Against Corruption: a collection of essays
Published 12 May 2016
1. Foreword by David Cameron, Prime Minister of the United Kingdom
Corruption is the cancer at the heart of so many of our problems in the world today. It destroys jobs and holds back growth, costing the world economy billions of pounds every year. It traps the poorest in the most desperate poverty as corrupt governments around the world syphon off funds and prevent hard-working people from getting the revenues and benefits of growth that are rightfully theirs. It steals vital resources from our schools and hospitals as corrupt individuals and companies evade the taxes they owe. It can even undermine our security, as Sarah Chayes argues in her essay, if the perceived corruption of local governments makes people more susceptible to the poisonous ideology of extremists.
The longer I have been Prime Minister, and the more I have seen in this job, the more I believe that we cannot hope to solve the big global challenges of our time without making a major dent in the whole cycle of corruption. If we continue to hide from this problem, how will developing countries blessed with natural resources ever break out of the poverty trap? How will we stop people from risking their lives to cross the Mediterranean unless we enable them to build a better life back at home? In the end, we have to deal with corruption if we are to have any hope of a truly prosperous and secure future.
Furthermore, people actually want us to deal with this problem, every bit as much as they want us to tackle issues like poverty and migration. They want the law to be upheld and they want the corrupt to be punished, with justice and recompense for those who have suffered.
Yet while corruption is such a huge problem, the national and global efforts to deal with it are often weak. No country has a perfect record on these issues – and so there is a hesitation in raising them. For too long there has been something of an international taboo over stirring up concerns. For too long it has just been too easy for those in authority to ignore or pretend not to know what is going on. As David Walsh puts it in his essay: this “longing to indulge the irresponsibility of not knowing” has been the rock upon which corruption is built. I profoundly believe that this has to change – and it has to change in every country. Make no mistake, corruption affects us all, Britain included. From tax evasion and overseas territories who have been accused of hiding the proceeds of corruption, to an MPs’ expenses scandal that tore at the fabric of the world’s oldest democracy, we have our own problems and we are very much still dealing with them.
That is why I have made tackling corruption such a political priority. From the 2010 Bribery Act to becoming the first major country in the world to establish a public central registry of who really owns and controls companies, I am determined that we should do everything we can to demonstrate leadership on these issues and put our own house in order.
Through our chairmanship of the G8 and the Summit at Lough Erne, I put tax, trade and transparency on the global agenda and sought agreement on a global standard for the automatic exchange of information over who pays taxes where. While many said it would never happen, today 129 jurisdictions have committed to implementing the international standard for exchange of tax information on request and more than 95 jurisdictions have committed to implementing the new global common reporting standard on tax transparency by 2018.
Through our chairmanship of the United Nations High Level Panel, Britain secured the inclusion of tackling corruption at the heart of the new Sustainable Development Goals to eradicate absolute poverty from our world. On my watch, the UK has signed up to the Extractive Industries Transparency Initiative – and we’re leading a global drive to get other countries on board and clean up a sector which has for too long been vulnerable to corruption. We are going further still. I am determined that the UK must not become a safe haven for corrupt money from around the world. We know that some high-value properties – particularly in London – are being bought by people overseas through anonymous shell companies, some of them with plundered or laundered cash. So we are consulting on ways to make property ownership by foreign companies much more transparent – and considering whether to insist that any non-UK company wishing to bid on a contract with the UK government should publically state who really owns it.
Yet all of these measures address only parts of the problem. As the Panama Papers show, corruption is a truly global challenge. Criminal networks operate across borders. And wealth that is plundered from the poorest countries can end up hidden away in the richest countries. So nations need to tackle this issue in partnership, developing a truly comprehensive, sustained and coherent international agenda to defeat the causes of corruption. That is why we are holding the Anti-Corruption Summit in London and why I have compiled this book. The essays in this book are not about trying to claim the moral high ground, nor about telling others what to do. Neither do they claim to be a comprehensive guide to tackling corruption. But they are an attempt to bring together some of the most pioneering thinkers on this issue to begin a frank and informed global debate over how to tackle what I believe is one of the most pernicious enemies of progress in our time.
While the essays cover a wide range of perspectives and experiences, there are a number of consistent themes. For a start, we can be clear about the scale and extent of the problem. José Ugaz tells us that every year one in four people around the world pay a bribe to access public services. While in Mexico, a family spends on average 14% of its income on bribes for basic services to which they are already entitled – including water, medicine and education.
Christine Lagarde sets out the indirect economic costs of corruption, including the way corruption can act like a tax on investment and stifle the creation of new business. She also highlights its impact on the poorest and its damaging effect on the moral fabric of our society.
Many of the essays bring home the sheer extent of corruption, reaching every country and affecting so many areas of life – from the desperate stories of the vulnerable paying bribes to get treatment for a sick child, to the world of sport which was for so long indulged with a special status that left some of its participants behaving as if they were exempt from the rules that everyone else was expected to follow.
Some of the essays are very clear about the definitions of corruption. Francis Fukuyama, in particular, analyses the origins of corruption, providing a strong historical and intellectual underpinning to the challenges we face. Running through the essays is the sense that not only do you need the right rules and enforcement but you need to change the underlying culture too. There is a clear message here. We cannot have one or the other; we need both. New Zealand Prime Minister John Key offers us his perspective when he uses a cricketing analogy to describe the national character of his country and its intolerance of “underarm deliveries”. He argues that you have to promote a culture which makes it close to impossible for the corrupt to prosper or escape detection. There is also a striking frankness and directness in the politicians who are writing about the history of corruption in their own countries.
President Ghani describes Afghanistan as, by any measure, “one of the most corrupt countries on earth”. In his essay on tackling corruption in Estonia, Mart Laar says that corruption was so ingrained that it had become a way of life. He writes: “we didn’t even understand that it wasn’t normal.” President Buhari uses that same concept to describe corruption in Nigeria as a “way of life” under “supposedly accountable democratic governments” and points to evidence suggesting that between $300 billion and
$400 billion of public funds have been lost to corruption since Nigeria’s independence in 1960.
But that frankness about the problem will only deliver real change if there is true political leadership. Without that leadership, many of the rules, institutions and mechanisms to address corruption will never actually bite. For years Nigeria had the laws and the anti-corruption agencies, but as President Buhari explains, there was “a complete lack of political will to strengthen these agencies and to faithfully enforce the laws.” These laws were ignored with impunity and procurements were made with a complete disregard for due process. He cites one example of a provision to allow courts to treat unexplained wealth as evidence of corruption. There is a similar provision in Singapore, the use of which is explored in the essay by Prime Minister Lee Hsien Loong. But the difference is that in Nigeria’s case, neither the Code of Conduct Bureau nor the Independent Corrupt Practices Commission has ever invoked such provisions in their decades of existence.
Above all, when I read through the essays I feel both depressed and uplifted. Depressed because the scale of this problem is truly frightening and the human costs are so desperate. It is hard not to pause on Jim Yong Kim’s essay when he describes the situation in Sierra Leone where corruption stopped some mothers from immunising their infant children because nurses demanded rice in exchange for ‘free’ shots.
But I am also uplifted because there is a consistent theme that we can crack this and there are so many encouraging stories of measures that have already had an impact.
Angel Gurría tells us that between 1999 – the year the OECD convention tackling transnational bribery came into force – and 2014, 361 individuals and 126 companies were sanctioned for foreign bribery in 17 countries, with at least $5.4 billion imposed in combined monetary sanctions and 95 people put behind bars.
José Ugaz describes some of the ways that new technologies have already been employed to bring about real change. In Guatemala, a public campaign over a customs fraud scandal forced the resignation of the president and vice- president. In Brazil, 40 civil society organisations mobilised two million Brazilians to use online actions and events to successfully campaign for a new law that prevents candidates who have been convicted of corruption from standing for public office for at least eight years.
When El Salvador gave citizens the right to ask for information about public officials’ assets, 6,000 citizen requests helped to uncover cases where the wealth of public officials had grown by 300% during their time in office. In Venezuela, a new smart phone app is allowing ordinary citizens to report on instances of bribery and any irregularities during elections, with more than 400 complaints registered for follow-up in the most recent parliamentary elections.
Christine Lagarde also cites an example from Indonesia where the then Minister of Finance partnered with business to create ‘new rules of the game’. These meant that the government delivered a streamlined customs approval process in exchange for a commitment from business not to offer any bribes to officials.
Jim Yong Kim describes how publishing school funding allocations in local newspapers in Uganda transformed the proportion of funds that made it through to the schools, with one study concluding that the amount of funds diverted away by local officials correlated to the distance of a school from a town where there was a newspaper outlet.
All of these examples and more mean that the biggest message of this book is one of optimism. This battle can be won. Furthermore, there are clear lessons coming through that can help us to win it by shaping an international agenda to defeat and deter corruption.
First, corruption should be exposed so there is nowhere to hide. We need to end the use of secret shell companies, so that the corrupt no longer have an easy and anonymous way to hide their loot and move it across borders. We need to drive out the rogue lawyers, estate agents and accountants who facilitate or tolerate corruption in commerce and finance. We need to expose the theft or misuse of taxpayers’ money by opening up budgets and procurement so that people can see exactly how their money is used and they can demand that people are held to account when it is stolen. And we need a sustained effort in those areas which Paul Collier describes as the “pockets of high corruption”, including corruption-prone sectors such as the extractive and construction industries.
At the heart of all of this is international co-operation on transparency. In the UK we have adopted legislation to give the public unrestricted access to beneficial ownership information on UK companies through a public central registry so that people can see who really owns and controls companies. But as Paul Radu argues, tracking international flows of finance requires international co-operation. Well-structured, transparent and accessible databases could allow automated searches of ever-larger, global datasets that could feed real-time alerts to journalists in every country. His vision offers a network of investigative journalists that could help make transparency the natural enemy of international organised crime gangs and corrupt officials all over the world. Given the sheer quantity of data to get through, networks of civil society, activists and journalists – working with law enforcement – will be critical to holding people to account.
Second, we need to deal properly and comprehensively with the corruption we expose. That means bringing the perpetrators to justice, actively enforcing anti-corruption laws and working together across international borders to hunt down the corrupt, prosecute them and send them to jail. One cutting-edge idea to explore here comes from Prime Minister Lee Hsien Loong. In Singapore, instead of prosecutors having to prove the guilt of the corrupt, they reverse the burden of proof so the accused have to show that they acquired their wealth legally. The Prevention of Corruption Act also provides for extra-territorial jurisdiction, so that the actions of Singaporeans overseas are treated in the same way as actions committed in Singapore, regardless of whether the corrupt acts had consequences in Singapore itself.
It will be a while yet before everyone is as bold and as far- reaching as Singapore. But what I believe we can all agree is that we should send a clear message to the corrupt that there will be no impunity and that we will restrict their ability to travel and do business as usual in our countries. That’s why we in the UK are looking closely at the potential of Unexplained Wealth Orders, and why I urge other countries to do the same.
Dealing with the corruption we expose also means taking responsibility to support those who have suffered from corruption. I believe that should include doing everything we can to track down looted money and create a trusted system to return it to its rightful owners. The looting of public wealth has been on such a scale in some countries, that returning it safely would make an enormous difference to their development prospects. It would also begin to address the sense of injustice that many in this book have so powerfully described.
Third, we need more than just clear rules that are properly enforced. As so many of the contributors have argued, we also need to make it much harder for corruption to thrive by driving out the underlying cultures that have allowed this cancer to fester for so long. This means tackling head on what John Githongo describes as the ‘pirate sector’ by creating a culture where the corrupt are (in Lesotho vernacular) “bobolu” and made to feel a social stigma that shames them for what they do.
It means challenging corrupt behaviours globally by embracing the vast possibilities that Paul Collier highlights around the twinning of different countries’ institutions and professions. From tax collection agencies, treasuries and civil services to professions such as accountancy and law, twinning can begin to build a newly shared culture of probity and honesty.
Changing the culture of corruption also means embracing the power of new technologies to deliver greater accountability for public money and public services. In India, for example, welfare smartcards are helping to prevent corrupt officials taking a cut of payments to the poor. Technologies like this can provide the information to enable government agencies, businesses, campaigning NGOs and individual citizens to come together in a comprehensive movement against corruption.
But all of this will only really work if political leaders have the courage to stand together, to speak up where previously there was silence, and to demand the strengthening and co- ordinating of international institutions that are needed to put fighting corruption at the top of the international agenda where it belongs. We cannot and must not fail this test of political leadership. As David Walsh writes: “No longer in the dark, we now have the opportunity for change. It would be a crime not to seize it.”
I intend to seize it, with the support of all the authors in this book and together with the widest possible coalition of leaders from politics, business and civil society.
Together we are against corruption. And together we can defeat it.
2. Francis Fukuyama: What is Corruption?
Corruption has in many ways become the defining issue of the 21st century, just as the 20th century was characterised by large ideological struggles between democracy, fascism and communism. Today a majority of the world’s nations accept the legitimacy of democracy and at least pretend to hold competitive elections. What really distinguishes political systems from one another is the degree to which the elites ruling them seek to use their power in the service of a broad public interest or simply to enrich themselves, their friends and their families. Countries from Russia and Venezuela to Afghanistan and Nigeria all hold elections that produce leaders with some degree of democratic legitimacy. What distinguishes them from Norway, Japan or Britain is not so much democracy as the quality of government which, in turn, is greatly affected by levels of corruption.
Corruption hurts life outcomes in a variety of ways. Economically, it diverts resources away from their most productive uses and acts like a regressive tax that supports the lifestyles of elites at the expense of everyone else. Corruption incentivises the best and the brightest to spend their time gaming the system, rather than innovating or creating new wealth. Politically, corruption undermines the legitimacy of political systems by giving elites alternative ways of holding onto power other than genuine democratic choice. It hurts the prospects of democracy when people perceive authoritarian governments to be performing better than corrupt democratic ones and undermines the reality of democratic choice.
However, the phenomenon labelled ‘corruption’ comprises a wide range of behaviours whose economic and political effects vary greatly. It is remarkable that, for all of the academic effort put into the study of corruption, there is still no broadly accepted vocabulary for distinguishing between its different forms. Before we can tackle corruption, we need some conceptual clarity as to what it is and how it relates to the broader problem of good government.
2.1 Corruption as a modern phenomenon
Corruption can exist in many contexts, from bribery in a sports organisation to a secretary stealing from the office pool. I am here going to focus on political corruption, which concerns the abuse of public office for private gain (see Johnston 2005, p. 11).
The first point to note is that corruption is a modern phenomenon. The very terms ‘public’ and ‘private’ did not always exist. In the European medieval era, virtually all regimes were what Max Weber labelled ‘patrimonial’ – that is, political authority was regarded as a species of private property which could be handed down to descendants as part of their patrimony. In dynastic times, a king could give away an entire province with all of its inhabitants to his son or daughter as a wedding present, since he regarded his domain as a private possession. Under these circumstances, it made no sense to talk about public corruption[footnote 1].
The concept that rulers did not simply own their domains but were custodians of a broader public interest was one that emerged gradually in the 16th and 17th centuries. Theorists such as Hugo Grotius, Jean Bodin, Thomas Hobbes and Samuel von Pufendorf began to argue that a ruler could be legitimately sovereign not by right of ownership, but out of a kind of social contract by which he protected public interest – above all, the common interest in peace and security. The very notion that there was a potential conflict between public and private interest emerged with the rise of modern European states. In this respect, China beat Europe to the punch by nearly 1,800 years, having been one of the earliest civilisations to develop a concept of an impersonal state that was the guardian of a collective public interest.
Today no rulers dare assert publicly that they ‘own’ the territories over which they exercise authority; even traditional monarchs such as those in the Arab world claim to be serving a broader public interest. Hence we have the phenomenon that political scientists label ‘neo-patrimonialism’ – in which political leaders pretend to be modern servants of the common good in political systems with modern trappings like parliaments, ministers and bureaucracies. But the reality is that elites enter politics to extract rents or resources and enrich themselves and their families at the expense of everyone else.
A modern state which seeks to promote public welfare and treats its citizens impersonally is not just a recent phenomenon, but also one that is difficult to achieve and inherently fragile. The reason for this has to do with human nature. Human beings are social creatures, but their sociability takes the very specific forms of favouritism towards family and friends.
The demand that we treat people on an impersonal basis, or hire a stranger who is qualified rather than a relative or a friend, is not something that comes naturally to human beings. Modern political systems set up incentives and try to socialise people into different forms of behaviour. But because favouritism towards friends and family is a natural instinct, there is a constant danger of relapse – something I have elsewhere labelled ‘repatrimonialisation’ (Fukuyama 2011).
People who live in rich developed countries often look down on countries pervaded by systemic corruption as if they are somehow deviant cases. But the truth of the matter is that, up until a few centuries ago, there were virtually no modern uncorrupt states. Making the transition from a patrimonial or neo-patrimonial state to a modern impersonal one is a difficult and historically fraught process, much more difficult in most respects than making the transition from an authoritarian political system to a democratic one.
But if most countries throughout most of human history were patrimonial or neo-patrimonial, there were still large differences between them with regard to the quality of government. So we need to make some finer distinctions between types and levels of corruption.
2.2 Types of corruption
There are two separate phenomena related to corruption that are not identical to it. The first is the creation and extraction of rents, and the second is patronage or clientelism.
In economics, a rent is technically defined as the difference between the cost of keeping a good or service in production and its price. One of the most important sources of rents is scarcity: natural resource rents exist because the selling price of oil far exceeds the cost of pumping it out of the ground.
Rents can also be artificially generated by governments. Many of the most common forms of corruption revolve around a government’s ability to create artificial scarcities through licensing or regulation. Placing tariffs on imports restricts imports and generates rents for the government; one of the most widespread forms of corruption around the world lies in customs agencies, where the customs agent will take a bribe to reduce the duties charged or expedites the clearance process so that the importer will have their goods on time.
The ease with which governments can create rents through their taxation or regulatory powers has led many economists to denounce rents in general as distortions of efficient resource allocation by markets and to see rent creation and distribution as virtually synonymous with corruption. The ability of governments to generate rents means that many ambitious people will choose politics rather than entrepreneurship or the private sector as a route to wealth.
But while rents can be and are abused in the fashion described, they also have perfectly legitimate uses, which complicate any blanket denunciation. The most obvious type of a ‘good’ rent is a patent or copyright – by which the government gives the creator of an idea or creative work the exclusive right to any resulting revenues for some defined period of time. Economists Mushtaq Khan and Jomo Kwame Sundaram (2000) point out that many Asian governments have promoted industrialisation by allowing favoured firms to generate excess profits, provided they were ploughed back into new investment. While this opened the door to considerable corruption and abuse, it also worked as a means of stimulating rapid growth at a rate possibly higher than market forces on their own would have produced.
All government regulatory functions create artificial scarcities and therefore rents. But while we can argue about the appropriate extent of regulation, few people would like to see these functions simply abandoned. The creation and distribution of rents by governments have a high degree of overlap with corruption, but are not simply the same phenomenon.
The second phenomenon that is often identified with corruption is that of patronage or clientelism. A patronage relationship is a reciprocal exchange of favours between two individuals of different status and power, usually involving favours given by the patron to the client in exchange for the client’s loyalty and political support. The favour given to the client must be a good that can be individually appropriated, such as a job in the post office, a Christmas turkey or a get-out-of-jail card for a relative, rather than a public good or policy that applies to a broad class of people (Eisenstadt and Roniger 1984). Patronage is sometimes distinguished from clientelism by scale; patronage relationships are typically face-to-face ones between patrons and clients and exist in all regimes whether authoritarian or democratic, while clientelism involves larger-scale exchanges of favours between patrons and clients, often requiring a hierarchy of intermediaries (see Scott 1972). Clientelism thus exists primarily in democratic countries where large numbers of voters need to be mobilised (Piattoni 2001, pp. 4–7).
Clientelism is considered a bad thing and a deviation from good democratic practice in several respects. In a modern democracy, citizens are supposed to vote based on the politician’s promises of broad public policies or a ‘programmatic’ agenda. Such choices are supposed to reflect general views of what is good for the political community as a whole and not just what is good for one individual voter.
Of course, voters in advanced democracies cast their ballots according to their self-interest; programmes targeted at one group of citizens are nonetheless justified in terms of broad concepts of justice or the general good. Moreover, targeted programmes must apply impartially not to individuals but to broad classes of people. Targeted benefits to individuals are bad from the standpoint of social justice. In clientelistic systems, redistributive programmes that are supposed to help all poor people, for example, end up benefiting only those poor people who support a particular politician. This weakens support for effective universal policies and preserves existing social inequalities.
Nevertheless, there is reason to think that clientelism is actually an early form of democratic participation. In the United States and other countries, it was a way of mobilising poor voters and therefore encouraging them to participate in a democratic political system. It was suboptimal when compared to programmatic voting, yet provided a degree of accountability insofar as the politician still felt obligated to provide some benefits in return for political support. In that respect, clientelism is quite different from a more destructive form of corruption in which a politician simply steals from the public treasury for the benefit of his or her family, without any obligation to provide a public service in return. The problem with clientelism is that it usually does not remain confined to a mechanism for getting out the vote, but morphs into misappropriation.
A final conceptual distinction that needs to be made is between corruption and low state capacity.
‘Anti-corruption and good governance’ has become an often-repeated slogan in the development community and some people treat good governance and the absence of corruption as equivalents. Yet they are very different: a squeaky-clean bureaucracy can still be incompetent or ineffective in doing its job, while corrupt ones can provide good services [footnote 2]. Beyond low levels of corruption, good governance requires state capacity – that is, the human, material and organisational resources necessary for governments to carry out their mandates effectively and efficiently. It is linked to the skills and knowledge of public officials and whether they are given sufficient autonomy and authority to carry out their tasks.
Corruption, of course, tends to undermine state capacity (for example, by replacing qualified officials with political patronage appointees); conversely, highly professional bureaucracies tend to be less subject to bribery and theft. Low levels of corruption and high state capacity therefore tend to be correlated around the world. But getting to good governance is a much larger task than simply fighting corruption.
The distinction between corruption and low state capacity allows us to better understand differences between the effects of corruption in countries around the world. In the World Bank Institute’s Worldwide Governance Indicators for 2014, China ranks in the 47th percentile with respect to control of corruption, behind Ghana and just ahead of Romania (World Bank 2014). On the other hand, China has a great deal of state capacity. In the government effectiveness category, it is in the 66th percentile, while Romania is in the 55th and Ghana is in the 44th (World Bank 2014). This validates the common perception that the Chinese Government has a great deal of capacity to achieve the ends it sets, despite strong perceptions of pervasive corruption. The predictability and scale of corruption are also important; if a business owner expects to pay 10% of the transaction value in bribes, they can regard that as a kind of tax, which is less damaging to investment than a bribery level of 75% or one that varies arbitrarily from year to year.
2.3 Overcoming corruption
The first generation of anti-corruption measures taken in the mid-1990s by development finance institutions involved ambitious efforts to overhaul civil service systems along Weberian lines: incentivising officials by increasing wage dispersion and setting formal recruitment and promotion criteria. These measures had very little effect; the problem lay in the fact that corrupt governments were expected to police themselves and to implement bureaucratic systems developed over long periods in rich countries with very different histories. More recent efforts have focused on fighting corruption through transparency and accountability measures – that is, increasing the monitoring of agent behaviour and creating positive and negative incentives for better compliance with the institution’s goals. This has taken a variety of forms: cameras placed in classrooms to ensure that teachers show up for work; participatory budgeting where citizens are given a direct voice in budgeting decisions; and websites where citizens can report government officials taking bribes. Since governments cannot be trusted to police themselves, civil society has often been enlisted in a watchdog role and mobilised to demand accountability. Mechanisms like anti-corruption commissions and special prosecutors have, if given enough autonomy, also shown some success in countries such as Indonesia and Romania.
These later efforts, however, have also had uneven success (see, for example, Kolstad and Wiig 2009; Mauro 2002). In particular, transparency initiatives by themselves do not guarantee changes in government behaviour. For example, in countries where clientelism is organised along ethnic lines, co-ethnics are frequently tolerant of leaders who steal. Elsewhere, citizens may be outraged by news of corruption, but then have no clear way of holding individual politicians or bureaucrats accountable. In other cases, successes in punishing individual politicians are not sufficient to shift the normative framework in which virtually everyone in the political class expects to profit from office. Finally, anti-corruption campaigns may disrupt informal understandings and personal relationships that underpin investment and trade: without formal property rights and contract enforcement under a system of independent courts, the paradoxical short-term effect of prosecuting corrupt officials may be to deter new investment and thereby lower growth.
There is a single truth underlying the indifferent success of existing transparency and accountability measures to control corruption. The sources of corruption are deeply political. Without a political strategy for overcoming this problem, any given solution will fail. Corruption in its various forms – patronage, clientelism, rent-seeking and outright theft – all benefit existing stakeholders in the political system, who are generally very powerful players.
Lecturing them about good government or setting up formal systems designed to work in modern political systems will not affect their incentives and therefore will have little transformative effect. That is why transparency initiatives on their own often fail. Citizens may be outraged by news about corruption, but nothing will happen without collective-action mechanisms to bring about change. The mere existence of a democratic political system is no guarantee that citizens’ anger will be translated into action; they need leadership and a strategy for displacing entrenched stakeholders from power. Outside pressure in the form of loan conditionality, technical assistance or moral pressure is almost never sufficient to do the job. Anti- corruption commissions and special prosecutors who have had success in jailing corrupt officials have done so only because they receive strong grassroots political backing from citizens.
2.4 The American experience
The political nature of corruption and the necessarily political nature of the reform process can be illustrated by the experience of the United States in the 19th century (as I describe in Fukuyama 2014, chapters 9–11). American politics in that period was not too different from politics in contemporary developing democratic countries such as India, Brazil or Indonesia. Beginning in the 1820s, American states began extending the franchise to include all white males, vastly expanding the voter base and presenting politicians with the challenge of mobilising relatively poor and poorly educated voters. The solution, which appeared particularly after the 1828 presidential election that brought Andrew Jackson to power, was the creation of a vast clientelistic system. Elected politicians appointed their supporters to positions in the bureaucracy or rewarded them with individual payoffs like Christmas turkeys or bottles of bourbon. This system, known as the spoils or patronage system, characterised American government for the next century, from the highest federal offices down to local postmasters in every American town or city. As with other clientelistic systems, patronage led to astonishing levels of corruption, particularly in cities such as New York, Boston and Chicago where machine politicians ruled for generations.
This system began to change only in the 1880s as a consequence of economic development. New technologies like the railroads were transforming the country from a primarily agrarian society into an urban industrial one. There were increasing demands from business leaders and from a newly emerging civil society for a different, more modern form of government that would prioritise merit and knowledge over political connections. Following the assassination of the newly elected President James A. Garfield in 1881 by a would-be office seeker, Congress was embarrassed into passing the Pendleton Act. It established a US Civil Service Commission for the first time and the principle that public officials should be chosen on the basis of merit. Even so, expanding the number of classified (i.e. merit- based) officials met strong resistance and did not become widespread until after the First World War. Individual municipal political machines such as Tammany Hall in New York were not dismantled completely until the middle of the 20th century.
The American experience highlights a number of features of both corruption and the reform of corrupt systems. First, the incentives that led to the creation of the clientelistic system were deeply political. Politicians got into office via their ability to distribute patronage; they had no incentive to vote in favour of something like the Pendleton Act that would take away those privileges. The only reason it passed was a tragic exogenous event – the Garfield assassination – which mobilised public opinion in favour of a more modern governmental system.
Second, reform of the system was similarly political. The Progressive Era saw the emergence of a vast reform coalition made up of business leaders, urban reformers, farmers and ordinary citizens who were fed up with the existing patronage system. It required strong leadership from politicians like Theodore Roosevelt who was himself head of the US Civil Service Commission. It also required a clear reform agenda pointing towards modern government, formulated by intellectuals such as Frank Goodnow, Dorman Eaton and Woodrow Wilson. Finally, reform was helped along by economic development. Industrialisation in the US produced new social groups such as business leaders who needed efficient government services, a broad and better-educated middle class who could mobilise for reform, and a grassroots organisation of civil society groups.
The American experience is suggestive of how progress in the fight against corruption may be waged in contemporary societies suffering from it. Reform is always a political matter that will require formation of a broad coalition of groups opposed to an existing system of corrupt politicians. Grassroots activism in favour of reform may emerge spontaneously, but such sentiments will not be translated into real change until it receives good leadership and organisation. Reform also has a socio-economic basis: economic growth often produces new classes and groups that want a different, more modern politics.
America points to another feature of anti-corruption efforts. Control of corruption was very much bound up with efforts to increase state capacity. The period that saw the emergence of an industrial economy was also characterised by huge increases in levels of education – particularly higher education, which produced an entirely new class of professionals who worked for both private businesses and the government. One of the first government agencies to be modernised in the late 19th century was the US Department of Agriculture, which benefited from a generation of professional agronomists trained in the numerous land-grant universities that sprang up around the United States. The latter, in turn, were the product of the far-sighted Morrill Act of 1862 that sought to increase agricultural productivity (among other things) through higher education.
It would not have been possible to reform the old patronage-based bureaucracy without access to the human capital represented by this entire generation of university- educated officials. Every important reform effort undertaken to create modern state bureaucracies – in Germany, Britain, France, Japan and elsewhere – was accompanied by parallel efforts to modernise the higher education system in ways that would benefit public administration. Today development finance institutions focus on helping to provide universal primary and secondary education to poor countries and have largely given up on supporting elite education. The reasons for this are understandable, but do not correspond to the historical experience of state modernisation in countries that became rich in earlier eras.
These general observations about historical efforts to build modern uncorrupt administrations suggest that the process will be an extended one, characterised by prolonged political struggle. Fortunately, having a modern bureaucracy is not a sine qua non of economic development. No existing rich country had a squeaky-clean government in its early stages of economic growth – neither Britain, nor the United States in the 19th century, nor China today. Corruption and weak governance are obstacles to economic growth, but economic growth can happen also in poorly governed societies and will produce, over time, social conditions and resources that will make government reform more feasible. This is perhaps a pessimistic conclusion, given the fact that rentier states and kleptocratic governments are the source of international conflict and instability in today’s world. But it is also a realistic assessment derived from the historical record.
Eisenstadt, S. N. and Roniger, L. 1984. Patrons, Clients and Friends: Interpersonal Relations and the Structure of Trust in Society. Cambridge: Cambridge University Press.
Fukuyama, F. 2011. The Origins of Political Order: From Prehuman Times to the French Revolution. New York: Farrar, Straus and Giroux.
Fukuyama, F. 2014. Political Order and Political Decay: From the Industrial Revolution to the Globalisation of Democracy. New York: Farrar, Straus and Giroux.
Johnston, M. 2005. Syndromes of Corruption. Cambridge: Cambridge University Press. Khan, M. H. and Jomo, K. S. 2000. Rents, Rent-Seeking and Economic Development: Theory and Evidence in Asia. Cambridge: Cambridge University Press.
Kolstad, I. and Wiig, A. 2009. Is Transparency the Key to Reducing Corruption in Resource-Rich Countries? World Development, 37(3), pp. 521–32.
Mauro, P. 2002. The Persistence of Corruption and Slow Economic Growth. Washington DC: International Monetary Fund. Working Paper No. 02/213.
Piattoni, S. 2001. Clientelism, Interests and Democratic Representation: The European Experience in Historical and Comparative Perspective. Cambridge: Cambridge University Press.
Scott, J. 1972. Comparative Political Corruption. Englewood Cliffs, NJ: Prentice-Hall. World Bank. 2014. Worldwide Governance Indicators. Available online.
Francis Fukuyama is a Senior Fellow at Stanford University and Director of its Center on Democracy, Development and the Rule of Law. His book, The End of History and the Last Man (Free Press 1992), has appeared in more than 20 foreign editions. More recently, he is the author of Political Order and Political Decay: From the Industrial Revolution to the Globalisation of Democracy (Profile Books 2014).
3. Paul Collier: How to change cultures of corruption
Corruption does not happen everywhere, it is concentrated in pockets: in particular industries, in particular societies and in particular times. Among industries, natural resource extraction and construction have long been seen as exceptionally prone to corruption. This is partly because projects in these sectors are idiosyncratic and difficult to scrutinise.
Some European countries such as Italy and Greece perform markedly worse than some African and Asian countries, according to Transparency International’s (TI) Corruption Perceptions Index (CPI) (Transparency International 2015). Places where grand corruption is perceived to be flourishing are rare, but Afghanistan and Angola are examples of these extreme conditions.
As to periods, Britain in the 18th century exemplified the behaviours that would now lead to a miserable ranking in corruption indices. More pertinently, there is good reason to think that, globally, there has been an upsurge in corruption in recent decades. Reversing this upsurge calls for concerted effort.
Alongside these pockets of high corruption, other industries, other societies and other times are virtually corruption-free. Denmark is currently seen as the least corrupt place in the world and many non-Western countries such as Botswana are also viewed as relatively untainted (Transparency International 2015). In most societies, corruption is not normal: it is therefore potentially avoidable everywhere.
Corruption is concentrated in pockets because it depends upon common expectations of behaviour. Where corruption is the norm, getting rid of it poses a co-ordination problem: if I expect those around me to continue to be corrupt, why should I change my behaviour? Because of this, pockets of corruption have proved to be highly persistent: the same industries and the same societies remain corrupt for many years.
Similarly, honesty is persistent. In the first TI survey conducted in 1995, Denmark was rated second globally. This persistence is not a matter of chance. Danes are born into an honest society and so inherit the expectation that they themselves will be trustworthy. Being trusted is a valuable asset: it makes many aspects of life much easier. In consequence, individual Danes have a strong incentive not to squander this valuable asset through behaving opportunistically. Because people have rationally chosen to protect their reputation for honesty, the entire society has stayed honest.
But change is possible. Until well into the 19th century, the British public sector was very corrupt. Positions were bought and sold and contracts were awarded in return for bribes. Crises such as military humiliation in the Crimean War helped to shock governments into change. Opportunities for corruption were curtailed: recruitment and promotion were opened to competitive examinations. A new purposive ethic was promoted and serving the nation became the pinnacle of social prestige and self-worth. By the late 19th century, the British Civil Service had become honest and competent. This transformation was largely fortuitous rather than the result of a properly thought-through strategy. But its success reveals the key components of how change can be brought about.
Societies do not have to wait for military humiliation and a moral revival: corruption can be tackled effectively.
In Britain, two key things – closing off the major opportunities for corruption and making working for the public good more prestigious and satisfying than abusing office for private gain – happened together. These two approaches are jointly critical in breaking cultures of corruption. Just as 19th-century Britain implemented both of them without international help, there is much that societies currently beset by corruption can do for themselves. However, the globalisation of business and social networks has created an important role for international action. Countries such as Britain can contribute to encouraging both internal and international initiatives. There is enormous scope for international actions that close off opportunities for corruption. Equally, there is much that can be done to make behaviours that promote the public good more prestigious and satisfying than those that sacrifice the public interest for private gain. This is because corruption, like honesty, tends to persist. Corrupt behaviour is self-reinforcing, and breaking out of it is not easy. A co-ordinated push for international action thus makes national initiatives more likely to succeed and more worthwhile to attempt. It can help those societies that are still struggling with the problems that Britain faced in the 19th century.
Britain has already done much to make global corruption more difficult. One contribution has been to ‘follow the money’. In recent decades, international lawyers and bankers created walls of secrecy that enabled corrupt officials to hide money away in ‘shell’ companies and offshore bank accounts. The Government has led the way in dismantling this labyrinth of deceit: the true ownership of British companies must now be revealed in a public register, and British Overseas Territories and Crown Dependencies are also taking action to improve company transparency. Britain has rapidly changed from being part of the problem to being a pioneer of the solution, but quite evidently following the money is subject to a weakest-link problem.
Corrupt money will hide wherever it can, so it is vital that all the major legal and financial centres close the loopholes. There is scope to extend transparency beyond bank deposits to other major assets such as property. There is also considerable scope for those governments that adopt effective measures for following the money to require all companies that wish to do business with them to comply with these standards, providing global reach for national efforts.
A second contribution has been to increase transparency in key sectors. In 2013, Britain and four other G7 countries signed up to the Extractive Industries Transparency Initiative (EITI), helping to bring daylight to a corrupt sector. In North America and Europe, what began as voluntary revenue transparency is now evolving into a legal requirement. Meanwhile the EITI is becoming the established international standard-setting entity for the sector, extending voluntarism beyond simple revenue reporting to matters such as contracts. There is now an equivalent voluntary initiative for the construction sector and it warrants similar co-ordinated propulsion.
A third contribution has been to increase accountability: the Bribery Act 2010 greatly tightened the legal liability of companies and their employees for bribing their way into contracts. Clamping down on bribery is a classic instance of the free-rider problem: no government wants its own companies to be disadvantaged. This is why the Organisation for Economic Co-operation and Development (OECD) has been encouraging a co-ordinated international approach. The alternative to such co-operation is a race to the bottom that the businesses of no decently governed country can win.
There is, equally, plenty of scope for contributing to the complementary approach of making public good more prestigious and satisfying than the private gains generated by abuse of office. Take, for example, tax administration, which is fundamental to effective government.
In many poor countries, tax administration is an epicentre of corruption. As a specific example, consider the administration of Value-Added Tax (VAT), which is a means of revenue-raising encouraged globally by the International Monetary Fund (IMF) because it is less distorting than most other taxes. But in several poor societies that followed IMF advice, such as the Democratic Republic of the Congo, VAT is actually reducing revenue rather than raising it. Even before VAT, many tax inspectors were corrupt, using their power to tax firms as a means of extorting money for themselves: ‘pay me or pay tax’ (Collier 2016). VAT has reduced revenue, because it expanded the options available to corrupt tax officials. It works by firms initially paying tax on their gross sales, but then getting a rebate on the inputs they have purchased, so that they end up only paying tax on the value they have added to those inputs. But in a country that introduces a VAT, a corrupt tax official can now sell a firm phoney tax receipts on inputs, in addition to the standard extortion racket. As a result, the rebate system ends up paying out more than the sales tax component of VAT is paying in. Clearly at the core of this phenomenon are norms of behaviour among tax officials, such that seizing opportunities for private gain is seen as both more prestigious and more satisfying than contributing to the public good of generating tax revenue and the public services it can finance.
How might Britain, and other countries in which VAT collection does not face such problems, help to change this perception?
Social prestige and personal satisfaction are largely set within peer groups: most people want to be respected by those they see as their peers and they find satisfaction in adhering to group norms. Hence a practical way of changing the behaviour of corrupt officials is to alter the group of people they regard as their peers. Currently, a corrupt tax official is likely to have two key networks in which they seek prestige: their extended family and fellow tax inspectors. Their family will honour them for helping relatives who lack opportunities to earn a large income: he or she becomes the patron of the family. Their fellow tax inspectors, subject to the same family pressures, may see corruption as reasonable. They may even regard honest behaviour as a threat to their own conduct and therefore disloyal.
A useful way of changing this state of affairs is to twin those tax administrations in which corruption is endemic with administrations in countries that are not corrupt. Twinning could involve regular secondments of staff in both directions and the potential for accreditation to international professional associations at various ranks. The purpose would not primarily be a transfer of technical skills, although that could clearly be a component, but rather a gradual transfer of attitudes and behaviours. The new network exposes the official to the potential of a new identity as a member of a prestigious international peer group of modern tax officials, working to global, not local, standards. It exposes the official to a new narrative circulating in the network: that tax officials are vital for the provision of core public services. And it exposes the official to a new norm of ‘good’ conduct. A ‘good’ tax inspector is no longer one who raises a lot of money for their family, but one who rigorously implements the tax code to make the rest of government feasible.
Exposure to these new attitudes creates a tension between the behaviour that would generate prestige and self-worth in the old networks and the behaviour that would generate prestige and self-worth in the new network. Creating this tension is not the end of the story, but it is an essential step. The other key step is to tackle the co-ordination problem: why should I change my behaviour, if nobody else is going to change theirs? Social psychologists have shown that successful co-ordination depends upon generating ‘common knowledge’ (Thomas et al. 2014). A new fact becomes ‘common’ if it is not only widely shared, but also crucially if everybody knows that everybody else knows it.
One way to create the common knowledge that yesterday’s behaviour is unlikely to persist tomorrow is to close an entire organisation and rehire those staff judged to have reasonable integrity into a new one under different management and higher standards. For example, many governments have closed corrupt tax departments within their ministries of finance and replaced them with independent revenue authorities, a change that has usually been reasonably successful. An analogous way for international twinning to overcome the co-ordination problem is for all the staff in an entire unit to be exposed to the international network at the same time. Each official in the unit would then realise that their colleagues were facing the same tension between old and new networks and hence the same choice.
There are already a few examples of institutional twinning. For example, in Britain, the Department for International Development (DFID) financially supports Her Majesty’s Revenue and Customs (HMRC), the British tax authority, to work with tax authorities in some low-income countries. Also, until a decade ago, governors of the Bank of England used to host an annual meeting for governors of African central banks. But the scope for twinning is vast, relative to what is, as yet, happening both in governments and in the wider society.
Around the world, governments have similar structures. For example, virtually all governments in low-income countries have a ministry of transport, a ministry of health and a ministry of finance. OECD governments have been liaising with these ministries for half a century, but the entities that are linked to them are their aid agencies not their counterpart ministries. Direct links with counterpart ministries have the potential for a very different form of relationship based on peer-group networks, rather than on money with conditions. Often ministries in low-income countries try to keep donor agencies ‘out of their hair’, whereas they would value direct links with their peers. An important example is the regulation of utilities such as electricity. Many governments of low-income countries are now establishing regulatory agencies, which is a vital step in attracting private finance for infrastructure. But the regulation of utilities faces intense pressures for corruption: the decisions of regulators affect both the profitability of companies and voter support for politicians. In the OECD, regulatory agencies have been operating for two or three decades. The OECD has also built peer group networks that have evolved peer standards of independence, transparency and impartiality. New regulatory agencies would benefit from becoming part of this distinctive culture.
Such specialised inter-government peer groups are indeed the core activity of the OECD. But membership of the OECD is confined to the governments of high-income countries. Admirably, the organisation is now trying to broaden its engagement with the governments of poor countries, for example, by the new initiative ‘Tax Inspectors Without Borders’ (OECD 2015). This is designed to embed tax inspectors for OECD governments in the tax authorities of poor countries on secondment for several months: not to train but to work on the job. An obvious extension would be to make this a two-way exchange of staff. The branding of ‘Tax Inspectors Without Borders’ neatly taps into the potential for such secondments to be glamorous: a survey of young French singles found that the ‘ideal spouse’ was a doctor with Médecins Sans Frontières!
More seriously, while the OECD initiative is excellent it is a drop in the ocean. The restricted membership of the OECD limits its scope to forge global links and there is no other international institution with the remit to build peer- group links across government departments between rich countries and poor ones. Perhaps this role should become a core function of national aid agencies such as DFID, but it would benefit from a co-ordinated kick-start by several heads of government.
Twinning has the potential to be extended well beyond government: part of the ‘big society’ can be direct links between the civil society organisations and their counterparts in poor countries. Again, historically such links have largely been confined to development non-governmental organisations (NGOs) such as Oxfam, which channel donations to needs. But an important part of tackling corruption is resetting the cultures of professions, including accountancy, law, medicine and teaching. For example, in many poor countries, it is socially acceptable for teachers not to show up for lessons. Twinning involving things like teacher exchanges between schools could help to shift these dysfunctional values. The global explosion of social media has made this far more feasible. The two approaches of closing off opportunities for corruption and reducing the prestige and satisfaction generated by corrupt behaviour reinforce each other. As the difficulties and risks of corrupt behaviour rise, fewer people will behave corruptly. This directly reduces the esteem from being corrupt because it is no longer so normal. Similarly, as more people start to get their esteem from being honest, those who remain corrupt are easier to spot and so find themselves running bigger risks.
National actions against corruption complement international actions. One major way of squeezing out corruption is to remove obvious sources of rent-seeking such as rationed access to foreign exchange and the award of government contracts through secret negotiation rather than open bidding. Competition within rule-based markets is an important part of the system of checks and balances that constrain public officials from the abuse of office. Another is to prosecute some prominent senior officials. For example, in Ghana, 20 judges were sacked in late 2015 for accepting bribes based on video evidence gathered by an investigative journalist (BBC News 2015). Being based on independent evidence, such sackings cannot be misinterpreted as government attempts to crush political opposition. Further, as high-profile events, they generate common knowledge among officials that all other officials are reflecting on whether they should change their behaviour.
Not all corruption is directly financial. Electoral corruption is highly damaging. New research finds that, under normal conditions, governments that deliver good economic performance enhance their prospects of retaining office, but that the discipline of accountability breaks down when elections are not free and fair (Collier and Hoeffler 2015). Twinning national electoral commissions with their international peers, along with twinning local and international election monitors, can help to raise standards of electoral conduct.
An international initiative against corruption provides an opportunity for national actions and international actions to cohere. As people recognise that the calculus of risks and rewards and the sources of prestige and satisfaction are changing both for themselves and their colleagues, previously entrenched patterns of behaviour could become unstable. Mass shifts in cultures of corruption do happen and it is possible to make them happen.
Paul Collier is Professor of Economics and Public Policy at the Blavatnik School of Government and one of the world’s leading and award-winning development experts. His latest book is Exodus: How Migration is Changing our World (Oxford University Press 2013).
4. John Githongo: An African perspective on corruption
Sebolu is the Sotho word for a ‘spoilt thing’. It is a derogatory word used in Lesotho’s national language and vernacular to mean, among other things, corruption. Someone who is corrupt is described as being bobolu and people have deep disdain for such a person.[footnote 3]
In most of Africa though, there are few similar words of such powerful home-grown cultural resonance. Indeed, the word ‘corruption’ doesn’t exist in many indigenous African languages. It never has – it wasn’t needed. The idea of stealing communal goods was literally taboo. The concept of shuffling papers in a government office in a far-off capital, ‘making good’ and then coming home rich and wearing the ‘corrupt’ tag is, however, more obscure. Indeed, the local son or daughter ‘made good’ who demonstrates generosity back in the village is often lionised. Generosity of heart, even to strangers, but especially to relatives (no matter how distant), is a quality much admired by Africans generally.
East Africa’s lingua franca, Kiswahili, gives us ufisadi (meaning corruption) or mfisadi (corrupt one); terms cleverly engineered post-independence. Ufisadi brings to mind ‘hyena-like’ derived from the reputation of the hyena; fisi for being unscrupulous, greedy and ruthless. However, it does not have the same resonance for citizens of the region as sebolu does in Lesotho, which is one of the least corrupt African countries according to Transparency International’s (TI) annual Corruption Perceptions Index (CPI) (Transparency International 2015).
That said, ‘perceptions of corruption’, or better put ‘perceptions of leaders involved in theft’, is one of the most resented attributes of officialdom to Africans at large. Recent research on the experiences and perceptions of Africans in 28 countries regarding corruption indicates that a majority (58%) felt that corruption had increased over the last 12 months. And in 18 of the 28 countries, the feeling was that their governments were doing badly in the fight against corruption. The report said that, despite these disappointing findings, the bright spots across the continent were in Botswana, Burkina Faso, Lesotho and Senegal. Citizens in these countries were some of the most positive in the region when discussing corruption (Transparency International and Afrobarometer 2015).
In environments where corruption is systemic but lacks cultural resonance, creating a climate where social sanction can be applied against corrupt practices has been challenging. People understand the terms ‘theft’ and ‘thief’, but corruption is a modern and ambiguous concept to many Africans. As a Nuer elder once told me, “My daughter cannot be married into a family of thieves.”
The task therefore is two-fold: we need to embed a clear legal framework to deter and punish corruption, and we need to actually change the culture, so that the concept of corruption is both understood and recognised as anathema. The war against graft (political corruption) has reached the point where the shame and social sanctions directed against this kind of theft and thief need to be given greater prominence in the arsenal used to fight corruption. This applies especially in developing countries where its consequences can be – and often are – deadly. In its culturally most compelling form, the social sanction is about ensuring, for example, that the thief is too embarrassed to go to church on Sunday because of the looks they’ll get.
As such, the whole approach to corruption needs to be re-examined: from local cultural assumptions and preconceptions to the legal conventions, constitutions, statutes and, especially, the prosecution-related instruments brought to bear on it at the national and global levels. Integral to this are the principles of legal authority and equality before the law. The equality component is essential: the rule of law must be seen to apply equally to all citizens without fear or favour, regardless of race, creed or class.
The following complementary but separate factors in a society are critical: culture, ethos, ethics and traditions, and legal processes and practices. Each derives its legitimacy from history and the traditional ways in which meaning is made. By their very nature, they are far more negotiable – existing as they do in a constant state of flux in a dynamic world. Our success depends on how effectively we bring and use them together in the fight against corruption. We do this cognisant of the fact that grand corruption, when compared to the drug trade, human trafficking, terrorism finance and other global evils, is the most easily rationalisable major felonious activity on the planet.
4.1 The global anti-corruption agenda
During the years 1993 to 2003, corruption was at the centre of the global development agenda. In 1993, Transparency International was founded. In the mid-to-late 1990s, corruption was adopted as a key development issue by the multilateral and bilateral development institutions. This culminated, in 2003, in the drafting and ratification by a host of countries of the United Nations Convention Against Corruption (UNCAC) (UNODC 2015).
The following decade saw the rise of the BRIC nations2 and rapid economic growth across much of the developing world, as well as globalisation and its associated technologies assisting the expansion of trade and commerce. At the same time, the struggle against Islamic extremism captured the attention of policy makers in the international community. Alongside it, unfortunately, has also come a rapid growth in the scale and complexity of corruption. So much so, that anti-corruption work needs to be returned urgently to the heart of the global development agenda. It needs to be part of the DNA of modern nation-states, multinational corporations, non-governmental organisations (NGOs) and even religious organisations and how they interact on the global stage.
This urgency comes from the fact that graft has served to hollow out key governance institutions in some countries. This includes the defence and security sector and areas of social policy such as health and education, with dire consequences for the public services they are supposed to offer the poor, in particular.
The crippling impact of corruption on the delivery of these essential services has deepened economic inequalities, undermining faith in political processes, parties and politicians. In turn, this increases political volatility as politicians retreat to identity and personality politics with its complex web of non-negotiable irrationalities. It also feeds fundamentalism of all kinds – for example, ethnic, religious and sectarian.
4.2 BRIC nations – Brazil, Russia, India and China
The impunity that accompanies crony capitalism results in what I might call both a private sector and a ‘pirate’ sector, causing citizens – especially younger people who increasingly view elections as a pointless game of musical chairs among crooks – to begin to question capitalism in its current form and democracy itself. This also does serious damage to the independence, legitimacy and integrity of the service sector – in particular, banks, law firms and auditing firms – and deepens the challenges corruption poses.
4.3 The ‘pirate’ and private sectors
The traditional private sector, comprising ‘makers of things’, has increasingly been supplanted in the 21st century by the service sector. The growth of the latter has been buoyed by the dramatic expansion and sophistication of the internet and an increasing variety of communication platforms. This has energised traders, who remain vital to the ‘old economy’ where the world’s products are created, built, sold and moved. At the same time, however, we’ve seen a distinct ‘pirate’ sector gaining in influence, particularly over the last two decades.
By design, the ‘pirate’ sector is as virtual as possible, unencumbered by the traditional obligations and processes of rents, payrolls, medical schemes, pensions and so on. Although it can involve an individual or group of individuals, this sector forms itself into sophisticated entities. These can operate with the same ‘apparent’ legitimacy in multiple countries, even if it means they must use vexatious litigation – such as injunctions, court orders and delayed hearings – to allow them to act outside the law for the duration of their business in a country.
The ‘pirate’ sector often chooses to corporatise itself in offshore tax havens, using the skills of professionals, especially lawyers, bankers and auditors. As a result, it has become apparent that even seemingly reputable companies and professional firms sometimes contain ‘pirate units’. The units are able to move unhindered across borders and traverse the legal world like ghosts who disappear as quickly as these so-called ‘special purpose vehicles’ can be shut down.
Theirs is the euphemistic language of ‘commissions’; ‘conclusion’ and ‘success bonuses’; ‘consultancy’ fees; ‘facilitation payments’; ‘philanthropic’ contributions to the relations of ‘politically exposed persons’ (PEPS); and the use of complex financial instruments to move resources around the world at the touch of a button. As I pointed out previously, businesses find corruption the easiest felonious activity to rationalise, especially in cross-cultural contexts. They are the entities that ‘get things done’ in a complex world. For them, relationships are tradable products that can be leveraged for a profit and not a social currency that helps make trade and commerce flow more smoothly within the law.
4.4 Renewing and reinvigorating international action
So how do we fight these piratical shadows? Corruption is defined as the abuse of vested authority for private gain. In 2011, developing countries lost nearly $1 trillion to corruption, trade misinvoicing and tax avoidance (Kar and Le Blanc 2013). Leading global advocacy organisations such as ONE have even made efforts to quantify the cost of graft in lives (McNair et al. 2014). Estimates show that the cost of corruption equals more than 5% of global gross domestic product (GDP) (OECD 2016).
As the recent FIFA scandal has demonstrated, unconstrained corruption also threatens valued cultural institutions and traditions that we all hold dear. At the same time, the complexity of the legal compliance environment – vis-à-vis anti-corruption, anti-money laundering and other illicit activities – that the genuine private sector has to contend with has increased exponentially. Indeed there is almost an unspoken ‘compliance paralysis’ as large numbers of lawyers, risk advisors and auditors apply expensive time to scrutinising transactions complicated by the web of demands that compliance has placed upon business.
As a result, the temptation for some businesses to rely on the ‘pirate’ sector and/or aggressively ignore or cover up compliance risks has risen. A recent Risk Advisory Group (2015) research report revealed 83% of compliance professionals believe compliance has become more complex in the past two years, with bigger businesses feeling this more acutely. The Risk Advisory Group CEO Bill Waite said, “Worryingly, compliance has become so elaborate that 78% of compliance professionals say that it now represents a risk in itself” (Cassin 2015).
This means we are at a critical juncture. It calls for a renewed global partnership against corruption to match, and even exceed, the concentrated and successful advocacy that followed the fall of the Berlin Wall.
Corruption’s resurgence and complexity threatens not only global security and equitable development but also international trade and commerce, and people’s confidence in freedoms and systems of governance taken for granted since the Second World War.
For example, there has been a debate about creating an International Anti-Corruption Court (IACC). It’s proposed this could have the kind of powers granted to international weapons inspectors to target specific transactions and institutions that, when riddled with corruption, escape investigation and prosecution and cause citizens to lose confidence in public institutions and the rule of law and democracy.
The new push needs to identify, disrupt and delegitimise the global networks of corruption in money laundering; terrorism finance; drug, people and environmental trafficking; and other illicit activities.
This requires new global partnerships that target the information-era entities and domiciles that these networks rely on. They may be offshore tax havens or low-compliance jurisdictions where the ever-expanding raft of international regulations aimed at dealing with graft and illicit flows have limited currency. At the same time, the new regime should robustly incentivise self-reporting vis-à-vis corporate compliance, allowing for a ‘cleaning out of the stables’.
4.5 Culture, tradition and social sanction
To be fully effective, however, this reinvigoration of the rule of law must go hand in hand with action to create a cultural climate in which the corrupt – the thieves – are shamed for what they do.
Indeed, effecting change in the culture and traditions – which inform what is acceptable behaviour – is perhaps even more important in societies where legal institutions based on the Western model are nascent, or where their existence is being energetically contested, as it is in important parts of the developing world.
The release by WikiLeaks of US diplomatic cables in 2010 was a controversial episode of unofficial transparency and a powerful interrupter to the global status quo regarding corruption in relations between nation-states. It revealed the corrupt practices that ruling elites are capable of to the growing youth populations of regions such as the Middle East. The reverberations of this are still being felt.
Across Latin America and in the developed world, revelations of inappropriate, corrupt and unethical behaviour by leaders – in both the private and corporate sectors – have created a level of criticism from the public that is unprecedented in some countries. This is especially the case for the ‘millennial’ generation who appear to mistrust politicians and political parties the most.
Presidents have been forced to step down and others turned into lame ducks while still in office by dramatic mass expressions of discontent boosted by social media.
In this sense the change has already begun – untidily, noisily, chaotically and even bloodily – in many places. The outcome is uncertain. But, in the long term, it will be dramatically different from the status quo. This is, in part, because political leaders and ruling elites increasingly recognise the public’s lack of trust and confidence in them, especially that of their younger citizens. They also now appreciate that, in this networked world, a spotlight can be shone on corrupt and unethical relationships with the ‘pirate’ and private sectors.
In addition to institutions such as an International Anti- Corruption Court as a further step towards increasing transparency, strengthening enforcement and securing restitution, the tools of visa revocations, personalised financial sanctions and more harmonised extradition mechanisms could actually be cheaper and more effective in tackling corruption than prosecutions – which are always tortuous. However, for these measures to enjoy legitimacy around the world, they must be applied, and be seen to apply, with equal force across the different regions of both the developed and developing world.
To conclude, a successful international anti-corruption campaign requires co-operation on a global scale and specific legal measures that help transform attitudes towards corruption and the ability to prosecute the corrupt. Although it may take longer, embedding a culture of social sanction and censure for anyone found guilty of engaging in, facilitating or condoning corrupt activity, even to the extent that those holding office lose public trust, would support these measures.
They need to be seen as bobolu. They need to feel the social stigma when they attend family gatherings, visit the golf club or step into the supermarket – as much to set an example to others as to punish the individual, impressing on the whole community that corruption will not be tolerated.
John Githongo is the CEO of Inuka Kenya Ni Sisi Ltd, a non-governmental organisation focused on promoting good governance. Previously he served as Vice-President of Policy and Advocacy at World Vision International. John has been involved in anti-corruption research, advisory work and activism in Kenya, Africa and the wider international community for 19 years. This includes work in civil society, media, government and the private sector.
Cassin, R. L. 25 November 2015. Risk Advisory Group Report: Compliance is so complex, it’s now its own risk. FCPA Blog. Available online.
Kar, D. and Le Blanc, B. 2013. Illicit Financial Flows from Developing Countries: 2002–2011. Washington DC: Global Financial Integrity. Available online.
McNair, D., Kraus, J., McKiernan K. and McKay, S. 2014. The Trillion Dollar Scandal Study. London: ONE.
OECD. January 2016. The CleanGovBiz Initiative. Available online.
The Risk Advisory Group. 2015. The Compliance Horizon Survey. Available online.
Transparency International. 2015. Corruption Perceptions Index – Lesotho. Available online.
Transparency International and Afrobarometer. 2015. People and Corruption: Africa Survey 2015 – Global Corruption Barometer. Berlin: Transparency International. Available online.
United Nations – Office on Drugs and Crime (UNODC). 2015. United Nations Convention against Corruption: Signature and Ratification Status as of 1 December 2015. Available online.
5. Paul Radu: Follow the money: how open data and investigative journalism can beat corruption
The early spring of 2015 saw thousands of angry people on the streets of Chisinau, capital of the tiny Republic of Moldova. While calling loudly for the resignation of the Government and the Parliament, they were shouting, “We want our billion back!” (Calugareanu and Schwartz 2015).
The demonstrators believed the politicians were to blame for the theft of almost $1 billion from Moldovan banks, which had left this poor country’s financial affairs in disarray.
Investigations are ongoing. But the Organized Crime and Corruption Reporting Project’s (OCCRP) research indicates that this $1 billion was the tip of the iceberg, in a country where many more billions of dollars in ‘black’ money appear to have flowed through a flawed banking system – with the help of corrupt politicians and organised crime as well as untrustworthy judges and law enforcement officers (Radu, Munteanu and Ostanin 2015).
We believe that the citizens of Moldova were victims of a transnational web of corruption, benefiting politicians and criminals who used complex multi-layered company structures to conceal both their identities and their activities. Regrettably, this story is not unique.
At the OCCRP, we have identified a number of cross- border money laundering schemes in Eastern Europe, serving criminal groups as diverse as Mexican drug cartels and Vietnamese and Russian organised crime gangs (OCCRP 2011).
The power of these crime groups stems primarily from their ability to operate with ease across national frontiers. They complete a detailed risk assessment at the country level and then choose the least vulnerable approach to conduct their illicit activities, whether in narcotics, refugee trafficking or the massive money laundering exercises that follow such crimes. The problem for national law enforcement is that, by definition, it cannot follow this type of crime easily or quickly across borders. Data exchanges between states and law enforcement agencies take time. Modern crime schemes are designed to have very short lives to avoid detection, lasting sometimes just months before the associated companies and bank accounts are wound up and replaced by new ones.
Yet alongside the advantages available for criminals of operating on this global scale, making it inherently harder to track them down, there are also disadvantages that the clever journalist or law enforcement official can exploit to expose them.
So how do we do this? How do we stop criminal gangs and the corrupt politicians they rely on – conducting business as usual? Firstly, I will argue, through data: more data means more transparency, provided the quality of information is there and supported by tools that allow proper analysis. Secondly, by journalists using advanced investigative techniques, including the emerging discipline of data journalism, to identify the patterns and practices inherent in corrupt activity.
Criminals can’t predict the future of open data Transparency is the natural enemy of international organised crime gangs and corrupt officials. Opaque systems allow them to thrive. And some of them go to great lengths to disguise their wrongdoing, using financial and company structures that span the world.
At OCCRP, we’ve found and exposed networks of companies based in New Zealand, with bank accounts in Riga, Latvia, that were transferring money to companies set up in the US state of Delaware, Cyprus or the United Kingdom. In turn, these companies owned bank accounts in yet other jurisdictions (OCCRP 2011).
Such criminal schemes are designed by creative and intelligent, if misguided, people. Some of them could have been the next Steve Jobs, but found crime more appealing. They often work for what we call the ‘criminal services industry’ – the lawyers, registration agents, business intelligence firms and other legitimate businesses that earn lucrative income from servicing the needs of criminal clients. But no matter how clever they are, they can’t predict the future; transparency rules change. For years, from the early 1990s, Russian, Ukrainian, Romanian and many other Eastern European mobsters and politicians were using Cyprus as a place to hide their activities behind labyrinthine corporate structures.
It reached the point where Cyprus, with a population of little more than one million, became one of the main investors in Eastern and Central Europe. Not all of these investors were criminal enterprises as many used Cyprus for tax optimisation purposes. But there is hardly a country in the region – from the former Yugoslavia to Russia and beyond – where Cyprus-based companies were not involved in huge, rigged privatisation scandals.[footnote 4]
In 2004, when Cyprus joined the European Union (EU) and started opening databases, including a registry of locally based companies, things began to change. Investigative reporters began combing through millions of records and, in many instances, came across the names of beneficial owners the real owners of the company – who thought they were sheltered from public scrutiny.
Politicians and criminals were caught off guard and exposed in press articles that led to arrests and resignations. Their past misdemeanours made future involvement in business problematic. However, they started fighting back almost immediately, substituting their names in company documents with those of professional proxies – usually Cypriot lawyers who would lend their name to just about anyone who wanted to conceal their identity.
In addition to this, the Cyprus registry is relatively expensive to use and searchable only by company name. This poses a serious problem for investigators, who often embark on an enquiry with only an individual’s name, be it a member of the local parliament or a controversial business owner. As a result, Cyprus still offers only partial transparency.
Yet even in countries with a stronger record, you can hit barriers. For example, New Zealand – ranked fourth in Transparency International’s (TI) anti-corruption index – has a well-organised register of companies that is free of charge and allows for name-based searches (Transparency International 2015). But, as with the UK’s Companies House database, it’s more difficult for investigative researchers to identify nominee shareholders and directors, especially in cases where they are proxies – not beneficial owners – acting for criminal groups and corrupt politicians.
And in the past few years, OCCRP investigations have revealed the involvement of an Auckland-based company (that was run by a nominee) in obscuring the ownership of companies across Eastern Europe. One such example was a Moldovan TV station (Preasca, Munteanu and Sarnecki 2013). Secretive media ownership is a huge problem across the region where, in many instances, the general public has no idea who is delivering the news. Once OCCRP exposed this non-transparent structure, its ownership was just moved to British companies that were again meant to obscure the identity of the real owners of the television station (Media Ownership Project 2015).
In a global economy, this isn’t just an issue for New Zealand. In 2016, the UK Government is implementing a new central registry of company beneficial ownership to enable researchers and other interested parties to access information on individuals with an interest in more than 25% of a company’s shares or voting rights, or who otherwise control the way it is run.
It matters because well-structured and accessible databases can be goldmines for investigators and members of the public. In 2008, British computer programmer Dan O’Huiginn reshaped the Panama registry of companies and built a simple interface that, for the first time, allowed name-based searches (Government of Panama 2015). This was the catalyst for investigative articles that exposed corrupt dictators, criminals and their close associates all over the world. This simple technical adjustment opened their activities up to public scrutiny, costing them untold millions of dollars.[footnote 5]:
The same principle applies to other official databases. For example, court records, government spending and tenders databases vary greatly in their organisation, accessibility and quality of data. In many jurisdictions, it takes investigators a lot of navigating, mining and shopping for data to find the evidence they are looking for. The opening up of company information and databases has to be accompanied by effective policies that ensure their accessibility, integrity, security and usefulness. Civic hacker collectives, journalists and civil society groups should be consulted to help determine the most useful access to data that also mitigates any privacy concerns. Governments requiring offshore companies operating in a country to identify their true beneficial ownership would also greatly reduce the space in which criminals can work and increase the costs they incur.
5.1 Fighting from within borders
Law enforcement must also jump on board the open data train and take advantage of advances in technology in order to keep pace with the criminals. Just like journalists, police officers and intelligence analysts need to master cross-border, multi-language, open-source intelligence to fight sophisticated serious crime. While it is true that data obtained in informal ways cannot always be used to build strong court cases, it can greatly shorten the time required for the investigative process.
Obtaining documents sequentially through official channels from other countries can take months or even years. Say, for example, that the police in the UK need information on a company based in Russia. They have to file requests and wait, sometimes for a year, only to find out that the Russian company is owned by a Cyprus limited firm. It might take another year to identify the next owner in a nested structure. Finally, the trail might end with bearer shares: where the owner of the stocks is not registered or is a proxy who doesn’t know the real owner (Funk 2014, p. 14).
Compare this with the adaptability of organised crime, which – albeit operating under no formal constraint – broke free from the nation-state mindset long ago. In the international space governed by weak international protocols and bilateral agreements, organised crime at present has no natural enemy. While criminals recognise no borders and are not bound by strict local rules, national and legal boundaries, a lack of resources continues to hamper law enforcement. Geopolitics can also deter cross-border collaborative initiatives between nation-states, which may find themselves at odds with their neighbours or dealing with governments that are themselves riddled with corruption.
There are, to be sure, examples of criminal networks being disbanded in a number of countries as a result of co- operation between law enforcement agencies. This did not necessarily prevent the mobsters from re-forming elsewhere outside those jurisdictions. Nevertheless, increased access to open data could help to boost cross-border co-operation and journalists can play an increasingly important role in it.
5.2 It takes a network to fight a network
Investigative reporting is – and can be even more – the natural enemy of criminal networks and, when practised collaboratively, it acts as an effective watchdog. It can change the status quo in innovative ways that are not immediately obvious.
Journalists and the public alike expect prosecutors to act after each journalistic exposé, with the desired result being arrests, convictions, repatriation of lost assets and other positive outcomes. Owing to limited human resources and a lack of skills, interest or even competence, this expectation is not always realised. However, regardless of law enforcement action or inaction, public exposure can adversely affect, and even stop, criminal businesses operating in other jurisdictions. Such exposure can also influence long-term changes in public attitudes, which can lead, in turn, to protests against, and even election defeats for, discredited parties or politicians.
With the stakes so high, it is essential that the journalism itself is rigorous, credible and transparent. Investigative articles must be linked to evidence, well- designed databases and ‘how we did it’ guidance, so that readers can recreate the investigative process if they want to. Governments, banks and financial institutions in general rely on open source information when deciding whether to give loans, enter business deals or accept money transactions. Effective data journalism can also help expose financial irregularity or illegality and prevent crime figures or oligarchs securing loans, opening accounts or making other transactions.
Using advanced investigative techniques, journalism can degrade international organised crime and corrupt networks even before they are firmly established within a jurisdiction. Corrupt politicians, officials and criminals view the proceeds of their illicit schemes as commodities to be repeatedly imported and exported and are always looking for new territories in which to generate profit.
When journalists work collaboratively across frontiers, sharing data, this practice can be identified and compromised. It takes a network to monitor a network.
International reporting groups such as the International Consortium of Investigative Journalists, Arab Reporters for Investigative Journalism (ARIJ), OCCRP and others already co-operate on individual stories or sporadically share datasets. However, such is the scale of the problem and the ubiquity of organised crime that these efforts can seem to be only scratching the surface.
What journalists can do is share with colleagues in other countries details of the patterns of crime they have already detected in their own. This would enable wider cross-border investigations to determine whether the same criminal groups are setting up shop in other jurisdictions.
For example, a criminal group sets up Limited Liability Partnerships (LLPs) that are all owned by a set of companies with their headquarters on a particular street in Belize City, Belize. Replications of this simple pattern can be searched for in the company registries of other countries or in related datasets, potentially revealing the group’s activities in those territories too.
In future, with the proper resources, this kind of pattern recognition could be facilitated and automated through the development of specific algorithms. Crime groups will inevitably react by altering their activities to avoid detection. But, crucially, this will hamper their operations and cost them more in money and time.
Automated searches of ever-larger, global, transparent datasets can feed real-time alerts to journalists all over the world. The result could be that the public has earlier and reliable information about who the real corrupt beneficiaries of crimes are, such as the $1 billion bank theft that left the Republic of Moldova with an uncertain future.
To conclude, a key component to fighting future crime is increased cross-border co-operation between journalists and programmers, who need to employ and create new advanced investigative techniques on top of massive amounts of data. At the same time, activists and governments need to push for more transparency, quality and common standards in open data.
Paul Radu is the Executive Director of the Organized Crime and Corruption Reporting Project (www.reportingproject.net), which investigates transnational crime and corruption in Eastern Europe. He is also a board member of the Global Investigative Journalism Network (http://gijn.org) and has received many international awards for his journalism.
Calugareanu, V. and Schwartz, R. 4 May 2015. Spring again in the Republic of Moldova – mass protest against corruption. Deutsche Welle. Available online.
Funk, T. M. 2014. Mutual Legal Assistance Treaties and Letters Rogatory: A Guide for Judges. US: Federal Judicial Center. Available online.
Government of Panama. January 2015. Panama Registry of Companies. Available online.
OCCRP. 22 November 2011. The Proxy Platform. The Reporting Project. Available online.
Media Ownership Project. January 2015. Media Ownership Project: Moldova. Available online.
Preasca, I., Munteanu, M. and Sarnecki, M. 26 March 2013. Taylor Network Back in Business. Rise Project. Available online.
Radu, P., Munteanu M. and Ostanin, I. 24 July 2015. Grand Theft Moldova. Organized Crime and Corruption Reporting Project (OCCRP). Available online.
Transparency International. 2015. Corruption Perceptions Index. Available online.
6. Sarah Chayes: Corruption and terrorism: the causal link
It’s February 2015 and I am in Kano, northern Nigeria. Not three months back, in the midst of Friday prayers, Boko Haram struck the Grand Mosque in the old fortress-like centre of town. The dead and the bloodied lay strewn in their hundreds across the public square.
I’m sitting with some lawyers – a prosecutor, the chairman of the state bar association and a court administrator – trying to work out the mechanics of corruption in the justice sector, in this most corrupt of countries. We’re talking details: how judges rarely demand bribes directly, their clerks collect the money; and how lawyers collude, blaming judicial corruption for the extra fees they pocket.
“Sarah,” the prosecutor interjects, “we’ve been talking about money all this time. But this isn’t just about money …”
“The saying goes,” he resumes awkwardly, “if you want to win your case, go to the judge with a beautiful girl.”[footnote 6]
I’m stopped cold. I imagine the girl. She may be 14 or 15. She returns home from school each day with her friends, the white veils of their school uniforms fluttering like matched plumage. I picture the glistening eyes of some overfed judge as he reaches for her. My stomach turns.
Abruptly another image comes to mind: the girl’s brother, a lanky young Nigerian man. Already disillusioned, he is pushed right over the edge. He would kill that judge if he could.
And Boko Haram, all around this town, would like nothing more than to help him do it. I could suddenly understand how it happens. I could see how the corruption perpetrated by officials of the then Nigerian administration – like that of many governments around the world – was itself helping to generate the terrorist threat.
The problem, I realised, is far more severe than white elephants or poor service delivery. Corruption entails a violation of a person’s basic humanity that can spur an enraged response.
It is these connections – between government corruption and terrorism or other violence – that this essay explores.
Corruption is one of those consensual topics. No one would argue it’s a good thing. International charities and multilateral organisations have worked hard to combat it, racking up impressive achievements in recent years. Anti- bribery laws, once unheard of, have spread well beyond their initial US–UK beachhead. Major arrests and asset seizures are increasingly common, as are citizen-led anti-corruption protests. Such protests have resulted in the resignation of senior officials or their ousting through the ballot box. That’s what happened in Nigeria, where a hard-nosed reformer – who has penned an essay in this volume – gained an upset victory in March 2015 elections over the administration those Kano legal practitioners were criticising.
And yet, when push comes to shove in bilateral relations, Western governments, businesses and charities are still most likely to prioritise other imperatives ahead of corruption. If an international aid agency or philanthropic organisation has set its sights on delivering health programming to rural villages, its government may be reticent to act against corruption in the host country for fear the precious permissions to operate will be cancelled. If the objective is a major extension of electrical power across a whole region or a trade foray into an emerging market, corruption may be seen as a ‘cost of doing business’. Corruption helps facilitate economic activity and growth, some maintain. Others cite culture: “It’s just the way people do things over there. Who are we to impose our norms?” These and other excuses are proffered to rationalise looking the other way or outright collusion.
Upon closer inspection, it thus appears that corruption is not so consensual after all. A remarkable number of Westerners actually argue in favour of it.
Of all the competing priorities, the one that most swiftly trumps anti-corruption is security. Co-operating with this or that corrupt leader is seen as critical, because he is our partner in the war against terrorism. His is the only military worth its salt in the region, troops that actually go on the attack against militants. He provides us with intelligence or bases or overflight rights. And so the kleptocratic practices of his network of cronies are overlooked. The way they have bent state functions, wired the whole economy to their own benefit, given free rein to low-level officials to rake in extorted bribes and blocked off every avenue of recourse – none of that matters, so long as they are ‘with us’ in the fight against terrorists.
This common framing is particularly ironic given the growing evidence that corruption is helping to drive many people into the folds of extremist movements and indeed lies at the root of many of today’s security crises (Chayes 2015; Sky 2015). The purported trade-off between security and corruption is a false dichotomy. Take southern Afghanistan, the former Taliban heartland, where I lived for nearly a decade. In the spring of 2009, a delegation of elders came to visit from Shah Wali Kot district, just north of Kandahar. This happened often. I was one of the only foreigners in Kandahar with no guards at my gate. When I asked why, with the Taliban killing people, the villagers don’t fight back, a man retorted, “How can they work with this Government? The Government doesn’t hear them. The Government doesn’t do anything for them. It’s just there to fill its pockets, nothing else. If the Government isn’t fixed, no matter how many soldiers the foreigners bring, the situation won’t improve.”[footnote 7]
A few days later in the border town of Spin Boldak, community leader Hajji Manan Khan concurred, “This Government … no one likes it. Ministers have huge palaces in Kabul, while the people have nothing. The foreigners should announce that the current Government is thieves. They should put the screws in them, call them on the carpet and demand accounts.”[footnote 8]
I heard this refrain again and again. Out of a hundred Taliban, elders would tell me, fewer than a quarter were ‘real’. The rest had taken up arms in disgust with the Government. This assessment was corroborated by interviews with Taliban detainees in international military custody. Explaining their motivations for joining the insurgency, they cited government corruption more often than any strictly religious rationale.
A similar picture emerges from Nigeria. When Boko Haram launched its first large-scale violent attacks in July 2009, police stations were the first targets. By all accounts, the Nigerian police is one of the most venal and abusive in the world (Human Rights Watch 2010).[footnote 9] And, during a November 2015 conversation in Maiduguri, where Boko Haram first emerged, local residents voiced a sentiment I had heard often: “People were very happy [with those first attacks]. Boko Haram was saying the truth about the violations by government agencies against the people. Finally they could stand up and challenge. They were claiming their rights.”[footnote 10]
Extremism isn’t the only form that backlash against corruption takes. Across the Arab world in 2011, populations took to the streets demanding an end to autocratic governments, the prosecution and imprisonment of corrupt officials, and the return of stolen assets. As the catastrophic situation in today’s Middle East demonstrates, revolutions rarely end peacefully. Some analysts see the expansion of extremism, from Daesh in Syria to a tenacious insurgency in Egypt, as a reaction to the failure of those initially non- violent efforts to break the grip of kleptocratic governing elites (Muasher 2015).
Ukraine seems as culturally and historically different from the Middle East as a country can be, yet its 2014 revolution was fuelled by similar motivations. While anti-Russian sentiment and a cultural affinity with Western Europe were important drivers of the Maidan protests, so was disgust at the corrupt Yanukovich Government. Photos of the deposed president’s pleasure palace went viral after his fall. The sequel to that revolution has been the first major East–West stand-off since the end of the Cold War, complete with the forcible annexation of territory and the displacement of more than a million people.
In these cases and others, corruption has helped generate some of today’s most dire security crises. The difficult question, especially regarding religious violence, is why? What is it about corruption that should drive people to such extremes?
Four elements of corruption in its current form help to provide an explanation: the humiliation inflicted on victims; their lack of recourse; the structure and sophistication of corrupt networks; and the truly colossal sums being stolen. Firstly, what we in the West often underestimate in thinking about corruption is the assault on victims’ human dignity that accompanies it. Recall the example of the judge’s ‘sextortion’, when the only way of gaining a hearing may be to allow a daughter or a sister to be violated.
Abuses of this nature can spark a burning need for retribution. In studies of violence ranging from Palestinian uprisings to gang shootings in the United States, insult or humiliation is found to be a key factor (Longo, Canetti and Hite-Rubin 2014; Black 2011).[footnote 11]
Given the obvious connections between religion and morality, the moral depravity underlying the abuse is frequently understood in religious terms. “Our leaders are bound by religious duty to do the right thing,” Kano’s then Bar Association Chairman Ibrahim Nassarawa told me, “so when they don’t, people hate them.”[footnote 12] At that point, a religious argument may be persuasive: “If our government were based on the Islamic system,” said Maiduguri residents, summarising Boko Haram’s preaching, “all these things wouldn’t be happening. We would have a fair and just society.”[footnote 13]
Secondly, with government perpetrating the crimes, there is no earthly hope of recourse. As Sardar Muhammad – who cultivates grapes and pomegranates west of Kandahar – put it in defining the word ‘corruption’, “If the district governor takes all the development budget and only gives the people a tiny bit, and I want to complain, and his gunmen keep me from complaining because they are his kept dogs, that’s corruption.”[footnote 14]
Deprived of any peaceful means of redress against an abusive government, even the founders of our own Western democracies rebelled. The 16th-century Dutch Revolt, the English Civil War and the American and French revolutions were all bloody affairs. Period documents from these milestones in democratic development indicate that in none of them did protagonists and ordinary citizens turn to violence gladly, but felt compelled to it after exhausting every other avenue and obtaining not the slightest concession (Robertson 2006).[footnote 15]
The unassailable impunity that Sardar Muhammad was lamenting derives from the third important feature of corruption as it currently exists in dozens of countries – how deeply it is embedded in state machinery. It’s not the work of a few venal officials, who might be rooted out or challenged in court. The kind of severe corruption that is common today is systemic. It is the practice of sophisticated networks armed with all the instruments of state function. They use those instruments to serve their aims – which largely boil down to personal enrichment. In many cases, these entities should not be thought of as governments at all, much less fragile or failing ones, but rather as savvy and successful criminal organisations.
Weaknesses in state function examined in this light may prove to be deliberate, especially in agencies with autonomous power. Judges or specialised prosecutors are underpaid. Armies are hollowed out to reduce the likelihood of a coup and because defence budgets and military assistance are juicy revenue streams. The results of this latter trend were on vivid display in 2014 as the cannibalised militaries of Iraq and Nigeria collapsed at the first sign of a challenge.
In other cases, apparently innocuous state agencies such as tax authorities or water departments are fashioned into bludgeons to force compliance. A Tunisian tax collector explained to me how, under the regime of Zine El-Abidine Ben Ali, certain people were accorded a tax holiday as long as they cut members of the ruling clique into their action. But “assessors would rarely make someone’s file go away completely. The permissiveness could always be revoked.” Taxes, he said, could be used “to punish someone who was too independent.”[footnote 16]
A trade union representative in Uzbekistan described a similar system to me in 2014: “There are so many taxes it is impossible to pay them all. So people make a connection in the tax office to pay less. But then you’ve broken the law and they know it, and you are afraid of the Government. The whole Government is set up that way, to make you do wrong, so then they have you on the hook.”[footnote 17]
These kleptocratic networks are horizontally integrated. They comprise government officials, businesses such as banks or construction companies, and so-called non- governmental organisations (NGOs) and implementers of aid – which may in fact be owned by relatives of government officials. But they also include outright criminals such as smugglers, drug-traffickers and even terrorists. Some within the government service in Algeria in the 1990s, and also officials in Pakistan today, are believed to have maintained operational links with extremists (Waldman 2010; Garçon 2003).[footnote 18]
For foreign governments, charities or businesses seeking to operate in such environments, this horizontal integration makes for particularly difficult navigating. The familiar distinctions between public and private sectors, licit and illicit actors, simply do not apply.
Finally, the amounts of money in play are truly obscene. Former FBI special agent Debra Laprevotte, who worked kleptocracy cases for years, says that the increase has been palpable: “For the longest time, we had a single billion-dollar case. Now there are at least five billion-dollar investigations underway.”[footnote 19]
According to two separate biannual surveys, ‘petty bribery’ in Afghanistan rakes in between £1.3 billion and £2.6 billion per year (UNODC 2012; Integrity Watch Afghanistan 2014).
This is in a country whose licit government revenue is barely estimated to top £1 billion (SIGAR 2015).
The development implications of such sums are obvious. Imagine if even a fraction were devoted to a country’s healthcare or water and sewage system, or to building a reliable and affordable public transport network in a burgeoning megacity, or to paying teachers a living wage. Imagine the impact on sustainable economic growth.
But when obtained through practices this corrupt, vast wealth in a sea of poverty also has a moral component – hence the easy link to religion. In the midst of the 16th- century Protestant revolt against the Habsburg ‘Divine Right’ monarchy, an anonymous Dutch pamphleteer complained, “They put robes of silk on their idols made of old wood, leaving us brethren of Christ naked and starving” (Arnade 2008, p. 99).
Then, as now, militant puritanical religion, imposed if necessary by force, was seen by some as the only remedy.
The picture painted here is a sobering one, particularly for governments, investors and humanitarian organisations that cannot avoid working in such countries. And especially when security concerns are so severe as to trump other considerations. Still, even in a world in which trade-offs are real and cannot simply be wished away, there are some important lessons to be considered.
Governments that ostensibly fight against terror may actually be generating more terrorism than they curb. The international community must do a better job of weighing up the pluses and minuses of partnering with acutely corrupt governments, and thus reinforcing them and facilitating their practices.
If alliances are too close, or pay too little attention to the corruption of host governments, the abused populations may come to associate the international community with the misdeeds of their own rulers. As 14th-century churchman William of Pagula admonished King Edward III, “He takes on the guilt of the perpetrator who neglects to fix what he can correct” (Nederman 2002, p. 82).
A more precise understanding of network structures and real dynamics of power must inform planning processes ahead of engagement. It is costly in human and other resources, not to mention politically uncomfortable, to draw up network diagrams – like the ones intelligence or police agencies regularly develop in their study of terrorists or criminals – that map members of ostensibly friendly governments and their cut-outs in business or the criminal world. But these costs should be weighed against the proven and often disastrous price of blind engagement in such complex environments.
A new, broader understanding of ‘corporate social responsibility’ is required. Across sectors, companies whose business models actually depend on servicing kleptocratic officials – such as some banks, lawyers, estate agents, registered agents, various extractive and other resource- based businesses, and international construction contractors – are contributing to significant security threats in their own countries.
It is in this light that they should consider their ‘corporate social responsibility’ – rather than as a synonym for donations to localised humanitarian work. Should their public-spiritedness remain wanting, then sanctions applied to them for colluding with illegal corrupt practices should be stiffened, commensurate with the harm they are doing.
Western citizens should begin pressurising such businesses. And above all, Western governments should cease viewing corrupt money flows, or good trade deals extracted from kleptocrats at the expense of their populations, as a necessary component of their nations’ economies.
Arnade, P. 2008. Beggars, Iconoclasts and Civic Patriots: The Political Culture of the Dutch Revolt. Ithica: Cornell University Press.
Black, D. 2011. Moral Time. New York: Oxford University Press, p.73.
Chayes, S. 2015. Thieves of State: Why Corruption Threatens Global Security. New York: W.W. Norton.
Garçon, J. 15 November 2003. Les GIA sont une creation des services de securite algeriens. Liberation. Available online.
Human Rights Watch. 17 August 2010. Everyone’s in on the Game: corruption and human rights abuses by the Nigeria Police Force. Available online.
Integrity Watch. 28 May 2014. Afghanistan, National Corruption Survey. Available online.
Longo, M., Canetti, D. and Hite-Rubin N. 2014. A Checkpoint Effect? Evidence from a natural experiment on travel restrictions in the West Bank. American Journal of Political Science, 58(4), pp. 1006–1023.
Muasher, M. 2015. Thalatha Safarat Indhar Lam Yasma’ha Ahad. Alghad (Afkar wa Mawaqaf). Available online.
Nederman, C. ed. and trans. 2002. Political Thought in Early Fourteenth Century England: Treatises by Walter of Milemete, William of Pagula and William of Ockham. Of Pagula, W., The Mirror of Edward III. Tempe: Arizona Center for Medieval and Renaissance Studies, p. 82.
Robertson, G. 2006. The Tyrannicide Brief: The Story of the Man Who Sent Charles I to the Scaffold. New York: Pantheon.
Sky, E. 2015. The Unravelling: High Hopes and Missed Opportunities in Iraq. London: Atlantic Books. Special Inspector General for Afghanistan Reconstruction (SIGAR). 5 March 2015. Letter to Generals Lloyd Austin, John Campbell and Todd Semonite. Available online.
United Nations – Office on Drugs and Crime (UNODC). December 2012. Corruption in Afghanistan: Recent Patterns and Trends. Vienna: UNODC. Available online.
Waldman, M. 2010. The Sun in the Sky: The Relationship Between Pakistan’s ISI and Afghan Insurgents. London School of Economics, Crisis States Working Group Paper, 2(18).
7. David Walsh: The irresponsibility of not knowing – corruption in sport
Being a sports writer was all I wanted.
Thirty-eight years, the only job I’ve ever had. Good times mostly. Not what I thought they would be. When I glance in the rear-view mirror, there is more cynicism, more corruption, more of sport’s dark side. It seems hard to believe now that the journey began with the expectation of standards higher than would ever be found in civilian life.
There is, of course, much to recall that was glorious, exciting and uplifting, sporting stuff that makes you think anything is possible. Hard to imagine that a boy who grew up on the potholed roads of Kenya could become a Tour de France champion, but that’s what Chris Froome did.
Or that a boy from Rosario in Argentina who was diagnosed with a growth hormone deficiency at age ten should become the greatest footballer we’ve ever seen. Well that’s Lionel Andres Messi’s story. How many winter evenings has he brightened? But even in the beautiful game, bad things were happening. Our obsession with football created a global popularity that would lead to extraordinary riches pouring into the game.
That money needed to be managed and those in control needed to be accountable. We are speaking of systems of good governance, but greed got a head start and governance never caught up. With great wealth comes power and that attracts the corruptible. Over the last 15 years, there has been the International Olympic Committee (IOC) scandal behind the awarding of the Winter Olympics to Salt Lake City in 2001, the FIFA scandal that simmered for more than ten years before boiling over in 2015 and, most recently, the International Association of Athletics Federations (IAAF) scandal involving high-up officials in the international federation.
Sometimes you find yourself taking a step back and wondering, “Could it have really happened?” Could custodians of the sport really have blackmailed an athlete in a €450,000-deal, covering up a doping violation so that the athlete could compete in the Olympics? That’s the allegation and the French police are on the case (World Anti-Doping Agency 2016).
I’d been a sports reporter for ten years when attending my first Olympics. That was Seoul 1988. A run along a busy promenade in South Korea’s capital city on the final Sunday of those Games remains a cherished memory. I never saw such an outpouring of national pride. Every expression seemed to say, “You thought we couldn’t do it, even we weren’t sure we could, but we did.”
Before those Games started, there had been student protests in Seoul and the world’s media highlighted the potential for the Olympics to be overshadowed by unrest. That never happened. The trouble came from inside the stadium, down there on the track or, more accurately, in the room where the Canadian sprinter Ben Johnson peed into what anti-doping personnel call ‘the collection vessel’.
The thing about watching something live is that it leaves a deeper, more lasting impression. Inside your living room, you see the story unfold. Inside the stadium, you feel it. It’s the difference between having your face painted and having your forehead tattooed. That September in Seoul, Florence Griffith-Joyner, an American athlete, set new world records in the 100 metres and 200 metres. They will stand for a long time yet, those records.
They called her ‘Flo-Jo’. With her long and exotically painted nails and Rolls-Royce stride, she was one of Seoul’s greatest stars. I saw her get the 200-metre record, decelerating in the home straight. It was a heart-sinking moment. There were allegations of doping, unproven. Florence Griffith-Joyner died at 38, far too soon (Walsh 2013).
Ben Johnson was a different story. He got caught. Can you imagine being awoken by a loud knock on your apartment door at 3.30 in the morning and being pleased about it? Doug Gillon, from The Glasgow Herald, stood there. “Johnson’s tested positive,” he said. The words landed like ice-cold water on a sleepy face. Other than tell our offices back home that we were up and on the case, I don’t know what we could have done to advance the story at that hour, but it was a watershed moment. Ben Johnson changed the landscape. Some of the things that had drawn us as kids to sport were being crushed by a will to win that recognised no boundaries.
How bad was it? How bad is it? It was bad. It’s gotten worse.
Part of that summer of ’88 was spent following the world’s greatest bike race, the Tour de France. A few days from the end, there was another drug controversy when Pedro Delgado, the Spanish-born race leader, provided a urine sample that contained the drug probenecid, used by athletes to mask their use of proscribed substances.
A strange case for sure. Probenecid was banned by the International Olympic Committee, but wasn’t yet banned by the body that governed world cycling. Delgado, it was initially speculated, would be docked ten minutes but not thrown off the race. The Dutch rider, Steven Rooks, would then be the new leader and, with the race almost complete, the certain winner.[footnote 20]
I met Rooks before the start, on the morning after Delgado’s bad news.
“How do you feel about taking the yellow jersey?” “I don’t want it in these circumstances,” he said.
“But if he’s been cheating, and why would anyone use probenecid, you will be the deserving leader.”
“He has been the strongest rider in the race and deserves the victory.”
Rooks saw my righteousness for what it was. Innocence. What I believe he was telling me, in code, of course, was that athletes in the Tour de France do what they have to do, and no one is guiltier or more innocent than another. Strange how crushing that moment seemed. Over the years that followed, I became a different kind of sports writer – less gullible, even aggressively sceptical.
Something Albert Camus wrote strikes a chord: “Every act of rebellion expresses a nostalgia for innocence” (Camus 1956, p. 54). We want sport to be believable. In the world of our imagination, sport doesn’t just mirror life but offers something more principled, more idealistic, more inspiring than the world of business. Alas, the reality is far from that and there is a rebellion.
Folk are tired of the corruption. We want our innocence back. You can bet that when the news emerged that FIFA executive committee members were arrested on corruption charges, football fans around the world were silently cheering. At last. Same reaction from athletics fans when news that high-ranking members of the IAAF suffered the same fate.
Whether police investigations in both sports lead to charges doesn’t matter as much as knowing that men who once saw themselves as untouchable were mistaken.
With so much cheating on the field and so much corruption off it, you may think this is a bleak time for sport. On the contrary, this is what sport has needed: scrutiny, exposure of wrongdoing, punishment for those who have done wrong. No longer in the dark, we now have the opportunity for change. It would be a crime not to seize it.
From where did the malaise come? Do we blame the athlete because it is their body and what they put into it is ultimately their responsibility? Or the trusted coach who says that, without doping, victory is unattainable? Or the governing body that publicly says doping is a scourge, but privately accepts its existence as an irrepressible evil? From where does the corruption come?
What of the institutional corruption? Why did we get the IOC scandal, the FIFA scandal and the IAAF scandal? Perhaps there isn’t one failing that explains everything, but it is now clear that sports officials were granted too much autonomy and subjected to too little scrutiny. Members of the IOC and FIFA were treated like royalty and many of them embraced the world of privilege before abusing it. Now US federal officers and the Swiss and French police are pursuing cases of suspected fraud in sport, and they do so with fans worldwide urging them on.
Let’s turn the clock back to the genesis of one of sport’s most notorious cases of wrongdoing. It was July 1999. We were all at Le Puy du Fou, a theme park set among the trees and beauty of the Vendée in western France. It was the start of the Tour de France. The race began with a short individual race against the clock, each rider hurtling round a 4-mile circuit in pursuit of the first yellow jersey.
That race launched Lance Armstrong as an embryonic global icon. He won that short test by a staggering eight seconds and had done this after recovering from life-threatening testicular cancer. His domination of that year’s Tour was absolute and his performance seemed to many the most life-affirming story that sport had ever delivered.
Surviving cancer is one thing, but to follow recovery with victory in perhaps the toughest athletic challenge of all is quite another.
Armstrong cheated because he believed others were cheating and that it was the only way he could win. On both counts, he was almost certainly correct. But that merely explains his rationale – it cannot excuse it. A great number of his competitors in that race were not using drugs and so were put at an insurmountable disadvantage by those who did cheat.
The fact that Armstrong had been so seriously ill made it hard for people to believe that he would then use drugs that could be dangerous to his health. He never saw it like that. Many of the drugs used in restoring him to health, after he’d undergone four rounds of chemotherapy, were the same drugs that would give him greater endurance in the Tour de France. And they weren’t that dangerous.
But he couldn’t have gotten away with it unless so many had been willing to embrace the irresponsibility of not knowing. The truth is that the truth was there, an inch or so beneath the surface. “If a misdeed arises in the search for truth, it is better to exhume it rather than conceal the truth,” Saint Jerome wrote in the fifth century (cited in Ballester and Walsh 2004, p.1). That’s not bad advice.
In the surge of the feel-good factor that came with Armstrong’s first victory in the Tour de France, everyone had their reasons for clinging to the irresponsibility of not knowing and leaving the truth resting beneath the surface. His sponsors would sell bikes and clothing – and dreams – off the miracle of his comeback. Those entrusted with the duty to protect the sport, the world-governing cycling body (the Union Cycliste Internationale [UCI]) saw in him a saviour bearing the gifts of increased popularity and, of course, revenue.
As fans, we want our heroes to be angels on wheels, simon- pure, somehow immune to the uppers and downers of our own pill-popping society. In the maelstrom of Armstrong’s wondrous victory, we engaged in what the poet Samuel Taylor Coleridge called ‘the willing suspension of disbelief’. All the reasons why this story had to be questioned were suppressed. Those who tried to protest were shouted down.
Let us try to explain how easy it would have been for the fraud of Armstrong to have been stopped before it had begun. The drug of choice in 1999 was erythropoietin (EPO), which promotes the production of red cells and allowed those using it an almost endless supply of oxygen. With it, a rider could fly up mountains. Angels on wheels indeed. At that time, there was no anti-doping test to identify it in urine. So EPO was a godsend for those who wished to cheat, and there were plenty.
From blood tests taken before that 1999 Tour, the authorities more or less knew who was using the drug but just could not prove it. They also knew that an EPO test was imminent. All they had to do was freeze the urine samples from ’99 and re-examine them when the EPO test was approved, which happened in 2000. It would have been simple and it would have exposed those who were cheating. But those who should have been protecting the sport were the same people who were promoting it, and Lance Armstrong was good for business.
It was not co-incidental that when Armstrong the Legend became Armstrong the Cheat, US federal investigators had gotten involved. The Feds have powers that allow them to dig deeper than journalists, and Armstrong’s former teammates quickly learned that while they could tell little white lies to journalists, they couldn’t lie under oath.
Only when the police got interested in the minutiae of football’s governing body, FIFA, and the athletics federation, IAAF, did we discover the extent of the corruption in both organisations. Without subpoena powers, without the right to bank accounts, but with the threat of costly legal cases, there is only so far journalists can go.
We came to know how rotten things were in the state of the Tour de France when French customs pulled over a team car on the Franco–Belge border at 6 am on a July morning in 1998. With FIFA, it was the Federal Bureau of Investigation’s (FBI) arrest of US delegate Chuck Blazer that proved to be the turning point. Blazer spilt the beans and plenty of barons were in trouble. French police are now doing the same for the IAAF, showing the most powerful that they’re not as untouchable as they might have thought.
How did it get to this? Good people stayed quiet when they should have spoken up. Anyone who pushed for good governance in these organisations was putting themselves in an uncomfortable position. Few were prepared to do that. It was easier to look the other way, to travel on the gravy train and not pull the emergency cord. This longing to indulge the irresponsibility of not knowing has been the rock upon which the corruption was built.
Those who said nothing – they and their sports have paid a high price. Paul Simon wrote about this a long time ago in ‘The Sound of Silence’: “Fool, said I, you do not know. Silence, like a cancer grows” (Simon 1964).
How we have needed courageous people. Take the IOC and the privileges of its members. Forget the courtesy cars and five-star hotels, the access to the best tickets and the lavish banquets. Instead, consider the daily allowance. Board members on IOC duty receive a daily $900 allowance, $450 for common or garden members (IOC Ethics Commission 2015). It adds up when you spend maybe two and a half weeks at the Olympics, which even an IOC member wouldn’t dare to call hard work.
As much as there is an urge to say that these allowances are far too much, it is worth pointing out that, among the major sports bodies, the IOC is the only one that publicly discloses information such as per diem allowances to its members. This level of compensation does beg the question, ‘Who is serving whom?’ Is it the IOC members who serve the Olympics or the Olympics that serves its committee members?
There is a culture of entitlement that needs to end, because excessive privilege can often be the precursor to corruption: “If I am entitled to this, perhaps I can also get that.” Somewhere along the way, a lot of FIFA administrators came to see not much difference between privilege and wrongdoing – like one was the logical extension of the other.
Let me tell you about Vitaly Stepanov, the courageous whistle-blower who did so much to bring to light the doping secrets in Russian sport. He was recently asked to meet IAAF officials in a major city. To get there, he had to take a six-hour flight. IAAF booked the ticket and when it landed in Stepanov’s email, he realised it was a first-class flight (Walsh 2014).
Surprised and unimpressed to have found himself immediately drawn into this world of privilege, Stepanov rang his IAAF contact and said he had no wish to travel first- class. He considered the excessive cost could be far better spent on fighting the doping culture that he had exposed. Will sports officials ever get the message? (Walsh 2014).
For inspiration, they might care to turn their eyes to the example being set by Pope Francis, leader of the Catholic Church. When he turned up in Washington to meet President Obama, it was easy to pick out his car in the motorcade of more than 20 SUVs and police cars. He was inside the charcoal grey Fiat 500L, which was maybe a tiny step up, or down, from the Ford Focus he drives around the Vatican.
“I’m visible to people and I lead a normal life,” Pope Francis has said. “Public Mass in the morning, I eat in the refectory with everyone else, etc. All this is good for me and prevents me from being isolated. I’m trying to stay and act the same as I did in Buenos Aires because, if you change at my age, you just look ridiculous” (Pope Francis 2013, paraphrased).
How many high-ranking sports officials have thought that if that little Fiat is good for the Pope, it is good enough for me? How many believe they should have lives somewhat akin to the lives of fans upon whose loyalty their games are built? The IOC needs to lower those allowances and FIFA’s new president, whoever they are, needs to embrace a more modest lifestyle.
Transparency must become the norm and proper governance needs to be at the top of every agenda. For too long, good governance has been nothing but a PR sound bite. Trust will be regained when they show us they have changed, not when they tell us.
We need governments to lead as well, to say to sport’s wrongdoers that you are not part of some separate untouchable state. Do wrong and you will be held accountable. The Wild West is no more. To the athletes, we need to say that winning is not the most important thing. How you try to win is what matters.
Would you rather be top of the medal table with cheats or bottom with a group of totally honest athletes? Governments need to stop seeing the prowess of their athletes as a sign of national strength. For that too is another road leading to corruption. Better in my view for a government to understand that what truly matters is how many of its citizens are active.
We need to stop wearing our country’s success in sport like a badge of honour, for it matters not a whit whether we’re first or second in the medals table. It is Vitaly Stepanov, the Russian whistle-blower, to whom we should listen. He reminds us of what matters, and what doesn’t.
“Personally, I don’t like this whole idea of countries and nationalism and all of that. Things must be done that serve the planet not for the country. Same in sport, I don’t care that a Russian wins or an American wins. If the competition is fair, if the best one wins, that’s good. If a person is honest, talented, has a good coach and he is raised properly and he becomes an Olympic champion then he will be a hero. And it really will not matter what country he is from. Jesse Owens became a hero for the whole world.
“I went to the Olympic museum in Lausanne. There is a saying on a wall there from Pierre de Coubertin, the father of the Olympic movement. Let me just say it. ‘The important thing in life is not the triumph but the fight. The essential thing is not to have won but to have fought well.’ This is my view of what sport should be” (Walsh 2015).
Ballester, P. and Walsh, D. 2004. L.A. Confidentiel: Les Secrets de Lance Armstrong. France: La Martinière.
Camus, A. 1956. The Rebel: An Essay on a Man in Revolt. New York: First Vintage International, p. 54.
International Olympic Committee (IOC) Ethics Commission. 2015. Agenda 2020: Indemnity Policy. Switzerland: IOC. Available from: http://www.olympic.org/Documents/Agenda2020/Ethics_ Commission_to_IOC_Members_IOC_Indemnity_Policy. pdf
Pope Francis. 2013. Letter to Father Enrique Rodriguez. Available online.
Simon, P. 1964. The Sound of Silence. New York: Columbia Records.
Walsh, D. 2013. Seven Deadly Sins: My Pursuit of Lance Armstrong. UK: Simon & Schuster.
Walsh, D. 14 December 2014. Russian doping whistleblower fears for his safety. The Sunday Times. Available from: http://www.thesundaytimes.co.uk/sto/sport/athletics/ article1495850.ece
Walsh, D. 29 November 2015. Husband and wife who brought down Russia. The Sunday Times. Available from: http://www.thesundaytimes.co.uk/sto/sport/athletics/ article1638611.ece
World Anti-Doping Agency. 2016. Independent Commission Report – Part 2. Available online.
8. President Muhammadu Buhari: My plan to fight corruption in Nigeria
In the run-up to the general elections in March 2015, I campaigned on the platform of addressing the challenges of security, the economy, power, infrastructure and fighting corruption. Of these, removing the cancer of corruption from the system is the key not only to restoring the moral health of the nation, but also to freeing our enormous resources for urgent socio-economic development.
Nigerians never cease to ask, for example, why it is that, at independence in 1960, Nigeria’s gross domestic product (GDP) per capita was higher at $559 than that of Singapore’s at $476, but today Singapore’s GDP has grown to $55,182 and Nigeria’s has increased to just $3,005 (World Bank 2016).
For sure, there are many variables to explain this paradox of a city-state with a small population outperforming Nigeria so dramatically. But the most important single factor, to my mind, is our two countries’ contrasting leadership visions and attitudes to corruption. As Alan Greenspan (2007) has observed, “Corruption, embezzlement, fraud, these are all characteristics which exist everywhere. It is regrettably the way human nature functions, whether we like it or not. What successful economies do is to keep it to a minimum.” Unfortunately, successive Nigerian governments have simply been unable to contain the monster.
8.1 Corruption in Nigeria
Oil and gas are the second largest contributors to our GDP and account for more than 80% of our foreign exchange earnings. Yet this is the most corruption-ridden sector of our economy. By some industry estimates, 232,000 barrels of crude oil worth on average $6.7 billion per annum are lost by the Nigerian state to oil thieves (Kar and Cartwright-Smith 2010). This illicit trade thrives as a result of collaboration among politicians, security agencies, criminal gangs and even multinational oil company employees. As the Financial Times reported, the enormity of the problem is captured in satellite imageries showing the illicit oil trade “expanding exponentially between 2008 and 2013, at the same time as artisanal [illegal] refining was mushrooming across the Niger Delta on an industrial scale” (Wallis 2015).
The abuse and misuse of public office for private gain has been a constant feature of governance in Nigeria for the past 30 years. In the last two decades especially, corruption – with its corresponding devastating socio-economic consequences on national development and the well-being of our people – escalated rapidly and with even greater intensity. Our recent history has been one of predatory and rapacious political, military, public and private sector elites competing and alternating as the drivers of corruption. Paradoxically, corruption flourished and eventually became a way of life under the supposedly accountable democratic governments of the past 16 years during which, by one calculation, the nation earned more revenue than in all the previous 80 years combined.
Even as far back as the 1980s, procurement and contract costs in Nigeria were three times higher than those in East and North Africa, and four times higher than those in Asia. Studies suggest that public funds of between $300 billion and $400 billion have been lost to corruption since Nigeria became independent in 1960 (Ezekwesili 2012). According to the African Union’s high-level panel on illicit flows, Nigeria alone accounted for $217 billion of the African continent’s total $850 billion loss to illicit flows between 1970 and 2008 (UNECA 2015).
Despite anti-corruption agencies and laws introduced in recent years, there was a complete lack of political will to strengthen these agencies and to faithfully enforce the laws. As one commentator observed, across the entire spectrum of government, rules and regulations were ignored with impunity. Procurements were made with a total disregard for due process, inflated by billions of dollars and poorly executed, and payments were made for jobs not even done. No wonder then that Nigeria consistently scored below the African average in virtually all the categories considered by various transparency and good governance agencies: safety and the rule of law, ease of doing business, participation and human rights, sustainable economic opportunities and human development (Transparency International 2016).
The United Nations Office on Drugs and Crime (UNODC) (2016) has correctly identified that pervasive corruption undermines democratic institutions, slows economic development and contributes to governmental instability. Corruption erodes the moral fabric of society and violates the social and economic rights of citizens, particularly the poor and the vulnerable. Actually it creates poverty and hurts the poor disproportionately, because resources are diverted away from those who need government protection and services the most.
Indeed corrupt politicians, in collusion with electoral officials, have consistently distorted our electoral processes and perverted the rule of law, thereby undermining our democracy. Corrupt practices such as illegal duty and tax waivers lead to loss of revenue. Corruption drives away foreign direct investment with its consequential loss of opportunities for increased government revenue, job creation and skills acquisition. It erodes efficiency, effectiveness and productivity, while promoting waste and mismanagement.
The resultant inequality in society – with extreme mass poverty living side by side with islands of stupendous unearned riches – has led to frustration, hopelessness and despair, and laid the foundation for militancy and insurgency. Corruption in Nigeria has resulted in the decay of infrastructure, a lack of social services and the collapse of the institutions to fix them. The question then arises as to why and how Nigeria descended to become such a sorry example of a rich yet poor country.
8.2 How did this happen?
There are many predisposing factors to corruption in Nigeria. First, there is the distortion of values and the cultural context. In many communities, as indeed everywhere else in the world, material success is celebrated and emulated. In Nigeria, however, a further weakening of values occurred somewhere down the line, eroding the traditional mechanism of checks on the illegal, primitive and ostentatious accumulation and display of wealth. Dislocation of communities and urbanisation partly account for this.
Second, a strong culture of ethnicity and nepotism encourages corruption because it influences the irrational allocation of resources and the protection of culprits.
Third, there is a culture of elite exceptionalism whereby high public-office holders and the wealthy feel that, by virtue of their status, stature or position, they are exempted from the laws and rules regulating society.
Fourth, and most insidious, is the pervasive culture of impunity across the social strata, which is, in turn, fuelled by a legal system bedevilled by delays. The egregious culture of impunity has itself sabotaged and stultified the growth of the rule of law.
Finally, the single biggest contributor to corruption in Nigeria is the lack of political will among the leadership of the country in the past to tackle it. There are sufficient laws in the statute books, and robust rules, regulations and clearly set out procedures throughout the public service. But the institutions established to fight corruption either lacked the desire, the capacity and drive to tackle it or were deliberately subverted or circumvented.
8.3 Proposals to curb corruption in Nigeria
To confront this challenge, we must start by showing that we have the exemplary leadership, personal integrity and demonstrable political will to do so. Democratic governance based on individual liberties, human rights, a free press and the rule of law requires us to be fair and just in dealing with all cases of corruption. There must be transparency and a strict adherence to due process – however painstaking the effort and however slowly the wheel of justice turns under this setting. At the same time, we must be accountable and remain faithful to our oath of office whereby we swore to do justice to all manner of people without fear or favour. We must, like Caesar’s wife, be seen at all times to be beyond reproach in order to cast the first of any stones. Thus, though not required by law, my vice-president and I began my tenure by publicly declaring our assets, to be compared with our net worth on leaving office.
As I noted earlier, there exists a plethora of laws, rules and regulations to ensure good governance in Nigeria. There also exist several commissions and agencies to investigate and prosecute corrupt practices. We need not create any new ones unless absolutely necessary. We only need to strengthen, adequately fund and motivate the existing ones to do their jobs.
We shall also encourage independence of action and avoidance of self-censorship by anti-corruption agencies. No one will be presented as a ‘sacred cow’ beyond the reach of the law.
In the fight against corruption, citizen involvement and demand side activism are key components. Most of our people, especially those in the rural areas who are poor, ignorant and illiterate, do not make the link between corruption and their lack of access to healthcare, education and other facilities, even where they exist. They are too poor, too dependent and too powerless to demand accountability from their State or local governments. We shall therefore encourage the civil society, faith-based groups and community associations to challenge corruption within their communities. In this regard, we shall review our communication strategy towards a more open and transparent government by sharing information, encouraging citizen empowerment and supporting social actions to challenge corrupt practices by public officials at the federal state and local government levels.
In our model of democracy, there is a clear separation of powers between the Executive, the Legislature and the Judiciary. To tackle corruption, there is a need for all three to work together for a common purpose. Towards this end, we are ready to engage with the Legislature and the Judiciary, state governments and all organs of government to ensure the necessary synergy towards effectively combating corruption.
Early in the life of this administration, I constituted a Presidential Advisory Committee on Anti-Corruption – made up of experts and persons of integrity – to oversee our anti-corruption effort, promote the reform agenda of the Government and co-ordinate the implementation plan for anti-corruption legislation and other interventions. Among other things, the Committee will also articulate and report on strategies towards repositioning and strengthening our agencies. These include the Economic and Financial Crimes Commission (EFCC), the Independent Corrupt Practices Commission (ICPC), the Code of Conduct Bureau (CCB) and the Code of Conduct Tribunal (CCT), and the ways in which our criminal justice administration may be improved.
Given the transnational operations of criminals and the multi-jurisdictional effect of corruption, we will also intensify our collaboration with the international community. This includes international anti-corruption agencies and institutions such as the United Nations Office on Drugs and Crime (UNODC) and other development partners. We also commit ourselves to compliance with the country’s international obligations under international treaties and conventions such as the United Nations Convention on Anti- Corruption (UNCAC) (UNODC 2015).
8.4 The Economic and Financial Crimes Commission and the Independent Corrupt Practices Commission
Two anti-corruption institutions are key to Nigeria’s anti-corruption efforts. These are the EFCC and the ICPC. We are aware that both are presently not working at maximum potential owing to a myriad of challenges, which include overlaps in mandate, gaps in operational legislation and funding, a human capital deficiency, leadership inadequacy and internal corruption.
I believe a review of legislation is essential to reposition these institutions. For example, currently the ICPC can only begin anti-corruption investigations in response to petitions from the public. We want to change that, revising the ICPC Act to increase the Commission’s powers to initiate investigations into cases of corruption (ICPC 2016).
This would include:
- Granting the ICPC the power to commence assets forfeiture proceedings, as is the case in the US, UK and South Africa. Illegally acquired properties may then be seized where the suspected owner is a fugitive, disclaims ownership or cannot be located despite diligent efforts.
- Streamlining the jurisdiction of the ICPC by reducing areas of overlap with the EFCC, thus giving each agency areas of primary jurisdictional responsibility.
- Giving the ICPC power to accept material assistance from international institutions and development partners, as well as to access funds from global anti-corruption agencies, which the present ICPC Act prohibits.
Similarly, as part of the EFCC legislative review, we will focus on:
- Empowering the Commission to presume that a person has illegally enriched themselves where such a person owns, possesses or controls an interest in any property that cannot be justified by present or past emoluments or circumstances.
- Streamlining the jurisdiction of the EFCC to reduce overlap with the ICPC mandate.
- Securing the forfeiture of illegally acquired properties where the suspected owner is a fugitive, disclaims ownership or cannot be located despite diligent efforts.
- Separating the agency for financial intelligence gathering from the EFCC. The Nigerian Financial Intelligence Unit, which operates as an arm of the EFCC, needs to be independent in order to enhance its operational autonomy.
We intend to work with the Legislature to implement all these necessary reforms. It’s also critical that these two agencies charged with fighting corruption and financial crimes collaborate closely with development partners for technical assistance, staff training and data sharing.
As international co-operation continues to reduce the number of havens for hiding the proceeds of crime, new havens are emerging. We need therefore to enhance the scope of our mutual legal assistance agreements to widen the net we cast to recover illicit funds and secure the forfeiture of unexplainable assets.
In this regard, the agencies will also need to be more proactive in leveraging the legislations of foreign jurisdictions such as the US Foreign Corrupt Practices Act (US Department of Justice 2015). Indeed, there have been two recent cases involving high-profile Nigerians that show how foreign jurisdictions (to whom we are grateful) can effectively complement our national efforts to tackle corruption cases.
Pursuant to action taken by the US under the Foreign Corrupt Practices Act, Kellogg, Brown & Root pleaded guilty to paying named Nigerian officials a $180 million bribe to secure a $6 billion contract (US Department of Justice 2009).
In another notorious case, all numerous counts of corruption filed against a former governor of a state were dismissed by a court in Nigeria only for the same politician to be convicted in the UK – based on the same evidence!
These kinds of prosecution lapses in major corruption cases arise because of the slow nature of trials, especially of corruption cases, in our system. Typically, corruption trials involving high-profile public officers last an average of 8 to 10 years or, if they go to appeal, 15 years. In such a situation, prosecution and judicial fatigue set in.
It’s standard practice for senior defence lawyers to use legal technicalities such as preliminary objections to challenge the jurisdiction of the court, requesting stay of proceedings and appealing interlocutory or preliminary matters, or for courts to oblige the accused with injunctions (sometimes perpetual), restraining anti-corruption agencies from investigating, arresting or prosecuting the suspected persons!
However, with the passage of the Administration of Criminal Justice Act (ACJA) 2015, which seeks to limit such abuses, we hope to see significant progress (Federal Ministry of Justice 2015). The ACJA contains several innovations with the potential to significantly improve criminal justice administration in Nigeria. For example, it states that an application for a stay of proceedings shall not be entertained, that all preliminary objections shall be considered along with the substantive issues and that a ruling shall be made thereon at the time of delivery of judgment.
8.5 The Code of Conduct Bureau
The CCB was created 36 years ago to ensure probity and accountability. This includes setting out a comprehensive code of conduct for public officers such as declaring their assets and liabilities, and those of members of their families, when they assume and subsequently leave public office. It has powers to apprehend offending public officers and arraign them before the CCT. Yet in spite of the glaring and widespread corruption by political appointees and other public servants, the Bureau has hardly used its powers and, where it has, only low-level public officers have been apprehended and brought before the CCT.
Lee Kuan Yew (2000), writing on corruption in his book, From Third World To First, The Singapore Story: 1965– 2000, stated that: “The most effective change we made in 1960 was to allow the courts to treat proof that an accused was living beyond his or her means or had property or income they could not explain as corroborating evidence of corruption.”
Nigeria has had a similar provision at paragraph 11(3) of the Fifth Schedule to the Constitution, which provides that any property acquired by a public officer that is not fairly attributable to his income shall be deemed to have been acquired in breach of the Code (International Centre of Nigerian Law [ICNL] 1999). In its 36 years of existence, the CCB has never invoked this provision. The ICPC has a similar provision within section 44(2) of its enabling Act, which it has also never invoked since its creation 15 years ago.
The CCB is fundamentally hampered by the fact that there is no requirement for public officers’ asset declarations to be published. So to lead by example, my vice-president and I voluntarily submitted our assets declaration, hoping that other members of my Government would do the same.
But beyond this, the CCB simply lacks the capacity to verify the claims made in the thousands of assets forms submitted. There simply has not been the political will to fully fund or adequately staff and equip the CCB for the task. In co-operation with the National Assembly, we shall look for ways and means to make the required appropriation. We shall also seek co-operation and assistance from our development partners in the areas of computerisation of the operations of the CCB and Land Registries, with links to the operations of the Nigerian Stock Exchange, the Securities and Exchange Commission and the Corporate Affairs Commission (our Companies Registry) to enhance and facilitate assets tracing. Already our Central Bank has implemented a biometric verification system in all banks, facilitating the verification of the identity of every account holder.
8.6 The Code of Conduct Tribunal
Like the CCB, the CCT was established more than three decades ago. Its purpose was to adjudicate on breaches of the Code of Conduct by public officers, which were referred to it by the CCB. In the absence of a functioning CCB, the CCT too has been doomed to failure, applying its powers to impose sanctions – such as removal from office, bans from holding public office and the forfeiture of corruptly acquired property – only to minor cases.
8.7 The Nigeria Police
The Nigeria Police, like the police everywhere, are primarily tasked with maintaining law and order. Its involvement with corruption cases and financial crimes is peripheral except in cases like theft. But the potential for compromised anti- corruption operatives remains a problem across our public sector. And the police are no exception. Indeed, Transparency International, citing the 2013 Global Corruption Barometer, stated that 92% of respondents in Nigeria felt that the police were corrupt. We are aware of this general perception of the Nigeria Police and we shall take steps for its reform.
8.8 The Judiciary
The other institution that is critical to our ability to successfully combat corruption is the adjudicating agency or the Judiciary. Yet our Judiciary itself is perceived to be corrupt. As in other areas, it’s a difficult allegation to prove. From their pronouncements, it’s clear that the leadership of the Judiciary is aware of this general perception. It cannot be swept under the carpet, especially given the odious nature of many decisions from the Bench. These include granting perpetual injunctions, restraining the police and anti-corruption agencies from investigating, arresting or prosecuting high-profile politicians and the other examples I have already cited.
Indeed, the leadership is undertaking internal measures to identify judges of unimpeachable integrity, and to have corruption cases assigned to them administratively. They are similarly making efforts to cleanse the system by identifying compromised judges for disciplinary measures, including retirement. The discipline of judges, however, is the responsibility of the National Judicial Council established by the Constitution. There have been observations about the Council’s composition, the mode of appointment to it and how to make it broader-based in representation. These are matters for the Judiciary to consider.
Finally, we are undertaking administrative measures in the following areas to strengthen our anti-corruption crusade more generally:
Addressing poor remuneration in the public service
Alongside our wider reforms of the public sector, we need to look into appropriate remuneration for some categories of civil servants. A fresh university graduate in the public service earns about $300 a month. Unfortunately, inflationary pressures and increases in the cost of living make corrupt ways of supplementing legitimate income more attractive.
Again, Lee Kuan Yew (2000) said that one of the ways he dealt with corruption in the public service was to drastically increase the salaries of the accounting officers, putting them almost on a par with similar heads of private sector organisations. While this isn’t an immediate possibility for us, given our current economic circumstances, we do propose to finance some increases in critical functions related to public service wages, using part of the freed-up funds gained from recovered looted assets, reductions in waste and the plugging of leaks. However, there may also be need for a downward review of the emoluments, allowances and entitlements of certain public officers.
Reforming the oil sector
We shall also reform our oil sector – which is the lifeblood but also the most corruption-ridden sector of our economy. To that end, we will:
- Publish quarterly audits of the Nigerian National Petroleum Corporation.
- End the opacity in the swapping of crude oil for refined products, which has created avenues for corruption.
- Improve internal refining capacity with a view to ending, in 2016, the clearly unsustainable 1 trillion Naira (N) subsidy on imported petroleum products.
- Engender transparency in the purchase of all refined products by publishing purchases and reconciling the amounts against consumption figures.
- Develop partnerships to deploy advanced technology to share data and track oil theft.
- Increase the participation of Nigeria in the Extractive Industries Transparency Initiative (EITI).
Improving financial management
After corruption, waste and mismanagement of public funds are the biggest drains on the economy. Even before the present economic downturn, reducing them had become imperative. For years, recurrent expenditure had been at 70 - 80% of the national budget with emoluments of senior public officers being the major expenditure heads.
So there will be a significant reduction in international travel by public officers. We will ensure that public officers travel only when absolutely necessary and, when they do, there will be a restriction placed on classes of travel.
In addition, the Federal Ministry of Finance has now established an Efficiency Unit to monitor all ministries, departments and agencies. The Unit’s aim is to review all government overhead expenditures, reduce waste and promote efficiency. We shall also vigorously enforce the Public Procurement Act to ensure that due process is followed in government procurements (Bureau of Public Procurement 2012).
Following decades of a lack of oversight over government revenues, receipts and income flow, we have recently reverted to constitutionalism and consolidated all government accounts into a Treasury Single Account maintained by the Central Bank of Nigeria. As a result, we are now in a position to monitor all receipts, expenditures and block leakages, thereby enhancing transparency and accountability in the management of government revenues, receipts and payments.
We will run a leaner Government, reducing the number of ministries and reviewing the proliferation of parastatals and agencies. Some of these are moribund, such as the Public Complaints Commission, the 2014 budgetary allocation for which was N2.927 billion – all of it was spent on salaries.
Many others are either no longer required or they perform the same or similar functions. These include the National Office for Technology Acquisition and Promotion, with its 2014 budget allocation of N466 million to boost locally generated technology. In the same vein, the Nigeria Information Technology Development Agency had a 2014 budget allocation of N339.01 million to develop information technology.
Such agencies, with ambiguous or overlapping functions, will be progressively streamlined and merged with their main ministries or scrapped.
I will conclude by reiterating that the immediate and long- term benefits of curbing corruption in Nigeria are pretty obvious to us. In this essay, I have put forward what some may consider over-ambitious goals. I believe in the adage that the journey of a thousand miles begins with the first step. I have the will to take this first step. And with sustained effort, we shall reach our target of freeing-up sufficient funds to accelerate the development of critical infrastructure such as railways, roads and power; invest in health and education consistent with the United Nations Sustainable Development Goals; pursue our social programmes such as skills acquisition and poverty alleviation; and create an enabling environment for the diversification of our economy, with investments in agriculture, solid minerals, petrochemicals and allied industries.
These outcomes will encourage local and foreign direct investments, job creation, and reductions in poverty, crime and insecurity. As Sarah Chayes has observed, “Corruption has helped fuel most of the serious crises the world has witnessed in the past decade. It swells the ranks of terrorist movements, weakens local opposition to them, facilitates their activities and hollows out militaries tasked with combating them. It sparks angry protests that can turn into revolutions with unknown second and third order effects such as those in the Arab world in 2011” (Kirkpatrick 2015).
It is therefore in our national interest, and that of the international community, to fight corruption not only within national boundaries but also globally, through concerted international action.
Bureau of Public Procurement. 2012. Bureau of Public Procurement. Available online.
Ezekwesili, O. 28 August 2012. Corruption, National Development, the Bar and the Judiciary. Abula: 52nd Annual General Meeting (AGM) of the Nigerian Bar Association.
Federal Ministry of Justice. 2015. Administration of Criminal Justice Act 2015. Available online.
Greenspan, A. 24 September 2007. Alan Greenspan vs. Naomi Klein. Democracy Now! Available [online] (http://www.democracynow.org/2007/9/24/alan_greenspan_ vs_naomi_klein_on).
Independent Corrupt Practices Commission (ICPC). 2016. The Establishment Act. Available [online] (http://icpc.gov.ng/the-establishment-act/).
International Centre of Nigerian Law (ICNL). 1999. Constitution of the Federal Republic of Nigeria 1999. Available online
Kar, D. and Cartwright-Smith, D. 2010. Illicit Financial Flows From Africa: Hidden Resource for Development. Washington DC: Global Financial Integrity. Available [online] (http://www.gfintegrity.org/storage/gfip/documents/reports/ gfi_africareport_web.pdf).
Kirkpatrick, J. 30 September 2015. Interview – Sarah Chayes. E-International Relations. Available [online] (http://www.e-ir.info/2015/09/30/interview-sarah-chayes/).
Transparency International. 2013. Global Corruption Barometer. Available [online] (http://www.transparency.org/gcb2013).
Transparency International. 2016. Corruption by Country – Nigeria. Available [online] (https://www.transparency.org/country/#NGA).
United Nations Economic Commission for Africa (UNECA). February 2015. Track it. Stop it. Get it: Report of the High Level Pane on Illicit Finance Flows from Africa. Africa: UNECA. Available [online] (http://www.uneca.org/sites/default/files/PublicationFiles/ iff_main_report_26feb_en.pdf).
United Nations – Office on Drugs and Crime (UNODC). 2015. United Nations Convention against Corruption: Signature and Ratification Status as of 1 December 2015. Available [online] (https://www.unodc.org/unodc/en/treaties/CAC/signatories. html).
United Nations – Office on Drugs and Crime (UNODC). 2016. UNODC’s Action against Corruption and Economic Crime. Available online.
US Department of Justice. 11 February 2009. Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery Charges and Agrees to Pay $402 Million Criminal Fine. Available online.
US Department of Justice. 23 September 2015. Foreign Corrupt Practices Act. Available [online] (http://www.justice.gov/criminal-fraud/foreign-corrupt- practices-act).
Wallis, W. 26 May 2015. Nigeria: The big oil fix. Financial Times. Available [online] (http://www.ft.com/cms/s/0/be2a72de-f30f-11e4-a979- 00144feab7de.html#axzz3yeg9x1Nz)
World Bank. 12 January 2016. GDP per Capita: Nigeria and Singapore (1960–2014). Available [online] (https://goo.gl/LNl6ez).
Yew, L. K. 2000. From Third World to First, The Singapore Story: 1965–2000. UK: Harper Collins.
9. President Ashraf Ghani: Driving corruption out of procurement
The moral outrage that many feel about corruption and the devastation it wreaks blinds us to its pervasive nature. But it is imperative we recognise that, in a number of countries, corruption is not an aberration within an otherwise well- functioning system of public governance. It is part and parcel of the system itself – reinforced by the fragmented nature of these countries’ governments, producing predictable, self- perpetuating costs for national development.
If we’re to tackle corruption effectively, we must identify and understand the systemic drivers that enable corrupt practices to thrive and reproduce. This essay argues that corruption is, at its core, a failure of individual and institutional accountability that allows officials to divert public resources from their intended uses.
But if the problem to solve in a country like Afghanistan is a lack of accountability, the actions needed to change it must overcome the fact that the government institutions, which are expected to carry out the reforms, are themselves highly fragmented. Reforms from outside the system can make some progress, but fragmentation means that these reforms will always be partial and temporary. In fragmented systems, only strong, national political leadership can tackle corruption at its roots. This is because only the top political leadership can look across the different arenas and ministries where corruption happens, in order to provide an effective agenda for reform. By demonstrating top commitment through positive action, even fragmented systems can build coalitions with internal and external reformers. But somebody must open the door.
9.2 Classifying accountability
The countries that occupy the bottom reaches of world anti- corruption standards are frequently characterised by deeply fragmented systems of state accountability. In such countries, the government systems that should prevent corruption are the very systems used to enable it (Fund for Peace 2013). This includes core operations such as procurement, financial management, recruitment, audit, legislation and justice.
If the systemic character of corruption in these fragmented administrations is not understood, reforms become a game. Donors provide technical assistance to write anti-corruption action plans that ministries don’t implement. Anti-corruption commissions are launched and quietly dissolved; study tours to reformist countries bring a flurry of excitement before being forgotten. None of these exercises make a serious dent in the fundamental problem of institutionalised corruption, because they assume that corruption can be tackled by suppressing its symptoms and they thus fail to address its structural drivers. Although some sections of the government may indeed be committed to reform, frequently they are kept there for appearances only, not to achieve any actual progress in the fight against corruption.
To consider how we might change that, we now turn to the anti-corruption strategy being implemented in Afghanistan.
9.3 Reforming corruption in fragmented accountability systems: the case of Afghanistan
By any measure, Afghanistan is one of the most corrupt countries on earth. Fifty years of near constant conflict have destroyed both social and institutional controls. The flood of money that poured into the country for reconstruction after the overthrow of the Taliban in late 2001 further fragmented and reduced its systems of accountability.
When the Government of the Islamic Republic of Afghanistan took office in October 2014, we were united in our commitment to bring an end to corruption and the impunity that surrounded it. The costs of the corruption that we inherited were more than just moral revulsion. They had significant effects on national development. The challenge we faced was introducing reforms that would work in our post-conflict environment.
The departure of the international forces between 2012 and 2014 meant that the large volumes of financial support that accompanied the troops came to a sudden end. Government and donors agreed that the apparatus of corruption that had formed around the allocation of aid funding meant that, without reform, it would be impossible to switch into a private sector led growth strategy. Endless bribery would keep Afghanistan uncompetitive and poor.
As a country threatened by both internal violence and external attacks, establishing the government’s legitimacy is vital to maintain social order. But a history of state corruption has undermined the citizenry’s belief that government courts could credibly dispense justice; that government police would provide order; and that government agencies would represent the public’s interests fairly, rather than just hand out licences to rich bidders (Asia Foundation 2014).
9.4 Diagnosing where corruption happens
Just as long-distance travellers benefit from having a well-defined roadmap to reach their destination, our anti-corruption strategy began by mapping out the landscape of corruption in Afghanistan. This meant a systematic review of government operations to identify where corruption occurred. We found that state-sponsored corruption was everywhere. Particular areas of concern were:
Land grabbing Whereas in traditional Afghan society and under Islamic law, clear property rights provide strong social protections, land grabbing in Afghanistan had turned property into a source of discord, distrust and exclusion. As a result of land grabs, the private sector was denied access to property for investment, while the poor were driven into substandard and insecure housing.
Government appointments People widely believe that appointments to the government are secured through patronage and payment. The Ministry of Finance informed the Cabinet that national revenue could be doubled if civil servants were not paying back the costs of their appointments.
Banking The Kabul Bank became the emblem for the looting of public resources. Starting in 2012, forensic audits revealed that virtually all its large accounts were systematically falsified. Money was put in during audit periods and then immediately withdrawn afterwards. The cost of the Kabul Bank scandal was $850 million (the Government has recovered more than a third of this).
Customs Afghanistan has always relied on customs fees. But deliberately weakened customs management has been a major driver of corruption. Afghanistan’s Central Statistics Office records approximately $1.1 billion in imports from Pakistan – but statistics from Pakistan report $2.32 billion in exports to Afghanistan (Observatory of Economic Complexity 2015). Nor does the bribery stop at the border. Studies of transport routes reveal that over a 100-mile stretch there can be as many as 12 posts, each demanding bribes.
Natural resource exploitation Afghanistan is developing the early symptoms of the resource curse, the syndrome whereby rich natural resources, which could in principle make a poor country well off, instead end up becoming a locus for corruption and the capture of that natural wealth by small elites. The worst manifestation is in mining, where corrupt licensing and procurement produce rapacious and destructive mining practices.
Smuggling and narcotics As with the drug trade everywhere, regional and global networks make the illicit economy a significant driver of corruption. More recently, violent and dangerous narcotics smugglers have expanded their field of activity to cover human trafficking and control over irregular migration from Afghanistan to Eurasia.
9.5 Corruption, procurement and reform
There is no quick fix to end this type of systemic corruption. However, we can see some ways forward if we look beneath the surface of where corruption happens to the processes by which government can abet or control corruption.
In Afghanistan, instead of being the systems for government accountability, procurement, financial management, recruitment, audit, legislation and the administration of justice have become the drivers that explain how corruption persists. Within a fragmented system like this, a reformist government can only turn its commitment to reform into practical action if it rebuilds those systems from the inside out.
To demonstrate how that can work in practice, the remainder of this paper will explore the Afghan Government’s efforts to reform the procurement process.
At its most basic, public procurement is how the government uses competition to get the public the best value at the lowest cost. Reforming how governments go about buying goods and services may not seem an especially exciting place to start systems reform, especially when compared with high-profile prosecutions or investigative reporting and publication. But procurement lies at the heart of what governments ‘do’. Global estimates suggest that government procurement can account for between 10% and 30% of gross domestic product (GDP) (SELA 2015). And when public procurement is infected by corruption, the effect on government performance and value to the taxpayer is catastrophic.
Procurement in Afghanistan has traditionally exhibited all the symptoms of a fragmented and corrupt system of government accountability. Forensic reviews repeatedly show a systematic rigging of competitive bidding, usually through the inclusion of non-existent companies to give the appearance of competition when there is in fact none. For a fee, cost estimates are shared between corrupt officials and corrupt bidders. Rules to block conflicts of interest are routinely subverted by companies owned by the relatives of high-ranking officials whose only ‘business’ is to provide access.
Not all corruption in procurement takes place behind the scenes. Threats of violence, kidnapping and bribery are used to force legitimate competitors to withdraw or alter their bids. Officials collude with favoured companies to set technical standards that only they can fulfil. Corrupt practices do not end at contract negotiations. Manipulating procurement so that low-quality goods are delivered rather than the higher-quality supplies that were procured and invoiced is a pervasive practice that leads to collapsed infrastructure, massive overcharging and poor-quality services. Procurement therefore provides an acid test of whether the new Government’s commitments to bring about systemic change will really be backed by political will and structural change.
The two key reforms in the first stage of the Afghan Government’s strategy are the formation of a National Procurement Council (NPC) to review all high-value contracts and the consolidation of construction contracts through two specialised agencies.
Centralising procurement was not the only route to reform open to us, but it enabled us to tackle the structural issues that allowed corruption to thrive. Reforming corruption ministry by ministry was not only far beyond the limited capacities of the Government, but it would also have left untouched the underlying incentives that drove this corruption in the first place. Only through sustained top- level oversight to create the accountability needed, combined with technical expertise, could we ever hope to change the bureaucratic culture.
9.6 Building the machinery of reform
To underscore the top-level commitment of the national leadership to bring corruption to an end, the NPC is chaired by me, the President of the Islamic Republic of Afghanistan. Afghanistan’s chief executive officer, the second vice- president and the ministers for finance, economy and justice also attend the weekly council meeting. Such high-levelparticipation is needed not just to send a symbolic message to the country at large, but also to present a unified front to the entrenched interests within the government itself that will resist reforms.
We are supported by an Office of Procurement staffed by Afghans who have been trained in professional procurement and who have the specialised expertise needed to understand the details of bids. Because such a large share of the Afghan budget is spent on security, the Government also gets technical support from the NATO military command to help review military contracts.
Public transparency is built into the process. Our weekly procurement review meetings include a representative of Integrity Watch (an international non-governmental organisation [NGO]), the US’s special oversight expenditure review body (SIGAR) and a rotating member of the Afghan Parliament’s Caucus on Integrity. Minutes of our meetings and all decisions are placed on an updated, publicly accessible website (Government of Afghanistan 2016), and our team provides regular briefings for journalists, donors and the Afghan media. Transparency has enabled us to begin to build trust in government.
The first major test of our work came in the security sector. Civil society and whistle-blowers had made serious allegations over a $400 million fuel contract awarded by the outgoing Government’s Ministry of Defence. In response to these allegations, the bid was reopened. A preliminary review found credible evidence of malfeasance. We suspended the contract and appointed a high-level commission of inquiry to review this and an additional nine major fuel contracts. The commission’s report revealed widespread subversion of the law. Unfortunately, a response was not going to be as simple as suspending the contract and starting over. Continuing the contract would have meant accepting the corruption. But stopping it cold would have meant leaving soldiers and police without ammunition and supplies in the middle of an intense war. This is a strong example of how corruption in procurement can have detrimental consequences for national security and the safety of our people. Given this dilemma, what were we to do?
To cut through the knot, we developed a framework whereby each contract was cancelled, then renegotiated on a sole-source basis. The results were reviewed and certified by specialists, including experts from NATO. The NPC then re-examined each case to confirm that the results met procedural and value-for-money standards, and the results were placed on its public website.
The same framework is now being applied to the Ministry of Interior. Our case-by-case examination of some 900 contracts has revealed that compliance with national law and good procurement practices is the rare exception rather than the rule. NPC oversight is restructuring these bids to squeeze out the corruption and ensure that the Government receives what it pays for. Our best estimates are that this system has saved the Government at least $350 million in its first year of operation.
Presidential hands-on management of the national procurement authority is meant to send the message to our people of the Government’s commitment to reform. But it is also a temporary measure, triggered by the need to restore credibility. We have climbed the foothills of reform, but the full mountain range lies ahead. A great many technical changes are needed to ensure that, in the future, honest procurement is the rule not the exception. Now that the political door has been opened to reform, internal and external reformers can embed a great many more changes across other government operations such as publishing contracts, benchmarking bids against known unit costs and reviewing procurement rules.
Better oversight and detailed reviews of processes can address corruption when and where it occurs, but it will not change the underlying structures that enable it. For that to happen, we must make the entire government system invulnerable to exploitation and manipulation. This is a significant challenge for us. Tackling the reform of large-scale procurement is technically complex. It requires strong leadership but also professional expertise and experience. Furthermore, the structure of aid partnerships in Afghanistan has meant that each ministry has built up its own project- financed wing for procurement and construction – another example of how fragmentation allows corruption to emerge.
Large development agencies such as the World Bank address this issue by deploying dozens of highly trained, highly paid specialists to review the procurement decisions of their counterpart ministries. Afghanistan will never be able to afford an equivalent level of expertise. We need an entirely different model of how procurement happens.
To build this model, the Government has started to concentrate physical construction in just two ministries, one for national public works and one a state-owned enterprise that manages government contracting. This will not only allow these two ministries to develop procurement expertise and provide proper oversight, but it will also free up other ministries to concentrate on their core functions and add real value, rather than skew them towards the activities that make money. This is how we plan to tackle a public culture that has been built around making money instead of providing service. For example, the education ministry can improve the quality of teachers and student learning instead of lobbying for more school construction. The health ministry can focus on reducing Afghanistan’s appalling maternal mortality rates rather than dreaming about building ever more clinics that lack trained staff and proper supplies.
9.7 Complementary reforms
The Government is not so naive as to think that reviewing contracts and concentrating construction in two central agencies alone can end corruption. Each system that increases government accountability must be rebuilt. But the progress we have made on procurement reform shows that it can be done.
What comes next? Even with improved planning, clearer rules and heightened oversight, corruption will keep occurring until the likelihood of punishment reaches a level that makes officials decide that it is no longer worth the risk.
Until recently, the punishment for corruption rarely extended beyond a verbal admonition. Fiduciary oversight was in any case largely left to the donor agencies. Our next task then is to make sure that punishments fit the crimes: reform must move to the courts, the judges, the police and the prosecutors.
Here we can frankly admit that progress is slower than we expected. The Government has not been able to move as quickly on justice sector reform as it would have liked. Justice reform is particularly difficult, because a balance must be struck between maintaining the independence of the judiciary and finding ways to reform what itself has become a core driver of institutionalised corruption.
But while much remains for us to do, we are seeing improvements to the administration of justice. Government’s actions are beginning to end the regime of impunity that protected high-level culprits. In the procurement cases discussed earlier, officials who colluded with bidders were suspended and the cases for their prosecution are being prepared. Personnel actions are similarly being used to transfer officials away from positions susceptible to bribery. Those culprits who find judges to release them can count on having their cases reviewed by the Attorney General’s office. But accelerating the pace of justice sector reform is clearly the Government’s next frontier.
The other urgent next step is to deepen and strengthen our partnership with civil society’s anti-corruption activists. Our experience shows that, to have any real chance of success fighting corruption in a post-conflict society, top- level engagement and strong accountability are needed to signal that the necessary local and national will to fight corruption exists. The more that Afghanistan’s people believe that the Government is taking reform seriously, the more the Government can count on whistle-blowers and an investigative media to end the atmosphere of impunity on which a culture of corruption thrives.
Over time, more and more ministry decisions and actions on budgets, contracts and expenditures will be made public and actively disseminated through traditional and modern media. Accepting citizen feedback and monitoring must become a core part of how the government conducts its business. As with procurement, top-level leadership is needed to crack open bureaucratic resistance, after which internal and external reformers can push forward a corruption reform programme of actions. But that first step remains critical.
This paper has argued an approach for how states can achieve transformational change in the fight against corruption, using procurement in Afghanistan as an example.
Firstly, it shows how top-level political commitment, an electoral mandate to end corruption and government actions can together enable a series of practical actions to bring about national level reform. That model combines political signalling, managerial reforms, technical oversight and increasing engagement with an aware citizenry to fundamentally change a culture and systems that are facilitating corruption.
Secondly, it details how successful high-level reform strategies need to begin with the understanding that corruption is not a phenomenon in and of itself, but the result of fragmented regimes that lack accountability. During the war in Afghanistan, responsibility for unprecedentedly large amounts of money fell to diverse control systems, none of which had the capacity or reach to compensate for the lack of state-managed oversight. Overcoming fragmentation could only begin from the top.
This is not the only route that countries can follow. But the Afghan Government’s procurement reforms offer many valuable lessons for how to bring an end to corruption in development. Procurement everywhere accounts for a very large share of government expenditure, but in post- conflict or post-disaster countries there will always be a sudden surge of new procurement into systems without the experience to manage it. Fragmentation is built into the reconstruction process. Properly managed reform, with high- level oversight, closes down opportunities for corruption and aligns procurement designs with the institutional capacities needed to control corruption.
Procurement is especially interesting, because it is an area where governments must have the political acumen and will to navigate the trade-offs that reform will entail. Governments cannot just stop procurement while they fix the system. As the Afghan case study shows, simply stopping the procurement of obviously flawed fuel contracts in the middle of a war would have meant losing the war. But, because the governance structures were in place to allow for a sufficiently senior level of decision making, an alternative arrangement could be developed.
Afghanistan has only just started implementing the fully fledged reform needed to root out corruption. It took decades to build up a system that systematised corruption at every level. It will be many years before the Government can claim success. But the strategy and roadmap for reform are clear, and the first round of hurdles has already been passed.
Government corruption has driven a three-decades-old conflict. Corruption has blocked Afghanistan from being self-reliant and free. And corruption has wasted a vast amount of precious resources that could otherwise have been spent reducing Afghanistan’s crushing levels of poverty. Afghanistan’s citizens voted for a Government that would have the courage and commitment to break the cycle of corruption. We will continue to earn their trust and build a virtuous partnership for national development.
Asia Foundation. 2014. A Survey of the Afghan People. San Francisco: Asia Foundation. Available online
Fund for Peace. 2013. Fragile States Index. Washington DC: FFP Publications. Available online
Government of Afghanistan. 2016. Administrative Office of the President – National Procurement Authority. Available online
Observatory of Economic Complexity. December 2015. Country profile: Afghanistan. Available online
SELA. 2015. Public Procurement as a Tool for Development in Latin America and the Caribbean. Caracas: SELA.
10. Prime Minister John Key: New Zealand: a culture of fair play
It says a lot about the New Zealand psyche that one of the most notorious acts in our sporting history involved an underarm cricket delivery.
New Zealand needed six from the last ball to tie a 1981 one-day match against Australia when Trevor Chappell strode to the crease and rolled the ball down the pitch.
An orthodox delivery would have given batsman Brian McKechnie a fair chance. The underarm version did not. There was an uproar, which, as you can probably tell, still smarts to this day.
The reaction might have been outsized, and I have no doubt Chappell is sick of hearing about it, but it was telling.
The ploy went against one of the most intrinsic aspects of our national character – a sense that we all deserve a fair crack and that we must do what is right.
It is ingrained in our psyche – we are a fundamentally honest people.
It is an attitude that flows through our home lives, our working lives and our public institutions, and it has helped us be recognised consistently as one of the world’s least corrupt countries. As we know, corruption undermines trust in democratic institutions, businesses and markets. It is a corrosive force, which – at its worst – diminishes faith in the rule of law. All of this impacts on economic and social development, distorting the playing field, making it harder for fair-minded people to prosper and for a country to support its most vulnerable.
New Zealand is uniquely placed to protect itself from corruption and to work with its neighbours to combat it in their countries. We are a multicultural, outward-looking trading nation of just 4.5 million people, a long way from the markets where we sell our goods and services, and reliant on the rule of law in the places we sell them to. In order to prosper, we have always needed not just to be good at what we do but also to be honest in how we do it.
10.1 Our constitutional arrangements
We have built our legal and constitutional settings around our sense of fair play, enshrining it through more than 170 years of case law and political practice. So, while it is based on the Westminster system, our unwritten constitution has evolved in a pragmatic way. We tend to fix things when they need fixing, ‘without necessarily relating them to any grand philosophical scheme’ (Constitution Arrangements Committee 2005). And there is a strong sense that it operates effectively because of our sense of fairness. A good example of that is our ongoing recognition of the historical injustices perpetrated on Māori by the Crown through land seizures, Treaty of Waitangi breaches and other injustices (Ministry of Justice 2016a).
The Treaty of Waitangi is a founding document of New Zealand. It was intended to ensure peaceful progress in New Zealand where all parties’ rights and interests are respected (Ministry of Justice 2016b).
But the Treaty was not always honoured by the Crown. Successive governments have endeavoured to acknowledge those injustices through the return of land and resources, and through the delivery of apologies on behalf of the Crown.
Today this process takes place largely with near-universal public and political support, because it is the right thing to do.
It is this same embedded sense of fair play that makes it difficult for corruption to take hold in New Zealand. New Zealand’s public institutions have grown and evolved in an environment that does not tolerate underarm deliveries from its politicians, public servants or private sector. As Prime Minister, I am particularly well aware of that. I am regularly held to account not just in Parliament and in the media, but by everyday New Zealanders who are never shy to tell me of any issue that they have with my Government’s performance. That is how it should be.
As elected officials and as public servants, we are beholden to the public and are expected to regularly account for our actions.
New Zealand’s highly professional public service is expected to act in accordance with the law, to be imbued with the spirit of service to the community and to give free and frank advice to ministers.
The public service is politically neutral. That neutrality means that the Government, Parliament and the public can trust advice given by officials. Merit-based appointments, made on the recommendation of the State Services Commissioner, help ensure that senior public servants do not owe their jobs and their loyalty to any politician or political party. This culture, which has been enshrined in law, ensures that even as governments and ministers change, a professional body of experts is always on hand to deliver on the agenda of the elected government.
10.2 Scrutiny of government action
As is often said, the best disinfectant is sunlight. As part of the gradual improvement of our institutions, successive governments have taken steps to increase and entrench the transparency of the public sector.
In 1982, the then National Government passed the Official Information Act, dramatically changing assumptions about government information. The law means that ministers and officials have to provide any official information requested unless there is a compelling reason not to (Ministry of Justice 2015a). While there is always a degree of tension about where the line should be drawn, the oversight of the Office of the Ombudsman ensures that openness is maintained. (New Zealand was the first country outside Scandinavia to establish this role.)
Recognising that there were significant weaknesses in the way information on the state of the government’s finances were reported, the then Labour Government passed the Public Finance Act in 1989. This requires government to operate transparently and provide regular public reporting of its accounts (Ministry of Justice 2015b). For the past 25 years, this legislation has ensured that governments present an accurate picture of the public finances and the fiscal consequences of their policies.
As Prime Minister, I have taken steps to ensure greater transparency by, for example, proactively publishing details of spending on ministerial credit cards. Ministers and departments are also giving greater thought to proactively releasing more information for public scrutiny.
New Zealand has a range of independent bodies set up to audit and deal with allegations of corruption and misconduct. The Independent Police Complaints Authority (IPCA), the Judicial Conduct Commissioner (JCC) and the Office of the Ombudsman all have broad powers to investigate and report on the conduct of public officials. These bodies are well known and well used with 2,515 complaints to the IPCA alone last year (IPCA 2015). This independent oversight helps maintain public trust in our institutions, with 78% of New Zealanders surveyed reporting that they have trust and confidence in the police (Gravitas 2015).
Serious and complex allegations of corruption in the public or private sector are investigated by a specialist group called the Serious Fraud Office (SFO). The Director of the SFO has complete independence when it comes to operational decisions, while the SFO and New Zealand Police work closely together in the fight against fraud and corruption, and ensure that specialist knowledge and expertise can be used and information shared.
The police and SFO are further enabled by legislation, which ensures that all of New Zealand’s bribery and corruption offences apply both domestically and extra- territorially (Ministry of Justice 2013). This means that the SFO can bring a case against New Zealand citizens, residents and companies for acts of bribery and corruption that occur wholly outside of New Zealand.
Another important aspect is a free and independent press. As Prime Minister, I front the media almost every day, sometimes several times, on issues of the day. Questions will range from the performance of my Executive and MPs, to New Zealand’s position on international affairs and domestic policy, to what I had for breakfast.
My Government is well aware of the importance of fronting up, and of the fact that our media and the public would expect nothing less. They demand accountability and answers.
The upshot is that I, along with other ministers, am forced to defend every decision and mistake we make and every dollar we choose to spend or save.
Colleagues and staff are aware of what is expected of me and I have no doubt that they have no interest in seeing the Prime Minister having to defend an issue that they have caused.
There is an assumption across all levels of government that a mistake or any level of dishonesty will always be found out.
While mistakes happen and will usually be forgiven by reasonable people, corruption and cover-ups are never tolerated.
10.3 New Zealand’s support for anti-corruption in the Pacific region
Given the clear benefits that a low-corruption environment can have on economic growth and quality of governance, fighting corruption has been a key plank of New Zealand’s international development policies. As the only country outside northern Europe to regularly feature at the top of Transparency International’s (TI) Corruption Perceptions Index (CPI), we are well placed to assist other countries in fighting corruption (Transparency InternationaI 2015).
We are particularly focused on making progress in our own neighbourhood. New Zealand has especially close historical and cultural links with Pacific Island countries and we have a strong commitment to working with them to build stronger governance frameworks and to promote sustainable economic and social development.
While auditing doesn’t sound like a glamorous nation- building activity, it is a critical part of ensuring that governments are spending public money responsibly and effectively. New Zealand is working with Pacific Island countries to ensure that they complete regular and timely financial audits of public accounts to help improve transparency and accountability. The number of audits completed in Pacific Island countries over the past five years has more than doubled (PASAI 2015).
Promoting the importance of accountability in the eyes of the public has led to growing awareness of the role of auditing in holding government institutions to account. More public office holders are being held to account for their misconduct and misuse of public funds (PASAI 2015).
A high standard of public accountability is a critical element in preventing a culture of corruption from developing or taking hold. As we know from our own experience, when the public won’t tolerate corruption and have an expectation that their officials will be held to account, those in positions of power are less likely to abuse it. So the higher the standard of probity and accountability that figures in authority are held to, the more likely we are to prevent corruption and to detect and prosecute it when it occurs.
10.4 Public financial management
Corruption is far more easily prevented and detected when a country has modern and transparent financial management systems. The New Zealand Aid Programme supports a series of initiatives in co-operation with our Pacific partners, designed to enhance economic governance (Ministry of Foreign Affairs and Trade 2015a). That work is helping to strengthen border management systems and levels of accountability in a key area of revenue collection (Oceania Customs Organisation Secretariat 2016).
New Zealand also provides support to Samoa, Kiribati and the Cook Islands, linked to reforms including improvements to public finance systems, better public procurement, stronger and more independent audit, and greater accountability and oversight of state-owned enterprises. Further support has assisted Samoa and the Solomon Islands to reform and modernise their revenue systems (Ministry of Foreign Affairs and Trade 2015b).
Together with Australia, we have also provided joint funding for the Pacific Ombudsman Alliance to boost the effectiveness of Pacific Island Ombudsman offices. This has increased their ability to investigate complaints of maladministration by those in the public sector (Walter and Gordon 2013).
Pacific leaders also recognise the crucial role that civil society has to play in fighting corruption with advocacy, education and community-focused outreach. For close to a decade, the New Zealand Aid Programme has provided support to TI chapters in Fiji, Papua New Guinea, the Solomon Islands and Vanuatu. Our support has focused on efforts to improve the culture of transparency through initiatives such as ethics training for law enforcement agencies (Ministry of Foreign Affairs and Trade 2015a).
10.5 The justice system
Sustainable economic and social development is almost impossible without capable and independent courts and law- enforcement agencies. These give people confidence that the law is enforced fairly and free from political influence. Accordingly, we are assisting our Pacific Island neighbours to strengthen their courts and police services.
Five years ago, we began supporting the Pacific Judicial Development Programme (PJDP) with Australia. This is focused on strengthening the professional competence of Pacific Island judicial officers and the court systems they use (PJDP 2015).
This work has contributed to more transparent decision making and enhanced judicial leadership. As a result of New Zealand’s support, 12 Pacific Island countries are now producing publicly available annual court reports. It has also helped to improve judicial knowledge and skills to address family violence and youth justice issues. New Zealand provides ongoing mentoring for Pacific judges, and funding to attend judicial conferences and other training opportunities through the Judicial Pacific Participation Fund (JPPF) activity (JPPF 2016).
New Zealand also sends a number of its own judges on request to preside in courts across the Pacific – for instance, in Vanuatu (Ministry of Foreign Affairs and Trade 2016).
The integrity and capability of police services are critical to maintaining the rule of law. The overwhelming majority of New Zealanders have tremendous respect for our police because we know they can be trusted to treat us fairly and in accordance with the law. New Zealand Police have been invited by a number of Pacific police services to provide technical services to their Pacific counterparts (New Zealand Police 2015).
New Zealand Police provide training and mentoring across the Pacific in prosecutions, community policing, human rights, ethics, leadership and road policing. These kinds of interventions build public trust in the police and add to a culture of service, which is the front line against corruption (New Zealand Police 2015).
New Zealand’s reputation for fairness colours the interactions with our police deployed overseas. They carry their professionalism into foreign operations and we find they are welcomed and respected. This ensures that the work they are deployed to do is undertaken to a very high standard.
10.6 Staying ahead of corruption
As a country with solid anti-corruption foundations and a long history of assisting our neighbours in building their own anti-corruption capacity, the most significant risk we face is complacency. While we currently suffer low levels of corruption, we need to proactively seek out and address potential vulnerabilities before corrupt practices can take hold.
With that in mind, in 2014, the Government moved to address a weakness in our companies’ registration laws. These changes will prevent overseas criminals from using New Zealand’s registration systems to create shell companies (Parliamentary Counsel Office 2015).
We also draw on the expertise of civil society and the private sector in the fight against corruption. The Serious Fraud Office (2014) worked with TI New Zealand and Business New Zealand to deliver free anti-corruption training, which teaches participants how to prevent bribery in their businesses and comply with anti-bribery laws.
Recognising the importance of sport in our culture and the huge scope for corrupt sporting practices, we passed a law in 2014 to specifically criminalise match-fixing (New Zealand Parliament 2014). The new law provides that manipulation of sporting activities with intent to influence a betting outcome is a criminal activity. Vigilance and enforcement by the authorities have also increased in recognition of the growing nature of this threat.
Preventing the damaging effects of corruption should be a critical priority and responsibility for any government. Politicians and public servants have to focus on building and maintaining strong, independent institutions to guard against corruption, as well as promoting a culture that makes it close to impossible for corrupt individuals to prosper or escape detection.
As a country, we take great pride in our track record. But we know we must remain committed to ensuring that corruption does not gain a foothold, and open to views on how to prevent it. As a small part of an increasingly connected international community, we must be open to sharing our successes and our failures in order to stamp out corruption for good.
Constitutional Arrangements Committee. 2005. Inquiry to Review New Zealand’s Existing Constitutional Arrangements: Report of the Constitutional Arrangements Committee. Wellington: New Zealand House of Representatives, p.12.
Gravitas Research and Strategy Ltd. 2015 (updated 2016). New Zealand Police Citizens’ Satisfaction Survey. New Zealand: Gravitas, p.4. Available online.
Independent Police Conduct Authority (IPCA). 2015. Annual Report 2014–2015. Wellington: IPCA, p.4. Available online.
Judicial Pacific Participation Fund. 2016. Welcome to the Judicial Pacific Participation Fund. Available [online] (http://jppf.org.nz/welcome/).
Ministry of Foreign Affairs and Trade. 2015a. New Zealand Aid Programme Strategic Plan 2015–19. Available online.
Ministry of Foreign Affairs and Trade. 2015b. New Zealand Foreign Affairs and Trade – Annual Report 2014–15. Available online.
Ministry of Foreign Affairs and Trade. 2016. Aid Partnership with Vanuatu. Available [online] (https://www.mfat.govt.nz/en/aid-and-development/our- work-in-the-pacific/vanuatu/).
Ministry of Justice. 2013. Relevant Anti-corruption Legislation. Available [online] (http://www.justice.govt.nz/publications/global- publications/s/saying-no-to-bribery-and-corruption- 2013-a-guide-for-new-zealand-businesses/relevant-anti- corruption-legislation).
Ministry of Justice. 2015a. Official Information Act 1982. Available online.
Ministry of Justice. 2015b. Public Finance Act 1989. Available online.
Ministry of Justice. 2016a. Waitangi Tribunal. Available online.
Ministry of Justice. 2016b. The Treaty of Waitangi. Waitangi Tribunal. Available [online] (http://www.justice.govt.nz/tribunals/waitangi-tribunal/ treaty-of-waitangi).
New Zealand Parliament. 2014. Crimes (Match-fixing) Amendment Bill. Available online.
New Zealand Police. 2015. International Service Group. Available online.
Oceania Customs Organisation Secretariat. 2016. Oceania Customs Organisation Secretariat. Available [online] (http://www.ocosec.org/).
Pacific Association of Supreme Audit Institutions (PASAI). 2015. Annual Report for Year Ended 30 June 2015. Available online.
Pacific Judicial Development Programme (PJDP). 2015. The Programme. Available online.
Parliamentary Counsel Office. 2015. Companies Amendment Act 2014. Available [online] (http://www.legislation.govt.nz/act/public/2014/0046/latest/ DLM4094913.html).
Serious Fraud Office. 10 June 2014. Helping New Zealand’s Fight Against Corruption. Available online.
Transparency International. 2015. Corruption Perceptions Index 2015. Available online.
Walter, G. and Gordon, J. 2013. Independent Review of the Pacific Ombudsman Alliance. Available [online] (https://www.mfat.govt.nz/en/aid-and-development/our-approach-to-aid/evaluation-and-research/evaluation- reports-2013).
11. Prime Minister Lee Hsien Loong: Success in combating corruption – views on the Singaporean experience
Corruption is a scourge that can never be tolerated. Countries have tried all ways to combat it. They create anti-corruption agencies. They pass strong laws. They promulgate codes of conduct for public officials. Companies pledge to conduct business cleanly. Yet often corruption remains endemic, a cancer in the society. How then has Singapore achieved some measure of success in eradicating corruption? I put it down to four factors.
First, we inherited a clean and working system from the British colonial government. We had many compelling reasons to want to end colonial rule and to be masters of our own destiny. But to their credit, the British left Singapore with a working system and sound institutions – English laws, a working Civil Service, and an efficient and honest judiciary. Importantly, the Colonial Service officers upheld high standards. People like Sir William Goode, our last Governor and first Head of State, had a sense of duty and stewardship. After Singapore, Goode served as Governor of North Borneo, now the state of Sabah in Malaysia. He left an impression in North Borneo, as in Singapore. Even a generation later, the people of Sabah still remembered him fondly.
Second, when the British left, our pioneer leaders were determined to keep the system clean. The People’s Action Party (PAP) first came to power in 1959, when Singapore attained self-government. However, it was by no means a no- brainer for the PAP to fight to win the 1959 General Election.
The country faced a myriad of problems: poverty, poor public health, an acute housing shortage, a stagnant economy and an exploding population. Did the PAP want to inherit these overwhelming problems? Why not become a strong opposition party, and let another party govern and fail?
In the end, what decided the issue for Mr Lee Kuan Yew, our founding Prime Minister, and his team, was the overriding need to prevent the public service from going corrupt. One term of an incompetent, corrupt government and Humpty Dumpty could never be put together again. So the PAP fought to win and formed the Government. When they took their oath of office, Mr Lee and his PAP colleagues wore white shirts and white trousers. It symbolised their determination to keep the Government clean and incorruptible. That set the tone for Singapore ever since.
Third, with strong political will, we institutionalised a robust, comprehensive anti-corruption framework that spans laws, enforcement, the public service and public outreach. We enacted the Prevention of Corruption Act (PCA), which puts the burden of proof on the accused to show that he or she acquired their wealth legally. Any unexplained wealth disproportionate to known sources of income is presumed to be from graft and can be confiscated.
The PCA provides for extra-territorial jurisdiction, so that the actions of Singaporean citizens overseas are treated the same as actions committed in Singapore, regardless of whether such corrupt acts have consequences for Singapore (Corrupt Practices Investigation Bureau 2016a).
Our anti-corruption agency, the Corrupt Practices Investigation Bureau (CPIB), is well resourced and independent. It is empowered to investigate any person, even police officers and ministers, and conducts public outreach to raise public awareness and shape social norms (CPIB 2016b). We pay public servants fair and realistic wages benchmarked to private sector earnings and, in return, demand the highest standards of integrity and performance.
Fourth, we have over time developed a society and culture that eschews corruption. Singaporeans expect and demand a clean system. They do not condone giving or accepting ‘social lubricants’ to get things done. They readily report corrupt practices when they encounter them. Singaporeans trust that the law applies to all and that the Government will enforce the laws without fear or favour, even when it may be awkward or embarrassing. Businesses have confidence that, in Singapore, rules are transparent and fairly applied. The story is told of a businessman who visited Singapore from an Asian country used to different operating norms. He left puzzled and disturbed that he could not discover the going rate for bribes to officers at different levels of government. He concluded wrongly that the prices must be very high!
Singapore has achieved some success eradicating corruption, but we are under no illusions that we have permanently and completely solved the problem. Corruption is driven by human nature and greed. However strict the rules and tight the system, some individuals will sometimes still be tempted to transgress. When they do, we make sure they are caught and severely dealt with. Two years ago, we charged an Assistant Director from the CPIB itself with misappropriating (S)$1.7 million.
We keep our system clean not just for ourselves, but also to uphold our international reputation. Thus we deal strictly also with those who use financial institutions in Singapore to launder money or transact ill-gotten gains from corruption.
We are zealous in protecting the integrity of our financial centre and business hub.
There is a Chinese proverb: ‘If the top beam is askew, the bottom beams will be crooked.’ Keeping a system clean must start at the very top. A Singapore armed forces officer, on a course overseas, was once asked by his classmate how Singapore kept its system clean. He explained our arrangements and the central role of the CPIB. His classmate asked a follow-up question: but to whom does the CPIB report? The Singaporean ingenuously replied that the CPIB reported directly to the prime minister. This elicited further puzzlement. Much later the Singaporean understood why. The real question he was being asked was, who guards the guardian?
There is no formula to solve this ancient riddle, but we are determined to uphold the highest standards of integrity from the top level of the Government down. In 1996, rumours spread that Mr Lee Kuan Yew and I had received improper discounts on property purchases. The Prime Minister, then Mr Goh Chok Tong, ordered a full investigation, which found that there had been nothing improper. He brought the issue to Parliament, which held a full debate lasting three days (Parliament of Singapore 1996).
Both Mr Lee and I spoke. In his statement Mr Lee Kuan Yew said, “I take pride and satisfaction that the question of my two purchases and those of the Deputy Prime Minister, my son, has been subjected to, and not exempted from, scrutiny … It is most important that Singapore remain a place where no one is above scrutiny, that any question of integrity of a minister, however senior, that he has gained benefits either through influence or corrupt practices, be investigated” (National Archives of Singapore 1996).
Trust is slow to build, but fast to lose. We have spent more than 50 years building up confidence in Singapore. The integrity of the Government, the system and the men and women in charge has been key to Singapore’s success. We are determined that that integrity and reputation must never be undermined and will long remain a competitive edge and a source of pride for Singapore.
Corrupt Practices Investigation Bureau (CPIB). 2016a. Prevention of Corruption Act, Singapore. Available online.
Corrupt Practices Investigation Bureau (CPIB). 2016b. About CPIB. Available online.
National Archives of Singapore. 21 May 1996. Statement by Senior Minister Lee Kuan Yew Nassim Jade and Scotts 28. Available online.
Parliament of Singapore. 21–23 May 1996. Purchase of Properties by Senior Minister and Deputy Prime Minister BG Lee Hsien Loong (Statement by the Prime Minister). Available online.
12. Jim Yong Kim: How to tackle corruption to create a more just and prosperous world
Corruption poses an enormous obstacle to international development and the global goal of ending extreme poverty.[footnote 21] Using public power for private gain is also unjust. It denies resources to the poor, undermines the delivery of services to the vulnerable and weakens the social contract, leading to exclusion, instability and conflict. I am committed to fighting corruption, because it is the right thing to do and because it is critical to achieving the World Bank Group’s twin goals of ending extreme poverty by 2030 and boosting shared prosperity for the poorest 40%.
More than 50 years of development experience has taught us that we can achieve these targets through inclusive growth, investing in people’s health and education and insuring them against risks, such as unemployment or illness, which threaten to plunge them into poverty. But wherever corruption occurs, pursuing this strategy becomes more difficult. In the Philippines, for example, corruption prevented the construction of high-quality roads in some areas, making it harder for goods to get to market and harming growth, incomes and job creation (World Bank 2011; Procurement Watch 2009). In Sierra Leone, it stopped some mothers from immunising their infant children, because nurses demanded rice in exchange for ‘free’ shots (World Bank 2012). In India, many poor people received less financial support from workfare initiatives because officials pocketed the proceeds (Muralidharan, Niehaus and Sukhtankar 2014).
Some countries have experienced growing inequality and lost billions of dollars for public services because of corruption, undermining their very foundations. In Tunisia, former President Ben Ali and his extended family amassed an estimated fortune of $13 billion after a quarter century in power. This amounted to more than a quarter of Tunisian gross domestic product (GDP) in 2011, the year he stepped down in response to mass protests. There were also 220 domestic companies – responsible for at least 21% of the country’s net private sector profits – connected to the family of the President, who had enacted regulations that gave them unfair economic advantages (Rijkers, Freund and Nucifora 2011).
During my tenure at the World Bank Group, I have seen that corruption affects countries regardless of development status and is often an international operation. According to some estimates, businesses and individuals pay between $1.5 trillion and $2 trillion in bribes alone each year (Kaufmann 2015). This is about ten times the value of overseas development assistance or approximately 2% of global GDP. Both domestic firms and multinational corporations make payoffs to public officials in exchange for access to commercial opportunities.
The World Bank Group and others have dedicated substantial effort to understanding and monitoring corruption, and developing experience and knowledge of how to tackle the problem. In 1996, at our annual meetings, one of my predecessors, James D. Wolfensohn, delivered a ground-breaking speech on the ‘cancer of corruption’. He seized the opportunity to take on an obstacle to reducing poverty that we, and others, had largely failed to address (Wolfensohn 1996).
Since that time, the World Bank has taken a new approach. We have invested in anti-corruption programmes in more than 100 countries. In 2007, we adopted an organisation-wide governance and anti-corruption strategy, which we updated in 2012. Today our global practices for Governance, and Finance and Markets, as well as our independent integrity group, spearhead work to share with clients our knowledge and experience in fighting corruption, though all parts of the organisation take responsibility for fighting misconduct.
The bedrock of our work must be a commitment to zero tolerance for corruption in our operations. Last year, the World Bank Group committed grants and loans amounting to approximately $56 billion to support projects, programmes and policies critical to reducing poverty and inequality in developing countries. Close scrutiny of how these funds are spent and sanctions for their misuse are critical to ensuring that corruption does not undermine the intended outcome, whether it is raising farmers’ crop yields or improving students’ reading, writing and arithmetic skills.
Working with developing countries, we assess project and loan plans for corruption risk, closely supervise activities and build in monitoring mechanisms, including hotlines to report misconduct. When alleged wrongdoing takes place, our independent integrity group investigates and takes vigorous action if it confirms corruption. We have excluded firms and individuals that engaged in misconduct from receiving contracts that we financed and compelled the return of misused financial support and the cancellation of contracts associated with tainted transactions.
Last year, these efforts rooted out misconduct in connection with 61 projects worth more than $500 million (World Bank 2015). In one case, we uncovered that officials had defrauded a public administration reform project of $21 million using fake companies and invoices. Our investigation has led to the recovery of stolen funds and the Government’s prosecution of its officials. Even with these successes, we understand that fighting corruption requires constant vigilance and that misconduct takes many forms and adapts to new opportunities.
Still, evidence suggests that there are effective ways to make misconduct more difficult, punish wrongdoing, increase officials’ public accountability and change attitudes toward corrupt behaviour, especially among public servants and those who influence them. These actions, which I outline below, are helping countries make critical development strides, including building better roads, improving access to education and medicine, and providing the poor with sufficient support from social safety nets.
12.1 Fight corruption and increase accountability through greater transparency
Experience shows that providing citizens with access to information about government operations and public servants’ assets can be an effective way to prevent officials from abusing their power when avenues exist to make authorities answerable to the public. In 1997, the Ugandan Government found that schools did not receive 80% of their allocated funding because local officials diverted the support. Officials responded by publishing in local newspapers each school’s allocation, empowering administrators and parents to demand that these transfers reach their schools. By 2001, schools reported receiving 80% of these allocations. A subsequent study concluded that the amount of funds that local officials diverted correlated to the distance of a school from a major town where there was a newspaper outlet (Reinikka and Svensson 2011).
Making transparent the flow of royalties and other financial transactions between governments and corporations can also reduce corruption, especially in oil, gas and mining operations. There are 31 countries, including many in Sub-Saharan Africa, that disclose all payments and receipts from oil, gas and mining operations as part of the Extractive Industries Transparency Initiative (EITI). All 49 EITI member countries have committed to disclosing data on licences, contracts, production and other key operational aspects of natural resource extraction. The information that EITI distributes enables citizens and good government groups to monitor authorities’ relationships with extractive companies and hold officials accountable. In Nigeria, information that EITI published showed billions of dollars in underpayments by companies and their agents, sparking government efforts to recover missing funds to bolster public finances (EITI 2014).
Disclosing information in connection with EITI has correlated with reduced perceptions of corruption among businesses in several countries, including Peru, where indicators for abuses of public power dropped by 14%. Greater confidence in good governance makes companies more likely to undertake the long-term investments necessary for natural resource extraction, suggesting that transparency contributes to economic growth, job creation and higher incomes.
12.2 Use new technologies to increase scrutiny
Evidence suggests that new, inexpensive ways of verifying identities and executing payments using digital technology can reduce the impact of corruption on public service delivery to the poorest. In India, for example, some of its large social welfare programmes suffered from ineligible beneficiaries receiving payments and officials taking a cut of, or delaying, payments meant for the poor. To combat these problems, the government distributed smartcards based on the country’s biometric identification system to 19 million needy villagers in connection with the $5.5 billion National Rural Employment Guarantee Scheme. This substantially reduced the role of officials in the payment process, lessening the opportunities for misconduct. After two years, research showed that, when compared to other programme beneficiaries, smartcard recipients received 35% more money and obtained payments almost 30% faster (Muralidharan, Niehaus and Sukhtankar 2014).
Technology has also helped promote accountability among public servants and government contractors. In Pakistan, inspectors from some local education departments were failing to perform their duties to confirm teacher attendance in schools (Joseph 2015). Now they must take geo-tagged pictures of themselves on the job, which has proved to be an effective way to hold the inspectors accountable for countering instructor absenteeism. Rates of teacher attendance – above 93% in 2015 – have increased every year since the programme began and school-monitoring information is available to the public at http://open.punjab. gov.pk/schools.
In Mindanao, a conflict-riddled region of the Philippines, geo-spatial tracking and digital photography have contributed to timely construction of roads (Sta Ines 2014). Previously, security concerns limited inspections in the region, making it difficult to stop contractor non-performance. But now data and evidence of road construction in the Philippines is publicly available at www.openroads.gov.ph. Transportation infrastructure has improved, promoting the distribution of goods and economic activity.
12.3 Get citizens and companies involved
Initiatives that enable people and organisations to work with public officials to change how they deliver services have been shown to reduce corruption substantially. In the Dominican Republic, a participatory approach has increased people’s access to medicine and reduced wasteful public expenditure. Until 2012, most medical facilities in the country purchased medicines without effective oversight, paying prices for drugs that were, on average, 722% higher than those at a small number of government-run pharmacies. Patients were forced to absorb these high costs, because medicine buyers were receiving kickbacks from private suppliers (National Pharmaceuticals Management Unit 2013).
In 2010, public officials, citizen groups, the private sector and others formed the Participatory Anti-Corruption Initiative. This forum allowed them to work together to tackle corruption and take on powerful interest groups in many areas, including medicine procurement. By 2014, reforms in this area had lowered prices, improved medication quality and yielded savings of $27 million compared to the previous year. Public spending on drugs was reduced by 64%.
Participatory governance also helped people in poor rural villages in Indonesia fight the high level of corruption under the Suharto Government that was a major factor in cutting off their communities from public services and economic opportunities. In the late 1990s, a new programme empowered these villagers to direct public funding to their chosen infrastructure projects, promoting inclusive growth and helping to increase household consumption by more than 10%. Community oversight and financial audits have been critical to the efficient expenditure of $3.6 billion on infrastructure, including the construction of 100,000 km of rural roads, 17,000 small bridges and 40,000 clean-water systems, and the building or rehabilitation of 43,000 schools and health clinics. Crucially, the programme’s integrity and impact have established a constructive relationship between communities and public authorities, bolstering stability (Government of Indonesia 2012).[footnote 22]
12.4 Take on corruption at the global level
A comprehensive approach to tackling corruption needs to complement the domestic actions outlined above with cross- country collaboration to identify and prosecute misconduct and close loopholes that promote the use of public power for private gain. At present, developed and developing countries are not co-operating sufficiently to end the international catalysts for misconduct, with harmful consequences for developing countries’ fiscal wellbeing and development.
International trade in merchandise has increased by more than 500% over the last 25 years. Trade as a share of world GDP has increased by half over this period, from 40% in 1990 to about 60% today. As economic activity has become more globalised, so has corruption. Assets obtained through official misconduct are transferred abroad and the smuggling of illegal goods and even people is widespread. New avenues for wrongdoing have expanded the number and kinds of participants involved in corruption, which now encompass counterfeiters, pirates and armed groups.
Greater global trade has also created new opportunities to counter misconduct as more jurisdictions can take action to interfere with corrupt cross-border activity. Under the United Nations Convention against Corruption (UNCAC), developed and developing countries that have signed the accord are obligated to work with other countries to prosecute misconduct and assist with the return of stolen assets (UNODC 2015).
Still, in countries afflicted by significant corruption, prosecutors are often unable to investigate and punish wrongdoing because of political interference or ineffectiveness. Countries with more independent and robust legal systems can help. Legislation such as the UK’s Bribery Act 2010, the US’s Foreign Corrupt Practices Act and Brazil’s Clean Company Act give prosecutors the authority to pursue individuals or corporations who pay off foreign officials. In 2010, BAE Systems paid $400 million to the US Justice Department and £30 million to the UK Serious Fraud Office to settle bribery allegations arising out of the sale of equipment to Tanzania. The UK Department for International Development used some of these funds to refurbish classrooms in, and provide teaching materials to Tanzanian primary schools in co-ordination with national authorities (Gray, Hansen, Recica-Kirkbride and Mills 2014, p. 6).
Other countries’ punishment of the cross-border laundering of corruption’s proceeds is also important to making misconduct less lucrative. In 2014, for example, Teodoro Obiang, the son of Equatorial Guinea’s long-time leader, was forced to pay $30 million to settle US Government allegations that he had used money stolen from his country to buy a California mansion, a Ferrari and Michael Jackson memorabilia (US Justice Department 2014).
Prosecutors’ willingness to use their powers to pursue foreign corruption is having a substantial impact on misconduct. Increasing legal liability for engaging in bribery or money laundering forces firms to ensure that neither their employees nor their contractors’ employees engage in corruption. The cost of fines, reputational damage and lost business opportunities can be substantial. In 2008, Siemens AG agreed to pay $1.6 billion to the US Government and establish a $100 million anti-corruption fund at the World Bank Group to settle charges that it paid bribes to public officials in connection with its international business (World Bank 2009). Domestic firms that show they comply with anti-corruption requirements create a competitive advantage as trusted partners for global supply chains and are likely to see an increase in commercial opportunities. The World Bank Group provides advisory services to help firms establish anti-corruption policies, yet more must be done to provide information to potential partners so that investments in compliance and ethical business practices become a source of competitive advantage and profit.
Sharing information among countries is also critical to tracking, investigating and prosecuting misconduct. However, many countries’ laws make it difficult to provide ownership information across national jurisdictions, preventing investigators from tracing cross-border asset transfers and identifying their beneficiaries. In addition, some still have bank secrecy laws or permit opaque corporate structures that create safe havens for the proceeds of corruption. The Stolen Asset Recovery Initiative, which is a partnership between the World Bank Group and the United Nations Office on Drugs and Crime (UNODC), is working to remove these obstacles to investigation and prosecution by proposing law and policy changes, providing expert advice on bringing cases and fostering co-operation across jurisdictions.
International co-operation is also vital to reducing illicit international trade, a scourge in its own right and a source of bribes to customs officials. Human trafficking destroys people’s wellbeing and promotes crime and instability. Trade in products resulting from illegal logging, fishing and hunting often damages the environment and economic growth. In Kenya, for example, outlawed commerce in ivory and endangered species has significantly harmed the tourism sector (UNWTO 2015).
Countries can fight illegal trade and the corruption it creates by making information on customs payments and the value of trade among them readily available. Governments can also pass laws that force companies and countries to prove the legitimacy of their products now that technology enables the easy creation of a chain of custody for goods through the use of microchips and satellite tracking. Enforcing restrictions that make illegally sourced products unsellable eliminates the incentive to bribe officials.
Harmonising cross-border trade rules related to customs, taxation and other fiscal matters can also reduce the economic benefit of a variety of corrupt activities. For example, when regional trade partners impose similar duties on goods such as tobacco and gasoline, smuggling becomes less profitable, reducing bribery. When governments empower companies to extract their countries’ natural resources, some of these corporations exploit differences in how countries tax corporate profits to reduce their tax burden through practices such as abusive transfer pricing, which fraudulently shifts the location of profits to jurisdictions where tax rates are lower. Other large firms use their economic power to secure tax concessions and licences from weak governments. Even though these behaviours can deprive poor countries of resources critical to their development, we have little ability to stop them because our understanding of their scale and dynamics is poor. When political elites collude with firms to rig these government licences and regulations to their benefit, public officials also create a business climate that favours politically influential firms, stifling competition, slowing innovation and reducing economic growth.
The World Bank Group is working at multiple levels to make international trade less vulnerable to this kind of illegitimate activity. In co-operation with the United Nations (UN) and the Organisation for Economic Co-operation and Development (OECD), we are helping governments crack down on abusive transfer pricing using a toolkit that enables authorities to evaluate companies’ tax reporting, especially in the extractives sector. With the International Monetary Fund (IMF), we have established an initiative to help developing countries strengthen their tax systems, which will help make collection more efficient and policies fairer, and improve authorities’ ability to detect tax evasion. Analysis suggests that, with balanced tax systems, many lower-income countries can increase revenues from 2% to 4% of GDP (IMF 2011). Our support to countries such as Colombia and Ghana has already increased revenues and reduced tax evasion.
Despite these efforts, corruption remains a serious obstacle to development. Corruption can inhibit inclusive growth and job creation, stand in the way of new mothers and infants living healthy lives and prevent the vulnerable from receiving the social assistance they need. Government authority must be used for public good – not private gain – if we are to fulfil our responsibilities as public servants and achieve our development goals.
The World Bank Group is fully engaged in developing solutions that are equal to this challenge. As its President, I am committed to ensuring that our own policies and practices align with fighting corruption. The organisation is sharing the best global knowledge of what does and does not work to stop misconduct, from transparency and incentives to collective action and partnerships. We are helping countries take on corruption at the international level so they set rules that make it easier to trace assets and share information across jurisdictions, identify and prosecute corruption wherever it takes place, and promote fair and honest global competition.
Still, the international community must do more across all of these areas. For example, we must produce comprehensive information about cross-border financial activities such as tax evasion, smuggling and trafficking in stolen goods and money laundering. Governments must evaluate the effectiveness of their anti-corruption efforts based on their work’s impact on contributors to economic growth and development, such as the quality of public services, social safety nets and the investment climate.
We must fight corruption in communities, countries and globally. I strongly support leaders’ efforts to take on entrenched interests that force the poor to pay bribes or waste public resources. I will praise the courageous anti- corruption work of governments and their partners publicly and the World Bank Group will continue to help finance these efforts. We are committed to supporting bold actions, because the use of public power for private gain is morally wrong and, as the evidence shows, prevents the poor from reaching their full potential. There can be no doubt: tackling corruption is critical to creating a more just and prosperous world.
Extractive Industries Transparency Initiative (EITI). 2014. Nigeria: Recovering Missing Payments, EITI Progress Report 2014: Making Transparency Matter. Norway: EITI. Available online.
Government of Indonesia. 2012. PNPM Rural Impact Evaluation April 2012. Jakarta: PNPM Support Facility.
Gray, L., Hansen, K., Recica-Kirkbride, P. and Mills, L. 2014. Few and Far: The Hard Facts on Stolen Asset Recovery. Washington DC: The World Bank, OECD and UNODC, p. 6.
International Monetary Fund – Fiscal Affairs Department. 2011. Revenue Mobilization in Developing Countries. International Monetary Fund, pp. 1–85. Available online.
Joseph, M. S. 2015. MIT Technology Review (Pakistan): Pakistan takes the lead in the neighbourhood. Available online.
Kaufmann, D. 2015. Corruption Matters. Finance & Development. International Monetary Fund. September 2015, pp. 20–23. Available online.
Muralidharan, K., Niehaus, P. and Sukhtankar, S. 2014. Building State Capacity: Evidence from Biometric Smartcards in India. National Bureau of Economic Research (NBER). Working Paper No. 19999, pp. 1–53. Available online.
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Olken, B. 2007. Monitoring Corruption: Evidence from a Field Experiment in Indonesia. Journal of Political Economy, 115(2), pp. 200–248.
Procurement Watch Inc (PWI). 2009. A Study of Anti- Corruption Initiatives in the Philippines’ Construction Sector. Pasig City: PWI. Available online.
Reinikka, R. and Svensson, J. 2011. The Power of Information in Public Services: Evidence from Education in Uganda. Journal of Public Economics, (95), pp. 956–966.
Rijkers, B., Freund, C. and Nucifora, A. 2011. All in the Family: State Capture in Tunisia. Policy Research Working Paper 6810. World Bank, pp. 1–46. Available online.
Sta Ines, N. 2014. Geotagging in Isolated Areas, Philippines. In: S. Lippman, ed. Procurement for Complex Situations Challenge – Competition Winners. Washington DC: World Bank, pp. 1–5.
United Nations – Office on Drugs and Crime (UNODC). 2015. United Nations Convention against Corruption: Signature and Ratification Status as of 1 December 2015. Available online.
United Nations – World Tourism Organization (UNWTO). 2015. Towards Measuring the Economic Value of Wildlife Watching Tourism in Africa. Spain: UNWTO.
US Justice Department. 10 October 2014. Second Vice President of Equatorial Guinea Agrees to Relinquish More Than $30 Million of Assets Purchased with Corruption Proceeds. Available [online] (https://www.justice.gov/opa/pr/second-vice-president- equatorial-guinea-agrees-relinquish-more-30-million- assets-purchased).
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13. Christine Lagarde: Addressing corruption – openly
Traditionally, public officials have been somewhat nervous about discussing corruption openly. Over the past several years, however, I have been struck by the extent to which world leaders are now willing to talk candidly about this problem. It is not just that the economic costs have become self-evident. It is also because there is an increasing demand for change. In a recent global survey, corruption was regarded as the ‘topic most frequently discussed by the public’, ahead of poverty and unemployment (survey cited by Klitgaard 2015, p. 15). Given that both poverty and unemployment can be symptoms of chronic corruption, my view is that the priority given to this problem by the public is entirely justified.
In this essay, I would like to share the IMF’s perspective on the economic impact of corruption and our experience in helping countries design and implement strategies to address it.
I recognise that there are many possible definitions of corruption, both broad and narrow. For the purposes of this essay, which is focused on the public sector, corruption includes any abuse of public office – whether it arises from financial incentives or political interference.
I would like to make three main points.
First, while the direct economic costs of corruption are well known, the indirect costs may be even more substantial and debilitating, leading to low growth and greater income inequality. Corruption also has a broader corrosive impact on society. It undermines trust in government and erodes the ethical standards of private citizens.
Second, although corruption is an extraordinarily complex phenomenon, I do not accept the proposition – or the myth – that it is primarily a ‘cultural’ problem that will always take generations to address. There are examples of countries that have managed to make significant progress in addressing it in a relatively short time.
Third, experience demonstrates that a holistic, multi- faceted approach is needed – one that establishes appropriate incentives and the rule of law, promotes transparency and introduces economic reforms that reduce opportunities for illicit behaviour. Perhaps the most important ingredient for a successful anti-corruption approach is the development of strong institutions, centred on a professional civil service that is sufficiently independent from both private influence and political interference.
13.1 The economic and social costs
Corruption afflicts countries at all stages of development. Indeed, some developing countries score better on corruption indices than many advanced countries. While there are no recent studies that quantify the overall global scale of corruption, a sense of how big a problem it is can be gauged from an estimate of the amount paid in bribes every year. A recently updated estimate points to $1.5 trillion to $2 trillion (or around 2% of global gross domestic product [GDP]) in bribes paid annually in both developing and developed countries.[footnote 23] Given that bribes are just a subset of all of the possible forms of corruption, the overall cost of corruption – in terms both of tangible losses and of lost opportunities – is a very high amount.
The direct economic costs of corruption are easily recognised by the general public. Two very clear examples are bribes given in order to evade taxes or to bypass public tender procurement. The first example results in a direct loss of public revenues; the second may result in both higher public expenditure and lower-quality public investment.
Corruption has a pernicious effect on the economy. Pervasive corruption makes it harder to conduct sound fiscal policy. For example, in data covering a range of countries, we find that low tax compliance is positively associated with corruption. By delegitimising the tax system and its administration, corruption increases tax evasion: if the granting of a tax exemption is perceived to be the product of a bribe, it is not surprising that the public are far less willing to comply with the tax laws.[footnote 24]
Corruption also undermines certain types of public expenditure to the detriment of economic performance. For example, it is associated with lower outlays on education and skewed public investment, driven by the capacity to generate ‘commissions’ rather than by economic justification (Mauro 1998).[footnote 25] The distortion in public investment spending is particularly harmful given the importance of promoting efficient public investment as a means of reducing infrastructure gaps and promoting growth.
The indirect economic costs of corruption may be even more consequential.[footnote 26] Clearly, causation is difficult to establish and, in quantitative analysis, a significant effect of corruption on growth has not been found (Svensson 2005). Nevertheless, in comparative studies of national data, corruption is associated with a number of key indicators. Countries with low per capita income tend to have higher corruption and countries with higher corruption tend to have lower growth. Studies have identified different ways in which corruption could affect growth.
First, corruption tends to impede both foreign and domestic investment. The higher costs associated with corruption are a form of tax on investment that, in turn, translates into less investment in business research and development and product innovation. Moreover, by creating uncertainty as to how the regulatory framework will be applied, it increases the ‘country risk’ associated with a particular investment project.[footnote 27] More generally, corruption generates an unfavourable business climate in which the creation of new enterprises is stifled, reducing the economy’s dynamism.[footnote 28]
Second, corruption undercuts savings. The illegal use of public funds to acquire assets abroad shrinks the economy’s pool of savings that could otherwise be used for investment.
Finally, corruption can perpetuate inefficiency. Because an over-regulated economy provides opportunities for regulators to demand bribes, corruption creates a strong incentive to delay economic liberalisation and innovation.
The impact of corruption on social outcomes is also consequential. Social spending on education and health is typically lower in corrupt systems. This, in turn, leads to higher child and infant mortality rates, lower birth-weights, less access to education and higher school dropout rates (Gupta, Davoodi and Tiongson 2002).
These outcomes disproportionately affect the poor, since they rely more heavily on government services, which become more costly due to corruption. Moreover, corruption reduces the income-earning potential of the poor as they are less well-positioned to take advantage of it. For all these reasons, corruption exacerbates income inequality and poverty (Gupta, Davoodi and Alonso-Terme 2002).
Corruption also breeds public distrust in government. It undermines the state’s capacity to raise revenue and to perform its functions as a supplier of public goods and services, regulator of markets and agent for society’s redistributive goals. Where powerful business elites collude to control public institutions, corruption results in state capture and the ‘the privatisation of public policy’.
The fallouts are all too clear: higher inequality in political influence, deterioration of public values and, ultimately, a diminution in the overall quality of life. These non-economic costs create a vicious cycle of underperformance in the public sector that is harmful to the economy in the long term. The moral fabric of society is also put at risk. It is not just that bribery becomes part of one’s everyday life. In a society where success is more likely to depend on who you know rather than on personal merit, the incentives for young people to pursue higher education are undermined.
13.2 Strategies for addressing corruption
Given the potential impact of corruption on macroeconomic stability and sustainable economic growth, the IMF has been actively engaged in helping our members design and implement anti-corruption strategies. In 1997, the Fund adopted a policy on governance that provides guidance on the nature of its involvement in circumstances where issues of governance, including corruption, are judged to have a significant macroeconomic impact.
Since that time, we have gained considerable experience in helping members design and implement anti-corruption strategies. This is particularly important in the context of economic crises, where effective anti-corruption measures are critical to restore confidence. In some cases, the problem has been so severe that the Fund had no choice but to withhold support until a credible reform strategy was in place.
Clearly, any anti-corruption strategy must be tailored to the circumstances of the particular country. Yet we have found that success requires the existence of a number of mutually supporting features, which are briefly summarised here.
13.3 Creating the right incentives
As has been noted by one expert in this area, “Corruption is an economic crime, not a crime of passion. Givers and takers of bribes respond to incentives and punishments” (Klitgaard 2015, p. 37). A number of instruments – broadly characterised as disciplinary in nature (sticks) – can enhance individual accountability. Other instruments provide positive reinforcement (carrots). The Fund’s experience is that an effective anti-corruption approach needs both positive and deterrent measures.
Strengthening the rule of law is critical to increasing individual accountability. The Fund has taken an active role – including through its conditionality – to strengthen legal frameworks that are designed to increase such accountability. For example, Ukraine’s current Fund-supported programme provides for the enhancement of legislation in a number of areas, including, in particular, the law on corruption.
However, unless legislation is effectively enforced, it will not be credible in deterring corruption. Without effective law enforcement institutions – the police and other investigatory services, the public prosecutor’s office and, ultimately, the courts – even the most robust legal framework will be ineffective. So, the greatest challenge arises when corruption has permeated society to the point that these institutions themselves have become compromised. In these cases, it may be necessary to create specialised ‘bridging’ institutions in the hope that they can more effectively fight corruption, including in the traditional law enforcement institutions, while broader institutional reform is implemented. These ‘bridging’ institutions include independent anti-corruption commissions and specialised anti-corruption courts such as those currently being established in Ukraine and the earlier ones in Indonesia (IMF 2015b; IMF 2004).
In this context, the Fund has found that the establishment of Anti-Money Laundering Frameworks is central to the fight against corruption. Requiring banks to report on suspicious transactions provides a very effective means of deterring criminal activities. The fact that these laws generally require even closer scrutiny of transactions conducted by ‘politically exposed persons’ (PEP) makes them particularly relevant to an anti-corruption strategy.
Beyond the enforcement measures discussed above, an effective anti-corruption policy must also rely on transparency. Transparency shines a spotlight on government decisions and transactions, enabling citizens to monitor the actions of their governments which, in turn, deters corrupt behaviour. Publicising instances of corruption and the efforts taken to address them also serves as a disincentive to engage in corrupt activities and shores up public trust in government. For these reasons, the Fund has been actively engaged in promoting greater transparency in the overall economic and regulatory environment.
We have developed standards and codes of best practices in areas such as data dissemination, fiscal transparency and monetary and financial policies (IMF 1997).[footnote 29] Promoting transparency in the extractive industries is another area that the Fund has actively pursued in its technical assistance work. Under the aegis of the Extractive Industry Transparency Initiative (EITI), a template is now available for reporting and monitoring government revenues from natural resources.
Transparency can only go so far. It needs accountability for it to become a powerful deterrent against corruption. It is critical that public officials and institutions be assigned with specific mandates and tasks upon which they are expected to deliver. Moreover, oversight mechanisms are needed to ensure that officials and institutions are delivering as expected. This is why the Fund has actively supported its members in strengthening those institutions that exercise oversight powers in the management of public funds and in enhancing the financial accountability of state-owned enterprises. It has also provided technical assistance to help members monitor the use of public resources and consolidate extra-budgetary funds into the budget.
Even well-meaning public officials will be tempted by corruption if they cannot earn a living wage. Research shows a correlation between increases in wages and improvements in a country’s ranking on the Corruption Perceptions Index (CPI) (Van Rijckeghem and Weder 2002). This is why Fund- supported programmes have sometimes included increases in public salaries as part of an anti-corruption approach (IMF 2006). That said, there are two critical considerations. First, the remuneration of the public sector needs to be transparent and meritocratic; otherwise, it will be perceived as merely an instrument of political patronage. Second, studies show that an increase in remuneration will have little effect unless accompanied by clear signals that public officials will lose their jobs if they are caught engaging in corrupt acts.
13.4 Economic liberalisation and effective regulation
As I have indicated, one of the costs of corruption is that regulators seeking bribes through approval processes have an incentive to delay the type of economic liberalisation that fosters sustainable growth. Wherever discretion is granted to an official regarding the approval of an economic activity, there is a risk that this discretion will be abused. Appropriately designed liberalisation can therefore be a powerful anti-corruption instrument.
As part of its core mandate, the Fund has been actively engaged in encouraging liberalisation of trade, price and financial systems. We have also advocated free and fair market-entry regulations, as well as good statistics and transparency. Importantly, where liberalisation involves privatisation, it is critical that safeguards – such as adequate and transparent procedures – are in place so that the sale of assets is not compromised by corruption.
Of course, experience demonstrates that regulation in a market economy is essential for both sustained growth and financial stability. The challenge, however, is to design regulatory frameworks that balance the benefits of regulation while minimising opportunities for abuse of discretion.[footnote 30] For this reason, in its core areas of expertise, the Fund has promoted the adoption of rules, procedures and criteria that are as targeted, clear, simple and transparent as possible. These areas include public expenditure management, tax policy and administration, banking and foreign exchange systems, and data management (IMF 1997).
13.5 The role of the private sector
When people complain about corruption, they sometimes forget – perhaps conveniently – that for every bribe taken by a public official, one is given by a member of the private sector. Clearly then, addressing the behaviour of the private sector needs to be a key component of any effective anti- corruption strategy. How can this be done?
In some cases, this means using enforcement measures. For example, in those countries where bribery is a common way of facilitating foreign investment, it is critical that the country of the foreign investor enforces laws that prohibit foreign corrupt practices. The Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions can be invoked in this effort (OECD 1997).
However, experience also shows that the private sector can become effective partners in combating corruption. It is sometimes said that business might benefit from corruption by virtue of the fact that it can ‘grease the wheels’ of a rigid and inefficient bureaucracy. I disagree with that proposition. Based on my own experience, investors actually seek out countries that can give them the assurance that, once an investment is made, they will not be blackmailed into providing bribes. Because corruption creates an enormous amount of unpredictability for businesses, anti-corruption strategies can be designed to solicit their support.
I find Indonesia’s experience of implementing that partnership particularly illuminating. At a recent seminar hosted by the IMF on the topic, Sri Mulyani Indrawati, Indonesia’s former Minister of Finance (and currently Chief of Operations at the World Bank), described how she successfully partnered with businesses to provide a streamlined customs approval process in exchange for their commitment not to offer any bribes to officials – ‘new rules of the game’.[footnote 31]
The ‘new rules of the game’ concept has underpinned several technical assistance activities by the Fund and the World Bank. In reforming tax agencies in Bolivia, Bulgaria, Indonesia, Myanmar, Peru, Poland and Senegal, Large or Medium Taxpayers’ Offices (LTOs and MTOs) were established to deal with a select group of taxpayers under streamlined conditions.
Beyond the business community, civil society also has a role to play. Through the use of social media, civil society can become a powerful force in combating corruption. In addition to being a very effective means of monitoring government activities, social media can also greatly enhance the credibility of an anti-corruption campaign by linking new institutions that have a specific mandate in this area.[footnote 32]
13.6 Building values and institutions
When dealing with corruption, a robust framework of incentives and a well-calibrated economic liberalisation cannot be substitutes for strong values and effective institutions. Of course, developing values at a personal and institutional level may seem beyond the control of any government. It is clearly not something that can be legislated. Yet unless public officials take pride in their work – and their independence from both political and private influence – all other efforts will fail.
Building values among public officials requires sustained public education. Formal training can help but, ultimately, values are most effectively instilled through the education framework, societal pressure and – as I will discuss further below – the example of leaders. The key objective is to develop a cadre of public officials who are – and are perceived to be – independent from both private influence and political interference. This is the single most important feature of a strong institution. Indeed, it has been noted that one way to assess the strength of an institution is to assess the extent to which key employees are replaced at the time of elections.
There are other factors that lend support to effective operation, some of which – such as rules that establish transparency and clear accountability – have already been mentioned. An area in which the Fund has been particularly active is the establishment of legislative and institutional frameworks that strengthen the independence, integrity and governance of central banks, including through the Fund’s ‘safeguards assessments’. A recent example has been work in Tunisia in support of the Central Bank, which strengthened its independence, internal control mechanisms and powers. Of course, enhancing the overall technical competence of officials who work in these institutions is also critical. For this reason, the Fund has invested considerable resources in capacity-building in a broad range of areas, from public finance management to the strengthening of the financial intelligence units, that are responsible for applying anti- money laundering laws.
13.7 Political will
Developing professional institutions that do not become excessively politicised is critical. Yet the irony is that in circumstances where institutions have been completely compromised by corruption, active and sustained political will is essential. Powerful vested interests can only be effectively challenged when a country’s top leadership sends a clear signal that they are committed to do so.
In some cases, this may require wholesale dismissals within an agency that has a reputation for corrupt practices. Prosecuting the powerful ‘big fish’ – which is necessary in order to send a clear signal of commitment and change – can only be achieved if a country’s leaders visibly support the process. Moreover, political leaders play a unique role in setting an example of professional integrity. Lee Kuan Yew is a leader who was very effective in both signalling a zero- tolerance policy towards corruption and building competent institutions at a time when corruption was pervasive in Singapore.
13.8 Avoiding pitfalls
Although active and sustained political leadership is critical to the success of any anti-corruption campaign, it is important that reforms in this area are not hijacked to implement a political agenda. One way of assessing whether anti-corruption efforts are credible is to note whether enforcement is limited to the prosecution of political rivals, or instead also extends to the government’s political supporters.
In addition, care should be taken to ensure that an anti- corruption campaign does not create such fear that public officials are reluctant to perform their duties. For example, in circumstances where state-owned banks have extended a loan to a company that has become insolvent, it is often in the interest of the bank, the debtor and the economy more generally to restructure the loan (which might include principal write-downs) in a manner that enables the company to return to viability. Yet the Fund’s experience has been that, in some countries, the managers of state-owned banks are simply afraid to engage in such negotiations. They fear that, if they agree to any debt write-down, they will be prosecuted under the country’s corruption law for having wasted state assets – even though a restructuring might actually enhance the value of the bank’s claim relative to the alternative, the liquidation of the company.
Finally, although regulatory reform can promote simplicity and automaticity, there are certain functions, such as bank supervision, where discretion will always be essential. For these reasons, regulatory reform cannot be a substitute for the development of effective institutions.
13.9 Concluding observations
As the head of an intergovernmental organisation, I recognise that there may be considerable sensitivity about the IMF shining a spotlight on corruption. At the same time, the alternative – turning a blind eye to the problem – is not a viable option. As is recognised under its existing policies, it is not tenable for the IMF to assess a member’s economic prospects exclusively through the lens of monetary, fiscal or financial sector policies, when the problem of corruption is endemic and has a major impact on economic performance. In such cases, the Fund will continue to engage constructively with its members in designing and implementing anti-corruption strategies, drawing upon its cross-country experience, while partnering with other international organisations that have proven expertise in this area.
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14. Angel Gurría: How to battle 21st-century corruption
Over the last two decades, we have made great progress in taking the fight against corruption to the highest global and political levels. Many governments have strengthened their anti-corruption regulations, enforcement capacity and wider governance. Several high-profile corruption cases have seen justice served. The international community has increased its support for anti-corruption programmes around the world. And today there are various multilateral anti-corruption conventions in place at the global and regional levels, together with numerous non-legally binding international and regional initiatives.
The OECD, working closely with its partners, has been prominent in this fight: setting standards across a range of areas from foreign bribery to public sector integrity, as well as on related issues such as tax evasion and bid rigging. And these initiatives have made a difference.
Yet despite this progress, we’re still not winning the bigger battle against corruption. Recent scandals involving national leaders and major corporations, the ongoing investigations into the sports sector, and the growing threat of terrorism and its links to corruption, also remind us that we need to do more, much more.
At the OECD, we believe that corruption’s harmful effects on growth, equality and trust are too big to ignore, and make tackling corruption not only a moral imperative but also an economic, social and political necessity.
Corruption allows for the financing of wars; it helps to smuggle people, guns and drugs; it channels public and private funds into illicit activities; and it undermines collective action against climate change and poverty. Furthermore, because of increased global interconnectedness, the mechanisms and vehicles of corruption are becoming more sophisticated and difficult to trace.
In this essay, I argue that, to deal with corruption and the devastation it causes, the international community must build coherent systems that focus on all stages of the anti-corruption process from prevention to detection and enforcement and, at the same time, ensure effective implementation by both governments and corporations. And we must boost global collaboration by fully engaging all countries – in the developed and the developing world – in the fight against corruption.
14.1 Significant progress has been made on tackling transnational bribery
Not so long ago, transnational bribery was considered a regular part of business and bribes were treated as a tax-deductible expense. In 1999, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions entered into force. The Convention made it illegal for citizens and businesses of signatory countries to bribe foreign public officials while doing business abroad and our work continues to ensure it is fully effective (OECD 1997).
As such, the OECD Working Group on Bribery has established a rigorous monitoring and evaluation system to ensure that governments stick to their commitments (OECD 2015a). The private sector and civil society play an integral role in the group’s activities, providing input to regular consultations and the on-site visits that form part of a country’s evaluation.
The Convention has helped governments to push the fight against bribery up the agenda. Many of the 41 countries that make up the OECD Working Group on Bribery (which comprises all OECD countries and seven non-OECD countries) have made radical changes to their laws and institutions to comply with the Convention. One of the most recent and successful examples is the UK Bribery Act 2010, which entered into force in 2011. Between 1999 and 2014, 361 individuals and 126 companies were sanctioned for foreign bribery in 17 countries (OECD 2014). At least $5.4 billion was imposed in combined monetary sanctions and 95 people put behind bars (OECD 2014). The 2014 OECD Foreign Bribery Report showed that, among the 427 foreign bribery cases concluded, almost two- thirds of cases occurred in just four sectors: extractive (19%); construction (15%); transportation and storage (15%); and information and communication (10%). In the majority of cases, bribes were paid to obtain public procurement contracts and, in around half of cases, management or CEOs were involved (OECD 2014). As of December 2014, there were 393 ongoing investigations into alleged acts of foreign bribery in 25 of the countries party to the Convention and, even as I write, new cases are being brought to light (OECD 2014).
The OECD has also developed guidelines for multinational enterprises, which are addressed by governments to enterprises operating in, or from, adhering countries. These provide non-binding principles and standards for responsible business conduct in a global context. Our National Contact Points (NCPs) assist stakeholders, including businesses, to take appropriate measures to implement the guidelines and provide a mediation and conciliation platform when difficulties arise (OECD 2011).
For example, two non-governmental organisations (NGOs) in Cameroon recently brought a case to the NCP in the United States, alleging that a company had not observed the guidelines on combating bribery. The US NCP offered mediation to help the parties involved achieve a mutually agreeable resolution. In June 2015, the company agreed to a request from the NGOs to investigate past cases of corruption and take action against any acts of corruption (US Department of State 2015).
Of course, the best way to combat corruption is to prevent it from happening altogether. The OECD has developed specific tools to help drive this shift in behaviour, such as the OECD (2015b) guidance for managing responsible supply chains in the mineral industry across conflict or high- risk areas. This provides, among other things, measures to mitigate the risk of bribery by companies and recommends indicators for measuring improvement.
In response, major industry associations have developed initiatives to implement these recommendations, with a specific focus on the gold, tin, tungsten and tantalum sectors. As a result, industry audit programmes designed to implement the due-diligence guidance now cover 90% of the refined gold, 95% of the smelted tantalum and 75–85% of the smelted tin produced every year (OECD 2015c). The Governments of Burundi, the Democratic Republic of the Congo and Rwanda have all integrated these initiatives into their legal systems (OECD 2015c).
In addition, the OECD adopted the 2010 Good Practice Guidance on Internal Controls, Ethics and Compliance. This is the first and only intergovernmental guidance for the private sector on how to prevent and detect foreign bribery through effective internal control, ethics and compliance programmes (OECD 2010a). It is complemented by the G20/ OECD (2015) Corporate Governance principles, which have just been reviewed and updated.
14.2 Improvements to national integrity systems
The OECD’s progress on tackling transnational bribery has been matched by extensive work on wider integrity systems at a national level. These include codes of conduct, effective competition, business integrity, and measures to secure greater value for money in public spending.
For example, the OECD has been examining the impact of bid rigging, which raises prices, reduces quality and restricts supply in the government procurement process and is often combined with bribery of public officials or unlawful kickbacks. Three years ago, we adopted a recommendation designed to help governments eliminate this type of corruption from their procurement processes and boost competition, forming the basis for numerous sets of national guidelines and advocacy materials (OECD 2012). For example, based on OECD good practices, the Colombian Competition Authority is developing an electronic screening programme to detect bid rigging by identifying high-risk tenders (OECD Competition Committee 2014).
The OECD has also conducted several country-specific projects in co-operation with national competition authorities to reduce bid rigging and increase transparency, starting with the Mexican Social Security Institute – which secured cost savings of around $700 million per annum and dramatically decreased its risks of corruption (IMCO 2012).
As the recent FIFA corruption scandal shows, government agencies such as tax authorities are essential players in the fight to deter, detect and disrupt national and global corruption. That is why the OECD has supported work to strengthen the reach of tax administrations in this area, including our 2010 recommendation to improve information sharing and collaboration across government agencies to combat corruption, tax evasion and other serious economic crimes (OECD 2010b). This led to the establishment of the Oslo Dialogue, a global forum to develop and promote a whole-of-government approach to tackling tax crimes and other serious financial crimes and is supported by the capacity-building programmes delivered through the OECD’s International Academy for Tax Crime Investigation (OECD 2015d).
In addition, we’re working with our members to target projects and industries that have traditionally been most at risk of corruption – issuing recommendations and guidance related to ethics, managing conflicts of interest and increasing transparency in lobbying, and very importantly, public procurement (OECD 2015e).[^33] Building on this, we’re successfully helping governments to pre-emptively identify and limit the risks of corruption and mismanagement in major infrastructure projects – as we did with the Milan Expo 2015 and the construction of Mexico City’s new airport.
14.3 Progress in extending international collaboration
Our effectiveness in curbing corruption depends on our ability to join forces and co-ordinate actions globally. As a result, we have been raising awareness of all the aforementioned initiatives in other international circles, and we are working to integrate emerging economies and developing countries in our work.
[^33]These include the 1998 Ethics Recommendation, the 2003 Recommendation on Guidelines for Managing Conflict of Interest, the 2010 Recommendation on Transparency and Integrity in Lobbying and the recently updated Recommendation on Public Procurement.
In particular, the OECD has actively supported the G20 to make the top standards in the fight against corruption count on a global scale. Based on OECD work and standards, the G20 has made a number of commitments and adopted principles and guidance on topics such as foreign bribery and solicitation, public procurement, asset disclosure, whistle-blower protection and private sector transparency and integrity (OECD/G20 2015).
We have also made progress in our dialogue with China on anti-corruption and the promotion of responsible business conduct, which is particularly timely as they take over the presidency of the G20 in 2016. Other emerging economies, in particular India, are also showing increasing signs of interest in the standards developed by our organisation.
Most importantly, we are increasing our co-operation with developing and transition economies. We have regional anti-corruption programmes across Africa, the Asia-Pacific region, Eastern Europe and Central Asia, the Middle East and North Africa, and Latin America (OECD 2015f). In addition, working with the Open Government Partnership (OGP), we are helping developing and transition economies to implement and monitor the OGP standards.
14.4 There is still a long road ahead
So what next? At the OECD, we believe we need to focus on four major areas in the future.
a) Corruption is every country’s problem
Every major economy must be active against corruption. It is still the case that 24 out of the 41 parties to the OECD Anti-Bribery Convention have yet to issue a single sanction (OECD 2014). Everyone needs to step to the fore and contribute their share in tackling international corruption. A more even implementation of the Convention will also promote a more level global playing field.
And while the 41 countries make up approximately 66% of world exports, a number of significant economies have yet to join, including China, India and Indonesia. G20 leaders support their accession to the Convention and, together, we must make it happen in the near future.
As part of this, the OECD can and should play a bigger role in helping to strengthen anti-corruption practices across the world by integrating partner countries into its various initiatives. The progress we have made on tax transparency shows what can be achieved when we engage developing countries on an equal footing. Today there are 129 jurisdictions committed to implementing the international standard for exchange of tax information on request (OECD 2016). The new global common reporting standard on tax transparency agreed in 2014, which will be implemented by more than 95 jurisdictions by 2018, will ensure the automatic transmission of information about financial accounts held offshore by taxpayers (OECD 2016). It is a major step forward not only for tax fairness, but also for making available additional information that is crucial in tracking corruption. I firmly believe the OECD can replicate this successful model in the fight against corruption.
b) Implementation, implementation, implementation
As we have seen, many of the standards are in place. We must now focus on effective implementation. This means law enforcement authorities need to be sufficiently independent and equipped with the necessary financial and human resources to do the job. Professionals such as lawyers, accountants and auditors need to be much more aware of the risks they face when advising in business transactions, especially at the international level. Ratings agencies should include corruption risks in their analysis of companies. Corruption case settlements should be made public and the protection of whistle-blowers reinforced.
We also need to make an effort to embed integrity within the management of both public and private organisations, including in their general management, human resources, internal control and audit, and external audit systems. This would also improve the monitoring of progress and the effectiveness and coherence of integrity policies and practices. Further engagement with the private sector is imperative.
Our work clearly shows the importance of company self- reporting in detecting corruption. However, self-reporting is often not acknowledged or incentivised. We intend to undertake work to ensure good compliance is rewarded and self-reporting actively promoted, as well as to find innovative ways to protect companies from undue solicitation.
Finally, effective implementation will depend on how we are able to address corruption in organisations where corruption often occurs – such as state-owned enterprises, public/private partnerships and local governments – and sectors that need special attention, such as customs, health, education and law enforcement. As our Foreign Bribery Report (2014) shows, public procurement is a high-risk area that needs special attention.
c) Integrating and widening the integrity agenda
The effectiveness of our various tools and initiatives will also depend on how we are able to link them up, build synergies, provide consistency in our approaches and support co-ordination between institutions responsible for enhancing integrity and fighting corruption.
Such connections also need to be built by governments and the different stakeholders at the national level, strengthening the links between initiatives on foreign bribery and public sector integrity with those on tax evasion, bid rigging, money laundering and illicit financial flows.
The OECD is uniquely placed to assist countries in this respect. We’re ready to work on the necessary training and policy advice, as well as offering our expertise to specific situations, when required – as our successful work on large infrastructure projects with Italy and Mexico shows.
Beyond institutional solutions, we need to balance a rules-based compliance approach with greater attention to the political economy of corruption and to the values of public officials. This will require taking better account of the existence of vested interests when shaping policies by promoting transparency and integrity in political finance, elections and lobbying at various levels of government. Preventing public officials or policies from being swayed by powerful and narrow vested interests is crucial, if we are to strengthen trust in our governments.
d) The relationship between corruption and other global issues
Corruption is at the heart of many of the biggest issues the world now faces. As we know, the forced displacement of people due to conflict, persecution, violence and human rights violations is on the rise. The current refugee crisis has triggered a global discussion about migration and refugees. Corruption plays a significant role in this crisis in the wake of inadequate government services. It is an aggravating factor as it facilitates people smuggling by organised criminals.
Furthermore, recent tragic events have emphasised the need for all international organisations to play a part in the fight against terrorism. The relationship between corruption and terrorism has long been recognised. Evidence shows that corruption contributes to the financing of terrorism and creates inequalities that disenfranchise communities and promote the development and growth of terrorist groups.
This phenomenon is facilitated by the growing complexity of corruption in commodity trading and illicit trade, through crude oil swaps, trade mispricing and stolen resource trading. The OECD is looking to further explore these issues in order to best equip countries to fight these corrosive and dangerous practices.
We also know that corruption undermines the fight against climate change. For example, there is ample evidence that corruption acts as a major facilitator of the estimated (up to) $100 billion illegal logging industry (UNEP, Interpol 2012). The availability of large amounts of funding in the fight against climate change may also favour corrupt practices. But overall, this is an area that remains relatively unexplored. The OECD is well placed to undertake work in this area in the light of its expertise in environmental issues, trade (including analysis of illicit trade) and fighting corruption.
In 2015, we saw the emergence of major bribery scandals in sports. Apart from its economic importance, sport plays a major role in holding societies together and we cannot tolerate the ethical breaches that undermine its legitimacy. These scandals illustrate the limits of self-regulation. Global leadership is required in this area. The OECD’s knowledge and experience in lobbying, good public governance, public procurement and fighting corruption mean that the organisation is ready to play a key role on this topic.
Finally, at the OECD, we are acutely aware of how important it is to take forward the 2030 Sustainable Development Agenda (UN 2015). Addressing corruption is vital in order to successfully achieve the Sustainable Development Goals (SDGs). While corruption is explicitly mentioned only in Goal 16, it is clear that it cuts across all of the SDGs and will be a major hurdle to achieving them. Corruption has a significant impact on poverty, inequality, hunger, education, the availability of clean water and sanitation, economic growth, industry innovation and infrastructure. It thwarts resource mobilisation and allocation and diverts resources away from sustainable development and from efforts to eradicate poverty. International organisations, including the OECD, must work together to ensure the fight against corruption is made a priority in order to achieve the SDGs. The G20 could take a leading role in this respect.
We need to establish a common vision and a global agenda. The OECD stands ready to play its part and work hard to win the battle against the dark side of our economies by designing, promoting and implementing better anti- corruption policies for better lives.
G20/OECD. 2015. Principles of Corporate Governance. Availableonline.
Instituto Mexicano para la Competividad (IMCO). 2012. Evaluación del Acuerdo de Trabajo IMSS-OCDE-CFC. Available online.
OECD. 1997. Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Paris: OECD Publishing. Available online.
OECD. 2010a. Good Practice Guidance on Internal Controls, Ethics and Compliance. Available online.
OECD. 14 October 2010b. Recommendation of the Council to Facilitate Co-operation between Tax and Other Law Enforcement Authorities to Combat Serious Crimes. Available online.
OECD. 2011. National Contact Points for the OECD Guidelines for Multinational Enterprises. Available online.
OECD. 2012. Recommendation of the OECD Council on Fighting Bid Rigging in Public Procurement. Available online.
OECD. 2014. OECD Foreign Bribery Report: An Analysis of the Crime of Bribery of Foreign Public Officials. Paris: OECD Publishing.
OECD. 2015a. Country Reports on the Implementation of the OECD Anti-Bribery Convention. Available online.
OECD. 2015b. Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. Available online.
OECD. 2015c. Implementing the OECD Due Diligence Guidance. Available online.
OECD. 2015d. Forum on Tax and Crime. Available online.
OECD. 2015e. Bribery and Corruption. Available online.
OECD. 2015f. Regional anti-corruption programmes. Available online.
OECD. 2016. Global Forum on Transparency and Exchange of Information for Tax Purposes. Available online.
OECD Competition Committee. 2014. Fighting Bid Rigging in Public Procurement in Colombia. Paris: OECD Publishing. Available online.
OECD and G20. 2015. Anti-corruption. Available online.
United Nations. 2015. Transforming our world: the 2030 Agenda for Sustainable Development. Available online.
UNEP, Interpol. 2012. Green Carbon, Black Trade. Norway: UNEP, Interpol. Available online.
US Department of State. 28 July 2015. US NCP Final Statement CED/RELUFA on the Specific Instance between the Center for Environment and Development (CED) with Network to Fight against Hunger (RELUFA) and Herakles Farms’ affiliate SG Sustainable Oils Cameroon (SGSOC) in Cameroon. Available online.
15. Mart Laar: The cancer of the modern world – a European perspective
Corruption is a cancer. At first, it can look small and harmless. Before you know it, it has taken over your entire body. Likewise, the losses from corruption can start small, but in the end the damage is enormous.
The problem of corruption around the world is well known. Dictators, arms smugglers and warlords rely on corruption to fund violence against their own populations. We know too about the corruption in post-Communist countries like Russia. It’s not just the corruption in the economy; it’s the corruption of the legal and political systems that sustains it, which is so damaging in so many countries.
Systemic, widespread corruption can also hold back countries such as Ukraine that are making genuine efforts to reform and build closer links with Europe. It undermines the inspiring campaigns and aspirations of reformers – as seen in Moldova, for instance – and saps the confidence of potential European partners. In Ukraine and Moldova, it is no coincidence that public dissatisfaction and protest appear to be as much about corruption as they are about anything else. And the public are right: corruption siphons off much- needed investment and slows the growth and progress of Eastern European economies. So I believe that we need a plan for Europe that places anti-corruption right at the heart of the process.
I know about corruption. I’ve seen it with my own eyes. You can no more eradicate it than you can abolish human greed. But that doesn’t mean that there is no hope. Estonia was deeply corrupted, just as other former Communist countries were as they made the transition to independence. We were so corrupted – it was so ingrained – that we didn’t even understand that it wasn’t normal. It had become a way of life. So for us, progress depended on a fundamental realisation: we could only cut ourselves off from the old Communist heritage if we cut out the cancer of corruption.
This was easy to say, of course, but harder to implement. European institutions stressed from the start of the integration process the importance of fighting corruption, but sometimes this seemed to us to be just warm words. To our surprise, as our economy and trade relations grew, several Western companies allegedly offered generous bribes in many common business deals. To them, corruption in Eastern Europe was normal. So, while the West finances campaigns against corruption abroad, it would be significantly more effective if all countries also dealt with the criminal activity and the bribes originating at home.
In many countries, corruption isn’t actually a negative word. It is connected with friendship and taking care of family. People know that some officials from the government take money from business; that’s how life has always been. How do you begin to unpick that? In Estonia, we knew that if we wanted to break free, we didn’t have any choice – we had to end corruption. Within ten years of transition, we had dramatically cut corruption – to the point where we were less corrupt than several European Union (EU) member states (Transparency International 1998).
How did we do it? A huge part of the answer was the European Union. We received vital encouragement from the EU, including as part of the negotiations on enlargement. Most importantly, we received a very clear message right from the start that the door to the EU would be closed to countries with the usual scale of post-Communist corruption. At first, it was thought that the EU was not serious. But then the Slovakian Government, under Vladímir Mečiar, was ousted from negotiations on enlargement (European Commission 1997). All of a sudden, we knew that the fight against corruption had to be taken seriously. Transparency was important too. Clear data enables you to see very similar countries, like Latvia and Estonia, with very different levels of corruption (Transparency International 2015). So if you could cut it in one country, why not the other? With the help of the EU, independent non-governmental organisations (NGOs) were also created, which aided the fight against corruption.
The EU shared with us, along with the other countries hoping to join, all of the best practice and legislation for tackling corruption. This allowed us to take big steps forward very quickly. An important part of this was to regularly publish key officials’ income and its sources, supported by criminal punishments for corruption in the penal code. Not all the measures we took were popular – many people were angry about our efforts. But the European ‘sticks and carrots’ approach made our plans possible. We could privatise public assets, in the knowledge that they could only be sold for legal money moved through European banks that had rules against money laundering and fraud. Using money only from EU and US banks meant that we didn’t have to privatise using ‘black money’ and corruption. When you cut corruption out of banking and the wider economy, it is much harder for corruption to take root in politics.
Helping to tackle corruption in Eastern Europe has also, of course, provided tangible benefits for people in Western Europe. It has helped open up new markets for trade and investment – based on a level playing field and open competition – therefore boosting the prosperity and security of all EU member states, including the big economies of the West.
Many people, including leaders, have asked for the secrets of Estonia’s success in tackling corruption. Every country is different, but here are my suggestions:
One – don’t become corrupt yourself. How can your citizens take anti-corruption programmes seriously if they suspect their government is corrupt? So you need to make it clear from the start: mistakes can be pardoned; corruption cannot. There can be no yellow cards – just red ones.
Two – let the market do the job. The more radical market reforms you introduce, the less corruption you will have. Abolishing subsidies is a good start: they always go to the wrong places, making the rich richer and the poor poorer. Simplifying the tax system and cutting taxes helps too – as does the abolition of custom tariffs, in which the EU plays a key role.
Three – make government smaller. This is often underestimated in the transition to a market economy. You can’t move your country to the future with the old machinery. So you need to break up the old structures that provide opportunities for corruption. A good way to start is to cut the government by half and double the salaries of those who remain. And then cut the size again by another 20%. Your new public service must be non-partisan and independent. As you go forward, keep government lean. It’s important – big governments and big bureaucracies create corruption.
Four – make everything public. Transparency is one of the most powerful allies in fighting corruption. When information on public spending, government agencies’ work and use of governmental benefits and privileges is freely available, it starts to reduce corruption. Modern technology can help a lot here. Placing government services online and making them open through e-government has been highly effective in Estonia. It doesn’t just cut the misuse of government credit cards and make sure government procurement is clean, it also cuts down on time and paper – and lets trees grow.
Five – let freedom reign. Freedom takes the state official out of the daily situations and transactions where corruption can occur. If you need to have a separate government document every time a house is built or renovated, there is a chance for corruption. When decisions – or the speed of decisions – depend on the will of a state official rather than the law of the land, you will have corruption. Abolish them and you find that nothing bad happens.
These conclusions are really quite simple. More freedom means less corruption, less freedom means more corruption. It’s just the same in sport. If you take away the competition and fair play, you will lose the spirit of sport. That’s what corruption does to all of our efforts, our dreams and our desires – in corrupt societies, they are thwarted and the human spirit is poorer as a result. We showed in Estonia that it doesn’t have to be like this. Together we can change it – together we can do it!
European Commission. 15 July 1997. Agenda 2000 – Commission Opinion on Slovakia’s Application for Membership of the European Union. Brussels: European Commission. Available online.
Transparency International. 1998. Corruption Perceptions Index 1998. Available online.
Transparency International. 2015. Corruption Perceptions Index 2015. Available online.
16. José Ugaz: People’s power: taking action to demand accountability
Over the past quarter of a century, the face of corruption has changed. And so has the anti-corruption movement.
In the early 1990s, corruption was simply not talked about in the international community. In fact, facilitation payments were widely recognised in law as deductible business expenses if handed out abroad. Back then, the focus of the emerging anti-corruption movement was to get corruption on the agenda: raising awareness of its devastating effects and showing its disproportionate impact on the poor. It is the most vulnerable people in our societies who too often have to make the hard choice to pay bribes to get the essential services they need, such as treatment for a sick grandparent or an education for their child.
This focus shifted in the late 1990s to creating ways to both measure corruption and develop the tools to prevent it. Launched in 1995, Transparency International’s (TI) Corruption Perceptions Index (CPI) put governments on the spot by publishing their scores around the world (Transparency International 2015a). By 2003, the United Nations Convention against Corruption (UNCAC) – now ratified by 178 countries – outlined a solid framework of anti- corruption laws (UNODC 2015). This came six years after the OECD Convention Against Foreign Bribery and seven years after the ground-breaking Inter-American Convention against Corruption (OECD 1997; International Association of Anti-Corruption Authorities 2012). The G20 has had an Anti-Corruption Action Plan since 2010 and the fight against corruption is now at the heart of the UN’s Sustainable Development Goal 16, promoting peace and justice with targets for tackling corruption (Transparency International 2015b; UN 2015).
Today many countries have solid anti-corruption legislation. But laws don’t work if they are not properly enforced. Corruption remains rife. Countries get used to failing scores and billions of dollars of illicit financial flows and money laundering provide luxury lifestyles for the corrupt. So what’s next? Pressure from the public is key.
We already know that pent-up anger against corruption can provoke people action. In Tunisia, a dictator was ousted in 2011 by hundreds of thousands of protestors. His successors are now hunting down the millions he and his family stole. In Guatemala, months of peaceful protests in 2015 forced out both the president and the vice-president. They are now in jail facing corruption charges. Marches against corruption in Brazil, Chile and Indonesia have also led to substantive changes to laws.
This shows how much can be achieved when people react to specific events, but the rejection of corruption needs to become more sustained. This essay explores the new tools that citizens can, and should, make use of to fight corruption both collectively and as individuals. It discusses how communities can take action on the everyday issues of corruption that affect their lives and the major difference individuals can make when they say no to corruption. It also looks at how we can and should act together against the phenomenon of grand corruption, something that our ever- more connected world is now making possible.
At TI, we define grand corruption as the abuse of high- level power that benefits the few at the expense of the many and causes serious and widespread harm to individuals and society alike. Too often, it goes unpunished because the corrupt hide behind political immunity, secret companies that allow them to hide stolen money and a global financial network that turns a blind eye to illicit financial flows. Even here, citizen action can make a difference to unmask the corrupt. I strongly believe that it will be pressure from people around the world – coming together, using new technologies and speaking with a united bold voice to demand justice – that will start to hold the grand corrupt to account. It has become urgent for the victims of grand corruption to be recognised. Together, we can all help to stop the current trend.
16.2 The power of the masses
Public opinion polls and surveys from the past five years have consistently shown that people see corruption as one of the key social challenges of our time (BBC 2010; Avaaz 2014). When a United Nations online poll consistently featured corruption as a top priority for the next generation of Sustainable Development Goals, this was translated into Goal 16, which commits all governments to “provide access to justice for all and build effective, accountable and inclusive institutions” (UN 2016; UN 2015, p. 2).
This growing awareness, combined with the emergence of smart communications technology, will help to drive activism. Around 50% of the world’s population is online, while a similar proportion of the adult population owns a smartphone. By 2020, this is expected to rise to 80% (The Economist 2015).
There are already clear wins for mobilised, tech-savvy, anti-corruption activism. In Brazil, for example, a new law took effect in 2010 called Ficha Limpa, or Clean Record, which prevents candidates who have been convicted of corruption, mismanagement of public funds or electoral violations from standing for public office for at least eight years. It came about because more than 40 civil society organisations were able to mobilise two million Brazilian citizens to use online actions, together with events, to campaign for the legislation (Salas 2010). This is especially important in a country where TI studies show that 81% and 72% of people respectively feel that political parties and the legislature are corrupt or extremely corrupt (Transparency International 2013a).
Thanks to this law, Brazilian courts barred 317 mayoral candidates – who had criminal records – from running for office in the 2012 municipal election. In the 2014 general election, this rose to 497 (Alves 2014). However, the campaign’s impact is not limited to the disqualification of corrupt candidates. Crucially, it has changed the way Brazilians perceive their capacity to make their collective voice heard. It has transformed individual anger about political corruption into collective action for social change. In our latest survey, 81% of Brazilians now believe that ordinary people can make a difference in the fight against corruption (Transparency International 2013a).
Use of social media helped ignite and organise the uprisings across North Africa and the Middle East. It allowed millions of people to share messages of civil resistance and collective activism. Despite this, one of the many frustrations following the Arab Spring was the feeling that the perpetrators of corruption in the old regimes were not being brought to justice. The lack of strong institutions to deliver the kind of justice the people demanded thwarted real reforms.
In Guatemala, a similar story of disaffected citizenry turned out differently, because three key factors came together: technology, people and an institutional pressure for accountability.
Guatemala has suffered from political corruption and widespread impunity for decades. The justice system was seen as weak and co-opted by powerful interests. Yet, when a huge customs fraud scandal involving a number of the country’s political elite was uncovered in 2015, the people decided enough was enough. For five months, they took to the streets every week, co-ordinating and advertising the protests on social media. Their numbers swelled. This, combined with pressure from emboldened national prosecutors who were working alongside international investigators from the UN, eventually forced the country’s president and vice- president to resign. They were arrested shortly afterwards. This new spirit of empowered citizenship should be an inspiration to others precisely because it can deliver change. It gives legitimacy to legal action in the spirit of democracy. It is the will of the people.
16.3 Communities taking action
Masses can usually only be mobilised for a limited period of time around a specific goal. Their successes are watershed moments for all involved, yet they signal the beginning rather than the end of a long process. Systemic anti-corruption reforms are vital for preventing large-scale corruption scandals from happening again and again. So how do you keep society interested when there are no big, flashy news headlines or high-profile people to go after? By showing it that engagement matters.
When we think of communities, we think of the basic services that people need: education, health, waste collection, public transport and roads. Often communities are one step removed from how these are funded. Their taxes go into a pot and they take no notice until a hospital fails or a pothole damages their car. But we can only know whether money is well spent if we have access to information about it. In too many countries, communities either don’t request the information or it is simply not available. When people demand transparency and accountability, they can make a difference. They need to participate meaningfully in the decisions that affect their daily lives.
This is what happened in a school just outside Dhaka, the capital of Bangladesh. Corruption in education is a significant challenge in Bangladesh and particularly affects the poor. Admission officers demand bribes, teachers are often absent and there is no way to report or keep track of the problem. One school decided to change the way things worked. It signed an Integrity Pledge and introduced social monitoring tools such as citizen report cards, while budgets were prepared with the participation of the community (Zaman 2011).
Within a year, the dropout rate fell from 30% to 7%, the collection of unauthorised payments stopped, scholarships were distributed transparently and 100% of students passed the annual final examination. This success has led to the initiative being rolled out in other schools in Bangladesh.
Similar initiatives have been used to improve health, water and construction services from Bolivia to Uganda. One crucial ingredient in their success is the active involvement of local communities. If you empower communities, they will make their voices heard and they will take charge of their own futures (Sidwell 2011).
The other crucial element is transparency. Having access to information is a precondition for making informed decisions and holding public officials and elected leaders to account. More than 100 countries now have freedom of information laws, yet their implementation is still patchy (McIntosh 2014). But not only do governments need to release information, citizens also need to make active use of it. This combination of information and activism can be a potent tool.
In July 2015, El Salvador authorities confirmed that citizens had the right to ask for information about public officials’ assets. This is important because, if you can track wealth over time, it can show whether officials are using their positions for illicit gain. In less than four months, Salvadoran citizens submitted close to 6,000 requests for information. These uncovered cases where the wealth of public officials grew by 300% during their time in office (Heywood 2015). Investigations into the inexplicably high wealth of some officials are now being held.
New technologies are facilitating this push for transparency. ‘Big data’ may be a buzzword, but its trickle- down effect can allow ordinary people to search and evaluate important information. There is no reason why local, regional and national governments cannot put their records online and create a platform for citizens to search data on public tenders, tax spending or any other part of the day-to-day running of communities.
Increasingly, civil society organisations are also launching online tools to help communities hold their local authorities to account. Through Fix My Street, people in Georgia can flag construction and infrastructure issues in their neighbourhood to the mayor’s office and track repairs (Transparency International 2013b). The online portal has triggered the fixing of hundreds of problems. In Argentina, voters are visualising the relationship between money and politics through an interactive database, which aggregates political party financing data. The site allows citizens to see where party funds are coming from and where they are going (Transparency International 2012). In Lithuania, manoSeimas (My Parliament) lets users find out how parliamentarians have been voting on policy issues (Transparency International 2016a).
The tools to hold elected officials to account are beginning to expand. It is up to people to start using them. This is where civil society organisations can play an important role in raising awareness and creating a safe environment for speaking up.
16.4 Individuals can make a difference
For too many people, the idea that a corrupt system can change is difficult to believe; they simply accept corruption as business as usual. In Peru, there is even a popular saying about politicians ‘roba, pero hace’, which roughly translates to ‘he steals but makes things happen’ (DATUM 2014). More than half of all Peruvians are willing to vote for corrupt politicians as long as they ‘do work’ (Ipsos Perú 2014). Sadly, every year, one in four people around the world pay a bribe to access public services (Hardoon and Heinrich 2013). In Cambodia, India and Kenya, this figure is even higher than one in two. In Mexico, a family spends on average 14% of its income on bribes for basic services they are entitled to, such as water, medicine and education (Transparencia Mexicana 2011).
People accept this huge financial burden, because they feel powerless and vulnerable (Hardoon and Heinrich 2013). They believe reporting corruption won’t make a difference and could put them or their family in danger. Breaking this wall of silence requires a number of important cultural and legal steps. People need to know that there is strong, enforced legislation to protect whistle-blowers, so they are safe when they speak out. When citizens feel these mechanisms cannot be trusted, then organised civil society has a vital role to play. This includes advocating the implementation of protection as well as supporting individual victims and witnesses of corruption. The results can be impressive.
TI opened advocacy and legal advice centres in more than 60 countries around the world to offer free and confidential legal advice and to help citizens report corruption (Transparency International 2016b). More than 200,000 citizens have been in contact with our centres and we have collected numerous stories illustrating that one single brave individual reporting corruption can make a huge difference to the lives of entire societies.
In the Czech Republic, a whistle-blower on environmental corruption helped to save the country more than €2 billion (Transparency International 2015c). In Nepal, money that was meant for women giving birth in remote regions but stolen by healthcare officials was returned and redistributed where it was needed most (Transparency International 2015d). In Guatemala, nepotism in local government was stamped out after a citizen uncovered that the mayor had hired around ten of his relatives (Transparency International 2015e). In March 2015, Transparencia Venezuela launched a smartphone app Dilo Aquí, which allows ordinary citizens to report instances of bribery and any irregularities during elections (Transparencia Venezuela 2015a). In the parliamentary elections in December 2015, more than 400 complaints of electoral abuse were registered via the app that were then channelled to the National Electoral Council and the Comptroller General for follow-up (Transparencia Venezuela 2015b).
The goal is to encourage, cajole, educate and empower more citizens to speak out and speak out safely. This affects us all. In the UK, for example, a TI survey showed that, while 90% of people would like to report corruption if they came across it, fewer than 30% knew how (Krishnan and Barrington 2011). Individuals everywhere need to take their responsibility as citizens seriously and speak up for their right to live in a society free of corruption. When they do that, governments and institutions have to listen and act.
16.5 The new challenge: bringing down grand corruption
Every year an estimated $1 trillion in illicit financial flows leave developing countries, often with a single keystroke (Global Financial Integrity 2015). The majority of these funds end up in developed countries. Be it in a property in London or a bank account in Switzerland, the effects on the local economies left behind are devastating. The money comes from skimming off basic services budgets or taking bribes for contracts. Such abuse of entrusted power for private gain has immediate consequences on people – victims are often left helpless.
We want to see behavioural and systemic change in the next ten years and we want victims to be recognised and taken into serious consideration. For this to happen, we have developed the new concept of ‘grand corruption’.
Unfortunately, examples of grand corruption are everywhere. The Chinaleaks documents showed how the country’s elite funnelled billions of dollars of corrupt money into so-called ‘safe havens’ such as the Bahamas using shell companies (Boehler 2014). The President of Equatorial Guinea, Teodoro Obiang Nguema Mbasogo, and his son Teodoro are estimated to have allegedly siphoned off more than $300 million from state coffers to buy a luxury lifestyle in Paris and the United States, while the majority of the country’s population lives in poverty. Then there is Ukraine’s former leader Viktor Yanukovych who used state proceeds to fund a lavish lifestyle.
Think also of the billions of dollars’ worth of fines the big banks, including household names such as Barclays, HSBC, Citibank and BNP Paribas, have had to pay for institutionalised corruption like rigging exchange rates, mis-selling products and helping clients avoid anti-money laundering rules and evade taxes.
We witness human rights abuses in cases of grand corruption. There are victims. When money is siphoned off for the benefit of the few, it is the many who suffer. Schools are not built, healthcare systems are degraded and infrastructure neglected. It exacerbates poverty and exclusion. Grand corruption also damages democracy and good governance. When a state is captured, such as allegedly happened in Guatemala under President Otto Pérez Molina, then insecurity and instability are high. It is the citizens that pay the price.
Unfortunately, grand corruption often goes unpunished. In the case of corporations, too often it is the shareholders who pay the fines, not the individuals who commit the crimes.
To change this, we need help from citizens. They have to use all the tools for fighting corruption outlined above – technology, community actions and mass movements - to demand justice and unmask the corrupt both in the countries where the corrupt money is generated and, just as importantly, in the countries where it ends up.
Money laundering is not just a term used to describe Mafia-style organised crimes. It might be the way your neighbour bought their flat via a secret offshore company, or the cash payments used to purchase a luxury watch. Citizens living in countries on the receiving end of corrupt money need to be part of the fight against grand corruption too. And this is where awareness raising is still in its infancy. We as civil society are calling on governments to put mechanisms in place that prevent dirty cash from entering their countries. But because this type of corruption is not obvious to citizens of dirty money destinations – in fact it can actually add to economic growth – there is still limited will from citizens to pressure their leaders or take action themselves.
The G20 has taken up this cause at a high level. It remains for the countries themselves to introduce the legislation and enforce it. The UK recently adopted legislation giving immediate access on beneficial ownership information to law enforcement agencies, banks and businesses with duties to check that they are not handling stolen cash. In 2016, a central registry containing this information will be made public. It is time for more countries to follow suit and for citizens to campaign to ensure that they do.
More and more, journalists and non-governmental organisations (NGOs) – using new online search tools to follow money – are exposing cases of grand corruption and pressing for criminal investigations and indictments. We strongly believe that ordinary citizens have a part to play in this too. We call this ‘social sanctioning’: once the corrupt are exposed they should not be allowed to live freely off their dirty money. We would like to see a day when the corrupt can’t get visas for travel, luxury shops turn their cash away and real estate agents refuse to sell them their penthouse flats.
Without active citizens the fight against corruption cannot be won. People need to say no to corruption on every level. They need to speak out against extortion and denounce leaders and companies who are exposed as engaging in corruption. They need to take responsibility for their own actions and demand the same from their peers. Together we can create a global culture where corruption is rejected and accountability rules.
There are plenty of examples where this has happened.But the feeling of disempowerment is still too widespread. People need to turn the anger and helplessness they feel into active rejection of the status quo. Civil society organisations can help create awareness and mobilisation, but governments have to enforce laws that show the corrupt will be held to account.
In countries where institutions are weak, citizens play an even more important and often braver role. Those who speak out can be targets, but not everyone has to be on the front line. Take the example of the school in Bangladesh: it was parents and local organisers who asked the school to note who showed up to teach and to commit to not asking for admissions bribes. These small steps led to measurable improvements – the kids passed their exams.
Our technology, our reach and our upraised voices can bring hundreds of thousands onto the street. These things can also be used to simply draw attention to the inconsistencies between a local politician’s lifestyle and their publicly declared salary. It is the combination of our loud indignation and our quiet vigilance that will put an end to corruption, both grand and not so grand.
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An important exception to this was the republican tradition, which started in Greece and Rome, and was adopted by numerous city states in Italy, the Netherlands and elsewhere. The very term ‘republic’ comes from the Latin res publica, or ‘public thing,’ denoting that the political order was representative of a larger public good. ↩
A classic case was the French Foreign Minister Talleyrand: a highly corrupt individual, but a very talented diplomat, who helped negotiate the settlement at the Congress of Vienna. ↩
Interview with Ms Mpho Letima, Fellow, African Leadership Centre, Nairobi, Kenya, 28 October 2015. ↩
A search for the term ‘Cyprus’ on www.occrp.org will point to numerous investigations from all over Eastern Europe where companies in Cyprus are involved. ↩
You can find further information on this interface and access online here, here and here. ↩
Notes from conversation with legal professionals in Kano, Nigeria, 7 February 2015, quoting Ibrahim Mokhtar. ↩
Notes from conversation with tribal elders from Shah Wali Kot District, Kandahar, Afghanistan, 24 May 2009; names withheld for security reasons. ↩
Notes from trip to Spin Boldak, Afghanistan, 25 May 2009. ↩
Also interviews with several Western officials in Abuja, November 2013. ↩
Notes of interview with a group of Maiduguri residents, Maiduguri, Nigeria, 21 November 2015. ↩
Longo, Canetti and Hite-Rubin reference the Second Intifada from 2000 to 2005, and the wider violent unrest on the West Bank. ↩
Ibid., notes Kano, Nigeria. ↩
Ibid., notes Maiduguri, Nigeria. ↩
Notes of conversation with Sardar Muhammad, Kandahar, Afghanistan, 20 November 2010. ↩
See also numerous Dutch petitions to King Phillip II of Spain 1550–1580. ↩
Notes of interview with Murad Louhichi, Manzil Tmim, Tunisia, 29 September 2012. ↩
Notes of interview with ‘Rustam’ (name changed for security reasons), Tashkent, Uzbekistan, 23 February 2014. ↩
This is a view I encountered frequently when covering the Algerian civil war for National Public Radio in the late 1990s. ↩
Conversation with Debra Laprevotte, 15 September 2015. ↩
In the event, the Union Cycliste Internationale (UCI), the world cycling governing body, cleared Delgado. He was not docked ten minutes and went on to win the 1988 Tour de France. ↩
I am grateful to World Bank Group staff Alexander Slater, Joel Turkewitz and Charles Undeland for their assistance with this essay. ↩
See also Olken, B. 2007. Monitoring Corruption: Evidence from a Field Experiment in Indonesia, Journal of Political Economy, 115(2), pp. 200– 248. ↩
This 2015 estimate is an extrapolation by Daniel Kaufmann based on his work in Myths and Realities of Governance and Corruption (2005). ↩
In addition, non-compliance with tax obligations distorts competition. See IMF. 2015a. Current Challenges in Revenue Mobilization. Washington DC: IMF. ↩
See also, for example, Tanzi, V. and Davoodi, H. 2002. Corruption, Public Investment, and Growth. In: G. T. Abed and S. Gupta, eds. Governance, Corruption & Economic Performance. Washington DC: IMF, pp. 280–299. Military spending is, in addition, prone to corruption, because of secrecy and a lack of transparency (see Gupta, S., de Mello, L. and Sharan, R. 2002. Corruption and Military Spending. In: G. T. Abed and S. Gupta, eds. Governance, Corruption & Economic Performance. Washington DC: IMF, pp. 300–332). ↩
While the analysis of the association between corruption and growth remains controversial, a meta-analysis of 52 cross-country studies found that a one-unit increase in the perceived corruption index is associated with a nearly 1 percentage-point decrease in the growth rate of per capita GDP (see Ugur, M. and Dasgupta, N. 2011. Evidence on the Economic Growth Impacts of Corruption in Low-Income Countries and Beyond: A Systematic Review. London: EPPI-Centre, Social Research Unit, Institute of Education, University of London). ↩
Over the past decade, risk-rating agencies have realised that their previous models, driven by economic variables alone, were unsatisfactory and have incorporated governance and corruption factors, such as the Worldwide Governance Indicators. ↩
There are cases where corruption has caused some donors to interrupt foreign aid flows. ↩
For example, the Fiscal Transparency Evaluation conducted by the Fund in Mozambique (the first in Sub-Saharan Africa) identified a need for greater transparency in public procurement and state-owned enterprises (see IMF. 2015c. Republic of Mozambique – Fiscal Transparency Evaluation). In Tunisia, the Fund has supported the development of a more transparent budget law that would strengthen budget preparation and execution procedures and introduce performance-based budgeting. ↩
Many countries are taking the positive step of automating public services, which not only allows for simplification and efficiency, but also eliminates the potential for abuse of discretion. ↩
2015 IMF Annual Meetings Flagship Seminar – Individual Integrity in Public Sector Governance, Lima, Peru. ↩
A good example is the ‘I paid a bribe’ website in India (www.ipaidabribe. com). For other examples in Bhutan, Pakistan and Kenya, see Strom, S. 2012. Websites shine light on petty bribery worldwide. New York Times. 6 March 2012. Available from: http://www.nytimes.com/2012/03/07/ business/web-sites-shine-light-on-petty-bribery-worldwide.html?_r=0). ↩