the Brics and the global south. It’ll be the honest world and
the bent world. It won’t be globalisation anymore, but two competing models. It
is the fear of this that always steers law enforcement towards the percentages
game of taking down middlemen; and steers financial reform task-forces towards
multilateral treaties that will always be flouted at the edges of the system.
But it can’t go on.
- How the finance industry enables corruption, drug
trafficking, terrorism, human trafficking, proliferation, piracy, and tax
- Why extreme and dangerous industry behaviour correlates with the risk taking
that toppled the global economy in 2008
- What measures can be taken to prevent criminals from compromising the
legitimacy of the global financial system