Time To Change The Cliché

Jem Shaw, CEO, Ethical Payments Foundation

It was once true that clichés became clichés because they were the best way of saying something. But sometimes they become nothing more than a trite assemblage of words, and then they’re dangerous.

Here’s a good example: Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for life. Harmless enough, you might think. Even profound, if you ignore how many times, we’ve heard it. Also, dangerous because it encourages us to believe in a simple solution.

Today I’d like to propose an updated version: Give a man a fish and you feed him for a day. Teach a man to fish and he still won’t be able to buy medicine, a complete diet, decent fishing equipment, clean bedding, nappies…

Some time in the sixties, the aid organisations switched their focus from delivering food to educating people to provide their own food, and the long-term reduction in famine in emerging regions justified their use of Lao Tzu’s pearl of wisdom. But half a century on, the problem has changed. Natural (or, increasingly, man-made) climate disasters continue to strike rural Africa while tsunamis devastate pacific coastlines, but these are, thankfully, exceptions rather than regular occurrences. It’s no coincidence that systemic corruption is rife in poorer countries; where prosperity is rare, survival instincts trigger humanity’s worst behaviours. Success in malfeasance almost inevitably leads to greed, and what little money there is becomes concentrated among a tiny portion of the population. And, unlike hurricanes, forest fires and floods, this goes on 24/7.

A country is little more than a large farm. It may grow enough to feed those who live on it, but to obtain access to technology, automation, medicine and the other trappings of the world outside, it must be able to trade its surplus. Countries with mineral wealth buried under poor soil must be able to buy food and machinery. And it’s these basic needs that are widely denied the emerging economies of the world.

So, what’s excluding these regions from international trade? I see two prime factors:

Unsustainable or unacceptable methods

Primitive methods of irrigation, fertilisation or harvesting can cause irreversible damage to the local, and potentially global, environment. Similarly, mineral extraction frequently uses highly toxic chemicals that poison water supplies, while quarrying damages the surface ecology. And in both cases, working conditions can be inhuman; artisanal mining has an appalling record of child labour, kidnapping and horrifying accident rates. Farmworkers are often paid pittances - or sometimes not paid at all, surviving on a starvation diet meted out by their taskmasters.

Recently, pressure has built on gold refiners like Metalor or cobalt consumers like Apple and Tesla to withdraw their support from such methods. In many cases the buyers’ response has been to stop purchase of raw materials from artisanal sources. That may protect them from public calumny, but it does nothing to address the problem – in fact it exacerbates it.

Artisanal workers may be paid very little, but they’re paid something. If their minerals or produce can’t be sold, how do they survive? In a country like Burkina Faso, where 80% of its economy relies on gold, 80% of which is dug out by hand, such a sanction means national bankruptcy.

And what happens to the gold that can’t be sold? Does it just lie there in the ground? In western Africa, where birimian gold deposits lie close enough to the surface to be picked up by hand, terrorist organisations have received an unexpected boost to their income. And the miner, who scraped a living on a dollar or two a day, now works under the barrel of an AK-47.

A dripping tap can’t be fixed by turning off the water supply. A permanent solution requires engagement between the G20 importers and the NGOs working in rural and mineral-rich emerging-nation regions to define a path of phased improvements. The importers need to invest, both in these programmes, and in tracking technologies that trace the provenance and routing of the raw materials they buy. We’ve already seen a partial solution in the familiar Fairtrade marks on our coffee packaging, but these are an isolated response to a far wider challenge. But let’s imagine a world where this problem is solved. The artisanal workers are now free to sell their output, right?

Wrong… Global trade finance is a club …and you can’t join if your map-pin drops in the wrong place.

International trade works though a system known as correspondent banking. A payment may move between several banks in its journey from euros to naira. This is expensive and slow but, with the exception of a few entrepreneurial financial institutions, it’s the way funds move between countries.

Each of those banks must satisfy strict regulations to ensure that funds aren’t tainted by money-laundering, support for terrorism, drug profits or many other such types of malfeasance. Penalties for a compliance failure can, and do, run into billions. The diligence required to avoid those penalties is complex and expensive, often running to $25,000 for a single case. It’s clearly unreasonable to expect a bank to spend such a sum on a transfer that might earn it a tenth of the cost of acquisition.

As we’ve already accepted, poverty breeds corruption, so many of the world’s poorest regions are subject to the highest level of systemic criminality. Banks are commercial organisations, with responsibilities to their customers and shareholders. Rather than purchase business at a loss, and then face the risk of swingeing penalties, they can do little else but refuse business from large regions of the world map. The process is called derisking, and its human cost is devastating.

When law turns away, crime prospers. So, is there a solution?

No there isn’t a solution, but there are solutions. International trade is increasingly becoming the hunting ground of the fintech’s and the challenger banks. Technology, creativity and entrepreneurialism are showing us new innovations almost daily.

That’s good, but it’s not enough. Why? Because far too much of this energy is focused on single solutions. A good example is a system that we’ve been developing here at the Ethical Payments Foundation. It’s a platform that tracks raw material from the ground it came from to the store shelf where it’s purchased. Along the way it ensures that workers are paid, that the material came from a legal concession, and that its route through manufacture to market was compliant with international standards. It does a lot more than that, but I’m not looking to sell you our platform, I’m looking to highlight its shortcomings.

The FairTracked system fixes a problem, but it doesn’t provide a solution. That can only come from integrating it with compliant trade finance, with government and NGO grant systems, with final-mile payment, with programmed education and more. So, having finished our platform, we’re now working with other technology providers, regional specialists and even potential competitors to deliver a holistic and lasting cure for a complex interplay of challenges.

Working outside the silo

As technology has blossomed into exotic blooms that would have been unimaginable ten years ago, innovation has become almost the norm. If anything gives me hope for our future on this planet, it’s the rising tide of creativity; we’re proving daily that we’re capable of rising to any challenge. To ride the wave, we have to break out of our silos and look to our peers, to see what we could achieve if we created integrated partnerships that allowed the free exchange of knowledge and expertise.

I work as an adviser to a group of financial companies that is achieving spectacular growth. I don’t claim any authorship of that success, but it’s significant to look at what has fuelled it. By forging strongly interactive partnerships with parallel companies – some of which could easily have been mistaken for competitors – the group is now providing several billion dollars of compliant funds transfer to and from the world’s most difficult regions. Several of its customers come from a sector that’s under threat from the fintech challengers – the banks themselves. The common characteristic of these banks is that they’ve understood the value of looking beyond their silo and turning competitors into allies.

My call to action is to the solution-makers. I ask you to look at what you’ve developed and consider what dependencies exist to allow it to deliver full potential. Then contact the people who can fill those dependencies. Contact your competitors and compare notes – I guarantee you’ll each find gaps that the other can fill. Develop APIs to exchange expertise and information; introduce your new allies to new opportunities and see how your own opportunities grow.

The man was taught to fish; now let’s make it possible for him to sell it.

Jem Shaw, Ethical Payments Foundation

Read more feature pieces from ATTIC magazine with James Haydock as he investigates the 'Social Impacts of Money Laundering'.