Corruption. Overview

Transcription

1 Corruption Overview This unit covers the following topics: What is corruption? Forms of corruption What are the reasons for corruption? Effects of corruption Corruption in the transport industry Preventive measures against corruption Objectives By the end of this unit, you will be able to: Identify corrupt activities Differentiate a gift from a bribe in the workplace Analyze the main reasons for and effects of corruption Discuss corrupt activities present in the transport industry Explain the preventive measures available to fight against corruption 1-61

2 Scenario: Warning Signs You re on thin ethical ice when you hear... Well, maybe just once... ( just this time) No one will ever know... It does not matter how it gets done as long as it gets done. It sounds too good to be true. Everyone does it. Shred that document. We can hide it. No one will get hurt. What s in it for me? This will destroy the competition. We did not have this conversation. If you find yourself using any of these expressions, make sure that you are not on solid ethical grounds. Introduction Corruption is a complex issue. Its roots lie deep in bureaucratic and political institutions, and its effect on development varies from country to country. Corruption is widespread in many developing economies. The motivation to earn income through corrupt practices is extremely strong, aggravated by poverty and by low and declining civil service salaries. The problem of corruption lies at the point where public and private sectors interact. Corruption violates public trust and corrodes social capital. A small side payment to obtain or speed up a government service may seem a minor offense, but it is not the only cost. Unchecked, the creeping accumulation of seemingly minor acts of breaking the law can slowly erode political legitimacy 1-62

3 to the point where even non-corrupt officials and members of the public see little point in playing by the rules. Once lost by the state, credibility is very difficult to regain. Life is never fair and perhaps it is a good thing for most of us that it is not. Oscar Wild In many countries, applicants for drivers' licenses, building permits and other routine documents have learned to expect to pay bribes to civil servants. At higher levels, larger sums are paid for public contracts, marketing rights or to sidestep inspections and red tape. Corruption causes reduced investment with many long-term effects, including social polarization, lack of respect for human rights, undemocratic practices and diversion of funds intended for development and essential services. The diversion of scarce resources by corrupt parties affects a government's ability to provide basic services to its citizens and to encourage sustainable economic, social and political development. Moreover, it can jeopardize the health and safety of citizens through, for example, poorly designed infrastructure projects and scarce or outdated medical supplies. Along with the growing reluctance of international investors and donors to allocate funds to countries lacking in adequate laws, transparency and accountability in government administration, corruption has the greatest impact on the most vulnerable part of a country's population the poor. Throughout the world there is a growing tide of awareness recognizing that combating corruption is paramount if a more effective, fair and efficient government is to be achieved. How can you explain the corrupt activities you have encountered in your workplace? Can you give an example? 1-63

4 What is Corruption? Corruption is a form of unethical conduct in organizations. There are a number of definitions of corruption. A very simple definition is the abuse of public office for private gain. Corruption and bribery may exist to evade taxes, obtain advantages for a company which is not entitled to them, gain insider information or receive a contract from the government. It may take many forms. Private Sector Public Sector SOCIETY Figure 16: Two Areas of Corruption Corruption can occur in private firms or in the public service. However, usually more attention is given to corruption in the public service. Corruption in private enterprise points out that the internal controls of the organization are inefficient. Corruption at All Levels In the private or public sector both the lower levels and the top management of the hierarchy may be involved in corrupt activities. Public office is abused for private gain when an official accepts, solicits, or extorts a bribe. It is also abused when private agents actively offer bribes to circumvent public policies and processes for competitive advantage and profit. Public office can also be abused for personal benefit even if bribery does not 1-64

5 occur, through patronage and nepotism, the theft of state assets, or the diversion of state revenues. Although it seems that corrupt activities seem to be concentrated in the public sector, this should not be taken to mean that corruption cannot occur or that its effects are minor in private sector activities. Fraud and bribery can and do take place in the private sector, often with disastrous and costly results. Weakly regulated financial systems permeated with fraud can undermine savings, increase transaction costs and impose very high economic costs when they collapse. Company employees may solicit bribes from suppliers, and private sector agents may collude to defraud the public. Money laundering is an increasing concern throughout the world. Public Sector Corruption While it is important to control fraud and corruption in the private sector, public sector corruption is arguably a more serious problem in developing countries, and controlling it may be a prerequisite for addressing private sector corruption. Furthermore, when corruption is systemic in the public sector, firms that have business with government agencies can rarely escape participating in bribery. 1-65

6 Case Study: Wave of Corruption The management of your firm has decided to develop serious measures to prevent corruption within the firm. Your department has been assigned to develop a policy document to define actions which are to be considered corrupt and the measures to prevent them. When stealing an item can easily be defined as corrupt, it is hard to define the nature of some of the other actions. Before preparing such a document examine the list given below and decide which actions should be considered as stealing or corrupt and should be seriously dealt with. Define each example as: 1. Corrupt Behavior 2. Acceptable Behavior or, 3. Either (1) or (2), as defined in the written rules of the company. If an employee; receives compensation for hours he/she has not worked for uses longer lunch or coffee breaks than he/she is allowed to punches the time card for some one else comes to work late and leaves early receives compensation as though he/she is hurt or ill, when he/she is not hurt or ill. does his/her personal work in company working hours uses the company photocopying machines for his/her private affairs; makes private long distance calls from company phones takes company stationary, pens, pencils and other materials for private use takes cash from petty cash for private use uses company machinery or cars for private use and brings them back later intentionally damages company products and lets a third party purchase them at a reduced price receives presents from suppliers Can you give any examples of corrupt behavior in your workplace? 1-66

7 Forms of Corruption There are different forms of corruption. These involve both public servants and private organizations or their employees. Some of the forms of corruption are shown in figure 17. Bribery Nepotism Extortion Gifts Forms of Corruption Fraud Cronyism Trafficking Embezzlement Figure 17: Forms of Corruption 1-67

8 The examples given below may be considered legal practice if an organization allows them in accordance with its rules and regulations. The most common corrupt activities are: 1. When a public official uses (or misuses) public resources for personal benefit such as: A public official uses a work computer and work time to develop projects for private clients A public official claims travel allowances for trips not taken or claims expenses not incurred A public official uses an agency s earthmoving equipment to improve the value of his/her own home or does landscaping for his/her friends A public official claims overtime for periods when he/she is playing golf 2. When a public official carries out his/her public duties dishonestly or unfairly. Some examples are given below: A council employee asks for money in return for a guarantee of being awarded a contract A public official awards a government tender to a company in which they have a pecuniary interest A public official forges an approval on official letterhead to help out a business friend A public official takes financial advantage of a client in their care that may be elderly, a person with a disability, or from a non-english speaking background 1-68

9 3. When a current (or former) public official misuses information or material obtained during the course of his/ her duty. The use of this information may or may not be used in exchange of any material or other types of gain. Some examples are: A public official looks up driver license information in response to a request from a friend who is a private investigator A public official (or former public official) provides confidential information to a company bidding for government work 4. When anyone does something that could result in a public official carrying out public duties dishonestly or unfairly. Examples may be cited as: A company that wants to do business with a government agency offers public official money or a gift to choose that company for the job Representatives of a private company regulated by a government agency take a government inspector to expensive lunches and social functions, and give the inspectors children gifts with a view to guaranteeing preferential treatment A business pays a salary to a public official's spouse (even though he/she is not in their employment) in return for expedited approvals Can you add any other examples of corrupt activities from your experience? On the other hand, as stated earlier, bribery, extortion, fraud, cronyism, gifts and advantages are stated as forms of corruption. The most common ones in most sectors, including the transport industry, are bribery and fraud. 1-69

10 Bribery Bribery is an offer or promise of money or advantages in return for benefits that are under the discretion of a public official. Usually according to the law attempting, promising, giving, soliciting or accepting a bribe are considered to be a civil or a criminal offence. Bribery implies a corrupt act that violates a public servant s responsibilities to the public. It entails violating public trust. Bribery encourages unfair or undeserved benefit or advantage (Buchholz, A Vexing Conundrum, p.2.). For bribery to work, both parties, the giver and receiver of the bribe, have to trust each other. Therefore it is a planned and joint activity which equally involves two sides of a transaction. Can you differentiate a gift from a bribe in your work? Sometimes it is difficult to differentiate between a gift and a bribe. One criterion to set apart a gift from a bribe may be when something is given freely, openly and with good feeling, and when both the giver and the receiver are joyous, it is a gift. Both the giver and the receiver are happy with the exchange. On the other hand, if something is given secretively, coercively or is considered obligatory, it is a bribe. The giver and the receiver are motivated by a gain to be received as a result. It is a transaction and future gains are expected from the receiver. What does it profit a man if he gains the whole world but loses his soul! Matthew 1-70

11 A gift or a bribe may differ from culture to culture. In most countries, public servants are allowed only small gifts whose maximum value is defined by written rules and regulations. A Comprehensive Law One of the most comprehensive laws, the Foreign Corrupt Practices Act (FCPA) in the U.S.A. prohibits U.S. citizens from bribing any foreign highranking officials. The fine for violating this law may be 5 years imprisonment, $ or both. Case Study: Foreign Payments A million-dollar chemical shipment has been unloaded from a refrigerated cargo ship onto a sweltering pier. A customs official watches indifferently as condensation pours from the containers, as the temperature soars. He looks expressionlessly at the customs documents and shrugs his shoulders: Your papers are in order, but I am too busy to clear this shipment now. The local manager of the chemical company slips a bunch of $ 100 notes between the pile of custom documents. Suddenly the official s face brightens: You are quick to understand. Your shipment is cleared. Under the new Convention on Combating Bribery of Foreign Public Officials in International Transactions, what kind of payment is this? On the next pier, another manager of a similar company, anticipating the same problem has had his documents pre-cleared with the cabinet minister responsible for customs. Still the customs official hesitates, and finally explains: The minister expected some return for approving your papers. The manager slips him a $100 bill. The customs officially says: I will send this to the minister. Your cargo is cleared. Under the new Convention on Combating Bribery of Foreign Public Officials in International Transactions, what kind of payment is this? A kilometer away, a businesswoman enters a local freight- expediting company, having been advised by her embassy that the cabinet minister has a major interest in it. She says: Here s $ for expediting the cargo through customs. Under the new Convention on Combating Bribery of Foreign Public Officials in International Transactions, what kind of a payment is this? 1-71

12 Fraud x Another common corrupt practice is fraud. People resort to fraud to gain illegal and unearned income. Fraud is an act of misrepresentation or deception. Charging for goods or services never delivered, changing the specifications or timing on goods and services and their expiration dates, or overpricing goods and services to cover the cost of bribes is considered to be fraud. Fraud results in the loss of state revenue. Both the private and public sector are involved in fraudulent activities. The private sector resorts to fraud to gain illegal and extra unnamed income by changing the contents of documents or giving incorrect information on Customs Fraud Customs fraud can be the under or over declaration of the value of goods or misclassification and underpayment of taxes. documents. The public sector is involved in fraudulent activity by overlooking altered or missing documents or by receiving bribes to ignore illegal activity. Fraud may be prevented by taking a series of preventive measures. One measure is to simplify the documents used for customs operations. A simple document makes control easier and more efficient. Harmonizing the contents of these documents with bordering countries will also help make control procedures easier and less time consuming. This simplification will also reduce pressure on customs officers at borders. This measure may be strengthened by computerizing customs administrations which will allow the checking of documents and passages at borders in real time. Why do people choose to be corrupt rather than honest? 1-72

13 What are the Reasons for Corruption? For some, being corrupt may be the easiest way or indeed the only way to get what they want. At times, a bribe may provide the wrongdoer with a convenient means of avoiding punishment. Many politicians, police, and judges seem to ignore corruption or even practice it themselves. Corruption in a country points to areas where governments fail. It shows that there is a great deal of uncertainty in the marketplace and that rules and regulations are vague and constantly changing. It shows that public policies are implemented inefficiently and incompetently. These conditions make it easier for private citizens and public officials act to benefit personally. In most countries corruption exists because of tradition, economic conditions, or government or social disorder. Some of the reasons for its existence are the low pay received by public servants and the ambiguity of some laws that enable public servants to Reasons for Corruption Tradition Economic conditions Government Social Disorder interpret these laws as they wish. Overworked public servants also may ask for bribes to speed up processes. Such a system enables inefficient bureaucracy to work faster. Can you describe the main reasons for corruption in customs? On the other hand, to decrease corruption a set of measures can be implemented. Existence of Corruption Corruption exists both when there is a scarcity of services or resources and also when there is an abundance of them. 1-73

14 Table 7: Basic Remedies in the Fight against Corruption Better pay and working conditions Supporting personnel for those with heavy workloads Systematic monitoring of performance inside the organization and by independent auditors Increased professionalism Better training and education Better technologies Do you think that politicians, police and judges often ignore corruption or even practice it themselves? Effects of Corruption Corruption is a cancer that fights against society and its advancement. It undermines trust in public institutions and disproportionately affects the poor, who cannot afford to pay bribes to obtain public services. By distorting government decision-making, it leads to wasteful investment projects and noncompetitive and the uneconomic allocation of public funds. Corruption also highlights the fact that the public at large and public officials are not aware of what benefits an ethical system would provide for them. Bribes increase the income of public servants. On the other hand, when payments are legal they go to the public treasury for the benefit of all. When the corruption level is high the country is poorer. 1-74

15 Corruption is a redistribution or reallocation of income. Usually corruption distorts public choice in favor of the wealthy and powerful. It reduces the ability of the state to provide services like health care or education. Corruption restricts investment, slows down economic, social and political development, it endangers democratic values and increases distrust in citizens and investors alike. It also increases the amount of instability in society because corrupt administrators are always under the threat of being overthrown. Most choices under a corrupt regime are economically inefficient. given. In table 8, the results of corrupt behavior on the decision maker are Table 8: Macro Effects of Corrupt Behavior Behavior Impact on decision maker Likely result of behavior Bribery Unearned personal gain Alter decision choice Increased costs Reduced product/service quality Coercion Fear of harm Alter decision choice Increased costs Reduced product/service quality Deception Alter decision choice Reduced satisfaction Theft Lose resources Increased costs or Eliminate product/service Unfair Discrimination Purchase inferior services Sell below market Increased costs False demand reduction While most studies focus on the economic effects of corruption the poor bear a considerable and often disproportionate share of the corruption burden. The poor may face outright exclusion when access to public goods Shoddy Public Services When corruption results in shoddy public services, the poor have no options and cannot turn to the private sector (e.g., private schools, hospitals, security or garbage collection). 1-75

16 and services require a bribe. Given their lack of voice or political influence, in some instances the poor may even be required to pay more than people with higher incomes. Although richer households are more likely to pay bribes, the burdens of corruption measured as the fraction of income paid in bribes are much greater for poorer households. Corruption not only hurts the poor disproportionately, but it is likely to increase income inequality because it allows particular individuals or groups of individuals to take advantage of state activities at the cost of the rest of the population. Usually the changes in income distribution in developing countries have partly been the result of corrupt actions such as non-transparent privatizations. Corruption is also unfair because it imposes a tax that falls particularly heavily on trade and service activities undertaken by small enterprises. Can you identify the effects of corruption on the transport industry? Corruption in the Transport Industry Customs officials are very likely to engage in corruption because they control access to the outside world. As goods have to be delivered at required times and to a certain quality standard, if customs officials are poorly paid, poorly trained and over worked and their superiors are involved in corrupt activities, a corrupt system of bribery emerges. To be able to stay in the system officials have to obey the special rules of the system or they are threatened with exclusion from the system or violence. Thus, custom officials institutionalize the system. Usually border control agencies are at risk, often it is accepted as normal to buy protection for the smuggling of goods and funds, also a tolerant attitude is often adopted 1-76

17 towards criminals or terrorist groups operating in neighboring countries and in addition, for the illegal, unlicensed or excessive extraction of natural resources. Generally corruption in the transport sector is seen as: Right to passage Speeding up processes Fraudulent papers Can you give an example of corruption in the transport industry? Trading internationally requires honesty, trustworthiness and the responsibility of trading goods with the best quality to satisfy customer demand. In international trade there is the company exporting the goods and there is the customer who receives the goods. And, in between there is the broker who provides the global logistics. The broker has to work internationally, across borders, across different cultures and practices. The broker has to be fluent in the languages through which he/she is to transport the goods for a timely delivery. The broker has to be truthful and professional in his/her reports. Free trade policies usually improve the efficiency of customs and reduce corruption. However, the most efficient way to fight corruption is at borders and in the international arena, a fight against domestic corruption within countries should also accompany this. 1-77

18 Preventive Measures against Corruption The most important measure against corruption is the presence of laws defining corrupt activities and conflicts of interest. The second measure is law enforcement against the briber and the bribed. Finally, a reform of the public service that includes a reduction in the level of benefits controlled by public officials is required. One other measure may be to make payments public and convert them into legal incentive pay schemes. Especially in cases where such payments speed up processes and improve the allocation of public services, in this case a legal and open system may serve as a solution. At the same time, discretion allowed for public officials may be reduced by reorganizing and simplifying documentation. Forming an efficient performance evaluation system in the public service and establishing incentives for good performance will decrease corrupt activities and it is important to institutionalize these measures so that they cannot be changed with changes in government. Transparency and accountability are the musts of such a system. Forming institutions like an ombudsman for hearing and dealing with complaints is another necessary step in curbing corruption. The complaint system must work efficiently and speedily. 1-78

19 ANTI-CORRUPTION MEASURES The following measures are offered to all firms, wherever situated, and whatever their line of business. 1. Disclose publicly and make widely known its endorsement of Anti- Corruption Measures 2. Establish a clearly articulated written policy prohibiting any of the firm s employees from paying or receiving bribes and kickbacks 3. Implement the policies with due care and take appropriate disciplinary action against any employee discovered to have made payments in violation of the policy 4. Provide training for employees to carry out the policy, and provide continuing support, such as help lines, to assist employees in acting in compliance with the firm s policy 5. Record all transactions fully and fairly, in accordance with clearly stated record-keeping procedures and accounting controls, and conduct internal audits to assure that all payments made are proper 6. Report annually on the firm s bribery and corruption policy, along with a description of the firm s experiences implementing and enforcing the policy 7. Have the annual report audited either by an independent finance auditor or an independent social auditor, or both 8. Require all agents of the firm to affirm that they have neither made nor will make any improper payments in any business venture or contract to which the firm is a party 9. Require all suppliers of the firm to affirm that they have neither made nor will make any improper payments in any business venture or contract to which the firm is a party 10. Establish a monitoring and auditing system to detect any improper payments made by the firm s employees and agents 11. Report publicly any solicitations for payments whenever such reporting will not lead to harsh reprisals of material consequences to the company or its employees (or report privately to a monitoring organization, such as Transparency International or a social auditor) 12. Establish a system to allow any employee or agent of the firm to report any improper payment without fear of retribution for their disclosures 1-79

20 The preventive measures used against corruption amongst countries of South East Europe cover four areas that were defined by the partners of the Stability Pact Anti-Corruption Initiative (SPAI) in Sarajevo on February 16, 2000: Promoting good governance, through legal, structural and management reforms for better transparency and accountability of public administrations, through development of institutional capacities and through establishment of high standards of public service ethics for public officials. Strengthening legislation and promoting the rule of law, by ensuring effective separation of executive, legislative and judiciary powers and the independence of investigative and judiciary bodies and by enhancing investigative capacities. Promoting transparency and integrity in business operations, through inter alia, enactment and effective enforcement of laws on accepting and soliciting bribes, ensuring open and transparent conditions for domestic and foreign investment, establishing corporate responsibility and internationally accepted accounting standards. Promoting an active civil society by empowering civil society and independent media to galvanize community action, generate political commitment, creating a pattern of honesty in business transactions and a culture of lawfulness throughout society. 1-80

21 How and Where to Start? Everybody has a gray area in his/her lifetime, which they may regret or like to forget about. It is most important that one distinguishes or draws a definite line between these gray areas and corrupt activities. And, to make sure that there will never be gray areas in their lives from that point onwards. Exercise: When in doubt, ask yourself... Are my actions legal? Am I being fair and honest? Will my action stand the test of time? How will I feel about myself afterwords? How will it look in the newspaper? Will I sleep soundly tonight? What would I tell my child to do? How would I feel if my family, friends, and neighbors knew what I was doing? If you are still not sure what to do, ask and keep asking until you are certain that you are doing the right thing. If your answer is yes, then you can say... I m on solid ethical ground

22 Summary Corruption is a form of unethical conduct in organizations. A very simple definition is the abuse of public office for private gain. Corruption and bribery may exist to evade taxes, to obtain advantages for a company which is not entitled to gain insider information, or receive a contract from the government. Corruption can occur in private firms or in the public service. However, usually more attention is given to corruption in the public service. There are different forms of corruption. These involve both public servants and private organizations or their employees. Bribery is an offer or promise of money or advantages in return for benefits that are under the discretion of a public official. Sometimes it is difficult to differentiate between a gift and a bribe. One criterion may be when something is given freely, openly and with good feeling, and when both the giver and the receiver are joyous, it is a gift. Both the giver and the receiver are happy with the exchange. Another common corrupt practice is fraud. People resort to fraud to gain illegal and unearned income. Charging for goods or services never delivered, changing the specifications or timing on goods and services and their expiration dates, or overpricing goods and services to cover the cost of bribes is considered fraud. Corruption is a cancer that fights against society and its advancement. It undermines trust in public institutions and disproportionately affects the poor, who cannot afford to pay bribes to obtain public services. 1-82

23 Bribery Corruption Corrupt Behavior Cronyism Extortion Fight Corruption Key Terms Fraud Gift Nepotism Private Sector Corruption Public Sector Corruption Trafficking 1-83

24 Progress Check 1. Corruption is defined best as: a. An offer or promise of money in return for benefits b. The abuse of public office for private gain c. A kind of bribery that occurs in the private sector d. Using public resources for social benefit e. All of the above 2. Which kind of corruption is most common in the transport industry? a. Trafficking b. Gifts c. Bribery d. Nepotism e. Extortion 3. Fraud can be prevented by: a. Increasing the number of documents necessary for customs b. Decreasing the control procedures for documents c. Controlling the goods physically d. Allowing the free passage of goods through customs e. Using computerized transit systems for controlling procedures 1-84

25 4. Which of the following is not a reason for corruption? a. Unsuitable economic conditions of a country b. Low pay of public servants c. Overworked public servants d. Computer systems and new technologies e. Slow bureaucratic systems 5. Which of the following is not a result of corruption? a. Social pollution b. Reduced investment c. Economic development d. Undermining of trust e. Lack of respect 6. The enemies of corruption are: a. Transparency b. New technologies c. Increased professionalism d. Training and education e. All of the above 1-85