G20, London Loony Lamposts and Banking Undue Diligence

As a national past time, Spank the Banker has become almost Monty Pythonesque in its common expression. As G20 gets ready to roll into London for the most important such conference since the great depression, even hapless university professors such as Chris Knight from the University of East London find themselves caught up in the drama and err a little towards the loony. Prof Knight was suspended from his post after excitedly speculating on BBC Radio 4 that bankers could end up 'hanging from lamposts' during the anti globalisation protests expected in London this week. It's a jittery subject because already this past week anger has spilt over into action with the house of former Royal Bank of Scotland supremo, Fred Goowdin, vandalised by a shadowy organisation known as Bank Bosses Are Criminals.

As if the industry didn't have enough bad PR to deal with, cue Global Witness (see my disclosure) who this month released their Report Undue Diligence which is promoted by this rather odd video. The video with the shadowy bad guys and a crazed banker rather puts me in mind of the characters Patrick Swazye and Demi Moore in Ghost. If we are to believe much of the populist media Swazye's character may have been the last decent banker (and look what happened to him) and our economy of late resembles Demi's ceramics except we don't get to enjoy the throw much.

At least Global Witness can't be accused of jumping on the bandwagon with the release of the report Undue Diligence. In fact for quite some years now, Global Witness has been investigating how financial institutions, unwitting or otherwise, have played apart in state looting by ruling regimes in some of the most corrupt countries on earth. Their thesis for today is this:

Ordinary citizens in the US and elsewhere are now being harmed by the same opacity and lack of due diligence that has devastated the developing world for years

In the report Global Witness lays some very serious 'know your customer' type charges at the doors of some of the world's most important banks:

• Barclays bank was allegedly holding a personal account for the son of the President of Equatorial Guinea who managed to acquire a $35 million mansion in Malibu and a fleet of sports cars, all on a $4,000 per month government salary.
• HSBC and Banco Santander used banking secrecy laws in Luxembourg and Spain to avoid revealing the owners of accounts which received suspicious transfers of millions of dollars from the government of Equatorial Guinea.
• Unknown commercial banks are secretly holding more than $2 billion in deposits transferred from the Equatorial Guinea government after the collapse of Riggs Bank.
• Citibank & Fortis enabled former Liberian President, now accused and held for alleged war crimes, to benefit from sales of timber to fuel conflict within Liberia and amass personal wealth.
• Deutsche Bank for 15 years held the central bank accounts for the Niyazov government in Turkmenistan despite allegations that the funds were kept outside the national budgets and under effective personal control of Niyazov.
• The Bank of East Asia, Hong Kong's third largest bank, helped funnel national revenues from the Republic of Congo to the President's son who allegedly went on to splurge on frequent luxury shopping sprees abroad.

Irregardless of the merits of these cases what is interesting is that Global Witness appears to be calling time on the voluntary principle for corporate social responsibility & sustainability.

While there is a role for the kind of voluntary initiatives that allow banks to display their ethical wares, particularly in building norms, such initiatives do not fare particularly well in these stories ....... it can potentially serve as a block on substantive change to the regulatory framework, because it allows a few of the biggest banks to say 'we're already doing something'...... the link between the fight against corruption and promotion of sustainability is too important for this issue to be left in the ethical corner.....

Watch out for the weakening of the voluntary principle in corporate action on sustainability as a trend this year as we see bigger government incursion into the private sector and also with a possible global deal in climate change leading to firmer regulation. It maybe a restoration of power to the people but it could come at the cost of market driven innovation and competitive advantage for corporate sustainability performance in favour of regulatory compliance.