Bribery occurs in the private sector, but bribery in the public sector, offered or extracted, should be the Bank's main concern, since the Bank lends primarily to governments and supports government policies, programs, and projects. Bribes are one of the main tools of corruption. They can be used by private parties to "buy" many things provided by central or local governments, or officials may seek bribes in supplying those things.
Government contracts. Bribes can influence the government's choice of firms to supply goods, services, and works, as well as the terms of their contracts. Firms may bribe to win a contract or to ensure that contractual breaches are tolerated.
Government benefits. Bribes can influence the allocation of government benefits, whether monetary benefits such as subsidies to enterprises or individuals or access to pensions or unemployment insurance or in-kind benefits such as access to certain schools, medical care, or stakes in enterprises being privatized.
Lower taxes. Bribes can be used to reduce the amount of taxes or other fees collected by the government from private parties. Such bribes may be proposed by the tax collector or the taxpayer. In many countries the tax bill is negotiable. Bribes may be demanded or offered for the issuance of a license that conveys an exclusive right, such as a land development concession or the exploitation of a natural resource.
Sometimes politicians and bureaucrats deliberately put in place policies that create control rights which they profit from by selling. Bribes may be offered to speed up the government's granting of permission to carry out legal activities, such as company registration or construction permits. Bribes can also be extorted by the threat of inaction or delay. Legal outcomes. Bribes can change the outcome of the legal process as it applies to private parties, by inducing the government either to ignore illegal activities such as drug dealing or pollution or to favor one party over another in court cases or other legal proceedings.
The government benefits purchased with bribes vary by type and size. Contracts and other benefits can be enormous grand or wholesale corruption or very small petty or retail corruption , and the impact of misinterpretation of laws can be dramatic or minor.
Grand corruption is often associated with international business transactions and usually involves politicians as well as bureaucrats. The bribery transaction may take place entirely outside the country. Petty corruption may be pervasive throughout the public sector if firms and individuals regularly experience it when they seek a license or a service from government.
The bribes may be retained by individual recipients or pooled in an elaborate sharing arrangement. The sums involved in grand corruption may make newspaper headlines around the world, but the aggregate costs of petty corruption, in terms of both money and economic distortions, may be as great if not greater.
Theft of state assets by officials charged with their stewardship is also corruption. An extreme form is the large-scale "spontaneous" privatization of state assets by enterprise managers and other officials in some transition economies. At the other end of the scale is petty theft of items such as office equipment and stationery, vehicles, and fuel.
The perpetrators of petty theft are usually middle- and lower-level officials, compensating, in some cases, for inadequate salaries. Asset control systems are typically weak or nonexistent, as is the institutional capacity to identify and punish wrongdoers. Theft of government financial resources is another form of corruption.
Officials may pocket tax revenues or fees often with the collusion of the payer, in effect combining theft with bribery , steal cash from treasuries, extend advances to themselves that are never repaid, or draw pay for fictitious "ghost" workers, a pattern well documented in the reports of audit authorities. In such cases financial control systems typically have broken down or are neglected by managers. Political and bureaucratic corruption.
Corruption within government can take place at both the political and the bureaucratic levels. The first may be independent of the second, or there may be collusion. At one level, controlling political corruption involves election laws, campaign finance regulations, and conflict of interest rules for parliamentarians. These types of laws and regulations lie beyond the mandate and expertise of the Bank but nevertheless are part of what a country needs to control corruption.
In the extreme case state institutions may be infiltrated by criminal elements and turned into instruments of individual enrichment. Isolated and systemic corruption. Corruption in a society can be rare or widespread. If it is rare, consisting of a few individual acts, it is straightforward though seldom easy to detect and punish.
In such cases noncorrupt behavior is the norm, and institutions in both the public and private sectors support integrity in public life. Such institutions, both formal and informal, are sufficiently strong to return the system to a noncorrupt equilibrium.
In contrast, corruption is systemic pervasive or entrenched where bribery, on a large or small scale, is routine in dealings between the public sector and firms or individuals. Where systemic corruption exists, formal and informal rules are at odds with one another; bribery may be illegal but is understood by everyone to be routine in transactions with the government.
Another kind of equilibrium prevails, a systemic corruption "trap" in which the incentives are strong for firms, individuals, and officials to comply with and not fight the system. And there may be different degrees of coordination between those taking bribes, ranging from uncontrolled extortion by multiple officials to highly organized bribe collection and distribution systems. Antibribery laws notwithstanding, there are many countries in which bribery characterizes the rules of the game in private-public interactions.
Fraud and bribery can and do take place in the private sector, often with costly results. Unregulated financial systems permeated with fraud can undermine savings and deter foreign investment.
They also make a country vulnerable to financial crises and macroeconomic instability. Entire banks or savings and loan institutions may be taken over by criminals for the purpose of wholesale fraud.
Popular support for privatization or the deepening of financial markets can be eroded if poor regulation leads to small shareholders or savers withdrawing when confronted by insider dealings and the enrichment of managers.
And a strong corporate focus on profitability may not prevent individual employees soliciting bribes from suppliers. Furthermore, when corruption is systemic in the public sector, firms that do business with government agencies can seldom escape participating in bribery.
While noting the existence of fraud and corruption in the private sector and the importance of controlling it, this report is concerned with corruption in the public sector. Public sector corruption is arguably a more serious problem in developing countries, and controlling it may be a prerequisite for controlling private sector corruption.
In the long run, controlling corruption in the private sector may require improvements in business culture and ethics. What are the causes of corruption? The causes of corruption are always contextual, rooted in a country's policies, bureaucratic traditions, political development, and social history.
Still, corruption tends to flourish when institutions are weak and government policies generate economic rents. Some characteristics of developing and transition settings make corruption particularly difficult to control. The normal motivation of public sector employees to work productively may be undermined by many factors, including low and declining civil service salaries and promotion unconnected to performance.
Dysfunctional government budgets, inadequate supplies and equipment, delays in the release of budget funds including pay , and a loss of organizational purpose also may demoralize staff. The motivation to remain honest may be further weakened if senior officials and political leaders use public office for private gain or if those who resist corruption lack protection. Or the public service may have long been dominated by patron-client relationships, in which the sharing of bribes and favors has become entrenched.
In some countries pay levels may always have been low, with the informal understanding that staff will find their own ways to supplement inadequate pay. Sometimes these conditions are exacerbated by closed political systems dominated by narrow vested interests and by international sources of corruption associated with major projects or equipment purchases.
The dynamics of corruption in the public sector can be depicted in a simple model. The opportunity for corruption is a function of the size of the rents under a public official's control, the discretion that official has in allocating those rents, and the accountability that official faces for his or her decisions.
In transition economies economic rents can be enormous because of the amount of formerly state-owned property essentially "up for grabs. Finally, accountability is typically weak in these settings. The ethical values of a well-performing bureaucracy may have been eroded or never established.
Rules on conduct and conflict of interest may be unenforced, financial management systems which normally record and control the collection of revenues and the expenditure of budgeted resources may have broken down, and there may be no formal mechanism to hold public officials accountable for results. The watchdog institutions that should scrutinize government performance, such as ombudsmen, external auditors, and the press, may be ineffectual. And special anticorruption bodies may have been turned into partisan instruments whose real purpose is not to detect fraud and corruption but to harass political opponents.
A defining characteristic of the environment in which corruption occurs is a divergence between the formal and the informal rules governing behavior in the public sector. The Bank is unaware of any country that does not have rules against corruption, although not all countries have all the rules that may be necessary.
These range from laws making it a criminal offense to bribe a public official to public service regulations dealing with the expected behavior of public officials, conflicts of interest, the acceptance of gifts, and the duty to report fraud.
Organic laws, often embedded in constitutions, cover budgeting, accounting, and auditing, supported by laws and regulations on public procurement and the safeguarding of public assets. In addition, there are laws on the conduct of elections and the appointment of judges, and codes governing the conduct of legislators. Project phases: Projects normally have several different phases, each involving different management teams, and each requiring handovers of the completed phase to the contractors undertaking the next phase.
For example, a power station project may have the following phases: financing, design, excavation, foundations, civil works, building works, equipment manufacture, equipment erection, power station commissioning, and operation. Even if one main contractor has overall responsibility for all the phases, it will normally sub-contract the different phases to different specialist sub-contractors.
This leads to difficulties in control and oversight. Size of projects: Some projects can be very large in scale. Major dams, power plants, industrial plants and motorways cost significant amounts of money.
It is easier to hide large bribes and inflated claims in large projects than in small projects. Uniqueness of projects: Projects vary tremendously in content and size. Rates for labour, equipment and materials vary according to market demand. Many projects are unique. As a result costs are often difficult to compare. This makes it easier to inflate costs and hide bribes. Complexity of projects: Projects can be complex. The inter-relationship between events is often uncertain.
Many people working on a project appear not to know, or to disagree on, the reason why something has gone wrong, or why costs have overrun. This makes it easier to blame other participants for problems, and to claim payment for these problems, even if such claims are unjustified. It also creates a reason to pay a bribe, as decisions on cause and effect and their cost consequences can have enormous impact.
Bribes and inflated claims can also as a result be more easily hidden, and be blamed on other factors, such as poor design or mismanagement. Concealed work: Most components in an infrastructure project will be concealed by other components. For example, structural steel may be concealed by concrete, brickwork may be concealed by plaster, engineering components may be concealed in casings, and roof structures may be concealed by cladding.
As a result, an enormous dependence is placed by the industry on individuals certifying the correctness of the work before it is concealed.
This provides opportunities to pay bribes to these individuals to certify too much work, or to approve defective or non-existent work. Lack of transparency: There is no culture of transparency in the infrastructure sector.
There is little or no requirement for funders, project owners or project participants to make public details of the funding, the underlying project and the identity of the project participants, including the identity of the contractor, joint venture partners, sub-contractors, consultants and agents. Costs are as far as possible not disclosed, even when public money is spent.
Commercial confidentiality has historically taken precedence over public interest. There may, therefore, be inadequate inspection of books and records which could uncover malpractice.
Without such transparency, it is more difficult to detect, for example, suspicious funding arrangements, suspicious relationships between the participants which may facilitate corruption, projects which may have a corrupt purpose, projects which have been granted planning permission corruptly, or fraudulent contract pricing.
The extent of government involvement: The extent of government involvement in infrastructure is significant. Most major international infrastructure projects are government owned.
Even privatised projects normally require government approvals, such as planning permission, or agreements with government as to the terms on which the public may use the end product.
The power wielded by government officials in this regard, when combined with the structural and financial complexity of the industry referred to above, makes it relatively easy for government officials, for example, to commission projects for their own purposes, or to extract large bribes in exchange for the award of contracts or for approving inflated contract prices or fraudulent claims.
Bribery and deceptive practices seem to have become so engrained in some parts of the sector and in some territories, that in many cases they have become accepted as the norm. The following are some attempted justifications sometimes given by some participants in the sector:.
Absence of project anti-corruption measures: Many infrastructure projects have few or no effective measures by which corruption during any project phase may be prevented, deterred or detected.
On some projects, some preventive measures may be in place, but these may focus on one or two aspects, such as monitoring of the tender process, and leave the rest of the project without sufficient safeguards.
Proper anti-corruption measures which are imposed on projects by government departments, implemented by project owners, and required as conditions of funding by funders, are critical to the reduction of corruption. If these were introduced and properly operated, then they would serve to reduce corruption on individual projects even where a large number of the other causes of corruption listed in this section remained outstanding.
There are many factors at national level which facilitate corruption in the infrastructure sector. Corruption in government: Corruption in the governments of both developing and developed countries contributes to corruption in infrastructure.
Such corruption may occur, for example, where ministers or other political figures extort bribes or require projects to be carried out for corrupt personal benefit, or where government figures ensure, in exchange for political funding or personal benefits, that favoured contractors are awarded government contracts, and that they are protected from prosecution for corruption committed at home and abroad.
This corrupt support and protection will foster the continuation of corruption by these organisations, because they have little fear of prosecution at home or in the country where the project is located. For example, a department responsible for international development may endeavour to encourage organisations to adopt ethical policies, to have laws against corruption strengthened, and to press for prosecution of those organisations which have acted corruptly.
However, the department for trade, in the same government, whose interests may be primarily concerned with business success and profitability, may be more concerned to protect business interests, to make laws regarding corruption more lenient, to reduce requirements for disclosure and accountability, and to block prosecution for corruption.
On the one hand, the government is seeking to tackle corruption. On the other hand, it is undermining such efforts. Corruption will not be reduced unless this is made an unquestioned priority by all government departments. For recommended actions for governments, see Anti-Corruption Programme for Governments. Insufficient reporting of corruption: Insufficient reporting of corruption fuels corruption, as the perpetrators do not fear detection.
Some of the reasons for insufficient reporting of corruption are as follows:. Insufficient prosecution of corruption: Insufficient prosecution of corruption, both in developing and developed countries, will facilitate corruption. Corruption is caused by multiples factors and the corruption conducted by high-ranking politicians and officials in economically weak countries has an international dimension.
Bribes often come from multinational companies situated in the richest countries in the world. For example, Siemens has been accused of having paid 10 million euro as bribes to Nigerian cabinet members in the years According to TI, Nigeria belongs to the 35 most corrupt nations in the world.
At the same time, tardy administrative systems, ineffective financial organization and above all ,a lack of transparency in many countriespave the way for corrupt activities. In Peru, it can take up to days to legally create a small business. The official licensing procedure for a building of a house can take up to six years.
Moreover, one must consult with an official authority up to 28 times, to obtain a property document. Bribes have thus become commonplace and are effectively the only means of accelerating these slow-acting administrative machineries or to make sure that the very often under-paid personnel in the government service performs his duty. Governments that prevent the freedom of expression and the liberty of the press such as in Zimbabwe and Honduras or Italy that meekly accepts and tolerates the concentration of media power in the hands of individuals have shown high levels of corruption.
Let's take another example, India: Around one hundred ministers are supposed to be responsible for the protection of our forests and wildlife. However, trackers, foresters and other workers are not just underpaid but also often do not receive their salaries on time.
The millions of rupees that the government spends to preserve trees and to maintain parks seems not to be direced where it is needed. This often results in the forest officials turning a blind eye, passing the buck or blaming another government department whenever there is an elephant death due to electrification or a tiger death by poisoning. We need to use the RTI Right to Information Act to make sure the people responsible have to answer uneasy questions pertaining to their inertia and their duty.
We in India can understand this as the monster Ravana whose heads have to be dealt with one by one. Probably, the most effective means of fighting against corruption is to improve transparency in all spheres of government action. Free and independent media make an important contribution in the fight against corruption. NGOs such as Transparency international TI , which rank among the prominent global organizations in the fight against corruption, strive for this cause.
Other international anti-corruption efforts such as the OECD convention ,are also present in the fight against malignant corruption.
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