Public Sector Governance

Views and Analysis

On this page:

• Global Witness Statement as US Secretary of State Clinton Visits Africa
• TI Letter to G-20 Summit in London, April 2, 2009
• Extractive Industries and the Actions of the World Bank and International Monertary Fund
• TI Financial Crisis Resolution
• World Bank President Puts Rule of Law at Center of Development Strategy
• ERC's Paula Desio on US Oil and Gas Company Transparency Legislation
• World Bank Independent Evaluation Group Offers Mixed Review of Public Sector Reform Projects
• Expert Panel on Closing Loopholes in International Anti-Corruption Fight
• TI-Korea Chairman on Creating A More Advanced Society
• Innovations in Fighting Corruption
• Will India's Economic Growth Slow Corruption?
• Do Bloggers Need an Ethics Code?
• Raymond Baker Warns about the Negative Impact of Illicit Financial Flows
• Corruption in Education: Breaking the Taboo
• Informal Networks in East Central and South East Europe
• Accountability - Has Kenya's Executive Failed?
• Sports, Civic Action, Gender - Papers on Corruption from the 12th IACC
• Dennis DeTray on Corruption and Development
• World Bank's Effectiveness Self-Assessment
  
  Read more articles on the next page...
  
  

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GLOBAL WITNESS: Resource Curse’ should be key focus of Clinton’s Africa visit

Statement released as US Secretary of State, Hillary Clinbton, makes her first visit to sub-Saharan African countries for the Obama Administration on August 5, 2009

US Secretary of State Hillary Clinton should put a strong emphasis on how best to manage natural resource wealth and avoid conflict and corruption on her official tour of Africa this week. Among the seven countries she will visit, Angola, Liberia, the Democratic Republic of Congo, and Nigeria are key examples of how abundant natural resource wealth - such as oil, minerals, and timber - can be more of a curse than a blessing, causing or exacerbating conflict and corruption.

Angola, where several major US oil companies have big investments, has an appalling record for corruption and mismanagement of its oil wealth. Seven years after the end of the civil war, most of the country's people continue to live in deep poverty, despite the vast earnings from oil. The death rate of Angolan children is one of the highest in the world and the country ranked 157 out of 179 on the UN Human Development Index in 2008.

A recent Global Witness briefing on Angola revealed that the State oil company, Sonangol, which still does not publish audited accounts, had given permission to bid for oil and gas licences to a private company whose shareholders had the same names as top government officials. In its 2008 human rights report, the US State Department described official corruption in Angola as a ‘severe' problem.

"We hope Secretary Clinton will not downplay the very serious corruption issues in Angola because of US energy interests there," said Patrick Alley, Director of Global Witness. "Energy supplies matter, but not at the expense of some of Africa's poorest people. The Angolan oil sector needs to open up to full public scrutiny to ensure that the money is used for the public good. This is in America's long term interests."

Nigeria, where Clinton will go on the second half of her tour, has also suffered grievously from corruption surrounding oil revenues - a direct cause of the violent conflict in the Niger Delta region. Global Witness believes the US should urge the Nigerian government to reinvigorate the Nigerian Extractive Industries Transparency Initiative and should support the transparency reforms included in the new Petroleum Industry Bill.

The fourth stop on Clinton's 11-day tour is the Democratic Republic of Congo. Global Witness recently published a comprehensive report showing how the fight for control of mineral wealth remains a key underlying driver of the 12-year conflict, which has killed millions and displaced many more. The report names international companies trading in minerals that come from armed groups. 

"For too long, international governments, including the US, have not paid enough attention to the economic drivers of this war. The vast mineral wealth in the DRC provides both an incentive to fight and the money to buy weapons. The US is a major donor to the DRC and a key player in peace negotiations, but by failing to address the issue of warring parties' access to the mines or the role of companies in fuelling the trade, it is undermining its own aid and diplomatic efforts," said Alley.  

The penultimate stop on the Secretary of State's visit is Liberia. Global Witness is concerned that post-conflict reform of the forest sector, in which the US has invested heavily, both financially and politically, is at risk as the Liberian government's own regulations are being undermined. Global Witness recently warned that Malaysian timber giant Samling, a company with a long history of illegal logging, environmental destruction and conflicts with local communities, is behind three front companies who have won or are being considered for major logging contracts.

Posted 08/05/2009

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Transparency International Letter to Prime Minister Gordon Brown as Host of the April 2, 2009, Group of 20 Summit in London

On behalf of the TI global movement - by Chair Huguette Labelle

Extracts

Dear Prime Minister,

As Transparency International looks to the forthcoming meeting of the leaders of the Group of 20, we are heartened that the starting points – the last G-20 Summit Communiqué and many key statements from national leaders – have emphasised the vital importance of ensuring greater transparency and accountability in all aspects of economic and financial policy-making and implementation by all institutions, both public and private, in the immediate period ahead. We write to you on behalf of the members of more than 90 national chapters and partner organisations of Transparency International, 17 of which are in G-20 countries.

We have every confidence that you, together with your G-20 Summit colleagues, recognise not only the importance of heightened transparency and accountability, but also the need to assure the public that all action is grounded in integrity. Failure to restore trust will condemn the prospects of national economic stimulus programmes, however well-intentioned they may be.

The comprehensive programme that we urge the G-20 countries to adopt and promote on a global scale must be founded in transparency, accountability and integrity from the start. Concrete measures have to be taken in order to fight the current crisis and prevent similar ones in the future. All measures must relate to enhancing transparency in areas where a lack of it directly caused, or failed to counter, the global crisis.

Transparency International formulated the following constructive recommendations that we ask you to bring to the attention of your fellow leaders.

Regulation and supervision
Secure greater transparency, public accountability and integrity in order to restore public trust, and adopt a far more consistent and internationally coordinated framework of regulation and supervision of all financial institutions.

• Undertake a comprehensive inventory of all types of risks taken by banks and other financial actors which led to the crisis. Without this inventory suspicion will remain. Ensure that the ongoing activities of official agencies with responsibilities in this area are much more frequently, fully and effectively reported to the general public. International cooperation between these agencies should be fortified and those in leadership positions should recognise their explicit responsibilities for public accountability.
• Increased cross-border coordination of accounting standards in the financial area is crucial, with all countries requiring disclosure of all forms of derivative products and off-the-book entities of financial institutions.

Rescue measures
Ensure effective safeguards, with transparency and accountability at the forefront, in all aspects of public management of taxpayers’ funds in support of efforts to restore the sound functioning of financial institutions and markets.

• Report all public funds used in “bail-out” programmes for all financial service and other firms to the public at the time at which funding decisions and disbursements are made – there needs to be full public disclosure of all terms and conditions.

Offshore havens and other non-cooperative financial centres
Halt evasion of all taxes and the facilitation of illicit activities through the use of offshore havens and other non-cooperative financial centres, and ensure that these centres cooperate fully with other national and international authorities on the exchange of information.

• Initiate actions that make clear to all financial service firms that their licenses are at risk in the world’s leading financial markets if they act intentionally to use foreign centres to evade full reporting of their clients’ accounts to the tax, customs and judicial authorities of the leading mature economies. Official supervisory authorities should ensure that global banks make certain their units in offshore havens are audited properly for consolidation purposes; and that the goals pursued and the material risks incurred by their activities in offshore havens are disclosed in their annual reports. They should not maintain units or activities in blacklisted territories.
• As appropriate, the leading countries in global finance should establish national registries of all trusts and investment funds with investor relationships under their jurisdiction. In the case that parent companies are incorporated in offshore havens or other non-cooperating financial centres, then these registries should detail for public inspection the identities of the founders of the trusts and the beneficiaries, as well as the names and qualifications of the trustees themselves. In policing and monitoring these financial entities, every effort should be made to strengthen cross-border cooperation between judicial authorities and ensure that channels of communications between judges in different jurisdictions are made more efficient.
• With the leadership of the governments of the mature economies, action should be taken to end tax evasion through offshore accounts, promote international coordination to deter financial crimes using these centres, and raise penalties for all actors who are found to have facilitated the placement of illicitly obtained proceeds in offshore bank accounts, including those who help to realise such placements: lawyers, accountants and asset managers. In addition, efforts should be made to strengthen the work of the IMF, FATF and other international governmental organisations by publishing information and assessments of countries’ compliance with anti-money laundering and transparency standards, and require that financial institutions take this information into account.
• An important step in the fight against abuses of non-cooperative financial centres is to update a credible list of non-cooperative jurisdictions. In this regard, the OECD initiative to evaluate state practices through its standards must be supported.

Governance
Build stronger corporate governance in financial service firms with an emphasis on executive compensation, risk management and disclosure of financial products, including greater accountability of boards of directors. Extend whistleblowing procedures and protection to anonymous information on excessive risk-taking.

• Ensure all national stock exchange regulatory authorities and all other authorities responsible for the oversight of financial service firms require companies to report publicly (via the Internet and not in low circulation technical documents) on the qualifications of all members of the boards of directors of publicly listed financial service firms and fully disclose to the public compensation committee decisions, the full compensation to senior corporate officers, any and all shareholdings owned by directors, and any stock transactions of directors and senior officers. This is a standard practice in some countries which should become the norm globally.

Conflicts of Interest

• Take measures to prevent conflicts of interest in the activities of credit rating agencies and auditing firms, and in relationships between financial firms and the public sector.
• Establish or strengthen regulatory authorities, with publicly accountable mandates and transparent approaches, to oversee the activities and the products of the rating agencies and accounting firms with regard to the world’s largest 50 public financial services firms and other public corporations, and adopt the standards thus established across the international financial sector. Without such actions, public questioning of the integrity of current practices will persist.

Investigations and Sanctions
Pursue appropriate criminal investigations, in compliance with existing laws and regulations, and impose strong sanctions where corruption, insider trading and other abuses are found.

• All governments should strengthen the resources they are currently deploying to investigate and prosecute fraud and corruption, and report as fully and swiftly as is practicable on the initiation of major investigations to make the heads of supervisory authorities far more accountable.

Aid
Take urgent action to address rising global poverty resulting from the current crisis by increasing trade opportunities and official development assistance to these countries, with particular emphasis on those in greatest need and with the necessary transparency and accountability mechanisms in place. It is essential that all donor commitments, including pledges to support development in Africa, are maintained.
To conclude, Transparency International calls on the G-20 to strengthen the ability of the UN Convention Against Corruption (UNCAC), to be used as one of the major global instruments to promote transparency in the business world, through the ratification of the UNCAC by all G-20 countries and successful establishment of an effective review mechanism in 2009. All measures and reforms undertaken should be globally coordinated to ensure future growth stability and equitable development for people around the world.

Yours sincerely, Huguette Labelle, Chair of Transparency International

Posted 03/19/2009

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Assessment of International Monetary Fund and World Bank Group Extractive Industries Transparency Implementation

A Report by the Bank Information Center and Global Witness October 2008

The report assesses how the IMF and World Bank implemented extractive industry (EI) transparency in their operations in 57 resource-rich countries from June 2003, when the World Bank endorsed EITI, to April 2008. It reviews three essential elements of extractive industry transparency:

1) public disclosure of revenues paid to governments by the extractive industries;
2) public disclosure of EI contracts; and,
3) civil society participation in the implementation and monitoring of the transparency process.

The assessment represents measures described in publicly available IMF and World Bank documents.

Overall, the assessment found that while both institutions raise the concern of transparency at some level in many resource-rich countries, the approach is neither consistent across countries nor comprehensive. Furthermore, the institutions are mainly focusing on the disclosure of revenues, including support for the EITI, and are largely not promoting contract transparency or ensuring meaningful civil society participation.

Specific findings include:
 
• Transparency is raised in a majority of resource-rich countries – The IMF and World Bank are involved in promoting EI transparency in one form or another in over 65% of resource-rich countries with institution engagement. In many countries, the IMF and World Bank have played an important role in getting countries to endorse EITI and in building capacity for expected
EITI implementation.

• Revenue transparency as a benchmark is frequent for IMF and infrequent for World Bank – The IMF uses revenue transparency as a program benchmark or progress indicator in 59% of countries with lending programs. In contrast, the World Bank designates it as a program benchmark in only 19% of country lending programs and in 21% of country strategies in resource rich countries.

• Contract disclosure is largely not promoted – The disclosure of contracts is not addressed by nearly 80% of IMF operations and 90% of World Bank operations in resource-rich countries. The IMF does make contract disclosure a program benchmark or progress indicator in 12% of countries with IMF lending programs. The Bank never designates it as a program benchmark, and only one IFC EI project investment has required contract disclosure since June 2003.

• The importance of civil society engagement is often absent – The issue of civil society engagement is present in only about a quarter of World Bank country programs, with nine operations providing assistance related to building capacity for civil society participation. Furthermore, governments and private sector projects are not held accountable for the adequacy of civil society engagement through any benchmarks. For the IMF, civil society is overwhelmingly absent. The IMF fails to even mention the issue of civil society engagement in over 80% of all resource-rich countries.

• EI transparency is applied inconsistently across country operations – As the details provided throughout the report illustrate, the application of EI revenue transparency as well as contract transparency and civil society engagement across IMF and World Bank operations in resource-rich countries is very inconsistent.

• EI transparency is applied inconsistently in HIPC programs – The IMF and World Bank are not consistently including EI transparency in debt relief programs under the HIPC Initiative in resource-rich countries, with only 30% of the initiatives using revenue transparency as a trigger for debt relief, and 50% of the initiatives not even discussing the issue in published documents.

• IFC projects require revenue disclosure, but reporting varies greatly – The types of data reported by IFC EI projects vary greatly among companies and often are not clear or easy to find. For example, some companies only report company-level aggregated data and some aggregate across more than one year. These discrepancies among company data reflect a lack of clarity in IFC policy.

Recommendations
Based on the findings of this assessment:

1. Make EI transparency measures core criteria across all resource-rich countries and EI projects.

2. Require public disclosure of extractive industry contracts.

3. Require disaggregated, project- and company-level extractive industry revenue disclosure.

4. Increase activities to ensure meaningful civil society engagement in the implementation and monitoring of EI transparency processes.

Posted 11/04/08

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Resolution Approved by the Transparency International Annual Membership Meeting, October 30, 2008. Athens, Greece.

Financial Crisis: TI Calls on Group of 20 to Implement 7 Point Action Program

Stressing that transparency, integrity and accountability must be the foundations of reform to rebuild the global financial system, the annual meeting of Transparency International here in Athens on October 30, sent a key action program to the G-20 summit that convenes in Washington DC November 14/15...it said the leaders should:

1) Regulation and supervision. Secure greater transparency and public accountability in order to restore public trust and adopt a far more consistent and internationally coordinated framework of regulation and supervision of all financial institutions.

2) Rescue measures. Ensure effective safeguards with transparency and accountability at the forefront, in all aspects of public management of taxpayers' funds in support of efforts to restore the sound functioning of financial institutions and markets.

3) Offshore havens. Halt evasion of all tax and financial regulations and the facilitation of illicit activities through use of "offshore havens" and ensure that these centres cooperate fully with other national and international authorities on the exchange of information.

4) Governance. Build strong corporate governance, including board accountability, with emphasis on executive compensation, risk management and disclosure of financial products.

5) Conflicts of Interest. Take measures to prevent conflicts of interest in the activities of credit rating agencies, auditing firms, and in relationships between financial firms and the public sector.

6) Investigations and Sanctions. Pursue appropriate criminal investigations in compliance with existing laws and regulations and impose strong sanctions where corruption, insider trading and other abuses are found.

7) Aid. Take urgent action to address rising global poverty resulting from the current crisis by increasing official development assistance, with particular emphasis on those in greatest need and with the necessary accountability mechanisms.

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World Bank Broadens Focus from Economics, Placing Law and Order At The Center of Strategies for Most Fragile States

Read full speech.

Speaking in Geneva, Switzerland on September 11, 2008, World Bank president Robert Zoellick called for the modernization of multilateral efforts to secure development. He suggested that greater attention needs to be given to issues of governance and security alongside economics.

In his speech, he quoted one example of how difficult it is to mix these areas harmoniously:

“Mention the deleterious political effects of a sound economic policy at a meeting of economic planners and watch their fingers drum impatiently on a table.  Talk about the economic details at a conference of diplomats working on a political settlement and watch their eyes glaze.  Tell a politician about the importance of painful economic sacrifice now for the sake of economic health later and watch his or her eyes widen in alarm.”

His focus on anti-corruption, law and order and fundamental security is driven in large measure by his concern about fragile states, from Afghanistan to Somalia and to southern Sudan. He said fragile states are the toughest development challenge of our era and he sought to define them by stating that “three main characteristics stand out: a witches’ brew of ineffective government, poverty, and conflict… Fragility does not just mean low growth, but a failure in the normal growth process, such that poverty becomes a persistent condition.  Weak governance, corruption, and insecurity combine in a downward spiral.”

In emphasizing the central importance as a development challenge of fragile states, the World Bank chief said these countries contain one billion people, including about 340 million of the world’s extreme poor. Half of all the children who do not live to the age of five are born in fragile states.  He stated, “The trauma of fragile states and the interconnections of globalization require our generation to recognize anew the nexus among economics, governance, and security.”    

Mr. Zoellick said most wars are now conflicts within states, and fragile states account for most of them. “This is about Securing Development – bringing security and development together first to smooth the transition from conflict to peace and then to embed stability so that development can take hold over a decade and beyond.  Only by securing development can we put down roots deep enough to break the cycle of fragility and violence.  The stakes are very high.”

Against this background Mr. Zoellick highlighted ten areas for action and it is the sum of these that combine to present a very different perspective on approaches to economic development than has been the traditional core of the World Bank’s work. He said the ten necessary actions are:

1. Building the legitimacy of the state.
   
   
2. Establish a relatively safe and secure environment.
   
   
3. Building rule of law and legal order. President Zoellick noted: “The most fundamental prerequisite for sustainable development is an effective rule of law, including respect for property rights… legal order is not only vital to public safety – it is also a safeguard against the serious risk of criminalization of the state.  Corruption adds to fragility and lack of legitimacy.  Abuse of state power destroys confidence, and ultimately the state’s legitimate and core purpose. 
   
   
4. Bolster local and national ownership, which is fundamental to achieving legitimacy, trust, and effectiveness. 
   
   
5. Ensure economic stability as a foundation for growth and opportunity.
   
   
6. Pay attention to the political economy - this means taking into account the relationships between power and wealth in society. 
   
   
7. Ensure the development of a healthy private sector.
   
   
8. Coordinate across institutions and actors to ensure that government is not overwhelmed by the international institutions, foundations, NGOs, and the private sector, which seek to assist the fragile states.
   
   
9. Consider the regional context given that fragile states can be both the cause of regional unrest and the object of manipulation by neighbors.  
   
   
10. Think and act with a long-term perspective. Mr. Zoellick said, “These are not quick-fix countries: Support needs to be for the long-haul.  Money and humanitarian aid flood into the more fortunate countries at the beginning of a post-conflict settlement, often beyond the state’s capacity to absorb it.”

Posted 9/12/08

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The Policy Report:
House Bill Would Require More Overseas Disclosure

(NOTE: The new legislation highlighted in the article below has been effectively promoted by the PublishWhatYouPay coalition, representing around 300 non-governmental organizations. The introduction of the legislation also follows publication of a landmark report on oil and gas industry public reporting by Transparency International - see the full story at Ethicsworld at TI).

(US House of Representatives) House Financial Services Committee Chairman Barney Frank recently introduced legislation (H.R. 6066) to require publicly traded oil, gas, and mining companies to disclose payments, by country and category, to the governments where these natural resources are extracted.  Frank identified the intersection of “ethics, morality, and good business” as the primary motivation for the legislation.

In stark contrast to the 1978 Foreign Corrupt Practices Act, which first required disclosure of certain prohibited payments abroad in an effort to stem corruption in the overseas markets, this proposal has generated a remarkable lack of opposition from the business sector.  Not only is it consistent with many of the voluntary ethics initiatives undertaken globally by international companies and non-government organizations (NGOs) in recent years, but it serves as a vehicle for enhancing incentives to comply with prohibitions on off-the-books payments in the Foreign Corrupt Practices Act.

The proposed legislation is also consistent with the voluntary disclosure objectives of the Extractive Industries Transparency Initiative led by the British government in 2002 and supported by many transnational corporations, including Alcoa, BP, Royal Dutch Shell, and Chevron. The bill acknowledges the growing consensus among companies in the extractive industries that such transparency benefits business by both improving the business climate in which they work and fostering good governance and accountability.

Chairman Frank notes that developing countries that are heavily dependent on the extractive industries have significantly greater poverty and conflict rates that other developing nations, despite the vast revenues collected by their governments  One corporation alone,  Shell Oil, for example, which supports greater transparency and disclosure, reports that in 2007 it paid $19 billion in corporate taxes and $1.8 billion in royalties, and collected $79 billion in excise taxes on behalf of governments.

Requiring companies to disclose taxes and royalty payments to foreign governments is intended to pressure such governments to be more transparent with their own citizens and the international business community about how those government-mandated revenues are used and thus reduce potential corruption in the government sector.  It also allows shareholders to see better the risks associated with their investments, and would ultimately help to reduce costs associated with fraud and abuse, according to Frank.

Earlier hearings held by the House Committee included expert testimony on the strong relationship between civil wars and resource rich companies, despite the fact that civil wars have declined overall since the end of the Cold War.  Such instability makes businesses the primary targets of violence and increases the ultimate market cost to consumers.
At a hearing last month on Frank’s bill, witnesses agreed that, as one said, “with information the lifeblood of healthy markets and political societies,”  Congress should adopt what has already become a best ethical practice among leading corporate citizens.

Posted 8/7/08

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World Bank Independent Evaluation Group Offers Mixed Review of Public Sector Reform Projects

The Independent Evaluation Group (IEG), which reports directly to the Board of Directors of the World Bank, assessed the World Bank’s work across four areas of public sector reform and found some projects were more successful than others, with notable criticisms of some of the anti-corruption projects.  See full report. The Washington Post used this report as the basis for a highly critical editorial about the Bank's performance.

Between 1999 and 2006, IEG evaluated projects in:

Public financial management
Civil service and administration
Revenue administration
Anti-corruption and transparency

Most countries that borrowed from the Bank showed overall improvements, the report states, with some thematic areas being particularly successful.  In countries where public financial management projects were implemented, two-thirds showed improvements.  Countries with revenue administration projects also demonstrated improved performance in this area, especially where there was strong government ownership of these programs, the report noted. 

The Director-General of the Independent Evaluation Group, Vinod Thomas, stresses in the Forward to the report that a number of key lessons can be drawn from reviews of a great number of World Bank public sector reform projects across the developing world. He highlighted three critically important areas:

1. It pays to recognize the especially complex political and sequencing issues in public sector reform projects. That in turn puts a premium on understanding the political context, identifying the prerequisites to achieve the objectives, focusing on the basic reforms initially, and being realistic about the time it takes to get significant results.

2. The priorities for anticorruption efforts need to be based on an assessment in each country of the types of corruption most harmful to development. Sustaining efforts to reduce corruption have better prospects when they emphasize making information public and building country systems to reduce the opportunities for corruption.

3.  Third, it is important to strengthen the civil service and administrative components of public sector reform. This effort includes providing a better framework and indicator sets for quality of civil service.  Although the difficulties of civil service reform have led to some calls for abandoning this area, the evidence indicates that improved civil service is essential for major improvements in other areas. Successes with some aspects of civil service have shown what is possible.

The report noted that despite its mantra of “no one size fits all,” the Bank has not developed a framework that adequately recognizes the long duration of the process to reduce corruption and the differences in where countries need to start. As steps in the process, experiences in Nigeria and Cambodia suggest that reducing the development cost of corruption (including eliminating it in Bank-supported investment projects) is politically feasible and valuable for development. Still, the Bank’s stance against corruption needs operational clarification in country contexts—for instance, how the extent of corruption should affect the balance between investment and budget-support operations.

In response to this report, the Washington Post published an editorial emphasizing what they say are the limits of what World Bank reformers can accomplish.  The article lists the number of shortfalls the report lays bare and laments the poor return on the Bank’s investment – around $20 million, the article states.  On the whole, it’s an argument against reliance on international aid to solve the problem of corruption and encouragement of civil society groups to get the job done.

Posted 6/3/08

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Expert Group Issues Recommendations on Closing Loopholes in Combating International Corruption

Recognizing the need to find new strategies to combat international corruption, the Center for Global Development convened a group of experts to consider whether or not current efforts are working.  Although there were some differences of opinion over the real source of the problem, a core group of experts agreed that the current language of the Organization for Economic Cooperation and Development (OECD) Convention against Bribery and the U.S. Foreign Corruption Practices Act (FPCA) should be reworded to prevent loopholes.  The report, authored by Ted Moran, Georgetown University Chairman of the School of Foreign Service, also argues the world needs other tools to fight international corruption, including an improved international arbitration process and an extension of the Extractive Industries Transparency Initiative (EITI) to other sectors and industries.

The report places special importance on the role of international tribunals refusing to enforce contracts obtained through corrupt means as a key strategy in order to level the playing field and hold all international players to the same anti-bribery standards, regardless of domestic anti-bribery laws.

According to the report, new research shows that some multinational corporations are taking advantage of gaping loopholes in legislation to win contracts and enjoy special advantage without fear of prosecution.  Deals usually involve insider partnerships with relatives and business associates of leaders in developing countries.  The report states “By any commonsense test – such as the OECD Guidelines for Multinational Enterprises – the equity they received was a ‘gift’ in return for preferential treatment of the investor.”

According to the text of the OECD Convention and FCPA legislation, it is illegal to give any undue pecuniary or other advantage to a foreign public official, but there is no specific mention of business associates, employers, business partners or relatives.  Changing the wording of these documents to eliminate ambiguity would be “an essential starting point” to preventing corruption, the group argues.

A brief summary of key cases show that international tribunals are more willing to reject the validity of a contract or permit obtained by corruption means.  “This must be seen as sound law,” the report states.  In order for cases to be brought to trial, the group advocates significant consciousness-raising among the community of arbitrators to increase their sensitivity to corruption in contracts.  Civil society organizations must also be given the right to intervene in cases as an independent, unbiased witness.  Finally, increasing transparency in investor-host government relationships is also essential to identifying corrupt practices.

Finally, EITI needs to establish a system for validating the performance of participating countries against EITI criteria, the report states.  The list of countries that endorse EITI must be lengthened, and over time, the EITI criteria should be extended to other industries, such as infrastructure. 

Read the full report on the CDG website.

Posted 2/8/08

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TI-Korea Chairman Urges Cross-Sector Transparency and Integrity For A More Advanced Society

“Essential elements for an advanced society, anti-corruption and integrity”

A great improvement in control of corruption and enhancement of transparency in every sector of society should be preceded to become an advanced society. This is also shown in an agreement that “we agree that transparency is an important factor in national competitiveness in the era of globalization. We also agree that continual efforts to raise standards of transparency are badly needed if corruption is not to hinder us from becoming an advanced society,” which was contracted by leaders of the four sectors (public, politic, economy, and civil society), involving president-elect Lee Myung-bak, at the initial signing ceremony of the Korean Pact on Anti-Corruption and Transparency (K-PACT) in 2005.

According to the Corruption Perceptions Index (CPI) of Transparency International, South Korea improved from scoring 3.8 out of 10 in 1999, right after the IMF crisis, to 5.1 in last year. However, 5.1 is also shameful if one considers that it is the 43rd out of 180 territories and the 25h out of 30 economies in OECD. Similarly, the Governance Indicators of World Bank does not show any great improvement in Control of Corruption indicator of South Korea by scoring 59.2 in 1998 and 64.6 in 2006. It can be compared with a great improvement in Government Effectiveness indicator by scoring from 66.8 and to 82.9 in the same period. These measures show that more important and urgent issues are control of corruption and accountability of government than highlighting government effectiveness.

Recent reports of the Transition team bring some worries, because it seemed to consider abolishing Korea Independent Commission Against Corruption and other government committees that were suggested as mandatory factors to prevent corruption in United Nations Convention Against Corruption. Also, it is doubted that whether Defense Acquisition Program Administration can survive or not that was established and operated as a tool to promote transparency, efficiency, and effectiveness under the principle of check and balance as well as separation of power. The Important thing is not a change itself but the direction of that change.

This is not the last story. Under a slogan of ‘pro-enterprise’, the policies of controlling corruption and unfair trade and promoting Corporate Social Responsibility seemed to have vanished. In this situation, it is worried that falling into a country where corruption is easy to be performed due to the failure of control of corruption rather than a country where enterprise is easy to be succeed.

Actually, the root of anti-enterprise sentiment in South Korea should be found in corruption and the cozy relationship between politics and business in the past. Thus, the most important way to lead pro-enterprise atmosphere is better corporate governance. Promotion of CSR will be the second most important. Without the true improvement of corporate governance, any support by policies or abolition of regulation cannot strengthen the competitiveness of Korean enterprises and cure so-called ‘Korea discount’ phenomena, as a result.

It is very hard to get rid of corruption only by the law enforcement. Also, social integrity and competitiveness of a country cannot be reached unless improving transparency and overcoming corruption. People are expecting the president-elect will initiate a strong, sustainable and effective national anti-corruption program. The trust that either a powerless citizen or a Chaebol businessman is treated equally under the law should be planted. Furthermore, the new government should consider including access to public information to the basic rights in the new Constitution. It is essential to have effective and continuous education for the value of integrity which will lead improvement of ethics and promotion of compliance in each sector of society. Indeed, these efforts will lead the country into the real advanced society.
 
Of course, the reports related with the transition team shown fragmentarily through the press can be different from the truth, and surprising anti-corruption policies might be prepared opposite to these worries. Then, I hope this to be considered as an emphasis once more that transparency and integrity are essential elements for advancement. 

I wish the new government under the powerful anti-corruption initiatives of president-elect Lee will achieve a great improvement in the CPI by concentrating on the efforts for transparency and integrity with each sector of society, as promised in the K-PACT.

Geo-Sung Kim
Chairperson, Transparency International-Korea
Director, Transparency International

Posted 1/23/08

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Innovations in Fighting Corruption

"When working in a low-income environment, a difficult environment, where broad systems are still imperfect, should the World Bank retreat to a gold-plated island?" Levy asked rhetorically. His answer was a hearty "No." The World Bank must maintain a commitment to stay engaged in the face of systemic corruption in the developing world, he concluded.

• Cultural questions surrounding the definition of corruption—ethical behavior is not contextual but rather universal;
• Multistakeholder engagement to build accountability inside and outside the organization;
• Metrics designed to measure the success of anticorruption initiatives, adding a level of transparency;
• Creating awareness in far-flung operations of what is considered ethical;
Serving as exemplars of good behavior when operating in ethically challenging environments.

Posted 9/27/07

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Will India’s Economic Growth Slow Corruption?

Article reprinted with permission from Knowledge@Wharton -
the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

In the context of India’s dramatic economic growth, Wharton explores the issue of whether this is good new for the fight against corruption or whether it will be hampered. The following are excerpts from the article.

In the years before 1990, the Indian spoils system created bureaucracies that were all but self-perpetuating. Civil servants were routinely underpaid and disinterested. Wharton management professor Jitendra Singh explains that under this system, “all kinds of free market mechanisms were hobbled or stymied, and corruption emerged almost as an illegitimate price mechanism…” The biggest problem “was a distortion of incentives within the economy, such that people began expending efforts toward fundamentally unproductive behaviors because they saw that such behaviors could lead to short-term gains.” Thus, currying the favor of those in power became most important.

There are several evident examples of how corruption has influenced the Indian economy. Inadequate infrastructure has induced Indian truckers to pay something in the neighborhood of $5 billion annually in bribes to keep fright flowing, according to Transparency International data. Efforts to ameliorate poverty are also challenging since India puts less effort into improving their “human capital.” An estimated 80% of government-subsidized food is stolen in the northern state of Bihar.

Although some Indian companies are taking the high road, most companies feel like they can’t get anything done without paying bribes. According to Ravi Ramamurti, professor of international business at Northeastern University, along with economic growth, “most Indian managers would tell you that corruption has increased, not decreased, in tandem.” Ramamurti’s explanation is that the new growth has produced new “choke points” from which businessmen can extract money. In addition, it is becoming more costly for companies to wait longer without paying bribes than to speed up the process with paying bribes.

The good news is that in a comparative context, India is benefited by an open society. A more open society, by definition, provides more avenues for oversight, more empowered constituencies to ferret out and disseminate the truth when things go wrong. "One big difference," Singh added, "comes in the form of the legal system. In India, a firm can sue the government and win, which may not be as easy in China. Also, the public at large is much more vocal and active in India.”

The most serious problem for India is that the prevalence of corruption has become so rampant, it has distorted cultural norms. According to Singh, “ to the extent that change in cultural norms will be needed to root out corruption, it will take a persistent, long, drawn-out effort. While economic change is easier to achieve, cultural change is much slower and more difficult.”

To read the full article, click here.

Posted 8/8/07

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The Blogger's Democratic Revolution: Do Bloggers Need an Ethics Code?

Article by Alexandra Reihing on www.PolicyInnovations.org

The following are excerpts.

…In authoritarian states where mainstream media is censored, blogs offer a viable alternative for reporters as well as oppressed citizens to publicize stories that would otherwise go undocumented…Blogs are censored in some countries and writers for blogs have been imprisoned; but overall, they do promote democracy and open society.

…However, because bloggers are not held to the same standards as career journalists, they are not bound by the same code of ethics or rules. Bloggers may engage in smear tactics and present misinformation to try and drum up unfounded, negative criticisms of politicians or governments. In authoritarian countries, the idea of free expression is a novel one; and blogs represent for many the first time they have been able to speak their minds, whatever the topic.

Should bloggers adopt a code of ethics to help readers distinguish between facts and opinions? Author and blogger Rebecca Blood thinks so. In The Weblog Handbook: Practical Advice on Creating and Maintaining Your Blog, Blood argues that bloggers should abide by six rules:

1. Publish only as fact that which you believe to be true.

2. If material exists online, link to it when you reference it.

3. Publicly correct any misinformation.

4. Write each entry as if it could not be changed; add to, but do not rewrite or delete, entries.

5. Disclose any conflict of interest.

6. Note questionable and biased sources.

Blood's ethical code approximates that of out-and-out journalists, though that's not her aspiration for blogs. She also prompts a second question: Are bloggers citizen journalists or merely concerned citizens?

Blogging has come a long way in ten years, infiltrating popular culture and politics and becoming a reliable news source in many cases. Despite the attempts to stifle political dissent and social connections, bloggers have had an effect on democratic discourse within authoritarian states. And, as seen in South Korea in particular, democratic institutions can even flourish as a result of citizen journalists empowered by blogs. As blogs become a more popular way to disseminate information, the ethical debate surrounding blogs and their authors will likely grow louder.

See Alexandra Reihing’s full article.

Posted 8/8/07

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Illicit Financial Flows: The Missing Link in Development
Opening Speech, Global Financial Integrity Conference

By Raymond Baker, Director of GFI

The following are excerpts from the speech which highlight the international structures that support illicit financial flows and how they negatively impact growth in developing countries.

I want to talk about two things this morning. One, the international structure that supports the flow of illicit money across borders, and two the harmful impact these illicit flows have on economic growth and poverty alleviation in poorer countries.

There are a number of interrelated parts of the illicit financial structure:

Tax havens – These are places where you can set up an entity—a corporation or partnership or trust fund—and then you can sell to that entity and that entity can sell to other entities, and you can structure the pricing in such a way that all or most of the profits are earned in the tax haven entity, and it doesn’t have to pay taxes or pays only minimal taxes on those profits. There are now 72 tax havens around the world.

Offshore secrecy jurisdictions – These are places, usually located within tax havens, where you can set up these entities behind nominees and trustees such that no one knows who are the real owners and managers of the business.

Disguised corporations – These disguised entities now number in the millions across the globe.

Flee clauses – Many of these disguised corporations are equipped with flee clauses. Thus, the nominee directors and fake owners can have the entity flee from one secrecy jurisdiction to another should anyone come knocking on the door trying to find out who are the real owners or managers of the business.

Anonymous trust accounts – You can also set up trust accounts behind nominees and trustees, disguising both the donor and the beneficiary of the trust.

Fake foundations – You can set up a charitable foundation, donate money to this charitable entity, and designate yourself the beneficiary of the charity of the foundation.

False documentation – Used in all sorts of trade and capital transactions.

Falsified pricing – This is by far the most commonly used element in the illicit financial structure—falsifying prices on imports and exports in order to shift money across borders.

Money-laundering techniques – Many specialized devices have been created to facilitate the disguised shift of illicit funds across borders.

Holes left in western laws – Gaps in legislation facilitate the movement of money through the illicit financial structure and ultimately into western economies.

All three forms of illicit money—the bribery component, the criminal component, and the commercial component—use this structure. It was developed in the West originally to facilitate the movement of flight capital and tax-evading proceeds out of one place and into another place. In the mid and late 1960s and 1970s, drug dealers stepped into these channels to shift their proceeds across borders into the legitimate financial system. In the 1980s and 1990s, seeing how easy it was for drug dealers to move their profits, other kinds of racketeers stepped into these same channels to move their illicit proceeds across borders. In the 1990s and in the current decade, again observing how easy it was for the drug dealers and racketeers, terrorists stepped into these same channels to shift their proceeds around the world. Drug kingpins, criminal syndicate heads, and terrorist masterminds did not invent any new ways of moving their illicit proceeds. They merely utilized the mechanisms that we had created for the purpose of moving flight capital and tax-evading money.

I estimate that something on the order of $1 trillion to $1.6 trillion of illicit money moves across borders annually. These estimates are conservative and are developed with some care in my book, Capitalism’s Achilles Heel, utilizing both top down and bottom up approaches. Other analysts think these estimates are considerably short of the real global totals.

This $1 trillion or more per year of illicit money that moves across borders and the structure that facilitates its movement is the biggest loophole in the global economic system.

Now let me turn again to poverty and inequality. This $1 trillion or more a year of illicit money that flows across borders and the structure that facilitates its movement is not only the biggest loophole in the global economic system. It is also the most damaging economic condition hurting the poor in developing and transitional economies. It drains hard-currency reserves, heightens inflation, reduces tax collection, worsens income gaps, cancels investment, hurts competition, and undermines trade. It leads to shortened lives for millions of people and deprived existences for billions more. Within the economic realm, as distinguishable from political affairs or environmental constraints, nothing approaches the harmful effects caused by massive outflows of illegal money from poor nations into rich nations.

Now, let’s go further and consider the impact of this estimated $500 to $800 billion of illegal money coming annually out of poor countries.

1) It eviscerates foreign aid. Through most of the 1990s and into the current decade, aid has been running about $50 to $80 billion a year from all sources. Consider the comparison: $50 to $80 billion of aid in; $500 to $800 billion of illicit money out. In other words, for every $1 that we have been generously handing out across the top of the table, we in the West have been taking back some $10 of illicit money under the table. There is no way to make this formula work for anyone, poor or rich.

2) Consider the effect on specific countries. The Tax Justice Network estimates that the amount of money domiciled in tax havens, ultimately sent on to the West, is $11.5 trillion. Think of this in terms of individual countries. Russia has probably experienced the greatest theft of resources that has ever occurred in a short period of time—an estimated $200 to $500 billion since the beginning of the 1990s. This was accomplished by underpricing exports of oil, gas, gold, diamonds, aluminum, tin, zinc, pulp, timber, and other commodities. China is pushing these numbers and may have exceeded this level already. Again, the technique is underpricing of exports out of China, with the balance of the price accumulating in foreign subsidiaries and lodged in foreign bank accounts. Nigeria has probably experienced the greatest illegal outflow as a percentage of GDP. Here we have an oil-rich country of 140 million people with 70 percent of its population— that’s 100 million people—living on $1 to $2 a day. Congo has had the longest rip-off of any country, going on for two centuries now. The best available estimate of incremental deaths in Congo, above normal mortality rates, since 2000 is 4.5 million. Illicit money flowing out of poor countries kills people. In Venezuela, the fight between HugoChavez and his state-owned oil company, PDVSA, is over the question of who will control oil revenues. For more than 20 years, the overseers of Venezuela’s oil reserves have shifted proceeds offshore, using transfer pricing techniques, in order to get
revenues out of the hands of politicians and bureaucrats in Caracas.

3) Consider the impact on other global “bads.” Illicit money makes the drug problem insolvable, in the United States and in Europe and in producing countries as well. Illicit money has been the principle driving force in the explosion of global crime over the last 25 years, making cross-border racketeering one of the fastest growing businesses in the world. Illicit money underlies the rise of Al Qaeda, with some $300 million estimated to have passed through the illicit financial structure into bin Laden’s hands in the decade prior to 9/11. Illicit money is the way that Saddam Hussein rearmed after the first Persian Gulf War, buying munitions that are killing Iraqis, Americans, British, and others in that country today. The illicit financial structure enabled A.Q. Khan, the Pakistani nuclear scientist, to buy and sell nuclear materials across many countries. And this phenomenon contributes to a number of failed states.

The goal is to curtail, not stop, but substantially curtail illicit outflows. And curtailing these outflows is a matter of political will; it is not rocket science. We are not asking the international financial institutions or the community of development scholars to solve the problem. We are asking you to put numbers on the problem. What is required is a broad consensus as to the magnitude of the problem and the damage that is wrought by these realities. Numbers will drive the policy. Believable numbers will drive this issue onto the political-economy agenda.

It is time, for the first time, to put the whole of the financial equation for development squarely on the table. This may well be the most important contribution we can currently make toward achieving poverty alleviation, growth, security, and perhaps even contributing to peace for the vast majority of people in our shared world.

To view the full speech in .pdf format, click here.

Posted 7/7/07

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Corruption in Education: Breaking the Taboo

“Corrupt Schools, Corrupt Universities: What can be done?” -  a report published by UNESCO’s International Institute for Educational Planning (IIEP).

This study, published on June 6, 2007, has been written by Jacques Hallak and Muriel Poisson, who describe their work in the following interview, which has been published by UNESCO. 

Key themes of the new report include bribery in teacher recruitment, embezzlement of funds destined for education, faked calls for tender, illegal registration fees, and academic fraud. Based on six years of research and the experience of over 60 countries, “Corrupt Schools, Corrupt Universities” analyses the problem, points the way forward and outlines anti-corruption strategies, illustrated by success stories.

(The IIEP will hold its first international Summer School on “Transparency, Accountability and Anti-corruption Measures in Education” from 6 to 15 June 2007.)

Interview with Jacques Hallak and Muriel Poisson, the authors of “Corrupt Schools, Corrupt Universities”

What is the aim of this book?

Jacques Hallak: To put corruption on the agenda in a positive way – not to point the finger but not to sweep it under the carpet either. The book offers constructive help to fight this perennial problem.

What are the most common problems?

Muriel Poisson: The list is long, unfortunately: the financing of schools, teacher management and behaviour, public contracts, particularly for school construction, production and distribution of textbooks, the organization of examinations, accreditation of higher education institutions, private tutoring, and more.

Corruption is found in many walks of life. Why is it such a concern in education?

Jacques Hallak: Mainly because it is such a drain on the effective use of resources. This was already a concern of the Drafting Committee of the World Education Forum, Dakar 2000. Corruption influences both access and quality in education because it affects the availability and quality of educational goods and services. At the same time, corruption in
the education sector contradicts one of the major purposes of education, namely, to transmit values and promote principled behaviour. If the management of the education sector is unethical and pupils are directly confronted with malpractice at classroom level, how can education foster attitudes that reject corruption?

Is corruption universal or confined to certain countries and regions?

Muriel Poisson: Six years of research and the experience of over 60 countries have shown that no country has a monopoly on corruption in education. The media have uncovered scandals everywhere, from countries with poor governance and low-paid staff to affluent Western democracies.

Can you point to any success stories in tackling corruption?

Jacques Hallak: Thankfully, there are numerous examples of good practice. A decade ago in Uganda, only 13 per cent of the annual grant per student actually made it to the schools! Today, the figure is around 85 per cent, thanks to campaigns that informed local communities where the money was actually going. New York City has drawn up new procedures for selecting suppliers in school construction. To eliminate bribery in textbook selection, Argentina set up an ‘integrity pact’, helped by Transparency International. Chile has reviewed its strategy of school meal distribution. Hong Kong has set up a code defining teachers’ commitments. Azerbaijan has reduced fraud in university entrance examinations. Private tutoring is problematic, so many countries in South and South-East Asia have banned it, regulated it or, best of all, reducing the need for it altogether. Many more success stories are presented in the book.

What is your message to decision-makers?

Muriel Poisson: Build a ‘virtuous triangle’: a learning environment that values integrity; transparent and accountable management and a system of social control over the use of resources.

Is tackling corruption something that can be taught?

Jacques Hallak: Diagnosing corruption and developing anti-corruption strategies are important skills that can be taught. Training materials are currently being developed based on the book and a summer course will be organized by the International Institute for Educational Planning (IIEP-UNESCO) to build capacities in these areas*.

What impact do you hope the book will have?

Muriel Poisson: If, in five years’ time, corruption in education is higher on the education agenda, being monitored and generally taken more seriously, then we will have achieved our objectives.

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Informal Networks in East Central & South East Europe

Åse Berit Grødeland & Aadne Aasland
Norwegian Institute for Urban and Regional Research

In the following article written for EthicsWorld and based on a paper presented at the 12th International Anti-Corruption Conference in Guatemala (see footnotes), experts Ase Berit Grødeland & Aadne Aasland, senior researchers at the Norwegian Institute for Urban and Regional Research (1) discuss their research of informal networks and corruption in East Central and South East Europe.

Introduction:  Informal practice is widespread in post-communist states in East Central & South East Europe.  Such practice is in itself neither good nor bad.  However, it has the potential to inflict considerable damage on society if used improperly.  This article investigates elite perceptions of the use of informal networks (2), their origins, their corruption potential, and possibilities for reform – presenting partial findings from four quantitative elite surveys (3) conducted in the Czech Republic, Slovenia, Bulgaria and Romania, respectively. (4)

Elite Perceptions of Informal Practice:  To get an idea of how widespread formal versus informal practice is in these countries, we gave our respondents four statements and asked them to select the one best describing their country.  Some two thirds of the respondents in the Czech Republic and Slovenia and close to half in Bulgaria and Romania opted for ‘a society formally defined by the rule of law, but in which the rule of law is not functioning properly’ (table 1).   We expected the majority of the respondents to choose this option:  although all four countries have joined the EU, it will no doubt take some time for the new institutions to function properly and for laws and regulations to become effective.  It is more alarming that approximately one fifth of the respondents in the Czech Republic, Slovenia and Romania and roughly one third of the Bulgarian respondents, chose ‘a society formally defined by the rule of law, but in which people prefer to do things informally.’ And even more so, that almost one fifth of the Bulgarian and Romanian respondents perceived their country as ‘a disorganised society, defined by contradicting laws that people largely ignore’, given that transition in post-communist states is primarily conducted by means of institutional change and the introduction of new legislation. 

Elite Perceptions of Informal Networks:  Informal practice was a key feature of communism. Consequently, it might be expected to “wither away” as transition takes hold.  However, it is also possible that transition has brought about circumstances that either require, or encourage, informal responses.  The importance of national culture should also not be underestimated.  We asked our respondents to identify the origins of informal networks in their country (table 2). 

The impact of communism was deemed more significant in the Czech Republic and Romania than in Slovenia and Bulgaria.  Czechs and Romanians are less nostalgic about the communist past than Slovenes and Bulgarians because of 1968 (Czech Republic) and Ceausescu (Romania) – which helps explain our findings.  More importantly, however, national culture and the transition to the market were identified as the root cause of informal networks to more or less the same extent in all countries.  Our findings therefore have implications for reform as mentalities are much more difficult to change than temporary conditions facilitated by transition. 

The majority of the respondents in all countries thought informal networks facilitate corruption – though Czech and Romanian respondents were considerably more inclined to (strongly) agree with this statement than the Slovenian and Bulgarian respondents.  Consequently, efforts to reduce corruption must also target the networks that facilitate it, rather than only the corrupt practice itself.

Informal Networks and Reform:  As noted above, informal networks in post-communist EU member states are a result of three factors:  national culture, the communist experience, and transition.  Efforts to reduce the negative impact of informal networks should take account of this.  Further, to be effective, they should address not only negative manifestations of informal networks, but also their root-causes.

We gave our respondents a list containing 16 different measures that may – either on their own or in combination – reduce the negative impact of informal networks, and asked them to select the most, the second most and the third most effective measures.  Four of these measures – efforts to strengthen the rule of law, change people’s mentality through education, strengthen public trust in the state, and lustration – primarily address the root causes of “negative” informal practice.  The other measures are more technical, targeting the negative practice itself.  Figure 1 shows how effective the respondents considered each measure to be.  The area in black indicates the percentage of respondents that thought the given measure would be the most effective, whereas the grey area indicates the additional percentage who selected the measure as the second or third most effective. (5)

Post-communist EU member states have introduced extensive legal and institutional reform in order to qualify for EU membership. It is therefore worth noticing that our respondents chose two measures aimed at addressing the negative impact of the past – i.e. efforts to strengthen the rule of law and to change people’s mentality through education – as the two most effective measures with which to address the negative impact of informal networks.  Measures aimed at strengthening public trust in the state also received a fairly high score. In contrast, lustration was considered unnecessary.

Efforts to strengthen the role of law – i.e. new and better laws, better law enforcement, a more efficient and independent judiciary – also scored fairly high.  Such measures would be most effective in countries where the formal mechanisms of modern democratic institutions are in place, but where laws are not yet functioning properly and where law enforcement is still poor.  Promoting openness and transparency received lower scores, as did efforts to promote a more professional state administration. 

Regulatory measures were considerably less popular amongst our respondents.  Given that communist states tended to be rather over-regulated, this does not come as a big surprise.  Politicians tend to be sceptical of regulating party funding and lobbying regardless of the type of society they represent.  Besides, the vested interests benefiting from corrupt practices in politics and public procurement make these sectors difficult to regulate in post-communist states. 

Fig. 1 The Effectiveness of Reform Measures aimed at reducing the negative Impact of Informal Networks

Note:  N=2,400 (600 respondents x 4 countries). 

Prospects for Reform:  Expressing support for reform is one thing – introducing and implementing it, quite another.  We did not explicitly ask the respondents of our quantitative surveys whether reform efforts were likely to succeed.   However, quite a few respondents who took part in our earlier, qualitative surveys, spontaneously raised this issue themselves.  Slovenes and Czechs thought tackling informal networks would be difficult, but not impossible.  In contrast, Bulgarians and Romanians considered this to be impossible – mainly on the grounds that there is insufficient political will. 

The reform efforts referred to above all require political will.  If our findings accurately reflect political realities on the ground, which we believe they do, then efforts to address the negative impact of informal networks are unlikely to succeed.  Civil society, which could challenge politicians to instigate changes, is rather weak in post-communist states, scepticism to NGOs is widespread, and public participation is considerably lower than in Western Europe. (6)  The potential for effective domestic pressure in support of reform is therefore limited.  For this reason it is all the more important to try to root out old habits and patterns of thinking that encourage illegitimate and/or illegal informal practice. Measures specifically targeting “old” thinking and “old” habits provide no “quick-fix”, but are in the long term more likely to facilitate real and lasting change than formal measures focusing exclusively on the “negative” informal practices themselves.

Posted 3/5/07

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Accountability - Has Kenya's Executive Failed?

Dr. Karuti Kanyinga of the University of Nairobi argues that Kenya has yet to
muster the political will to ensure good governance

Interview by TI-Kenya

The following are excerpts from Transparency International-Kenya's (TI-Kenya) interview with governance consultant Dr. Karuti Kanyinga of Institute of Development Studies at the University Of Nairobi (UON) on governance failures in Kenya and the role of its executive branch. The excerpts are reproduced from the January 2007 issue of Adili, TI-Kenya's newsletter.

Why is the Executive responsible of the failed Integrity System in Kenya?

First, the Executive has always been a domineering factor in the Kenyan political set-up so much that is it is always expected to provide leadership on all matters of national importance. So, when the Executive promises zero tolerance to corruption, it is expected to lead by example.

The Executive also provides political leadership, and naturally it should be held accountable when an integrity system fails. It also controls all the arms of fighting corruption like the Kenya Anti Corruption Commission (KACC), and sometimes even the Judiciary! So when the integrity system fails, it is reflected back- whether positively, or negatively- to the Executive.

Kenya has always had regular elections, which is an indicator of democracy and good governance. Why is it said that we are yet to achieve good governance?

Elections are not in themselves measures of good governance. It is the kind of leadership that comes out of an election that determines whether we get good governance or not. Unfortunately, in Kenya, elections have continued to produce poor leadership. The elections may be free and fair, but as long as they are not based on proper principles of democracy, as long as they are based on ethnicity, personalities and regional politics we will still not achieve the good governance mark. People who have money dominate the Kenyan politics, and when money per se dominates politics, you end up with a selfperpetuating kind of leadership that entertains vices like corruption to protect itself.

What Lessons can we learn from Kenya in regards to the coming General Election?

To the extent that Kenyans do not elevate issues of good governance like integrity, reforms, and accountability to be election issues, we will continue to elect poor leaders. Kenyans are in a sense their own enemies because they reproduce the same poor leaders who have failed to deliver in every other election. They need to scrutinize their leaders some more, and subject them to tests of integrity before electing them

Take the example of the 2002 General Election which everybody was describing as a landmark election; it is now emerging that other than removing President Moi the election was just about sharing power among the various personalities in National Rainbow Coalition (Narc).

So much so, that now when we are headed to the next General Election, it is not reforms that is the issue, but whether a certain Memorandum Of Understanding (MOU) was honoured or not. Kenyans should labour to ensure that real issues like governance, integrity and democracy dominate
the coming elections.

How important is accountable governance in the running of public affairs in Kenya?

Accountable governance has never really been an important issue in the running of public affairs in Kenya. Politicians may promise to practice accountable governance, but in reality they do the opposite.

One can say that there has been some remarkable improvement in the past four years under the Kibaki administration, but still we are way far behind. The latest events where several high profile politicians implicated in graft were cleared by the Attorney General and the Kenya Anti Corruption Commission despite clear evidence of ethical impropriety is a case in point. It is all about political expediency and nothing to do with accountable governance. We are yet to muster the political will to confront the issues that would ensure accountable governance.

Cite situations where lack of accountable governance has failed and cost Kenyan’s fight against corruption.

I can’t think of a better instance than the Anglo Leasing scandal. Yes, it is true that some ministers ostensibly resigned from government after former Ethics and Governance Permanent Secretary (PS) John Githongo implicated them in graft (for an interview with John Githongo see below).

Although Githongo’s recordings may not sustain a case in court, they raise questions of political accountability, and, or responsibility among the implicated leaders.

The fact that they were cleared means that the era of impunity and scared cows is not yet over. We have squandered a golden opportunity to demonstrate to the world that we are serious about fighting corruption.

The resignation of John Githongo was yet another clear blot in our war against corruption. Githongo was not a saint, but given what he hastold us so far, Kenyans will want to believe him more than the government, and in this case perceptions matter.

The Kenya Anti Corruption Commission is yet to successfully prosecute any high profile politician or technocrat whether from the present or past regimes. The term of the current government is coming to an end, and one would wonder how long it would take for this to happen.

Do you think the Kenyan Executive has played its role in ensuring good governance?

It has not and it won’t as long as the political set up remains the same. The Kenyan Executive is held hostage by the political elite who are only interested in fighting for its own survival and nothing else. That is the reason why we need reforms. But until the time when we will have a robust parliament that will be able to check the Executive’s decisions; we will be trapped in the current situation of sacred cows that operate as if they are governed by a different set of laws.

Posted 2/26/07

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Corruption in Sports, Civic Action, Gender & Other Issues

Papers From the 12th International Anti-Corruption Conference

“The Business of Sports and Corruption”
by Henri Roemer
Advisor to the Union of  European Football Associations’ (UEFA) Executive Committee
UEFA is the governing body of football in Europe
Full Paper

In the paper version of his presentation for the Business of Sports and Corruption workshop, Mr. Roemer addresses corruption in the European sports industry.  He discusses what makes the sports sector vulnerable to corruption and attractive to criminals, citing, for example, the extraterritoriality of sports institutions, the “layering” system of financial circuits, and the immaterial nature of players’ worth. He presents a list of reforms that UEFA should adopt to reduce corruption including hiring an anti-money laundering official, collaborating with member associations to investigate corruption, reforming the licensing system criteria, and establishing a code of ethics and a European diploma for players’agents.

“Conflict Of Interest In Post Communist Societies:
Why Is It Important To Tackle It And How?”
by Michael Geertson
Senior Associate, Casals & Associates, Inc., United States
Full Paper

In the paper for the Creating an Anti-Corruption Agenda for Post Communist Societies workshop, Mr. Geertson discusses his experiences with conflict of interest (COI) while working on corruption issues in a handful of countries including Honduras, Mongolia, and Albania. He focuses on two questions: 1) what is COI, what forms does it take and why; and 2) what can be done about it by addressing the causes? He argues that there are four elements necessary for effectively fighting conflict of interest in post-communist societies: 1) a COI “system,” usually legislative and/or regulatory, 2) an asset and financial declaration system for high-level officials and those that work in corruption-prone sectors 3) far-reaching civil service reforms including merit-based hiring, position classification, and limited political appointments and 4) a modern ethics office.

“Mobilizing Civic Action to End Corruption”
by Shaazka Beyerle
  Vice President, International Center on Nonviolent Conflict, Washington, D.C.
and Dr. Stephen Zunes, Professor of Politics, University of San Francisco
Full Paper

In their paper for the Mobilising Civic Action to Fight Corruption workshop the authors discuss the ways that non-violent civic activism can aid the fight against corruption. They outline the necessary elements a grassroots anti-corruption campaign must plan to be successful - including overall goals, targets, targets support bases, communication strategies, and non-violent tactics. They offer lessons learned from two case studies of civic resistance against corruption: the “people’s power” campaign against former Dictator Ferdinand Marcos in the Philippines, and the “Citizen Initiative for Constant Light” anti-corruption campaign in Turkey which mobilized millions of Turkish citizens.

“Linkages Between Policy Experiments and the
Anticorruption Practice and Strategies in West and Central Africa
Towards a UNDP Strategy”
by Luigi Tessiore, UNDP Policy Advisor, Senegal
Full Paper

In his paper for the Anti-corruption Practices in Non-Renewable Natural Resources for Sustainable Human Development workshop, Mr. Tessiore discusses the experiences of the United Nations Development Programme in West and Central Africa. He argues for an organic approach to dealing with non-renewable natural resources (NRNR) that focuses on fostering inclusive human development, rather than directly concentrating on corruption. Talking openly about corruption in countries that produce oil, gas and NRNR, he argues, will only close doors.   

“Women To The Rescue In The Accountability Processes – Case Study Nigeria”
by Lilian Ekeanyanwu, Transparency International-Nigeria
Full Paper

In her paper for the Exploring and Interrogating the Genderized Impact and Approach to Combating Corruption workshop, Ms. Ekeanyanwu discusses the genderized impact and manifestations of corruption, arguing that, because women make up the majority of the worlds poor, corruption affects them the most seriously. She maintains that there is significant evidence that women may have higher standards of ethical behavior and be more concerned with the common good than men. Because of this, she explains, many have argued for using the placement of women in the accountability as anti-corruption tool, a strategy which has had mixed results. Using Nigeria as a case study, she discusses the challenges, initiatives, and individuals surrounding these issues in that country.

Posted 1/19/07

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Corruption and Development: An Impolitic View

By Dennis de Tray, Vice President

The Center for Global Development

In a November 16, 2006 speech to former World Bank executives at the “1818 Society” in Washington DC, de Tray, a former Bank operations director, challenges some of the approaches that the Bank is now pursuing to curb corruption.
For the full speech

Summary

At the outset the author states: “Corruption is—like bad infrastructure, poor human capital, weak financial systems—a barrier to development. As with these other barriers to development, no country has the resources to fix all aspects of corruption.

“Just as we need to make tough choices on which infrastructure we build in poor countries, we need to make choices on which of the many battle fronts we want to fight corruption. We need to know the likely benefits of reducing a particular aspect of corruption, the likely costs (some sense of rate of return to our efforts), so that we can decide where best to devote our efforts—or more accurately where best to help countries devote their efforts.”

In commenting on the World Bank’s new strategy he warns: “Most critically and most importantly, outsiders can’t fix most corruption. Only citizens can. Either they care enough to push for less corruption where it matters to them, or they don’t. The outside can help—and I get to this later—but only if the inside wants it. Of course in some areas the outside has to help, especially with big ticket corruption, but accountability starts at home.”

Looking ahead, de Tray asserts that on the “don’t” side of the ledger:

• Don’t treat the fight against corruption as an end—a sort of war against immorality. We are in the development business. Corruption is one of many constraints to development. Treat it as such.
  
  
• Don’t rely on “grand strategy” approaches to fighting corruption. These may make good headlines but they may well be counterproductive when it comes to finding effective interventions.
  
  
• Don’t suggest that “more of the same, but this time we’re serious” is a new strategy for dealing with corruption. There is no evidence that making anti-corruption more prominent in country assistance strategies, increasing supervision budgets or doubling the INT staff will make one bit of difference to the sustainable reduction in the types of corruption that matter most to the development goals we hold dear. The micro management of the fight against corruption by donors has not worked and will not work.

And, more constructively, on the “do’s” he proposes:

• Do understand at the micro level how the “production processes” we care about work, and where in those processes corruption has the most debilitating effect. Then think about where in these processes relatively simple measures might reduce the pernicious effects of corruption. Focus on enhancing development outcomes and fight corruption where it is feasible and where it will have the greatest impact for the poor in terms of creating economic opportunity.
  
  

• Do recognize that ring fencing donor projects is a cop-out when it comes to fighting the corruption that matters. It may make donors feel good, it may be important to keep taxpayers happy, but does not lead to sustainable reductions in corruption.
  
  

• Do decide early whether serving the poor now or developing local capacity to do this is the primary, immediate goal. Without clarity on this, we cannot even begin to think about approaches and instruments since the first involves doing for weak countries and the second involves long-term investments in strengthening those countries’ institutions.
  
  

• Do start focusing on output and performance—and hold governments accountable for these. Don’t micro manage, but do insist on results. Worry less about whose brother-in-law or, in rare cases, sister-in-law, gets the contract and more about whether he or she delivered the goods. Move supervision resources to fund independent physical audits that determine what was delivered and at what cost. Be prepared to be tough on those who don’t deliver.
  
  

• Supporting all these is a final recommendation: do set some simple standards of no-harm transparency that are feasible in most institutional settings (or adjusted to different settings) and that require recipients of development assistance to inform their citizens of how much they got, what it was supposed to do, and what the outcome was. A sort of “publish what you got and did” principle. Keep these standards simple, but make them an essential basis for doing business.

Posted 12/11/06

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World Bank Governance and Anti-Corruption Work Falls Short In Many Key Areas, Says the Bank’s Own Operations Evaluation Experts

Annual Review of Development Effectiveness 2006 - Getting Results

The report of the World Bank’s Independent Evaluation Group (IEG)

The IEG stressed at the outset of its report that the overall performance of the World Bank's lending portfolio has continued to improve over the last five years, with the outcome of over 80 percent of completed projects now being assessed as marginally satisfactory or better in fiscal 2005. This is encouraging and it provides an important, and basically positive, framework within which to consider the criticisms of the Bank’s operations that are contained in the new annual IEG review.

It is in the very nature of an independent and serious evaluation group that it should look with a critical eye and seek opportunities to highlight areas for improvement in performance. The World Bank’s IEG has long taken this approach. In its new report, despite stressing positives, it noted that even satisfactory project outcomes do not guarantee that projects have a substantial country-level sector impact. A crucial consideration it said is, “Achieving and sustaining growth and poverty reduction requires well-performing public institutions that are accountable to their stakeholders for the results achieved.”

Governance & Corruption

A significant portion of the report concentrates on the World Bank’s work in these areas because about one quarter of all Bank lending operations have targeted public sector governance and the rule of law over the past five fiscal years. The report underlined that, “Across-the-board anti-corruption campaigns and broad civil service reforms have often yielded disappointing outcomes, because they have focused on passing of legislation or on establishing new institutions, but they have paid insufficient attention to how such laws will be enforced and how new institutions will carry out their mandate.”

The report added, “In pursuing its work the Bank needs to ensure that it has a realistic assessment of the political economy of governance-related reforms…The Bank can provide countries with the tools needed to strengthen government processes and thereby to improve the governance environment, but effective use of those tools remains in the hands of country decision makers. Thus, reforms to improve the accountability of public sector institutions require broad-based political support. When such support is absent, an incremental approach that allows momentum for reforms to build can help deliver results. These reforms can be further enhanced with continued efforts to foster local demand for accountability through increased transparency of government processes.”

Positive Contributions

The IEG report said that the Bank's efforts to help improve delivery of public services or to regulate industry have often helped reduce room for corruption, even when that was not their main objective. And, the report noted that transparency is an essential foundation of good governance and accountability with Bank operations having helped bring transparency to a variety of public management processes. It added that the need to strengthen partnerships between local governments and community groups is increasingly recognized by Bank staff who are learning that stronger community voice and oversight can raise demand for accountability and reduce corruption.

Supporting Reforms and Building Public Support

IEG stated that achieving and maintaining results requires public sector institutions that are accountable to stakeholders. Bank Country Assistance Strategies accordingly put substantial emphasis on strengthening performance and accountability in the public sector. The bulk of the Bank's support has taken the form of reform programs in public administration and public financial management. This assistance has led to improvements in the quality of public sector management processes in some countries, but has not yet translated into improvements in the perceived quality of governance in most of these countries. Yet, recent progress in perceived governance quality in some countries in Eastern and Central Europe shows that it is possible to make progress in a limited time when there is strong country commitment to do so.

The report went on to state that evaluation suggests that public sector reform initiatives have not always been aligned with political circumstances. They have focused on new legislation and institutions, while overlooking the enforcement dimension. They have also tended to overlook the interface between the public and the private sector, even though regulatory reforms have often been found effective against corruption.

Civil Service Reforms Require Political Commitment

Public sector reforms of a technocratic nature, like modernizing personnel practices, can succeed when they build upon political commitment, said IEG. Bulgaria's achievement in professionalizing its civil service, for instance, has been the product of both donor-supported reforms in pay and recruitment, and broad political interest in meeting conditions for EU accession. But many reform programs have been undermined by lack of political support. The extent of political opposition is often underestimated at the time of design. In Yemen and Bolivia, Bank-supported reforms in civil service management achieved little, because there was no commitment to ending the traditional role of the public service as a vehicle for patronage appointments on a large scale. When political conditions are not ripe for wholesale reforms, it is advisable to proceed gradually, identifying opportunities for less contentious reforms in order to build coalitions across affected interests and to gradually gain momentum.

Anticorruption Measures Need Enforcement Mechanisms

IEG wrote that the Bank's anticorruption efforts have helped support new laws and institutions in many countries. But once established these have often proved ineffective because they lack enforcement capacity. Anticorruption agencies, while important, have only a limited impact on the prevalence of corruption when they and their staffs are not fully independent of those whose behavior they monitor.

The need for enforcement capacity to properly implement legislation aimed at improving transparency and accountability reaches beyond anticorruption efforts. The implementation of prudential regulations and supervision in the banking sector has also suffered from low enforcement capacity. Typically, Bank assistance programs have emphasized legal and regulatory frameworks for the financial sector, but they have underestimated the time and human capacity required to enforce them.

Regulatory Reform Helps Beat Corruption

The interface between the private and public sector offers fertile ground both for corruption and for combating it, said the annual IEG review. Reforms to regulatory regimes have made headway against corruption even when they have not been part of comprehensive anticorruption programs. In Turkey, for example, a Bank program for the energy sector supported the establishment of an independent regulatory agency that enabled sellers and buyers of electricity to make contracts directly, without involving government officials. It thereby sharply limited the opportunities for officials to seek kick-backs. Such sector-specific opportunities to combat corruption need to be more systematically exploited in Bank operations.

Transparency and Local Control Encourage the Public Sector to Deliver

IEG asserted that transparency is the foundation of good governance because access to information reduces the incidence of corruption and transparent institutions earn the public's trust. Bank operations have helped bring more transparency to a variety of public management processes, including budget formulation and execution, procurement, and customs administration. In the Philippines and Uganda, for example, the Bank has worked with governments to make the public procurement process more transparent. Civil society representatives have a mandate to observe the tendering process in the Philippines, while Uganda makes its final contract awards and related tendering information available on public web sites.

Local control and community participation can make public sector institutions more accountable. Bank operations support such local control in two main ways: by up-grading local government agencies, and by channeling resources directly to communities through community-driven development projects. Such projects have often established structures parallel to those of local government, thereby diluting efforts to foster decentralization. In Jamaica, for instance, roads were built under community development operations without adequate involvement of the local councils that would have to maintain them. There is now growing recognition in the Bank of the importance of strengthening the use of local systems in the course of also promoting community development.

Posted 12/8/06

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