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Transparency International Launches Global Corruption Report 2006

Tens of Millions of People Suffer Because of Corruption in Healthcare
Costing Tens of Billions of Dollars Each Year

Corruption in the health care industry deprives those most in need of essential medical care and helps spawn drug resistant strains of deadly diseases, says Transparency International’s Global Corruption Report 2006 (GRC). For the millions of poor held hostage by unethical providers, stamping out corruption in health care is a matter of life and death.

“Corruption in health care costs more than money. When an infant dies during an operation because an adrenalin injection to restart her heart was actually just water -- how do you put a price on that?” said Huguette Labelle, Chair of Transparency International. “The price of corruption in health care is paid in human suffering.”

“This is a genuinely remarkable global report,” said TI Board Director Frank Vogl. “This GCR highlights critical issues of healthcare and corruption in developing countries, but it also provides in-depth analysis of corruption and fraud in healthcare in the most advanced industrial countries, notably the United States.”

Harvard University’s Malcolm Sparrow notes in one GCR essay that not only is corruption today a major issue in U.S. healthcare, but that the new approaches to Medicare drug prescriptions open up entirely new opportunities for corruption. In another essay, Boston University’s Taryn Vian explains that abuse in U.S. healthcare costs an annual estimated $12 billion to $23 billion.  Professor Jerome Kass of Case Western Reserve University highlights the serious and destructive conflicts of interest that exist in marketing relationships between pharmaceutical companies and doctors. He argues that this too needs to be recognized as a major course of corruption.

Hemorrhaging health systems

The report shines light on the US $3 trillion global health services industry, exposing a maze of complex and opaque systems that often provide fertile ground for corruption. While the majority of health service employees perform their jobs with diligence and integrity, there is compelling evidence of bribery and fraud in almost all types of medical services. This ranges from petty thievery and extortion to massive distortions of health policy and funding fed by payoffs to officials. Corruption permeates health care delivery, whether public or private, simple or sophisticated.

Among other things, the reports concludes that:

- Public health budgets often become subverted by unethical officials for private use;

- Hospitals frequently function as self-service stores for illicit enrichment, with unclear
procurement of equipment and supplies and ghost employees on the payroll;

- Health workers often demand fees for services that should be free. In Bulgaria, for instance (as is the case in much of South East Europe) doctors frequently accept small informal payments or gifts for medical treatment. This can be anything from between US $10 – US $50 and in some cases can rise to US $1,100.

- In the Philippines, a 10 per cent increase in the extortion of bribes by medical personnel was shown to reduce the rate of child immunization by up to 20 per cent.

- In Cambodia, certain health indicators have worsened partly because of direct embezzlement of public health funds and despite increased health aid. In contrast, in the United Kingdom tighter control mechanisms have reduced losses to corruption by US $300 million since 1999.

- In Costa Rica, nearly 20 percent of a US $40 million international loan for health equipment wandered into private pockets.

“Corruption eats away at the public’s trust in the medical community. People have a right to expect that the drugs they depend on are real. They have a right to think that doctors place a patient’s interests above profits. And most of all, they have a right to believe that the health care industry is there to cure, not to kill,” said David Nussbaum, Chief Executive of Transparency International.

Market distortions and counterfeit drugs

Aggressive marketing techniques frequently buy physicians’ support for specific drugs, resulting in a high rate of prescriptions that are not always based on patient need. With individual “blockbuster” drugs pulling in tens of billions of dollars each year for pharmaceutical companies, ballooning marketing and lobbying budgets have outpaced the research and development outlays necessary to create new and necessary medicines that could save lives in low-income countries.

Moreover, corruption underpins a lucrative counterfeit drugs trade. Payoffs at every step of the chain smooth the flow of counterfeit drugs from their source to the unwitting consumer. With pharmaceuticals often the largest household health expenditure in developing countries – estimated at 50-90 per cent of total individual out-of pocket health expenses – corruption in the pharmaceutical industry has a direct and painful impact on people depending on its drugs for survival.

Undermining the Fight Against HIV/AIDS

Corruption has hampered the success of global efforts to reign in the HIV/AIDS pandemic. The international response to the growing crisis has been to scale up aid in order to fund prevention programmes and the disbursement of life-saving anti-retroviral medications. Increased aid alone will not be effective if corruption is not curbed. Accountability mechanisms need to be introduced to prevent money from leaking at every level.

For instance, according to the report, theft by ministries and national AIDS councils of funds allocated for treatment leave sufferers without critical care. Kenya’s National Aids Council, for example, was hijacked by a few high-level civil servants, diverting critical resources through shell organizations expressly formed to siphon off public funds. Corruption can contribute directly to infection when relatively low-cost measures, such as sterile needles and screening of blood donations, cannot be carried out because a corrupt procurement or distribution process holds up supplies.

Millennium Development Goals Under Threat

Corruption is undermining progress towards the United Nations’ Millennium Development Goals, in particular the three related directly to health: reduced child mortality; improved maternal health; and the fight against HIV/AIDS, malaria and other diseases. With the target date for achieving the goals just nine years away, the global community is already off target to meet them – and corruption is one of the primary causes.

“Poor families, particularly in rural areas, who cannot afford private health care
face the agonizing choice of food or medicine. Feed your child or cure his illness, but not both? No parent should face that awful choice,” said Huguette Labelle.

Transparency International’s Recommendations

Curing corruption in the health care industry starts with transparency:

- Donor and recipient governments should grant easy access to information on key aspects of health-related projects, budgets and policies. Budget information should be available on the internet and subject to independent audits. They should:

· Adopt and enforce codes of conduct for health workers and private sector
companies and provide ongoing anti-corruption training.

· Incorporate conflict-of-interest rules in drug regulation and physician licensing
  procedures.

· Public health policies and projects should be independently monitored, both at
  the national and international level, and their reports should be open to public
  scrutiny.

· Procurement processes should be competitive, open and transparent, and
comply with Transparency International’s Minimum Standards for Transparency and Public Contracting. Rules on conflicts of interest must be enforced and companies that engage in corruption debarred from future bidding. No-bribe pledges such as TI’s Integrity Pact should be adopted to level the playing field for all bidders.

· Rigorous prosecution should be pursued in order to send the message that corruption in health care will not be tolerated. To facilitate this, there must be robust whistleblower protection for both government employees and private sector health, pharmaceutical and biotech employees.

State of corruption worldwide

The Global Corruption Report 2006 also presents reports on the state of orruption and governance in 45 countries around the world, including troubling vidence of financial irregularities in post-tsunami relief operations. The report’s fnal section surveys the cutting edge in corruption research.

 

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PricewaterhouseCoopers Finds 50% More Companies Report Financial Losses Since 2003

Rising economic crime poses a growing threat to companies, with nearly half of all organisations worldwide being victims of fraud in the past two years, according to PricewaterhouseCoopers' Global Economic Crime Survey 2005, released in November 2005. The number of companies reporting fraud increased from 37 percent to 45 percent since 2003, a 22 percent increase. The cost to companies was an average US$1.7 million in losses from "tangible frauds," those which result in an immediate and direct financial loss. These include asset misappropriation, false pretences and counterfeiting.

The biennial survey involved 3,634 companies from 34 countries and was conducted in association with Germany's Martin-Luther University, Halle-Wittenberg. It revealed that the total losses at 1,227 of the companies that could quantify their losses exceeded US$2 billion over the last two years; the number of companies reporting financial losses increased by 50 percent since 2003.

Companies around the world, on average, reported suffering eight fraud incidents since 2003. The larger the company, the more likely it experienced and detected acts of fraud. Larger companies reported an average of 12 incidents. Regardless of size, no company or industry, regulated or unregulated, was immune from fraud. Depending on industry, from 38 percent to 60 percent of surveyed companies reported significant frauds.

"The rise in economic crime is cause for concern. Companies may have a false sense of security when it comes to fraud. More companies are reporting financial crimes, they're reporting a higher number of incidents, and most cases are detected by accidental means," said Steven Skalak, Global Investigations Leader, PricewaterhouseCoopers. "Economic crime is not something to be taken lightly; companies need to tighten their controls to avoid not only direct financial losses, but also damage to their brand, to staff morale and to relationships with customers, suppliers and other business partners."

An Increase in Fraud

According to PricewaterhouseCoopers, the 22 percent increase in companies reporting fraud since 2003 may be attributed to:

  • More incidents of fraud being committed
  • Increased fraud reporting due to tighter regulations requiring increased transparency
  • Introduction of risk management controls to detect fraud
  • A "confess and remedy" environment among regulators that encourages fraud reporting

Despite the growing number of companies reporting fraud, nearly 80 percent did not consider it likely that their company will suffer fraud over the next five years.

The survey also showed increases in the various types of fraud that can affect a company, from asset misappropriation to counterfeiting. In particular, there has been a 140 percent increase in the number reporting financial misrepresentation, a 133 percent increase in the number reporting money laundering, and a 71 percent increase in the number reporting corruption and bribery.

Nearly 90 percent of those responsible for fraud are male, between the ages of 31 and 40, with college educations or higher degrees. Half were employed by the defrauded company, almost one quarter of them in senior management. And of those who were caught, the most common means of detection was through accident or chance (34 percent).

The Cost of Economic Crime

In addition to the financial losses, 40 percent of companies reported suffering significant "collateral damage" to the day-to-day operations and success of their businesses. Of those, 43 percent suffered damage to their brand; 42 percent to their relations with other businesses (including suppliers and contractors); and 54 percent to staff morale.

"Despite the increase in the number of frauds being detected and the effectiveness of risk management systems, there are always individuals or groups who have the incentive and the ability to circumvent or override controls. Companies must not drop their guard, but must constantly develop new controls and build on the loyalty of their employees so that they do not provide an environment in which fraud can flourish," said Skalak.

The Illusion of Safety

While the number of fraud reported has increased, companies on the whole believe the prevalence of fraud in their business was greater in 2003 than it is today. Only 21 percent consider it likely that their company will be a victim of fraud over the next five years. The most common means of detecting fraud was by accident or chance (34 percent) followed by internal audit (26 percent).

The more controls a company has, the better its chances of detecting fraud and recovering losses, the survey confirmed. Companies with a larger number of controls were better at discovering how much more damaging fraud was, uncovering three times as many losses as those with less controls. Additionally, companies with more than five fraud control measures were better able to recover their losses, (52 percent) than those with less than five control measures (43 percent). The internal audit is the most successful of all processes and controls in detecting fraud.

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Transparency International Releases its Latest Global Corruption Barometer
December 9, 2005

The report surveys the opinions of over 55,000 people in 69 economically diverse countries (five more than covered in TI’s 2004 Barometer report). The report seeks to answer three broad questions: 1) which institutions and sectors of society does corruption most affect in the countries polled? 2) How are levels of corruption perceived to be evolving and changing over time and 3) How frequently does bribery occur, what forms does it take, and what implications do these factors carry for its impact? 

The report finds that corruption in political parties is almost universally perceived to be greater than in other institutions such as business, basic social services, the media and legislatures and parliaments, NGOs and religious institutions. The data also confirms that the poor are the most affected by corruption and the most likely to pay bribes, regardless of region.

The report’s findings are relevant for those seeking to evaluate anti-corruption initiatives. The Barometer helps to measure past and current perceptions of corruptions and expectations, which is valuable in gauging the success of anti-corruption programs. Moreover, the report is useful for policy makers engaged in designing anti-corruption programs because it illuminates which institutions and sectors of society are most vulnerable to bribery and in what situations.

Stories Highlighted in the Barometer Include The Following:

Which Sectors Are Most Affected By Corruption?
Which Spheres of Life Does It Affect Most?
How is Corruption Evolving Over Time?
How Frequently Do People Bribe?
How Much Does It Cost?
What Form Does Bribery Take?

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Irish Political Parties Are The Least Trusted Sector According to TI Global Corruption Barometer 2005

Transparency International (Ireland) released the following report at the same time as the global launch by Transparency International of its “Barometer.” The Irish statement noted that the Irish public believe that political parties are the most corrupt institutions in the state. The Global Corruption Barometer rated political parties as the least trusted sector with a score of 3.7 out of 5. A score of 1 denotes a sector or institution which is seen as very clean compared to a score of 5 which indicates a sector or institution as highly corrupt.

Political parties were followed in order by the Judiciary/Legal System, Dáil Éireann, and the private sector as most prone to corruption. Conversely trust in An Garda Síochána and the medical services has increased over the past twelve months. Irish respondents also appear to be amongst the most optimistic that levels of corruption will decrease in the next three years. They also were amongst the least likely to pay or be solicited for a bribe.

Only 1 per cent of respondents claim to have paid a bribe in the past year, while 28 per cent of respondents believing that corruption will decrease a little or a lot, compared to a worldwide average of 19 per cent. However the latter figure is down 10 per cent from last year, when 38 per cent of the Irish public believed that levels of corruption would improve.

The Global Corruption Barometer was carried out by Gallup International among more than 55,000 people worldwide to assess public perceptions and experiences of corruption. It is used widely to gauge the effectiveness and public awareness of efforts to combat corruption.

The Irish chapter of TI was launched in December 2004. Its board includes people from the world of business, civil society and politics. The NGO will not investigate corruption but plans to undertake anti-corruption research and lobby government on legal and institutional reform.


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