Exporting Corruption
Privatisation, Multinationals and Bribery

Summary

Growing corrpution throughout the world is largely the result of the rapid privatisation of public enterprises. Multinationals, supported by Western governments and their agencies, are engaging in corruption on a vast scale in North and South alike. Donor governments and multilateral agencies such as the World Bank and International Monetary Fund frequently put forward ‘good governance’ agendas to combat corruption, but their other actions send different signals about where their priorites lie.

Contents

• The Globalisation of Corruption
• Paying the Price
• Corruption and Privatisation in Europe
• Box 1: The Contradictions of "Designing Out" Corruption
• Exporting Corruption to the South
  • Increasing Debt
  • Benefiting The Company, Not The Country
  • Bypassing Local Democratic Processes
  • Destroying the Environment and Getting Round Regulations
  • Promoting Arms Sales
• Box 2: Hiding The Loot:
  • Private Banking
  • Offshore Banks and Companies
  • UK Offshore Tax Havens and Banking Secrecy
  • Recovering Stolen Wealth
  • Closing The Loopholes
• Global Policies and Corruption
  • Privatisation
  • "Downsizing" and Undervaluing Civil Services
  • Liberalisation
  • Decentralisation
• Box 3: The World Bank's Corrupt Auditors
• Box 4: World Bank Privatisation and Corruption in Uganda
  • Civil Service Reform
• Box 5: A Plague On Both Your Houses:
  • Corporate Lobbying
  • Monitoring and Auditing
  • Cleaning Up Its Act
  • The IMF and Corruption
• Cleaning Up Their Act
  • OECD Convention on Combating Bribery
• Box 6: Dragging Its Feet:
  • In Breach of the Convention?
  • Further Measures
• Blacklisting Companies
  • Government Action
• Box 7: Testing Commitment to Combat Corruption:
  • Deterrents
• Box 8: World Bank and IMF: Putting Their Houses in Order
  • World Bank
  • Structural Adjustment Policies
  • Privatisation
  • Civil Service Reform
  • Resistance
• References

 

"There is always somebody who pays, and international business is generally the main source of corruption."

George Soros, International financier¹

"Corruption has been going up geometrically over the past 10 years."

Raghavan Srinivasan, World Bank chief procurement adviser²

Corruption has become a major international concern. The topic of international conferences, policy forums and ministerial speeches, it is also the subject of a recent OECD Convention and the focus of an international non-governmental organisation, Transparency International. Corruption is increasingly cited as a reason for withholding foreign aid or debt relief. If a country's inability to pay interest on its loans is due to its leaders siphoning off national earnings into their own bank accounts, the reasoning goes, surely extending aid or cancelling the debt will merely sanction further graft.

Most commentators on corruption -- and on the "good governance" initiatives instigated to combat it -- dwell on developing countries, not industrialised ones. Most scrutinise politically-lax cultures in the South, not the North. Most call attention to the petty corruption of low-paid civil servants, not to the grand corruption of wealthy multinationals. Most focus on symptoms such as missing resources, not causes such as deregulation of state enterprises. Most talk about bribe-takers, not bribe-givers.

This focus needs to be shifted. If corruption is growing throughout the world, it is largely a result of the rapid privatisation (and associated practices of contracting-out and concessions) of public enterprises worldwide. This process has been pushed by Western creditors and governments and carried out in such a way as to allow multinational companies to operate with increased impunity. Thus multinationals, supported by Western governments and their agencies, are engaging in corruption on a vast scale in North and South alike. Donor governments and multilateral agencies such as the World Bank and International Monetary Fund frequently put forward anti-poverty and "good governance" agendas, but their other actions send a different signal about where their priorities lie.

Effective action against corruption has to involve effective sanctions by developing countries against multinationals which engage in corrupt practices; greater political transparency to remove the secrecy under which corruption flourishes; and resistance to the uncritical extension of privatisation and neo-liberal economic policies.

The Globalisation of Corruption

Corruption takes many different forms, from the routine cases of bribery or petty abuse of power that are said to "grease the wheels" to the amassing of spectacular personal wealth through embezzlement or other dishonest means.

For multinationals, bribery enables companies to gain contracts (particularly for public works and military equipment) or concessions which they would not otherwise have won, or to do so on more favourable terms. Every year, Western businesses pay huge amounts of money in bribes to win friends, influence and contracts. These bribes are conservatively estimated to run to US$80 billion a year -- roughly the amount that the UN believes is needed to eradicate global poverty.³ In 1999, the US Commerce Department reported that, in the preceding five years, bribery was believed to have been a factor in 294 commercial contracts worth US$145 billion.⁴ In 1996, the magazine World Business reported that the bribes paid by German companies alone were over $3 billion.⁵

Not just companies are involved. According to a French secret service report, the official export credit agency of France paid around $2 billion in bribes to foreign purchasers of "defence equipment" in 1994.⁶

Such bribery may be pervasive, but it is difficult to detect. Many Western companies do not dirty their own hands, but instead pay local agents, who get a 10 per cent or so "success fee" if a contract goes through and who have access to the necessary "slush funds" to ensure that it does. Bribery is also increasingly subtle. It often takes the form of semi-legal fees or "commissions", and inflated or marked-up prices.⁷ In contracts guaranteed by export credit agencies,⁸ such "commissions" are included in the costs and thus in the total contract value covered by the guarantee. "It is obvious," comments Transparency International, "that this practice constitutes an indirect encouragement to bribe which, in future, brings it close to complicity with a criminal offence".⁹ Until recently, bribery was seen as a normal business practice. Many countries including France, Germany and the UK treated bribes as legitimate business expenses which could be claimed for tax deduction purposes.

Paying the Price

Corruption poses a serious problem for public authorities and the public because it makes services more costly, undermines development, and distorts democratic processes and rational decision-making. The amount of money lost to corruption which could, and should, be directed towards public services and to the development of democratic institutions is significant. Transparency International¹⁰ estimates that, on average, five per cent of public budgets go astray.¹¹

Ultimately, corruption hurts the poor first and foremost, whether in the UK or Africa or Asia. From the scandal in Britain of Westminster council leader Dame Shirley Porter selling public housing for votes (at a loss of £27 million to the council) to pilfered aid resources in India ---- former Prime Minister Rajiv Gandhi once told the Indian parliament that only 15 per cent of aid money got through to its intended beneficiaries --- corruption makes the poor poorer. It is they who get squeezed out of decision-making and pushed to the political margins in situations where money buys influence. It is they who lose out when money that could have been spent on improving services or basic living standards is diverted to big expensive projects with lucrative "commission" potential. It is they who end up themselves having to pay bribes for basic services or who lose out because they can't afford to. As British Member of Parliament Hugh Bayley noted in a speech to the House of Commons:

"The cost of bribes falls primarily on the poor. When a corrupt contractor from this or some other rich country pays a 15 per cent bribe, he adds that to the price of his contract. His power station or irrigation scheme will cost more, and the little people -- those who buy the electricity or the water to irrigate their crops -- will pay the price of that bribe. Bribery is a direct transfer of money from the poor to the rich".¹²

Corruption and Privatisation in Europe

European countries embarked on privatisation and associated practices of contracting-out long before many other countries. The systems of corruption that have evolved there, accordingly, are distinctive and more mature.

Britain is a case in point. The single greatest source of corruption in the UK is large public sector contracts and concessions issued to private companies, both of which have increased under privatisation. Police estimated that there were 130 cases of serious public sector fraud in 1996:

"The overwhelming majority of corruption cases in Britain are connected to the award of contracts. Compulsory contracting-out in local government, and the new Private Finance Initiative have produced an explosion in the number of such deals".¹³

The Confederation of Construction Specialists has said that the use of illegal payments for contracts is widespread, one report estimating costs to the UK construction industry at £539 million each year.¹⁴

Bribery appears to be such a normal practice for some UK companies that they employ people to recover bribes if the recipients do not deliver the promised "benefit". In a 1996 BBC radio programme, Vincent Carratou, founder of a corporate investigation firm, emphasised that his job was not to investigate the bribes that work but to get back those that have failed to deliver:

"We're called in where people have paid for certain things to happen, to be done, and they aren't done. So we are brought in rather than the police, or rather than officials, because they say 'Well, wait a minute, we have paid a lot of money for something to be done and it hasn't happened. We want our money back or we want what we paid to happen to happen.' It's as simple as that".¹⁵

UK multinationals routinely pay commissions to gain contracts from other governments -- and at least one UK government minister has assisted them in this process. Jonathan Aitken, a former Minister for Defence Procurement, was jailed in June 1999 because he lied in court about his visits to France and Switzerland in 1993 to attend a secret meeting to negotiate contracts for an arms deal. Three UK companies (GEC, Marconi and VSEL) were hoping to obtain contracts to supply weapons systems to Saudi Arabia after they had paid "commissions" into a Swiss bank account for Saudi agents. The bribes ranged from three to 10 per cent on orders worth hundreds of millions of pounds.¹⁶ Such practices were not limited to deals with Saudi Arabia:

"The arms giant GEC ... confirmed that it had agreed to sign a further similar commission deal only last year [1998], this time relating to Poland. It was to pay 10 per cent of the value of possible Howitzer sales to an account controlled by Jonathan Aitken's solicitor."¹⁷

So much for the claim of Lord Young, a minister in the government of privatisation enthusiast Margaret Thatcher, that "when you're talking about kickbacks [bribes] you're talking about something that's illegal in this country and that, of course, you wouldn't even dream of doing".¹⁸

France, meanwhile, pioneered the system of privatisation of public utilities through contracting-out or gestion déléguée -- delegated management. This system has led to widespread corruption, overcharging for services and weak control over the privatised companies.¹⁹ In Grenoble, for example, a former mayor and government minister, together with a senior executive of the private water company Lyonnaise des Eaux (now Suez-Lyonnaise), received prison sentences in 1996 for receiving and giving bribes to award the city's water contract to a Lyonnaise subsidiary. In Angoulème, a former mayor and one-time minister was jailed for two years for taking bribes from companies bidding in public tenders, including Générale des Eaux (now Vivendi).²⁰ Executives of Générale des Eaux were also convicted of bribing the mayor of St-Denis (Ile de Réunion) to obtain the town's water concession.

Suez-Lyonnaise and Vivendi (together with Bouygues), the largest construction companies in France, have been investigated for "an agreed system for misappropriation of public funds".²¹ The companies ran a cartel over building work for schools in the Ile-de-France region around Paris between 1989 and 1996. Contracts worth about US$500 million were shared out by the three groups. The system involved systematic, almost bureaucratised, political corruption: a levy of two per cent on all contracts was paid to finance all the major political parties in the region.²² A director of one of the companies was later indicted for corruption, bribery, favouritism and anti-competitive practices.²³

In Austria, Belgium, Spain and Italy, too, leading politicians have accepted bribes from major companies.²⁴ In Germany, there is an "established system of illegal acquirement and excessive allowances for public contracts".²⁵ In 1999, the entire European Commission, the highest political body in the European Union, resigned because they had lost the confidence of politicians and the public as a result of several corruption scandals. One case involved the BFr 600 million (£12 million) annual security contract for the EU's buildings in Brussels, including the Commission's headquarters, which was held by a private contractor, Group 4 Securitas. According to press reports, the contract "was apparently obtained by the above-mentioned firm in an irregular manner, as it had prior knowledge of the bids made by rival firms so that it could adjust its own bid".²⁶

The action taken against such corruption is often weak. Despite the prison sentences imposed in France, the water companies in question still hold concessions covering over two-thirds of the country's water industry (although some local authorities have taken the opportunity to insist on "savage" renegotiations of these contracts.) In the region of Hesse in Germany, the local authority's ban on contracts with 60 companies convicted of corruption lasted only six months. Hesse's district auditor argued in 1995 that further action should be taken:

"Bribes do not flow of their own accord. Corruption begins in the chief executive's office in the private sector, and there is a stronger measure to fight it than legal prosecution. Corrupt companies shouldn't get any more public contracts ... The six-month ban is ... far too short. So far, the state has concentrated far too much on those who are corrupt. And too little on those who try to corrupt others."²⁷

In the UK, three firms named in court in 1993 as paying £1.5 million in bribes to a Ministry of Defence official for ammunition contracts remained on the government's list of approved tenderers.²⁸

The EU's directives on public procurement provide every public authority in Europe with the power to exclude a company from bidding from any contract if it is known to have engaged in corrupt behaviour.²⁹ There is little evidence, however, that this provision is much used by public authorities.

The private sector faces similar problems of corruption involving its own contractors, especially in infrastructure projects. German car manufacturer Volkswagen, for instance, has uncovered systematic bribery by firms seeking lucrative construction contracts with the company. The head of purchasing at Chrysler identifies big, one-off contracts as the worst problem because they "do not offer the chance to make comparisons, especially on a regular basis".³⁰ Faced with similar problems, General Motors was driven to impose a "draconian new code of ethics" on staff and suppliers:

"Employees were forbidden from accepting hospitality of all but the most mundane nature, and from accepting gifts. Even an invitation from a supplier to play golf was considered potentially compromising."³¹

In the UK, meanwhile, police investigations uncovered a network of multinationals behind bribes offered to UK oil company executives in the early 1990s:

"The trail led to a series of firms including Thyssen, Mannes--mann, Sulzer and giant Japanese trading houses Itochu and Marubeni. An Itochu employee was subsequently cleared of conspiracy despite admitting the charges. It was common practice at Itochu and other Japanese firms to pay middlemen to gain a contract edge, the court heard, and the employee, Shigeki Furatate, only inherited established practice. The trial meanwhile of a Marubeni executive was cancelled after he skipped bail and fled to Japan. One of the largest contracts was a £33.5 million one for the replacement of BP's Forties export pipeline, which Thyssen's steelmaking subsidiary Thyssen Stahl Union won after allegedly paying £1.4 million of commissions."³²

British Petroleum is suing both individuals and multinationals, including Thyssen and the Swiss company Sulzer, for compensatory and exemplary damages. A BP spokesperson said the company hoped both "to recover money which we believe we have lost and also to deliver a message that we are not prepared to allow illegal inforamtion brokers to intervene in our business."³³

Exporting Corruption to the South

Multinational corporations' corrupt practices affect the South in many ways. They undermine development and exacerbate inequality and poverty. They disadvantage smaller domestic firms. They transfer money that could be put towards poverty eradication into the hands of the rich. They distort decision-making in favour of projects that benefit the few rather than the many. They also increase debt; benefit the company, not the country; bypass local democratic processes; damage the environment; circumvent legislation; and promote weapons sales.

Increasing Debt

Bribes put up the prices of projects. When these projects are paid for with money borrowed internationally, bribery adds to a country's external debt. Ordinary people end up paying this back through cuts in spending on health, education and public services. Often they also have to pay by shouldering the long-term burdens of projects that do not benefit them and which they never requested.

The US company, Westinghouse Electric Corp, provides an infamous example. Westinghouse won a contract in the early 1970s to build the Bataan nuclear plant in the Philippines. It was alleged that it gave President Ferdinand Marcos US$80 million in kickbacks. The plant cost $2.3 billion -- three times the price of a comparable plant built by the same company in Korea. Filipino taxpayers have spent $1.2 billion servicing the plant's debts -- even though the plant has never produced a single watt of electricity because it was built at the foot of a volcano near several earthquake faultlines. The Philippine government is still paying $170,000 a day in interest on the loans taken out to finance the nuclear plant and will continue to do so up to the year 2018. Commented Philippines Treasurer Leonor Briones recently:

"It is a terrible burden which never fails to elicit feelings of rage, anger and frustration in me. We're talking of money that should have gone to basic services like schools and hospitals".³⁴

Benefiting The Company, Not The Country

Bribing high-level officials ensures profits and helps off-load risks. In many power projects in Asia, for example, there has been, according to the World Bank, both "a high level of corruption" and a tendency to overestimate demand for electricity.³⁵

In Pakistan, some 21 Western companies were investigated by the national anti-corruption agency in 1998 for alleged kickbacks to the previous government of Benazir Bhutto and for over-pricing.³⁶ Bhutto's government had signed so many contracts with power companies -- some of which were for installations in totally inappropriate locations³⁷ -- that Pakistan was set to produce far more energy than it could possibly consume until 2010.³⁸ Yet the government was contractually bound to buy all the electricity produced.

Although all the companies filed sworn statements denying corruption, six of them subsequently confessed to offering bribes.³⁹ So serious were the allegations that the World Bank sent in a special team of investigators.⁴⁰ Yet far from receiving support from Western governments for its anti-corruption efforts, Pakistan was warned by the British, US, Japanese and Canadian governments that its clash with the power companies would put off other investors.⁴¹ The IMF, meanwhile, went so far as to make a new package of loans at the end of 1998 conditional on the government's dropping the charges against the companies.⁴²

Bypassing Local Democratic Processes

Bribery can be a useful way of getting around local opposition to a project and of bypassing the usual democratic processes involved with awarding contracts. Take, for example, the Norwegian mining company, MINDEX, which wants to carry out nickel and cobalt strip mining on the Philippine island of Mindoro. The local population believes the mine will seriously damage the environment and ruin their communities.

MINDEX has responded by attempting to buy off local leaders. It gave gold watches to politicians in local authorities at a critical stage of the project's Environmental Impact Assessment, which had to prove that the mine was socially acceptable to local people. MINDEX has also paid for local district leaders to go on a "study tour" to a luxurious holiday island, built a new house for a local priest, and paid local journalists to write articles favourable to the company. MINDEX claims its gifts are a "sign of friendship". Local people, who oppose MINDEX, believe that such gifts are an attempt to manipulate the local tradition of utang na loob or "debt of gratitude" towards those who carry out small acts of generosity, and could be against Filipino law.⁴³

MINDEX has also gathered local signatures given to mark attendance at a meeting and used them to indicate local support for the project. At least one signature was actually a protest against MINDEX's project.⁴⁴ The Mindoro Clergy felt obliged to issue a disclaimer:

"We refute the categorical statement of MINDEX that the local population of Oriental Mindoro welcomes the mining project. Our people have consistently manifested their strong opposition to mining operation in a series of protest actions ... We are one with our people in declaring our vehement opposition against mining activity in our province."⁴⁵

Destroying the Environment and Getting Round Regulations

Some companies use bribes as a way of getting round environmental regulations. A report into logging in Papua New Guinea in the 1980s reported that companies were "roaming the countryside with the self-assurance of robber barons: bribing politicians and leaders, creating social disharmony and ignoring the laws in order to rip out and export the last remnants of timber".⁴⁶ In May 2000, meanwhile, the Asian Development Bank warned that the forests in Cambodia were in an "alarming state" because of corruption. Environmentalists have warned that, at the present rate of destruction, Cambodia's forests will be gone by the year 2003.⁴⁷

Sometimes such bribes come in the form of illegal political donations. A 1999 audit by the Nicaraguan government revealed that a Canadian mining company, Greenstone Resources, which controls 70 per cent of the mined areas of Nicaragua, donated $20,000 to President Arnoldo Aleman. The company was alleged to have made further donations to other people in Aleman's Constitutional Liberal Party and bribes to local officials in the area where Greenstone was mining. Nicaraguan law states that donations can be given only by Nicaraguan citizens from within the country.

In return for its money, Greenstone has consistently been allowed to get away with flouting environmental laws and regulations. It carries out massive illegal logging around the mining area, and pollutes water sources and the local environment at the expense of local people's health. Says Magda Lanuza, a Nicaraguan activist:

"You can smell the cyanide when you are near the mine. Children have headaches, and there are other health problems. The technicians who visited the area with us say the water is harmless, but when we ask them to drink it, they refuse."⁴⁸

Despite such evidence, Greenstone has received favourable environmental impact assessments from Nicaraguan officials. Ministry of Environment personnel visit the firm's sites only when the company wants them, and pays them, to do so.

Promoting Arms Sales

Half the bribery complaints received by the US Commerce Department concern international defence contracts. A 1999 report noted that allegations of bribery were made in 55 contracts between 1998-1999 worth some US$37 billion (£23.6 billion) in total.⁴⁹

Swedish armaments manufacturer Bofors was involved in "the biggest bribery scandal in the history of independent India". In 1986, the Indian government paid Bofors $1.3 billion (£802 million) for 400 Howitzer field guns for the Indian army. Within months of the weapons being delievered, Swedish radio claimed that £30 million worth of kickbacks had been paid to Prime Minister Rajiv Gandhi and his associates. In June 1988, the Indian press published documents from the Swedish auditor-general identifying shell companies that had allegedly channelled Bofors' pay-offs. In October 1999, the Indian Central Bureau of Investigation brought charges of "criminal conspiracy" against Indian business people and Bofors middlemen and employees. Whatever the outcome of this court case:

"the affair has been disaster for the sub-continent. With all the juicy allegations of larceny and intrigue to savour, it is easy to forget that Bofors guns added to the ever-growing armouries of India and Pakistan, which now face each other in an unstable nuclear 'balance of power' ... The consequences for Indian democracy have been as dire ... The Bofors scandal led to Rajiv [Gandhi's] defeat in the 1989 general election and the emergence of the BJP as the dominant Indian party."⁵⁰

Global Policies and Corruption

"Huge international capital flows have meant an absolute boom in the amount of money entering emerging countries. There is no question that this phenomenon has fuelled grand corruption in a major way."

Frank Vogl, Transparency International⁵¹

"It is not tenable to argue for political freedoms while at the same time promoting policies that make the poor worse off."

IDS Bulletin⁵²

As Western governments and the World Bank and IMF shout ever more loudly about corruption (see Boxes 1 and 5), their own policies are making it worse in both North and South. Particularly at fault are deregulation, privatisation, and structural adjustment policies requiring civil service reform and economic liberalisation. In 1997, the World Bank asserted that:

"any reform that increases the competitiveness of the economy will reduce incentives for corrupt behaviour. Thus policies that lower controls on foreign trade, remove entry barriers to private industry, and privatize state firms in a way that ensure competition will all support the fight."⁵³

The Bank has so far shown no signs of taking back this view. It continues to claim that corruption can be battled through deregulation of the economy; public sector reform in areas such as customs, tax administration and civil service; strengthening of anti-corruption and audit bodies; and decentralisation.⁵⁴

Yet the empirical evidence, much of it from the World Bank itself, suggests that, far from reducing corruption, such policies, and the manner in which they have been implemented, have in some circumstances increased it.

Privatisation

Spurred by structural adjustment programmes, privatisation of state enterprises increased dramatically in the late 1980s and early 1990s -- four-fold in Latin America and three-fold in Asia.⁵⁵ More than 10,000 state-owned companies were privatised between 1988 and 1998.⁵⁶ Between 1988 and 1994, governments raked in $110 billion from the sale of 3,000 state-owned enterprises.⁵⁷ Privatisation is a component of 70 per cent of structural adjustment loans and 40 per cent of sectoral adjustment loans made by the World Bank.⁵⁸

In many instances, privatisation has been accompanied by widespread corruption. Joseph Stiglitz, ex-Chief Economist at the World Bank, admits that "it has proved difficult to prevent corruption and other problems in privatizing monopolies":

"Advocates of privatization may have overestimated the benefits of privatization and underestimated the costs, particularly the political costs of the process itself and the impediments it has posed to further reform."⁵⁹

The head of the World Bank's Asia-Pacific branch, Jean-Michel Severino, confessed that infrastructure privatisations in the region became a "horror story" in which "there was a high level of corruption".⁶⁰

The "horrors" come about partly because of the inflexible and hasty deadlines set by the IMF and World Bank. Public services are privatised without enough time being allowed to set up workable frameworks for regulation. As the recent External Evaluation of the Enhanced Structural Adjustment Facility (ESAF)⁶¹ noted with some puzzlement:

"In most ... ESAF countries undertaking programs of public sector reform, the privatization process has always begun before an appropriate legal framework in the form of a divestiture implementation or state enterprise law is passed."⁶²

The results are many-fold:

• Governments are often unable to arrange transparent and open bidding processes or promulgate needed regulatory laws;
• Managers and employees, fearful for their future and confident of their ability to escape punishment, commonly strip the assets of the entities undergoing privatisation;
• Many interested parties are able to engage in insider dealing and political manipulation of the process for their own profit;
• Many state enterprises do not have the time to become economically viable before being sold off, leading to frequent sales of industries at below market value despite heavy government spending on recapitalisation.⁶³

Insufficient time is not the only problem. Some governments would be unable to control the process even if they were given more liberal deadlines. As Kamal Malhotra, formerly of the NGO, Focus on the Global South, points out, under governments which are secretive, lacking strong regulatory institutions, and already corrupt, "privatisation cannot possibly be the dream cure":

"Indeed the scope for corruption could greatly increase as a result of privatisation in this context leading to costly and bad privatisations."⁶⁴

In Nicaragua, 341 out of 351 state enterprises were sold off between 1990 and 1994, despite the fact that no law regulating privatisation was in place. Most of the deals lacked proper bidding procedures, and companies wound up being sold at up to 75 per cent below market price.⁶⁵ Some government officials were allegedly bribed to sell the national sugar mills for sub-market prices.⁶⁶

"Downsizing" and Undervaluing Civil Services

Efficient, accountable, adequately-paid and well-motivated civil services are essential for combating corruption, and civil service reform has been a major component of structural adjustment lending since the 1980s. Yet for the World Bank and IMF, reform primarily means "downsizing".

As the Bank itself has discovered, these cuts have produced neither greater efficiency nor increased revenue. Eight out of 15 countries in Africa actually increased their wage bills after downsizing because of pay-offs to retrenched workers. In 40 per cent of cases, laid-off civil servants had to be rehired.⁶⁷ In the Bank's own words, the links between downsizing and economic gains are "tenuous".

An internal World Bank staff report noted in 1999, moreover, that civil service reforms were eroding governance.⁶⁸ The ratio of civil servants to population in Sub-Saharan Africa is now one per cent compared to seven per cent in richer countries. A 1999 review of World Bank assistance for civil service reform found that just 33 per cent of cases had "satisfactory outcomes" and concluded that "Bank-supported [civil service reforms] were largely ineffective in achieving sustainable results in downsizing, capacity building and institutional reform".⁶⁹

At the same time, structural adjustment programmes have led to a large decline in wages for civil servants who remain employed. IMF-prompted wage reductions -- 44 per cent in Nicaragua since 1990, an average of 14 per cent in 20 African countries over the same period⁷⁰ -- have resulted in lack of motivation, low morale, and increased risks of petty corruption.⁷¹

Development funders' attitudes toward Southern civil services have furthered corruption in other ways as well. In Africa, the use of outside experts, funded by technical assistance loans, has hampered the growth of local expertise and hands-on experience of governance.⁷² Seeing high salaries paid to outside experts demoralises civil servants in poor countries, encouraging them "to seek complementary resources by illegal means."⁷³ In Bangladesh, consultancies awarded to bureaucrats who supported structural adjustment were found to distort incentives and undermine the civil service.⁷⁴ In many poor countries, civil servants continue to receive wages just above the poverty threshold, increasing the likelihood of corruption and ineffectiveness.

Liberalisation

"Unless carefully managed," the World Bank concedes, "economic liberalization ... can open new avenues for corruption."⁷⁵ Many of these avenues are now open for traffic. In countries like Russia which were expected to make a rapid transition to a market economy, open capital accounts turned out to be "an invitation to strip assets and ship wealth abroad."⁷⁶ By undermining the political credibility and regulatory capacities of many states, liberalisation, according to one 1996 research report:

"has contributed to a more generalized process of political decay. This reduces the incentives for probity on the part of officials and politicians, and creates a widespread social alienation from the political process".⁷⁷

Another, more recent, report highlighted the increased opportunities for corruption and money-laundering created by liberalisation. Regulatory mechanisms have been weakened; there is no longer any need to provide economic justification for money transfers; and it has become far easier to exchange and transfer currencies and capital.⁷⁸

Decentralisation

In theory, decentralisation -- regarded by the World Bank as essential for combating corruption -- is about bringing decision-making closer to local people and improving services. Over 56 developing and transition countries have now embarked on decentralisation programmes, many of them with World Bank advice and supported with World Bank loans.

The catch is, as the World Bank itself points out, decentralisation cannot work if it does not provide adequate resources and training for local governments.⁷⁹ It must be long-term and have the full participation of local people. It must build the ability of local civil society to monitor resources. Where decentralisation has worked, it has generally been where local governments have been able to raise revenue locally, especially through progressive tax reform.⁸⁰

In practice, however, the type of decentralisation urged by multilateral development agencies has often gone forward without local bureaucracies being adequately prepared and without the necessary transfer of financial resources.⁸¹ One result has been increased corruption. When India and Taiwan devolved some bureaucratic power, for instance, "the opportunities for bribe-collecting multiplied."⁸² Even the World Bank's vice-president for Asia, Jean-Michel Severino, recently admitted that:

"decentralisation will lead to less governance and more corruption spread around the country, disruption of public service and a fiscal burden."⁸³

In Uganda, according to grassroots research in rural villages:

"Decentralisation was blamed for the perceived increase in corruption ... It was noted that if corruption is not curbed, it will continue to erode the value of decentralisation and may ruin it altogether."⁸⁴

Other research found that there were not enough checks and balances to keep local government in Uganda accountable.⁸⁵

Cleaning Up Their Act

"There is no question that reforms in many countries would be strengthened if there were more visible evidence that leading international organizations and Western governments were evenhanded in their anti-corruption campaigns, attacking the bribe givers with just as much force and fury as they now use to attack the bribe takers."

Frank Vogl, Transparency International⁸⁶

International bribery is nothing new. A major late-1970s bribery scandal involving the US arms giant Lockheed led to talks in the UN and the Organisation for Cooperation and Development (OECD) on measures to curb bribery.⁸⁷ One outcome was the 1978 US Foreign Corrupt Practices Act (FCPA), which made bribing a foreign public official a criminal offence.

Not all US companies were happy with the results. Some began to complain that bribery by companies based in countries with no comparable legislation was undermining the ability of US companies to win contracts. The US Commerce Department claimed in 1997 that US companies had lost nearly $15 billion that year because they were unable to offer bribes.⁸⁸ During the 1990s, accordingly, the US pushed for an international agreement on bribery.

OECD Convention on Combating Bribery

After seven years of work by a special bribery working group at the OECD, an international Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was drawn up and signed in December 1997 by 29 OECD members plus Argentina, Brazil, Bulgaria, Chile and Slovakia,⁸⁹ and finally ratified in February 1999. The Convention requires that each signatory enact national legislation making it a criminal offence to bribe a foreign public official. The term "foreign official" is meant to include anyone holding a "legislative, administrative or judicial post in a foreign country" as well as anyone in public sector companies and international organisations.⁹⁰ Bribery is prohibited not just in procuring orders but also in regulatory proceedings (including those involving environmental permits), tax and customs matters, and judicial proceedings.⁹¹ The Convention also requires governments to:

• Ensure proper punishment for bribery of a foreign official (including prison sentences and hefty fines);
• Tighten accounting and auditing requirements by prohibiting "the establishment of off-the-books accounts, the making of off-the-books or inadequately-identified transactions, the recording of non-existent expenditures, the entry of liabilities with incorrect identification of their object, as well as the use of false documents by companies ... for the purpose of bribing foreign public officials or of hiding such bribery";⁹²
• Provide for international legal cooperation, including extradition of guilty parties;
• Take steps to end tax deductibility for illicit payments (a measure which France and Germany agreed to as soon as the Convention was signed, and that was already on the books in Denmark, Norway, Poland and The Netherlands).⁹³

As of November 1999, 18 of 34 signatories had passed national legislation to incorporate the Convention. According to the OECD's anti-bribery unit, however, there have been no prosecutions so far. Still, the very existence of the Convention, together with the publicity it has received, has helped to focus attention on the problem.⁹⁴

What the Convention will achieve might be anticipated by considering the effectiveness of anti-bribery legislation in the US. There, despite provisions for stiff penalties, only one case a year on average has been prosecuted.⁹⁵ What has mainly changed as a result of the law is the way US companies bribe. Today, US corporations eager to gain contracts tend to funnel money through subsidiaries, bribe foreign officials with company shares instead of cash, and use expense accounts to provide trips or other freebies. Many US companies set up branch offices in Canada to take advantage of the relatively lax bribery laws there.⁹⁶ An impressive 97 per cent of companies surveyed in Europe and the US have concluded that US companies use middlemen to get around the legislation.⁹⁷ As The Economist magazine puts it, "some say the law merely encourages American firms to bribe more cleverly".⁹⁸

The international OECD Convention leaves open similar loopholes. For instance, it does not:

• Prohibit the funding of foreign political parties;
• Make parent companies responsible for the corruption their subsidiaries or agents engage in;
• Include as bribery non-cash gifts such as shares, trips and other forms of excessive hospitality;
• Specify sanctions or means of enforcing the accord;
• Spell out how cases should be brought to the attention of the relevant national authority -- by the government of the country whose official has been bribed or by the government of the country whose company has offered the bribe.

It remains to be seen to what extent governments which have signed the Convention are prepared to prosecute wrongdoers. Many are likely to fear antagonising their business communities and will delay action. Indeed, the Convention's origin as a measure to "equalise" competition among OECD-based multinationals suggests that OECD governments do not routinely enforce laws against their own multinationals. Mobilising the new, stronger provisions will be, in large part, a job for the countries in which the offence takes place. Public pressure is likely to be crucial in ensuring that both the government and business take the Convention seriously.⁹⁹

Blacklisting Companies

In 1998, the World Bank set up a sanctions committee to investigate cases of corruption by companies involved in bidding for or carrying out a World Bank-backed contract. The Sanctions Committee meets regularly to review investigations and to debar firms found guilty. It also publishes a comprehensive list of debarred firms, "The World Bank Listing of Ineligible Firms." As of May 2000, there were 54 companies on this list, 36 of them British -- by far the biggest country representation on the list.¹⁰⁰

The UK government could and should take action against companies sanctioned by the World Bank. It could also take steps to help ensure that no Western or OECD company sanctioned by an international financial institution such as the World Bank, or prosecuted in any country in the world, obtains contracts with other international or national institutions.¹⁰¹ This should particularly apply to contracts with UK government departments such as the Department for International Development (DfID) and the Export Credit Guarantee Department (ECGD). The UK government could also ensure that there are binding anti-corruption clauses or corporate compliance programmes in all contracts at a national and international level.¹⁰²

At a broader level, concerted international action on corruption could include creating an international database of 'blacklisted' companies which governments around the world could use when deciding to whom they should award a contract. Such a database could be held at the United Nations, by UNCTAD (UN Conference on Trade and Development), for instance. A model already exists, held by the Information Coordination Group (ICG), an organisation set up by five oil companies to combat illegal information brokering. The ICG has a database of 2,500 entries gathered from participating companies and other international sources on individuals and companies known or alleged to have been involved in procurement irregularities around the world.¹⁰³ Law enforcement agencies already have access to this database and companies use it to make "integrity checks" before pursuing contracts.

NGOs are also calling for an international public index or ranking of corrupt companies.¹⁰⁴ At the moment, the international anti-corruption NGO, Transparency International, publishes an annual bribery perceptions index. The index ranks countries, however, rather than companies. Since it is not countries that do the bribing, this index remains fundamentally flawed.

Government Action

All governments need to clean up their act -- but they need to do so in an environment in which donors are not imposing inappropriate, over-hasty policy changes; in which resources and time permit genuine participation in social and economic decision-making; and in which international agencies are not adding to the incentives for corruption.

Any successful anti-corruption programme has to be built up at a national level, be appropriate to local and national contexts, and have full support from government employees at all levels. In addition, as a 1998 Commonwealth report on corruption argues:

"Action programmes need to be designed to meet the expectations of citizens, who need to be informed about the national strategy to combat corruption. Effective action to fight corruption is most likely through programs which are nationally owned, designed to meet national circumstances and built on the foundation of popular empowerment."¹⁰⁵

Imposing anti-corruption strategies by putting conditions on loans will not work -- and may even lead to governments implementing cosmetic changes which, at best, do little and, at worse, undermine the anti-corruption effort. In Uganda, for instance, the Ministry of Ethics and Integrity is seen by some observers as merely a show-piece created to appease creditors who demanded action on corruption. Its remit is uncertain and clashes with those of other departments engaged in developing an anti-corruption strategy, such as the office of the Inspector General of Governance and the office of the Auditor General. The new Ministry may even draw resources away from these desperately under-resourced bodies and, by diffusing responsibility across government, actually reduce the effectiveness of their work.

In some instances, governments may not be politically committed to reform. But as the Commonwealth report on corruption notes, "where governments are less than enthusiastic in tackling corruption, popular support and the agencies of civil society can still be mobilised in support of an anti-corruption agenda."¹⁰⁶

Several NGOs in North and South are doing just this by, for example, monitoring debt relief funds to see if they are being spent on poverty reduction measures; mobilising ordinary people and raising awareness; and developing the monitoring capacity of local civil society to keep local governments accountable in a context of decentralisation.

In Nicaragua, a new anti-corruption movement, Citizen Action Against Poverty and Corruption, has organised popular marches against corruption; is campaigning to get the President and other ministers and politicians to declare their personal income; and is in the process of producing a popular manual on corruption, which will be disseminated at "corruption hearings".

In Uganda, local civil society organisations including the Uganda Debt Network and the International Anti-Corruption Theatre Movement organise an anti-corruption week every year during which public meetings, plays and a march are held in a general attempt to raise awareness about corruption and existing laws holding politicians and ministers accountable.¹⁰⁷

One of the most successful grassroots anti-corruption movements is the Indian Mazdoor Kisan Shakti Sangathan (MKSS) or Workers and Farmers' Power Organisation in Rajasthan. Since 1988, the MKSS has been organising with local people to demand access to local government accounts and records. It holds public hearings to examine local development works and to check whether the accounts match up to actual spending. So successful have these hearings been that Sarpanches or local leaders exposed in the hearings as fiddling the books have returned the stolen money.¹⁰⁸

Deterrents

Economic sanctions are some of the most effective deterrents to corruption. In Singapore, a middleman was convicted in 1996 of paying bribes totalling US$9.8 million on behalf of Siemens, Pirelli, BICC, Tomen and Marubeni. Not only did the government ban all five companies from bidding for any government contracts for five years. It also banned "firms associated with the five companies, any new company that the firms may jointly set up, and firms that share the same directors as the five".¹⁰⁹

Opening development projects to more public scrutiny can be another effective deterrent. In the state of Kerala in south India, a new local government structure, based on massive public participation, has been acclaimed, even by the World Bank:

"Kerala's decentralisation programme is probably the largest of its kind in the world. Three million people (10 per cent of the State's population) take part in meetings. This is a far-reaching, innovative and courageous new approach to rural development and local governance ... It reflects a profound commitment to a total change in which governments govern to empower disadvantaged groups to voice their demands, and to make institutions responsible and accountable to them."¹¹⁰

The system includes massive devolution of funds to local meetings, which are required to draw up plans for deploying them, and a concerted effort to maximise public attendance at such meetings. Eight key democratic principles are central, including: "maximum direct participation of the people; accountability (continuous social auditing of performance) and transparency through the right to information."

The potential for corruption, a problem before the new system, is minimised by a commitment to transparency and openness of all documents and decisions. As The Hindu newspaper notes:

"Total transparency is the only way to check the danger of decentralisation degenerating into decentralisation of corruption. All documents on beneficiary selection, reports and minutes of meetings and all documents on works undertaken by the local bodies through contractors and beneficiary committees including bills and vouchers are public documents. Copies are available on payment of a fee."¹¹¹

In Thailand, meanwhile, a new constitution has strengthened the democratic rights of local communities, illustrated by electricity generation. Before 1997, governments, multinational companies and the World Bank had pushed electricity privatisation by building independent power plants with little regard to the interests of local people. The violent breakup of any opposition would often have been the end of the issue. As a result of the 1997 constitution, however, large development projects are now subject to public hearings, and local councils, which are now elected rather than appointed, must give their consent to such projects.

Resistance

Fighting corruption is increasingly engaging the energies of civil society groups around the world. To be effective, they must:

• Mobilise ordinary people. Civil society groups will need to be prepared to take on governments in innovative and sometimes confrontational ways. They will also need to be committed to being transparent and accountable themselves.¹¹²
• Push for freedom of information and enable ordinary people to use that information. Only if they have the relevant knowledge can citizens hold their governments accountable and ensure that resources that belong to them are used in the right way.
• Help increase citizen participation in decision-making.¹¹³ In Uganda, a popular phrase is abantu babisi, meaning "people do not know what is going on". It is used to show mistrust of government decisions taken far away. Greater participation by groups that represent the poor is a must in decision-making at every level -- local, regional and national. Greater citizen participation is also required in monitoring and auditing public expenditure. Civil society groups need to play a "critical auditing function ... if they are to hold the state accountable to their poorer citizens."¹¹⁴ In many countries, opposing privatisation -- for example, water privatisation plans in Panama and Brazil -- has proved to be one way to remove potential sources of corruption. Where work is put out to tender, it is critical to ensure that there is always an "in-house bid" from the public sector to set against any private contractors' bids, something that the UK Office of Fair Trading recommends as a key method for avoiding being cheated by a cartel.¹¹⁵ Ensuring that such bids are made also makes it difficult for a contractor to buy a contract at an artificially inflated price.

Cracking down on bribery will not necessarily make international business more accountable. Nor will it end corruption overnight. But it will help send a clear message that the international community is intent on restricting the "supply side" of bribery. Companies must not be allowed to continue to behave in unethical ways that undermine local democracy and development.

References

1 "Fund Management Guru Reveals Doubts", Financial Times, 8 December 1998.

2 quoted in "Corruption: the search for the smoking gun", Euromoney Magazine, Sept. 1996, p.2.

3 www.oecd.org//daf/nocorruption/faq.htm

4 Fiddler, S., "Defence contracts 'pervaded by graft'", Financial Times, 7 July 1999.

5 Tanzi, V., Corruption around the World -- Causes, Consequences, Scope and Cures, IMF Staff Papers, Vol 45:4.

6 Cockroft, L., letter to Financial Times, 19 February 1996.

7 Control Risks, Corruption and Integrity: Best Business Practice in an Imperfect World, Control Risks, London, 1996, cited in "Crime--Corruption: The World's Growth Industry", Inside Eye, October 1998.

8Export credit agencies are government bodies which use public money to provide companies with insurance against the main commercial and political risks of operating abroad. See Corner House Briefing 14, Export Credit Agencies, Corporate Welfare and Policy Incoherence, The Corner House, Dorset, 1999.

9 Frisch, D., "Export Credit Insurance and the Fight Against International Corruption", TI Working Paper, Brussels, 26 February 1999. www.transparency.de/documents.work-papers.dfrisch.html

10 Transparency International, (TI) based in Brussels, was founded in 1993, primarily by former World Bank staff. Its funders include the US and European governments, the World Bank, several foundations and business, including Enron, Exxon, GEC, Ford, General Motors, Lockheed Martin, Placer Dome, Rio Tinto Zinc, Shell, Texaco and Westinghouse. Its annual income is now just over $2.5 million.

The record on corruption and human rights of some of its business backers is patchy. Enron was criticised in a 1999 Human Rights Watch report for allowing security guards at Dabhol Power in India, in which Enron had a 50 per cent stake, to beat up and harass local opponents to its energy project. The project has been dogged by corruption allegations. Canadian mining company PlacerDome has been criticised for causing extensive environmental damage at the Marcopper Mine in the Philippines, where corruption allegations also surfaced. In 1995, Lockheed Martin pleaded guilty to paying a $1 million bribe to an Egyptian member of parliament and was fined £21.8 million by the US government.

TI focuses largely on the "passive" corruption of government officials who accept bribes, rather than the "active" corruption of the corporations who pay them. This focus is perhaps due to two factors: first, multinationals have a propensity to take legal action against any statement which could harm their business interests, but politicians rarely do so; second, TI is bound to find it hard to criticise its supporters in public. TI produces a widely-publicised league table of countries that are perceived by business executives as corrupt. The table has been criticised for being "unjustly biased against developing countries". TI does not deal with the fact that the growth of privatisation creates far greater incentives for corruption. See TI Newsletter, December 1998.

11 Atkinson, M. and Atkinson, D., "The Bung Bang", The Guardian, 13 December 1997, p.26.

12 House of Commons, Hansard, Column 374, 25 February 1998.

13 The Guardian, 3 October 1996. A rash of court cases from 1990 to 1996 confirm this statement; see Public Services Privatisation Research Unit, Private Corruption of Public Services, London, 1994, and The Privatisation Network, London, 1996. The Private Finance Initiative is a government programme which gives long-term concessions to private firms which fund the construction of public works such as new roads, hospitals or computer systems.

14 H&V News, 23 March 1996.

15 Speaking on BBC Radio 4, Talking Politics, in 1994, quoted from official transcript of Bribes, transmitted by BBC Radio 4 on 28 April 1996.

16 The Guardian, 5 March 1999.

17 The Guardian, 6 March 1999.

18 Speaking on BBC Radio 4, op. cit. 15. The chief of the London Metropolitan Police stated publicly in 1997 that corruption was a major problem in the capital's police force. Several Conservative Members of Parliament, meanwhile, have been found guilty of improperly accepting cash from businesses -- a major issue in the 1997 election defeat of the Conservative government.

19 The French water system is critically appraised in a report, La Gestion des Services Publics Locaux d'Eau et Assainissement, by France's state auditor, the Cour des Comptes, Paris, January 1997.

20 Reuters, 1 July 1997.

21 Le Monde, 10 December 1998.

22 Le Monde, 10 December 1998. The full political spectrum of French political parties was covered, according to the reports.

23 Jacques Durand, commercial director of the Vivendi construction company, GTM. See ibid.

24 Recent books indicating the prevalence of the problem include Robert, D., Pendant les Affaires, les Affaires Continuent, Stock, Paris, 1996; and Rugemer, W., Wirtschaften ohne Korruption?, S. Fischer Verlag, Frankfurt, 1996.

25 According to the district auditor for Hesse, quoted in Süddeutsche Zeitung, translated in The Guardian, 23 February 1995.

26 Agence Europe, 21 August 1997.

27 Süddeutsche Zeitung, op. cit. 25.

28 Hencke, D., "Watchdog attacks ministry's failure to track bribes", The Guardian, 10 March 1995. The firms were Gebruder Junghans of Germany; Fratelli Borletti of Italy; and Raufoss of Norway.

29 Article 29 of the Directive on Public Service contracts (EC 92/50) states that "Any service provider may be excluded from participation in a contract who: ... (c) has been convicted of an offence concerning his professional conduct by a judgement which has the force of res judicata; (d) has been guilty of grave professional misconduct proven by any means which the contracting authorities can justify."

30 Financial Times, 12 June 1997.

31 Ibid.

32 Independent on Sunday, 4 August 1996.

33 Lloyds List, 26 August 1996.

34 quoted in Easton, A., "Philippines to scrap nuclear albatross", The Guardian, 7 September 1999, p.15. After Marcos was overthrown in 1986, the Philippine government brought a US civil action alleging bribery and corruption in 1988 against Westinghouse and put a case before the International Chamber of Commerce in Switzerland. The civil action was rejected, but three months before the International Chamber of Commerce was to make a decision, Westinghouse agreed to pay the Phillipines government under President Ramos compensation of $100 million (including a cash payment of $40 million and two state of the art gas turbines worth $30 million). The Westinghouse settlement, however, does not cover even one year's interest payments on the debts the country incurred to build the plant. See "Westinghouse Electric--Peace in our time between Westinghouse and Manila", Power in Asia, 30 October 1995.

35 Montagnon, P., "Doubts at World Bank on infrastructure sell-off", Financial Times, 27 July 1999, p.6.

36 "IPP crisis--Pakistan risks financial collapse over private power policy", Power Economist, 30 June 1998, p.13; Davis, N., "National Power reported ready to split off international operations", Energy Daily, 14 September 1999; Kielmas, M., "Expropriation by 2 countries is alleged--Pakistan, Indonesia criticized", Business Insurance, 2 November 1998; "Cover Story: an affair to remember", Project and Trade Finance, 10 May 1999.

37 Business Insurance, ibid.

38 "IMF deal brings relief for Pakistan IPPs", Power Economist, 31 December 1998, p.15.

39 Ibid.

40 Dunne, N. and Fidler, S., "World Bank helped Sharif in corruption probe", Financial Times, 12 November 1999, p.12.

41 "Pakistani court blocks Hubco remittance", Reuters, 11 May 1998.

42 Power Economist, op. cit. 38.

43 Eraker, H.,"Go Home to Norway, MINDEX!", Philippines International Review, Autumn 1999, pp.18-19. Under Republic Act No. 3019, it is illegal for a public official to receive a gift from anyone for whom the official "has secured or obtained or will secure or obtain, any government permit or licence, in consideration for the help given or to be given". Section 14 of this Act, however, does allow for "tokens of gratitude or friendship according to local custom".

44 Ibid.

45 Position Paper on the Moral Stand of Oriental Mindoro Clergy against MINDEX Mining, Signed September 1999.

46 Baird, N., "Forests of Hope: Papua New Guinea Saying 'No' to Asian Loggers", People and the Planet, Vol.5, No.4, 1996.

47 "Cambodian forests threatened by corruption, crime", The Times of India, 11 May 2000.

48 Bassett, C., "Gold and Poison", Americas Update, Vol. XX, No. 1, 1999, pp.15-18.

49 Fidler, S., op. cit. 4.

50 Cohen, N., "Guns and the Dome", New Statesman, 15 November 1999, pp.11-13.

51 quoted in Sweeney, P., "The World Bank Battles the Cancer of Corruption", Global Finance, 1 October 1999.

52 "Can Aid promote good governance", IDS Policy Briefing, Issue 2, Feb. 1995, p.4.

53 The State in a Changing World, World Development Report 1997, World Bank, Washington, DC, p.105.

54 www.worldbank.org/html/extdr/pb/pbcorruption.htm. The Bank's thinking ignores the fact that, according to Transparency International's corruption index, some of the least corrupt economies in the world are the Scandinavian ones where there has been a long history of state intervention in the economy. It is also ignores the fact that corruption often has complex, historical and local features which cannot be treated with a "one size fits all" approach.

55 Cook, P. and Kirkpatrick, C., "Reflections on Privatization in Developing Countries: Positive and Negative Lessons" in Development Policy Management Network Bulletin, Privatization in Africa: Trends and Lessons, Vol. V, No. 1, Dec. 1998. See also Hildyard, N., The World Bank and the State: A Recipe for Change?, Bretton Woods Project (PO Box 100, London SE1 7RT, UK), 1998.

56 Nash, D., "The Bahamas: Citizens Say No to Privatisation", Inter Press Service, 17 March 1998.

57 Mutume, G., "The 'P' word's no longer so dirty", Mail and Guardian, 28 March 1997.

58 "Pros and cons of sell-offs", Weekly Mail and Guardian (based on paper commissioned from Professor Ben Fine for National Institute for Economic Policy) April 1997.

59 Stiglitz, J., "More Instruments and Broader Goals: Moving Towards the Post-Washington Consensus", 1998 WIDER Annual Lecture, January 1998.

60 quoted in Montagnon, P., op. cit. 35.

61 The ESAF is the successor to the Structural Adjustment Facility, the IMF's concessional lending programme to low-income countries. Loans are made in return for a three-year commitment by the government to "comprehensive macro-economic and structural adjustment programmes"; these generally include cutting public spending, privatising state enterprises, removing price controls, raising interest rates, devaluing the currency and promoting exports. As of February 1999, the IMF had lent $9 billion to 51 countries under 79 ESAF agreements. A 1997 internal review by the IMF found that countries under structural adjustment programmes had lower economic growth than countries that were not under SAPs. In late 1999, the IMF renamed ESAF the Poverty Reduction and Growth Facility. See World Development Movement Briefing, "Can the IMF deliver on recent poverty reduction promises?", May 2000.

62 External Evaluation of the ESAF, Report by a Group of Independent Experts, IMF, 1998, p.94.

63 Szeftel, M., "Misunderstanding African Politics: Corruption and the Governance Agenda", ROAPE, No. 76, p.233.

64 Malhotra, K., "Public Good vs. Investor Interest in Private Infrastructure Development: Whose Interests Should Regulators Protect and How?", presentation at seminar, "Private Interest vs. Public Good: Governance Dimensions of Regulatory Frameworks for Private Sector Infrastructure Development", organised by the Asian Development Bank and the OECD, Switzerland, 28 April 1998.

65 Vargas, O. R., Corruption in Nicaragua, report for Christian Aid, July 1999.

66 "Nicaragua sugar production seen up 14% in 96-7", Reuters, 20 March 1997.

67 Rama, M., "Efficient Public Sector Downsizing", Finance and Development, Sept. 1997, p.2.

68 "Social and Environmental Aspects: A Desk Review of SECALs and SALs Approved During FY98 and FY99", draft document from Environmentally and Socially Sustainable Development Unit, World Bank, Washington, DC, 24 May 1999.

69 "Civil Service Reform: a Review of World Bank Assistance", Sector Study No. 19599, Operations Evaluation Department, World Bank, Washington, DC, 8 April 1999. www.wbln0018.worldbank.org/oed/oeddoclib.nsf

70 Lienert, I. and Modi, J., "A Decade of Civil Service Reform in Sub-Saharan Africa", IMF Working Paper, Fiscal Affairs Department, Dec. 1997, p.18.

71 Hentic, I. and Bernier, G., "Rationalization, decentralization and participation", International Review of Administrative Sciences, Vol. 65, 1999, p.199.

72 Rama, M., op. cit. 67, p.2. See also Hibou, B., "The Social Capital of the State as an Agent of Deception", in Bayart, J.F., Ellis, S. and Hibou, B., The Criminalization of the State in Africa, Longman, London, 1999, p.98.

73 de Sardan, O., "A Moral Economy of Corruption", The Journal of Modern African Studies, Vol. 37:1, 1999, pp.32-3.

74 Strucural Adjustment Pariticipatory Review Initiative, Bangladesh. www.worldbank.org/research.sapri/banglad.tor.htm.

Developing countries are also being asked to introduce new schemes that even developed-country civil services, with their greater levels of resources and experience, cannot yet implement. For instance, an investigation by the UK Parliament's Public Accounts Committee in 1998 into corruption in the state's tax-collecting department, the Inland Revenue, found that: 40 per cent of staff responsible for collecting taxes were unfamiliar with the code of conduct for tax inspectors; there was no facility for a confidential reporting system for external complaints; there was no financial vetting system of staff; and annual declarations by staff that they have complied with the code of conduct were not required. Yet developing countries are being forced to push through rapid reforms which have taken developed countries years to put in place and which can only really work properly if they are seen as long-term projects rather than quick-fix solutions. See Select Committee on Public Accounts Ninth Report: Inland Revenue Special Compliance Office: Prevention of Corruption, www.publications.parliament.uk/pa/cm199899/cmselect/cmpubacc/77/7703.htm.

75 Findings, Africa Region, No 38, March 1999.

76 Former World Bank chief economist Joseph Stiglitz, cited in Reuters, 30 April 1999.

77 Harriss-White, B. and White, G., "Corruption, Liberalization and Democracy', IDS Bulletin, Vol. 27, No. 2, 1996, p.2.

78 Hibou, B., op. cit. 72.

79 Entering the 21st Century, World Development Report, 1999/2000, World Bank, Washington, DC, 1999, p.9. The report notes that rules governing local government borrowing must be drawn up; this is national governments have had to bail out local governments which have got into debt as a consequence of decentralisation.

80 Armani, D., "Democratising the Allocation of Public Resources: A Study of the Participatory Budget of Porto Alegre, Brazil", a study for Christian Aid, London, Oct. 1997, p.9.

81 Hentic, I. and Bernier, G., op. cit. 71, p.202.

82 "A global war against bribery has at last been declared", The Economist, 16 January 1999.

83 Crampton, T., "Official warns Asia to fight corruption", International Herald Tribune, 12-13 February 2000, p.13.

84 "Perspectives of the Poor", draft report of Uganda Participatory Poverty Assessment Project (UPPAP), Ministry of Finance, Planning and Economic Development, Kampala, November 1999, p.176.

85 Goetz, A.M. and Jenkins, R., "Creating a Framework for Reducing Poverty: Institutional and Process Issues in National Poverty Policy", draft consultancy report for SIDA and DfiD, 1999.

86 Vogl, F., "The Supply Side of Global Bribery", Finance and Development, June 1998.

87 Tether, C.G., "Bribery debate is for us, too", Financial Times, 21 May 1976. The OECD comprises 29 of the world's richest countries, including European countries, the US, Japan, Australia, New Zealand, Finland, Mexico, the Czech Republic, Hungary, Poland and Korea. Based in Paris with an annual budget of $200 million, the OECD calls itself a "club of like-minded countries" which believe in market economics and pluralistic democracy. It provides a forum for discussion on economic and social policy issues for governments, as well as producing research, policy papers, and international treaties and agreements. See www.oecd.org/about/general

88 The Economist, op. cit. 82. In 1996, the estimate was US$11 billion.

89 There was plenty of resistance, however. Germany and Austria, for instance, wanted the Convention to mirror only domestic laws which prohibited bribes made to legislators to buy their votes, and wanted their companies excluded from more stringent conditions of the convention. See Daley, W., "The OECD should take a stand against the plague of international corruption", Financial Times, 18 November 1997.

90 Graham, R., "Anti-Bribes convention signed", Financial Times, 18 December 1997.

91 Brademas, J. and Heimann, F., "Tackling International Corruption: No longer taboo", Foreign Affairs, Sept/Oct 1998, p.19.

92 OECD Bribery Convention, article 8, 1.

93 Governments are required to report to the OECD on how they are implementing the Convention. A working group involving experts from signatory countries is carrying out a peer review of each country's legislation to see if it meets the Convention's requirements. In June 2000, that review will have been completed and a report made to the Ministerial meeting. It will be followed by a report on the effectiveness of the legislation and its application.

94 More still needs to be done, however, given that 38 per cent of business executives interviewed in a Gallup poll had never heard of the Convention. See Dunne, N., "Bribery 'helps win contracts in developing world'", Financial Times, 21 January 2000, p.10.

95 The Economist, op. cit. 82.

96 "Report of the Commonwealth expert group on good governance and the elimination of corruption in Economic Management", interim report presented to Commonwealth Finance Ministers, October 1998, reported in Bourrie, M., "Commonwealth Agreement to Fight Corruption", Inter Press Service, 2 October 1998.

97 Atkinson, M. and Atkinston, D., op. cit. 11.

98 The Economist, op. cit. 82.

99 For further discussion of the limits and possibilities of the Convention, see Cockcroft, L., "Implementation of the OECD Convention: The Conditions for Success", paper presented to seminar, "Corruption and Bribery in Foreign Business Transactions", Vancouver, 4-5 February 1999. www.transparency/de/documents/work-papers/lc_oecd.html

100 These companies include Chase Berkeley Cavendish Ltd, Case Technology Ltd, Agricultural Development Services Ltd, Consultants for International Development PLC, Cybertek International Ltd, Drill Technologies and Co, Economic Consulting Group, Engineering Projects International, International Development Projects Services, and West End Associates. See "World Bank Listing of Ineligible Firms, Fraud and Corruption", www.worldbank/org/html/opr/procure/debarr.html

101 Transparency International, Evaluation of Implementation of OECD Convention by the UK, TI Working Paper, Brussels, November 1999.

102 Ibid.

103 Dealing with Bribery and Corruption: A Management Primer, Shell UK, London, 1999, p.55.

104 Commonwealth report, op. cit 96.

105 Commonwealth report, op. cit 96.

106 Ibid.

107 "Uganda: the power of theatre", TI Newsletter, June 1999.

108 "Freedom of information is key to anti-corruption campaign in rural India", TI Newsletter, September 1998, p.3.

109 Reuters, 16 February 1996.

110 The Hindu, 24 May 1999.

111 The Hindu, 24 May 1999.

112 Jenkins, R. and Goetz, A.M., "Constraints on Civil Society's Capacity to Curb Corruption: Lessons from the Indian Experience," IDS Bulletin, Vol. 30, No. 4, 1999, p.41. The first NGO Code of Conduct to Combat Corruption was drawn up in Cameroon. See Swiss Coalition News, No.21, Sept. 1999, pp.10-11.

113 See also Richmond, J. and McGee, R., "Who's Round the Table? A Review of Civil Society Participation in Aid Coordination", Christian Aid, October 1999; Schneider, H., "Participatory Governance: The Missing Link for Poverty Reduction", OECD Development Centre, Policy Brief, No. 17, 1999.

114 Ibid., p.45.

115 The Office of Fair Trading, Cartels, Detection and Remedies, OFT, London, 1995.

 

End Note

Corner House Briefing 19, "Exporting Corruption: Privatisation, Multinationals and Bribery" was written by Sue Hawley and edited by Sarah Sexton, Larry Lohmann and Nicholas Hildyard of The Corner House. The section "Corruption and Privatisation in Europe" is taken from David Hall, "Privatisation, multinationals, and corruption", Development in Practice, Vol. 9, No. 5, November 1999, pp.539-556. See also the website of Public Services International Research Unit (www.psiru.org) which contains regular updates on all aspects of privatisation in public services, including corruption.