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Dirty Money (Int'l Edition)


International -- Cover Story

DIRTY MONEY (int'l edition)

When Italian police burst in on Mario Chiesa back in 1991, the midlevel Socialist Party hack was frantically flushing millions of lira in bribes down a toilet at the public charity he ran in Milan. It was the spark that ignited an explosion: From that first case of Tangentopoli--Bribesville, in Italian--Italy's anticorruption magistrates have gone on to arrest more than 1,300 top businessmen, civil servants, and politicians. Italy will never be the same.

Nor will the rest of the world. What started in Italy in almost comic opera style four years ago is spreading like wildfire around the globe. With high-profile corruption probes hitting corporate suites and ministerial offices from Paris to Seoul to Mexico City, 1995 will certainly be remembered as the Year of the Great Cleanup.

As business and political elites come under attack, reform is picking up in a surprising array of places. In Europe, cozy, four-decade-old ties between business and government administrations are rapidly fraying as hundreds of public officials and executives face investigations (page 26). South Korea is reeling from the indictments of former President Roh Tae Woo and seven top executives, including the chairmen of Daewoo Corp. and Samsung Group (page 32). In Mexico, a widening investigation into alleged money-laundering by relatives of former President Carlos Salinas de Gortari is threatening to snowball into an Italian-style scandal (page 34).

What can explain this seemingly abrupt global urge to expose corruption? Although reform is proceeding at varying paces and for different reasons, a common thread does link Clean Hands investigators in Milan to crusading journalists in Paris and emboldened prosecutors in Seoul. At the most basic level, the freeing-up of world markets since the end of the cold war in 1989 means that less-than-transparent business practices can no longer be tolerated.

GREATER EXPECTATIONS. Around the world, taxpayers, businesspeople, and governments are recognizing the high costs of corruption as never before. Free trade within the European Union means nothing, for example, if market-bending and ultimately corrupting national monopolies and oligopolies are allowed to survive. The North American Free Trade Agreement cannot function if members of Mexico's ruling Institutional Revolutionary Party manipulate privatization programs and skim hundreds of millions of dollars from government coffers.

But it's not only economic determinism that is driving reformers to root out wrongdoing and bring grubby trading practices into broad daylight. The Information Revolution, coupled with the rising expectations of a growing middle class around the world, mean that higher standards of ethical behavior are beginning to converge. With omnipresent faxes, satellite dishes, and cellular telephones, elites are being examined and judged mercilessly. Hours after a London-based Saudi opposition group comes out with an expose of government corruption in Riyadh, the findings are being faxed to thousands of Saudi citizens.

Politics in the post-Berlin Wall world is radically different, too. In every country on the former front of the cold war--South Korea, Taiwan, Mexico, Italy, and even Japan--holding the line against communism was more important than instituting real free markets and political competition. Now, shocks are beginning to rock the Establishments of the industrialized nations.

Take the case of Italy. When the Italian Communist Party, the largest in the industrialized West, looked as if it might finally capture Parliament in the late 1970s, one of Italy's most respected political commentators advised voters "to hold your noses and vote for the Christian Democratic Party." Such thinking had helped make the Christian Democrats--with its links to the mafia, money-laundering, illegal arms deals, and worse--the mainstay of every Italian government since the end of World War II.

Now, increasingly, there are alternatives, whether in Rome, Warsaw, or Taipei. The broad extension of liberal democracy since the late 1980s has unshackled a once-timid press and empowered once-fearful opposition parties in many countries. "Democracy certainly increases transparency and criticism," says Mancur Olson, a professor of economics at the University of Maryland. "If you have a free press, it will ferret out corruption, and people everywhere will be outraged when they find officials on the take."

Corruption, of course, will always exist at some level. But bribery flourishes most wherever a regime, mafia family, or monopoly benefits from tight control--whether in the trash-hauling business in New York City or in the construction business of a developing nation. In industrialized economies, at least, the Great Cleanup will lead to much more open business practices--although there is a long way to go. Count on more dirt coming to the surface.

Even in the developing world some change will come, but more slowly. As vast new regions--from the former East Bloc to the Middle East and Africa--rush to grab their share of global markets, the spotlight on dirty money will hit them, too. "The structural changes leading to the dramatic uncovering of corruption are just beginning," says Giles Keating, chief economist at CS First Boston Inc. in London. Scandals will be unfolding well into the new millennium.By John Rossant in Rome


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