| I. The Facts | | | | avoid or evade taxes, and conceal assets or liabilities. |
| Just days before a much-awaited donor conference, | | | | According to Swiss authorities, more than $40 billion |
| the influential International Crisis Group (ICG) | | | | are held by Russians in its banking system alone. The |
| recommended to place all funds pledged to | | | | figure may be 5 to 10 times higher in the tax havens |
| Macedonia under the oversight of a "corruption | | | | of the United Kingdom. |
| advisor" appointed by the European Commission. The | | | | In a survey it conducted last month of 82 companies |
| donors ignored this and other recommendations. To | | | | in which it invests, "Friends, Ivory, and Sime" found |
| appease the critics, the affable Attorney General of | | | | that only a quarter had clear anti-corruption |
| Macedonia charged a former Minister of Defense with | | | | management and accountability systems in place. |
| abuse of duty for allegedly having channeled millions | | | | Tellingly only 35 countries signed the 1997 OECD |
| of DM to his relatives during the recent civil war. | | | | "Convention on Combating Bribery of Foreign Public |
| Macedonia has belatedly passed an anti-money | | | | Officials in International Business Transactions" - |
| laundering law recently - but failed, yet again, to | | | | including four non-OECD members: Chile, Argentina, |
| adopt strict anti-corruption legislation. | | | | Bulgaria, and Brazil. The convention has been in force |
| In Albania, the Chairman of the Albanian Socialist | | | | since February 1999 and is only one of many OECD |
| Party, Fatos Nano, was accused by Albanian media of | | | | anti-corruption drives, among which are SIGMA |
| laundering $1 billion through the Albanian government. | | | | (Support for Improvement in Governance and |
| Pavel Borodin, the former chief of Kremlin Property, | | | | Management in Central and Eastern European |
| decided not appeal his money laundering conviction in | | | | countries), ACN (Anti-Corruption Network for |
| a Swiss court. The Slovak daily "Sme" described in | | | | Transition Economies in Europe), and FATF (the |
| scathing detail the newly acquired wealth and lavish | | | | Financial Action Task Force on Money Laundering). |
| lifestyles of formerly impoverished HZDS politicians. | | | | Moreover, The moral authority of those who preach |
| Some of them now reside in refurbished castles. | | | | against corruption in poor countries - the officials of |
| Others have swimming pools replete with wine bars. | | | | the IMF, the World Bank, the EU, the OECD - is |
| Pavlo Lazarenko, a former Ukrainian prime minister, is | | | | strained by their ostentatious lifestyle, conspicuous |
| detained in San Francisco on money laundering | | | | consumption, and "pragmatic" morality. |
| charges. His defense team accuses the US authorities | | | | II. What to Do? What is Being Done? |
| of "selective prosecution". | | | | Two years ago, I proposed a taxonomy of |
| They are quoted by Radio Free Europe as saying: | | | | corruption, venality, and graft. I suggested this |
| "The impetus for this prosecution comes from | | | | cumulative definition: |
| allegations made by the Kuchma regime, which itself | | | | The withholding of a service, information, or goods |
| is corrupt and dedicated to using undemocratic and | | | | that, by law, and by right, should have been provided |
| repressive methods to stifle political opposition ... | | | | or divulged. |
| (other Ukrainian officials) including Kuchma himself and | | | | The provision of a service, information, or goods |
| his closest associates, have committed conduct | | | | that, by law, and by right, should not have been |
| similar to that with which Lazarenko is charged but | | | | provided or divulged. |
| have not been prosecuted by the U.S. government". | | | | That the withholding or the provision of said service, |
| The UNDP estimated, in 1997, that, even in rich, | | | | information, or goods are in the power of the |
| industrialized, countries, 15% of all firms had to pay | | | | withholder or the provider to withhold or to provide |
| bribes. The figure rises to 40% in Asia and 60% in | | | | AND That the withholding or the provision of said |
| Russia. | | | | service, information, or goods constitute an integral |
| Corruption is rife and all pervasive, though many | | | | and substantial part of the authority or the function |
| allegations are nothing but political mud-slinging. Luckily, | | | | of the withholder or the provider. |
| in countries like Macedonia, it is confined to its | | | | That the service, information, or goods that are |
| rapacious elites: its politicians, managers, university | | | | provided or divulged are provided or divulged against |
| professors, medical doctors, judges, journalists, and | | | | a benefit or the promise of a benefit from the |
| top bureaucrats. The police and customs are | | | | recipient and as a result of the receipt of this specific |
| hopelessly compromised. Yet, one rarely comes | | | | benefit or the promise to receive such benefit. |
| across graft and venality in daily life. There are no | | | | That the service, information, or goods that are |
| false detentions (as in Russia), spurious traffic tickets | | | | withheld are withheld because no benefit was |
| (as in Latin America), or widespread stealthy | | | | provided or promised by the recipient. |
| payments for public goods and services (as in Africa). | | | | There is also what the World Bank calls "State |
| It is widely accepted that corruption retards growth | | | | Capture" defined thus: |
| by deterring foreign investment and encouraging brain | | | | "The actions of individuals, groups, or firms, both in |
| drain. It leads to the misallocation of economic | | | | the public and private sectors, to influence the |
| resources and distorts competition. It depletes the | | | | formation of laws, regulations, decrees, and other |
| affected country's endowments - both natural and | | | | government policies to their own advantage as a |
| acquired. It demolishes the tenuous trust between | | | | result of the illicit and non-transparent provision of |
| citizen and state. It casts civil and government | | | | private benefits to public officials." |
| institutions in doubt, tarnishes the entire political class, | | | | We can classify corrupt and venal behaviours |
| and, thus, endangers the democratic system and the | | | | according to their outcomes: |
| rule of law, property rights included. | | | | Income Supplement - Corrupt actions whose sole |
| This is why both governments and business show a | | | | outcome is the supplementing of the income of the |
| growing commitment to tackling it. According to | | | | provider without affecting the "real world" in any |
| Transparency International's "Global Corruption Report | | | | manner. |
| 2001", corruption has been successfully contained in | | | | Acceleration or Facilitation Fees - Corrupt practices |
| private banking and the diamond trade, for instance. | | | | whose sole outcome is to accelerate or facilitate |
| Hence also the involvement of the World Bank and | | | | decision making, the provision of goods and services |
| the IMF in fighting corruption. Both institutions are | | | | or the divulging of information. |
| increasingly concerned with poverty reduction | | | | Decision Altering Fees - Bribes and promises of bribes |
| through economic growth and development. The | | | | which alter decisions or affect them, or which affect |
| World Bank estimates that corruption reduces the | | | | the formation of policies, laws, regulations, or decrees |
| growth rate of an affected country by 0.5 to 1 | | | | beneficial to the bribing entity or person. |
| percent annually. Graft amounts to an increase in the | | | | Information Altering Fees - Backhanders and bribes |
| marginal tax rate and has pernicious effects on | | | | that subvert the flow of true and complete |
| inward investment as well. | | | | information within a society or an economic unit (for |
| The World Bank has appointed last year a Director of | | | | instance, by selling professional diplomas, certificates, |
| Institutional Integrity - a new department that | | | | or permits). |
| combines the Anti-Corruption and Fraud | | | | Reallocation Fees - Benefits paid (mainly to politicians |
| Investigations Unit and the Office of Business Ethics | | | | and political decision makers) in order to affect the |
| and Integrity. The Bank helps countries to fight | | | | allocation of economic resources and material wealth |
| corruption by providing them with technical | | | | or the rights thereto. Concessions, licenses, permits, |
| assistance, educational programs, and lending. | | | | assets privatized, tenders awarded are all subject to |
| Anti-corruption projects are an integral part of every | | | | reallocation fees. |
| Country Assistance Strategy (CAS). The Bank also | | | | To eradicate corruption, one must tackle both giver |
| supports international efforts to reduce corruption by | | | | and taker. |
| sponsoring conferences and the exchange of | | | | History shows that all effective programs shared |
| information. It collaborates closely with Transparency | | | | these common elements: |
| International, for instance. | | | | The persecution of corrupt, high-profile, public figures, |
| At the request of member-governments (such as | | | | multinationals, and institutions (domestic and foreign). |
| Bosnia-Herzegovina and Romania) it has prepared | | | | This demonstrates that no one is above the law and |
| detailed country corruption surveys covering both the | | | | that crime does not pay. |
| public and the private sectors. Together with the | | | | The conditioning of international aid, credits, and |
| EBRD, it publishes a corruption survey of 3000 firms | | | | investments on a monitored reduction in corruption |
| in 22 transition countries (BEEPS - Business | | | | levels. The structural roots of corruption should be |
| Environment and Enterprise Performance Survey). It | | | | tackled rather than merely its symptoms. |
| has even set up a multilingual hotline for | | | | The institution of incentives to avoid corruption, such |
| whistleblowers. | | | | as a higher pay, the fostering of civic pride, "good |
| The IMF made corruption an integral part of its | | | | behaviour" bonuses, alternative income and pension |
| country evaluation process. It suspended | | | | plans, and so on. |
| arrangements with endemically corrupt recipients of | | | | In many new countries (in Asia, Africa, and Eastern |
| IMF financing. Since 1997, it has introduced policies | | | | Europe) the very concepts of "private" versus |
| regarding misreporting, abuse of IMF funds, | | | | "public" property are fuzzy and impermissible |
| monitoring the use of debt relief for poverty | | | | behaviours are not clearly demarcated. Massive |
| reduction, data dissemination, legal and judicial reform, | | | | investments in education of the public and of state |
| fiscal and monetary transparency, and even internal | | | | officials are required. |
| governance (e.g., financial disclosure by staff | | | | Liberalization and deregulation of the economy. |
| members). | | | | Abolition of red tape, licensing, protectionism, capital |
| Yet, no one seems to agree on a universal definition | | | | controls, monopolies, discretionary, non-public, |
| of corruption. What amounts to venality in one | | | | procurement. Greater access to information and a |
| culture (Sweden) is considered no more than | | | | public debate intended to foster a "stakeholder |
| hospitality, or an expression of gratitude, in another | | | | society". |
| (France, or Italy). Corruption is discussed freely and | | | | Strengthening of institutions: the police, the customs, |
| forgivingly in one place - but concealed shamefully in | | | | the courts, the government, its agencies, the tax |
| another. Corruption, like other crimes, is probably | | | | authorities - under time limited foreign management |
| seriously under-reported and under-penalized. | | | | and supervision. |
| Moreover, bribing officials is often the unstated policy | | | | Awareness to corruption and graft is growing - |
| of multinationals, foreign investors, and expatriates. | | | | though it mostly results in lip service. The Global |
| Many of them believe that it is inevitable if one is to | | | | Coalition for Africa adopted anti-corruption guidelines |
| expedite matters or secure a beneficial outcome. Rich | | | | in 1999. The otherwise opaque Asia Pacific Economic |
| world governments turn a blind eye, even where | | | | Cooperation (APEC) forum is now championing |
| laws against such practices are extant and strict. | | | | transparency and good governance. The UN is |
| In his address to the Inter-American Development | | | | promoting its pet convention against corruption. |
| Bank on March 14, President Bush promised to | | | | The G-8 asked its Lyon Group of senior experts on |
| "reward nations that root out corruption" within the | | | | transnational crime to recommend ways to fight |
| framework of the Millennium Challenge Account | | | | corruption related to large money flows and money |
| initiative. The USA has pioneered global anti-corruption | | | | laundering. The USA and the Netherlands hosted |
| campaigns and is a signatory to the 1996 IAS | | | | global forums on corruption - as will South Korea next |
| Inter-American Convention against Corruption, the | | | | year. The OSCE is rumored to respond with its own |
| Council of Europe's Criminal Law Convention on | | | | initiative, in collaboration with the US Congressional |
| Corruption, and the OECD's 1997 anti-bribery | | | | Helsinki Commission. |
| convention. The USA has had a comprehensive | | | | The south-eastern Europe Stability Pact sports its |
| "Foreign Corrupt Practices Act" since 1977. | | | | own Stability Pact Anti-corruption Initiative (SPAI). It |
| The Act applies to all American firms, to all firms - | | | | held its first conference in September 2001 in Croatia. |
| including foreign ones - traded in an American stock | | | | More than 1200 delegates participated in the 10th |
| exchange, and to bribery on American territory by | | | | International Anti-Corruption Conference in Prague |
| foreign and American firms alike. It outlaws the | | | | last year. The conference was attended by the |
| payment of bribes to foreign officials, political parties, | | | | Czech prime minister, the Mexican president, and the |
| party officials, and political candidates in foreign | | | | head of the Interpol. |
| countries. A similar law has now been adopted by | | | | The most potent remedy against corruption is |
| Britain. | | | | sunshine - free, accessible, and available information |
| Yet, "The Economist" reports that the American SEC | | | | disseminated and probed by an active opposition, |
| has brought only three cases against listed companies | | | | uncompromised press, and assertive civic |
| until 1997. The US Department of Justice brought | | | | organizations and NGO's. In the absence of these, the |
| another 30 cases. Britain has persecuted successfully | | | | fight against official avarice and criminality is doomed |
| only one of its officials for overseas bribery since | | | | to failure. With them, it stands a chance. |
| 1889. In the Netherlands bribery is tax deductible. | | | | Corruption can never be entirely eliminated - but it |
| Transparency International now publishes a name and | | | | can be restrained and its effects confined. The |
| shame Bribery Payers Index to complement its | | | | cooperation of good people with trustworthy |
| 91-country strong Corruption Perceptions Index. | | | | institutions is indispensable. Corruption can be |
| Many rich world corporations and wealthy individuals | | | | defeated only from the inside, though with plenty of |
| make use of off-shore havens or "special purpose | | | | outside help. It is a process of self-redemption and |
| entities" to launder money, make illicit payments, | | | | self-transformation. It is the real transition. |