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An Investigation of the Supply-Side of Corruption in Development Projects Financed by Multilateral Development Banks

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An Investigation of the Supply-Side of Corruption in Development Projects Financed by Multilateral Development Banks Determinants of Corporate Corruption: An investigation of the supply-side of corruption in development projects financed by Multilateral Development Banks by Sanjeev Narrainen This thesis is submitted in partial fulfilment of the requirements for the award of the degree of Doctor in Criminal Justice of the University of Portsmouth. 15th March 2019 Copyright Copyright © 2019 Sanjeev Narrainen. All rights reserved. The copyright of this thesis rests with the Author. Copies (by any means) either in full, or of extracts, may not be made without prior written consent from the Author. ii Declaration Whilst registered as a candidate for the above degree, I have not been registered for any other research award. The results and conclusions embodied in this thesis are the work of the named candidate and have not been submitted for any other academic award. Word count : 50,056 Signature : Name : Sanjeev Narrainen Date : 15th March 2019 iii Acknowledgements Firstly, I would like to express my deepest gratitude to my supervisors, Dr. Branislav Hock and Mr. Chris Lewis for their guidance throughout this research. Their knowledge, experience and wisdom were a continual source of inspiration. Their support and motivation throughout is very much appreciated. Conducting this research has been a long, challenging, exciting and insightful experience. I would also like to especially thank my wife and my two lovely sons, Joy and Yuv for their patience and encouragement during my research journey. I would like to dedicate this thesis to my dad who passed away during the conduct of this research. I know he would have been very proud of me. iv Abstract International development projects represent a fertile ground for corporate corruption. This form of corruption emanating from the supply-side has become pervasive and entrenched in the corporate world. In recent years, an increasing number of corporates have been sanctioned by multilateral development banks for their participation in corruption schemes. While international development banks seek to support governments in their development agenda, corporate corruption can significantly undermine such action. This is a big challenge for donors in their quest of increasing investment in development. The primary purpose of this research is to identify the main determinants that encourage corporate corruption in development projects financed by multilateral development banks. The research questions explore the challenges facing corporates; the effectiveness of multilateral development banks’ sanction regime; the definition of project success in relation to such projects and how corporate corruption is instigated and facilitated by corporates. This research uses a mixed method approach, comprising: survey, case study, interview and content analysis. This study identifies tension between the corporate pecuniary objectives and the compliance landscape of multilateral banks. Based on the empirical findings, corporate corruption is established to be a symptom of ‘corporate brain disorder’ - which needs to be addressed from the supply-side. This research contributes to knowledge on corporate corruption by identifying the determinants of corporate corruption namely; minimising of competition; maximising of profit; institutional blindness, and avoiding uncertainty. In light of the increasing compliance landscape, it is recommended that multinational corporations mitigate corruption risks based on the proposed Narrainen’s Project Governance Framework. It is also argued that the definition of project success needs to be extended so that the corporate objectives are aligned with the compliance requirements. v This research offers insights to policy makers in addressing corporate corruption risk. The findings will contribute to guiding donor agencies in their anti-corruption strategies with more focus on the supply-side. There are significant research opportunities associated with this, including further exploration of corporate dynamics and top management perspectives. vi Table of Contents Copyright __________________________________________________________________________ ii Acknowledgements _________________________________________________________________ iv Abstract ___________________________________________________________________________ v Table of Contents __________________________________________________________________ vii List of Tables ______________________________________________________________________ xiii List of Figures _____________________________________________________________________ xiv List of Acronyms ___________________________________________________________________ xv Dissemination of interim results of this research ________________________________________ xviii Chapter 1 Introduction __________________________________________________ 1 1.1 The role of MDBs in developmental projects ________________________________________ 2 1.2 The challenges of corruption in development projects _________________________________ 2 1.2.1 Why is corruption a problem in development projects? _____________________________ 4 1.2.2 The challenge of MDBs in mitigating corruption risks _______________________________ 5 1.3 The duality of corruption _______________________________________________________ 6 1.4 Research gap in the study of corporate corruption ____________________________________ 7 1.5 Understanding the thesis _______________________________________________________ 9 1.5.1 Rationale of the research ____________________________________________________ 10 1.5.2 Aim and objectives of the study _______________________________________________ 10 1.5.3 Methodological approach ____________________________________________________ 13 1.5.4 Significance of the research ___________________________________________________ 15 1.6 Structure of thesis – outline and methodological choices ______________________________ 16 Chapter 2 Contribution of MDBs to fighting corruption _______________________ 18 2.0 Introduction ________________________________________________________________ 18 2.1 Definition of corruption _______________________________________________________ 19 2.2 The scope of the problem _______________________________________________________ 20 2.3 MDBs’ mandates ____________________________________________________________ 21 2.3.1 MDBs’ fight against corruption ________________________________________________ 23 2.3.2 MDBs’ investigative mandate _________________________________________________ 24 2.3.3 MDBs’ enforcement landscape ________________________________________________ 25 2.3.4 Anti-corruption efforts of MDBs _______________________________________________ 27 2.3.5 The sanctions process _______________________________________________________ 28 2.3.6 Cross-debarment of corrupt firms ______________________________________________ 30 2.3.7 Negotiated settlement agreements ____________________________________________ 31 vii 2.3.7.1 Referral to national authorities ___________________________________________ 31 2.4 The Foreign Corrupt Practices Act _______________________________________________ 32 2.5 Concluding Remarks __________________________________________________________ 35 Chapter 3 Review of literature on organisational corruption ___________________ 37 3.0 Introduction ________________________________________________________________ 37 3.1 Understanding the phenomenon of corruption ______________________________________ 38 3.1.1 Corruption in development projects ____________________________________________ 39 3.1.2 Aid versus corruption ________________________________________________________ 41 3.1.3 The concept of corporate corruption ___________________________________________ 41 3.1.4 Impact of corruption on projects ______________________________________________ 43 3.1.5 Corruption in victimology ____________________________________________________ 44 3.2 Incentives to commit fraud _____________________________________________________ 44 3.2.1 Critics of the fraud triangle ___________________________________________________ 46 3.3 Criminological theories on organisational corruption ________________________________ 47 3.3.1 Strain theory_______________________________________________________________ 48 3.3.2 The rational choice approach _________________________________________________ 48 3.3.3 Social disorganisation theory _________________________________________________ 48 3.3.4 Dimensions of national culture ________________________________________________ 49 3.3.5 Different labels for corruption at organisational level ______________________________ 50 3.3.5.1 White-collar crime _____________________________________________________ 50 3.3.5.2 State-corporate crime __________________________________________________ 51 3.3.5.3 Organisational crime ___________________________________________________ 52 3.3.5.4 Occupational corruption ________________________________________________ 53 3.3.5.5 Corporate Crime _______________________________________________________ 53 3.3.5.6 Economic Crime _______________________________________________________ 55 3.3.5.7 Political corruption _____________________________________________________ 55 3.4 Organisational dimension of corruption ___________________________________________ 56 3.4.1 The criminology of corruption _________________________________________________ 56 3.4.2 Corporate responses to corruption _____________________________________________ 58 3.4.3 The causes of corruption in organisations _______________________________________
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