18 Leaders The EconomistOctober 12th 2019
2 state banks slowly regain their strength and the remaining well-
run private banks, such as hdfcand Kotak, lend more freely.
The crisis, however, cannot be compartmentalised. Shadow
banks have borrowed from bad banks which may have borrowed
from good ones. Another collapse in one corner could easily
cause panic elsewhere. Because the banks are in poor shape, the
rbi’s interest-rate cuts are not being passed on to consumers and
firms. Another lurch down in the economy threatens a new se-
ries of bad debts at the recuperating state banks. And there is a
palpable sense that governance is broken. Bank boards, auditors,
rating agencies and the rbihave all failed to stop the rot.
India needs a two-pronged clean up. In the short term the rbi
should do another “stress test” of the banks, and test the shadow
banks, too. The results should be made public. If state banksneed capital they should get it. Some shadow banks will fail and
should be wound up. The approach taken with il&fsoffers a
template. It was put into a form of administration and creditors
face a big haircut (although the process could be quicker). In the
longer run, India should privatise its state banks so that they can
escape control by politicians. Shadow lenders, meanwhile,
should face the same prudential rules as banks. The rbineeds to
overhaul its system of ongoing supervision. It used to be widely
admired, but is starting to look like part of the problem.
This ought to be India’s moment. It has a big domestic econ-
omy and lots of entrepreneurs, oil prices are fairly low—helpful
for a big importer—and multinationals are keen to shift their
factories out of China. Cleaning up the financial system is a gi-
gantic task. But until it is done India will not thrive. 7S
o you’ve stolen a billion dollars. That was the easy part. The
country of which you are president may be poor, which is a
pity, but it is also lawless, which creates opportunities. The audi-
tors, police and prosecutors who should have slapped the hand
you put in the treasury chose to kiss it instead. So your pockets
are bulging with ill-gotten loot. There is just one snag: the world
has grown less tolerant of kleptocrats.
Back in the good old days of the cold war, strongmen could be
strongmen. When Mobutu Sese Seko, the late dictator of what is
now the Democratic Republic of Congo, robbed his country into
a coma, no one cared. (Apart from his subjects, of course.) When
his household drained 10,000 bottles of pink champagne a year
and Mobutu kept a Concorde idling on the runway of his tropical
palace, his Western backers turned a blind eye, so long as he did
not invite the Soviets into central Africa. Likewise, the Soviets
overlooked the equally egregious thievery of
their clients in Angola. And a kleptocrat in those
days had no trouble finding places to park his
squillions. Swiss bankers vied to offer him
roomy vaults. Estate agents on the Côte d’Azur
rolled out the gold-thread carpet.
Recently, however, Western governments
have been confiscating looted assets and prose-
cuting those involved in corruption far beyond
their borders (see Middle East & Africa section). This year Ameri-
ca’s Justice Department indicted a former finance minister of
Mozambique and won convictions against several ex-Credit
Suisse bankers over the embezzlement of $2bn in loans. Malay-
sia’s former prime minister, Najib Razak, lost his job and his lib-
erty after America revealed that he had $700m in personal bank
accounts; American prosecutors are still pursuing his alleged
money-launderer. Last month Swiss authorities auctioned off
$27m-worth of sports cars seized from Teodorin Nguema
Obiang, the unaccountably wealthy son of the president of Equa-
torial Guinea, a tiny oil-rich dictatorship. It was not his first
brush with foreign law enforcement. In 2014 he had to hand over
assets worth $30m after America’s Justice Department said he
had embarked on a “corruption-fuelled” shopping spree “after
raking in millions in bribes and kickbacks”. Everywhere, pilfer-ing potentates and their progeny must be nervous.
So here are some steps they can take to safeguard their loot.
First, stay away from social media. The younger Mr Obiang posed
on Instagram in fancy cars and on private jets. That may have im-
pressed his friends, but it also raised awkward questions about
how he could afford such extravagant toys.
Second, avoid purchases so conspicuous that they make
headlines. Kolawole Akanni Aluko, a Nigerian businessman ac-
cused of bribery, not only spent $80m on a superyacht—he also
reportedly rented it to Jay-Z and Beyoncé for $900,000 a week.
These (blameless) singers attract a certain amount of attention.
Mr Aluko might have avoided unwelcome scrutiny had he
bought a less blingtastic boat.
Third, keep an emergency stash close to hand. The late Robert
Mugabe, who misruled Zimbabwe for three decades, always trav-
elled with a suitcase of “coup money”, in case he
was ousted while abroad. Cash piles must be
looked after, mind. A former ruler of Equatorial
Guinea, Francisco Macías Nguema, kept a large
portion of the country’s foreign reserves in a
bamboo hut in his garden. He forgot to water-
proof the hut, alas, and much of his stash rotted.
One way to protect overseas assets is to claim
they belong to the state. The younger Mr Obiang
stopped France from selling his home in Paris by insisting it was
owned by his country’s embassy. His lawyers also say that a
$100m superyacht seized by the Netherlands was a naval vessel.
Prosecutors are mystified as to what military purpose might be
served by the upper deck’s jacuzzi. Another way to elide the dis-
tinction between public and personal property is to be royal.
Mswati III, the absolute monarch of Eswatini (formerly Swazi-
land) lives like a king—and it’s legal. Gulf royals were reportedly
among the bidders for Mr Obiang’s cars.
One final thought. How about ruling honestly? This is not as
crazy as it sounds. Mo Ibrahim, a Sudanese-British telecoms ty-
coon, has endowed a $5m prize each year for an African presi-
dent who governs well and retires when his term is up. You can
live quite well on $5m. Yet for seven of the 12 years since the Ibra-
him prize began, no worthy recipient has been identified. 7How to keep your ill-gotten loot
A guide for kleptocrats worried by foreign prosecutorsPilfering potentates