Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized or the past ten years, the World Bank has acknowledged corruption as a major impedi- WII1RIWTHMI S. ASYM EWNOMtCTtMEs W m,NEW WI.ImtA 1 F ment to economic development. More recently, it has played an increasingly active role in supporting WIC:!aLELCDilEW NEW -1 fflWRSi7Y, N@W WIRK. USA anti-corruption efforts and good governance by broad- PAUL CklLUEk ening its research agenda and by disseminating results. MEWWBD86RR. UWEHINNUW. W, USA This issue of Development Outreach is part of a communi- lOHN GAQe cations campaign to raise awareness of these issues in SUN -8. PIUO Rt.,ULIFORW# US the world community. It is being released to coincide luww K. uW4IU.M with the International Monetary Fund~WorldBank m WORLD mu. GENE+% WtTTLRMD Annual Meetings in Singapore in September 2006, KWE)URIMJH SCI1OBLOFJDUIEIWI~mCOMMUNICATWIIS, which will include good governance and anti-corruption FWE U~~IPIUF OHllllA LEW4, BHIM(A as major themes. YIM HAHWsKA The Annual Meetings will be an important forum for I~U~ONMCEMER FOR POLICYSNMEG, KIEV. uncektrz discussion of the World Bank's long-term strategy to rZP1 mm promote good governance. A strategy paper has been 019110UC UPIIVUffm: UhIh mu prepared at the request of the Bank's Board of J. Rm.LIT S. IWCM&B Governors Development Committee, which lays out the ToR5TM. mRDNTD. CANADA main issues and proposed actions. The paper presents a WAEL i#nOfEL SOSTMAW I IOmUaRm TECH mmm smEM, hwnmam, WmrW policy framework and discusses the operational impli- cations for the World Bank and its client countries, &DIEtE SIMlOnS CHICIIGO METROWUS, CWCllsa iL. UW including an increased level of support for country VlQJE#nh WEE efforts to strengthen governance and reduce corrup- cwt~~FOR m~, GE~ANO MVELOPMENT, ctwme tion. The strategy paper, which will soon be made pub- DaralppmntO ~ispublishldthtartimlga byhW lic, has been prepared with input from other multilater- WI~*,"$~MIWIkOmthe&W'smPI al development banks and relevant stakeholders from a w rolicited.~~er a lwg3 2# wtbW~I& ryld riel wt wide range of countries. d Bmkw LevlswlPd itsmnt. The World Bank Institute (WBI) plays an important role in these efforts by providingparticipatory action-ori- ented learning for policymakers and national and local government leaders, and by developing tools for gather- ing, assessing, and disseminating data on governance in- country and worldwide. As part of the program of semi- nars at the Annual Meetings, WBI and the International ?Hem- Finance Corporation have organized a plenary session on t&w:&p&Ir lmgest 3t 6mf s4Wd-s F-e m-y Partnerships to Combat Corruption: Rising to the Chalknge. ~~akk4fFiAlirJFart~Plp12:~~:- 13: MsaPnr Bor-i Plrsa 14: 3 Among the panelists will be some of the authors of this hge 15: Wi L-i M 1% It Call ?kitas$plsles; laMthrs lwsmms; FmP4: CII&mkrrPPP: special report. The Institute has also developed a Web P0ge28~Pnc~Photc8s:~ Portal on Partnerships to Combat Corruption: Pa&e 3s: Pat11 J. RkWMBi +%#s43: Hk (http://de~~elopmentandbusiness.org/A-C/webportal)to provide information on country-specific and regional training opportunities to strengthen governance. This issue of Development Outreach aims to take the anti-corruption message beyond the meeting room to our broad readership of government officials and citizens- the suppliers and the consumers of good governance.

' Sunetra Puri EXECUTIVE EDITOR VOLUME EIGHT, NUMBER TWO r& SEPTEMBER 2006

SPECIAL REPORT 25 Private Sector Response to the Emerging FIGHTING CORRUPTION: BUSINESS AS Anti-Corruption Movement A PARTNER WORTH D. MACMURRAV Controlling for corruption in the private sector is becoming a 2 Can Private Sector Action Tackle priority for companies concerned about recent governmental Corruption? regulations and international financial institutions sanctions. Guest Editol-lal 28 The Challenge of Ethical Leadership in FRANNIE L~AuTIER. DJORDJIJA PETKOSKI. AND Africa MICHAEL JARVIS DELE OLOJEDE A general view of why corruption is an impediment to growth To broaden reforms and improve conditions, the Africans must set and poverty reduction. minimum standards for leadership, as well as maximum tenures. 8 Anti-Corruption and Corporate Citizenship 31 Fighting Corruption the Celtel Way: GEORG KELL Lessons from the front line The buslness community has a major stake in finding winning strategies against corruption. The case of UN Global Compact. MOHAMED IBRAHIM The African company Celtel 1s a successful story in terms of 12 Civil Society and the Private Sector: creating growth and decreasing corruption. Fighting corruption is good business 34 Dealing with Corruption in Ethiopia HUGUETTE LABELLE KEBOUR GHENNA The pursuit of financial accountability and transparency Initiative Africa promotes public-private partnership against requires a cross-sectoral effort that civil society and the business community are helping to facilitate. corruption in Ethiopia to monitor political leaders and insure transparency. 15 The Power of Joining Forces: The case for collective action in fighting corruption 37 Measuring Corruption: Myths and realities PETER BREW DANIEL KAUFMANN, AART KRAAY, AND MASSIMO MASTRUZZI Companies act~ngtogether will be more effective in fighting Corruption can be measured through a wide variety of corruption, and in the application of codes, polic~esand innovative approaches in order to diagnose problems and processes that may improve their operations. monitor results. 18 The Importance of Cynicism and VOICES FROM THE FIELD Humility: Anti-corruption partnerships 42 Research on Corruption and Its Control: with the private sector The state of the art WILLIAMS S. LAUFER MOANA M. ERICKSON Our legitimacy and moral suasion to affect corrupt business Summary of a workshop that highlighted recent research on practices elsewhere in the world would be enhanced by corruption and identified needed areas of investigation. recognition of our own problems. 45 Seeking Clarity in a World of Murky 22 Business as a Partner in Fighting Transactions: E-Discussion Corruption? MICHAEL JARVIS AND AMINA EL-SHARKAWV RODERICK HILLS Summary of a global e-discussion to share knowledge on what In the fight against corruption it is the "Rule of Law" that works and what does not in fighting corruption by the private should inspire and guide the actions of the business sector. community. 48 BOOKSHELF 50 KNOWLEDGE RESOURCES 51 CALENDAR OF EVENTS Can PRIVATE SECTOR ACTION tackle

Guest ~Atorial BY FRANNIE LEAUTIER, DJORDJIJA PETKOSKI, L t INTRODUCTION research--to seek ways to combat corruption. To this end we do and T must work together with other international organizations, govern- CORRUPTIOH IS AM IMPEOIMEHT TO GROWTH and p0veItY reduction. ments, civil society groups, and the private sector. As noted by World As the authors in this issue of Development Outreachwell document, Bank President Paul Wolfowb, the private sector worldwide is one corruption limits opportunities, creates inefficiencies and forms of the most important partners in this process and, without the active additional barriers to the smooth delivery of services. Crucially, from engagement of business, progress will be limited.' Business action

1, the perspective of the World Bank Group, corruption cumulatively is already showing the potential for sustainable results in limiting L undermines progress towards achieving development objectives, not opportunities for corruption, but a core theme of this publication is least as its impact is most adversely felt by the world's poor. The that such potential is best realized by being integrated with the World Bank has taken a clear public stance-based on exhaustive efforts of other stakeholders in the form of collective action.. why should business care? A lot is at stake for the private sector. It is becoming increasing- "Corruption not only andennines the ability of I ly obvious that the private sector has a critical role to play, along- governments to function properly, 1also stifles side more traditional government and c~lsociety actors, in the growth of the private sector. We barit from fighting corruption. But why should business care? Continuing to participate in, or turning a blind eye to, corrupt activities can investors, domestic and foreign, investors who I worry that when corruption is rampant, contracts have significant negative consequences for the private sector in are unenforceable, cornpaition is skewed, and the ) tern of competitiveness, the ease of dai"~business and the sustainability of development efforts. As Peter Brew notes in his costs of doing business becomes stifling. When article in this issue on "The Power of Joining Forces," corruption investors see that, they taka their money is estimated to add 10 percent or more to the cook of doing mmeWAere else." business in many parts of the world. Corruption also renders gov- - Ptwi WoHorrib, World Bank Presidan& ernment policies less effecthe, which in turn produces negative lakatia, lndon#b, April 11.2UlI6 knock-on impact on the business environment Corruption affects everyone and exists all over the too real negative consequences in terms of lost business. world-in developed and developing country contexts-and Some large companies may have the resources to absorb this can greatly hinder firm, national and regional-level competi- loss or find ingenious, but typically more expensive, ways to tiveness, as well as significantly affect the attractiveness of supply the promised goods and service, but, for most compa- investment climates. L4ccordingto Batra. Geeta, Kaufmann nies, this is not an option and they subsequently feel trapped and Stone," the level of corruption is identified as a serious into accepting corruption. constraint to doing business by over 70 percent of firms in South Asia and almost as many in East Asia and in the Middle Collective action and the role of associations. This sug- East and Northern Africa regons. Sixty-four gests the importance of taking anti-corruption percent of firms in Africa, almost 60 percent of initiatives to a more collective action level. those in Latin America, and about half in the This endeavor can be private sector-led, for Commonwealth of Independent States (CIS) example by business associations, who can act and Central and Eastern Europe regions report as cheerleaders for policy reform, develop and corruption to be a serious impediment to pri- The private provide access to training tools and codes rele- vate sector development. vant to their members, as well as utilize their clout that comes with representing a broader Capacity of government to regulate is key. sector is swathe of business. Leading private sector The private sector is recognizing that it is in its institutions, such as the International own best interest to fight corruption to foster recognizing Chamber of Commerce (ICC), have a poten- sustainable and stable business growth. Global tially important role to play in this regard, as do business leaders are more publicly supportive of counterpart national chambers of commerce increased regulation to limit corn~ptionand to that it is in its and business associations at the country level. ensure a level playing field. However, as com- They can provide guidelines for member com- monly reiterated by fellow authors in this issue, panies, but also utilize their outreach skills and treaties, conventions and codes are only as own best typically high level access to decision makers to effective as their enforcement. Therefore a care- be positive agents for reform, linking with ful assessment is needed of the capacity of gov- other sectors. There is great value in linking ernment and international agencies to enforce, interest to business with government and civil society to or private sector bodies to self-regulate, these find more comprehensive solutions, as Peter agreements, as well as the capacity of the range fight c~r~~puonBrew points out in his article using the example of companies (in size and ownership structure) of the China Business Leaders Forum anti-cor- to implement procedures to reduce corruption. ruption initiative. Other examples include the Multinational businesses typically have the to foster Center for International Private Enterprise resources to train and monitor internally, but (CIPE) country-level anti-corruption initia- local firms, including down to the level of small tives, and Transparency International's and medium enterprises, will often require sustainable national integrity pacts, in which companies, assistance to develop workable controls. together with goverament and civil society, and stable voluntarily implement anti-bribery agree- So, What Is Being Done? ments that are monitored by an external party. A RANGE OF ACTIONS ARE UNDERWAY. business Industry-wide efforts also hold promise. Recent experiences show that effective and Effective change must also be pursued at the consistent private sector efforts can be effective industry level and through global governance in cornbating corruption. Actions can be at the channels. Industry specific initiatives among level of an individual firm, through the collec- businesses and other stakeholders have proven tive action of business associations, and as a to be an effective method of tackling corrup- result of work across entire industries. tion as they impact local business practices beyond the capacity of any single company. The Action by individual firms. The articles by Extractive Industries Transparency Initiative Mohamed Ibrahim of Celtel International and Glenn Ware of (EITI) and the Forest Law and Enforcement and Governance Diligence LLC outline what individual firms can and are cur- (FLEG) initiative are just two examples of recent g~ound- rently doing to fight and avoid corruption, for example by breaking initiatives, both supported by the World Bank and instituting and enforcing tighter ethical codes combined with International Finance Corporation, that have brought multi- training for employees on how to manage typical situations ple stakeholders together to collectively address corruption where pressures arise to participate in corruption. However, within a particular industry sector. In further sips of this corruption is hard for one firm to eradicate on its own-and if trend, we have also seen significant business and NGO invest- a firm does attempt to uphold strict standards, it can have all ment in ensuring good practice in specific industry segments, such as the Gmberley Process for diamond production and partnership with its private sector clients in improving effective the code now under development for gold mining. long term corporate governance through mechanisms such as the Equator Principles and through development and applica- Global standards can be effective at producing peer tion of measurement tools such as the Doing Bussness indicators. pressure to reform. In terms of fostering global governance, Many countries and businesses worldwide have found the data efforts to bring together government, business and civil soci- encapsulated in the Doing Bu,siness surveys to be critical in ety in dialogue around anti-corruption initiatives have prolif- benchmarking their performance, not least ongood governance. erated, not least through efforts to identify appropriate global standards. The OECD Convention on Combating Bribery of Embedding governance and anti-corruption at the Foreign Public Officials continues to gain traction and has heart of country strategy. Increased Bank financing for good been supplemented by the UN Convention Against governance components contributes to the core objective of Corruption Treaty. As Georg Kell discusses in this issue, in supporting anti-corruption efforts at the country level. To help 2004, the UN Global Compact added a tenth principle to its meet this goal, the Bank now requires that all Country list of principles stating that "Businesses should work against Assistance Strateges (G4S) address governance issues. In all forms of corruption, including extortion and bribery."3 some of the higher risk countries, governance and anti-cor- Signatories commit to mainstream these principles into busi- ruption have become central planks of the entire country pro- ness activities worldwide. gram. In support, the World Bank Institute WI), with the benefit of fifty years of experience in capacity development, The World Bank's Contribution facilitates action-oriented and participato~yprograms to pro- mote good governance and limit corruption at the country LEADERSI-TIP IN INTERNATIONAL EFFORTS TO COMBAT level. Deliveries, in collaboration with World Bank Operations CORRUPTION. To help foster both industry and global initia- and often in partnership with international organizations, are tives to combat corruption, the World BankGroup works close- targeted to around thirty countries-principally in Sub- ly with international anti-corruption organizations and net- Saharan Africa, Latin America, Eastern and Central Europe, works, including the Partnership for Transparency Fund, and more recently, Asia. Financial Action Task Force, the Public Expenditure and Financial Accountability program, and OECD-Development Powerful diagnosis and analytical tools help guide Assistance Committee Network on Good Governance and actions at the country level. These efforts are supported by Capacity Development. Active participation in such interna- rigorous empirical diagnostics and analysis. WBI publishes tional efforts illustrates how the Bank has progressed rapidly data and analyses assessing many dimensions of governance from taking an ad hoc. low-visibility approach towards for 209 countries and territories which are used extensively to instances of fraud and corruption in member countries, Banl- raise awareness nationally and globally and to help inform financed projects, and among staff, to assuming a clear leader- policy reform. These indicators, which are constructed on the ship role among multilateral institutions in all three areas. basis of hundreds of variables, measure voice and accounta- bility, political stability and absence of major violence and Increased attention to its own loan portfolio. The grow- terror, government effectiveness, regulatory quality, rule of ing attention the Bank pays to anti-corruption work, and, law, and control of corruption. more broadly, to public sector governance and institutional reform, is reflected by changes in its loan portfolio. In the Affecting both the demand and supply side of good gov- 1995 fiscal year, only 0.6 percent of Bank lending went to ernance. WBI utilizes such data and analysis to build momen- support public expenditure, fiscal management, and pro- tum for change. The complexity and pervasive nature of the curement reforms. As of the end of June, 2005, it had corruption problem pushes a capacity development approach climbed to 4.6 percent. In the 1005 fiscal year, almost half of that moves beyond conventional training to knowledge dis- the new Bank projects had at least one component addressing semination, policy advice based on the latest research and governance. public sector or rule of law issues. The propor- operational findings. and participatory and consensus-build- tion of new projects with accountability/anti-corruption ing activities. It is not enough to look at the symptoms of cor- components jumped from 0.4 percent in the 1995-96 fiscal ruption. Instead we must look for new tools that will help tack- years to an average of five percent in the 2004-05 fiscal years. le supply and demand. Individual efforts, although necessary. Within its overall loan pol-tfolio and operations, the Bank are not sufficient, and the fight against corruption needs to be recognizes that it has no magic immunity to corruption. taken to the next level.' As highlighted throughout this publi- Therefore anti-corruption initiatives related to its ownlend- cation, the challenge is to work with the range of stakeholders ing portfolio are very effectively spearheaded by the Bank's in society, not least the private sector, and to maintain an Department of Institutional Integrity with the strong backing open approach that strengthens individual stakeholder of senior management. actions, but also recognizes the potential value of collective action through bottom-up coalitions for reform. The power of data and benchmarking. The International Finance Corporation plays a proactive and innovative role in The Challenge of Forging Effective In This Issue Collective Action THIS ISSUE OF DEVELOPMENT OUTREACH specifically con- siders the role that the private sector can play in the fight against corruption. Georg Kell stresses the importance of the 'I. ..fightinp corruption requires a long-term individual responsibility of the private sector through the strategy that systematically and progressively expansion and deepening of corporate citizenship and corpo- attacks the problem, and that is why any rate governance on a global scale. In order to affect this princi- ples-based organizational change across organizations, insti- strategy for solving the problem requires the tutions and supply chains, Kell argues, all actors in socieg. commitment and participation of governments, must be involved in promoting organizational change, provid- ing necessary tools and training, and supporting action cam- private citizens, and private businesses alike." paigns against corruption. Following on this message, Peter -Paul Wolfowitz, World Bank President, Brew argues the case for collective business action in fighting corruption, examining the pros and cons of business-led ver- Jakarta, Indonesia, April 11, 2006 L sus multi-stakeholder initiatives and providinga concise list of the elements necessary for effective collective business action. COLLECTIVE ACTION is potentially an integral part of the William Laufer, however, cautions against the immediate solution, but is not a panacea. As outlined above, the Bank, inclination to jump on the collective action bandwagon, stress- alongwith other development actors, is reviewing ing the necessity of assessing the situation thoroughly before approaches to combat corruption to improve efficacy. adopting a multi-stakeholder partnership solution. However, scaleable impact will also require engagement from government and civil society. So, are collective multi- The overall success of reducing corruption depends on stakeholder approaches the most viable? On paper the logic two forces worldng in parallel: government's own efforts is clear -corrupt activities, and the corrupting influences and the response of the private sector. Roderick Hills con- that generate them, permeate all sectors of society, often tinues with a call for business-led collective action among rendering unilateral solutions to fighting and reducing academia, government and the private sector to effectively corruption inappropriate or ineffective in the long-term. identify corrupting influences and to deal with corruption. To Yet, there is still a need for caution. The range of projects this end, Worth MacMurray points out that, while govern- reviewed in this issue suggests there are emerpng best ments take steps to strengthen their own anti-corruption practices and lessons to be learned, but there is not yet a requirements, the private sector is a critical stakeholder systematic operationalization of concrete multi-stakeholder throughout this process as it decides if and how to respond to governance and anti-corruption strategies. increasing mandatory and voluntary regulatory pressure.

Multi-stakeholder partnerships are a complex and Implementation of anti-corruption measures is possible nuanced undertaking. To date, existing documentation of wenin difficult environments. The next two articles concen- collective action and multi-stakeholder partnership anti-cor- trate on anti-corruption experiences at the implementation ruption initiatives is largely anecdotal. As Roderick Hills level. Mohamed Ibrahim of Celtel International outlines in points out in his article, the void created by a lack of empirical detail how anAfrican company has dealt with corruption, while research makes such initiatives difficult to replicate, scale-up, operating in often corrupt and corrupting environments. monitor and evaluate over time. Furthermore, factors such as Kebour Ghenna provides a civil society perspective from the level of political engagement and the transparency of the Ethiopia, focusing on private-private corruption. Ghenna business environment, as well as the capacity of individual argues that, to be truly effective. ethics must play an integral stakeholders to engage in partnerships, can all impact any ini- part in organizational culture, which requires the mobilization tiative's effectiveness and long-term sustainability. and strengthening of the civil society sector to undertake regu- Understanding business environment indicators, as Michael lar monitoring, enhance public awareness and encourage Klein points out based on the findings of the World Bank Doing widespread private sector commitment and support. The arti- Business surveys, are indicative of specific economic and social cle by Dani Kaufmann, Aart Kraay and Massimo Mastruzzi outcomes, among them levels of productivity, informality, and focuses on specific myths and realities related to the measure- corruption in a particular ~ountry.~It is important to study ment of corruption and helps set the context for assessing the these factors and to carefully build capacity locally and across private sector's role in corruption, as well as its impact in stakeholders before considering and engaging in collective fighting it, rendering the private sector more of an "invest- action initiatives. WBI is committed to doing exactly this ment climate maker" than an "investment climate taker." through its learning programs that support the efforts of the Kaufmann et.al, emphasize the value of empirical research in private sector and other stakeholders, individually and in part- problem diagnosis and the monitoring of results. However, as nership, to fight corruption and render development efforts the article points out. there is still much debate on how best to more effective. go about these activities.

o Development Outreach WORLD BANK INSTITUTE Dialogue can be a powerful tool for change. The depart- ment Voices from the Field features two conference sum- maries: "Research on Corruption and Its Control," by Moana M. Erickson, and "Seeking Clarity in A World of Murky Transactions." The latter covers a global high-level e-discus- sion, "Towards a More Systematic Fight against Corruption: The Role of the Private Sector," organized jointly by WBI, the UN Global Compact and Zicklin Center for Business Ethics Research at the Wharton School of Business from June 26 to July 7, 2006. The impressive level of participation in the e- discussion, as well as the depth and breadth of the discussion itself, reinforces the importance of information sharing. Of equal importance is remaining open to new and innovative ideas on how to combat con-uption, while maintaining a level of flexibility knowing that corrupt actors will also adapt to new anti-corruption strategies. Corruption is a multi-headed beast that will not be slain easily. rlu

------Frannie LBautier is Vice President of the World Bank Institute. Djordjija Petkoski is Head of the Business, Competitiveness and Development Team, World Bank Institute. Michael Jarvis is Consultant, Finance and Private Sector, World Bank Institute.

Endnotes Wolfowitz, Paul, World Bank President, Jakarta, Indonesia, April 11, 2006

Batra, Geeta, Daniel Kaufmann and Andrew H. W. Stone, "The Firms Speak: What the World Business Environment Survey Tells Us about Constraints on the Pr~vateSector Development," in Voices of the Firm 2000: lnvestment Climate and Governance Findings of the World Business ~L~2..IIPISl~lplpt~&~*~dIn Environment Survey, World Bank Group. 2002. ~ssmon~*~,~~~agb$om- ~~nurB3rOF~~~~~ http://www.unglobalcompact.org/AboutTheGC~heTenPrincipledindex.html d irm the ~etktlambPrrd Mizerlurrd. Kaufmann, Daniel, "Myths and Realities of Governance and Corruption" in Schwab, Klaus and Michael Porter, The Global Competitiveness Report 2005-2006, World Economic Forum, 2006. According to Daniel Kaufmann, Director of Global Programs at the World Bank Institute, the way forward is not "fighting corruption by fighting corruptlonu (1.e. launching another anti- corruption initiat~ve,introducing more anti-corruption commlsslons or imple- ment~ngnew codes of conducts).

Klein, Michael, Doing Business in 2005: Removing Obstacles to Growth, World Bank. 2005. The Bank is a leader in the development and application of governance diagnosis, from the Do~ngBusiness report to lnvestment Cllmate Assessments to indicators that assess six dimensions of governance In more than 200 countries. These indicators are used extensively to raise awareness nationally and globally and help to support policy reform.

SEPTEMOFR 2006 Anti-Corruption and Corporate Citizenship

BY GEORG KELL know that the quest for successful development remains elu- sive in the absence of public and private sector governance CORRUPTION IS ON THE GLOBAL AGENDA. Now the search improvements. Corporations and Governments alike, in the is on to find winning strategies. The business community has North and the South, understand in principle that corruption a major stake in this and an important role to play, and volun- undermines public trust, the precious glue that holds the tary initiatives such as the UN Global Compact can help to social fabric together. Corruption perpetuates moribund augment positive forces of change while complementing what political elites who hold back their own people from escaping Governments do or do not do. poverty. And, it distorts markets by rewarding cheating and The case has been made with respect to why anti-corrup- thus closing the door to responsible entrepreneurship, the tion measures deserve the highest priority. &d professionals surest and arguably only reliable way to escape poverty. The business community is sensitized to the risk that cor- countries and demand, especially in emerpng economies, ruption poses. Related scandals have shown how brands and continues to grow. But it is not only the numbers that describe assets can be destroyed, and, as global supply chains expand, so the picture. There is also a gradual change towards higher does the nature of enterprise risk. Corruption scandals in far quality and deeper engagement. Senior management and away places may cause disproportionately large damage in an board responsibilities are expanding, suggesting that corpo- age of heightened transparency and instant communication. rate responsibility (CR) issues are taken more seriously today Corruption has become a systemic risk factor and the propen- than a few years ago. This expansion reflects the recognition sity to build pro-active safeguards has grown accordingly. that societal legitimacy goes beyond shareholders and that With the growing knowledge about the costs of corruption risk management in a globalizing world and related CR activi- has come a growing number of regulatoly and voluntary ini- ties need to be dealt with at the highest level of a company's tiatives trying to stem and reduce the tide of corruption. But operations. And, as corporate responsibility creates new despite the flurry of activities around corruption, surprising- materiality around the issues it advocates, board responsibil- ly little is known about what works and what does not. All too ities may also now include issues that used to be the exclusive often, anti-corruption measures are framed narrowly, ignor- domain of governmental cooperation. ing that it is a deeply societal phenomenon with great varia- tions over time and across cultures and economies, involving societal values, power structures and all segments of society. From avoiding costs to creating value Many futile efforts have been spent on making the case for or against regulation or for and against voluntary approaches. One way of capturing this overall trend is to track the broad Both are needed. What matters is findingthe right balance. motives with respect to why corporations have engaged in cor- Business-led approaches must be an integral part of any porate responsibility initiatives. There has been a shift from comprehensive anti-corruption strategy. They cannot substi- an initial attempt to respond to social tensions and occasion- tute for effective regulation but they can complement regula- al accidents towards a more pro-active, value-creation atti- tory efforts. Regulation alone will not work. Even if applied tude. Thus, along with the moral case, has come the business effectively, it can, at best, define a minimum floor below case for a principles-based change process. And, the business which society is prepared to impose sanctions. Regulation case is no longer just about avoiding costs for gettingit wrong. feeds compliance-based behaviors and cost minimization; it It is increasingly about the benefits for getting it right, includ- does not provide for the trust-based informal social norms, ing improving competitive position and expanding business without which markets and societies cannot function. Nor opportunities. does it stimulate innovation. This is where voluntary busi- ness-led initiatives, such as the UN Global Compact, can play an important role. These voluntary initiatives help to make Financial markets are catching up the case for good corporate performance and, thereby, can provide an impetus for broad-based change, especially if good Encouragingly, mainstream financial markets are now performance is rewarded and established as a de facto behav- starting to take seriously the expanding enterprise risks and ioral norm. opportunities in a globalized world in analysis and long-term The good news it that anti-cormption has become an inte- investment decisions. The market up-take of the IFC's gral part of the rapidly evolving corporate citizenship move- Equator Principles and the UN Principles for Responsible ment, which until recently was primarily concerned with Investment reflect this important trend. What used to be con- human rights, workplace issues and the environment. The fact sidered "soft issues" are now gaining financial relevance. that many human rights and supply chain dilemmas, as well as Increasingly, for example, mainstream financial analysts are environmental problems, are often an outgrowth of corrup- incorporating environmental, social and governance issues tion has greatly facilitated this trend. into research and processes, while institutional investors are Indeed, a number of rapidly unfolding trends suggest that recalibratingpolicies and mandates to reflect this new realiq. the corporate citizenship movement offers great opportuni- This trend promises to recognize and reward companies that ties to make progress or tackle corruption on a global scale are taking the long view. through market-led solutions: n nwrr symulusn: corporare governance Four key trends and comrate resnnnaiilitv

The rise and expanding role of corporate governance has Corporate citizenship goes truly global given major impetus to the issues before us. Corporate gover- nance and corporate responsibility are now reinforcing each Corporate citizenship has seen explosive growth in recent other. The overall trend is one of convergence. Anti-corrup- years. For example, the United Nations Global Compact began tion and transparency measures have been a driving force in with roughly 50 participants in July 2000. Today, there are this development, in addition to a greater appreciation of the more than 3,000 participants and stakeholders from 90 long-term risk management dimension. Inspired by the pioneering work of Transparency International and the International Chamber of Commerce, I Promoting organizational chaflge the first summit meeting of the UN Global Compact intro- I duced its tenth principle against corruption in July 2004, fol- Accelerating the widespread adoption of good corporate lowing the adoption of the UN Convention against Corruption. citizenship and governance based on universal principles by Despite ~nitialresistance on the side of many business partic- way of recognizing, rewarding and promoting good practices ipants, the tenth principle has rapidly become a source of will be key. Already. hundreds of business leaders have put in dynamic change, motivating a range of actions at the global place-in the developed and developing world-pro-active and country level-and reinforcing the convergence between organizational policies. Such efforts need to be supported so corporate governance and corporate responsibility. Global that they gain further grounding and become dominant mod- corporations have begun to introduce no-bribe policies as els of behaviorism. This can be done by way of identifyingout- part of their citizenship agenda across global supply chains. standing "Conlmunications on Progress". showcasing good hd,increasingly, corporations are discovering that working performance and lessons learned (Global Compact 2006). with like-minded peers and other stakeholders can be a way to Promoting organizational change, reducing downside risks reduce risks and costs. through prevention while heightening employee morale and In addition, the following can be said: productivity is a long-term effort. but the more sound busi- First, effective implementation of the tenth principle ness ethics are promoted, the closer we come to changing the within organizations follows the same organizational change culture towards no-bribe policies. process as for the other Global Compact principles on human rights, labor standards and environment. While anti-corrup- tion may involve additional reporting requirements in accor- dance with prevailing regulation, the overall processes to make anti-corruption an integral part of corporate strategy In many countries, there is an enormous willingness to and operation are the same: leadership commitment, effec- embrace the corporate citizenship agenda. Emergingsuccess- tive organizational change and management processes, ful entrepreneurs who aspire to compete in the global market empowerment of employees, incentives, the capacity to assess place or who wish to establish linkages as suppliers are eager change and impact, and communication to shareholders and to be part of the solution. But all too often there is no practical stakeholders. guidance available on how to go about this. Offering training Second, when it comes to actions in society that go beyond and support on good corporate governance and responsibility the immediate sphere of influence of individual organiza- can go a long way in accelerating organizational change tions, the tenth principle has greatly underscored the impor- processes. One way of doing so is through the UN Global tance of working together. More than any other principle it Compact's local networks where able and willing business and encourages cooperation between corporate participants and civil society actors have already embarked on this agenda. other stakeholders and policy makers. A number of Global Compact local networks have already undertaken collective Supporting action campaigns i '2''i ;:F. J, b -:, action inspired by the tenth principle, in all regions of the . I world. Dialogues and joint actions have already started to take place on quite a large scale in places such as Malawi, Egypt, In situations where systemic corruption prevails, creating Norway, Germany, Denmark, Brazil and Argentina. Some of islands of sound business ethics may not go very far. Those the most encouraging examples include business voices who benefit from corruption are unlikely to give up their speaking jointly to public institutions by malung the case that advantages on a volunta~ybasis and few corporations are will- business can only become more competitive if public institu- ing to institute no-bribe policies if their competitors are tions are more effective. unwilling to do so. In such situations it makes sense to support broad-based movements that bring together like-minded The way forward public and private actors. Offering platforms for dialogue and learning that combine global advocacy with local action can SUPPORTING CORPORATE CITIZENSHIP offersseveraltangi- help to overcome systemic barriers. Within the UN Global ble opportunities to advance the anti-corruption agenda. Compact we are observing in a number of countries like- Progress can be made on a global scale by tapping into exist- minded corporations, global and local. teaming up with civil ing market trends and augmenting them. The fact that corpo- society organizations, such as national chapters of rations from emerging economies play an active role in cor- Transparency International and sometimes involving policy porate citizenship also assures that such supportive efforts are makers, to reduce risks to brand while lowering transaction locally owned and thus have a greater chance to transform costs and increasing competitiveness. Again, entrepreneurs societal values relevant for markets to grow. of emerging economies are often leading these efforts, Based on experiences made so far, a variety of supportive together with global corporations, realizing that in today's measures seem suitable to advance the agenda: competitive environment business cannot succeed if public institutions are not effective. It is too early to say whether

lo Development Outreach won~oBA NK INSTITUTE these broad-based action campaigns will lead to lasting change. But clearly, supportingsuch efforts will enhance their chances for doing so. 0 United Nations Convmiion against Cormption, 2005 0 OECD Convemtion on Combating Bribery of Foreign Public Officials in Internation111 Business Transactions, 1999 Conclusion 0 Afrlcan Union Comgntion on Preventing and Combating I Conuption and Related Offences, 2002 IN CONCLUSION, the focus on anti-cormption and its inte- 0 Council of Europe Ckil Law Conventian on Corruption, gration in the corporate citizenship agenda are important 1989 developments. They contribute to greater market integrity 0 Council of Europe Criminal Law Convention on Corruption, and hold the promise of infusing improved governance in the 1999 public and private spheres alike. We may not yet know what 0 The European Union Convention on the fight agdnst Corruplion lnvdving Officials of the European works best. But we do know that there are at least two viable Communities or Officials of Member States, 1997 pathways ahead: advancing a principles-based organizational 0 OrganlzptMn of American States Inter-American change process across all organizations and supply-chains, Convention against Cormptbn. 1996 and fostering collaborative efforts that involve all actors in society. In this, continued advocacy, discourse, and research will also be crucial, including, and especially through, the

voices of civil society and a strong and free press. ~2 0 United Nations 61obal Compact 0 OECD Guidelines for Multinational Enterprises, 2000 Georg Kell is Executive Director, UN Global Compact. 0 The Finamlal Action Task Fmron Money Laundering (FATF), Revised 2003 I References 0 Transparency Intsrnational Steering Cornmiltea on the Global Compact, April 2006, "Business Agalnst Corruption-Case Stor~es TI Business Prhciples lor Countering Bribery and Examples." 0 The International Chamber of Colnrnsrce Anti-Corruption Commission 0 The World Economic Forum Partnerfng Agdnst Cormption Initiative (PAC11 0 International Federation of Consulting Engineers (FIOIC) 0 The Extractive Industry Transparency Initiative (EITD LESOTHO ATLAS OF SUSTAINABLE DEVELOPMENT 0 "Business against Cer-as0 stwiss and I Exam@h," Glabal Cw~pactApril 2806 By O.M. Bohra, ISBN 99911-645-02, December 2003, ppmii+480, Size A4, Hb, US $95 (Posh-- Free) 0 "Business agW CmuptiolcA Framework for Actjen." Bls)al Compact, Mrnational BW~IIUSSLmdsrs Fwum, - Transparency Internatlenol. December 2E#)5 0 IMernatthl Chamber of Commerce Rules of Conduct to Combat Extwlion and Brbmy, Revision 2005 0 Trmsprrency International B&wss Prl~ciplosfor Countering Bribeiy 0 Transparency lntwea8ml IntsgiZg Pacts 0 The World Ecoaomic Forurn Pamerim Against Corruptioa InMaBve (PtCIl Principles 0 Transparmy lnternational Six-Step lmplsntentation Process 0 First to b-Robgt Infernal ReporljttgProgrammes, Tm,ISIS Asset Management, tntmatlenaf Bushes Leaders Forum 0 TRACE Transparent Agents and Contracting EnMes 0 FIDlC Code of Ethics aml Business Integrity Management System To order, contact: jaingjbyahoo.com OR P.O. Box 2852 Santa Clara. CA 95055 USA Civil Society and the Private Sector Fighting cormptioon is good inks

BY HUGLIETTE LABELLE

NOT SO LONG AGO, when it came to bribery, businesses in many developed countries were not just given a nod and a wink; their governments actively encour- aged bribes, offering tax breaks and other legal incentives. It was viewed as good business to "work with the locals". But bribery isn't a business strategy; it's a crime. Transparency International defines corruption as the abuse of entrusted power for private gain. When entrusted power is abused, the decision-making process is distorted by greed, and the decisions often hurt innocent people and stand in the way of progress. The result: reduced economic growth and productivity, and opportunities stolen from the poor and disenfranchised.

Local practice or complicity?

MANY BUSINESS PEOPLE want to act honestly and contribute to the social and economic welfare of the country where they are doing business. Too often, though, these good intentions are put to the test in the form of extortion, endless red tape and demands for bribes. And of course, in bidding for large contracts, trying to improve your chances by actively offering a bribe remains com- mon practice. A hand under the table may seem like an expedient and harm- less way to advance a thorny business

L. Development Outreach WORLD BANK INSTITUTE transaction; it may be rationalized as respectinglocal business effort by civil society, and provides a binding framework for traditions. mutual legal assistance across borders. In practical terms, that When does followinglocal practice become complicity? Even means Nigeria has a legal basis-rather than existingvoluntary small acts of bribery make a company a partner in corruption ag~eements-for its effort to recover the billions of dollars and contribute to undermining a nation's economic and social spirited into Swiss and other bank accounts during Sani welfare. Such payments might be the product of a genuine Abacha's rule. desire to maximize profits for shareholders, but they can also In partnership with Social Accountability International result from a normalization of corporate greed, and they raise and other organizations and companies, Transparency significant questions about the ethical climate of business. They International created the Business Principles for Countering can be a stepping stone to corruption on a larger scale-the so- Bribery, a generic framework for a no-bribes policy that can called "grand corruption" of dictators and mega-COI-porations, be adapted to any corporate context. An increasing number of or the perversion of political processes-that sucks the wealth companies worldwide now use this tool to develop or bench- out of poor nations, empowering corrupt government officials, mark their no-bribes policies. The Principles have also been diminishing public trust, locking generations in poverty and the basis for sectoral anti-corruption policies brokered by TI sometimes feeding conflict or even terrorism. with extractive industries and energy companies. "Creed is good." said Gordon Gekko in the 1980s film Wall Systemic corruption can add up to 25 percent to the cost of Street. Since then, there has been a sea-change in the way cor- government procurement, and frequently results in inferior ruption is viewed. Organizations like the World Bank. which quality goods and services, as well as unnecessary purchases. had long considered the subject a taboo. now help drive the The Integrity Pact, developed by Transparency International, is debate. Businesses increasingly acknowledge the risk in a no-bribes agreement between governments and companies actively supporting or passively conforming to corrupt sys- bidding for projects, so ethical participants are not disadvan- tems, having recognized both the human cost and the impact taged by less ethical competitors. If a party fails to comply, the on the bottom line. Pact specifies sanctions, which can include cancellation of the Companies increasingly acknowledge that short-term prof- contract, liability for damages and disqualification from future it maximization through cormption does little to create long- government contracts. With provisions for oversight by civil term value. Recent corporate corruption scandals underscore society, Integrity Pacts have been used in more than 80 proj - this. Strict disclosure and conflict of interest requirements ects around the world, and have been adapted for use on World could have limited the damage to shareholders and staff at Bank projects. Pacts were signed in 2005 for the procurement Enron, Tyco, DairnlerChrysler and any number of others. And and construction of the Berlin Schonefeld airport in Germany, such events speak against the idea that companies can be and for Paraguay's national oil company Petropar. Integrity entirely self-policing. As shown by cases currently before Pacts reduce costs for business, citizens and governments, courts in Europe and the United States, when the invisible hand wreaks havoc, it's hard to find an invisible wrist to slap. Strong, vibrant and enduring companies are built onreputa- tion, and that is a vital and fragile resource. Companies that take ethics seriously, that adopt a genuine programme of 'corporate social responsibility' and embrace the practice of anti-bribery as well as the theory, often perform better in the long run. The pursuit of financial accountability and transparency

YET BRIBERY CONTINUES. The World Bank Institute esti- mates that, around the world, US $1 trillion is spent in bribes each year. A comparable amount is believed to be laundered. Nearly every penny of this dirty money will pass through finan- cial and other "legrtimate" enterprises at some point. The pur- suit of financial accountability and transparency requires a cross-sectoral effort that civil society is helping to facilitate. Such coalition building is at the core of Transparency International's phdosophy and is a main route to tackling the complex social, economic and political problem called comp- tion. Civil society plays an essential role in increasing awareness and producing creative and effective solutions. It has a strong record as a catalyst of practical anti-corruption approaches. The landmark United Nations Convention against Corruption entered into force following a concerted advocacy

SEPTEMBER 2006 I Bribery, and will be vital in determining ethical investment decisions and, poten- tially, even credit ratings. The UN Global Compact, a voluntary citizenship initiative, brings together civil society organizations and over 2500 corporate members in a commitment to advance universal principles on human rights, labour, the environment and other social issues. A tenth and final principle-transparency and anti-cor- ruption-was added to the Compact last year following the intervention of civil society groups, including Transparency International. The Principles for Responsible Investing, an initiative sponsored with the UN, was adopted earlier this year by a large representation of institutional investors. The provisions, like so much to do with corporate citizenship, remain voluntary, but this is a commendable start to developing a new concept of how to conduct business ethically. Voluntary compliance is a vital ingre- dient in improving corporate behaviour but must be supported by strong and intelligent regulation combined with well-crafted and fully funded monitoring and enforcement. Governments must continue to ratchet up enforcement of the OECD Anti-bribery Convention. According to a recent Transparency International report, two-thirds of the signatory countries have done little to ful- fill their commitments to fight corporate bribery abroad. because bribes are no longer paid, and resources no longer This requires a visible demonstration of political will to squandered. take forceful action against companies that bribe to win busi- The Business Principles and Integrity Pacts are now used in ness abroad. Signatory countries account for about two-thirds countries around the world. For instance, Transparency of world exports of goods and services. Because most major International will soon begin work in China to "train the train- multinational companies have their headquarters in OECD ers" on their implementation. signatory states, more effective monitoring and enforcement The work of the Financial Action Task Force, created by the of the Convention would be a substantial step in closing the Group of Seven and now run by the OECD, has made great strides taps on the supply-side of international corruption. in promulgating common standards on stemming the flow of laundered funds, including the identification of high-risk cus- Conclusion tomers. There has also been a dialogue between the Task Force and the Wolbberg Group of leading private banks to develop a ETHICAL BUSINESS IS GOOD BUSINESS. Corruption is not a framework for combating international money laundering and, competitive advantage. It is apokerful threat to a stable and fair after September 11th. guidelines to combat terrorist financing. economic environment that benefits all citizens. In alliance These standards hold banks accountable for knowing their cus- ~lthbusiness, organizations and individuals around the world, tomers, for carrying out increased diligence and for cooperating civll society is working to ensure those benefits for all. & with domestic and international authorities. The FTSE4Good corporate citizenship indicator looks at Huguette Labelle is Chair, Transparency International. corporate integrity and reporting. It incorporates criteria launched this year from the Business Principles for Countering

14 Development Ourreach WORLD BANK INSTITUTE The Power of Joining J? orces The case for collective action zn fzghtzng con-aptton

BY PETER BREW business, with the extra financial burden estimated to add lo percent or more to the costs of doing business in many parts CORRUPTION IS NOW RECOGNIZED to be one of the world's of the world. The World Bank has surmised that "bribery has greatest challenges. It is a hindrance to sustainable develop- become a $1 trillion industry." ment, with a disproportionate impact on poor communities Business leaders often take the view that it is a problem they and a corrosive effect on the very fabric of sociegr. The impact cannot do much about, although it would be desirable to exclude on the private sector is also considerable-it impedes eco- all forms of corruption from their operations. There is a per- nomic growth, distorts competition and represents serious ception that corruption-from petty bribery and facilitation legal and reputational risks. Corruption is also very costly for payments to state capture-is so much part of accepted business

SEPTEMBER 2006 I practices or local custom that there is no remedy for the indi- intermediary. Such an intermediary organization can act as a vidual company if it is to remain competitive in local markets. convenor and provide a neutral platform or "safe haven" from Although business managers increasingly recognize that which collective action initiatives can be built. corruption is a serious business challenge, they may not Any such initiative needs to be jointly owned by those always accept that they have a responsibility and a key role in involved, but the intermediary provides "coordinating ener- changing practices that have become endemic. The dilemma gy." Often there are already locally represented organizations is to balance doing what is right against putting business that can provide this facilitation, for example Transparency operations at a competitive disadvantage. International's national chapters, local busi- This is not to suggest that there are circum- ness chambers, and the United Nations Global stances in which corruption is acceptable, Compact's local networks. Auditing firms and merely to acknowledge that business managers Collective larger consultancies can also play an important may perceive that promoting change in accept- role in facilitating this collective action by ed local business practices could jeopardize action working with clients who have encountered their business interests. It is often relatively similar corruption issues. easy to get business managers to acknowledge with other that it would be beneficial to both them and Supporting environment their competitors if corruption were eliminat- companies ed. But it is more difficult for them to take the Although much of the effective action first step to act together in combating corrup- against corruption has to take place at a local tion, for fear of losing out to each other. offers an level, a number of overarching support mecha- nisms are available to raise awareness and to Understanding the need for effective way provide frameworks for sustainable improve- collective action ment. These include: to create a IN PRACTICE. collective action with other Global initiatives companies offers an effective way to create a level playing The United Nations Global Compact's loth level playing field on which to compete, and Principle; increases the impact on local business practices field on which Transparency International's Business beyond the capacity of any one company. Principles; Knowing that other companies in your sector or to compete, The World Economic Forum's Partnering location are committed to good practice helps Against Corruption Initiative (PACI); to build mutual confidence and the sustainabil- and increases The Extractive Industry Transparency ity of changes in behaviour. Initiative (EITI). The Extractive Industries Transparency the impact on Initiative (EITI) is possibly the most high-pro- Sector-specific initiatives file example of collective action by companies, local business Some collective action initiatives are sector- in this case in cooperation with non-govern- specific, focused on the specific challenges a mental organizations and governments, to practices particular group of companies or a particular improve transparency and fight corruption business sector has encountered (again, EITI is (ww.eitransparency.org). At the same time, bqond the a good example). These initiatives have the there are many examples from around the obvious advantage that they can be tailor-made world where local businesses or business asso- and focused in terms of the issues and the out- ciations have combined to tackle particular capacity of any comes expected. aspects of corruption that were proving to be a one company. barrier to business development. Business-led vs multistakeholder Recognizing the need for facilitation/convening THROUGH THE INVOLVEMENT of a wide range of actors, companies, non-governmental organizations, and THE INCREASINGLY WIDESPREAD recognition that it often governments, initiatives such as the United Nations Global takes companies working together to tackle corruption has led Compact can quickly obtain a high degree of legitimacy and to a growing body of experience and examples of companies authority. Other multistakeholder initiatives, such as the EITI, joining forces in differentways, in different places and in dif- have come about because of the campaigning of non-govern- ferent business sectors. A common thread running through mental organizations. these kinds of initiatives appears to be the importance of some A potential drawback with multistakeholder initiatives is kind of external facilitation-a business organization, govern- that they often grow rapidly and consequently may become ment body or non-governmental organization to act as an cumbersome to manage. Also, it may be difficult to turn aspi-

16 Developmcnr Outreach WORLD BANK INSTITUTE Local practical relevance 1 Collective action initiatives flourish best when they are addressing locally relevant issues. Some initiatives, such as Tranparencia por Colombia's collaboration with a group of text- book publishers, have emerged from needs identified locally. In such cases, there has been relatively limited input from out- side sources. In other cases, organizations such as the United Nations Global Compact, Transparency International, the World Economic Forum, the International Business Leaders Forum and the Ethics Resource Center have joined forces with local companies with the aim of initiating local projects. In these circumstances, it is critical that the agenda is "localized" early on and adapted to the challenges encounteredlocally.

Facilitation Experience suggests that having a neutral party bring key stakeholders together to determine local priorities is often critical for progress. Facilitation is largely about managing the process and providing a framework of internationally recog- nized principles and ambitions within which the practical realities can be addressed. It is clearly important for the facil- itating organization to have an understanding of both worlds- of basic international research and what has emerged inter- nationally as best practice and, on the other hand, what chal- lenges a local businessman encounters.

Building co dence It takes time to build confidence amongst groups of busi- ness leaders who may initially be sceptical about what can be achieved, as well as concerned with the implications of work- ing with competitors and others outside their normal set of relationships. Focusing on issues that have important current impacts on business and the community and then conducting a series of individual and group meetings to explore the opportunities and barriers to cooperation are essential steps leading to the formalization of any initiative.

Funding of collective initiatives When it is agreed that some kind of facilitated initiative is rations into tangible action. As the number of participants required, funding is required to pay for such a joint effort. The increases, the early dynamism and confidence of the original costs will normally arise from the coordination of the initia- smaller group of participants can dissipate. tive, research, meeting arrangements, translation, access to On the other hand, business-led initiatives that are focused expertise. facilitation, travel and the like. on solving specific business challenges can often be more Current experience suggests that there are many advantages results-driven, but may not satisfy the expectations of other in sharing the costs among the companies, not-for-profit stakeholders. organizations, multilateral or bilateral agencies and govern- ment agencies involved. Organizations that make a financial What it takes to make collective contribution are always more likely to remain engaged, take a business action happen project seriously and demand practical results.

IF IT IS ACCEPTED that makinga significant impact on corruption The role of leaders demands more than companies adopting stringent standards The successful initiation and building of collective business on their own, that collective action is often required to reinforce and achieve real progress; and that such joint solutions need - ~ some kind of facilitation, then it is necessary to explore what it THE POWER OF JOINING FORCES takes to get such joint actions off the ground. The following are cont~nuedonnfi page 30 some of the experiences that have emerged so far: J

SEPTEMBER 2006 I7 The Importance of Cynicism and Humility Anti-Comption partnmR$s with tkphatisenor

BY WILLIAM S. LAUFER ments that involve the private sector. This is especially true when they aim to curb behaviors as old as civilization itself, in IT IS NEAR BLASPHEMY TO CHALLENGE the mechanics and base rates still to this day unknown, committed by corporate wisdom of anti-corruption regimes. It wholly misses the mark actors who find it somehow too complex to just say "no." In the to question corruption rankings of countries as resting onweak wake of regular lapses of citizenship, compliance, and gover- empiricism; anti-corruption conventions, codes, principles, nance by icons and pillars of the corporate community, rea- and business association pacts as possibly ineffective, and the sonable caution must accompany hope for credible partners in construct of corruption as poorly defined and understood. It is the private sector. Hope should be tempered by the private sec- indisputable that corruption impedes development, that the tor's long and distinguished track record of gaming govern- enabling environment is the key to reform, and that we need a ment partners in past, failed partnerships against deviance. sea change in behavior. Critics do no more than distract those Perhaps nothing begs for a combination of caution and who see the injustice and deprivation that come from corrup- humility more than the practice of narrowly defining corrup- tion, understand its corrosive, delegitimizing force and, tion in the context of development, pinning this blight-at hence, appreciate the critical need for good governance prac- least in part-on the weak governance structures of develop- tices derived from multisectorial partnerships. ing, emerging and transitional economies, and then offering The coordinated campaign against corruption resembles inspired, prescriptive anti-corruption guidance. Thinking the good corporate citizenship movement that spread ethics about corruption as a catalyst for only greater inequaligl and codes and ethics training programs in the United States overthe poverty, in terms of losses in foreign direct investment, and as past decade and, more recently, a corporate governance move- reductions in the internal revenues, narrowly frames the con- ment born from apparent failures of citizenship, compliance, struct. Broadening our construction of corruption immedi- and gatekeeping. In these movements, there is little room for ately invites scrutiny of political, government, and private those uninspired and unconvinced by the promise of strong sector corruption that generously dots our own landscape, private sector-government partnerships combating organiza- from city halls to the halls of Congress, from front offices and tional deviance. All are asked to buy into compliance incarna- back offices to boardrooms, and from the money that influ- tions of firms that accompany carefully crafted plea agreements; ences state and local elections to the Herculean influence that reports from the Fortune 1000 of social, environmental, and must be bought to enter and compete nationally. humanitarian accomplishments; fierce rhetoric of regulators Looking beyond corruption to corrupting influences only and politicians that corporate predators will be brought to jus- broadens the construct further. The root sources of corrup- tice; and well-placed expenditures to be "in compliance" with tion reflect a host of independent variables that, quite unfor- the Sentencing Guidelines or, more recently, with the strictures tunately, remain underexplored, including wide authority, of Sarbanes-Odey and new exchange rules. little accountability, and perverse incentives (Hills I maintain below that it is the absence of constructive cyn- Governance Center, 2005) Add to this "opaque regulations, icism and measured humility that actually misses the mark. In weak enforcement mechanisms, barriers to business, ineffi- other words, there must be room for those who remain unin- cient Government agencies, absence of a public dialogue on spired and unconvinced by the jingoistic rhetoric associated corruption, excessive discretionary powers in the hands of with private sector reforms in partnership with governments. public officials, and a lack of checks and balances" (Sullivan, Cynicism should generally accompany campaigns or move- 2.005). In the end, it is with healthy cynicism and humilitythat

18 Drvelop~nenrOurreach WORLD BANK INSTITUTE the moral suasion necessary for genuine change in private lenges made inevitable by the union of some very familiar sector behavior is earned. bedfellows. Elsewhere I have written about the ways in which the private sector professes a commitment to government Partnerships, limits of law, and the prescriptions of ethics and integrity while gaming correspon- lesson of cynicism ding legislation and regulation (Laufer, 2006). The "old game" of corporate ethics involves companies conceiving of MULTILATERAL ORGANIZATIONS g~eetthe idea of partner- regulatory and legal compliance as a form of insurance. ships with unbridled enthusiasm. Engaging business, govern- Compliance is purchased as a hedge against liability and, in ment, and civil society is more than an innovation, it is a some cases, raises the prospects of moral hazards. The greater necessity. Partnerships represent a critical link in a transfor- the purchase of compliance, the less likely regulators will mative process for the United Nations System, the interna- look, the less likely evidence will be found, and the less likely tional finance institutions, and donor agencies; a move from that significant criminal sanctions will follow in the event that intergovernmental organizations to providers of capacity- inculpatory evidence points to the firm. For some companies, building, sustainable solutions to the challenges facing emerg- therefore, greater compliance expenditures may actually ing and transitional economies. Multisectorial partnerships increase the tendency toward or likelihood of deviance. share and enhance resources, harness underdeveloped mar- lhs argument and the lessons leaned about compliance kets, develop and implement codes of conduct, and facilitate games may be extended to recent governance reforms. and leverage advocacy. Most important, partnerships create Businesses are playing the "new game" of corporate ethics, where efficiencies, pool resources, and enhance the likelihood that the idea of citizenship is increasingly overshadowed by calls for interventions, such as anti- corruption regimes, will work. changing the responsibilities, composition, liability, and opera- When commentators consider the limitations of such part- tion of boards of directors; the responsibilities of audit, compen- nerships, the focus turns to the need for common objectives, sation, and nominating committees; the legal oversight over cor- the importance of an optimal "interface capacity." concerns porate governance; and their compliance with SEC, NYSE, and over the management of all stakeholders, the value of local NASDAQ standards and the requirements of Sarbanes-Oxley. ownership, and the integration of a systematic evaluation of, The rigors of regulatory enforcement, the difficulties of detection, among other things, impact. Other challenges include the the integration of new governance requirements into firm-wide marginalization of partners, the allocation of adequate compliance initiatives, the strength of sanctions for non-compli- resources, and the difficulties of partnership selection. ance, and importantly, the direction of the sanctions, will reveal There 1s a very different set of challenges, however. chal- the success of any new corporate gaming. - - By level of government. 1973-2004 ELECTED OR APPOINTED OFFICIAL rr TOTAL FEDERAL STATE LOCAL OTHERS INVOLVED Await~ng Awaiting Awaiting Awaiting Awaiting In- tr~alon Con- In- trial on Con- In- trial on Con- In- trial on Con- In- trial on Con- dicted Dec. 31 victed dicted Dec. 31 victed dicted Dec. 31 victed dicted Dec. 31 victed dicted Dec. 31 victed

The relevance of both new and old "you cannot channel regulatory activity So, too, do sound corporate governance compliance games to anti-corruption down to the base of the pyramid, where programs that promote transparency in initiatives is simple. Private sector-civil trust is nurtured" (Braithwaite, 1998, p. ways that can only inhibit the demand society partnerships are fraught with 356) There must be a formidable and side of corruption. The point is, howev- some of the very same complexity that credible weapon sitting prominently in er, that the success of these initiatives can compromise the prognosis for rule- the background available for use when and programs hinge on the genuine based, code-based prescriptions against regulatory authority meets frustration, threat of resort to more formal social organizational crime, whether these capture, old and new games. controls. Where this resort is compro- prescriptions are voluntary or required The lesson that at least some cynics mised by clever corporate stratagems, by law. Of course, no one doubts the have learned, however, is that private regulatory laxity, capture, or other importance of the guidance that comes sector-public sector partnerships often strategic impediments, the rhetoric of from prescriptions against corruption fail to breed laws that serve as credible integrity, ethics, good governance, found in internal company controls and background weapons, successfully transparency, and compliance is some- other voluntary instruments. At the channeling activity toward the base of times all that remains. And this rhetoric same time, it is conventional regulatory the regulatorypyramid. This is not to say is mighty convincing, with or without dogma that the threat of the criminal law that self-regulatory initiatives and prin- any evidence to support it. Thus, the call is the ultimate lever that empowers less ciples are of little value. From the for cynicism is no more than the realiza- formal social controls, llke the self-reg- Extractive Industries Transparency tion that rhetoric from these familiar ulation prompted by voluntary, private- Initiative of 2002, to the Equator bedfellows is best verified. Evidence of sector initiatives. Tithout a strong state Principles of 2005, examples of impor- program effectiveness for corporate capable of credible deterrence and inca- tant-critically important-private sec- agents and commercial intermediaries, pacitation," as John Braithwaite notes, tor anti-corruption programs abound. for example, and ongoing external

20 Dcvelopmcnt Ourrczch WORLD BANK LHSTITUTE third-party monitoring offer needed assurance that progress be enhanced by recognition of our own problem with the very claimed is genuine and, in fact, verifiable. The adoption of same phenomenon, and a genuine commitment to effective zero-tolerance policies, clear expressions of intolerance to solutions in serious reforms. r& corruption by top management and members of the board, the integration of this intolerance into recruitment, incentive, William S. Laufer is Director, Carol & Lawrence Zicklin Center for and performance reviews, and secure and accessible channels Business Ethics Research, The Wharton School, University of for reporting violations and whistle-blowing may be critical Pennsylvania. features of an anti-corruption program. Standing alone, they do not constitute evidence of an effective program. References: Braithwaite, John. Institutionalizing Distrust, Enculturating Trust, in V. Braithwaite and M. Levi (Eds.) Trust and Governance (New York: Russell Leadership, humility and the social Sage, 1998, p. 356); see also, Ian Ayres &John Braithwaite, Respons~ve construction of corruption Regulation: Transcending the Deregulation Debate (New York: Oxford University Press, 1992) MULTI -SECTORAL PARTNERSHIPS require leadership that Hills Governance Center, Toward Improved Corporate Governance: A approaches the scourge of corruption with some modicum of Handbook on Developing Anti-Corruption Programs (Washington, DC: Center for Strategic International Studies, 2005) humility. The deconstruction of corruption into its three con- Kaufmann, Daniel. Aart Kraay, and Massimo Mastruzzi. Governance Matters stituent elements reveals a very familiar, if not common pattern IV Governance Indicators for 1996-2004, World Bank Policy Research of behavior in the very partners vested with the success of anti- Working Paper Series No. 3630 , May 2005 corruption regimes, i.e., the misuse of power, attempts to Laufer, William S. Corporate Bodies and Guilty Minds: The Failure of achieve ~ersonalgain, and the sacrifice of public benefit. This is Corporate Criminal Liability (Chicago, Ill.: University of Chicago Press, 2006) a challenge for leadership that has multiple meanings, after Sullivan, John. Corruption, Economic Development, and Governance. Private overlooking the obvious irony that our hope for a world without Sector Perspectives From Developing Countries, Business Against Corruption: Case Stones and Examples (New York: United Nations Global Compact corruption is somehow enhanced by fostering partnerships Office. 2005) p. 35 between the most likely supply-side and demand-side suspects. With a narrow construction of corruption in relation to development, it is easy to be somewhat simple-minded about how the private sector and governments in emerging and transitional economies have much to learn from those with more mature legal systems and governance practices. No doubt they do. Research on such governance indicators as voice and accountability, political stability, government effec- tiveness, regulatory quality, rule of law, and control of corrup- Competitiveness tion by Kaufmann et. a1 (2005) points to significant if not dra- matic differences between OECD and non-OECD countries. That said, even a cursory look at official data on federal pros- ecution of public corruption in the United States, which one must assume represents a very, very small share of actual cor- rupt behavior, is also impressive (see Table One). Not in any way comparable, but impressive in the sense that the burden The BCDTeam addresses the role of corruption is also borne by those who feel particularly empowered to offer if not prescribe anti-corruption solu- businesses can play in: tions. Comparable official data forwhite collar crime and cor- poverty reduction porate prosecutions, again consisting only of federal offenses, improved competitiveness make the same point for good governance prescriptions. effective multistakeholder partnerships Finding legitimacy and moral suasion anti-corruption efforts

IT MAY BE ARGUED THAT these data do more than highlight good governance the prudence of humility. They offer a not so subtle hint that effective regimes to curb political and corporate corruption are necessary here, as they are elsewhere With state and local data, and knowledge of those offenses not reported or known to authorities, this point would be that much stronger. As a For more information on programs, courses practical matter this suggests the need for evidence-based and events, please visit our website at research on corruption to assure effective solutions. On a less www.developrnentandbusiness.org practical and more thoughtful note, our legitimacy and moral suasion to affect corrupt business practices elsewhere would Business as a Partner in Fighting Corruption?

BY RODERICK HILLS not wish such bureaucrats to betray the people's interest in our new country. Prominent constitutional scholars believe IT IS A FINE IDEA and there are admirable companies in that the dominant purpose of our Constitution was to prevent practically all countries that declare their genuine desire to corrupt individuals-government officials and cliques of reduce corruption. But who is the partner? Who do they fight? insiders-from abusing individual rights. They point to the What do they do? First and foremost companies must not yield clauses in Article I that are designed to prevent conflicts of to the cynical views: "Why does it matter: Everyone does it; interests and to require transparency so that the majority of Why should we buck the system?" our people can monitor their government and to Section 5, We have all met businessmen who are cavalier about cor- clause 3, that requires publication in a journal of all votes and ruption. They will say a few bribes can make an inefficient debates because the English Parliament withheld that infor- bureaucracy work better, or they dissuade you from complain- mation to conceal corrupt deals. Section 6, clause 2, bars ing on the grounds that a given country will always be corrupt; patronage by barring members from holding or taking execu- "you can't change them," people will say. Others will say: "It's tive office when they have voted to increase the pay of that a cultural thing in much of the developing world that is infest- olfice and section 6, clause 1 requires pay be set by law; and ed with corruption. Even the best minded business people in finally, ArticleVII requires ratification by popular convention such countries are forced to act unethically to do business." a clause that reflects 18th Century ideology that the people are Onthe basis of the 40 years that I have spent in so many parts less corruptible than public officials. of the developing world, I firmly reject the odious notion that What is so apparent is that the Founding Fathers knew very some civilizations are naturally corrupt. What is true, of course, well that corruption was prevalent in the world from which is that there are often more corrupting influences in the devel- they came and they wished to take serious steps to keep it from oping nations. Why? State control of the economy puts critical the shores of their new nation. Shaw, in speaking of the same decisions that affect business in the hands of bureaucrats who subject. put it differently: "Democracy substitutes election by are often poorly paid. Whenever such decisions are left to such the incompetent many for appointment by the corrupt few." discretion, corruption is likely whether that discretion is held As our Constitution was being drafted in 1780, Edmund by a Minister in Jakarta or in Washington, D.C. Burke warned: "Corrupt influence, which is itself the peren- In 1975 the commission rates charged by stock brokers for nial spring of all prodigality, and of all disorder, which loads the sale or purchase of stock were set by the Securities & us more than millions of debt; which takes away vigour from Exchange Commission (SEC). Unable to compete for busi- our arms, wisdom from our councils, and every shadow of ness from the large fund managers on price, a significant authority and credit from the most venerable parts of our con- number of stock brokers competed with gifts (bribes). Some stitution. Edmund Burke said: "Among a people generally were an elaborate dinner in New York. Others countered with corrupt, liberty cannot long exist." similar dinners in Paris or cars in garages. In May of that year The sad fact, however, is that Voltaire may have been right the SEC stopped the fixing of commissions and stock brokers when he said that corruption "is an evil that grows respectable were forced to compete on price; they lost the ability to com- with age." What then can business do to make corruption less pete with bribes. respectable? What we in the United States need to appreciate is that our By far the most important step would be for business to founding fathers gave our business community an enormous accept that corruption is one of the most, if not the most, dif- advantage in the fight against corruption. Those who drafted ficult economic problem facing our world in the 21st century our Declaration of Independence and our Constitution and to convince their employees, their government and the expressed the fear they had of corrupt civil servants, primari- body politic of that fact. My own view is that corruption and ly the judges in the vice-admiralty courts of England. They did related problems of governance, whether corporate or gov-

.z Development Outreach waa1.o nhNK INSTITUTE ernmental, present at least as great a threat to the democratic . The International Monetary Fund states that international way of life that we value as that we once attributed to drug trafficking now represents 2 percent of the world's Communism. Some examples: economy. In 1997 our Justice Department estimated that sophisticat- Others conclude that when drug trafficking is added to ed computer techniques allowed thieves to steal about $10 other organized crime income the total may well be as billion annually from America's financial institutions; much as 6 percent to 8 percent of the world economy.

I An economist with access to classified data of the Federal What business needs to accept is that the fight against cor- Reserve System estimates that drug trafficlung, prostitu- ruption is not just more laws and more police. As a wag once tion, pornography and black market currency provide $70 announced: "We have already passed more than lo millions to $loo billion. laws just to enforce the lo Commandments." What business Aprofessor at the Yale School of Law has identified econo- can do is to lead efforts to identify the "corrupting influences" metric research indicating that illegal payoffs can increase that distort the way in which they conduct their affairs and to the costs and lower the quality of public work projects by as both quantify and explain to their societies the cost that such much as 50 percent. influences impose on the economy. In the first 6 years of independence from the Soviet Union It is sadly a fact that the subject of corruption needs far the Ukraine attracted less that $2 billion of investment, but more attention: from our academic institutions, our govern- in that same period it is estimated that $15 to $20 billion ments and the business sector. We do not know enough about was illegally taken out of the country. the corrupting influences of our respective societies to effec- The United Nations Drug Control Programme estimates tively deal with them. Its extraordinary that in 1975 the U.S. that the annual turnover of illegal drug trade is over $500 government did not realize that the fixing of commission rates billion. was an incentive for stock brokers to bribe fund managers.

. . .-

hi! The objective of the Hills Governance Program at the regulation of industry that protected companies from price Center for Strategic and International Studies is to work with competition. The strident resistance of those companies that U.S. and foreign businesses, with support from the World liked the protection of fixed rates made it difficult for others to Bank, to establish Centers for the Study of Governance in support him. For example, tiny Frontier Airlines in 1975 spoke respected academic institutions. Our distinguished Academic bravely for airline deregulation, while the major airlines and Council assists us in convincing all parties that dealing with airplane manufacturers fought the President's initiative. corruption is not confined to passing laws; that the disciplines The one objective for which all business interests should of sociology, political science, economics, and international be united in all countries is "Rule of Law." A government of relations are at least as important as laws. laws rather than a government of individual fiat is the one sure Our Centers, with advice from supporting businesses and bulwark against corruption. * advisory boards, select specific governance problems in their region that they wish to address, and organize effective teams to: Roderick Hills is director of the Hills Center and former Chairman Identify the corrupting influences that exacerbate the of the U.S. Security and Exchange Commission. problem, Quantify the costs that such problems are imposing on the economy; and Develop and implement plans to eliminate or reduce those influences. It is not easy in many countries for companies to publicly challenge repugnant governmental policies that benefit both officials and their own employees. This is not a problem resented for emerging economies. In the 1970's President Ford initiated a major and successful effort to eliminate the economic

Development Outreach WORLD BANK INSTITIII.E Private Sector Response to the Emerging Anti-Corruption Movement

BY WORTH D. MACMURRAY Nations Convention against Corruption, the most comprehen- sive corruption convention yet adopted, entered into force, SINCE 200 I, there has been a dramatic and unprecedented further underscoring the increasing importance of anti-cor- rise in enforcement actions by the U.S. Department of Justice ruption enforcement. In addition to these regulatory regmes, and the Securities and Exchange Commission for violations of financial regulators themselves are becoming more promi- the U.S. Foreign Corrupt Practices Action (FCPA).' The FCPA nent, such as the Autorite des Marches Financiers (AMF) in makes it a crime for U.S. companies and individuals to bribe France, the Financial Services Authority (FSA) in the United foreign officials in order to obtain business.' This criminal Kingdom and the Financial Market Authority in Austria. In statute is only one of a number of regulatory actions that are on Europe alone, there are 28 known domestic regulators among the rise globally in the fight against corruption. the member countries of the Federation of European Transnationally, the Organization of Economic Cooperation Securities Exchanges.+Within the United States, the powerful and Development (OECD) reports that there are over 40 Securities and Exchange Commission and their enforcement bribery investigations ongoing within OECD member states division have become noted transnational regulators. following implementation of the OECD Convention on Following on the heels of governmental regulators, interna- Combating Bribery in Foreign Public Officials in International tional financial institutions such as the World Bank, the Inter- Business Transactions.' On December 14, 2005, the United American Development Bank and the European Bank for Reconstruction and Development are beginning to take on an Elements of an effective anti-corru tion anti-corm.ption regulatory role by investigating and sanction- program (e.g. Compliance prograrnY3 ing companies involved in corruptionwhen their own financing is invol~ed.~Finally, there are a host of nongovernmental Code of Ethics and Corporate Conduct organizations which have devoted substantial resources to ini- The initial corporate framework for specifying responsibili- tiatives, including raising the awareness of the global corrup- ties of corporate actors is generally set out in ethics guidelines for tion crisis, recommending legislation to strengthen govern- corporate conduct.'+ This Code states what is expected of ments and their institutions in the fight against corruption, and employees in a range of areas including workplace behavior. sex- covertly investigating governmental abuse and ~orruption.~ ual harassment, conflicts of interest, gifts, fees and commissions A string of corporate scandals, such as Ahold, Enron and (e.g. bribes) to government officials. To be effective, these World Com, and the enactment of the Sarbanes Oxley Act, as guidelines should be adopted by the Board of Directors and well as the tragc events of 9-11, underlie the rising tide of mandated for all company officials and employees. The Code governmental and nongovernmental action against transna- should state with specificity the conduct that is prohbited, the tional corruption in the United States.? Internationally, "con- means of seeking advice on interpretation, how to report viola- cerns about the impact of significant corruption on develop- tions, and management's responsibility when they receive an mental loan effectiveness, transparency, accountability, allegation. In many codes, whistleblower protection provisions ethics and integrity underlie wider initiatives, all of which are can also be found, whch prohibit retaliation against employees part of the broader public agenda of promoting good gover- who make a complaint. In many instances, companies set up nance of public and private institutions to ensure that public hotlines for employees to make anonymous or confidential com- money is used For its intended purpose."' plaints of corporate wrongdoing.

Private sector response Tone at the Top In addition to an effective anti-corruption ethics code, and ALTHOUGH THE PRIVATE SECTOR response to reducing the perhaps most critical to the success of a private sector anti- regulatory r~skarising out of these initiatives is growing, the corruption initiative, is the "visible and active commitment"'5 response has not been universal or uniform. Many companies by the Chief Executive Officer and senior management of a around the world continue to do nothing to change their busi- company or enterprise for its anti-corruption policy-the so ness practices of providing commissions or bribes to govern- called "tone at the top." The tone at the top is more than mere- ment officials in exchange for a business advantage. The risk of ly making corporate announcements or strong denunciations detection, although increasing, remains small and many com- about corruption; it is visible leadership, a single point of sen- panies find it to their competitive advantage to use compt ior responsibility, accountability and allocation of resources in business practices to capture or retain market share. Others furtherance of the purposes of the policy or code.16 For large have drafted codes of business ethics which seemingly restrict companies, resources in terms of money and dedicated staff their company's practice of paying bribes, yet do little in actual are required to effectively implement anti-corruption pro- practice of reducing bribery (so-called "paper programs"). Still grams. For example, in many large multinational companies, other companies make sizeable investments to reduce the risk Chief Compliance Officers are being hired to create and of corruption by their managers and business developers seek- implement corporate ethics codes and to investigate allega- ing to capture or retain business. Notwithstanding the mixed tions of violations. Some larger companies doing business response by the private sector, pressure mounts as govern- around the globe maintain a large staff of investigative auditors ments, international organizations and NGOs continue to press to quickly respond to allegations, to seize evidence of corporate the private sector to take more action in curbing corruption. For malfeasance and provide it to senior management so that the example. Transparency International, the leading anti-corrup- CEO and management team can take necessary action to miti- tion NGO, pushes companies to adopt their Business Principles gate the risk of corruption. Such action may include: for Countering Bribery:? the United Nations, through its Global a) Termination of employees found to have violated the Compact, has enlisted more than 2,500 companies throughout policy; the world to promote responsible corporate citizenship in the b) Enhancement of the internal control structure prevent area of anti-corruption;" and the International Chamber of repeat violations; Commerce Anti-Corruption Commission encourages self reg- C) Corporate announcements denouncing the practice and ulation by the private sector to combat extortion and bribeq." enhancing training of affected business units; Listed below are some of the better known initiatives that d) Disclosure of the matter to the Board of Directors; and companies have takenin order to reduce the risk of cor~uptionin e) Disclosure to regulators. their business transactions. These programs are generally referred to as Internal Control Programs, Compliance Programs Anti-Corruption Training and Accountability or Anti-Corruption Business Practices. Notwithstanding the Effective anti-corruption control requires ensuring that all name of the anti-corruption program adopted by a company, to employees are trained and knowledgeable about the compa- be effective the programs need to be integrated into the overall ny's anti-corruption policy. Best practices dictate that such business practice of a company's control structure.'' training be conducted on an annual basis and that employees

26 Development Outreach WORLD BANK INSTITUTE certify in writing that they have received the training and Endnotes understand the policy. The growing corporate need for train- 15 U.S.C.S. $5 78dd-1, 78dd-2, and 78dd-3. See the following ing on anti-corruption is quite apparent by the large number discussions of the rising tide of FCPA enforcement actions, of accounting firms, law firms and consulting firms who now http://dandod1ary.blogspot.com/2006/05/fcpa-70s-revival.html; routinely offer anti-corruption policy and training services to http:Nwww.insidecounsel.com/1ssues/ins1decounsel/15~168/regulatory/ businesses around the globe. 214-l.html; http:/lwww.dlapiper.com/files/uploadNvhtCollar~~O60612,htm; Id.

Enhanced due diligence of foreign agents, consultants See remarks of Director of OECD Legal Directorate, Nicola Bonucci, 14th and subsidiaries Nat~onalConference on the Foreign Corrupt Practice Act, November 15-16, One of the biggest risks for companies doing transnational 2005. New York. New York. See also discussion of the OECD convention and business is the risk that one of their local agents, joint venture progress on ~mplementat~onat http://www.oecd.orgldepartrnenV 0,2688,en-2649-34855-1~1~l11~1,0OOhtml. partners or subsidiaries are violating the company policy by paying foreign officials to obtain a business advantage. In Ware, Glenn T., "Filhng the Regulatory Gap: The Emerging Transnat~onal Regulator," 12 Global Governance 2, pg 135, April-June 2006 See also response to this concern, companies are conducting speech by Glenn. T. Ware before the lnternatlonal Consortium on enhanced due diligence of their actual or intended agents, lnternational Governmental Financial Management, The Ernerglng joint venture partners or prospective acquisitions to ensure Transnatlonal Regulator Brookings Institute, Washington DC October 5, 2005 their intended associations do not increase their risk of being Id involved in a corrupt act. Enhanced due diligence, which can See a discussion on various NGOs such as Transparency Internat~onal, be done in-house or by specialized companies. involves: Global W~tness,the lnternational Chamber of Commerce at. Hamann, K.M., a) Examining the reputations, associations, activities, and Urofsky, N., Healy, N.M., Wrage. A,, and Ayers, M., "Developments ~n U.S. ethics of potential partners, investors or key hires; and lnternational Efforts to Prevent Corruption," The lnternational Lawyer, b) Confirming or refuting allegations and rumors of crim- Vol. 40, No. 2 (Summer 2006) inal or questionable business practices; See http://ww.1nsidecounsel.com/1ssues~insidecounselll5~168/ C) Identifying, early on in the deal process, any undis- regulatoryl214-l.htmI closed liabilities or questionable financial reporting; See generally Klitgaard, R., Controlling Corruption (Berkeley: Unlverslty of d) Researching unusual offshore structures and unex- California Press, 1988). Rose-Ackerman, S., Corruption: A Study in Political plained financial arrangements associated with a potential Economy. (New York: Academic Press, 1978) and Corruption and merger, acquisition, or joint venture targets; and Government: Causes, Consequences, and Reform (Cambridge: Cambridge University Press, 1999) and Ware, G.T. and Noone, G.P.). "The Anatomy of e) Clarifying the nature of relationships between target Transnational Corruption," lnternational Affairs Review, Vol. 14, No. 2 companies and various individuals, including government (Fall 2005) officials. See generally, Transparency International, http://www.transparency.org

Internal Control System loSee generally, the United Natlonal Global Company, http:l/www,un.org/Depts/ptd/global.htm. Companies that are intent on ensuring that funds are only used for purposes consistent with their anti-corruption poli- See generally, ICC Anti-Corruption Comm~ssion. http://w iccwbo.org/policy/anticorruption/ cy must have a system of internal auditing controls in place that is robustly and periodically tested to provide "reasonable l2 See a thoughtful discussion of thls integrated model by Jay Singh at assurances that transactions are executed in accordance with http:llwww.transparency-usa.orglsurvey-96,htm, the management's authori~ation."'~These aspirations for l3The U.S. State Department has listed the elements of a compliance anti-corruption controls are embedded in the Sarbanes- program at http://www.state.gov/p/inl/rls/rpUfgcrpt2001/3146,htm, Oxley Act, which requires these controls for public companies l4 See examples of corporate codes of conduct at http://ir.fedex.com/ in the United States. Many accounting firms around the globe downloadsicode.pdf; http:llw.palm.comlus/company/corporate/Palmlnc~WW~Code.pdf; have adopted these standards as best auditing practices and http:l/www.ups.com~contenUcorp/code~conduct.html. regardless of the jurisdiction of the company. l5 See Transparency lnternational Business Principle No. 6, Programme Implementation Requirements at:http://wwl.transparency.org/ Conclusion bu~ldingcoalitions/private~sector/bus~ness~principles.html#countering l6Id CONTROLLING FOR CORRUPTION in the private sector is increasingly becom~nga priority for companies concerned l715 U.S.C.S. $5 78dd-1, 78dd-2, and 78dd-3. about the regulatory and reputational risk associated with such illicit activities. In the next decade, as more governments strengthen their own anti-corruption requirements flowing from the host of domestic and international initiatives, cor- porations will be seen as critical stakeholders in reducing the deleterious effects of the cancer of corruption. rk

------Worth D. MacMurray is Principal of Compliance Initiatives LLC in McLean, Virginia. The Challenge of Ethical Leadership in Africa

BY DELE OLOJEDE rules. So although a government official claimed the crash was an act of God, the reality in Nigeria and much of the continent An ethical compass is that poorly maintained aircraft that would not otherwise pass the test of airworthiness are routinely allowed in the skies I WAS BORN in a small university town in western Nigeria not by bribe-taking officials. that many years ago, into a large polygamous household, a vast- Corruption literally makes citizens sick, when officials ly complicated organism that nevertheless seemed to us rather routinely expropriate for personal use the resources allocated simple and well-ordered at the time, under the mostly wise and to public health. often lucky leadership of my father. Our moral universe was an Corruption also is the principal cause of the mass impover- extension of the wider community around LIS,in which people ishment of African people, a grinding, agonizing poveriy that clearly understood and subscribed to a set of rules governing shrivels ambition and leaves people susceptible to the sweet behavior. In that world raising us children was a joint venture whispers of false prophets, who tell us that poverty is a friend among the community's adults. Everyone lived under an over- of God. Religion has become a tool of the kleptocracy, which riding moral code encapsulated in the simple injunction that keeps the poor in their place by encouraging their sense of you shall not bring your family name into disrepute. powerlessness, their superstition, their belief that their My duty in the household was to fetch the morning papers reward is in heaven, and that they will be rescued not by the for my father. The vendor, who evidently had a full-time job sweat of their striving, but by divine intervention. elsewhere, always left the newspapers in neat stacks at the The widespread indifference to ethics by much of Africa's street corner. Without fail, day after day and year after year, political elite has helped reinforce the view that government, buyers picked up the papers and left the money in a pile right with rare exceptions, is primarily an obstacle to ordinary citi- there by the roadside. It was an honor system, not at all zens. By and large the elite that took over from the colonial uncommon throughout Africa. authorities has proved to be made up largely of those described This is the good news. It is the one thing that proves to us byV.S. Naipaul as "the mimic men," who see their roles prima- that despite the appalling ineptitude and outright immorality rily as exploiters in the same way that the colonial rulers did. that permeates leadership ranks throughout our continent, we While government is essential to development, in many are not culturally or genetically predisposed to more often African countries it continues to be perceived, if not as out- than not produce the most wretched lund of leaders. right illegitimate. then at least as something best avoided by The urgent task of improving the quality of leadership in citizens whenever possible. Africa-one that is ethically grounded, self-denying and thor- To begin to change the relationship between governor and oughly understands the concept of the common good-is evi- governed for the better, a new kind of leader is required in dent from the extremely high cost of our current arrangement. Africa. Luckily, the right examples can be found scattered In order to overcome the ruinous cynicism of many throughout the continent, where leaders are actually visibly Africans about the prospect for enlightened leadership ever and actively engaged in the hard work of building a good soci- emerging in their countries, we must be able to think of the ety, whether in Botswana or South Africa or, lately, Ghana and impact of corruption differently. a handful of others. The first thlng to understand is that corruption kills-not We all know the essential characteristics of ethical leader- metaphorically. not even indirectly. At the end of last year a ship: selflessness, honesty, imagination, ambition, moral planeload of school children crashed in southern Nigeria, rectitude, sacrifice, humility, even wisdom. We know as well killlng all on board. It was one of several airliner crashes in that, while this is our fondest wish, there can be no guarantees that country last year, exposing the completely shambolic state that we will get any such leader. of the regulatory agency for civil aviation, the corruption that To best illustrate this point I often quote Karl Popper, the circumvents normal inspections and the enforcement of Viennese philosopher, and I wdl quote him here again without

28 Development Outreach WORLD BANK INSTITUTE shame. for he most intelligently expresses my attitude to the ples are all around us-in Zimbabwe, Uganda, and recently in necessity for constraints on political leadership. Popper says "it Nigeria, where an abortive attempt was made to do the same. is not at all easy to get a government onwhose goodness and wis- The idea of term limits for political office holders is not dom one can implicitly rely. If that is granted, then we must ask necessarily the best option in all circumstances. After all, the whether political thought should not face from the beginning the United States is almost unique among the industrialized coun- possibility of bad government; whether we should not prepare tries for imposing it on its presidency. But in the case of Africa, for the worst leaders, and hope for the best." where state and civic institutions are weak and the president In other words, we must face the reality that Africa contin- typically wields virtually untrammeled power, term limits are ues to be hobbled by Big Man politics, the all-wise Father- most assuredly an essential ingredient of good governance. Knows-Best who should stay in power indefinitely. The exam- We know from human experience that leaders good, just and wise, are hard to find. As Popper says, "it is reasonable to adopt, inpol- itics, the principle of preparing for the worst, as well as we can, though we should, of course, at the same time try to obtain the best." The question we must ask is, "how can we so organize 1 political institutions that bad and incompetent rulers can be prevented from doing too much damage?" The international community

AS WE STRUGGLE with these ques- tions, international institutions and I powerful governments also can choose to be our allies, not collaborators with those rapacious leaders who seek to strip Africa bare. The dirty secret of the western world is that governments and banlung institutions, in Europe and America, find it convenient to let Africa's ding kleptocracy make off with the family silver, so long as it ends up in bank accounts in London, Washington, and Switzerland. Just a couple of years ago. duringan unrelat- ed investigation of Riggs National Bank in Washington, Congressional investigators found that EmonMobil secretly deposited more than $700 million in the personal accounts of the president of Equatorial Guinea, Teodoro Obiang Nguema Mbasago. These deposits, which could not be adequately explained as anything other than corruption, never led to any ExxonMobil executives being tried for contravening U.S. law. If anything good can be said to have come out of al-Qaida's terrorist onslaught, it is that western govern- ments, pushed by Washington, are no longer so easily turning a blind eye to money laundering. A series of Nigerian governors have been arrest-

SEPTEMBER 2006 29 THE POWER OF JOINING FORCES continued from page 17

action often depends on identi.fying one company or a small group of companies to take the lead and to act as a champion for the project. This reinforces the importance of ensuring that the issues being addressed are priorities for the business community and are likely to deliver tangible results. Conclusion

THE FIGHT AGAINST CORRUPTION will be more effectively foyght by companies actingtogether to reinforce and enhance the impact of the application of codes, pollcies and processes witbin their own operations, supply, and distribution chains. Businesses, often competitors, have a mutual vested inter- est in improving the environment within which they operate, adbyactingtcgether they can also be a stronger influence on Nigerian President Olusegun Obasanjo delivers a other sectors in reducing corruption. rlv speech during the inauguration of the Berlin headquarters of corruption watchdog Transparency F%mIfts* is Director, Responsible Business Solutions, lnternational lnternational (TI). Mm Leaders Forum (IBLF). I This is based on an article by Peter Brew and Jonas Moberg, formerly Programme Director. IBLF, now Special Advisor, Global Compact, that appeared in the United Nations Global Compact publication Business ed in London with suitcases full of U.S. dollars, and some against corruption, http:lhww.iblf.orglmediaedmmlgeneral.jsp?id=l23754 effort is being- made now to stanch the criminal flow of cash from poor countries to western banks. But what would really The lnternational Business Leaders Forum (IBLF) is a not-for-profit help Africa is not so much financial aid, but a serious collabo- organization, established in 1990 to promote responsible business ration to stop the illegal extraction of the common wealth by practices that benefit business and society and contribute to sustainable development. Recognizing that corruption is of major thieving leaders. detriment to development and to enterprise, and a contributor to Good things are happening throughout Africa. Fitfully and human rights abuses, IBLF launched a Business and Corruption unevenly, many African countries have entered the reform program in 2002. This program promotes the role business can play era, and this promises to have a more lasting effect because, in tackling corruption and the need for companies to work together for the first time, it is not happening through the benevolence locally to improve the business climate. www.iblf.org of outsiders but is being spearheaded by a new generation of For further information email: [email protected] Africans. Many Nigerian political leaders, in significant though not yet dominant numbers, are already succeeding in References changing their country's direction. The same cries of refomasi Business against Corruption: A Framework for Action, Transparency that we heard in the streets of Jakarta and Surabaya in the late International. The Global Compact and the lnternational Business Leaders 90s resounded in the streets of Nairobi and swept away an Forum: http://www.iblf.org/resources/general.jsp?id=l237O3 ossified oligarchy. Ghana is turning the corner, and an elect- Business against Corruption: Case Studies and Examples. The Global Compact ed Senegalese government successfully organized elections http://w.iblf.org/media-room/general.jsp?id=123754 that it then lost, peaceably, to the opposition. Liberia elected Africa's first female leader, and the country has set about the urgent task of rebuilding from the ruins of war. To broaden the positive changes we are seeing, and to make them more lasting, Africans must set minimum standards for leadership-as well as maximum tenures. rlv

Dele Olojede is a Pulitzer Prize-winning journalist based in Johannesburg, South Africa.

This article is based on a presentation given at the World Economic Forum in Oxford, in March 2006.

30 Development Outreach WORLD BANK INSTITUTE the Celtel Way Lessons from the front line

BY MOHAMED IBRAHIM Burkina Faso, Chad. Democratic Republic of Congo, Gabon, Kenya, Madagascar, Malawi, Niger, Nigeria, Republic of IF YOU "GOOGLE" corruption and Africa you get over 25 mil- Congo, Sierra Leone, Sudan, Tanzania, Uganda, and Zambia. lion hits.' Such is the scale of the problem. Yet Celtel is a suc- Five of these countries are in the bottom decile of the cess story from the poorest and, according to Transparency Transparency International Corruption Perceptions Index.' International rankings, the most corrupt part of the world - Since 1998 Celtel has raised over $1 billion from the sub Saharan Africa. Western financial community and invested it in mobile tele- Today Celtel provides 15 million Africans with mobile coms infrastructure in Africa. Celtel's $3.4 billion 2005 phone service across 15 countries of sub Saharan Africa: acquisition by MTC of Kuwait not only demonstrated the suc- cess of the business, but unleashed a wave of Middle Eastern who could contribute expertise and guidance as well as money. investment into Africa. Early examples included the Commonwealth Development Corporation (now Actis), the British Government's develop- Africa's development ment finance arm and the International Finance Corporation -part of the World Bank Group. Both had many years of expe- THERE IS A CONSENSUS that Africa-the original cradle of rience investing in Africa and were rigorous in ensuring that human civilization-today suffers from underdevelopment. every Celtel investment and local partner passed their trans- Many studies have attributed this to different parency scrutiny. causes: climate, colonialism, cultural diversity, Right from the start Celtel was run as a geographic fragmentation, the curse of natural Western institutionalized company (it is based resources, political instability, state ownership, in the Netherlands). We believe good gover- and underinvestment in education and infra- nance starts at home. So we formed a very tal- stru~ture.~ It is clear ented and experienced Board of Directors, with Celtel was formed as a private sector busi- shareholder representatives and strong inde- ness to focus on telecoms infrastructure-now that if the pendent directors from the worlds of politics recognized as an essential driver of develop- and business such as Lord Prior, formerly a UK ment in Africa. The Economist reported in a Millennium Cabinet minister, Dr Salim Salim, the African study on Africa by Professor Waverman of statesman and a former Prime Minister of London Business School: "Plenty of evidence Development Tanzania and Sir Gerry Whent, the original suggests that the mobile phone is the technol- founder of Vodafone. ogy with the greatest impact on development. Goals are to be Some might regard such a heavyweight Board A new paper finds that mobile phones raise as restrictive to a start up company. But for long-term growth rates, and that their impact achieved in Celtel this has helped navigate some of the com- is twice as big in developing nations as devel- plex political currents. We made it clear that any oped ones."' Africa, requests for political donations and the like would be referred to the main Board and dis- Corruption the issue of cussed by the representatives of major donor nations. It showed everybody that we were seri- THE "BLAIR REPORT" COMMISSION for corruption must ous about our anti-corruption stance and it was Africa 2005 summarized the issue as follows: a great protection. "Corruption is systemic in much of Africa be addressed. It also brought recognition to Celtel: when today.. .It is another of Africa's vicious circles: It is also clear giving the inaugural IFC Client Leadership corruption has a corrosive effect on efforts to award, Peter Woicke, former IFC Executive VP, improve governance, yet improved governance that solutions said Celtel is "a company that sets the gold stan- is essential to reduce the scope for corruption dard for its peers anywhere in the world, a com- in the first place. All this harms the poorest must come pany that is a role model for others, regardless of people in particular." sector, region or co~ntry."~ It also recognized that Western countries from both need to look hard at themselves in the mirror: Business advantage "After all, as the former Zairian dictator within Africa Mobuto Sese Seko once reportedly said "It CELTEL'S RIGOROUS STANCE against corrup- takes two to be corrupt: the corruptor and the and from tion is not drawnfrom a purely moral motive-it corrupted." And he should know."5 is also good business practice. For corruption, Earlier, in 2002, the African Union had put a outside it. like blackmail, is insidious. Once started it is figure on the scale of corruption across the con- very difficult to stop paying Far better to pass tinent: $148 billion or one quarter of the GDP." up, as Celtel has done, a few business opporh- nities which, while superficially attractive, Celtel approach to involve partners or governments about whom governance and corruption one has major doubts. For a Western company, the costs of getting it wrong can be ANY INTERNATIONAL BUSINESS operating in Sub Sahara devastating. For obvious reasons few of the examples are well Africa needs to face the issue of corruption. From the begin- documented. But the U.S. Courts released documents of the ning Celtel adopted a very strict set of six values, the first of SEC investigation into Titan Corp., summarized as follows by which is: "We are open, honest and transparent." We applied the Wall St Journal mJ 7005): "In the biggest foreign- these values at all levels: from the shareholders and the Board bribery penalty under U.S. law, Titan Corp. (of San Diego) to a handbook for every employee. pleaded guilty and agreed to pay $78.5 million to settle allega- When searching for shareholders we sought institutions tions that it covered up payments in six countries, including

32 Development Outreach WORLD RANK INSTITUTE millions of dollars funneled to an associate of an African pres- in 2005. The Celtel story shows emphatically that it is possi- ident to influence a national election Titan's foreign bribery ble, if not always easy, to run a successful clean business in was uncovered by Lockheed Martin Corp. during acquisition Africa which can benefit all stakeholders and help to enable negotiations. Though both companies cooperated with the development. * ensuing investigation, delays in resolving the probe scuttled the $1.6 billion deal in June."' Mohamed Ibrahim, Founder and Chairman, Celtel International.

Endnotes Curing corruption ' www.google.com accessed June 22. 2006. SOME MAY FIND IT IRONIC that it was Lockheed Martin as www.transparency.org October 18, 2005. potential acquirer and Arthur Andersen as external auditor See, for example. Qur Common Interest," Report of the Commission for who uncovered this example. But to its credit, the USAhas had Africa, March 11, 2005. the Foreign Corrupt Practices Act in place since 1977 which Economist "The real digital divide," March 10, 2005 reporting on: makes it illegal for U.S. corporations to pay bribes to foreign Waverman, Meschi and Fuss. "The Impact of Telecoms on Economic Growth in Developing Countries, Africa: The Impact of Mobile Phones," Vodafone government officials or political parties in order to secure or Policy Paper Series 2 (March 2005). maintain business transactions or secure another type of Wur Common Interest," Report of the Commission for Africa, March 11 improper advantage. If a violation is established, not only can 2005. p. 32. a large fine be levied against the corporation, but executives, http://news.bbc.co.uWl/hi/world/africa12265387.stm employees, and other individuals involved may be fined or w.ifc.org press release, October 5, 2004. jailed or both. And while American corporations are subject to * Wall Street Journal, March 2, 2005. online.wsj.com/article_print/ the law, it is possible that it may also, be applied to overseas 0,SB110618924465731022,00.html and www.sec.org SECURITIES AND subsidiaries or joint venture partners of U.S. companies. EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934. Release However other countries have been much slower to recognise No. 51283 / March 1, 2005. the problem at home. Until 1997 bribery was still tax ww.oecd.org/departmenV0.2688,en~2649~3485911111,OO.html deductible in some Western countries. lo w.unodc.org/unodc/en/corruption.html Finally the OECD countries implemented the Anti- Bribery Convention in 1997, with entry into force on 15 February 1999. But implementation has been slow and there have been few prosecutions. Now adopted by all 30 OECD WHAT ROLE DOES PARLIAMENT countries plus 6 others, the Phase 1 implementation monitor- PLAY IN CURBING CORRUPTION? ing has been completed (compliance of national anti-bribery laws with OECD Convention). Phase 2 (peer review assess- WHAT ARE THE COSTS, ment of effectiveness) has been done by 21 countries with CAUSES AND CONSEQUENCES remainder to be done by 2007.9 OF CORRUPTION? UN Convention against corruption was adopted in October 2003 and came into force on 14 December 2005. 140 coun- HOW DOES PARLIAMENT tries signed but only 52 have ratified it and we are still waiting INTERACT WITH MEBUDGn, for G8 countries to participate.'" MEDIA, AND CML SOCIETY Meanwhile, Africa is starting to record real progress in IN CURBING CORRUPTION? addressing the problem of corruption. One of the first acts by President Obasanjo of Nigeria was to set up the Anti Corruption Commission. The former President of Zambia and Vice President of South Africa are facing corruption charges. Under the auspices of NEPAD, the New Partnership for African 1m8hmc ~pspr sucn -on am parlament experts as: Development, African countries are undertaking peer reviews. I Conclusion I this book answers these important questions for IT IS CLEAR THAT, if the Millennium Development Goals are parliamentarians and parliamentary staff, developmen practitioners, students of development and those to be achieved in Africa, the issue of corruption must be interested in curbing corruption. addressed. It is also clear that solutions must come from both within Africa and from outside it. Order this WktMav at'thS -Ah Celtel is dedicated to "making life better." In our eyes this World Bank Publications Website: means ensuring a sustainable business to continue the infra- www.worldbankorg/publications structure investment essential to Africa's development. And it means doing so in a fully transparent manner, includingpub- lishing what we pay to Governments and state owned enter- prises: this amounted to some 35 percent of Celtel's revenue Dealing with Corruption in Ethiopia

BY KEBOUR GHENNA pays, or is ready to pay, money to a public figure in order to gain advantage. This is generally referred to as private to pub- THE END OF THE VIOLENT socialist regime inEthiopia in the lic corruption. Because this type of corruption is said to early nineties opened new perspectives by shifting the focus impede the development of markets, drive away investment, from ideological interests to concerns about effectiveness and increase the costs of doing business, and undermine the rule sustainability of development efforts. Since then, the new of law, private to private corruption has not attracted the same government has embraced the idea that a sound political and interest or attention. Private to private corruption is as seri- institutional framework is essential for achieving sustainable ous as the private to public corruption. The fact that people economic and social development. This issue led to the pro- talk less about it, as compared to the private to public corrup- motion of the concept of "good governance" and has since tion, may have deceived many outside the business world to then come to the fore of the agenda of the country's develop- think it is not significant. ment program and cooperation. Initiative Africa (LA) is one of The relative lack of concern may be due to: the few independent, non-profit organizations intent to con- lack of knowledge of cases involving private to private cor- tribute to a better understanding of the complex area covered ruption; by this concept. many consider the cases as less threatening and having a Established in 7002 by individual business entrepreneurs, lesser impact on the social fabric of the country; LA has a mission of improving the quality of life by bringing lack of business accountability culture; together public-private initiatives to advance the concept of 1 lack of competition; good governance for this and future generations. This nlission many assume the private sector is less vulnerable to such is to be accomplished through education, sharing of good problems; practices, and exploring innovative approaches. under-reporting by the media of cases involving private to One focus of 1.4 has been the promotion of accountability private corruption. systems, administrative control and transparency towards the In the past two years IA has launched a regular round-table public. Its program revolves around sharing experiences and series to publicize the private to private corruption by inviting best practices in fighting corruption within the private-pri- speakers to present concrete cases, go over the variety of cases vate and the private-public sectors. (bribery, commissions, gifts, under/over invoicing etc), Of late, going through without paying any bribe in Ethiopia explain who benef~ts(the company or the employer), and is seen as an achievement by peers; corruption has, therefore, address the moral problem of private to private corruption. acquired a certain 'performance feature' with its own reward What transpired from these dozen or more sessions was the (moral) or penalty (financial and/or otherwise). Although the various confusion that exist in terms of the legal treatment of incidence of corruption is increasingly widespread, it has not private to private corruption. For example, many private busi- yet become systemic. ness officials have difficulty in delineating between what they This is why there is growing interest of the private sector call an acceptable marketing scheme and clear-cut corrup- and CSOs/NGOs and the international community in fighting tion. An example may be the excursion trip related to business corruption. CSOs/NGOs are increasingly concerned with offered by a seller; can this be considered unethical induce- poverty reduction through free and accessible information ment or acceptable practice? disseminated and probed by an active opposition, free press, Breach of trust, for example, although an offense, its appli- and assertive civic organizations and NGOs. cation in the court of laws is rarely exercised. In many instances the companies are not responsible for the behavior Private to private corruption of their managers. And there is very little, in terms of crimi- nal law, to help prosecute corrupt behaviors. Such sessions WHEN THE ISSUE OF CORRUPTION is raised in Ethiopia have helped in raising the awareness of business of the extent almost always we mean the involvement of a private party that of private to private corruption as well as of the need to take

34 Developmenr Ourreach \vol

INITIATIVE AFRICA has consciously chosen a focused view Kebour Ghenna is Director of Initiative Africa and President of the approach, putting the fight against corruption as a central ele - Ethiopian Business Coalition Against HIVIAIDS. ment of its governance program. Its main emphasis has been on raising awareness focusing on private to private corrup-

36 Developmenr Ourreach WORLD BANK INSTITUTE Measuring Corruption Myth and Realties

BY DANIEL KAUFMANN, AART KRAAY, AND By gathering the informed views of relevant stakeholders. MASSIMO MASTRUZZI, These include surveys of firms, public officials, and individu- als, as well as views of outside observers in NGOs, multilater- OVER THE PAST DECADE measuring corruption has become al donors, the private sector and experts in investment rating an ever-growing empirical field. Since the mid-nineties, we agencies and think tanks. These data sources can be used have undertaken various projects to measure corruption at the individually, or in aggregate measures which combine infor- aggregate and disaggregated level. Among the latter, we have mation from many such sources. Literally dozens of such carried out and analyzed many surveys of the enterprise sec- sources are available, many of them covering very large sets of tor. They have provided particular insights on the private sec- countries, often over time for several years. These are the only tor role in corruption. Such analysis of this empirical work has available data sources that currently permit large-scale cross- led us to question conventional approaches to addressingpri- country comparisons and monitoring of corruption over time. vate sector corruption and investment climate constraints. By tracking countries' institutional features. This provides This empirical analysis question the traditional notion of information that can be related to opportunities or incentives viewing the firm as an 'investment climate taker' and thus for corruption. such as procurement practices, budget trans- ignoring that powerful conglomerates can also shape the busi- parency. These do not measure actual corruption, but can ness climate and thus become 'investment climate makers'. provide useful indications of the possibility of corruption. In This implies that it is warranted to move away from simply addition of not constituting a direct measure of corruption, blaming government officials for prevailing con-uption. and these efforts as yet have limited country coverage, and almost to question the value of popular initiatives such as voluntary- no time dimension yet. and often un-monitorable-codes of conduct.' By careful audits of specific projects. These can be purely Progress in fighting corruption on all fronts requires meas- financial audits, or more detailed comparisons of spending urement of corruption itself, in order to diagnose problems and with the physical output of projects. Such audits can provide monitor results. This recognition has renewed interest in the information about malfeasance in specific projects within a World Bank, and among aid donors, aid recipients, investors, very particular context within a country, but not about coun- and civil society, in developing measures of corruption, both in try-wide corruption more generally. These tend to be one- aid-financed projects as well as more broadly in developing time confined to specific projects and countries, and so are countries. This in turn has also sparked debate on how best to not suited for cross-country comparisons or for monitoring measure corruption and monitor progress in reducingit. In this over time. context, some popular notions are espoused, which either lack clarity or are not backed up by rigorous analysis or evidence. In this article we highlight some of the main issues in these debates, in the form of seven myths and their associated reali- ties, and conclude by also pointing to some brief implications for the private sector role in fighting corruption. REALITY: Since corruption usually leaves no paper trail, perceptions of corruption based on individuals' actual experiences are some- times the best, and the only. information we have. Perceptions -MYTH 1 II r;allllui UG measureu I also matter directly: when citizens view the courts and police as I- corrupt, they will not want to use their services, regardless of REALITY: Corruption can, and is being. measured in many what the 'objective' reality is. Similarly, firms will pay less taxes forms. Different approaches serve different purposes, as seen if they believe that they will be wasted by corruption, and they in the following three broad ways of measuring corruption: ' will invest less in their country. Further, while social norms might affect what people view as corruption, in practice such ' - - FIGURE 1A: BRIBERY REPORTED BY FIRMS FOR PUBLIC I PROCUREMENT FIGURE 1B: BRIBERY REPORTED BY FIRMS FOR PUBLIC PROCUREMENT 1

PROPORTION OF FIRMS REPORTING PUBLIC PROCUREMENT BRIBERY % BRIBE 'FEE' PAID BY BRIBE PAYERS FOR PUBLIC PROCUREMENT

Source: Authors'calculatians based on EOS enterprise sumy by Mid Economic Forum. Source: Authars'calculafionsbased on EOS enterprise suwby Irld Economic Forum. Mh'C stands for Mullinatwnal Cwpwalion, headquartered in a rich OECD cwntry, while MNC stands kr MuNinational Cornoralion, headuuartered in a rich OECD cwnbv. while IDC stands for developing countr): LDC stands for dewloping count^

cultural bias in perceptions does not appear to be substantial. It is telling that perceptions of corruption from cross-country Subjective data is too unl hls for we- io.d surveys of domestic firms tend to be very highly correlated with measuring corruption 1 perceptions of corruption from expert ratings in commercial risk rating agencies or multilateral development banks.3 REALITY: All efforts to measure corruption using any kind of data Survey-based questions of corruption have also become increas- involve anirreducible element of uncertainty. No measure of cor- ingly spectfic, focused, and quantitatwe. For example, we have ruption 'objective' or subjective, specific or aggregate, can be commissioned from the Global Competitiveness Survey coor- loo percent reliable-in the sense of giving precise measures dinated by the World Economic Forum the following specific of corruption. This imprecision or measurement error stems question: '"&'hen firms like yours do business with the govern- from two problems that are common to all types of data, spe- ment, how much of the contract value must they offer in addi- cific, subjective or otherwise: tional payments to secure the contract?". As illustrated in 10 There is measurement 'noise' in spec& corruptLon measures. Figures 1A and 1 B, the results can be very specific-and also A survey question about corruption in the courts is subject to sobering-pointing in this case to the extent and frequency and sampling error. An assessment of corruption in procurement extent to which firms-including many multinationals-con- by a commercial risk rating agency may not be accurate. Even tinue to pay bribes to obtain public procurement contracts. a detailed audit of a project cannot conclusively distinguish Similar specific questions are also posed by other firm surveys between corruption, incompetence and waste, and other llke the World Bank's Business Environment and Enterprise sources of noise in the data. Performance Survey (BEEPS). And household surveys llke the Spec$c measures ofcorruption are irnpefectly related to over- Gallup's Voice of the People and Global Barometer Surveys and all corruption--or to another manifestation of corruption. Asurvey the Latinobarometro ask respondents to report actual percent- question about corruption in the police need not be very ages of corrupt officials or actual number of times they wit- informative about corruption in public procurement. Even if nessed acts of corruption. In fact, these surveys rely on citizens an audit turns up evidence of corruption in a project, this need and firms residing in the country-even multinationals, which not signal corruption in other projects, or elsewhere in the are a small minority in the enterprise surveys, provide public sector. responses through questionnaires administered in the sub- Trackingparticular fonns of corruption, and especially overall sidiary operating in the recipient country. corruption at the country level, inevitably runs into one or both

38 Development Outreach WORLD BANK ~NSTITUTE types of measurement problems. Efforts to measure corruption than reports from experts, citizens or firms on the ground- should aim at minimizing measurement error and be trans- irrespective of the extent of 'subjectivity' of the latter. Indeed, parent about what inevitably will always remain as residual we have estimated the margins of error in the so called 'objec- error. For example, the Kaufmann-Kraay-Mastruzzi corrup- tive' indicators to be at least as substantial as those in other tion indicator average many different data sources for each indicators. country, in order to reduce measurement error. Unusually, in these aggregate indicators (measuring six dimensions of gov- Subjective measures of ernance, one of which is corruption), we also report explicit in the fight against corruption margins of error,+ summarizing the remaining unavoidable 4 noise. Unfortunately, the practice of being explicit and trans- parent about imprecision in estimates of corruption or other REALITY: Several diflerent surveys of finns and individuals ask dimensions of governance is very uncommon, and thus detailed and disagregated questions about corruption in diferent should be generalized. areas of government. As mentioned, Figures 1A and 1B illus- Users of governance data should not confuse the absence of trated the kind of specific detail on procurement bribery for ezplicit rnagns of error with accuracy: all approaches to meas- instance that can nowadays be gathered through surveys. uring corruption, and governance and investment climate While such detail does not always point to what specific more broadly (such as Doing Business indicators), involve detailed reforms needed (say, within procurement, or judici- elements of uncertainty and margin of error. Nor should they ary, etc), it is very useful in identifying priority areas for confuse spec$city of corruption measures with precision or relia- action. Specific objective indicators of opportunities for cor- bility. Very specific measures, such as proving for the oppor- ruption are no more "actionable"-in the sense of guiding tunity for corruption in procurement based on a review of specific policy interventions. For example, one can measure procurement practices (or through specific survey questions) whether a country has an anticorruption commission or not, are affected by both types of measurement error, as illustrat- or whether competitive bidding is mandated by fiat ('in the ed above. books') for some areas of public procurement. But this does - not tell us whether such reforms are effectively implemented We need hard objective measures of corruption in and enforced on the ground, or whether implementing such MYTH 4 order to progress in the fight against corruption I - reforms in these specific areas will necessarily have a large - impact on corruption. REALITY: Since corruption is clandestine, it is virtually impossible to Moreover, tracking even quite generalperceptions about cormp- come up withprecise objective measures of it. An innovative effort tlon can also be a useful way--even if not alone-uf monitoring to monitor corruption in road building projects in Indonesia anticonuption programs. In fact, governments in democracies illustrates the difficulties involved in constructing direct around the world rely on polling data to set policy priorities objective measures of corr~ption.~The audit compared and track their progress. reported expenditures on building materials with estimates of - - materials actually used, based on diggmg holes in the roads There is no need to monitor corruption closely and assessing the quantity and quality of materials present. since many countries with high corruption have But separating sand from gravel, and both from the soil pres- also had fast growth ent before the road was built, is difficult and inevitably involves substantial measurement error. As a result the study Skeptics of the anti-corruption agenda are quick to point could not provide reliable estimates of the level of corruption, out countries such as Bangladesh that score poorly on most although it was still useful as it could provide good estimates of cross-country assessments of corruption, yet have managed to differences in corruption across different types of interven- turn in impressive growth performance over the past decade. tions (such as a likely project audit). One should not confuse these exceptions to the more general One can also obtain objective data on institutional features strong empirical finding that corruption adversely affects such as procurement practices or budget procedures that may growth in the medium- to long-run. Studies have shown that create opportunities for corruption, for example through the a one standard-deviation increase in corruption lowers Public Expenditure and Financial Accountability (PEFA) ini- investment rates by three percentage points and lowers aver- tiative for monitoring financial management procedures in age annual growth by about one percentage point.' the public sector. Such approaches can usefully document the These results are at some level difficult to interpret when "on the books" or official description of specific rules and we recognize that corruption is likely to be a symptom of wider procedures. But these will only be imperfectproxies for actual cor- institutional failures. A large body of recent empirical work ruption, not least because the "on theground" application of these has documented that broader measures of institutional quali- rules and procedures might be very dt;ffe~ent.~Given the common ty explain a significant portion of income differences across gap between what procedures, policies, budgets and regula- countries. One widely-cited study found that an improvement tions are on the books as compared with the implementation in institutional quality from levels observed in Nigeria to on the ground, there should be no presumption that objective those in Chile would translate into a seven-fold difference in data is necessarily more informative about the concrete reality per capita incomes in the long run.'This type of evidence sug-

SEPTEMBER 2006 39 FIGURE 2: CORRUPTION CONTROL (COUNTRY AGGREGATE INDICATOR) VS EXTENT OF CORPORATE ETHICS (REPORTED BY FIRMS) I

Share of Firms Reporting High Quality of Corporate Ethics (Enterprise Survey)

Sources: Hortzontal axrs: EOS 2005 by World Economic Forum (Questton: The corporate ethics of firms in your country is among the besthwst in the world); Vertical axis: Aggregate governance lndicaton from Kaufmann, Kraay and Mastruui. "Government Matters Vs Governance lndicatprs for 1996- 2005, " September 2006. Correlation based on corruption country ratmngs (not ranks). I

gests that policymakers ignore cormption, and the institu- indicators provide specific information on the private sector tional failures that permit it, at their peril. propensity to pay bribes to public officials from the perspec- tive of the private-sector "briber". Indeed, as seen in Figure Country level aggregated indicators of corruption 2, there is a very high correlation between the extent of corpo- refer specifically to the extent of corruption with- rate ethics by firms in a country and overall country corrup- in the ouhlic sector. as assessed by a few exoerts tion as measured by our aggregate country indicator on cor- ruption. Further, the bribing practices by firms (which we do The interpretation of country indicators of corruption measure, including bribes for licenses, connection to utili- tends to ignore the role of the private sector in corruption. ties, tax evasion, procurement, judicial rulings, capture of Specifically, often the measure for corruption in our aggregate policies, laws and regulations, and the like), are explicit governance indicators tends to be associated exclusively with inputs into the corruption index in the aggregate governance the extent of corruption within the public sector, often indicators. Unethical behavior by the private sector inits con- because there is a mistaken perception that these aggregate duct with the public sector is thus also encompassed within governance indicators are solely based on assessments by a the overall cross-country corruption indicators. few experts (residing in selected capitals of the rich world). In conclusion, for monitoring purposes, corruption can and This is incorrect. First, the dozens of institutions from which is being measured through a wide variety of innovative we gather data for our governance indicators are based in approaches. Given the imperfections of any individual many countries and regons around the globe. Second, the approach, it is appropriate to rely on a wide variety of different data does not only draw from expert assessments, but also indicators, both subjective and objective, individual as well as prominently from the responses from surveys of citizens and aggregate, cross-country as well as country-specific. This is of firms worldwide, who report on their experience with cor- important to monitor results on the ground, assess the concrete rupt practices. reality of corruption, and develop anticorruption programs. We Firm surveys report on firms' behavior regarding payment continue to further refine the aggregate indicators of gover- of bribes, as mentioned above. Such individual measures of nance and corruption. With the latest release of these indicators corruption that serve as an input to our aggregate governance in September 2005 we are also malung public a vast dataset of

40 Developmenr Outreach WORLD BANK INSTII.UTE conventional initiatives to mitigate the private sector s~deof corruption virtually all of the underlylngindividual data sources that go into (which overall have not been seen as bearing results) , see "'Click Refresh our aggregate governance indicators. This data, and accompany- Button: lnvestment Climate Reconsldered," by D. Kaufmann, in Development ing papers, and web-based analytic tools, are available at Outreach, March 2005 issue. wv.worldbank.org/wbi/governance/govdata. Kaufmann, Kraay and Mastruzzl (2005) provlde an exhaustive list of 22 Such data, with the accompanying dose of caution for different data sources that provlde perceptions data on corruption. Examples of measuring institutional features that create opportunities for corruption interpretation (as detailed in the papers, in the web, and in include the Public Expenditure and Financial Accountability (PEFA) frame- this article), may continue to serve a useful purpose for gover- work, and the Publlc Integrity Index of Global Integrity. Examples of audits nance and anti-con-uption monitoring and analysis. They will include Olken (2005), Hsieh and Moretti (2006). also challenge conventional notions-often devoid of empiri- The correlation between corruption ratings from the Global Competitiveness Surveys and expert polls such as Economist Intelligence Unit, and Global cal evidence-on what actually is transpiring on the public and Ins~ght,or Multilateral Institution ratings such as the World Bank's Country private side of the corruption equation, and what can be done Policy and Institutional Assessments (CPIA) are very high. A related critique is that assessments of corruption produced by think-tanks and commercial about it. rlo risk-rating agencies display ideological biases, generally pro-market and pro- right-w~ng.In Kaufmann, Kraay, and Mastruzzi (2004) we develop a test for Daniel Kaufmann is Director of Global Programs, The World Bank such ideological biases and find that they are quantitatively unimportant. Institute. How much measurement error is reduced by aggregation depends on the Aart Kraay is Lead Economist, Development Research Group extent to which individual data sources provide independent estimates of cor- ruption. In Kaufmann, Kraay, and Mastruzzi (2006) we develop tests of this (DECRG), The World Bank. independence assumption and show that it is not unreasonable. Massimo Mastruzzi is a Consultant, Global Programs, The World Bank Olken (2005). Institute. See for example Kaufmann, Kraay, and Mastruzzi (2005) who show that much of the difference between objective measures of business entry based References on statutory requirements and firms' perceptions of the ease of business Acemoglu, Daron. Simon Johnson, and James Robinson. "The Colonial entry, can be explained by the extent of corruption. Origins of Comparative Development." American Economic Review. Mauro (1995). See also Knack and Keefer (2005) 91(5):1369-1401. Acemoglu, Johnson and Robinson (2001). Other studies include Knack Olken, Ben (2005) Won~toringCorruption: Evidence from a Field and Keefer (19951, Rigobon and Rodrik (2005), Rodrik, Subramanian and Experiment in Indonesia." NBER Working Paper No. 11753. Trebbi (2004), Hall and Jones (19991, and Kaufmann and Kraay (2002). Hall, Robert E., and Charles Jones (1999). "Why Do Some Countries Produce So Much More Output per Worker than Others?" Quarterly Journal of Economics, 114(1):83-116. Hsieh, Chiang-Tal and Enrico Moretti (2006). "Did Iraq Cheat the United Natlons? Underpricing. Bribes, and the Oil for Food Program." Quarterly Journal of Econom~cs,forthcoming. Kaufmann. Daniel and Aart Kraay (2002) "Growth without Governance." Economia, Volume 3. No.1, Fall. Kaufmann, Daniel, Aart Kraay and Massimo Mastruzzi (2004) Tiovernance Matters Ill: Governance lndlcators for 1996, 1998, 2000 and 2002.World Bank Economic Revlew. Kaufmann, Daniel, Aart Kraay and Massimo Mastruzzi (2005) "Measuring Subscribe Governance Using Perceptions Data,"forthcoming ~nSusan Rose-Ackerman, to a flagship ed. Handbook of Economic Corruption, Edward Elgar. magazine that is on Kaufmann, Daniel, Aart Kraay and Massimo Mastruzzi (2006) "Governance the cutting edge in the field of global Matters V: Aggregate and Individual Governance Indicators for 1996-2005." World Bank Policy Research Department Working Paper, knowledge for www.worldbank.org/wbi/governance/govdata. development. reaching 20,000 Kaufmann, Daniel (2005). "'Click Refresh Button: Investment Climate readers in 130 Reconsidered," Development Outreach. World Bank Institute, March. countries. Knack. Steven and Phillp Keefer (1995). "lnst~tut~onsand Economic Performance: Cross-Country Tests Uslng Alternative Measures." Economics and Politics, 7, 207-227. Advertise to reach a unique Mauro, Paolo (1995). "Corruption and Growth." Quarterly Journal of international audienc Economics. 110(3): 681-712. business leaders, policy makers, Rigobon, Roberto and Dani Rodrik (2004) "Rule of Law, Democracy, government officials, academics. Openness, and Income: Estimating the Interrelationsh~ps."Manuscript. MIT economic journalists, research and Kennedy School. institutions, and civic organizations. Rodr~k,Dani, Arvind Subramanian, and Francesco Trebbi (2004). "lnst~tutlonsRule: The Primacy of Institutions over Geography and Integration in Economic Development." Journal of Economic Growth 9(2):131-165. About subscriptions, ad rates and deadlines, or for further information, email: [email protected] Vls~t:www.wo~-ldbanl<.or-g1devo11t1-each Endnotes For other World Bank publications, visit: For detalls on the rationale for rethinking conventional approaches to www.worldbank.ot-g/wbi/publications.htrnl address corruption, and the specific recommendations as an alternative tn

SEPTEMBER 2006 41 1 VOICES FROM THE FIELD 1 1 Research on Corruption 1 and Its Control

BY MOANA M. ERICKSON Bank. and it plans to do its part by imposing heavy sanc- tions on fraud connected to World Bank projects. THE CSIS-HILLS PROGRAM ON GOVERNANCE, inpart- A number of themes emerged in the Workshop rang- nership with the World Bank Institute and W'harton ing from the accuracy of corruption perception indexes, School of Business, brought together leading academics to sources of political corruption, to an analysis of the on corruption for a comprehensive workshop entitled: I psychological causes of corruption. Following are some "Research on Corruption and its Control: The State of the 1 of the highlights. Art." The principal objective of the workshop was to high- light cutting edge research on corruption and to identify The micro-level study of corruption needed areas of research for the purpose of reducing cor- ruption and improving curricula on the subject. ( THE BROAD-BASED PERCEPTION INDEXES, while use- The Workshop dealt with corruption in practical ful in capturing the general atmosphere in a particular terms, recognizing that free markets are distorted by country, fail to offer specific steps and solutions, such as corruption and that the rule of law is rendered ineffec- where to concentrate policy resources. They do not meas- tive when bribes are paid to police, prosecutors and law ure real instances of corruption, nor do they distinguish enforcement officials. Asurvey of developing economies types and causes of corruption in a country. On the other suggests that firms in countries with high levels of cor 1 hand. detailed studies of corruption in a single country ruption achieved half the output growth of firms in coun- 1 and sector would offer policy-makers more concrete evi- tries with far lower levels of corruption. dence of steps that must be taken to root out corruption. At the Workshop's opening dinner on March 3rd, His / One type of micro-level study of corruption, the Excellency Ernesto Zedillo, former Pres~dentof Mexico, I "Randomized Field Experiments." produced empirical stressed that enforcing the rule of law with an impartial 1 data on the effectiveness of various anti-corruption meas- judiciary, is the most important weapon in the war ures on a single public works project, such as a World Bank against corruption. Without a focused effort on strength- village-level road building project in Java, Indonesia. ening the rule of law. corruption flourishes and policies Another instance of a useful micro-level tool to fight for economic development and reform are undermined. I corruption is the pre-shipment inspection (PSI) as an Paul Wolfowitz. President of the World Bank, in his 1 anti-corruption measure in customs agencies. PSI firms remarks via video, noted that cor- are multinational companies that ruption costs the developing world inspect goods prior to shipment about $80 billion a year-an then send the information onvalue, amount approx~matelyequal to the "Voices from the Field" provides quantity and tariff classification of total of all development assistance. , first-hand insight into issues of the shipment to the client, typically I current concern to the the government of the recipient Notice was made of the enormous I loss to corruption from the admin- I development community. To country. PSI programs on average istration of the $64 billion oil-for- 1 participate, send your stories to: have been extremely effective at food program in Iraq between I devoutreachmrldbank.org. reducing corruption in customs 1996 and 2003. Fighting corrup- Make your wice heard. agencies. Implementation of PSI I tion is now a priority for the World I programs increased import duty

.z Devclopment Ourreach wox~r,BASK INSTITU~.E Consequently, future corruption research must seek to identify the factors that facil- itate an environment of corruption. While corruption may reduce the amount of development dollars that reach their intended recipient, growth can occur in a corrupt environment, creating difficulties for researchers intent on measuring the detrimental effects of corruption. Corruption is different in every nation- state and must be treated as a non-linear problem. Furthermore, political corrup- tion poses a different set of problems than typical bribery or diversion of funds. It involves an element of deceit. Therefore, it requires a new definition: holding out democratic norms to the public, but in actuality acting on undisclosed pecuniary motives. Political corruption must be studied on three levels: the local level, the bilateral level, and the multilateral level. At the Wwkers of Peru's lnteMectual property protection agency local level, charges of corruption against lndecopi destroy illegal CDs and DVDs as part of a campaign politicians are as disruptive to democratic against piracy. elections as actual corruption. In emerg- ing democracies such as Kazakhstan and Belarus, political competitors are elimi- revenue by 15 to 30 percent within 5 years after imple- nated from elections by charges of corruption. Charges of mentation. PSI programs have also proven to be cost corruption at the bilateral level may be based on foreign effective. Further research should include "mystery policy interests rather than ethical norms. At the multilat- shopping," a tactic employed by firms to monitor cus- eral level. the forum for action on corruption is primarily tomer service. "Mystery shopping" could be used to mon- the Doha Round of WTO negotiations, where corruption is itor provision of public services in sectors like public addressed under the guise of "government procurement." health and business licensing that frequently suffers from inefficiency and graft. Psychological causes of corruption The investigation of capital markets can be used to measure market distortion caused by corruption. Aprime PSYCHOLOGISTS HAVE RECOGNIZED for some time that minister or cabinet member on the board of a firm is a corrupt behavior is conditional upon expectations. The strong political connection. If the market believes a com- expectations that influence social norms include what pany's profitability is the result of political connections people know is expected in a situation, as well as what rather than operational ability, the market should reduce people believe is expected in a situation. Research on a firm's value when its political connection is jeopard- ambiguous situations, where the ethically correct path is ized. This proved to be the case in Indonesia under not clear, illustrates that people choose the ethical path Suharto, and in Brazil and Thailand where crony capital- when they are reminded of ethical norms before the ism is prevalent. In contrast, Halliburton's stock was not experiment, while those facing an ambiguous situation negatively affected by Cheney's heart problems. A well without ethical guidance are more likely to transgress. diversified company in a more transparent democracy People who behave unethically without a reason are rare. may be less dependent on any single political connection. This is important in institutional settings because it sug- gests people will act ethically where opportunities for Sources of political corruption corruption are minimized and ethical norms are publi- cized. The availability of information about acceptable IT IS GEN ERALLY BELIEVED that corruption is not practices is important in institutional settings. caused by any single political or economic factor. I Anti-corruption efforts by tion of the consulting fee could invite prosecution under multi-lateral donors the Foreign Corrupt Practices Act To reduce the risk of prosecution, the company should request due diligence THERE IS AN ABSENCE of regulatoryframeworks togov- on the consultant: information about hidherties to local ern how multi-lateral development banks (MDBs) deal government; how he/she could assure landing the con- with internal corruption, but MDBs have increased anti- tract; information about hidher past consultancy con- corruption measures that affect the lendingprocess. The tracts; whether he/she has ever been accused of bribery; World Bank's Institutional Integrity Unit has investigat- and information about his/her financial history. ed hundreds of reports of fraud involving Bank projects, Furthermore, the consultancy contract could not run as well as conducted due diligence on loans from partic- afoul of any local laws or procurement regulations. ular sectors to ensure better safeguards in the expendi- ture process. Analyzing the World Bank's corruption Conclusion database would be valuable. If MDBs can measure the impact of money lent and the discount due to corruption, IN SUM. ANTI - CORRUPTION researchers have made MDBs will be able to determine the cost effectiveness of substantial progress in collecting accurate data on cor- loans, allowing them to better manage resources. ruption and developing new methods for studying anti- Opening the MDBs database to outside research would corruption measures. More work must be done to inves- allow external monitoring, which if conducted inde- tigate the causes of corruption and corrupting influences pendently of the World Bank, would pressure other in different political-economic environments. Anti-cor- MDBs and member countries to be more transparent ruption research would benefit from micro-level studies about their own experience with corruption, allowing that identify the variables that facilitate corruptionin dif- private investors to benefit from MDB experience. ferent sectors. Weaknesses exist in macro-corruption perception indexes as well as in micro-case studies, but Political corruption and democracy both are useful. Further research on the effectiveness of different anti-corruption programs would provide poli- TH E COMPLEX RELATIONSHIP between political cor- cy-makers with hard evidence of successful strategies. ruption and democracy includes the study of social net- Where persons in power have a stake in corrupt govern- works, clienteles and patronage inherent in many devel- ment, the international community must promote media oping countries, as well as corrupt networks both within exposure of corruption and unilaterally penalize parties and outside of the official realm. A prominent factor in that take part in foreign corrupt practices. The many this context is the creation of effective anti-corruption manifestations of corruption preclude a silver bullet. agencies by nations with disruptive corruption problems. Instead, governance weaknesses must be addressed using The first best practice rule for success is not to place tailored approaches that include strong and streamlined police in charge of the new institution. The Philippines institutions, frequent audits, transparency, accountabili- government staffed a new anti-corruption agency with ty and judicial enforcement. personnel from their corrupt police force, dooming it to failure. In contrast, Singapore and Hong Kong have suc- Moana M. Erickson, Executive Director, CSIS-Hills Program on cessful anti-corruption agencies. Both began by assign- Governance. ing anti-corruption enforcement to the police force: but the police force failed severely in both countries prompt- This article summarizes the workshop, "Research on Corruption ing the establishment of independent anti-corruption and its Control: The State of the Art," organized by the CSIS- agencies administered by officials with proven integrity. Hills Program on Governance, in partnership with the World These new autonomous institutions have since been suc- Bank Institute and Wharton School of Business, on March 3rd cessful in their mission to reduce corruption. and 4th, 2006. For more information on this workshop, a list of participants and the agenda, please visit the World Bank Business and corruption Institute Web portal on Partnerships to ~ightCorruption: http:lldevelopmentandbusiness.org/A-Ciwebportal. WHEN COMPANIES SEEK to do business in countries A comprehensive CD-ROM of the event, including video clips, where corrupting influences are prevalent, difficult situ- audio clips, presentations, and resources, compiled by the ations and conflicting interests arise, An example of a World Bank Institute is also available. challenging situation is illustrated when a company hires a local consultant who guarantees the ability to land a particular contract. Turning a blind eye to the destina- Seeking Clarity in a World of Murkv Transactions

BY MICHAEL JARVIS Nations Global Compact, and the IVharton School. A AND AMINA EL-SHARKAWY brief article cannot do the wide ranging debate justice. but does provide a sampling of the discussion.' WHAT ARE THE DOCUMENTED effects of corruption on The participants recognized the pervasive presence of the business environment and competitiveness? What corruption that can permeate all sectors of society, often are the best private sector approaches to fighting corrup- rendering unilateral solutions ineffective and unsus- tion in different contexts? Do collective action initiatives tainable. Hence, close attention and steadfast commit- and multi-stakeholder partnerships hold real promise to ment to fighting corruption must come from the range of reduce corruption on a larger scale? As there is increased stakeholders in order to address its root causes: as well as global attention to the issue of corruption and as more its symptoms. The private sector is increasingly recog- and more organizations seek to find ways to tackle the nizing that it is in its own best interest to address and problem, there is no shortage of questions to address. eliminate corruption in order to foster a stable business The sharing of knowledge, not least discussion of what environment, but the discussion highlighted the limita- has worked and what has not, becomes all the more tions of individual firm actions and the difficulty of important to avoid duplication of efforts, repeating the implementing them across international and local busi- same mistakes and failure to capture opportunities that nesses alike. Recent experiences, ranging fromvietnam could have a major impact. to South Africa to Colombia, suggest that effective and Recognizing the need to get the lay of the land in com- consistent private sector efforts have great potential bating corruption in terms of private sector-led and worldwide, particularly when aligned with NGOs and, multi-stakeholder approaches, the World Bank potentially, government partners. However, the chal- Institute's Business, Competitiveness and Development lenge of moving from individual examples to finding a (BCD) Team partnered with the UN Global Compact and model that works in different settings remains great. the ZicMin Center for Business Ethics Research at the Echoing and reinforcing the closed format of the e- Wharton School of Business, to organize a high-level discussion itself, one theme emerging from the discus- global e-discussion.' The resulting dialogue, Towards a sion was the need and importance for a "safe space" in More Systematic Fight against Corruption: The Role of the which counterparts, colleagues and competitors can Private Sector, took place from June 26-July 12,2006, and freely talk about the realities of corruption. Varying lev- brought together foqinvited experts and practitioners els of mistrust amongst these parties, as well as the fear from the public, private and civil society sectors, as well of negative repercussions arising from a candid as academia. This group also represented viewpoints approach, such as negative effects on reputation and from an impressive list of countries, including Brazil, brand, and the threat of blackmail. can be major factors Canada, Denmark, Mexico, Nonvay, Slovakia, South limiting the ability to discuss corruption issues openly Africa, Spain, the United Kingdom and the United and to organizing collective efforts to fight it. More needs States, and relayed news of projects in many more coun- to be done by all sectors to break the taboo around cor- tries. Given the complexity and potential sensitivities ruption. As with other sensitive development related inherent to dialogue on this topic, the e-discussion was issues, such as fighting HIV/AIDS, half the battle lies in conducted in a closed format that ensured a frank and admitting the problem exists. Only after a frankrecogni- candid exchange of views and ideas. expertly moderated tion of corruption can substantive and systematic action by representatives of Transparency International, the be taken. Many leading development institutions and Center for International Private Enterprise, United donors have only relatively recently become leaders in taking on corruption. In the case of the World Bank, cor- initiatives are typically geared towards larger fm,over - ruption has come front and center on its agenda only looking the SMEs who often want to engage in anti-cor- over the past ten years, begun under the presidency of ruption initiatives but feel helpless to do so or cannot dis- James Wolfensohn and continuing under the active lead- cern a viable entry point. While the amounts may be ership of Paul Wolfowitz. smaller, the toll of corruption on SMEs is heavy as their Of course, in order to actually be able to discuss cor- profit margins are also smaller. They are less able to let an ruption in the first place, especially across sectors and order fall through or a shipment languish in a warehouse. geographic regions, it is critical to utilize a common lan- During the e-discussion, participants fromseveral differ- guage. There exists a lack of common definitions for cor- ent regions reiterated the findings of different surveys ruption and its associated terminology, causing confu- suggesting that SME owners almost universally find the sion and frustration. There are many ways to define cor- pressure to engage in corruption distasteful and harmful ruption, and as the e-discussion participants highlighted, to business. Yet just as universally, "they feel trapped by it" there remains much talk of different "types," such as pri- as noted by one private sector consultant from Slovakia, vate-public corruption and private-private corruption, or reflecting results from a range of Integra Venture anti- even "levels" of corruption. Yet it is hard to decide if one corruption reports completed in recent years3 form is more egregious than another. Where does one Building the capacity of SMEs to reject participation draw the line on what is acceptable practice? Given the in corruption is a concern increasingly shared by larger ambiguity, takinga hard line is often the only wayto bring firms who contract SMEs within their supply chains. clarity. However, situations on the ground are often far They do not want to be held responsible for corrupt prac- more complicated. For example, it came clear over the tices further down (or up) the chain. Recognizing the course of the e-discussion that there remains no consen- dynamics impacting all levels of the supply chain, the sus across sectors on facilitation payments, which are participants in the e-discussion emphasized the impor- unofficial payments made to procure or speed up the pro- tance of understanding the business environment of a vision of goods or services. Facilitation payments fall into specific country or sector. Corruption-be it in the cus- an ethically gray area as they are a normal (and legal) part toms house, the banlung system or property markets, is of doing business in some countries, but are outlawed in one facet of this business environment. and the govern- others. This creates a dilemma for multinational compa- ment has core responsibility for the functioning of this nies who are prohibited from making facilitation pay- environment. As one participant noted, while the private ments in their home countries, but may face a need to sector has a role to play, in the end "Governments, not make these payments in the countries in which they oper- companies, are responsible for managng the legal and ate. Recognizing that there are not yet clear protocols or regulatory framework." Therefore, for a successful broad standards for such situations, e-discussion participants anti-corruption initiative, obtaininggovernment buy-in found agreement on the need to address corruptinginflu- and securing political will is vital. ences, as well as limiting opportunities for the corrupt This is not to say that the private sector cannot play a transactions themselves, for example with educational strong role in changing the environment in which it campaigns backed by enforceable sanctions. operates. The e-discussants agreed that effective legal Dovetailing with the need for more universally prohibition of corrupt behavior is in the interest of all accepted definitions of corruption is the need for more (or almost all) private companies, as effective legal sanc- empirical research and quantitative data on corruption tions change the incentive structure away from the pris- and anti-corruption initiatives. This was a point of oners' dilemma constellation that makes it difficult to agreement not just among academics, but practitioners, break cycles of corruption. As one academic argued. this too. Armed with a solid business case for fighting cor- means that business associations, or simply groups of ruption, quantifiable economic costs of engaging in cor- individual industry leaders, should, theoretically at least, rupt activities, and empirical evidence linking engage- be the strongest proponents of effective legal mandatory ment in corrupt activities to decreased firm, national, rules on company behavior. As a private sector represen- and regional-level competitiveness, those in the field tative in turn pointed out, "Business associations can are better equipped to facilitate the scaling up and repli- play a role inlobbyinggovernments by making clear what cation of successful initiatives, as well as implement the costs of failure to reform will be. In many cases they more effective mechanisms for the monitoring, evaluat- may be able to provide technical advice. The objective ing and reporting of initiatives. should be to work together to address a common prob- When conducting and collecting this research and data lem. That process is unlikely to begin until it is made it is important to include small and medium enterprises clear to government that there is a problem, and how (SMEs). The majority of anti-corruption solutions and + much it costs in lost revenue and lost business."

AK Development Outreach "'"RLD BANK INSTITUTE Even with private sector lobbying for reform, tary regulations with a consensus emerging that a mix- improvements in the business environment are typically ture of both is necessary, as they reinforce each other. a lengthy process. Ensuring transparency and commit- The caveat is that appropriate combinations will vary ment to fighting corruption in any sector can take a long from country to country, sector to sector, and circum- time to assess and put into motion, and an even longer stance to circumstance. The concluding sentiment is time for implementation. In the meantime, what that, although there are no easy solutions, it is worth- approach should business take? Several participants in while to continue to refine collective approaches to the discussion pointed to the conflicting pulls between fighting corruption. Dialogue among the different play- the long-term ideal that a firm might have for an operat- ers will be crucial to the success of such collective efforts. ing space where corruption can be avoided altogether, Reassuringly, the e-discussion suggests there is great and what is feasible in the short-term. Companies willingness from leading businesses, NGOs and academ- therefore do look for shorter term solutions to find and ics to share knowledge, collaborate and continue that fight corruption. One newer mechanism, highlighted in dialogue. The networks formed through such discussions the e-discussion, is the use of private enforcement are crucial in supporting individual actors and creating actions, which are utilized more to level the playing field opportunities for wider scale impact. than to eliminate corruption for a broader ethical pur- pose. Private enforcement actions involve companies Michael Jarvis and Amina El-Sharkawy are Consultants, Finance initiating investigations of their competitors in order to and Private Sector. World Bank Institute. procure evidence on whether or not they are engaging in corrupt activities. Such actions, in and of themselves, Endnotes: bring up issues of ethics and transparency, particularly The e-d~scuss~onwas one of a series of events lead~ngup to the UN in regards to how the information uncovered by private Global Compact workshop Collective Business Action and National enforcement actions is used. As in the case of private Initiatives on Anti-Corruption, July 10-11, 2006 ~n Barcelona, Spain, and the plenary session Partnerships to Combat Corrupt~on:Rising to enforcement actions, new strategies and practices the Challenge on September 17. 2006, during the Program of ensure that the range of stakeholders continually need to Sem~narsat the IMFNVorld Bank GroupIBoard of Governors Annual monitor and evaluate their appropriate stance, and, if Meet~ngs~n Singapore. The agenda of the e-discussion was designed necessary, their appropriate response. in alignment w~ththe issues to be covered during these two events. Industry approaches, such as the Extractive Weekly summaries and further information on the BCD Team's anti- Industries Transparency Initiative (EITI), may provide a corruption programs and events can be found on its Web Portal on Partnerships to Combat Corrupbon: more transparent mechanism for competitors to share http://developmentandbusiness.org/A-Clv~ebportal information and "level the playing field." However, EITI Commentators for the e-discussion Included representatives from and other industry-led collection action initiatives, raise The Control Risks Group, the US Department of Commerce, their own set of issues. For example, participants in the TecnOlogico de Monterrey, Chevron, and Diligence LLC. e-discussion debated how best to deal with state-owned lntegra Venture, Anti-Corruption Project Slovakia Report, September, enterprises that, even if they do sign up to such agree- 2000, http://iintegra,infotech.sWdownloads/l3~Publicationsl~en.pdf; ments, are not held accountable in the same way as inter- lntegra Venture, Anti-Corruption Project Croatia Report, November, national publicly traded firms. Some trends offer oppor- 2001, http:Ni1ntegra.1nfotech.sWdownload5/14~Publications2~en.pdf; tunities to require more transparency, including the lntegra Venture, Anti-corruption Project Bulgaria Report, July 2002, moves of many national firms, such as oil companies in http://iintegra.infotech.sk/downloads/l5~Publications3~en.pdf India or China, to partially list on international stock exchanges. They might then be subject to requirements to detail payments in order to retain a stock exchange listing, but such solutions are partial at best. As noted by one major oil company representative, such schemes would still not capture the universe of companies com- peting in the oil sector. Additionally, industry approaches, such as EITI, are typically voluntary mechanisms which face issues of enforcement, credibility and verifiability. The partici- pants comments in the e-discussion duly reflected the broader global debate that applies to corporate responsi- bility standards as well as anti-corruption regimes. on finding the right balance between mandatory and volun- BOOKSHELF 1 -

CORPORATE BODIES AND that enhance business activity and those that constrain GUILTY MINDS: THE FAILURE CORPORATE BODIES it, ranking countries on their "ease of doing business." AND GUILTY MINDS OF CORPORATE CRIMINAL This year, analysis is presented from -50 case studies of LIABILITY, Will~arnS. Laufer. reform. Visit the web site for more information, to order University of Chicago Press, 2006. copies, or to generate your own reports using the Doing In this timely work, William S. Business data: www.doingbusiness.org Laufer argues that even with recent legal reforms-and those about to be enacted-corporate criminal law continues to be ineffective. The book outlines the many reasons why this is so. But none of these factors, according to Laufer, trumps the fact that there is no single constituency or interest g-roup that strongly and consistently advocates the importance and continues its tradition of priority of corporate criminal liability. In the absence of a excellence with the 26th edition of new standard of corporate liability. the power of I the annual Global Competitiveness regulators to keep corporate abuses in checkwdl remain Report featuring the latest national statistics and results insufficient. A necessaly corrective to our current climate of the Executive Opinion Survey. which captures the of graft and greed, Corporate Bodies and Guilty ~bfindswill perception of over lo.ooo business leaders. The report be essential to policymakers and legal minds alike. provides the most comprehensive assessment of 117 developed and emerging economies. Produced in FIGHTING CORRUPTION IN EAST ASIA: SOLUTIONS collaboration with a distinguished group of international FROM THE PRIVATE SECTOR, Jean-FranpoisArvis and scholars and a global network of over loo leading Ronald E. Berenbeirn, World Bank, 2003. national research institutes and business organizations, Although attention has focused on public sector the report presents individual detailed country profiles initiatives to fight corruption on the demand side, private highlighting the competitive strengths and weaknesses companies in every regon have developed programs to of each economy as well as an extensive section of data fight it on the supply side. Based on case studies of tables containing country rankings for over 160 international and regional corporations, this book looks indicators. at the content of the programs and at issues pertaining implementation and effectiveness such as the role of the THE FUTURE OF business culture. It also analyzes the incentives, internal Thr ! of SUSTAINABILITY, SU! litv and external, that drive the adoption and implementation Marco Keiner, ed., Springer, 2006. of those techniques. Many examples of actual This book provides a broad mechanisms and alliances to disseminate good practices discussion on sustainable are presented, often involving partnerships with the development, rethinking and public sector or the civil society. improving its effectiveness as a paradigm of today and tomorrow DOING BUSINESS 2007: HOW by bringing together the visions TO REFORM, The World Bank, and contributions of highly 2006. esteemed thinkers on the subject The fourth annual Doing Business (such as Herman E. Daly, Ernst Ulrichvon Weizsacker, report focuses on reform. The Mikhail Gorbachev, Dennis Meadows and others). report presents quantitative Communities, states, and transnational corporations indicators on business must take steps to transform engrained practices and regulations and their priorities. If they fail to do so, Sustainable Development enforcement compared across 175 will remain an abstract concept or a superficial countries-from Afghanistan to Zimbabwe-and over catchword and will not become reality. time. Top reformers are identified and best practices in how to reform are highlighted. Published annually, Doing Business reports investigate global regulations

8 Development Outreach WORLD EANX INSTITUTE ANTI-CORRUPTION IN TRANSITION 3: Who IS 1 CREATING PROSPERIN IN Succeeding... and Why, James Anderson and Cheryl Gray, AFRICA: Ten Keys to Get out of World Bank, 2006. Poverty, Eugene Nyambal, lnkwater This report is the third in a series of studies examining 1 Press, 2006. the patterns and trends in corruption in the former The author anal.yzes Africa's socialist economies of Eastern Europe and Central Asia. I performance in the global The findings show that reforms in the region in cutting 1 economy. He shows how Africa can red tape, simplifying taxes, and strengthening audits, 1 design its own future and create among others, are reducing the opportunities for more wealth for its people, while corruption. Firms report bribery to be less frequent and abandoning the spirit of aid in smaller amounts. However, corruption is not falling in dependency. Also, he addresses the role of leadership in all countries or all sectors, and even the most successful fostering economic development and argues for a new reformers still tend to have higher levels of corruption modus operandi for international financial institutions. than in Western Europe. Corruption continues to weigh most heavily on new private firms that are the engine of GLOBAL DEVELOPMENT FINANCE (GDF), The World growth and employment in the region. Bank, 2006. This report is part of a two-volume annual publication. TEMPTATIONS OF THE WEST: Volume I: Analysis and Statistical Appendix reviews recent How to Be Modern in India, trends in financial flows to developing countries. Volume Pakistan, Tibet, and Beyond, 11: Summary and Country tables (GDF), published annually Pankaj Mishra, Farrar. Straus and by Development Data Group (DECDC). contains Girouz, 2006. statistical tables on the external debt of the 135 countries In his new book, Pankaj Mishra, that report public and publicly guaranteed debt under the author of An End to Suffering, Debtor Reporting System (DRS). It is the sole repository brings literary authority and for statistics on the external debt of developing countries political insight to bear on travels on a loan-by-loan basis. that are at once epic and personal. Traveling- in the changng cultures of South Asia. Mishra sees the OTHER TITLES OF INTEREST temptations of Western-style modernity and prosperity, and teases out the paradoxes of globalization. BUSINESS AGAINST CORRUPTION: CASE STORIES Temptations of the West is a book concerned with history AND EXAMPLES, UN Global Compact, Apnl. 2006. still in the making-essential reading about a conflicted and rapidly changing regon. DISPELLING CORRUPTION MYTHS: WHAT WORKS AND WHAT DOESN'T, Aleksandr Shkolnilcov and Andrew IDENTITY AND VIOLENCE: The Wilson, Center for International hivate Enterprise. June 2005. Illusion of Destiny, Amartya Sen, Norton, 2006. BUSINESS ETHICS: A MANUAL FOR MANAGING A Arnartya Sen proposes in this RESPONSIBLE BUSINESS ENTERPRISE IN sweeping philosophical work that EMERGING MARKET ECONOMIES, UNGlobal Compact, the brutalities that plague the April, 2006. world are driven as much by confusion as by inescapable BUSINESS AGAINST CORRUPTION: CASE STORIES hatred. Conflict and violence are AND EXAMPLES, US Department of Commerce, sustained by the illusion of a International TradeAdrninistrat~on,Washington, DC, 2004. unique identity, overlooking the need for reason and choice in deciding on bonds of SMALL BUSINESS DEVELOPMENT AND CORRUPTION, class, gender, profession, scientific interests, moral UN Office on Drugs and Crime (UNODC) and UNIDO, beliefs, and even our shared identity as human beings. Discussion Paper, March 2006

SEPTEMBER 2006 49 KNOWLEDGE RESOURCES I

TRANSPARENCY ETHICSWORLD is an INTERNATIONAL (IT), independent, not-for-profit a global civil society forum designed to contribute organization leading the fight to the strengthening of global against corruption, brings ethics and governance. people together in a powerful EthicsWorld is for worldwide coalition to end the professionals in business, devastating impact of government, civil society, and corruption on men, women academia as well as students and the media. Its goal is to and children around the world. TI'S mission is to create provide knowledge through news, research, and best change towards a world free of corruption. practices, and encourage an active exchange of views. www.transparency.org www.ethicsworld.org

WORLD BANK INSTITUTE HUMANITARIAN WEB PORTAL ON ACCOUNTABILITY PARTNERSHIPS TO COMBAT PARTNERSHIP (HAP) CORRUPTION provides an is the humanitarian sector's introduction to the BCD first international self- Team's Learning Program on regulatory body, striving to Business Ethics and Anti- make humanitarian action I Corruption. The Learning accountable to its intended Program consists of a series of activities leading up to and beneficiaries: those people whose lives are at risk due to following the plenary session "Partnerships to Combat armed conflict or other calamitous events. It shares a Corruption: Rising to the Challenge" that will take place at commitment to making humanitarian action accountable to the 2006 IMFNorld Bank Board of Governors Annual disaster survivors. At the heart of this endeavour lies HAP'S Meetings in Singapore. It also serves as a resource center Principles of Accountability. for business and NGO leaders, policymakers and future www.hapinternational.org leaders interested in business-led partnerships, perspectives and solutions on fighting corruption. http://info.worldbank.orgletools/bcdwebportal COMBATING CORRUPTION: A POLICY TOOLKIT is a -page - of the GOVERNANCE DATA: WEB- k- . -- 1 website featuring the INTERACTIVE INVENTORY OF Center for International DATASETS AND EMPIRICAL Private Enterprise (CIPE), TOOLS provides an inventory a non-profit affiliate of the of the available datasets on U.S. chamber of governance,- in order to Commerce and one of the four core institutes of the facilitate the user's access to a National Endowment for Democracy. This page lists a broad spectrum of such data. number of practical recommendations for policymakers to The total number of datasets in combat corruption, which can be implemented right away. this inventory exceeds 140,and goes well beyond the These recommendations involve the supply side as well as obvious, such as the WB Governance Indicators Dataset, the demand side. Transparency International Corruption Perception Index, http://www.cipe.orglprogramslcorruption/corruptiontoolkit.php and the WEF Global Competitiveness program. The site only includes datasets and associated empirical tools where actual data exists and is made accessible to the user. www.worldbank.org/wbilgovernancelgovdataindex.html

50 Developmenr Ourreach WORLD BANK INSTITUTE KNO\VLEDGE RESOURCES

INTERNATIONAL ' constrain business investment, productivity, and growth. COMPLIANCE The Doing Business indicators are comparable across 155 ASSOCIATION (ICA) is a economies. They are developed by the Private Sector Vice non-profit professional Presidency of the World Bank Group in cooperation with organization dedicated to the Lex Mundi Association of law firms and the the furtherance of best International Bar Association. compliance and anti money www.doingbusiness.org laundering- -practice in the financial services sector. It supports and educates compliance of professionals in the fight against terrorist financing, corruption, money laundering and financial crime. PARTNERSHIP FOR TRANSPARENCY FUND (PTF) is an international non-governmental --- organization dedicated to -.--.--..---,-.-- " ------."I CYOCClC ---.--- -1 WHITE COLLAR CRIME 1 helping civil society play an is designed to help people effective role in the design, understand and recognize such implementation and monitoring of national anti- frauds as bribery and corruption programs. PTF believes that civil society is more corruption, and teach them efficient in fostering anti-corruption and good governance how to stop them. This site is a programs when it is financially independent from joint project- - between the South government or direct bilateral or multilateral funding. African Police Service's KwaZulu Natal Commercial Crime www.partnershipfortransparency.info Division, Business Against Crime's KwaZulu Natal White Collar Crime Task Group, and J. Blindell. It will provide an electronic version of BAC's Dealingwith mite Collar Crime handbook. 7 ANTICORRUPTION AND www.whitecollarcrirne.co.zainews.php -1-- GOVERNANCE LIBRARY is a web -based part of the Library of Learning Objects developed and maintained THE INTEGRA VENTURE by the Internet Strategy & is a network of Community Applications Team at the Economic agencies in Central World Bank Institute. Many and Eastern Euro~ethat offers of the WBI publications and presentations are accessible - practical and professional help through the Library, which provides quick access to all of to entrepreneurs to start and these documents in a user-friendly interface that offers an grow their business. It also excellent search function. promotes marketplace ethics www.worldbank.orglwbilgovernancellibrary.html and corporate social responsibility, thus helping-. to strengthen civil society, democracy and the free market economy in those countries. TRANSNATIONAL CRIME AND CORRUPTION CENTER- CAUCASUS OFFICE (TRACCC CO) is the research organization of a group of Georgian scholars, which connects professionals, politicians, academics and representatives of different NGOs, as well as members of I DOING BUSINESS international organizations. The Caucasus Office carries DATABASE provides out joint projects and exchange of information between indicators of the cost of scientific, governmental and independent organizations doing business by of different countries. www.traccc.cdn.ge www.arnerican.edu/traccc 1 CALENDAR /

1 SEPTEMBER 2006 OCTOBER 2006 1-30 UNESCO-WE0 Multi-project and "Workshop Sub-Regional Workshop on Education on Gender Issues and the Empowerment of for Sustainable Development Women in Engineering, Science and Seoul, Republic of Korea Technolog in Africa and the Middle East." hhtp://events.unesco.org Tunis, Tunisia http://events.unesco.org World Habitat Day Naples, Italy 10-1 1 China Business Summit 2006 www.unhabitat.org Sustainable Growth through Innovation: China's Creative Imperative 25-27 World Congress on Communication Beijing. China for Development china~vefomm.org Rome, Italy www.wefomm.org [email protected] ~wv.devcomm-congress.org 19-20 Annual Meetin s of the International Monetary Fund and the Gorld Bank Group Singapore NOVEMBER 2006 www.imf.org/external/am/zo06/about.htm Inclusion and Integration throu h Innovation: 25-26 WTO Public Forum 2006 Learning Environments for Stu aents with What WTO for the XXI Century? Special Needs Geneva, Switzerland Antalya, Turkey [email protected] www.oecd.org www.wto.org 23-24 World Economic Forum 29-30 Advancing Health Equity Connecting Regions-Creating New World Institute for Development Economics Opportunities Research Istanbul, Turkey Helsinlu, Finland [email protected] Sherry-Anne Ruuskanen, [email protected] www.weforum.org www.wider.unu.edu

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Money for Nothing, the Dire Siraits of Medical Practice in Delhi 1 Jishnu Das and JetRey Hammer Why We Need a World Bank Research Digest Franps Bourguigrnm Bank Supervision and Conuption in Lending Thorsten Beck, Asli DemirgOpKunt, and Ross Levine I The Distributional Incidence of Residential Water and Electricity IN THE FIRST ISSUE: I subsidies Kn'stin Komives, Jonathan Halpem, Wvien Faster, Quentin Wodon Child Labor and Agricultural Shocks Kathleen Beegle, Rajeev Dehejia, and Roberta Gatii Market Access for Sale Hiau Looi Kee, Marcel0 Olarreaga, and Pen' Silva Disclosure Strategies for Pollution Control Susmita Dasgupta, Hua Wang, and David Wheeler How to reform

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mearum regulatory perkrnan&>Mcornparim to other muntrks, hfrom global best practkes, and prfarltke rafarmr The indlcatQrs are used to analyze mmkand soda1 wtcom, such as inbmallty,