The thin grey line

Wednesday, 25 January 2012 00:05 -     - {{hitsCtrl.values.hits}}

There are three stories that I’d like to talk about in this column, which might seem unconnected, but I see a connection and hope my explanation of it will hold water.

I read a report on Huffington Post Business quoting a 10 January report on Reuters, which said that organised crime now generated an annual turnover of around 140 billion euros ($ 178.89 billion) and profits of more than 100 billion Euros.

“With 65 billion Euros in liquidity, the Mafia is Italy’s number one bank,” said the report, quoting a statement by anti-crime group SOS Impresa, set up a decade ago in Palermo to oppose extortion rackets against small business.

They say that organised crime groups like the Sicilian Cosa Nostra, the Naples Camorra or the Calabrian ‘Ndrangheta have had a stranglehold on the Italian economy for a long time, and generates profits of about seven per cent of national output.

All this puts me in mind of a line from the movie ‘Godfather,’ which went something like “in five years, the Corleone family will be completely legitimate”. The line was used in the scene where the protagonist Michael Corleone was reminded of a promise he made to his wife in Part 2 of the series. At the end of Part 3, the Corleone family was still trying to get legit – but that was in the movies, the reality seems to be somewhat different.

However, this article is not to discuss the merits or demerits of the Italian Mafia but to figure out a trend. Let me get to the other story. I recently saw in a poster displayed in a Colombo school, put up by the enthusiastic environment club, discouraging the use of plastic. There were detailed illustrations on the use of plastic and how it is not recyclable and how other materials were better for packing.

Interestingly though, the large Bristol board they had used for the poster was laminated, which kind of defeated the purpose. Having said that, it’s almost impossible to avoid plastic when it comes to preserving documents, especially when it comes to displays in open areas.

It’s a thin line that we walk now, when everything is not really as black and white like it used to be in the old days. The Reuter report on the Mafia says that old style gangsters handing out cash in bars and pool halls have now been replaced by apparently respectable bankers, lawyers or notaries. “This is extortion with a clean face,” it adds, “through their professions, they know the mechanisms of the legal credit market and they often know the financial position of their victims perfectly”.

The report also says that small businesses, who struggled to get hold of credit during the economic slowdown, may have been increasingly tempted to turn to the Mafia.

The West’s financial system has almost failed. Banks have not been compliant in many ways and this has resulted in the collapse of whole systems of government. When financial institutions fail, then there will always be someone to fill the gap (Mafia or otherwise). At the bottom of all this, however, is greed and irresponsible lending – the way these institutions had acted is what caused the sub-prime mortgage fiasco.

In Sri Lanka we still have some checks and balances in the way banks lend. How things can go wrong is when the line between doing the right thing and wrong thing becomes blurred. Sometimes it looks unavoidable, doing the wrong thing like the story of the laminated billboard, but one must find a way around it. Compliance is becoming more and more important in having sustainable business formulas.

There was a story in India Times, which said overseas investors’ cold shoulder to India may not all be due to economic woes, but the steadily rising worries about corporate governance may also be playing a role.

Allegations of misuse of funds and not honouring agreements have begun to crop up from across the country as many past assumptions on businesses turned sour. Companies that promised bountiful returns to investors today stand ravaged.

“Corporate governance and foreign direct investment into a jurisdiction have an important correlation,” says Ravi Singhania, Managing Partner of Delhi-based law firm Singhania & Partners. “The higher the level of corporate governance, greater the amount of FDI flows into the country.”

With growth rates high for South Asian countries and the promise of a better future a very real possibility, it is important for us to look around the world and learn from their mistakes, even at the risk of slowing down a little. After all, what we don’t want is to go the way of the West.

(The writer, a PR consultant and head of Media360, was previously a mainstream journalist in print and electronic media. He also edits a new media website.)


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