Capitalism and Crime
International Viewpoint #212 • September 16, 1991
CAPITALISM gone bad, that is to say may well not be repaid. Attention in this respect has been concentrated on the the so-called "Third World debt". But in fact many US oil and property firms have become insolvent. During the present recession the British bank Barclays estimates that it is losing around $1.6bn a day in loans to small and
THE bankruptcy of the Bank of Credit and Commerce
International (BCCI) is the biggest bank failure in history, with losses, according to recent estimates, of $20bn. The combination of fraud, complicity by incompetent or negligent public bodies and corruption on a massive scale amounts to a scandal that exposes some basic realities of contemporary capitalism.
ERNEST MANDEL
OR the past half century, the international capitalist economy has known permanent inflation.
This is, essentially, inflation of money existing on paper, that is of banking credits. After the Second World War, the capitalist economy floated to prosperity on a sea of debt. The global dollar debt
- including that of states, firms and households — has reached the astronomical level of $10,000 billions, that is 1 followed by 13 noughts. This sum does not include debts accounted in other curren-
This debt began to snowball in the mid-
1970s. The first oil shock saw massive amounts of money capital flowing into
Western banks (the so-called "petrodollars"). The global recession of 1973-74 meant that the demand for credit by businesses to fund productive investment fell below the amount of credit the banks were offering. As a result there was a growing diversion of these credits into speculative enterprises such as exchange dealing, the stock market, property and takeovers of big firms for purely financial reasons, often followed by their full-scale break-up ("asset stripping").
A single figure sums up this speculative wave. Every working day, the capital engaged in exchange dealing in the main financial centres is equal to the annual value of world trade.
In these conditions, the big banks literally threw loans in the direction of Third
World governments, the Soviet bloc countries and sharks of the type of Milken, Trump, Icahn, Boone Pickens or
Bond. This was the era of the yuppies and the ethos of "get rich by any means possible and at whatever price" (for other people). Players, speculators, adventurers and straight forward swindlers were the heroes of the hour.
The tabloid side of the phenomenon hides a more profound social reality. In a number of capitalist countries ( above all, but not exclusively, Anglo-Saxon) the
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• financial sector of Big Capital got the upper hand over the productive sector — in which it is obviously necessary to include such sectors as telecommunications and transport and much of the sersector not purely and commercial operations. This evolution is reflected in the growing surplus value (national income less real wages) which is appropriated in the form of interest compared to dividends (both distributed and undistributed) of non-financial enter-
There has even been talk of a lasting process of de-industrialization in countries such as the USA and Britain, and, although this is an exaggeration, there is undoubtedly a tendency in this direction.
Great Crash leads to strict bank controls
In the aftermath of the great banking crashes of the 1930s several European countries introduced apparently effective, banking controls. Since then France and Belgium, example, have not seen any major bank failure. This is not the case, however, in Italy (the collapse of the Banco Ambrosiano) and Germany (the Bank). In the United States a system of insurance by the public authorities as a guarantee against bankruptcies of lending institutions when the losses reach a certain level, the price of "stabilization" becomes excessive and has inflationary effects if it requires an increase in the budget deficit and thus of the public debt. Thus, the failure of the American Savings and Loans has cost the Treasury $150bn in the immediate term and perhaps $1,000bn in interest between now and the end of the
In fact, the solidity of the international banking system has been progressively undermined over recent years.
Firstly, a proportion of the assets accuin the big banks' books have medium sized enterprises that have col-
The prevailing climate of hostility to state regulation and intervention stimulated by the Thatcher and Reagan administrations gave the banks the perfect atmosphere in which to demand the deregulation of the financial sector. A timid proposal to impose a slight raising in the relation between the real capital and the paper totals of the banks suggested by the International Bank of Settlements in Basel provoked a very vigorous campaign of opposition from the banks. Scandals of the BCCI type are the inevitable outcome of progressive de-regulation.
But the fragility of the international banking system corresponds first of all to a structural change in the financial system: that is, its growing internationalization. This is only the expression in the domain of finance of the fundamental characteristic of "late capitalism" — the growing internationalization of the productive forces and of capital and the development of multinational firms as the main form of organization of big capital.
World awash with floating
In the financial world this tendency has been powerfully stimulated by the information revolution which makes it possible to transfer billions of dollars from one corner of the globe to another in a matter of seconds. The quantity of "floating capital" which escapes any recording and thus any possibility of control is estimated to be $1,000bn, but the real figure is not known, the margin of error being in the hundreds of billions of dollars. Evidently, what is not known cannot be controlled.
Any passably effective regulation of the financial system would require a state that had a grip on it. In the epoch of laissezfaire capitalism and even in the first phases of monopoly capitalism, the bourgeois nation state could perform such a func tion, which is indispensable to the good functioning of the capitalist economy and of bourgeois society. But in the late capitalist period the state has become increasingly incapable. Only a world bourgeois state could really get a grip on the multinationals. But such a state neither exists nor is going to, giving the realities of private property and competition in the capitalist economy.
The frontier between "legitimate" and "illegitimate" business has never been too clear under the rule of capital. As Balzac 1. Die Zeit, August 2, 1991.
BCCI.
September 16, 1991 • #212 International Viewpoint remarked, behind each great fortune there hides a great crime. Economic history fully confirms this judgement.
There is in any case a good deal of hypocrisy in the distinction itself. Drugs money is certainly dirty money. But then again surplus value extracted from the work of Third World children, starvation wages, the super-exploitation of poor peasants and the infernal rhythms of the great factories of the West and Japan is hardly "clean". And this is to leave aside fortunes built on slavery, the pillage of America by the Conquistadores or that of India and Indonesia, or on the arms race that ended in the two world wars.
Nonetheless it remains true that the climate of easy borrowing and the debt explosion, leading to the de facto deregulation of the movements of money capital, has progressively modified the frontiers between legality and illegality in the business world. The universal efforts of the rich to pay less tax, using tax evasion and fraud on a grand scale, has played a major role in this.
In these conditions, a progressive criminalization of bourgeois society as a whole become colossal; a notorious Mafia boss is listed amongst the ten richest families in the world. In a number of countries, drug magnates play a key economic role and provide a significant proportion of exports. A symbolic case is that of the Vatican's Cardinal Marcinkus who has been accused of helping the Mafia to sell fake American bonds.
### Concerns of super-rich criminals
The laundering of "black" money has become a major concern of the super-rich criminals as they try to cross the frontier opposite direction and get into immense amounts of capital they control and their almost unlimited ability to corrupt, laundering has become an increasingly important activity for the many big banks. BCCI was caught red-handed at such an operation in 1988, but the authorities restricted their response to a fine. And today its heads can say: we are being punished for doing what everybody else does.
Besides the internationalization of the productive forces and permanent inflation, the permanent arms race, and thus the weight of the military-industrial sector, is another basic feature of late capitalism. Here we also find the arms trade and the workings of the secret services, many of whose operations violate the law, not to speak of the constitutions of many countries. They thrive in this twilight world where arms traffickers, spies, terrorists, hired killers and industrial and commercial conmen rub shoulders and coexist.
BCCI is accused of having served as intermediary and even of financing at one and the same time the operations of Abu
CAREFUL, MEN! SUME OF THE SLEAZIES CHARACIERS IN THE WORLD HAVE USED THIS BANK! Nidal, Colonel North's Irangate, financing of the Nicaraguan Contras by the CIA with the help of the Israeli secret services and the civil war in Afghanistan. Among the personalities involved in these operations we find the former US Secretary of State for Defense Clifford and the head of the Saudi Arabian secret
There can be no doubt that BCCI was a fraudulent operation from its inception. It was founded in 1972 by a Pakistani banker Hasan Abedi who wanted to avoid the ordered by the Bhutto regime and, seems, has not once throughout its entire existence made a profit on its normal operations. Besides laundering cocaine money, its main fraudulent activity was to give so-called loans to Middle Eastern against worthless collateral. That is to say, gifts. These gifts were made up of money taken in from tens of thousands of small and medium sized savers in Pakistan, Britain, Africa, in particular Nigeria, Hong Kong and the Midcoming from Africa. The system worked with the aid of a special network, a "bank within a bank" official accountability or even registra-
Meanwhile in Japan the main broking houses - the world's biggest - compensated some privileged clients (big firms and political bigwigs) for losses suffered in the recent decline in share values, while the small speculators had to take the losses on the chin.
The circle of beneficiaries of the swindle is small. Among them are these recipients of "loans" of between $100m and
• Sheikh Kamal Adham, former head of the Saudi secret services;
• The bank's founder Abedi and his protégé Naqvi;
• The Saudi financier Ghait Pharaon;
CAPITALISM
• The Gulf shipping group controlled by the Pakistani Gopal brothers;
• Members of the government and ruling family of Abu Dhabi;
• the Khalil, Bin Mahfouz, Ibrahim and Hammoud families.
Altogether this swindle involved more than $2bn.
Why did so many small and medium-sized savers put their faith in this bank, considered the 182nd bank in the world by Business Week before its collapse?
The British prime minister, John Major came up with a simple explanation, with a cynical implication - BCCI offered a slightly higher rate of interest to depositors. Some only saw the benefits and overlooked the risks. Thus they have no one to blame but themselves.
### Attractions for small investors
However, while the attractions of the interest rate may explain some things, the influx of deposits into BCCI is really explained by appeared to offer a way round two taboos: in the countries under strong pressure from Islamic fundamentalists, the taboo against interest-bearing loans, forbidden by the Koran; and in Britain the discrimination experienced by small business people originally from the Indian subcontinent at the hands of the four big British banks, discrimination with a clearly racist undertone.
Here one touches upon another objective aspect of the scandal. The BCCI fraud worked by taking the deposits from clients A, B and C and then repaying them with further deposits from D, E and Fand so on.
Such a system can work as long as new deposits continue to flow in and there are no large-scale withdrawals. But when the nut stops, he most recent depositors are 15 out of pocket.
International Viewpoint #212 • September 16, 1991
CAPITALISM
KAR COLD WAF
After the New York stock market crash of 1987 and that in Tokyo in 1990, after the beginning of the "slimming down" of the Japanese financial system, after the ballooning of the US public debt, after the enormous costs of the restoration of capitalism in East Germany to the Federal Republic, the climate of easy borrowing has given way to a tightening credit squeeze. In these circumstances it is the small fry who suffer first.
The BCCI affair is also an episode in what one might call the primitive accumulation of an independent finance capital in the most developed Third World countries. From the start BCCI presented itself as a "Third World bank". It used this not only in Britain and Pakistan but in a whole series of African and American countries, inciting even the governments to place their meagre currency reserves in
The episode has ended in failure, as did many episodes in the primitive accumulation of capital in Europe and the US in the past. The role of straightforward fraud in this failure should surprise nobody knows the history of world capitalism. Stealing from public funds and small savers has always been one of the preferred means of laying the foundations of a great fortune. Figures such as Trujillo, the Somozas, Marcos and Mobutu worked
There is therefore no reason to be influenced by the false and hypocritical "Third Worldist" ideology peddled by the ruling classes of the Third World, any more than by the ideological productions of antiThird Worldist imperialism. The BCCI scandal reveals that the Third World bourgeoisie will exploit the anti-imperialist sentiment of the masses in order to rob them and enrich itself, with 16 tomore, ending up in the imperialist most of the money from the robbery, furcountries.
Owing to its control of considerable amounts of capital, a bank such as BCCI can develop a network of connivance, tolerance, complicity and outright corruption throughout many countries, including the imperialist countries.
### Charity and corruption
Such a network combines corruption with public relations — as Al Capone did in Chicago and the drug barons of Medellín and Bolivia do now. By providing funds for good works BCCI's leaders were able to neutralize world leaders including former American Jimmy Carter and former British prime minister James Callaghan.
But apart from such purchased connivance, whether corrupt or not, inter-imperialist rivalry and "reasons of state" were also at work. Here it is almost impossible to unravel the web, since it is very much a case of the "dogs that didn't bark. " Why didn't the guard dogs of the public banking system raise the alarm in
From London and Washington to Abu Dhabi and Karachi they knew what was going on years ago. In 1978 the London Financial Times referred to an American report that stressed the dubious character of BCCI. In 1980 the Bank of England refused to grant BCCI "top rank banking status" in Britain. However neither the Bank of England nor the US Federal Reserve (the US central bank) intervened to stop the losses. The inner circle of Sheikh Layed of Abu Dhabi and the Pakistani dictatorship went further than mere inaction; they systematically covered up
In fact two sources of big money for the imperialists, covered by two "reasons
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Britain has lost to the Americans the privileged positions in the Middle East that it conquered and consolidated after the First World War. However it retains a private game reserve in the Gulf Emirates. The BCCI was the bank of the Gulf. Thus eyes had to be averted to safeguard billions of dollars worth of exports of goods
At the same time, Pakistan is the lynch pin for the US's enormous financial and political/military interests in East Asia. Shoring up the Pakistani military dictatorship has been a basic imperative for Washington for decades. BCCI was closely tied in to the Pakistani ruling class. This is the reason for the American toler-
The British weekly, the Economist, has summed up the scandal in the following severe terms: "In this business we find spies and terrorists, bombers and murderers. Ministers and officials at the highest level could lose their jobs in practically all the countries involved."2 However we should not draw the conclusion that "they" are all powerful and can manipulate everything because they can corrupt everyone. It is impossible to corrupt millions of wage earners. Most of BCCI's top and middle level personnel were certainly bought off. But the mass of bank workers were not. The left wing British member of parliament Tony Benn received a number of letters from such employees drawing his attention to the shady practices of BCCI. He passed them on to the competent ministries, who did nothing.
If the banking workers had real powers of control over financial activities, corruption would perhaps not completely disappear. But it would without doubt be on a vastly lesser scale in comparison to what now occurs in both East and West. * 2. The Economist, July 27, 1991.