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CORRUPTION IN WESTERN COUNTRIES DEFINED:
Corruption can be defined simply as behavior that corrupts. It tends to subvert the cultural system in which it occurs. This means that one cannot recognize corruption in a particular society without knowing something about how that society works.
The reality, however, is that different cultures use radically different systems to get things done. Whereas Western cultures are primarily rule-based, most of the world’s cultures are relationship-based. Western business people trust the system, while people elsewhere trust their friends and family. Westerners organize their business around discrete deals that are drawn up as written contracts and enforced by a legal system. Others organize their business around personal relationships that are cemented by personal honor, friendship, or long-term mutual obligation. Loyalty to cronies is suspect behavior in Western business but represents high moral character in much of the world. The distinction of rule-based and relationship-based systems is only one of many cultural differences, but it already creates different ethical norms. One can immediately predict that cronyism, for example, might have a very different status in the two systems.
One would expect that corruption is more likely to take place when civil servants are paid very low wages and often must resort to collecting bribes in order to feed their families. There is less corruption where there are fewer trade restrictions; where governments do not engage in favoritist industrial policies; and perhaps where natural re sources are more abundant; and that there is some what less corruption where civil servants are paid better, compared with similarly qualified workers in the private sector.
Levels of corruption in the different sectors indicate where corruption can be encountered. The levels are defined as follows:
- Individual Corruption: Corruption that takes place primarily in relations between individual citizens and public officials and authorities.
- Business Corruption: Corruption that takes place primarily in relations between enterprises/companies and public officials and authorities.
- Political Corruption: Corruption that takes place in the higher echelons of public administration and on a political level
WHAT IS BRIBERY – DIFFERENT TYPES OF BRIBERY
Bribery is a white collar crime in which money, a favor or something else of value is promised to, given to, or taken from an individual or corporation in an attempt to sway his or its views, opinions, or decisions. For example, if an electoral candidate offered bottles of liquor in exchange for votes, it would be considered a bribe, and therefore, a crime.
What are the different types of bribery, and what punishments do they carry?
Types of bribery include the following:
- By/of a Public official or
- By/of a witness
Any public official (anyone acting on behalf of the United States, such as a senator, witness, or juror) who demands, receives, or accepts a bribe in exchange for orchestrating an illegal change in his duties will be fined not more than three times the value of the incentive and/or imprisoned for not more than 15 years. The public official may also be prohibited from holding any political or government office in the United States.
Conversely, anyone who offers a bribe to a public official will be fined and/or imprisoned for not more than two years.
Any witness who demands, receives, or accepts a bribe in exchange for altered testimony faces a fine of three times the value of the bribe and/or up to 15 years in prison, while anyone who bribes a witness faces a fine and/or up to two years in prison.
Bribery of a foreign official
In 1997, The U.S. Congress passed The Foreign Corrupt Practices Act, which made it illegal for an American corporation to bribe a foreign government official with money or gifts in hopes of landing or maintaining important business contacts. According to the act, all publicly traded companies must keep records of all business transactions—even if the companies do not trade internationally—to ensure that this act is not being violated.
However, in the act, there are loopholes of which many U.S. corporations take advantage. For example, the act permits “grease payments”, which are incentives paid—without penalty—to foreign officials to help expedite the completion of paperwork and to ensure the receipt of licenses or permits.
According to the Bank Bribery Amendments Act of 1985, 1) the solicitation of an employee, director, etc. in any capacity in exchange for business and 2) the acceptance of anything (including meals, entertainment, and accommodations during travel) but a legitimate salary, wages and fees from anyone in connection with the bank’s business are prohibited. If any representative of a bank accepts a bribe, he will be fined three times the value of the incentive, or he will be imprisoned for not more than thirty years. However, if the value of the bribe is less than $1,000, the representative will be fined but sentenced to not more than one year in jail.If a bank official is offered a bribe, he must disclose all information to the bank so that the situation may be addressed appropriately.
Bribery in Sporting Contests
A sporting official who accepts a bribe in exchange for a promise to “fix” a sporting event is guilty of bribery and may be punished under Title 18 of the United States Code, Sect. 224. For example, if a referee is convicted of “throwing” a major sporting event, he will be fined, imprisoned for up to five years, or both.
CORRUPTION AS CULTURALLY DEFINED
Since cultural systems operate differently, business practices that are corrupting in the West may be acceptable elsewhere, even obligatory. Practices that are acceptable to Westerners may be corrupting elsewhere. And finally, practices that are corrupting both in the West and elsewhere may be corrupting for very different reasons. Each of these three possibilities may be illustrated as follows.
- What is corrupt in the West may be acceptable elsewhere.
- The classic example of the purchasing agent illustrates this point. The Western purchasing agent is expected to award contracts based on the quality of bids and transparently available financial information about the bidders. An agent who favors personal friends is viewed as corrupt, because cronyism subverts this transparency-based system. It creates a conflict of interest: a choice that is good for the agent and his or her cronies may not be good for the company.
- In much of the world, however, cronyism is a foundation for trust. A purchasing agent does business with friends because friends can be trusted. He or she may not even ask to see the company financials, since this could insult the other’s honor. It is assumed that cronies will follow through on the deal, not because they fear a lawsuit, but because they do not wish to sacrifice a valuable relationship in an economy where relationships are the key to business. In such a system it is in the company’s interest for the agent to do business with friends, and cronyism therefore presents no conflict of interest.
- What is acceptable in the West may be corrupt elsewhere.
- Lawsuits provide an example of this. In the West, which relies on rules and individual responsibility, lawsuits are routine and necessary. In Japan, however, they are corrupting. Japan is a strongly relationship-based culture in which interpersonal relations are based on maintaining harmony. Harmony is preserved by elaborate courtesies, humility, deference to superiors, and avoidance of confrontation. Lawsuits have no place in this system because they promote confrontation.
- Thus if a plane crashes, the victims’ families normally do not file suit; rather, the airline’s CEO personally apologizes to them. The apology does not indicate personal guilt as in the West but is intended to restore harmony. A dramatic illustration of this principle is provided by Shohei Nozawa’s tearful apology to employees and stockholders shortly after Yamaichi Securities declared bankruptcy. Nozawa was not admitting guilt and in fact had just assumed his position as CEO in order to clean up a mess left by others. His aim was to restore harmony among the stakeholders.
- What is corrupt both in the West and elsewhere may be corrupt for different reasons.
- Bribery, for example, is corrupting in the West because it induces people to depart from established rules and procedures. Furthermore, if bribes become common enough, people in general may lose faith in the system and flout the rules routinely. Bribery is also corrupting in most Confucian cultures, but for a different reason: it short-circuits the building of relationships. China and Taiwan, for example, rely on the stability provided by long-term relationships of mutual obligation (guānxì). A bribe “buys” a relationship that lasts only until the next bribe is required.
- Since there is a fine line between legitimate guānxì relationships and quid-pro-quo bribery, bribery tends to be more common in Confucian countries than in some Western countries. An Western analogue would be litigiousness, or overuse of the legal system, since there is an equally fine line between legitimate lawsuits and nuisance lawsuits. Litigiousness is a form of corruption that is particularly prevalent in the United States. Bribery can also flourish in Western countries, of course, particularly when political upheaval or oppression breaks down the traditional rule-based mechanisms.
Corruption is rife and all pervasive, though many allegations are nothing but political mud-slinging. Luckily, in countries like Macedonia, it is confined to its rapacious elites: its politicians, managers, university professors, medical doctors, judges, journalists, and top bureaucrats. The police and customs are hopelessly compromised. Yet, one rarely comes across graft and venality in daily life. There are no false detentions (as in Russia), spurious traffic tickets (as in Latin America), or widespread stealthy payments for public goods and services (as in Africa).
According to Transparency International's "Global Corruption Report 2001", corruption has been successfully contained in private banking and the diamond trade, for instance.
Hence also the involvement of the World Bank and the IMF is in fighting corruption. Both institutions are increasingly concerned with poverty reduction through economic growth and development. The World Bank estimates that corruption reduces the growth rate of an affected country by 0.5 to 1 percent annually. Graft amounts to an increase in the marginal tax rate and has pernicious effects on inward investment as well.
The World Bank has appointed last year a Director of Institutional Integrity - a new department that combines the Anti-Corruption and Fraud Investigations Unit and the Office of Business Ethics and Integrity. The Bank helps countries to fight corruption by providing them with technical assistance, educational programs, and lending.
In his address to the Inter-American Development Bank on March 14, President Bush promised to "reward nations that root out corruption" within the framework of the Millennium Challenge Account initiative. The USA has pioneered global anti-corruption campaigns and is a signatory to the 1996 (IAS) Inter-American Convention against Corruption, the Council of Europe's Criminal Law Convention on Corruption, and the OECD's 1997 anti-bribery convention. The USA has had a comprehensive "Foreign Corrupt Practices Act" since 1977.
The Act applies to all American firms, to all firms - including foreign ones - traded in an American stock exchange, and to bribery on American territory by foreign and American firms alike. It outlaws the payment of bribes to foreign officials, political parties, party officials, and political candidates in foreign countries. A similar law has now been adopted by Britain.
The south-eastern Europe Stability Pact sports its own Stability Pact Anti-corruption Initiative (SPAI). It held its first conference in September 2001 in Croatia. More than 1200 delegates participated in the 10th International Anti-Corruption Conference in Prague last year. The conference was attended by the Czech prime minister, the Mexican president, and the head of the Interpol.
Under the influence of the post-September 11 United States and the FATF (Financial Action Task Force on Money Laundering), Canada, Australia, the United Kingdom, Greece, South Korea, and Russia have similar asset recovery and money laundering laws in place.
Consider the EU's eastern boundary. More than a million people cross the busy Ukrainian-Polish border every month. Enhanced regulation on the Polish side and new, IMF-inspired, tax laws on the Ukrainian side - led to a massive increase in corruption and smuggling. Truck owners now bribe customs officials to the tune of $300 per vehicle, according to a January 2001 report by CEPS.
The results are grave. Following the introduction of these new measures, cross border traffic fell by 50 percent and unemployment in the Polish border zones jumped by 40 percent in 2002 alone. It has since doubled. The IMF and the EU are much decried by the Polish minority now trapped in Western Ukraine.
Again, sometimes these moneys end in secret bank accounts in Switzerland or in Luxembourg. At other times, they finance political activities of political parties. This was rampantly abundant in Italy and has its place in France. The USA, which was considered to be immune from such behaviours - has proven to be less so, lately, with the Bill Clinton alleged election financing transgressions.
National Center for the Analysis of Violent Crime (NCAVC) provides support through expertise and consultation in non-violent matters such as national security, corruption, and white-collar crime investigations.
Economy / Politics:
SCENARIOS - BASED ON REAL EVENTS
It is instructive to examine a few scenarios, based on real events, in which cultural norms clash. In one scenario, you (a Westerner) are a manager in your company’s Taiwan branch. You meet with a team representing a potential local supplier and notice that, after the team departs, one of them left behind a briefcase. While looking for the owner’s name, you find the case to be full of cash. This situation is actually easier to deal with than many, because the locals are offering a bribe rather than demanding one. Since kickbacks are mildly corrupting in Taiwanese culture, it is best to refuse them, which if properly done need not give offense. In this case, you can send a trusted subordinate to return the briefcase to the owner. You should email a vaguely-worded note to the owner’s boss stating that you are returning lost property. The owner clearly got the cash from his boss, and you do not want him to keep it and leave his boss with the impression that you accepted the money. If you eventually hire the local firm, the boss will be pleased to get the contract without paying a kickback, and if you do not, you have already returned the money.
Your accounting firm wishes to set up operations in South Korea, and you need a number of permits from the government. When the approval process bogs down, a local consultant offers to take care of the problem. When you ask how, he confides that he will hand his government contact a white envelope—with money inside. His consulting fee will include an unitemized allowance for the payment. A related scenario is even more common: your applications for customs clearance never seem to get through the authorities at the airport, and your Korean counterpart offers to take care of this in a similar way.
In this case one can argue that side payments are actually functional if they are kept under control, and therefore not an instance of corruption. Government regulation has played a major role in creating the prosperity that makes your business in Korea possible. Since Korea is not a rule-based culture, some relationship-based mechanism is needed to enforce these government regulations. One expensive and heavy-handed mechanism is police power. Korea has evolved a different approach: business people “invest” in their relationships with government officials. This gives businesses an incentive to obey the regulations in order to preserve a costly relationship, thus allowing the government to enforce its will. Government officials have an incentive to cooperate with business in order to get the money. Bribery can get out of hand, however, and this may explain why it is loss of face to be caught doing it. Ironically, journalists sometimes take bribes from a government official in exchange for not exposing his receipt of bribes.U.S. Business people should take note that their country’s Foreign Corrupt Practices Act forbids bribery of foreign government officials. It is wise to consult an attorney in cases where the law could apply. Interestingly, Taiwan recently enacted a similar law.
Bribery around the World
While on the subject of bribery, it is useful to survey briefly the state of affairs in several countries. The brief summaries given here do not reflect the subtlety and complexity of local situations, which should be researched thoroughly before doing business there.
China and Taiwan
As already mentioned, bribery is common in these countries and is corrupting because it undermines more stable forms of relationship. In China particularly, the central government strongly discourages bribery, which erodes its power. The penalty for some types of bribery can be severe (e.g., death).
Bribery scandals periodically come to light in Japan and may result in a flurry of prosecution and punishment. Bribery is corrupting primarily because it undermines group solidarity, the primary mechanism for social cohesion. Group solidarity is maintained by a careful process of cultivating loyalty and maintaining harmony, not by side payments.
Bribery is strictly forbidden in Singapore and is not practiced. India. Bribery and skimming are common in India, and facilitating payments are ubiquitous. The latter are small, routine payments made to obtain services to which one is already entitled. They are arguably functional in that they supplement the inadequate salaries of bureaucrats. On the other hand, bribery in the sense of influence peddling is both unnecessary and dysfunctional. It is unnecessary because Indian business and politics are based primarily on skilled networking and family connections, not bribes. It is dysfunctional because it corrupts India’s quasi-Western public administration. Although bribery is common, the system operates despite it, not because of it. It is therefore corrupting and should be avoided.
Russia and Eastern Europe
Bribery is a way of life in many of these countries and is an unmitigated evil. It is a symptom of system breakdown, due to a recent history of political oppression or instability. It is best to rely on corporate clout, connections, and pro bono activities, and to maintain a clean reputation.
These present a complex picture, due to regional variations and mixing of cultures. Kickbacks are other relationship-based practices are common, but their tendency to corrupt depends on the local situation.
Bribes and facilitating payments are very common in both business and public administration, and Turks find them quite irritating. Bribes that circumvent the law undermine the country’s quasi-Western administration and should be avoided. Some small payments may be unavoidable, as when settling a traffic ticket, getting children into school, or clearing customs.
Bribery in much of central and southern Africa is out of control, and it cripples the economy. It represents the total corruption of an ancient patronage system that once held rulers accountable. It is a symptom of social breakdown that stems from Africa’s encounter with Western powers and a radically different economic system. Companies should use any means available to avoid paying bribes. They can often exert the necessary influence through the potential economic benefits of their operations and their willingness to fund infrastructure.
Bribery is common in Latin America but not ubiquitous. It is widely regarded as immoral, in many cases even by those who demand bribes. Bribery seems to be a holdover from a turbulent past and is arguably inessential for a system that can rely on other kinds of relationships. It in fact seems to be on the wane in some countries, such as Mexico. Business people should cultivate personal connections and avoid paying bribes. They should make it known that they work only with locals who play it clean.
You are in Singapore to complete arrangements for a joint venture. Your Chinese counterpart has proposed several persons for top executive positions, including his son-in-law, his brother, and his nephew. Should you object? Nepotism occurs in the West but is generally viewed with suspicion, due to a conflict of interest: the boss who hires a relative may not hire the best person for the company. In Confucian countries, however, nepotism has several positive aspects. Whereas a Western boss tends to go easy on relatives, a Confucian boss exercises greater authority over his family members than others and may be able to extract greater effort. He knows their strengths and weaknesses more intimately and can assign duties accordingly. More fundamentally, the family is the foundation of Confucian society. Children support their parents and grandparents in old age, and parents get jobs for their children. Far from being a form of corruption, nepotism is an essential part of this ancient system.
You run a book shop in Nairobi, and tomorrow is the deadline for a proposal you wish to submit for a government contract. You offer to pitch in to help your employees make photocopies. Your sense of equality encourages you to convince the staff that you are “one of them.” Yet they resist your offer and insist that they can take care of it, even though in reality they will almost certainly miss the deadline. Such gestures of egalitarianism are admired in the United States, Australia, and some other Western cultures, but not in most of the world. They cause subordinates to lose respect for the boss, and in Africa in particular they invade the employees’ turf. In most cultures, individuals are not created equal but receive their status from circumstances. Authority is not earned by individual merit but is endowed—perhaps by family, wealth, good connections, or the mandate of heaven. As a Western bookshop owner in Nairobi, your authority derives from your relative wealth. Your duty is to accept your higher station and plan more carefully for the next deadline.
Source: corruption PDF File
We provide a theoretical framework for understanding when an official angles for a bribe, when a client pays, and the payoffs to the client’s decision. We test this framework using a new data set on bribery of Peruvian public officials by households. The theory predicts that bribery is more attractive to both parties when the client is richer, and we find empirically that both bribery incidence and value are increasing in household income. However, 65% of the relation between bribery incidence and income is explained by greater use of officials by high–income households, and by their use of more corrupt types of official. Compared to a client dealing with an honest official, a client who pays a bribe has a similar probability of concluding her business, while a client who refuses to bribe has a probability 16 percentage points lower. This indicates that service improvements in response to a bribe merely offset service reductions associated with angling for a bribe, and that clients refusing to bribe are punished. We use these and other results to argue that bribery is not a regressive tax.
Corruption in Peru
The enormous scale of grand corruption in Peru was revealed in 2000 by discoveries leading to the resignation and self–exile of the president, Alberto Fujimori. Video–taped evidence showed that Vladimir Montesinos, Fujimori’s spy chief, had repeatedly bribed congressmen to defect to Fujimori’s party to ensure its majority in congress.
Despite some progress, however, several institutions with which ordinary people have much contact were judged to be corrupt by Transparency International in a November 2001 report.10 An increase in the number of temporary judges, appointed in part to help clear backlogs, had contributed to corruption. Such judges, representing 74 per cent of all judges, were vulnerable to political pressure and susceptible to corruption because of their lack of job security. The morale of the police was thought to be lowered by poor pay and equipment, which combined with weak internal controls and sanctions rendered them susceptible to small and large–scale corruption, as well as to cooperation with criminals. At this time it was customary to bribe the transit police.
We use data from a large, nationally and regionally representative, household survey from Peru. The Encuesta Nacional de Hogares (ENAHO), conducted yearly by Peru’s national statistical agency Instituto Nacional de Estad´ıstica e Informaci´on (INEI), contains detailed information about individual and household characteristics. Rural regions are over–sampled. Over 18,000 households responded to each of the 2002 and 2003 surveys.
In order to investigate whether government regulations against corruption can affect the economic growth of a country, we analyze the dependence between Gross Domestic Product (GDP) per capita growth rates and changes in the Corruption Perceptions Index (CPI). For the period 1999-2004 on average for all countries in the world, we find that an increase of CPI by one unit leads to an increase of the annual GDP per capita by 1.7 %. By regressing only European transition countries, we find that _CPI = 1 generates increase of the annual GDP per capita by 2.4 %. We also analyze the relation between foreign direct investments received by different countries and CPI, and we find a statistically significant power-law functional dependence between foreign direct investment per capita and the country corruption level measured by the CPI.
Corruption, defined as abuse of public power for private benefit, is a global phenomenon that affects almost all aspects of social and economic life. Examples of corruption include the sale of government property by public officials, bribery, embezzlement of public funds, patronage and nepotism. The World Bank estimates that over 1000 billion US dollars annually are lost due to corruption, representing 5% of the world GDP. The African Union estimates that due to corruption, the African continent loses 25% of GDP.
Table I:Rank of countries (left colomn) by Transparency International for year 2006 with CPI values (right colomn) for each country.
|1||Finland, Iceland, New Zealand||9.6|
|20||Belgium, Chile, USA||7.3|
|70||China, India, Mexico, Brazil, Ghana, Egypt, Peru, S.Arabia, Senegal||3.3|
In Table I, we show the first ten least corrupt countries as ranked by Transparency International according to the CPI values obtained in 2006 as well as some other countries. Besides some Western European countries, among the least corrupt ten countries are New Zealand, Singapore, and Australia. Chile and Botswana are the least corrupt countries in South America and Africa, whereas Singapore is the least corrupt Asian country. Table I provides information about corruption levels throughout the World in absolute terms, where each country, whether rich or poor, is given only its CPI value.
In an earlier study some of us have reported a power-law functional dependence between GDP per capita and CPI for all countries in the world :
CPI = N (GDPpc)μ (1)
with scaling exponent μ ≈ 0.23 [see Fig. 1]. This functional dependence spans multiple scales of wealth and remains stable over different time periods. The positive value of exponent μ indicates that richer countries are less corrupt. This power-law dependence provides information about the expected level of corruption for a given level of country wealth — e.g., a country above (or below) the fitting line is less (or more) corrupt than expected for its level of wealth. We may say that for a country above the fitting line the level of corruption is less than the expected level for the given country wealth. This previous finding indicates that in order to compare the corruption level between two countries, countries may be compared not only in terms of absolute CPI values but also in terms of relative country wealth. To that account, we introduce a new measure of relative corruption which we call Honesty per Dollar (HpD):
HpD = ln(CPI) − μ ln(GDPpc) − c, (2) equal to the difference between actual CPI and the value expected from the power-law fitting line.
Figure 1: Corruption level measured by Corruption Perceptions Index (CPI) versus country wealth measured by GDP per capita calculated for 2006. We find the functional dependence can be fit by a power law 0.56 (GDPpc)0.23 with positive exponent. The power law fit in log-log plot has an obvious statistical explanation, representing the expected level of CPI for a country with given GDP per capita. The countries that are above the line are less corrupt than expected. We define a new index we call Honesty per Dollar (HpD) to measure relative performance of a country when CPI and GDP per capita are simultaneously considered. Besides the USA, UK, Greece, and Italy, we show the countries with the extreme HpD values, Bhutan and Equatorial Guinea (oil exporter).
We assume that all countries, with similar GDP per capita and laying on the power-law fitting line in Fig. 1, have comparable levels of corruption when (HpD = 0). Generally, the larger value for HpD, the better the performance of a country. For 2006 based on regression obtained for the entire world, we calculate the values of the index for some countries: HpD(UK) = 0.29, HpD(USA) = 0.1, HpD(Italy) = −0.23, HpD(Greece) = −0.3. The negative values of HpD indices for Italy and Greece, indicate that these two countries are relatively more corrupt than expected for their corresponding level of wealth (GDP per capita).
Sharing the View: Line Officer and Supervisor
Evaluations of Police Corruption Seriousness in Bosnia And Herzegovina
Despite more than six years of increasingly intrusive reforms carried out at the behest of the UN Mission in Bosnia & Herzegovina (UNMIBH), the local police cannot yet be counted upon to enforce the law. Compared to most countries in the world, Bosnia and Herzegovina seems to be among the countries more tolerant of corruption in general. According to the 2003 Transparency International Corruption Perceptions Index, Bosnia and Herzegovina received a score of 3.3 on a scale from 0 (highly corrupt) to 10 (highly clean). Such a low score indicates that business people, aca¬demics, and risk analysts perceived the country as being corrupt.
Nine cases focus on police corruption and vary from the acceptance of gratuities and holiday gifts to opportunistic thefts and shakedowns of speeding motorists. Despite the increased level of tolerance of corrup¬tion in the country, police officers are quite capable of judging the seriousness of a variety of police corruption cases. Furthermore, line officers and supervisors mostly share the view about the seriousness of these cases.
Amongst the many tools being developed to fight against corruption, lately there has been much focus on e-government – using Information and Communication Technology (ICT) to open up government processes and enable greater public access to information.
E-Government is understood as the use of emerging ICTs like Internet, World Wide Web and mobile phones to deliver information and services to citizens and businesses. It can include publication of information about government services on a web site, for example so that citizens can download application forms for a variety of services. It can also involve the actual delivery of services, such as filing a tax return, renewing a license, etc. More sophisticated applications include processing on-line payments.
The e-government side of the war on corruption involved setting up a portal called OPEN –Online Procedures ENhancement for Civil Applications. The portal educates citizens on rules and procedures, and enables real-time monitoring of progress of an application for a permit or license. It makes completely open and transparent those administrative practices that were vulnerable to corruption.
The OPEN system of Seoul Municipality, South Korea exemplifies the impact on corruption of making transparent the decision making processes and actions of individual civil servants. The system enables on-line tracking of individual applications for a variety of municipal licenses.
In addition, intermediaries are needed that can analyze information provided by the government. The Center for Responsive Politics, in the USA19 is an example of such an agency. Its website, <http://www.opensecrets.org> illustrates the constructive role of intermediaries in presenting information to citizens in a format which helps them to take actions.
4 September1990: President Ghulam Ishaq Khan filed “references” against three former federal ministers for alleged misdeeds and corruption. The references were made to special tribunals set up to investigate the conduct in office of elected officials during the administration of Benazir Bhutto.
9 September: The Sindh High Court acquitted Asif Ali Zardari, Benazir Bhutto’s husband, of charges of fraud and corruption.
15 April: Former Prime Minister Benazir Bhutto and her husband, Asif Zardari, were convicted of corruption and sentenced to five years in prison. The court also issued orders for the confiscation of their property.
CORRUPTION IN CAMBODIA
Cambodia is the 3rd poorest country in Southeast Asia with a low level of economic performance. Having lost confidence in the governments and institutions, Cambodians tend to rely on personal networks rather than institutional setups in order to accomplish their personal or commercial goals. The Cambodians encounter corrupt practices in their everyday lives: e.g., obtaining medical services, competing for school grades, dealing with alleged traffic violations, pursuing fair court verdicts, obtaining birth and marriage certificates etc. Aside from bribes, nepotism and informal networks are used as a way to obtain employment or to obtain promotions. Corruption is widespread at the highest levels of the Cambodian political and administrative systems. The grand corruption involves the siphoning off of financial aid through ministries and government offices.
The level of fraud and corruption in Cambodia is so high that the World Bank in 2006 suspended its contracts with Cambodia after finding evidence of corruption and fraud in 43 contracts. In 2007, the World Bank resumed lending for the projects after a good governance framework had been adopted. Using bank transactions as a means may not eradicate corruption, but it at least makes it a little less easy, because it leaves some kind of paper/electronic trail. Normally, bribes are paid to secure efficiency of services. In Cambodia, however, there does not seem to be any correlation between the size of the bribe and the speed of the administrative procedure.
According to the World Bank/IFC Enterprise Surveys, corruption in Cambodia is very severe, and it is the number 1 concern for companies, closely followed by the concern for the crime and theft rate. On average, the facilitation payments/bribes (bribes to have things done) amount to as much as 4.59 % of sales as compared to the average of 1.8 % of sales in the Asia Pacific region. Some industrial sectors are more affected than others, with the garment industry taking the lead (more than 6% of sales), because garment factories need additional certificates.
Cambodia Data Table
Sectors describe which kind of corruption can be encountered in different areas. This table covers various forms of corruption, including bribes and facilitation payments. All information is based on publicly available information and should be viewed as general guidelines on the types of corruption existing in the country.
Levels of corruption in the different sectors indicate where corruption can be encountered. The levels are defined as follows:
- Individual Corruption: Corruption that takes place primarily in relations between individual citizens and public officials and authorities.
- Business Corruption: Corruption that takes place primarily in relations between enterprises/companies and public officials and authorities.
- Political Corruption: Corruption that takes place in the higher echelons of public administration and on a political level.
CORRUPTION IN CHINA
Corruption poses one of the most lethal threats to China’s future economic development and political stability. Illicit activities such as bribery, kickbacks, theft, and misspending of public funds cost at least 3 percent of GDP. Corruption also undermines the legitimacy of the ruling Chinese Communist Party, fuels social unrest, contributes directly to the rise in socioeconomic inequality, and undermines China’s environmental security. The prevalence of corruption in China is rooted in the country’s partially reformed economy and absence of genuine political reform. Corruption in China has spillover effects beyond its borders. To protect its own interests and encourage China in its transition toward a more market-based economy and open society, the United States should rely on mutual legal cooperation to assist China in its struggle against corruption.
According to the Corruption Perceptions Index compiled by Transparency International (TI), a Berlin based nongovernmental organization, China ranks among the more corrupt nations in the world. From 2001 to 2006, China’s “corruption perception score” averaged 3.4 on a 1–10 scale (the lower the score, the more corrupt a country is perceived to be by its public, domestic private entrepreneurs, and foreign investors). This consistently places China among the bottom one-third of the countries included in the TI index. In the 1980s, few corruption scandals involved more than 1 million yuan. Even after adjusting for inflation, the sums of money looted by government officials today are astonishing.
Corruption in China is concentrated in the sectors with extensive state involvement: infrastructural projects, sale of land user rights, real estate, government procurement, financial services, and heavily regulated industries.
A 2006 study of 3,067 corruption cases found that about half of the officials or individuals engaged in corruption related to infrastructural projects and land transactions. Corruption is also widespread in the acquisition and transfer of land.
China’s financial sector is similarly beset by corruption. In 2004, China’s banking regulators uncovered 584 billion yuan in misused funds; in 2005, they found 767 billion yuan in misused funds. A large number of top executives in China’s largest banks have been jailed for corruption. In a 2003 survey of 3,561 employees in banks, state-owned enterprises, private firms, brokerage houses, and rural households, 82 percent of respondents said that corruption was “pervasive or quite pervasive” in financial institutions. On average, borrowers paid bribes equal to 9 percent of the loan amount.
The government has more than 1,200 laws, rules, and directives against corruption on the books, but their implementation appears ineffective and spotty. In recent years, in response to growing public outrage, Beijing has introduced new top-down measures such as rotating provincial anticorruption chiefs, appointing central government officials to head provincial antigraft commissions, making anticorruption chiefs in ministries, agencies.
Corruption at the local level sparks tens of thousands of riots and violent collective protests each year, undermining social stability and necessitating extra spending on internal security. Corruption has also contributed to China’s massive environmental degradation, deterioration in social services, and the rising costs of housing, health care, and education.
True, corruption has not yet derailed China’s economic rise, sparked a social revolution, or deterred Western investors. But it would be foolish to conclude that the Chinese system has an infinite capacity to absorb the mounting costs of corruption. Economically, runaway corruption stifles commerce, investment, and innovation, as recent academic research has established. Endemic corruption steadily increases a country’s systemic risks. Inside China, corruption endangers foreign direct investment because illicit behavior by local officials could expose Western firms to potentially vast environmental, human rights, and financial liabilities. Corruption creates serious obstacles for Western companies facing rivals who engage in illegal practices in order to win business in China.
Corruption in China affects other countries through the spread of cross-border crimes such as drug trafficking, human smuggling, and money laundering. It is in the interests of the United States and its Western allies to assist China in its struggle against corruption. The successful joint operation carried out by the U.S. Federal Bureau of Investigation and the Chinese Ministry of Public Security in shutting down a major software piracy operation in China in July 2007 offers another model for future cooperation in combating cross-border criminal activities perpetrated by corrupt Chinese officials.
Even if they acknowledge many of the costs of corruption, skeptics question whether fighting it is worth the bother. The “fatalist” camp often points out the dearth of successes in anticorruption drives and remarks that it took more than a century for England to bring corruption under control. But Hong Kong SAR and Singapore, for example, have shifted reasonably quickly from being very corrupt to being relatively clean. Botswana has been a model of propriety for decades. Chile has performed well for many years, and Poland and Uganda have recently made some progress toward controlling corruption.
What are the most common features of these successes? Anticorruption watchdog bodies, such as the Independent Commission against Corruption in Hong Kong and smaller corruption-fighting institutions in Botswana, Chile, Malaysia, and Singapore, are often credited with much of the progress. In contrast, the broader economic and institutional reforms that have taken place simultaneously have not received sufficient credit. The government that came to power in Uganda in 1986 implemented a strategy encompassing economic reforms and deregulation, civil service reform, a strengthened auditor general’s office, the appointment of a reputable inspector general empowered to investigate and prosecute corruption, and implementation of a public information campaign against corruption. Botswana is an example of a country with sound economic and public sector management policies that, once instituted, led to honest governance early on; its success has not been principally derived from the more recent advent of its anticorruption department.
The following are only some of the major economic policy changes that will unambiguously reduce opportunities for corruption: lowering tariffs and other barriers to international trade; unifying market determined exchange rates and interest rates; eliminating enterprise subsidies; minimizing regulations, licensing requirements and other barriers to entry for new firms and investors; demonopolizing and privatizing government assets; and transparently enforcing prudential banking regulations and auditing and accounting standards. Careful analysis, presentation, and dissemination of data can be very effective in raising general awareness, creating momentum for reforms, and furthering our limited understanding of what does and does not work in efforts to control corruption.
Source: Book - “Corruption: The Facts,” Foreign Policy Daniel Kaufmann, 1997
- The Public Bodies Corrupt Practices Act 1889
- The Prevention of Corruption Act 1906
- The Prevention of Corruption Act 1916
HOW BRIBERY AND OTHER TYPES OF CORRUPTION THREATEN THE GLOBAL MARKETPLACE
The ‘Corruption Perception Index’
Much of the comparative evidence about bribery is anecdotal, though Nichols alone can cite numerous instances. In Kazakhstan, several foreign businesses have told Nichols that the typical bribe amount that must be given to win approval of a large construction project is between 15% and 20% of the contract price – which often means that the bribe alone will amount to hundreds of millions of dollars. In Russia, meanwhile, a retail chain manager told Nichols that a bribe of US $4,000 would lower the tariff on a truckload of printer cartridges from U.S. $20,000 to U.S. $4,000.
International businessmen and women say the number of countries in which they expect big bribe demands has risen staggeringly. A recent study by Berlin-based Transparency International pegged 70 of 102 countries surveyed as likely places for executives to be hit up for bribes. TI’s “Corruption Perception Index” incorporates data from surveys, polls and other ratings on the number of bribe requests perceived by business people who regularly conduct business in a given country. A score of 10 means people perceive that bribe requests are never made in a particular nation, while a zero indicates the perception that bribes are always requested.
In the 2002 index, Finland scored a 9.7, the United Kingdom came in at 8.7 and the U.S. earned a 7.7. With 70 of 102 countries scoring 5.0 or lower, however, the index shows that business people believe bribe requests are likely to be made in more than two-thirds of the nations examined. These countries include some of the world’s biggest: China, which scored 3.5; India, 2.7; Indonesia, 1.9; and Pakistan, 2.6. Bangladesh had the lowest score of 1.2.
Two treaties governing the northern and western hemispheres will soon weave a comprehensive system of laws prohibiting the payment of bribes to foreign government officials. Countries like Austria, Belgium, Canada, Germany, Japan, Korea and the UK are bound by the Organization for Economic Co-operation and Development convention to criminalize transnational bribery. Three years ago the U.S. alone criminalized paying bribes abroad. Today at least 20 countries have such laws and 14 more will soon enact them. The Organization of American States’ Inter-American Convention against Corruption, signed by most countries in the Americas in 1996, also requires members to criminalize transnational bribery.
Nichols speculates that once the public outcry against paying bribes becomes as loud as it is for environmental issues, the risk for corporations willing to pay bribes will rise significantly. Already the penalties can be severe. In the U.S. they include incarceration, fines and disqualification from doing business with the U.S. government. A French proposal would impose a 15-year prison sentence on certain types of transnational bribery. Even in Norway, which has the least punitive of the new laws, bribery of foreign government officials is
Lastly, there are international trade implications surrounding bribery. Bribery degrades markets. Economist Paolo Mauro, in the article “Corruption and Growth,” finds a direct link between high levels of corruption and low levels of foreign direct investment. Though Mauro’s work does not explain this finding, Nichols offers three likely reasons. “First, corruption actually increases the amount of time a company must spend with a bureaucracy; second, corruption makes it more difficult to obtain information, which increases transaction costs, and third, corrupt relationships are less predictable and less enforceable. There’s probably a fourth reason too, which is that most business people are good people and have a distaste for endemically corrupt environments,” he says.
“Corruption also drastically affects economic development by causing a misallocation of resources. Yes, Africa is littered with bridges instead of hospitals. But more damaging is the fact that in endemically corrupt systems, regular people are not getting served by the government; they don’t trust the government so they don’t interact with the government,” Nichols says. “But people have to get things done. So they create their own systems to do things, such as resolve disputes or enforce contacts or even police neighborhoods.”
Source: Published: October 23, 2002 in Knowledge@Wharton
CORRUPTION IN RUSSIA
Corruption is so pervasive that it has long been viewed as a banality of Russian life. We are no longer indignant when we hear about corruption because we have gotten so used to it. It has become the norm both for higher ups and for those of lower rank. The only difference is the scale. Of course, Russians “notice” the corruption in the country and, in theory, they are opposed to it (and remain opposed until they become the focus of a corruption allegation). According to a recent survey conducted by the Levada Center, 43 percent of respondents named corruption as the main problem in Russia, and another 29 percent named “pressure from officials and bureaucrats.”
This is nothing new. Although this problem has been around and has been publicly acknowledged for years, President Vladimir Putin’s war on corruption has not improved the situation. The number of people accepting illicit payments and the size of the bribes has increased significantly. From an informal polling of business acquaintances, I learned that the usual kickback during the years under President Boris Yeltsin’s tenure was from 20 percent to 30 percent, but that it has risen to 60 percent to 70 percent and higher today. State-owned companies and organizations close to administration siloviki are especially burdened by the problem.
For this reason the Health and Social Development Ministry, the Interior Ministry and the Finance Ministry led the list. But various State Duma deputies, judges and education officials were also mentioned.
Respondents did, however, note improvements in a range of areas. A Levada Center survey conducted back in the spring of this year showed honesty on the rise among the traffic police. In 2005, motorists reported paying bribes in 78 percent of roadside spot inspections, while in 2007, the number dropped to 57 percent. It would also seem that the number of bribes has decreased in connection with the issuance of driver’s licenses and vehicle technical inspection certificates.
PUBLIC OPINION ON CORRUPTION IN BULGARIA
POLITICAL CORRUPTION IN LATIN AMERICA: A RESEARCH NOTE
This research note looks at recent efforts to measure political corruption by international, regional and national organizations, and examines data for the countries of Latin America. Discussion centers on the methodological challenges and problems, the different types of indicators of corruption, and the regional patterns. The research note compares the levels of corruption among the countries of the region, and addresses the issue of change. Rooted in the historic lack of attention to corruption in the region, data are presented and examined in an effort to spur research into this neglected area.
One study, for instance, estimates that corruption costs Colombia about 1% of its GDP (Luzzani 2002, 168). Another suggests that Mexicans pay on average 109.5 pesos per household in bribes for a total of more than 23 billion pesos in mordidas.
Corruption in Latin America
At a more practical, political level, two related trends are apparent. First, the data usually in mere descriptive form – have galvanized political activists both nationally and internationally to push for political reforms. This increasing attention to corruption marks local and international NGOs like TI as well as IGOs like the IMF, the World Bank, the OAS and the UN. Such political pressures, in turn, paired with local political developments, have forced local governments to make fighting corruption a priority – at least rhetorically-- to develop high-profile anti-corruption programs, and to devote political and economic resources to the task. It is here where the second trend becomes apparent: the use of the data in somewhat more sophisticated ways as a diagnostic device to help inform and design programs and, post-hoc, to test their effectiveness.
Source: Camp, Roderic Ai, Kenneth Coleman and Charles Davis (2000) “Public Opinion about Corruption: An Exploratory Study in Chile, Costa Rica and Mexico,” Annua l Meeting of the World Association of Public Opinion Research, Portland, Oregon, May 17-18.
CORRUPTION AS A FUNCTION OF COUNTRIES' POLICY
The past decade has witnessed a boom in the empirical economic literature on corruption. With few exemptions, the existing literature has three common features.' First, it is based on cross-country analyses. 2 Second, the literature exploits data on corruption derived from perception indices. Finally, it explains corruption as a function of countries' policy and institutional environment. Although the literature has provided important insights on the aggregate determinants of corruption, it has drawbacks. In particular, perception indices raise concerns about biases. Also, the aggregate nature of the data tells us little about the relationship between corruption and individual agents, such as firms or service providers. Conceptually macro-level determinants cannot satisfactorily explain the within-country variation of corruption; firms and service providers facing similar institutions and policies may still end up paying or demanding different amounts in bribes. The quantitative measurement of corruption is difficult, but not impossible. We show this using three different data collection approaches: public expenditure tracking surveys, service provider surveys, and firm surveys. Although each approach has a more general focus, corruption-broadly defined-is often identified as a key issue.
Public Expenditure Tracking Surveys (PETS)
Government resources allocated for particular uses flow within a legally defined institutional framework. Funds often pass through several layers of government bureaucracy on the way to service facilities, which are charged with the responsibility of exercising the spending. Policymakers in developing countries seldom have information on actual public spending at the provider or facility level or by activity. A public expenditure tracking survey (PETS) tracks the flow of resources through these strata, on a sample survey basis, in order to determine how much of the originally allocated resources reach each level.
Measuring and Understanding Corruption at the Firm-Level
One such attempt was carried out in the late 1990s in Uganda. A "standard" firmlevel survey tool was used to collect quantitative information on bribe payments across firms (Reinikka and Svensson 2001). The idea was to combine detailed financial and structural information from the firms with the quantitative graft data, yielding a unique data set to study the determinants and consequences of corruption at the firm level.
Do bribe payments constitute a heavy burden on firms? The evidence suggests that they do. For the firms reporting positive bribes, the average amount of corrupt payments was equivalent to US$ 8,280, with a median payment of US$ 1,820. These are large amounts, on average corresponding to US$ 88 per worker, or roughly 8 percent of the total costs (1 percent in the mean). Including firms reporting zero bribe payments, the average payment is US$ 6,730, with a median payment of US$ 450.
Hellman, Joel S., Geraint Jones, Daniel Kaufinann, and Mark Schankerman. 2000a. "Measuring governance, corruption, and state capture." Policy Research Working Paper 2312. World Bank, Washington, D.C.
Dehn, Jan, Ritva Reinikka, and Jakob Svensson. 2003. "Survey Tools for Assessing Performance in Service Delivery." In Francois Bourguignon and Luiz Pereira da Silva, eds., Evaluating the Poverty and DistributionaIl mpact of Economic Policies. Oxford University Press and the World Bank. Forthcoming.
HOW AFRICANS SEE CORRUPTION
Africans say they perceive less official corruption today than six years ago. This result runs counter to the popular wisdom that corruption in Africa is entrenched and worsening. Perceptions of official corruption are declining, and in many cases sharply so. For each type of official, the proportion of survey respondents seeing widespread official graft are significantly lower in the 2005 round of surveys than in 2000. For example, perception of corruption amongst national government official declined by a full 19 percentage points.
This pattern is reproduced in almost all of the 12 Afrobarometer countries in which we have conducted three surveys. For example, with regard to national officials, only Namibia registers an increase in perceived corruption over time (+10 percentage points). Otherwise, there is a real reduction in perceived corruption in all other countries.
Victimization by Corruption
While many people may believe their leaders are involved in corruption, have they personally encountered corruption in their daily dealings with the state. We asked people in the 2005 survey whether “In the past year, how often (if ever) have you had to pay a bribe, give a gift, or do a favour to government officials” in order to obtain a range of services.
Across 18 countries, significantly large proportions of citizens were victimized by state officials in the year leading up to the 2005 surveys.
- One in ten (12 percent) respondents had to use bribery or its equivalent to get a document or permit or to obtain medicines or medical treatment.
- One in ten (11 percent) did so to avoid a problem with the police (such as passing a roadblock).
- Seven percent had to resort to these tactics to get a school placement for a child or to secure access to household services.
- If we exclude those who did not try to obtain the service, the rates of corruption experienced by those who did seek it are even higher. Between one-in-five and one-in-ten citizens who actually attempted to obtain an official document (17 percent), medical attention (15 percent), deal with the police (15 percent), get household services (11 percent), or get a child into school (10 percent) were victimized.
- Kenyans, Nigerians and Zimbabweans experience the most corruption. For example, nearly one in three Kenyans (29 percent) had to take extraordinary measures to avoid problems with the police in the past year, as did 22 percent of Nigerians (as well as 21 percent of Zimbabweans).
- Corruption is least rampant in Botswana, Lesotho and Malawi and Cape Verde. In sharp contrast to places like Nigeria and Kenya, across the five service sectors, an average of just 1 percent of Batswana were forced to engage in bribery to meet their needs, as were just 2 percent of Cape Verdians, and 3 percent of Basotho and Malawians.
About the Afrobarometer
The Afrobarometer is an independent, non-partisan survey research project conducted by the Institute for Democracy in South Africa (Idasa), Centre for Democratic Development (CDD-Ghana) and Michigan State University (MSU). Implemented through a network of national research partners, Afrobarometer surveys measure the social, economic and political atmosphere in societies in transition in West, East and Southern Africa.
The findings of Afrobarometer surveys are based on interviews conducted in local languages with randomly selected, nationally representative samples of the adult population. The minimum sample size in any country is 1,200 respondents is plus or minus 3 percentage points (actually 2.8 points) at a confidence level of 95 percent. Note however that the countries included are not fully representative of Africa as a whole. The selection of countries is biased towards the continent’s most open societies.
Why, in the 1990s, has corruption suddenly become such a political lightning rod? From India to Italy, from Japan to Brazil-why have societies which have traditionally tolerated corruption at the highest levels in government and the private sector suddenly lost their patience, their citizens willing to take to the streets to topple high officials accused of wrongdoing?
In the last few years, at least six heads of state, more than fifty cabinet ministers, scores of congressmen, and hundreds of businessmen throughout the world have lost their jobs, their liberty, and even their lives on account of allegations of corruption. (1) Indeed, suicides among powerful government officials and businessmen accused of corruption have become quite common. This veritable eruption of corruption scandals has affected every region of the world, regardless of cultural background or gross national product.
Even nations that pride themselves on their established democratic systems and rule of law have not been immune. In France, one ex-minister and a prominent senator have been jailed, a former treasury minister committed suicide after having been accused of improprieties, another minister was forced from office, and at least five additional ministers are under investigation on account of allegations of corruption. In Spain, popular support for the government of Felipe Gonzalez has been substantially eroded by repeated accusations of corruption. In 1994, two British ministers resigned over a corruption scandal. (2) In the same year, Willy Claes, NATO's secretary general, became entangled in a scandal related to kickbacks that took place when he was the economic minister of Belgium. In Switzerland, a cabinet member was forced to resign after her husband was accused of using her position to advance his business interests. (3) In the United States, in 1994 alone, both a cabinet member and the powerful chairman of the House Ways and Means Committee were accused of unethical behavior-and subsequently lost their jobs-while a senior White House aide, who was also a close associate of President Clinton, committed suicide. In addition, a senior official at the Justice Department resigned, and pleaded guilty to wrongdoings in his previous activities as a lawyer in the private sector. In the 1994 presidential summit in Naples, the financial affairs of President Clinton and former prime ministers Hosokawa and Berlusconi received as much media attention as the deliberations of the heads of state. Even quiet Norway was dragged into the fray, as the director of the Oslo Stock Ex change was dismissed from his position and, some days later, found dead.
Countries with a long tacit acknowledgment of corruption have also been affected by the wave-what was once the norm has now become a cause for scandals. In Brazil and Venezuela, democratically elected presidents were impeached following accusations of corruption. In India, former prime minister V.P.Singh quit the ruling party and resigned from office, claiming that widespread corruption made governing impossible. Three ministers in the cabinet of P.V. Narashima Rao-Singh's successor-were accused of being involved in corruption scandals, and subsequently resigned after the ruling party suffered important losses in state elections; in those elections, in a break from the past, corruption became a central concern of the voters. (4) Japanese Prime Minister Morihiro Hosokawa resigned in April 1994, following charges that he had mismanaged funds and decimated his political support base. (5) In a four year period in Argentina, twenty ministers and senior presidential aides were forced to resign.(6) In Italy, where corrupt activities have long been the hallmark of the elite, twenty prominent politicians and businessmen have committed suicide over allegations of corruption. Prime Minister Berlusconi was toppled by a no-confidence vote after having been targeted by the famous Milan magistrates who, however, found themselves investigated shortly thereafter by the Ministry of Justice for their own alleged improprieties.
It seems that the erosion of moral values and the excessive, almost anarchic, freedoms that accompany the present spread of democracy and capitalism are reinforcing each other, creating the conditions for corruption to soar. However, there is no question that within the past five or ten years, the public's perception of corruption has greatly increased be cause of the great increase in publicity. This eruption of awareness stems from the increasing openness that accompanies democratic transition, and from changes in the nature of corruption, which, in many cases, make violations more visible. While constant media coverage on pervasive corruption may convey a sense of gloom over the current state of ethical behavior in the world, a deeper analysis of underlying trends shows that, instead, this is a time to be optimistic about the possibility of reducing corruption. Corruption has always existed, and will probably never be completely eradicated. But, if current global trends continue, it is possible to envision a world in which the scope for corruption is shrunk to its historical minimum. It will not be easy, and it will not occur spontaneously. Leaders in government, business, and the media will have to seize this emerging historical opportunity, and act together.
Corruption, like cancer, has many manifestations. In the same way that different types of cancer require different treatments, fighting corruption requires different initiatives, tools, and institutions. For example, the money-laundering associated with the drug trade is a different phenomenon than the corruption that often distorts a government's procurement of large public works. Using the same approach and institutions to deal with both cases is surely less effective than targeting each with strategies that incorporate its relevant characteristics.
The variety of corruption can lead to a complex system of classification, but for our purposes, we will focus on three specific categories, which together capture most of the instances of corruption more frequently denounced by the media and prosecuted by the courts: 1) competitive corporate corruption, 2) corruption instigated by organized crime, and 3) political corruption.
Competitive corporate corruption includes all the illegal activities that companies undertake to remain competitive. This is a form of institutional corporate corruption distinct from the individual corruption that occurs in corporations when employees benefit personally from their actions against the interest of the corporation. Companies involved in organized crime, on the other hand, are purposefully created to break the law. While a legitimate private corporation may engage reluctantly in corrupt practices, occasionally, as a consequence of the competitive behavior of its rivals, or of the extortion of government officials, organized crime exists to break the law deliberately and constantly. As the profits of organized crime-especially the profits of narcotics trafficking-have soared, the natural path for these companies has been to diversify by investing in legitimate businesses whose survival and prosperity does not require illegal activities.
Both categories are closely intertwined with political corruption, whose manifestations range from government officials stealing outright from the national treasury, to the illegal financing of political parties. The recent upheavals involving corruption in Italy and France, for example, can be traced to this category. In many countries, political parties customarily rely on the illegal payments of both private and state-owned corporations, which finance their activities and the posh lifestyles of the political elite. There is, of course, much overlap between the aforementioned three categories, as one form of corruption frequently spawns another.
Source: Publisher: Carnegie Brown Journal of World Affairs, Summer 1995
INDEPENDENT COMMISSION AGAINST CORRUPTION IN NEW SOUTH WALES
BRIBERY = CRIME
- In New South Wales offering money or gifts to government officials to obtain a benefit or favour is illegal.
- It is called bribery and is one form of corruption.
- BRIBERY is a crime and you can be charged by the police.
- If you offer a bribe to a government official, it is a crime.
- If a government official asks for or seeks a bribe, or if they accept a bribe that you offer, they are also committing a crime.
- BRIBERY has a maximum penalty of 7 years in gaol.
EXAMPLES OF BRIBERY
EXAMPLES OF PEOPLE OFFERING BRIBES
- If you offer money or a gift to a government official to ensure they choose your company to supply stationery,
- If you offer $100 to inspectors to ignore health regulations,
- If you offer a holiday to a local government planner or councillor to secure approval of your development application,
- If you offer $50 to obtain a driver's licence,
- If you offer money or a gift to be moved higher on a waiting list for services, such as a medical operation or a house.
EXAMPLES OF GOVERNMENT OFFICIALS SEEKING BRIBES
- If a building inspector asks for money to approve your building,
- If a food inspector requests a free meal or drink to pass a restaurant inspection,
- If a government official asks for money to put your name higher on a waiting list,
- If a parking officer asks for money or favours so they don't book you for an offence.
In all these examples, the person who offers or seeks a bribe is committing a crime.
NSW government officials must perform their duties with honesty and in the best interest of the public.In order to help the public, the NSW Parliament established the Independent Commission Against Corruption (ICAC). The ICAC is separate and independent from government and politicians. It can investigate the actions of NSW government officials.
The ICAC can investigate BRIBERY and other types of corruption involving government officials. Although the ICAC cannot prosecute anyone, it can make recommendations to consider prosecution. All complaints to the ICAC are treated confidentially.
If a government official demands a bribe, or refuses to give you a receipt, you should:
- refuse to pay any more money, and
- ask to speak to the manager in that organisation.
- If you don't feel confident reporting the incident to the organisation concerned, the following contacts may be able to help you:
- the Independent Commission Against Corruption (ICAC)
- The Police
- your NSW Member of Parliament
- your Community Legal Centre
Independent Commission Against Corruption
Level 21, 133 Castlereagh Street Sydney NSW 2000. GPO Box 500 SYDNEY NSW 2001 Phone (02)8281 5999 • Toll Free 1800 463 909 • Fax (02)9264 5364 • Internet www.icac.nsw.gov.au
EMPIRICAL FACTS ABOUT JUDICIAL CORRUPTION IN DEVELOPING COUNTRIES
Judicial corruption is defined here as the use of public authority for the private benefit of court personnel when this use undermines the rules and procedures to be applied in the provision of court services. Judicial corruption in most developing countries takes many forms. We can classify them into two types.
Administrative corruption occurs when court administrative employees violate formal or informal administrative procedures for their private benefit. Examples of administrative corruption include cases where court users pay bribes to administrative employees in order to alter the legally-determined treatment of files and discovery material, or cases where court users pay court employees to accelerate or delay a case by illegally altering the order in which the case is to be attended by the judge, or even cases where court employees commit fraud and embezzle public property or private property in court custody. These cases include procedural and administrative irregularities.
The second type of abusive practices involves cases of operational corruption that are usually part of grand corruption schemes where political and/or considerable economic interests are at stake. This second type of corruption usually involves politically-motivated court rulings and/or undue changes of venue where judges stand to gain economically and career-wise as a result of their corrupt act. These cases involve substantive irregularities affecting judicial decision-making.
Source: Buscaglia, Edgardo and William Ratliff (2000) Law and Economics in Developing Countries Palo Alto, CA: Hoover Institution Press
In 1996, then-World Bank president James D. Wolfensohn declared that, for developing countries to achieve economic growth and poverty reduction, “we need to deal with the cancer of corruption.” That declaration, the first of its kind by a World Bank president, helped focus the worldwide development discussion, at the national and the international levels, on the fight against corruption. 1. Corruption is commonly defined as the abuse of public or corporate office for private gain. It is present in all countries of the world, although its pervasiveness varies, as is evident from country scores on the Corruption Perceptions Index published by Transparency International (TI) as well as other cross-country governance indicators published by the World Bank Institute.
Globalizing the Fight Against Corruption
Action to combat corruption is occurring at the global level on five major fronts:
Ensuring that loans and grants to developing countries are used effectively. All international financial institutions and bilateral donors have adopted measures to prevent fraud and corruption in the projects they finance. Yet half of opinion leaders in developing countries surveyed in a global poll commissioned by the World Bank in 2002 still believed that most foreign assistance is wasted due to corruption.
Reducing the incentives for multinational businesses to pay bribes. Such measures may include criminalizing bribery, eliminating the tax deductibility of bribery as a business expense, and increasing the transparency and integrity of public procurement.
Promoting international programs to control organized crime and the flow of illicit funds. It is very hard for outside organizations to reduce corruption linked to organized crime, such as money laundering, if such corruption has already become systemic.
Improving the institutional framework for resolving international disputes. A stronger framework is needed to impose and enforce sanctions when nations fail to comply with agreed rules and treaties. The World Court, the International Center for Settlement of Investment Disputes (a World Bank affiliate), and the World Trade Organization are among the institutions available to serve this purpose, although their jurisdiction is not entirely clear in all cases.
Beyond these four major areas, worthwhile measures can include linking aid and trade to good governance; improving corporate governance and corporate social responsibility; strengthening the capacity of global governance institutions, including civil society institutions, in fighting corruption; and increasing access to information.
Highlights of World Bank Actions on Corruption •
- World Bank lending for improved governance, public sector reform, and promotion of the rule of law—all key to poverty reduction as well as control of corruption—totaled $2.9 billion in fiscal year 2005, or about 13 percent of total new Bank lending in that year.
- The Bank runs a global 24-hour anticorruption telephone hotline.
- The Bank has established a Department of Institutional Integrity to investigate claims of fraud and corruption, whether inside or outside the institution and a Sanctions Committee to adjudicate cases and assess penalties.
- So far more than 330 companies and individuals have been found to have engaged in corrupt practices and excluded from doing business with the Bank. Their names and the sanctions imposed are posted on the Bank’s external website.
- The Bank’s investigative unit has more than 50 staff; dozens more across the Bank are working with developing countries on anticorruption efforts or on research on corruption and governance issues.
- As of June 30, 2005, the Bank had referred 31 cases of fraud or corruption to its member countries, resulting in 25 criminal convictions.
- The Bank today spends $10 million a year on investigations and sanctions, more than all other
Source: The Cancer of Corruption By Dr. Vinay Bhargava, Director, International Affairs, The World Bank
CORRUPTION AND DEMOCRATIC GOVERNABILITY IN LATIN AMERICA
In general usage this refers to high-level officials pocketing money from kickbacks, theft, embezzlement, insider deals, and the like. Privatizations of public enterprises provide some of the most spectacular cases of grand corruption in the region. They often tend to be massive and convoluted, highly visible and yet opaque.15 The more ordinary, recurring types of grand corruption provide simpler examples.
Variations on grand theft:
One of the biggest cases was the alleged embezzlement of 4.5 million quetzals (US $600,000) of public funds by [Guatemalan] President Portillo, Vice-President Juan Francisco Reyes and his private secretary, Julio Girón. They were accused of setting up 13 bank accounts and four ghost companies in Panama to launder the money (TI 2004, p. 197).
Bolivian Defense Minister in 2000, Fernando Kieffer, allegedly “diverted international donations for the people of Aiguila and Mizqu who suffered an earthquake in 1998; that some of the money was used to buy an overpriced executive jet; and that he was behind the irregular purchase of Galil weapons for the army” (TI 2005, p. 108).
[Nicaraguan President] Alemán’s alleged crimes were not unique to the region, either in terms of the amounts involved or the methods used. We are talking of allegations of some US $100 million in public funds obtained through fraud, embezzlement and misappropriation, though congressman Leonel Teller estimates that the figure is closer to US $250 million.
Grand corruption frequently triggers scandals, and the more typical effect is the devastating example it sets for all government employees and the citizenry at large.
BRIBERY IN INTERNATIONAL BUSINESS TRANSACTIONS
American multinationals were initially reluctant to oppose the FCPA for fear of being labeled "Corrupt". The Act's ambiguity however, created numerous enforcement problems. A study sponsored by the U.S. Chamber of Commerce listed a number of vague terms and phrases that needed clarification, leading some analysts to sardonically characterize the Act as a criminal code mandating that "citizens must behave themselves" (Weisberg & Reichenberg, 1981).
The Act also generated ill feeling on the part of foreign agents, companies and officials who were unwilling to let the U.S. government scrutinize their business dealings. Some became reluctant to conduct any business at all with U.S. firms. One trader from Thailand explained it this way: "We have been a country for 1,000 years and a culture for 3,000 and resent the United States telling us that our business practices are immoral" (Weisberg & Reichenberg, 1981).
In the last few years, multilateral entites have joined the effort. The Organization of American States (OAS) adopted a Convention Against Corruption in April 1996, and the World Bank, the IMF, and other multinational lenders have devised new anti-bribery rules and amendments designed to better safeguard their loans and development projects.
Bribery's Impact on U.S. Firms
Before the OTCA amendments were passed, many analysts have observed that the FCPA was a legal "sleeping dog," as only twenty-three alleged violations were prosecuted by the SEC and Justice Departments between 1977 and 1988 (Salbu, 1997). During a typical year in the 1990s, however, the Department of Justice would have between seventy and ninety investigations of potential violations of the FCPA open at any given time (Martin & Walsh, 1996).
Actions by International Bodies
Informants concurred that international bodies ought to play an important role in the campaign to curtail bribery because national borders no longer define most industry or market boundaries. They suggested that regional trade associations should follow the lead of the OECD countries and adopt similar anti-corruption resolutions.
The fact that American firms survived and thrived in spite of the FCPA and successive legislation may help to convince them that the time has come to discard wasteful and unsavory practices. Ending transnational bribery will not only reduce trade and investment barriers for businesses and increase choices for consumers, but it will also make the world a better place to live. Since corruption is but one form of oppression, measures like the OECD Convention go hand-in-hand with pressure for greater accountability and more democratic governance processes. Countries that value transparency and openness in their public dealings are not only more prosperous, but they are also freer as well.
Source: Bribery in International Business Transactions and the OECD Convention: Benefits and Limitations.
CORRUPTION AROUND THE WORLD
Corruption is attracting a lot of attention around the world. In countries developed and developing, large or small, market-oriented or otherwise, governments have fallen because of accusations of corruption, prominent politicians (including presidents of countries and prime ministers) have lost their official positions, and, in some cases, whole political classes have been replaced.
Corruption is not a new phenomenon. Two thousand years ago, Kautilya, the prime minister of an Indian kingdom, had already written a book, Arthashastra, discussing it. Seven centuries ago, Dante placed bribers in the deepest parts of Hell, reflecting the medieval distaste for corrupt behavior. Globalization has brought individuals from countries with little corruption into frequent contact with those from countries where corruption is endemic. These contacts have increased the international attention paid to corruption, especially when some companies believed that they were cut out of some contracts because the winning company had paid a bribe.
Finally, the role played by the United States, especially through its influence in some international institutions, has been important. American policymakers have argued that American exporters have lost out in foreign deals because they have not been allowed by law to pay bribes to foreign officials. For American companies, the payment of bribes to foreign officials is a criminal act, and, of course, the bribes paid cannot be deducted as costs for tax purposes.4 This has not been the case in other OECD countries, although recently, under the sponsorship of the OECD, the situation has started to change. In several other countries, bribing a foreign official was not illegal and bribes paid could be considered a deductible business cost.
Two other factors may have had an impact on corruption in recent years: the growth of international trade and business and the economic changes that have taken place in many countries and especially in the economies in transition.
World Business of March 4, 1996, reported that the bribes paid abroad by German companies had been estimated to exceed US$3 billion a year.8 These were not the only countries in which companies had paid bribes to foreign officials. Some experts have estimated that as much as 15 percent of the total money spent for weapons acquisition may be “commissions” that fill somebody’s pockets. Here, again, contagion is important. When the economic operators of some countries begin to pay bribes, they put pressure on those from other countries to do the same. The cost of not doing so is lost contracts.
The recent fairly broad consensus seems to be that corruption is unqualifiably bad. However, in past years, the views on corruption had been more divergent and some economists had even found some redeeming value in it.37 Until the 1997 financial crisis, some countries from Southeast Asia seemed to provide support for the view that corruption might promote growth. Indonesia, Thailand, and some other countries were often mentioned as countries growing fast in spite of, or even because of, perceived high levels of corruption. This corruption was associated with a low degree of uncertainty.38 For Indonesia, it was argued that institutionalizing corruption made it less damaging to economic development than random corruption. One knew where to go and how much to pay for specific services.
In many countries (e.g., Ukraine, Russia, and Indonesia), enterprises—especially small ones—are forced by public officials to pay to make things happen or even to keep bad things from happening. Often these payments must be made if the enterprise is to remain in business. In Indonesia, there is a term for these payments (“pungli”) and, according to a recent report, these payments may raise the costs of doing business for small activities by as much as 20 percent of total operating costs. This is equivalent to imposing very high sales taxes on these enterprises. Similar information has been reported for Russia (Shleifer, 1996) and for Ukraine (Kaufmann, 1997), but the problem may be much more widespread.
Some economies (Singapore, Hong Kong, Portugal) have managed to reduce the incidence of corruption significantly. Lindbeck (1998, p. 3) has pointed out that even in Sweden “corruption flourished . . . in the second half of the 18th century and in the early 19th century.” Thus, governments should not be fatalistic or passive about corruption. With well-focused and determined efforts, corruption can be reduced, though not to zero. Trying to eliminate corruption altogether would be too costly, both in terms of resources and in other ways.
It is generally believed that the level of relative wages in the public sector is an important variable in the degree of corruption in a country. Singapore, a country with a good index of corruption and where corruption was much reduced over the years, has some of the highest wages for public employees. Reportedly, its ministers receive the highest salaries in the world. The civil service of Singapore is small and enjoys a high status.
It is generally believed that increasing the penalties for acts of corruption would reduce a country’s corruption. However, the imposition of higher penalties could run into problems with employees’ associations, with trade unions, with the judiciary system, and so on.
It is useful to point out that some of the countries perceived to be the least corrupt (e.g., Sweden, Denmark, Canada) have some of the highest tax burdens. On the other hand, some of the countries with the highest indexes of corruption (e.g., Nigeria, Pakistan, Bangladesh, China, Venezuela) have some of the lowest tax burdens. In the latter group of countries, quasi-fiscal regulations (i.e., regulations that substitute for taxing and spending) substitute taxes and public expenditures.48 Thus, to reduce corruption these countries would need to eliminate these quasi-fiscal regulations and, if necessary, replace them with taxing and spending policies. But quasi-fiscal regulations are predominant in these economies and they would have a difficult time in raising the level of taxation substantially. Once again we come to the conclusion that the fight against corruption and the reform of the state are two sides of the same coin.
Societies can do much to reduce the intensity of corruption, but no single action will achieve more than a limited improvement—and some of the necessary actions may require major changes in existing policies.