The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

64 4 Insider Knowledge and Insider Trading
to the other shareholders of the firm that supplies the tip and in relation to stockexchange
rules. The phenomenon of exploiting the knowledge of confidential facts
can be deemed a more or less universal characteristic of corruption, and taken as the
foundation of a general theory of corruption.
Supposing that a doctor’s patient receives a terminal diagnosis, which is divulged
to the doctor under his duty of professional confidentiality, and the doctor, in return
for commission, informs an estate agent that the patient’s house will soon be up
for sale since the diagnosis does not give him long to live, that doctor is corrupt, is
abusing his professional position and is violating the duties of that profession.
The employees of a firm cannot enter a prize competition that their own firm
has organized; nor may they use any insider knowledge about this prize competition
that they possess by virtue of their employment, in order to gain an advantage for
themselves over other competition entrants or to divulge details to others to give
them an advantage.
The official responsible for highway and bridge construction in a city may not use
his insider knowledge about that city’s construction policy in order to pre-emptively
purchase the land necessary for the bridges at a low price in order to sell it on to the
city at a higher price.
The architect who is building a house for a customer should not simultaneously
act as an agent who procures construction contracts for building firms and receives
agent’s commissions from them in addition to his architect’s fees. If he does, he is
abusing his professional position as a neutral advisor of his client, his insider knowledge
as the client’s architect, and his architect-client contract in order to engage in
insider dealing with the construction firm. He is abusing the fiduciary relationship
between his client and himself in order to enter into transactions on a commission
basis with firms that he should be dealing with as an impartial advisor and advisor
to the client. It is obvious that in such a case he is being paid twice for the same service,
which would only be acceptable if he reduced his architect’s fee by the amount
that the construction firm paid him in commission.
The abuse of insider knowledge or of facts divulged in confidentiality is at
the root of the most subtle forms of corruption in the private and public sector.
Corruption is the misuse of official power or a position of trust in order to make
decisions which go against the intention and the rules of the office or the client in
order to make profits on one’s own account or to procure illegal advantages for a
third party. Procurement of advantage by the official himself or by a third party,
be it in private-sector corporations or in the public sector, is always based on some
special insider knowledge, which only the person concerned possesses and which is
used inappropriately in order to make insider profits.
The more blatant forms of corruption are becoming more and more impracticable
for officials in democratic states under the rule of law, because legal controls
and a democratic public generally put a stop to them quickly. A judge cannot blatantly
favor the rich and powerful and rule to the detriment of widows and orphans,
as the biblical prophets used to lament. Nevertheless, judges can utilize insider
knowledge to pass information to one party so that they gain an advantage in the
proceedings. Nowadays, the Prime Minister can no longer make his wife a Cabinet