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Liberal structures – the free movements of capital, goods and labour – suit capital best. By the same process, they aid crime and corruption...

Dirty money: capital just can't keep its hands clean


Capitalism's Achilles Heel: Dirty Money and How to Renew the Free-Market System, by Raymond W. Baker, hardback, 438 pages, ISBN 047164488-9, John Wiley & Sons, 2005, £16.99.

This is a fascinating and deeply researched book by a businessman with experience across the world. Baker sums up, "Dirty money causes disaster for millions and deprivation for billions. No other economic condition generates so much harm for so many people. A system that continues to support such massive illegal flows, sustaining poverty, and contributing to historically high levels of global inequality, requires fundamental rethinking."

Multinational firms steal an estimated $500 billion a year from the peoples of Asia, Africa and Latin America. This can only happen with the connivance of the West's banks, which process the illicit gains.

Fictitious pricing
Baker writes, "Intracompany trade across borders represents about 50 to 60 percent of all cross-border trade. I have never known a multinational, multibillion-dollar, multiproduct corporation that did not use fictitious transfer pricing in some part of its business to shift money between some of its entities."

Half of all international trade and investment passes through the world's 63 tax havens, including the Isle of Man, the Channel Isles, the Cayman Islands, Bermuda, the Bahamas, Cyprus, Malta, Gibraltar, Singapore and Hong Kong. Nearly half are members of the Commonwealth. They host about three million dummy corporations (500,000 in the Caribbean alone), holding possibly $11 trillion.

Foreign aid to Asia, Africa and Latin America is $50 billion a year, just a tenth of the amount plundered. These countries owe $1.5 trillion: the World Bank/IMF's Heavily Indebted Poor Countries' Initiative forgives only $50 billion of this, 3%.

How does the system "support such massive illegal flows"? For centuries the British ruling class, then the US ruling class too, have used the law to maximise capital's freedom. Lord Chief Justice Mansfield said in 1775, "No country ever takes notice of the revenue laws of another." So no capitalist state enforces the tax rules of another, opening the way to tax evasion.


Tax avoidance
Later, in 1929, the ruling in the case Egyptian Delta Land and Investment Co., Ltd. v Todd established the principle – for the entire British Empire – that companies could incorporate in Britain but avoid paying British tax. This allowed tax havens to sprout across the Commonwealth. Britain itself became a tax haven. As a French parliamentary committee reported in 2001, "Great Britain does not cooperate with European countries and offers a totally unacceptable haven for criminal funds."

Baker shows how the US state used English law as precedent: "Holes [were] intentionally left in anti-money laundering laws." These laws allow US banks to trade in the money generated by most kinds of crimes committed in other countries – prostitution, people smuggling and slave trading, for example.

Even after 11 September, the American Bankers' Association lobbied against tighter controls on bank accounts to curb terrorists' funds. So it is no surprise that 99.9% of anti-laundering efforts fail.

Liberal structures – the free movements of capital, goods and labour – suit capital best. By the same process, they aid crime and corruption. The freer capital is, the more lawless the host society will be. Free movement of capital also destroys national sovereignty and democratic accountability.

Baker shows how all capitalism's leading institutions are complicit in crime, but what does he say we should do about it? He urges us to press capitalism to put justice before profit. He writes, "There is no suggestion here that businesses should not be maximizing profits, operating efficiently, and competing. The point is much simpler: capitalism should not place these aims ahead of justice in its institutions and transactions. Justice must be a prior condition."

Wishful thinking
Where is the evidence that capitalism could do this? It is idealist nonsense, sheer wishful thinking. As Lenin pointed out long ago, if capitalism could put justice before profit, it would not be capitalism.

Illegal money flows are not some kind of an unfortunate offshoot of capitalism: they are integral to capitalism. Baker gives us enough evidence to convict capitalism as an unreformable, exploitative system, inevitably breeding crime and corruption.