Croatia's Kosor: An anti-corruption crusader?

When Ivo Sanader suddenly resigned the premiership, out of the blue, in the summer of 2009, it looked very fishy.  He appointed his deputy to replace him, apparently expecting loyalty, but Jadranka Kosor proved to be independently minded.  One of the defining traits of her leadership has been a clampdown on corruption at the highest levels.

Six months later, Sanader was trying to get back into politics.  Some argued that it was the desire to gain immunity that was driving that, not a sudden realisation that he really did want to be the servant of the Croatian people.  A year after that, files released by wikileaks revealed that Sanader was being investigated on allegations of corruption.  The Croatian authorities issued a warrant for his arrest, and he was apprehended a couple of days later in Austria.  Today he was charged with accepting bribes, bringing the total to six investigations against him, covering corruption, illegal party financing, and now bribery.

Kosor hasn't done all the investigating herself of course.  Croatia's Anti-Corruption Office, USKOK, deserves that credit.  And she did face considerable pressure from the EU to let them get on with their job.  But still, it is a brave politician who takes on her political allies and makes them into enemies.  Not many politicians do it, and even fewer get any credit for it.

"Business ethics is the new Green"

Management Today has published a good piece on corruption in business today. Although the piece brings home the challenges that businesses often face on the ground, it is also sanguine about the change in mood. As Philippa Foster Back says, "business ethics is the new green."

Will Olympus hurt Japan?

Japanese PM Yoshihiko Noda is concerned that the recent Olympus scandal will tarnish Japan's reputation as a rules-based market economy.  The scandal is over claims by Michael Woodford, former president and CEO of the Japanese camera maker, that he was dismissed because he asked awkward questions about around $1billion of missing funds.

Prime Minister Noda is right to be concerned.  It's not clear yet what happened at Olympus.  Some suspect bribery or money laundering, but others float more benign explanations.  Arguably though, whatever the eventual truth, the mere raising of suspicions will be damaging - to both Olympus and Japan.

Sceptics argue that the business world will not be deterred from promising business opportunities in Japan just because of a scandal at one company.  But Prime Minister Noda has identified an important problem. The world now has doubts about how business is done in Japan, what the norms are, and to what extent they clash with the broadly 'western' norms of transparency and free competition.

Moreover, the experts that are consulted by Transparency International for its annual Corruption Perceptions Index may now rate Japan as more corrupt than in previous years.  That will feed through into a drop in the country's ranking, and that in turn will be used by companies when they consider investing in Japan.  In other words, thanks to the widespread use of the CPI, suspicions get institutionalised into business decisions relatively easily these days.  The CPI has emerged as an important 'intermediary' for a country's reputation for corruption.

Do Public-Private Partnerships breed corruption?

A couple of weeks ago I had the great pleasure of speaking to a group of public officials from South-eastern Europe about corruption risk in Public-Private Partnerships, particularly those set up to facilitate the construction of infrastructure or hospitals.

There are usually two main rationales for using PPPs for such big projects. The first is about reducing the financial burden on the government, because the private side provides part of the investment (and, importantly, bears part of the risk). This means that PPPs are attractive to cash-strapped governments, and arguably makes it more likely that infrastructure projects will get off the ground. Politicians are not typically very keen on big infrastructure investments, which may only be appreciated years into the future when, heaven forbid, it might be a successor government that gets the credit.

The second rationale is about improving efficiency.  The private partner, motivated by profit maximisation, is seen to be a more efficient provider of services. The empirical evidence on that is mixed, at best, though. There are some indications that private partners inflate prices when dealing with public-sector clients.

In any case, neither of these rationales means that PPPs are inherently more corrupt than projects that are financed purely by the state.

An argument can be made that PPPs are less likely to suffer from corruption, because governments are forced to make more careful plans about the projects, in order to get private partners and financiers on board. This leaves less scope - or discretion - for corruption in implementation.

But on the other hand, PPPs are an opportunity for public officials to get access to private funds.  There is a big temptation therefore to design the project in such a way that one's friends or relatives are well placed to win part of the business, perhaps not as the direct partner, but as the supplier of some critical material.

Overall, PPPs might be corrupt and they might not.  It depends on what controls are in place, not on whether the project is public, private, or a mix of the two.

Quebec construction riddled with corruption

Jacques Duchesneau, head of a special anti-collusion unit in Quebec that has been investigating alleged corruption in the construction sector, yesterday testified to a legislative committee and called for a two-phase inquiry.

His report suggests that the sector is riddled with corruption, in the forms of collusion, price-fixing and mis-forecasting.  Costs are over-estimated and the excess profits are channeled into the pockets of organised crime gangs or the coffers of political parties.

Quebec's situation looks bad, but construction is corrupt in many countries. In the UK, a 2006 survey of more than 1400 construction professionals carried out by the Chartered Institute of Building found that 41% of respondents had personally been offered a bribe.

The sector is high-risk for three reasons.  Government is a key client. Projects tend to be large and hence difficult to monitor. And forecasting for long-term projects where so many factors are uncertain is inherently difficult.

Corruption in security: Excuses, excuses

One of the main roles of a state is to provide security.  States do that in many ways and through many institutions: the military, the police, border controls etc. All of these institutions are, just like any part of the public administration, at risk of corruption. But there are also some problems that are specific to security and make corruption in this area difficult to uncover or to fix.

First, there is a lot of secrecy around the provision of security.  This means that there is less chance of getting caught if you do something corrupt.  Hence, we might expect there to be more corruption (at least, that would be the thinking according to Klitgaard's model of corruption as occurring when officials have monopoly power, discretion, and a lack of accountability; as well as Becker's model of individuals as likely to break the law when the chance of being caught is small and the penalties low).

Second, it's often possible to claim that a decision has been made in the national interest, even if it looks like it was corrupt.  Somehow the national interest is a trump card beyond which people stop questioning.

Third, when corruption is uncovered in the security sphere, the institutions usually clam up and prevent investigations, or conduct inquiries but don't publish the results.  This exacerbates the sense that the institution is corrupt and makes it difficult to rebuild trust.

Fourth, whereas the first step towards fighting corruption in most parts of the public administration is to increase transparency and accountability, in security provision, the same secrecy and national interest reflexes often emerge to block such reforms.  You can see this, for example, in defence procurement, where open and competitive tenders are still much rarer than they should be - see Pyman et al cited below.

But trust is arguably more important for security institutions than for many other parts of the public administration.  If you don't trust the military, you won't sign up to fight.  If you don't trust the police, their job becomes much harder.  If the guy on the border takes bribes, it's all too easy for a terrorist to get a bomb onto a plane.

We need to think about how accountability can be achieved for security institutions.  Here are some papers that I have come across which consider some of these questions:

Moran, Jon. 2005. 'Blue walls,' 'grey areas' and 'cleanups': Issues in the control of police corruption in England and Wales. Crime, Law and Social Change, 43(1): 57-79. 

Pyman, Mark, Regina Wilson and Dominic Scott. 2009. ‘The Extent of Single Sourcing in Defence Procurement and its Relevance as a Corruption Risk: A First Look’, Defence and Peace Economics, Vol. 20, No. 3: 215-232.

  

Teets, Jessica C. and Erica Chenoweth. 2009.  ‘To Bribe or to Bomb: Do Corruption and Terrorism Go Together?’ in Rotberg, Robert I (ed.).  Corruption, Global Security and World Order. Brookings Institution Press. 


TI-UK also has a great typology of defence corruption risks.

Today's Corruption News: 11 August 2011

There's an interesting piece in the Sydney Morning Herald about police corruption.  One of the astonishing things is the consistent lack of transparency. Inquiries get commissioned periodically, but their findings are never published.

My first thought is that that's not the way to rebuild trust.  But it also makes you wonder just how bad things are.

Today's Links: 10 August 2011

• Slovenian Interior Minister Katarina Kresal has resigned over corruption allegations relating to a ministry deal to rent office space, as AFP reports here.
• The FIFA scandal continues to rumble on, as the Guardian reports here: Fifa bans Lisle Austin for using court to ratify vice-president claim.
• Goldman Sachs is under investigation for a possible failure to comply with the Foreign Corrupt Practices Act, relating to business in Libya, according to Wall Street Journal and Bloomberg reports.
• And there are new allegations of corruption in contracts to supply bank notes in Australia:  Fresh charges laid in Australia banknotes scandal.

Revolving Doors: Repairs in sight?

A journalist called me today to ask if the government was responding to any of the recommendations made in my recent report for Transparency International UK on the Revolving Door.  I was in the middle of something else and told him a little grumpily that I wasn't aware of any steps being taken but maybe he should call the Cabinet Office and ask them.

He didn't let me off that lightly, and I'm glad he didn't, because he got me thinking about the political feasibility of some of our proposals.  I can see, for example, that it's difficult to turn ACOBA into a statutory body when you are trying to cut spending on public administration.  And it's also not going to be popular with civil servants worried about their job security if you start putting new restrictions on their post-public employment.  I think both proposals are merited, but they do have downsides.

But I fail to see a downside with some of our other suggestions.  For instance, why not make the ACOBA committee more representative of society?  It does look bad that it comprises, as Radio 4 producer Andy Denwood pointed out, four peers, two knights and a dame.  What is to be lost by appointing a couple of representatives of civil society to give a different perspective?

I also think our suggestion to do a risk assessment of different types of role is a no-brainer.  An individual who has worked in procurement  in the Ministry of Defence should be treated as higher risk than a press officer in the Ministry of Justice.  Just as companies do risk assessments when they are considering going into business with a new partner, and then do deeper or shallower due diligence depending on the level of risk, ACOBA should have a sophisticated system for assessing where the greatest risks of a conflict of interest lie.

Today's Links: 9 August 2011

ENRC calls in outsiders to examine corruption claims 
Ex-Bangladesh PM named in graft case
China: Bribery websites up and running

India's Anti-Corruption Bill: A New Definition of Untouchable?

India's new draft anti-corruption law suffers from one of the main problems outlined in my previous blog on anti-corruption agencies: the ombudsman, or lokpal, that it establishes to investigate corruption would lack the power to investigate the prime minister, MPs, and many senior public officials.  The lokpal does have considerable powers vis a vis other offices, which are nicely set out by the Wall Street Journal here.

But nonetheless it means that, right from the start, the all-important Tone at the Top is lacking.  That  sends a very unhelpful message that guys at the top are untouchable and means that other agencies are going to be cautious about cooperating.

Is an ineffective anti-corruption agency better than none at all?  I'm not sure that it is.  In many places it's just a recipe for a highly politicised pursuit of one political tribe by another, undermining the trust in state institutions that is so necessary to building a better system.

Revolving Doors Part 2

The risks of the Revolving Door are greatest in sectors where the government is a key buyer (as with defence or infrastructure) or the main regulator, as with financial services.

If the state is the main buyer, then the revolving door threatens to disrupt the market, meaning that the taxpayer does not get a good deal.

If the state is the main regulator, the revolving door brings a risk of regulatory capture, where the regulators are too close to the interests of the industry they are regulating to be able to serve the public interest properly.  That's why this list of 29 individuals who have moved from Wall Street to Washington to Wall Street is cause for concern.

Revolving Doors and Chinese Walls

When business headhunts former ministers and civil servants, one has to ask whether its their skills that the companies seek, or rather access to power and insider information.  In the UK, we have always asked civil servants and ministers to regulate themselves.  But a few recent examples reported in BBC Radio's File on Four programme on the topic suggest that not everyone is good at maintaining Chinese walls when they pass through the revolving door.

As I argue in my recent report for Transparency International UK and a guest post on the blog of Democratic Audit, the regulatory system in the UK urgently needs reform.

Who guards the guardians?

Lord Justice Leveson does.  For it is he who has been appointed to head the judicial inquiry into phone hacking and press standards.  

Some have complained that he is, again, too much of an insider to do a good job, on the grounds that he has attended two parties in the last 12 months given by Matthew Freud, who is married to Elisabeth Murdoch, daughter of Rupert.  But I think excluding anyone who has ever socialised with a Murdoch relative might be narrowing the field a tad too much.

His initial comments are encouraging.  He asked for the help of the press to "weed out corruption".  I very much like the fact that his first words acknowledge that the outrageous behaviour of the few should not tar the reputation of the whole media.  Much of the media is performing a very valuable scrutiny role.  We should be lauding them as much as we seek to regulate the rest.

Niger sets up Anti-Corruption Agency

Niger is the latest country to set up an anti-corruption agency (ACA).  It's quite the fashion in developing and transition countries.  A good way to demonstrate to donors or the EU that you are devoting real energy and resources to fighting graft, or indeed to meet commitments under Article 6 of the UN Convention Against Corruption (UNCAC).

But do they work?

Hong Kong's Independent Commission Against Corruption (ICAC), set up in 1974, is often held up as a key success story of the anti-corruption movement.  It did indeed achieve great things from a difficult starting point, giving hope to other countries where corruption seems entrenched.  But many other ACAs, in Argentina and Tanzania, for example, were frustrated by a lack of cooperation from parts of the government and judiciary.  

ACAs only work if they have real power [1] - power to investigate, power to make other agencies cooperate with them, power to freeze assets, call witnesses and protect informants.  They also need a clear mandate, and enough budget and autonomy to recruit specialised staff who are not vulnerable to corruption themselves.

The paradox then, is that ACAs rely on there being at least some acceptance of the rule of law, some functioning state institutions, and real political commitment to fight corruption.  They are least likely to work in the countries that need them most.


References:
[1] Heilbrunn, J. (2004), "Anti-Corruption Commissions -- Panacea or Real Medicine to Fight Corruption?". World Bank Institute

Advice to Companies: How to Say No

There are plenty of wannabe-ethical corporates out there.  They don't want to be corrupt, but they keep getting asked to pay bribes.  And they don't know how to say No.

Here are my tips for trying:

1.  Ask for a receipt.  This forces the bribe-requester to admit that it's a bribe.

2.  Ask to be referred to the law or rule which would 'justify' the bribe.  

3.  Ask to see the supervisor.

4.  Blame your boss, the law in your home country, or your nationality (being Scots apparently works a treat...)

In other words, push back a little.  But give up if you feel you are in danger.  In some situations, and some countries, challenging will be enough to get a result.