An investigation of the financial criminal practices of the elite in developing countries. Evidence from Nigeria

Date04 May 2012
Published date04 May 2012
DOIhttps://doi.org/10.1108/13590791211220449
Pages175-206
AuthorOlatunde Julius Otusanya
Subject MatterAccounting & finance
An investigation of the financial
criminal practices of the elite
in developing countries
Evidence from Nigeria
Olatunde Julius Otusanya
Department of Accounting, University of Lagos, Yaba, Nigeria
Abstract
Purpose – Contemporary literature has paid scholarly attention to financial criminal practice from a
variety of competing perspectives. However, this paper seeks to encourage reflections on some
questionable practices of the political and economic elite which increase their capital accumulation but
harm citizens.
Design/methodology/approach Within a socio-political framework, this study adopts the
theories of the developmental state and globalisation in order to understand the relationship between
social agency and society, and focuses on the institutional structures and the role of social actors.
Findings – The paper used publicly available documents to construct case studies to provide some
evidence of the strategies and tactics used by political elite to facilitate their capital accumulations.
Evidence is provided to show that large sums of government revenue have been undermined by the
financial criminal practices of the Nigerian political and economic elite (both local and international),
which have enriched a few, but impoverished most, Nigerians.
Practical implications – Financial criminal practices have played a major role in causing serious
damage to the economic and social landscape of Nigeria, which in turn, has undermined social welfare
and also investment in the public services, thereby eroding the quality of life and producing a decline
in average life expectancy. As a consequence of recurring corrupt practices by the political and
economic elites in Nigeria, there is a need for reform in order to curb the practice which has had and
continues to have, a serious effect on Nigeria and its future development.
Originality/value – Broader accounts of the impact of financial criminal practices on development in
developing countries are relatively scarce. Previous studies have tended to individualise the problem.
Keywords Financial crime,Corruption, Bribery, Politicalelite, Nigeria, Criminal practices
Paper type Research paper
1. Introduction
“Financial crime” in developing countries is a recurring feature of media coverage. The
coverage relates to a wide range of activities, such as tax avoidance/evasion, corruption,
bribery, money-laundering, price fixing, drug trafficking, child labour, poor wages,
gender exploitation and other activities (International Monetary Fund (IMF, 2001)); UN
Office on Drugs and Crime, 2005). A comprehensive analysis of such matters is beyo nd
the scope of this paper. Instead, it explores some social, economic and political aspec ts of
corruption in Nigeria, a mineral rich country of 148 million people located in Africa.
In common with other socially constructed practices, a study of corruption
(hereafter referred to as “financial crime”) presents considerable challenges. The
contemporary literature, often from the Western World, offers a variety of competing
and overlapping definitions, causes and solutions. For example, the literature identifies
varieties of corruption covering political, social, economic, legal, electoral, institutional
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Financial
criminal
practices
175
Journal of Financial Crime
Vol. 19 No. 2, 2012
pp. 175-206
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791211220449
and other scenarios (Rose-Ackerman, 1978; Johnston, 1983; Tanzi, 1994; Mbaku, 1996;
Gyimah-Boadi, 2004). In general, corruption is considered to be a negative activity, in
other words, something which undermines social welfare (Amundsen, 2006;
Bakre, 2007; Sikka, 2008). Its dest ructive capacities have been capt ured by
metaphors such as “cancer” (Wolfensohn, 1996; Gonza
´lez de Arago
´n, 2004), “virus”
(Elliott, 1997; Hao and Johnston, 2002; Underkuffler, 2005) and “disease” (Klitgaard,
2002; Underkuffler, 2005; Neutze and Karatnycky, 2007).
The social, economic and political effects of financial criminal practices are
significant, as huge amounts, often dwarfing the gross domestic product (GDP) of
many nation states, are involved. The World Bank estimates that between $1 and
$1.6 trillion is lost each year to various illegal activities, including corruption, criminal
activities and tax evasion (World Bank, 2007a, b). It has been estimated that every year
between $500 and $800 billion leaves Southern countries due to criminal activities,
corruption, tax evasion and tax avoidance practices (Baker, 2005).
Financial criminal practices are not just the prerogative of developed economies.
They are also encountered in developing countries. As a result of these financia l criminal
activities, developing countries are estimated to be losing more than $385 billion in
revenue annually, due to tax avoidance and tax evasion (Cobham, 2005), whilst paying
around £100 million (US$190 million) a day in debt repayments alone to richer countries
(Oxfam, 2004). The African countries have been estimated to be losing US$500 billion
(£270 billion) a year in revenue (Christian Aid, 2005). Corruption and the transfer of illicit
funds have therefore contributed to capital flight from Africa, with more than
$400 billion having been looted and stashed away in foreign countries (UN Office on
Drugs and Crime, 2005). The former Chairman of the Economic and Financial Crimes
Commission (the EFCC), Nuhu Ribadu, disclosed that pervasive corruption in Africa
bleeds the Continent of $148 billion each year, representing 25 percent of its gross
national product (EFCC Report, 21 February 2006). It is also estimated that “African
political elites hold somewhere in the range of $700 to $800 billion in accounts outside the
continent” (AAPPG, 2006, p. 15). Financial criminal practice is continually depriving the
African economy of sums large enough to make a real difference in social investment in
education, transport, pensions, housing, healthcare and for freeing people from poverty
and squalor (Oxfam, 2000; Filling and Sikka, 2004; Sikka, 2008).
The global anti-social practices’ industry has attracted the increasing attention of
international organisations and policy-makers (OECD, 2000; US Senate Sub-Committee
on Investigations, 2003, 2006; United Nations Office on Drugs and Crime (UNODC), 2005;
IMF, 2001; World Bank (WD), 2007a, b; Oxfam, 2000, 2004; Szeftel (2000); Christi an Aid,
2008; Transparency International (TI, 2005), and scholars (Mauro, 1995;
Rose-Ackerman, 1996; Tanzi, 2000; Cobham, 2005; Everett et al., 2007; Bakre, 2007;
Sikka, 2008)), but comparatively little scholarly attention has focused on the role of
political and economic elite in facilitating corrupt practices (Sikka, 2008; Bakre, 2007 ).
A number of other studies have paid attention to exploring the impact of a range of
explanatory variables (such as investment, bureaucratic efficiency, growth, fiscal
termites and ethnolinguistic fractionalisation, etc.) on some aspects of anti-social
practices generally (Mauro, 1995; Schneider and Enste, 2000; Tanzi, 2000, Akindele,
2005). The literature in this area is diffuse. While there is considerable research on the
relatively narrow aspects (causes, effects and consequences), of financial criminal
practices in developing countries (Akindele, 2005; Peel, 2006; Martens, 2007;
JFC
19,2
176
Bakre, 2008a, b), broader accounts of financial criminal practices by the elite as
impediments for sustainable development in developing countries are scarce. Therefore,
research which is capable of understanding and explaining both the structures and the
role of actors which have shaped the continuous expansion of financial criminal
practices in Nigeria, is needed.
The paper seeks to encourage debates about the consequences of financial criminal
practices. It seeks to encourage reflection on some questionable practices of the political
and economic elite which increase their capital accumulation but harm citizens. It
examines the role of the political elite in the mismanagement of public funds and its
social consequences. Such practices are located within the broader socio-political and
institutional analysis in the developmental state. The paper is divided into six further
sections. Section 2 provides the developmental state theory and globalisation as the
methodological framework for exploring financial criminal practices by elite. Section 3
examines the related cases of elite corrupt practices and the role developed countries
have played in facilitating financial criminal practices in developing countries. Section 4
examines the socio-political and economic context of Nigeria which provides the
background for a better understanding of the empirical analysis of financial criminal
practices. Section 5 explores the cases in which the presidency was alleged to have
mismanaged public funds for personal enrichment without adherence to financial
regulations, due process and societal interests. The final section summarises the paper
and discusses its significance, implications and need for reform.
2. Developmental state and globalisation
Investigations into micro and macro level practices cannot be understood without
exploring past and present development through theoretical perspectives which appeal
to a range of historical, social and political modes of explanation of change over time in
terms of the interaction between social actors and the structural influences. In this
theoretical context, society is seen as an ensemble of structures, positioned practices and
network of relationships which individuals do not intentionally create in their activity,
but in such activity they always presuppose their existence. Hence, the persistence of
anti-social practices is a social process that involves the reciprocal and repeated
interaction of agents and the structural features of social systems by effective
communication. As a result, actors are simultaneously enabled and constrained by the
structures of society (Njoku, 2007).
Agency is linked to social structures by an enduring “point of contact” which is
occupied by individuals. The actors often interactin a more complex way using enabling
structures which are both internal and external. Through the interaction of these actors
shaped by social structures, certain kinds of social behaviour are produced and
transformed.In this context,a structure means institutionalstructures, powerand politics.
There are many varieties of state (Dunleavy and O’leary, 1987; Jessop, 1990) and there
are many types of capitalism (Hall and Soskice, 2001; Schmidt, 2006). However, the
concern in this paper is that developing countries do not fit well into a conventional
understanding of the state as they have a different legacy and different institutional
structures embedded in them from those in developed countries. These states including
Nigeria therefore, can best be conceptualised as a developmental state because of the
intra-system contradictions. Varieties of capitalism[1] and the state are intertwined
(Hall and Soskice, 2001; Schmidt, 2006) and conventional research has focused
Financial
criminal
practices
177

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT