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The Role of Incentive Design in Parliamentarian Anti-Corruption Programmes

Parliamentarian Anti-Corruption Programmes Must Help Build Political Capital if They Are to Succeed
by Bryane Michael and Aare Kasemets

The following is a policy-makers brief of the authors' paper, "The Role of Incentive Design in Parliamentarian Anti-Corruption Programmes." To read the full paper please follow this link.

The “first wave” of donor sponsored anti-corruption programmes usefully focused on elaborating recommendations for parliamentarians or tried to train them in anti-corruption. Now it time for these programmes to take into account parliamentarian incentives to adopt these recommendations or use this “knowledge.” These incentives revolve around building political capital by managing voter demands, political competition, and enforcement.

Many previous anti-corruption programmes and recommendations assumed that parliamentarians would “do the right thing.” Yet, parliamentarians are – and should be – politicians. Politicians are vote maximisers. Pope (2000) notes, “in one EU member country, Austria, Freedom Party Jörg Haider ran a successful political campaign in 1999, in part on an anti-corruption plank.... Haider doubled the Freedom Party's share of the Austrian vote between 1985 and 1999, in part because of his inclusion of anti-corruption as a campaign platform.” Thus, anti-corruption recommendations should be expected to be adopted to the extent that they help these politicians gain votes. More technically speaking, these programmes need to be incentive-compatible for the maximization of political capital.

...Many donor programmes can reduce the cost of implementing anti-corruption recommendations. For example, providing parliamentarians with alternative funding sources would reduce the political costs associated with alienating pro-corruption constituencies. Promoting education about tendering procedures would also, in theory, reduce the work parliamentarians must do to educate businesses in their constituencies. All of these activities would shift the expense curve up thereby increasing political capital for less politically risky increases in anticorruption activity. On the other hand, if donor work can increase the popularity of anti-corruption work done by parliamentarians, then both anti-corruption and political capital rise. The wide press coverage received by the UN Convention on Corruption represents an example of such an activity.

Given the simple political economy framework used in this analysis, donor work on
parliamentary anti-corruption must increase political capital while decreasing the costs of acquiring that capital. Figure 2 shows some donor actions which correspond to the recommendations to parliamentarians made by the Inter-Parliamentary Union’s recommendations. Actions are grouped according to the extent to which they help increase political capital, promote “good” political competition (competition which eventually could help the parliamentarian) and the “progressiveness” or liberalness of regulation.

Figure 2: IPU Recommendations and Possible Donor Activities


Political Capital Effects

Political Competition

Liberal Regulation


- Offer good PR for “Mr. Clean”

- Offer alternate funding sources

- Indirectly promote political competition between parties

- Criticism of overly sectarian legislation

- Provide liberal models

- Methods of “parliamentary enforcement”


- Promote funding of parties and countries with a good record on corruption

- Fund equipment needed for institutional communication

- International independent monitoring of national “independent monitoring”

- Hard Accounting Systems

- Support to other stakeholders

- Support of vision


- “Lump” interest groups together

- Fund investigative journalism

- External appraisal

- Internal Education

- Work on “harmonization”

- Teaching non-government orgs to “do it yourself”


While such donor work would appear “depoliticised” or “bureaucratised,” this work is political and should be treated like any political decision – namely widely discussed. Such work should also not interfere in parliamentarian work. Parliaments are designed to incorporate the political values of the country and not to serve the interests of international organisations. Too close links with the international organisations may well threaten their perceived sovereignty as well as the parliament’s legitimacy. Such work should also avoid being “captured” by parliamentarians.

Bryane Michael is currently a tutor in economics and management at the University of Oxford. He is also the Managing Director of Oxford Business Knowledge, a consultancy and training company in the UK. His prior work experience includes almost 5 years with the World Bank and the OECD and he has advised over 6 governments and 14 international businesses and NGOs.

Aare Kasemets is currently at the University of Tartu in Estonia. He has previously worked with the Estonian Riigikogu (Parliament) for over 10 years and has served as the Editor in Chief of the Journal of Estonian Parliament  from 1999-2001. His other experience includes work with the Centre of  Policy Research (PRAXIS) and the Ministry of Population.

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Asian Development Bank Reports Progress in Its Anti-Corruption Program

2005 Annual Report Released – Discusses Corruption Cases, Policies and Institutional Approaches

Excerpts From the Report:

The Asian Development Bank’s (ADB) Anti-Corruption Policy, approved in July 1998, designates the Office of the Auditor General (OAG) as the initial point of contact for allegations of fraud or corruption among ADB-financed projects or ADB staff. ADB established the Anti-Corruption Unit in OAG in September 1999 to handle all matters related to such allegations. Effective January 1, 2005, the Anti-Corruption Unit became the Integrity Division (OAGI). The upgrading provided greater recognition to OAGI’s activities and it further strengthened the supervision, management, and autonomy of its activities.

Complaints and Sanctions
In 2005, OAGI received 199 complaints (concerns or allegations of fraud or corruption related to ADB-financed activity or staff). After screening, OAGI opened 102 investigations and closed 59 complaints after concluding further investigation was not warranted. OAGI presents investigative findings, recommendations for reinstatement, and requests to close investigations to the Integrity Oversight Committee pursuant to the ADB Integrity Guidelines and Procedures. This body determines if firms or individuals involved in ADB-financed activities violated the policy and may impose sanctions. The Integrity Oversight Committee consists of three members, and three alternate members who fill any vacancies that may occur due to absences or conflict of interest. Members are nominated by the Auditor General and approved by the President annually. The principal director of Central Operations Services Office and an assistant general counsel advise the Integrity Oversight Committee.

Cases Considered by Integrity Oversight Committee in 2005

31 cases to consider OAGI investigative findings
40 firms debarred for periods ranging from 1 to 7 years
2 firms and 1 individual reprimanded
22 individuals debarred for periods ranging from 2 to 7 years
11 individuals debarred indefinitely

7 cases to consider reinstatement of eligibility (upon expiry of minimum sanction period)

8 firms and 3 individuals reinstated or removed from ineligible list

1 case to discuss amnesty to of certain entities prepared to cooperate with an investigation

3 cases approved for OAGI to terminate the investigation

Sanctions (since 1998)
As of 31 December 2005, 146 firms and 148 individuals were declared ineligible to participate in ADB-financed activities.

The ADB does not publicly disclose the names of firms and individuals ineligible to participate in ADB-financed activities pursuant to the Policy (see paragraph 60). OAGI shares that information on a confidential basis with other MDBs and international organizations as well as others with a demonstrated need to know. ADB staff may access the list of sanctioned entities to ensure compliance with the sanctions.  The ADB notes: “Some ADB member countries, NGOs, and other stakeholders have questioned ADB’s policy not to publicly disclose the names of sanctioned individuals and entities. As noted in paragraph 44, ADB staff have access to the list of debarred entities, and OAGI shares the information with other MDBs, international organizations, and others with a demonstrated need to know. The Auditor General and OAGI have often considered and continue to reassess the benefits and weaknesses of publicizing ADB's Anticorruption Sanctions List, and concluded that, under the present circumstances, ADB can best implement its Policy by retaining the current practice that those names are not publicized. OAGI has posted on the internet a detailed explanation of this decision and will continue to engage stakeholders to help them better understand the rationale for maintaining this policy.”

Strengthening Key Institutions
Providing assistance to strengthen supreme audit institutions is an important component of ADB’s policies on governance and anticorruption. OAGI seeks opportunities to work with supreme audit institutions in DMCs to enhance public accountability, a key element of good governance, and to reduce waste and abuse of public funds, thus contributing to combating corruption. In addition to exchanging best practices with supreme audit institutions, OAGI provides training in forensic accounting and other investigative techniques to financial analysts and project implementation officers affiliated with supreme audit institutions.

Rising Expectations
The increasing expectations and growing awareness of the importance of fighting corruption have led to growth in volume and complexity of OAGI’s workload. OAGI receives an increasing number of allegations of fraud or corruption each year as illustrated in Figure 6. In 2005, OAGI received 199 complaints, an increase of 44% compared with 138 complaints received in 2004. OAGI believes that the increase in complaints may be attributed to the OAGI’s awareness-building activities among staff, heightened media coverage of corruption issues and capacity building efforts with key institutions and government officials in ADB’s developing member countries.

ADB’s projects are frequently located in environments and industry sectors where fraudulent and corrupt activities, as defined by ADB, are institutionalized and pervasive. For example, OAGI investigated allegations arising from one project and found evidence of bribery, extortion, collusive bidding/bid rigging, phantom bidders, fake tender advertisements, conflicts of interest, defective pricing, rigged specifications, leaking of bid information, tampering with bidding documents, bid evaluation manipulation, forging of authorization letters, and false bid securities. OAGI has opened a total of 14 investigations since 2003 arising from this project. As of 31 December 2005, these investigations had led to the debarring of 26 entities. A procurement review undertaken by ADB operational staff as part of their oversight of another project identified 30 allegations of fraud and corruption for investigation by OAGI in 2006. As of 31 December 2005, OAGI had opened 12 investigations relating to this project.

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A Practical Guide to Preventing Corruption in Privatizations
A paper published by U4 - Utstein Anti-Corruption Resource Centre

Author and development expert Michael H. Wiehen  developed a key guide for the German development agency GTZ: Avoiding Corruption in Privatization - A Practical Guide

Despite all efforts to contain corruption, the privatization process in any country is still very vulnerable to corrupt initiatives.  While it has long been recognized that the quality of public governance in a country is the major determinant for the spread, the impact and the significance of corruption, it has emerged more recently that the quality of private sector governance is a major factor as well. The vulnerability of the privatization process to corruption is critically determined by the chosen privatization method and modalities, but also the general governance environment, the quality of the legal and economic systems and rules, the existence of a clear and transparent privatization policy and strategy, the existence of effective and functioning legislative, judicial and administrative institutions and structures (e.g. the existence of a central privatization agency), and of an effective internal and external audit and parliamentary control system.

A particularly significant factor across the board is the degree of transparency of the government processes – the more open and transparent the administrative assessment and decision making processes are, the more difficult it is to manipulate, falsify and corrupt them for personal benefit. 
Most single-enterprise privatization processes follow the same pattern: After (i) strategic considerations and decisions have been made, the (ii) detailed preparation of the privatization takes place, followed by the (iii) marketing and finally the (iv) evaluation of offers and bidders, negotiations and conclusion of the contract. Each one of these four steps offers numerous entry points for corruption. The paper is structured according to these four steps and demonstrates for each one manifestations and possible weak points for corruption and suggests many measures that can be used to contain/minimize or avoid corruption. As a fifth element, it is strongly recommended to accompany the entire process with a careful monitoring procedure and to subject every single privatization to a careful post-audit.

Experience clearly shows that the more transparent the processes, the more difficult it is to manipulate them for personal gain. (i) Open or controlled competition or tendering for the acquisition of the enterprise should be done with the benefit of an Integrity Pact, under which both the state and all the bidders commit themselves prior to the start of the process to refrain from all corruptive acts and submit to sanctions if violations of any of the commitments occur. Integrity Pacts are normally monitored by civil society organizations such as, but not exclusively, national chapters of Transparency International. The Integrity Pact process is also characterized by a high degree of transparency. (ii) The process of selecting consultants for any of the steps of the process could also employ the Integrity Pact model, and should in addition include requiring of the interested consultants the submission of an “integrity statement” in which they confirm/pledge their independence of potential bidders and the absence of previous integrity problems. (iii) Conversely, state officials involved in critical decision making in the privatization process should be required to sign ethical commitments such as “I will not accept or demand any bribes myself or tolerate bribery by others, and I will voluntarily disclose any potential conflict of interest”.

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