Public Sector Governance

Best Practices By Governments

On this page

• World Bank Upgrades Anti-Corrup[tion Policy
• Demand for Good Governance Recommendations to World Bank from PTF
• New United Nations Business Guidelines
• Poor Fraud and Corruption Controls in the World Bank's IDA Operations
• IMF Calls for Transparency Policy Public Views
• Canada Introduces Not-for-Profit Modernization Law
• Case Study in Public Private Partnerships: Health Crisis in Southern Africa
• Does Greater Fiscal Transparency Reduce Corruption?
• TI Australia and the AusAid Anti-Corruption Policy
• The U.S. MCC's Model Approach
• Recovering Stolen Funds
• Practical Advice on Income and Asset Disclosure Requirements
• Anti-Corruption Policy - The Dutch Example
• New UK Foreign Aid Policy
• Incentive Design in Anti-Corruption Programs
• ADB Anti-Corruption Program
• Guide to Preventing Corruption in Privatizations

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World Bank Upgrades Anti-Corruption Approaches

March 27, 2012 --- The World Bank’s Board of Executive Directors has endorsed the institution’s updated governance and anti-corruption strategy and implementation plan as an integral part of the work to improve development effectiveness, reduce poverty and promote economic growth.

Strengthening Governance, Tackling Corruption: the World Bank Group’s Updated Strategy and Implementation Plan will focus on increasing and systematizing governance and anti-corruption work in country and sector programs; strengthening country institutions; better measuring results from programs and policies; managing risks; supporting governance in global initiatives; and improving the organization of the Bank’s internal resources for governance work.

“Accountable institutions are needed to improve development effectiveness, reduce poverty and promote inclusive economic growth,” said Linda Van Gelder, World Bank Director for Public Sector and Governance. “Our updated strategy will help build those institutions for better governance around the world. The Bank’s country-driven approach will be supported by global initiatives against anti-corruption and malfeasance.” 

The update builds on the successes and lessons learned from the 2007 strategy, Strengthening World Bank Group Engagement on Governance and Anticorruption (GAC), in order to meet the challenges presented by fundamental changes that have happened around the world since then. In particular these changes include the financial crisis; greater citizen demands for transparency, accountability and participation --as evidenced by the Arab Spring-- and a more open and transparent World Bank (see factsheet).

In addition to strengthen governance and anti-corruption work in client countries, the updated strategy focuses on better measuring results and the development impact of Bank-funded programs and projects. Further, the Bank is strengthening its management of risk while at the same time applying a zero tolerance policy for fraud and corruption.

The Bank has now debarred 485 firms, individuals, and non-governmental organizations, preventing them from participating in future Bank-financed projects, through its Integrity Vice Presidency (INT), which has ramped up its work in the last few years to reduce the risk of fraud and corruption in projects.

In addition, the Bank has become more open and transparent. It has been actively working on a number of Open Development initiatives like the ‘Mapping for Results and Aidflows’ website to promote better monitoring of project results, enhance transparency, and strengthen country dialogue and civic engagement. Up to the end of 2011, the Bank had made available to the public 42,000 new documents since the Access to Information Policy became effective in July, 2010.

Strengthening Governance: Tackling Corruption: the World Bank Group’s Updated Strategy and Implementation Plan was informed by the feedback received as part of the World Bank country dialogue and online consultations from January 17 to February 19.

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Partnership for Transparency Fund Publishes Key Report Addressimng World Bank - Stimulating the Demand for Good Governance"

From PTF — Despite heightened priority to work with civil society under the World Bank’s recent “Governance and Anti-Corruption (GAC)” policies, a new study finds significant shortcomings. A critical weakness, from the perspective of civil society organizations, is the Bank’s reliance on the governments of developing countries to approve and to support Bank-civil society programs.

The study, “Stimulating the Demand for Good Governance – Eight Strategic Recommendations for Intensifying the Role of the World Bank,” is produced by the not-for-profit, Washington DC-based, Partnership for Transparency Fund (PTF). It stressed that the Bank’s goal to scale-up significantly its work in the anti-corruption area with civil society organizations (CSOs) has been hampered by: its approaches that first seek host government executive branch consent; poor publicity by the Bank of opportunities for civil society to receive funding; CSO concerns that receiving funds from their governments will undermine their independence; and, “there is an inherent conflict of interest in a CSO accepting funds from a government agency or the World Bank and then engaging in independent monitoring of that same agency in a Bank-financed project.”

The authors of the PTF study, are former World Bank officials Vinay Bhargava, Kit Cutler and Daniel Ritchie, PTF’s President. The new report details strategic recommendations to the Bank to improve its work with CSOs in the anti-corruption and governance arena. They note, for example, that although many official donor governmental agencies have been pursuing anti-corruption programs for some years, knowledge and learning about what works, and why, is still not widely shared. PTF stated that the Bank should provide leadership on this front, which would be welcomed by most donors. It should lead by generating and disseminating knowledge, and convening stakeholders from around the world. PTF said civil society should be included in such efforts.

The PTF study emphasized that its recommendations to the World Bank in the context of the “Demand for Good Governance” should be clearly understood as relating to development interventions that strengthen the ability of and extent of citizens, civil society organizations, and other non-state actors, to hold the state accountable and to make it responsive to their needs. The aim is to promote this concept, which is seen as enhancing the capacity of the state to become transparent, participatory, and accountable. The World Bank has largely accepted this concept and sought to build projects and programs that embrace it, yet the new study suggests that the Bank still has a long way to go before substantial results are visible.
posted 05/18/2011

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United Nations Updates Business Guidelines

The UN Secretary-General signed and issued the revised  Guidelines on Cooperation between the United Nations and the Business Sector.

Initially developed in 2000 as a common framework for UN-Business collaboration, the Guidelines apply to the UN Secretariat as well as separately administered organs, Funds and Programmes. As an important component of the Secretary-General's efforts to modernize the Organization, the Guidelines are intended to help UN staff develop more effective partnerships between the UN and the business sector while ensuring the integrity and independence of the United Nations. 

CHOOSING A PARTNER

The United Nations Global Compact provides an overall value framework for cooperation with the Business Sector. The principles of the Global Compact on human rights, labour, the environment and anti-corruption are based on intergovernmental agreements and are specifically relevant for business. UN entities should use them as a point of reference when developing their own guidelines, including guidelines for choosing a Business Sector partner.

The UN seeks to engage in mutually beneficial collaborative relationships and partnerships with the Business Sector. In considering such collaborations and partnerships, the UN will seek to engage with Business Sector entities that:

i) demonstrate responsible citizenship by supporting the core values of the UN and its causes as reflected in the Charter and other relevant conventions and treaties;

ii) demonstrate a commitment to meeting or exceeding the principles of the UN Global Compact by translating them into operational corporate practice within their sphere of influence including and not limited to policies, codes of conduct, management, monitoring and reporting systems.

c) The UN will not engage with Business Sector entities that are complicit in human rights abuses, tolerate forced or compulsory labour or the use of child labour, are involved in the sale or manufacture of anti-personnel landmines or cluster bombs, or that otherwise do not meet relevant obligations or responsibilities required by the United Nations.

d) The UN will not engage with Business Sector entities violating sanctions established by the UN Security Council.

e) The UN should not partner with Business Sector entities that systematically fail to demonstrate commitment to meeting the principles of the UN Global Compact. However, the UN may consider collaboration specifically intended to address this failure of commitment.

Posted 12/01/2009

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World Bank Group - Internal Evaluation Group

Crucial Defects Found in Aid Agency Fraud & Corruption Controls Raises Challenges to World Bank and Broader Questions About Development Aid

– report by the Bank’s Internal Auditing Department (IAD) and Independent Evaluation Group (IEG)

Volume 1 Review (of 6 volumes) of IDA Internal Controls
An Evaluation of Management’s Assessment
and the IAD Review

The report examines the internal controls in the activities of the International Development Association (IDA) the soft-loan window of the World Bank Group and the single largest source of foreign aid to the world’s poorest countries. From the new report….

“The weaknesses identified by IEG could potentially increase the risk of misuse of funds for IDA and its development partners unless actions are taken. The finding presents the challenge of addressing the risks more explicitly and to match them with appropriate risk management controls, recognizing that weak governance is a fundamental dimension of the development challenge for IDA and all of its development partners.”

An Unprecedented Study

The IEG stated that, “This evaluation is the first of its kind done by any international development finance institution.”  This raises profound questions about the need for similar evaluations of other multilateral and bilateral aid agencies – a remarkable situation given the more than 10 years of public commitments by the leaders of aid agencies to fight corruption in development assistance.

While the new report does not itemize cases of fraud and corruption, it looks at the safeguards in place in IDA operations to prevent fraud and corruption. It concludes that there are major deficiencies, which raises questions about the overall effectiveness of IDA’s lending – it was precisely concerns about lack of controls and evident weaknesses in transparency and accountability in procurement, that influenced Peter Eigen, back in 1990 the World Bank’s East African Regional Director, to call for a wholesale review of the operations of aid agencies – Eigen was to go to leave the World Bank and establish Transparency International.

Sharp Differences Between the Reviewers & Bank Management

The new study was carried out over several stages through a detailed management self-assessment, a review by the Bank’s Internal Auditing Department (IAD), and a comprehensive independent evaluation by IEG and a senior outside advisory panel (three former Auditor-Generals) validating the approaches used and the conclusions.
Overall, the authors of the report find much good work by World Bank/IDA staff, but inevitably the focus of attention of the report is on the stunning weaknesses in fraud and corruption controls. Here there is a sharp difference in perspective between the independent authors of the report and the management of the World Bank Group. The report stated: “The weaknesses in this area rise to the level of a material weakness in IDA’s internal control framework, rather than the significant deficiency found by management.”  In effect, the difference is a bit like in soccer, where the report’s investigators are now waving a red card – the most serious top priority warning, while the management of the Bank says the deficiencies really only merit a lesser yellow card.

The management argued in the report, in effect, that it was already addressing key weaknesses and thus it could not agree with the reviewers about the top level seriousness of the problem. The reviewers, meanwhile, suggest that until the World Bank group’s staff have fully implemented effective remedies, the top priority alarm signal is justified.

The report noted that, “These weaknesses (in fraud and corruption controls) are reinforced by significant deficiencies found in other related controls: in risk management, project financial management, and procurement. Since the risk of fraud and corruption by local beneficiaries, contractors, and other stakeholders can result in diversion of funds that, in the worst case, can impair IDA’s mission, IEG considers this weakness to be a material weakness.”

The differences voiced in the new report between the views of the authors and the Bank management are not just a scrap about words. More than a decade ago, when the Bank’s leadership first declared that it would change its lending, internal auditing and procurement approaches, the leadership of the institution has sought to suggest that it is moving with great speed and expertise. But, time and again, independent reports have found that effective anti-corruption actions by the Bank fall far short of the public rhetoric – the most recent castigation of Bank failures here came in 2008 with a report published by an independent review group headed by former US Federal Reserve Board Chairman Paul Volcker.   

Volume 1 of the new IEG report stated resolutely: “The weaknesses are concentrated mainly in the areas of fiduciary controls and the related lack of a specific focus on controls at the transactions level against fraud and corruption in operations supported by IDA.…controls over possible fraud and corruption in IDA operations should be addressed on a broad front, starting with risk management processes and country assistance strategies, and including the development and deployment of specific additional instruments directed at fraud and corruption issues at the level of programs and projects.”

The report continued: “Fraud and corruption (F&C) risks are widely assumed to exist in many countries, and this evaluation has shown that the Bank‘s traditional internal controls to ensure that F&C does not impinge on IDA projects have not always been effective. Based on the evidence brought to light in the present review, and the agreed criteria underlying the review IEG concludes that the weakness in the existing framework of controls addressing F&C issues are such as to rise to the level of a material weakness. While commitment to integrity has always been and remains a central feature in the Bank, there are also aspects of the culture that have resisted dealing openly with the potential for F&C at the local level in Bank and IDA operations.

These facts have been well recognized by the Bank and more specific F&C related controls are now being introduced as part of management’s GAC Implementation Program and in other ways, e.g. in implementing the recommendations of the Volcker Report. However, until these new measures are fully operative and effective it would be premature (from the view of both process and substance) to conclude that the F&C issues have been successfully resolved under the current IDA controls framework.”

The report explained that, “It is important to emphasize key aspects of the context for this finding: First, the finding is based not on evidence of the occurrence of actual F&C (though there is evidence that some F&C has actually occurred) but rather on the fact that there is evident risk of F&C occurring in a significant number of IDA countries. Second, weak governance and F&C risks are part of the challenge of development in many IDA countries and F&C risks affect the work of all donors, not just IDA.”

Recommendations
Based on its evaluation, the IEG authors of the report advocated in particular that the World Bank Group management should, “Accelerate implementation of the ongoing Governance and Anti-Corruption (GAC) program, and devote additional attention and resources to building an organizational culture and incentive structure in which the risks of F&C are explicitly and cost-effectively addressed in the management of IDA’s operations. While Management has correctly observed that such awareness has been spreading, including through the follow-up to the Volcker report, the systematic integration of this awareness into daily operations still has some way to go and needs to be given sustained emphasis going forward.”

Management Responds
The report contained a response by the management that highlighted a host of actions already taken and reads as a notably defensive posture. However, it included a commitment to follow up on the findings of the new report with a range of actions, including noting:

“Management is in full agreement that timely and effective remedial action is needed to address all of the issues identified. It also agrees with IEG that controls over the risk of possible fraud and corruption in IDA-supported operations should be addressed on a “broad front” and that implementation of all the remedial actions should be closely monitored. To this end, management has adopted and begun implementation of a detailed and comprehensive 5 point action plan, with many actions to be completed by June 2009.”

The management’s stated plans, written in typical internal Bank jargon, replete with lots of acronyms, calls for improvements in investment lending policies, processes, controls and supervision; enhancing internal risk management tools, incentives and accountability; integrating such actions into the Bank’s new strategies at country and project levels and strengthening training and what it calls “smart project design;” and, tightening financial management and procurement controls. It added, “The Bank is firmly committed to mainstreaming governance and anticorruption efforts into its development work. To this end, management is actively tackling the anti-corruption agenda at all levels”

And the management concluded in its statement that, “Given the actions already in place, however (including the measures added over the past 6-12 months), management believes that the remaining issues are at a level of a “significant deficiency” rather than a “material weakness.”

 Posted 04/17/2009

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How transparent should the International Monetary Fund be?

The London Summit of the Group of 20 pledged to raise the stature, the power and the resources of the IMF - an organization whose lending programs in emergency situation in many countries in the past have brought torrents of public criticism - often because of charges that the Fund was too secretive.

In fact, over the last decade the IMF has made major strides in becoming more open. As it calls now for public views on its policies, it claims to set a stanhdard for public sector transparency that could be widely envied, and certainly ought to be widely emulated by governments. The Fund will comprehensively review these policies in coming months. As it calls for the review it claims that it strives to provide meaningful and timely information on its work and on the economies of member countries to its global audience.

Last month the Fund released its transparency report. The IMF said that when it comes to disclosure of key economic policy information, then governmental publication performance hastrended higher in the last year. The publication rate across country staff reports was, at 83 percent, in line with earlier years. The categories of documents that showed increased publication rates included requests for use of Fund resources (96 percent of such reports were published in 2008 compared to 85 percent in 2007) and Article IV Public Information Notices (PINs) (97 percent of members chose to release these summaries of the Executive Board's views after Board discussions of their country, compared to 93 percent in 2007).

The average lag between Board discussion and publication for country staff report fell to 32 days in 2008 from 37 days in 2007, and the rate of recourse of member countries to allowable deletions from staff reports was stable, at 9 percent of all published staff reports.

The Fund's transparency policy—which establishes the rules governing publication of documents—designates the publication status of most categories of Board documents as "voluntary but presumed", meaning that publication requires the member's explicit consent but is expected to take place within 30 days following the Board discussion.
This report responds to a request by the Executive Board in 2005 for regular updates of information on the implementation of the Fund's transparency policy, and features data on documents discussed by the Board between November 1, 2007 and October 31, 2008, and published by December 31, 2008. These documents include, in particular, staff reports on bilateral surveillance (Article IV consultations) and use of Fund resources, as well as country policy intention documents and IMF policy papers.

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Canada Introduces New Law for Not-for-Profit Organizations

Government hails Sweeping Modernization -- Legislation to Replace Act of 1917

Canada’s first significant modernization of not-for-profit law since 1917 has been put before the Canadian Parliament. Minister of State Diane Ablonczy said the proposed Canada Not-for-Profit Corporations Act will promote accountability, transparency and good corporate governance for the not for profit sector and will enable organizations to incorporate faster. In addition, it will improve their financial accountability, clarify the roles and responsibilities of directors and officers, and enhance the protection of members' rights.

"This Act means that not-for-profit organizations will have a modern and flexible legislative framework so that they can devote their energies to doing what they do best -- helping deliver valuable services and programs to Canadians in need," added Minister Ablonczy.

There are approximately 161,000 not-for-profit organizations in Canada, which generate $136 billion in annual revenues. These organizations include charities, community associations, family centers shelters and religious organizations.

The Canadian Government said the proposed legislation will result in:

• the creation of a new, modern, Canada Not-for-Profit Corporations Act;
• the movement of business corporations created by Special Acts of Parliament, subject to the Canada Corporations Act, into the Canada Business Corporations Act; and
• the repeal of the outdated Canada Corporations Act.
  
  

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Case Study in Public Private Partnerships: Health Crisis in Southern Africa

Good governance usually works best when both the public sector and private sector work together.  This type of collaboration, often called public-private partnerships, builds off the strength of both sectors and become a mutually beneficial relationship.  A recent study specifically targeted the growing problem of the extreme prevalence of tuberculosis (TB) and HIV in miners working in South Africa.  The problem involves both the mining industry and the public health agencies in both South Africa and Lesotho, where many miners migrate from in order to work in South African mines.  Many of the recommendations put forth by the publishers of the study, AIDS and Rights Alliance for Southern Africa (ARASA), lend themselves to public-private sector collaboration.

The high number of miners in South Africa with TB puts a heavy burden on surrounding countries due to the large number of migrant workers.  Lesotho, according to the survey, sends around 50,000 migrant workers to South Africa.  TB is responsible fore 15% of all deaths in the country.  Most of the people reporting cases of TB come from the mining industry, according to the study’s statistics.  It cites that 90% of reported cases of TB in South Africa is due to problems in the mining sector.

Obviously this public health crisis means there is a breakdown in the government health systems, which are not effectively preventing or providing for the victims and their families, and a lack of accountability on the part of the mining industry itself.  In order to confront the problem, ARASA organized a multi-stakeholder meeting in May 2008 addressing the issues surrounding the public health crisis in these two countries.  Meeting participants included government officials from both countries; healthcare workers from Lesotho; members of the national union of mineworkers; representatives from non-governmental organizations with expertise in migration, labor, public health, miners and human rights; HIV/AIDS and TB program officials from the mining sector; activists; researchers; and representatives from international agencies and institutions working on TB/HIV.

The group produced a specific set of policy recommendations and programmatic actions to be taken both by the appropriate government agencies and the mining industry.  The study emphasizes that programs do already exist to combat TB/HIV, but the level of enforcement of these programs is very weak. 

The study lists priorities for governments and mines:

The implementation of programs on mines is a serious problem.
79% of miners from Lesotho have HIV or advanced TB. Very few victims have had treatment

There is a lack of standardization among treatment posts.
There are multiple points of care, but with varied degrees of  quality. There needs to be a strong referral system so that victims will know where to go to get quality care. Smaller mining companies also need to be doing more in implementing programs.  Currently many of the larger mining companies are carrying the burden.

The governments must identify and establish a consortium of stakeholders to monitor, evaluate and improve implementation of interventions for strengthening bi-national management of TB in the mining sector.  There must also be joint evaluation and harmonization of Lesotho-South Africa programmatic management of TB in miners.

More research is needed on the health implications of migrant miners in Southern Africa.

Please read the full report to see a complete list of recommendations for each stakeholder.

Posted 7/25/08

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Does Greater Fiscal Transparency Reduce Corruption?

IMF Issues Code. International Budget Project Highlights Need for More Public Information

The International Monetary Fund (IMF) recently published its “Fiscal Transparency – Revised IMF Code of Good Practices.” This comprehensive code not only covers a range of detailed areas where governments should provide public budget information, but it also stresses the need for governments to pursue good practices in this area. It states that:

• There should be sufficient time for consultation about proposed laws and regulatory changes and, where feasible, broader policy changes.
  
  
• Contractual arrangements between the government and public or private entities, including resource companies and operators of government concessions, should be clear and publicly accessible.
  
  
• Government liability and asset management, including the granting of rights to use or exploit public assets, should have an explicit legal basis.
  
  
• A budget calendar should be specified and adhered to. Adequate time should be allowed for the draft budget to be considered by the legislature.

The Fund’s new code fundamentally reflects a concern that too many governments are not being as transparent in their fiscal affairs as they should be. In the actual Code, for example, the Fund found it necessary to state bluntly: “The timely publication of fiscal information should be a legal obligation of the government.”

An increasing amount of analysis of governmental budget practices is being pursued by the International Budget Project, which publishes ratings on the fiscal transparency performance of 40 countries and plans to increase coverage to 80 countries. Warren Krafchik, Director of the International Budget Project, argues that greater transparency in national budgets enhances governmental accountability and provides vital information to the public. He agrees that it is also important for the public to obtain greater budget information at the sub-national level from local public entities that directly provide services.

In its most recent study of 40 countries in late 2006 the International Budget Project analyzed the responses to a 122 multiple-choice questions. It concluded: “Accurate, timely, and comprehensive information during each stage of the budget cycle is required to ensure the accountability of government to citizens. The Open Budget Index’s results suggest that 90 percent of the countries covered do not meet this standard.”

Posted 7/17/07

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TI Australia Follows Up on New AusAid Anti-Corruption for Development Policy

This Report is from the May 7, 2007 Newsletter of TI Australia

The Australian Government through its international aid agency, AusAID, released a new policy on anti-corruption on Friday 30 March. The development of a more rigorous approach to combating corruption was recommended in the White Paper review of the Australian Aid program in April 2006. TI Australia was consulted in the development of the new policy.

The new Anti-Corruption for Development Policy is intended to provide a stronger framework under which to plan, resource and review anti-corruption activities on a regional basis and in every country program funded by AusAID. The policy has a three pronged approach:

To include activities that assist institutions, groups and individuals to foster integrity and accountability in leaders, support the collection and dissemination of information about the costs of corruption, and foster demand for change by mobilising support for anti-corruption reform efforts.

To include initiatives that bolster transparency and accountability in budget processes, public financial management and procurement systems, and support implementation of clear legislative and regulatory frameworks to reduce opportunities for corruption. To include initiatives to investigate and prosecute corrupt behaviour, and promote a professional, merit-based public service. The new policy includes a welcome emphasis on the role of civil society organisations and community based anti-corruption activities, recognising the need for increased public awareness of the costs of corruption and for successful measures to counter corruption and maintain a momentum for reform. In particular the policy identifies the need to improve transparency in public sector processes and to strengthen the capacity for civil society to monitor budget processes and public expenditure.

With the release of the new policy framework, TI Australia will be following up with AusAID on the details for its implementation plan particularly in relation to regional programs in the Asia-Pacific and individual country programs. TI Australia will also ensure that other TI chapters in the region are consulted and involved as far as possible. In addition, as the White Paper signalled in its recommendation for the development of the new policy, TI Australia will be seeking information on how this policy informs a whole-of-government approach to combating corruption in cooperation with other Australian agencies, including Attorney General's, Treasury,

Finance and Administration and the Australian Federal Police. TI will also want to ensure that an effective monitoring and evaluation program is linked to the implementation plan for the new policy, so that good information is available on what is working and what is not, to inform the ongoing approach and programs of AusAID, other government departments and for civil society organisations, including TI.

Graham Tupper
TI Australia Board Member

To obtain a copy of the new policy go to: Tackling Corruption for Growth and Development

AusAid Notes: Corruption is a serious global problem. It stifles broad-based economic growth and slows development. It undermines security, justice and the rule of law. As well, the costs of corruption fall disproportionately on poor people. This publication describes Australia's anti-corruption for development policy. Developed in collaboration with a wide range of Australian government agencies and external stakeholders the policy provides a framework for planning, resourcing, and reviewing anti-corruption activities on a country and regional basis.

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The MCC Model

Excerpts from a Speech by Ambassador John Danilovich
CEO, Millennium Challenge Corporation
at Brown University's Center for Latin American Studies

April 16, 2007 (see Speeches by Ambassador Danilovich and visit MCC)

download as a .pdf

The Millennium Challenge Corporation (a United States Government development assistance agency) provides foreign assistance to a select number of the world's developing nations in a new and innovative way.   MCC’s agreements for grant funding, which we call Compacts, provide assistance to poor countries committed to good governance as well as economic and human development. 

The MCC Model

MCC’s mission—to reduce poverty through economic growth—is simple to state but far more complex to achieve.  Yet, we are seeing success in the field by adhering to 3 principles that are at the core of the MCC model.  Let me explain each of these.

First, for assistance to have the greatest benefit on the lives of the poor it must be awarded to countries that are committed to and have taken concrete steps toward sound political, economic, and social policies.  MCC currently uses 16 policy indicators from independent, non-US Government sources to assess whether a country

• rules justly,
• invests in the health and education of its people,
• and promotes economic freedom. 

We evaluate how a country performs in terms of

• civil liberties,
• the rule of law,
• and government effectiveness. 

We review measures of a country’s health expenditures and primary education completion rates.  We use evaluations of a country’s regulatory and fiscal climate to see how conducive it is for business development. 

We examine a country’s control of corruption.  Next year, we will add 2 new indicators that assess how well a country promotes environmental stewardship and protects property registration and land rights. 

Since we maintain that development assistance goes further—and should be awarded only—when good policies are in place, we have found that countries are taking it upon themselves to reform their policies.  It is a powerful validation of the MCC approach that countries are enacting significant policy reforms to qualify for our help.  I call our role as a catalyst for reform the “MCC incentive effect,” and we are seeing it in action.

• According to the World Bank’s Doing Business report, 24 countries cited the MCC as the primary motivation for their efforts to improve their business climate.
  
  
• El Salvador dramatically reduced the number of days required to start a business from 115 to 26.  As a result, business registrations jumped by 500 percent. As El Salvador now begins implementing its Compact, it is enacting even further policy reforms. 
  
  
• In Paraguay, the cost to start a business has been reduced from $840 to $250. The number of days required to start a business has been cut in half from 74 to 36.

Second, to reinforce good policies we require “country ownership” of the development process. While we work in partnership to define and share respective responsibilities toward realizing a Compact, we ask the country to take the lead in creating and implementing its proposal for funding. Taking an approach much like an investor–rather than a traditional donor–MCC requires that countries themselves come up with their development plan. 

We expect that countries will identify their barriers to poverty reduction and economic growth in consultation with their civil society, including the private sector. We expect them to design their own proposals for funding that they then will implement.  We require that women, alongside men, be part of this process from start to finish. In Nicaragua, for instance, a local gender expert was hired to ensure that gender concerns are integrated into the Compact’s implementation.
Third, tangible results matter. Our partner countries must identify from the outset what impact our funding will achieve.  Our assistance goes to those countries that develop programs with

• clear objectives,
• benchmarks to measure progress,
• procedures to ensure fiscal accountability for the use of our aid,
• and a plan to monitor and evaluate results.

MCC’s focus on measurable outcomes ensures that our assistance delivers a difference in the lives of the poor.


Posted 4/27/07

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Recovering Stolen Funds:
Suggestions for Best Practice

In a brief written for the U4 Anti-Corruption Resource Center, a Norway-based research organization, authors Jack Smith, Mark Pieth, and Guillermo Jorge of the Basel Institute on Governance, a Switzerland-based research and policy non-profit, discusses the most pressing issues in the struggle to repatriate stolen assets in developing countries, as covered the United Nations Convention against Corruption – now ratified by 80 countries. The brief addresses the scope of the problem, the major obstacles victim countries, recipient countries (financial centers), and the donor community, and possible solutions.

Obstacles and suggestions laid out in the report include:

Recipient Countries (Financial Centers)

Intensify political will/enact conforming legislation
"Recipient countries must swiftly enact new laws that conform to the provisions of UNCAC. Particular attention should be focused on increasing scrutiny by financial institutions on transactions of Politically Exposed Persons (PEPs). However, if new laws are not accompanied by governmental action to change past irresolute practices, corruption will continue unabated."

Freezing assets
As freezing assets may restrict basic rights, many jurisdictions have elaborate judicial procedures before a freeze order can be effective. Because the freezing of assets can restrict basic rights, many countries have enacted complicated legal procedures for carrying out a freeze order, which often result in funds disappearing before orders take effect.  Laws must be changed to allow rapid freezing procedures (within 24 hours).

Countries should adopt measures to protect constitutional safeguards. In Switzerland, for example, financial institutions must automatically freeze reported fund transfers for five days, during which a magistrate reviews the case. In France, the Financial Intelligence Unit is granted administrative freezing rights when notified of a suspicious transaction. 

Burden of proof
The requirement by many recipient countries that victim countries to prove officials’ wealth was not acquired legally in order to freeze assets has seriously slowed and weakened efforts to repatriate stolen funds. According to the brief, “Recipient countries should consider criminalizing unexplained, substantial increases in wealth of public officials (Art. 20) and allowing confiscation of assets where public officials cannot demonstrate the lawful origin of alleged proceeds of crime (Art. 31(8))”

Technical assistance
Victim countries are often not familiar with the complexities of recipient countries laws regarding financial information. Thus, “financial centers should recognize that victim countries are not familiar with the peculiarities of the laws of every recipient country, and therefore financial centers should provide technical support and ensure that political impediments to asset recovery are minimized.”

Donor Community

Fund “gap analyses” in developing countries
Because the corrupt tend to choose larger financial centers, often the same centers from which bribery payments are made to officials in developing countries, there is a big role for donor agencies to play in pushing reform in their host countries. “Donor agencies can sponsor analyses comparing the laws and practices of their country with the standards set forth in the UNCAC. Local law professors may perform this kind of “gap analysis” gratis in exchange for assistance in publication.” This analysis can be used to lobby legislatures for reform.

Establish a trust fund for significant cases
The donor community should create a fund for legal fee and expense loans to victim countries for cases that could establish useful precedents or which are so important that they should proceed regardless of whether the country lacks the resources to do so. The loans could be paid back with interest from recovered assets.

Pressure governments to make legal systems compatible
“The global patchwork of disparate laws on mutual legal assistance requests, standards of proof, criminalization, freezing and confiscation, etc. has given aid, comfort and protection to corrupt officials whose unconstrained looting keeps over 3 billion people in abject poverty and despair. Donor agencies should use their influence to convince financial center countries and victim countries to standardize these inconsistent provisions.”

For the full brief click here.

Posted 3/16/07

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Income & Asset Disclosure Requirements for Public Officials: How to Establish and Maintain an Effective Disclosure Program

Bureaucratic transparency is critical to promoting good governance. However, many countries do not require officials to publicly disclose their income and assets making corruption prevention and conflict-of-interest detection all the more difficult. The World Bank has compiled a list showing which of its client countries require official asset disclosure. This list, preceded by a guide for developing successful disclosure programs written by Rick Messick, a Senior Public Sector Specialist in the Bank's Public Sector Group, is reproduced with permission below.

Practical Advice on Establishing and Maintaining
An Income and Asset Disclosure Program

Rick Messick
April 2006

1) The primary purpose is not punitive.  Rather it is to bolster citizens' confidence in their government.  Full disclosure will put to rest many wild rumors about this or that official.

2) Begin with the assumption that all, or most all, public servants are honest.  Thus the aim of the agency in charge of income and asset disclosure is to help those required to disclose do so correctly.  Among the actions the agency can take to foster voluntary compliance are seminars for filers, a help line, and a procedure for requesting advisory opinions where the law is unclear.  (The opinions then become a body of law to guide interpretation in future cases.)

3) Once government has gone the extra mile to promote voluntary compliance, it is easier politically for it to bring the enforcement club out of the closet.  That club should be of sufficient weight to match the severity of the offense.  In other words, the failure to file or a false filing should be treated no less seriously than the solicitation or receipt of a bribe.  In Trinidad, in addition to prison time for failure to disclose, the state can require the defendant to forfeit the value of the asset not disclosed.

4) The disclosures should be public.  Romania began requiring officials to file declarations in 1996 but few took the time to fill them out accurately until 2003 when the government started publishing them.  When the disclosures are public, the media, civil society, and political opponents complement official enforcement activities.  A Philippine reporter visited the homes of mid-level tax collection bureaucrats who claimed a modest income and modest holdings on their disclosure form.  She found several were living in mansions with luxury cars parked in front.  The day the story appeared two officials resigned and the ensuing investigation has caught several more. 

5) The agency in charge of income and asset disclosure should not be the primary enforcer, for there is a high risk that its role helping to assure voluntary compliance will get lost.  Cops and social workers don't mix (1). The agency can report non-filers to the prosecutor or police.  It can refer allegations of false filings too.  What it can also do are some basic checks.  In Argentina the agency cross checks filings against land records.  In Madagascar it compares filings with tax records.  Until recently, the Argentine office posted the names of non-filers or those whose declarations appeared to be inaccurate.  This was the office's way of pressuring the judiciary to pursue the case. 

6) A serious effort, as opposed to a witch hunt directed at discrediting political opponents, may require some type of amnesty to get the program off the ground.  To say this can be a contentious issue understates the case.  But if the country has been in a Wild West state of affairs, with unclear rules on procurement or no rule about insider deals on privatization, it may be the only way to develop a cross-party consensus. The terms and scope of the amnesty will be critical.  If a parliamentarian who acquired her assets through a sweetheart privatization deal comes clean, do we allow her to keep the assets?  What if the assets were acquired using the proceeds from a bribe?  Or more starkly what if the proceeds derived from a murder-for-hire contract?

7) The hidden asset problem.  One objection to an income and asset disclosure program is that the dishonest will simply hide their assets, putting them in their spouse's name or the name of an unrelated person.  The law needs to be clear that however the asset is formally titled, if the official is the one who enjoys its use and benefit (a common law trust in Anglo-American legal terminology), the official must disclose it. 

8) One strength of an anticorruption enforcement strategy built around income and asset disclosure is that it lessens the threat to civil liberties and abuse of enforcement tools that can result from an aggressive campaign to root out bribery.  Bribery is a difficult crime to prove and police and prosecutors often must turn to wiretapping, eavesdropping, sting operations, and other techniques that can easily be abused.  The filing of a false declaration is a much easier case to make.  It can be made even easier if one provides a bounty for those asked to help an official conceal income or assets.  That is, if lawyers, accountants, bankers, and whomever might be approached to help hide assets know that if they turn in the official they get a percentage of what they are being asked to conceal. 

9) Start slowly and build up capacity.  A common mistake in creating a new agency is to establish it on day one and on day two require thousands of civil servants to file a form with the agency.  The agency is unable to meaningful review so many forms so early in its life, word quickly gets around to this effect, and people don't take the agency or its mandate seriously.  In the first year stress education.  Require just a handful of senior officials to file declarations.  

10) Income and asset disclosure laws have failed in some places because of a lack of clarity about who is required to disclose and to whom, what must be disclosed, what the consequences of an intentional failure to disclose are, and which entity is responsible for prosecuting failures to disclose.  The law should specify precisely who is required to disclose, either by type of position (minister, secretary general, judge) or according to pay scale.  Terms such as “verify” and “investigate” need to be carefully defined in the law.  Prosecutors sometimes claim they alone have the power to investigate and thus stymie personnel in anticorruption agencies who seek to inquire into the accuracy of a declarant's statement. 

(1) A series of recent reports concludes that multifunction anticorruption agencies perform poorly.  See Patrick Meagher, Anticorruption Agencies: A Review of Experience, IRIS Center, University of Maryland, August 2002; Council of Europe, Anticorruption Services: Good Practice in Europe, August 2004; John Heilbrunn, Anticorruption Commissions: Panacea or Real Medicine to Fight Corruption?  World Bank, 2004; Council of Europe, Strengthening Anticorruption Services in Southeastern Europe: Current Status and Needs for Reform, July 2005; Alan Doig, David Watt, and Robert Williams, Measuring “Success” in Five African Anticorruption Commissions, U4 Group, May 2005; UNDP. Institutional Arrangements to Combat Corruption - A Comparative Study, December 2005.

Income and Asset Disclosure in World Bank Client Countries

Posted 12/29/06

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Learning from Experience in Anti-Corruption – The Dutch Example

By Michel van Hulten

To download as .pdf

Michel van Hulten, a distinguished former senior Dutch public official and an important participant in some of the early strategy meetings held in Europe to consider the potential development and launch of Transparency International, has written an insightful paper based on his home country’s experience. The full paper can be obtained from www.corruptie.org  - “State and Development of Fighting Corruption and Safeguarding Integrity in the Netherlands.”

Summary of the Paper
The fight against corruption and safeguarding integrity in the Netherlands, how these phenomena developed over the past fifteen years * Some concrete data * The 2005 Government White Paper on Corruption Prevention * The case of Amsterdam

The Polish Government established in its Interior Ministry an ‘Anti-Corruption Team’ to foster the fight against corruption and to improve and safeguard integrity. The ministry received (under an EU-umbrella) assistance by experts from Northern Ireland and the Netherlands who helped to develop institutions, to improve the law and to set up training for better implementation of rules and regulations, aiming at public officials and politicians at national, regional and municipal level, in particular the big cities. This assistance was strongly linked to an internal Polish document, the Anti-Corruption Strategy.

The question was raised about how a country like the Netherlands is trying to do the same. This paper tries to answer that question in cataloguing what institutions, older ones and newly established for this purpose, exist, how they work, on what legal basis and what results they produce. A historical approach has been chosen, beginning with an official anti-corruption approach by the then Dutch minister of the Interior in 1992, not even fifteen years ago, and ending with the 2005 Government White Paper on ‘Corruption Prevention’.

The document gives the official figures with regard to corruption which are rather low, figures used by several Dutch ministers of Justice since 1992 who seem to be convinced that indeed these figures represent reality. Moreover Transparency International is quoted as also consistently rating the Netherlands among the ten least corrupt countries of the world. Nevertheless, others do not share this view and doubt whether these data reflect reality or rather reflect a reality which misses the point as corruption is ill-defined or too narrowly defined. OECD and GRECO-reports are used as they report about the phenomenon of corruption in the Netherlands as seen by experts from abroad also using input data not only provided by the Dutch Government, but also by representatives of civil society, business, local and regional authorities. Special attention is given to some business and local initiatives, highlighting in particular what is done in Amsterdam, the municipality that seems to be the best developed one in this respect.

A second question was posed by the Polish authorities: what education exists in the Netherlands for staff who deal with corruption and integrity issues? Although a rather large number of educational establishments have been consulted, not much has been found. There is not a single full-time academic study dealing with these subjects, but students can shop in various programs at several Universities and Colleges and compose their own curriculum.  Quite a number of the courses are taught in English and are open to foreign students.

Website addresses with names and e-mail-addresses of staff are given, opening the way to more detailed information.

Posted 8/18/2006

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UK Government “White Paper” On New Foreign Aid Policy

A new "white paper" by the UK's Department of International Development (DFID) outlines a bold and unconventional new foreign aid policy for the UK that focuses on promoting good governance and anti-corruption as a means to reducing poverty.

To download this article as .pdf
           
Speaking in the House of Commons on July 13, 2006, Mr. Hilary Benn, the UK’s Secretary of State for International Development, stated, “How countries progress and improve the lives of their citizens is a complex process, but we know that governance is fundamental to it. Development doesn’t happen without effective states, capable of delivering services to their citizens and helping economies to grow.” On introducing the new “White Paper,” which is designed to direct UK foreign aid policies for the next five years, the Minister stressed that a new £100 million (about US$185 million) Governance and Transparency Fund will be established to support civil society, a free media, parliamentarians and trade unions in improving accountability.

Minister Benn told the parliament that, “To ensure that our aid is used to best effect, we will in future regularly assess the quality of governance, transparency and commitment to reducing
poverty in the countries in which we work. We will publish these assessments, and will use them to help make decisions about our aid.”

The Minister noted that, recognizing that bad governance and corruption are international problems too, the UK Government will:

• publish an annual UK Action Plan to tackle corruption affecting developing countries and report on progress every six months;
• set up a new unit to investigate money laundering and allegations of bribery affecting UK firms;
• help developing countries to track assets and carry out investigations;
• seek to expand, including through a resolution in the UN General Assembly, the successful Extractive Industries Transparency Initiative to other sectors such as construction, procurement, and health;
• work with others to set international standards to tackle the trade in conflict resources, which fuels so much destruction.”
  
  

In the Preface to the “White Paper” the Minister writes that, “I am determined to ensure that our rising aid budget is used for the purpose for which it is given helping to lift people out of poverty. We have to show results. That is why we will make a careful assessment of the best way to do this in each country and vary the way we give our aid accordingly. And we will be resolute in the fight against corruption. In the end, governance from the global right down to the village level is about people and their relationships, one with another, more than it is about formal institutions. What makes the biggest difference to the quality of governance is active involvement by citizens - the thing we know as politics.”

Chapter 2 of the Report Is Headed “Building Effective States and Better Governance”

In this chapter the Government notes: Effective states are central to development. They protect peoples’ rights and provide security, economic growth and services like education and health care. Building better governance takes time and has to come from within each country, but international partners can help. This means we need to work not just with governments, but also with citizens and civil society. Good governance is essential to reduce poverty. 

Effective states and better governance are essential to combat poverty. States that respect civil liberties and are accountable to their citizens are more stable. The document continues –significant improvements in governance can take place. Botswana, Ghana and Tanzania have strengthened their public institutions in recent years. Rwanda, Mozambique, Vietnam and Cambodia have successfully rebuilt their countries after devastating conflicts. And East Asian countries, such as Malaysia and South likely to attract investment and generate long term economic growth. They can also cope better with calamities. Famines, for example, are less likely where there is a free media, because the press creates pressure on governments to provide relief. Unless governance improves, poor people will continue to suffer from a lack of security, public services and economic opportunities. The contrast between Tanzania and Zimbabwe over the past decade is striking.

The Report Then Asks the Question:  “So What Is Good Governance?”

It answers:  Good governance is not just about government. It is also about political parties, parliament, the judiciary, the media, and civil society. It is about how citizens, leaders and public institutions relate to each other in order to make change happen. Elections and democracy are an important part of the equation, but equally important is the way government goes about the business of governing. Good governance requires three things:

• State capability – the extent to which leaders and governments are able to get things done.
• Responsiveness – whether public policies and institutions respond to the needs of citizens and uphold their rights.
• Accountability – the ability of citizens, civil society and the private sector to scrutinize public institutions and governments and hold them to account. This includes, ultimately, the opportunity to change leaders by democratic means.

To download the full version of Chapter 2 of the "White Paper" follow this link.
For the full “White Paper” see www.dfid.gov.uk.

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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

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:

Mission
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.

Disclosure
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

Summary
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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