Issn 2231-4334) Globalization, Multinational Corporations, and Corruption

IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) GLOBALIZATION, MULTINATIONAL CORPORATIONS, AND CORRUPTION

Ramesh Gupta DIO Yamuna Nagar Cum Technical Director (Scientist E)

Abstract

Corruption is both a major cause and a result of poverty around the world. It occurs at all levels of society, from local and national governments, civil society, judiciary functions, large and small businesses, military and other services and so on. Corruption affects the poorest the most, whether in rich or poor nations. The issue of corruption is very much inter-related with other issues. At a global level, the ―international‖ (Washington Consensus-influenced) economic system that has shaped the current form of globalization in the past decades requires further scrutiny for it has also created conditions whereby corruption can flourish and exacerbate the conditions of people around the world who already have little say about their own destiny. In this paper worldwide concept of corruption with reference to India, causes and anti corruption efforts has been highlighted.

Introduction

A difficult thing to measure or compare, however, is the impact of corruption on poverty versus the effects of inequalities that are structured into law, such as unequal trade agreements, structural adjustment policies, so-called ―free‖ trade agreements and so on. It is easier to see

International Journal of Research in IT & Management www.euroasiapub.org Page 79 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) corruption. It is harder to see these other more formal, even legal forms of ―corruption.‖ It is easy to assume that these are not even issues because they are part of the laws and institutions that govern national and international communities and many of us will be accustomed to it—it is how it works, so to speak.

Worldwide Corruption Perceptions ranking of countries

Rank Country Index 2009 2008 2007 2006 2005 2004 2003 2002 2009 1 New Zealand 9.4 9.3 9.4 9.6 9.6 9.5 9.5 9.4 2 Denmark 9.3 9.3 9.4 9.4 9.5 9.5 9.5 9.5 3 Singapore 9.2 9.2 9.3 9.2 9.3 9.4 9.4 9.4 3 Sweden 9.2 9.3 9.3 9.2 9.2 9.3 9.3 9.0 5 Switzerland 9.0 9.0 9.0 9.1 9.1 8.8 8.5 8.4 6 Finland 8.9 9.0 9.4 9.6 9.6 9.7 9.7 9.9 6 Netherlands 8.9 8.9 9.0 8.7 8.6 8.9 9.0 8.8 8 Australia 8.7 8.7 8.6 8.7 8.8 8.8 8.6 8.5 8 Canada 8.7 8.7 8.7 8.5 8.4 8.7 9.0 8.9 8 Iceland 8.7 8.9 9.2 9.6 9.7 9.6 9.4 9.2 11 Norway 8.6 7.9 8.7 8.8 8.9 8.8 8.5 8.6

Source:- Published by Transparency International

Since 1995, Transparency International has published an annual Corruption Perceptions Index (CPI) ordering the countries of the world according to "the degree to which corruption is perceived to exist among public officials and politicians". The organization defines corruption as "the abuse of entrusted power for private gain".

The 2003 poll covered 133 countries; the 2007 survey, 180. A higher score means less (perceived) corruption. The results show seven out of every ten countries (and nine out of every ten developing countries) with an index of less than 5 points out of 10.

Rich Countries involved in corruption abroad

When asking why poor countries are poor, it is quite common to hear, especially in wealthier countries that are perceived to have minimal corruption (at least domestically) that other

International Journal of Research in IT & Management www.euroasiapub.org Page 80 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) countries are poor because of corruption. Yet, corruption is not something limited to third world despots. Rich countries too have been involved in corrupt practices around the world.

As Professor Robert Neild from Trinity College, Cambridge University writes in Public Corruption; The Dark Side of Social Evolution (London: Anthem Press, 2002), ―Rich countries and their agencies commonly have been and are accomplices in corruption abroad, encouraging it by their actions rather than impeding it‖ (p.209). Specific problems he highlights include:

 The impact of Cold War corruption (supporting dictatorships, destabilizing democracies, funding opposition, etc);  Firms from rich countries bribing rulers and officials from developing countries to gain export contracts, particularly in the arms trade and in construction (even justifying it by suggesting bribery is ―customary‖ in those countries, so they need to do it to, in order to compete);  The ―corruption-inducing effects of the purchase, by the rich countries and their international corporations, of concessions in Third World countries to exploit natural deposits of oil, copper, gold, diamonds and the like.‖ Payments made to rulers often violate local (and Western) rules, keeping corrupt rulers in power, who also embezzle a lot of money away.  International law and national laws in rich countries that prohibit drugs may serve to ―produce a scarcity value irresistible to producers, smugglers and dealers.‖ Governments and civil society in the third world are often ―undermined, sometimes destroyed‖ by the violence and corruption that goes with the drug trade. ―This is probably the most important way in which the policies of rich countries foster corruption and violence. Yet the effect on the Third World seems scarcely to enter discussion of alternative drug policies in the rich countries.‖ Legalizing drugs, a system of taxation and regulation, comparable to that applied to tobacco and alcohol might do more to reduce corruption in the world than any other measure rich countries could take.

International Journal of Research in IT & Management www.euroasiapub.org Page 81 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) II Globalization, Multinational Corporations, and Corruption

Corruption scandals that sometimes make headline news in Western media can often be worse in developing countries. The international business environment, encouraged by a form of globalization that is heavily influenced by the wealthier and more powerful countries in the world makes it easier for multinationals to make profit and even for a few countries to benefit. However, some policies behind globalization appear to encourage and exacerbate corruption as accountability of governments and companies have been reduced along the way.

―For multinationals, bribery enables companies to gain contracts (particularly for public works and military equipment) or concessions which they would not otherwise have won, or to do so on more favorable terms. Every year, Western businesses pay huge amounts of money in bribes to win friends, influence and contracts. These bribes are conservatively estimated to run to US$80 billion a year—roughly the amount that the UN believes is needed to eradicate global poverty.‖

Dr Hawley also lists a number of impacts that multinationals’ corrupt practices have on the ―South‖ (another term for Third World, or developing countries), including:

 They undermine development and exacerbate inequality and poverty.  They disadvantage smaller domestic firms.  They transfer money that could be put towards poverty eradication into the hands of the rich.  They distort decision-making in favor of projects that benefit the few rather than the many.  They also o Increase debt; o Benefit the company, not the country; o Bypass local democratic processes; o Damage the environment; o Circumvent legislation; and o Promote weapons sales.

International Journal of Research in IT & Management www.euroasiapub.org Page 82 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) IMF and World Bank Policies that Encourage Corruption

At a deeper level are the policies that form the backbone to globalization. These policies are often prescribed by international institutions such as the World Bank and IMF. For years, they have received sharp criticism for exacerbating poverty through policies such as Structural Adjustment, rapid deregulation and opening barriers to trade before poorer countries are economic ready to do so. As Western governments and the World Bank and IMF shout ever more loudly about corruption, their own policies are making it worse in both North and South. Particularly at fault are deregulation, privatization, and structural adjustment policies requiring civil service reform and economic liberalization. In 1997, the World Bank asserted that any reform that increases the competitiveness of the economy will reduce incentives for corrupt behavior. Thus policies that lower controls on foreign trade, remove entry barriers to private industry, and privatize state firms in a way that ensure competition will all support the fight.

The Bank has so far shown no signs of taking back this view. It continues to claim that corruption can be battled through deregulation of the economy; public sector reform in areas such as customs, tax administration and civil service; strengthening of anti-corruption and audit bodies; and decentralization. Yet the empirical evidence, much of it from the World Bank itself, suggests that, far from reducing corruption, such policies, and the manner in which they have been implemented, have in some circumstances increased it.

Indian Context

Corruption is perhaps the most important reason why India is so poor in development. Corruption is anti economic development, anti-poor and anti-national. The discussions about corruption have mostly been based on emotions and ethical grounds. Many, of course, are also adopting cynical, defeatist and helpless attitude to corruption. The problem of corruption is not new or uniquely Indian. It is the scale and its ferocity which makes the life if Indian citizen distasteful. The economy of India was under socialist-inspired policies for an entire generation from the 1950s until the 1980s. The economy was subject to extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth. License Raj was often at the core of corruption. The Vohra Report was submitted by the former Indian Union Home Secretary, N.N. Vohra, in October 1993. It studied the problem of the criminalisation of politics and of the nexus among criminals, politicians and bureaucrats in India.

International Journal of Research in IT & Management www.euroasiapub.org Page 83 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) The report contained several observations made by official agencies on the criminal network which was virtually running a parallel government. It also discussed criminal gangs who enjoyed the patronage of politicians, of all parties, and the protection of government functionaries. It revealed that political leaders had become the leaders of gangs. They were connected to the military. Over the years criminals had been elected to local bodies, State Assemblies and Parliament. The unpublished annexures to the Vohra Report were believed to contain highly explosive material.

According to Jitendra Singh, "in the bad old days, particularly pre-1991, when the License Raj held sway, and by design, all kinds of free market mechanisms were hobbled or stymied, and corruption emerged almost as an illegitimate price mechanism, a shadowy quasi-market, such that scarce resources could still be allocated within the economy, and decisions could get made. These were largely distortions created by the politico-economic regime. While a sea change has occurred in the years following 1991, some of the distorted cultural norms that took hold during the earlier period are slowly being repaired by the sheer forces of competition. The process will be long and slow, however. It will not change overnight. One of the major problems and obstacles to development that many developing countries face is corruption by greedy, power- hungry politicians, which is endemic in certain parts of the world.

Politics

Criminalization of Indian politics is a problem. In July 2008 The Washington Post reported that nearly a fourth of the 540 Indian Parliament members faced criminal charges, "including human trafficking, immigration rackets, embezzlement, rape and even murder". At state level, things are often worse. In Uttar Pradesh Assembly elections 2002, candidates with criminal records won the majority of seats.

This is a list of Indian political scandals, real or alleged.

1900s HDW Submarine Bofors Scandal (1990) Bitumen scam Animal Husbandry Case (1990) Tansi land deal Bombay Stock Exchange Manipulation & Fraud by Harshad Mehta (1992) JMM Bribery Scandal Hawala scandal (1993)

International Journal of Research in IT & Management www.euroasiapub.org Page 84 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) St Kitts case Bangalore - Mysore Infrastructure Corridor (1995) Urea scam Sukh Ram (1996) Anantnag transport subsidy scam Fodder Scam in Bihar (1996) 1971 Nagarwala scandal Kerala SNC Lavalin power scandal (1997) Fodder scam 1975: Declaration of Emergency Churhat lottery scam

Rampant corruption siphoning off billions from India Ev en as India's economic growth continues, the poor continue to stay poor with rampant corruption siphoning out over $125 billion in illicit capital flight between 2000 and 2008, according to a Washington think tank. Noting that "much of the funds flowing out are generated at home within India and then sent illegally abroad," an upcoming report from Global Financial Integrity (GFI) says, "So the growth of corruption and India's underground economy contributes significantly to illicit financial flows from the country."

"Corruption is rampant in India as it is in almost all developing countries. Both corrupt political and corporate officers manage to siphon off funds - intended to aid the people of India - off to political and private sector elite," noted the research arm of the Centre for International Policy (CIP).

"Recent efforts in India to challenge this corrupt affront on humanity have been met with severe violence," Junior GFI Economist Karly Curcio said in a blog post on the report on illicit financial flows (IFF) from India and explaining linkages between IFFs, poverty, corruption, and crime. "As India develops economically and builds better infrastructure, one would think that all Indian citizens would see an increased standard of living and that the income inequality levels would fall," says the blog post following a news report about recent violent crimes in India against whistleblowers. India ranks 84 out of 180 countries in Transparency International's 2009 Corruptions Perceptions Index ranking.

Source:- The Tribune, Washington, September 14, 2010

2000s  Ketan Parekh Scandal, Barak Missile Deal Scandal, Tehelka Scandal (2001)

 Army-Coffins Scandal, MIG-Fighter Jets

 Taj corridor case (2002–2003)

 Telgi scandal (2003)

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 Nitish Katara Murder Case (2004)

 Oil-for-food programme scam (Natwar Singh) (2005)

 Jessica Lal case (2006)

 Human Trafficking Scam involving Babubhai Katara.

 Cash-for-votes scandal

 Satyam scandal.

 [[Jharkhand robbery, Hawala transactions and secret bullion trade]],[Madhu Koda][2009]

 Madhu Koda:laundering money worth over Rs. 4000 crores.

 Common Wealth Games Scam:Illegal funds transfer in UK banks.

Bureaucracy

A 2005 study done by Transparency International (TI) in India found that more than 50% of the people had firsthand experience of paying bribe or peddling influence to get a job done in a public office. Taxes and bribes are common between state borders; Transparency International estimates that truckers pay annually $5 billion in bribes. A 2009 survey of the leading economies of Asia, revealed Indian bureaucracy to be not just least efficient out of Singapore, Hong Kong, Thailand, South Korea, Japan, Malaysia, Taiwan, Vietnam, China, Philippines and Indonesia; further it was also found that working with India's civil servants was a "slow and painful" process.

Indian bureaucracy ranked worst in Asia: Survey

Land and property

Officials often steal state property. In Bihar, more than 80% of the subsidized food aid to poor is stolen. In cities and villages throughout India, Mafia Raj consisting of municipal and other

International Journal of Research in IT & Management www.euroasiapub.org Page 86 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) government officials, elected politicians, judicial officers, real estate developers and law enforcement officials, acquire, develop and sell land in illegal ways.

Tendering processes and awarding contracts

Government officials having discretionary powers in awarding contracts engage in preferential treatment for selected bidders, display negligence in quality control processes. Many state- funded construction activities in India, such as road building, are dominated by construction mafias, which are groupings of corrupt public works officials, materials suppliers, politicians and construction contractors. Shoddy construction and material substitution (e.g. mixing sand in cement while submitting expenses for cement) result in roads and highways being dangerous, and sometimes simply washed away when India's heavy monsoon season arrives.

Medicine

In Government Hospitals, corruption is associated with non availability of medicines (or duplicate medicines), getting admission, consultations with doctors and availing diagnostic services. There have been cases of diversion of medical supplies from government hospitals and clinics as well as supply and distribution of medicines of inferior quality.

Transport

Officials who oversee transportation regulations, safety norms, traffic violations engage in rent seeking activity. Typically a lenient treatment for an offending driver or vehicle is accompanied by expectation of a bribe. India has multiple jurisdictions for vehicular laws as well as overlapping laws at the central government and state government level which worsens bureaucratic complications. This leads to facilitation payments to accelerate normal government processes.

Some airports, such as the Thiruvananthapuram airport in Kerala, are notorious for theft of valuables from bags checked on incoming flights. Such theft is a rude awakening to the state of corruption in Kerala to tourists and expatriates returning from vacations. Corrupt officials and airport employees turn a blind eye to theft of passenger belongings often colluding in the theft.

International Journal of Research in IT & Management www.euroasiapub.org Page 87 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) Income tax

There have been several cases of collusion of officials of the income tax department of India for a favorable tax treatment in return for bribes.

Preferential award of public resources

As detailed earlier, land in areas with short supply is relatively common with government entities awarding public land to private concerns at negligible rates. Other examples include the award of mining leases to private companies without a levy of taxes that is proportionate to the market value of the ore.

Judiciary

Corruption is rampant in the judicial system of India. According to Transparency International, judicial corruption in India is attributable to factors such as "delays in the disposal of cases, shortage of judges and complex procedures, all of which are exacerbated by a preponderance of new laws".

Armed forces

The Indian Armed Forces have frequently witnessed corruption involving senior armed forces officers from the Indian Army, Indian Navy and Indian Air Force. Many officers have been caught for allegedly selling defence stores in the black market in the border districts of Indian states and territories. Recent sukhna land scandal involving four Indian Lieutenant Generals has shaken public faith in the country's massive military at a time when unprecedented sums are being spent on modernising the armed forces. A string of eye-popping fraud cases has damaged the institution in recent years.

Police

Despite State prohibitions against torture and custodial misconduct by the police, torture is widespread in police custody, which is a major reason behind deaths in custody.[22][23] The police often torture innocent people until a 'confession' is obtained to save influential and wealthy offenders.[24] G.P. Joshi, the programme coordinator of the Indian branch of the Commonwealth

International Journal of Research in IT & Management www.euroasiapub.org Page 88 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) Human Rights Initiative in New Delhi comments that the main issue at hand concerning police violence is a lack of accountability of the police.

Religious institutions

In India, the corruption has also crept into religious institutions. Some of the Church of North India are making money by selling Baptism certificates. A group of church leaders and activists has launched a campaign to combat the corruption within churches. The chief economic consequences of corruption are the loss to the economy an unhealthy climate for investment and an increase in the cost of government-subsidised services. The TI India study estimates the monetary value of petty corruption in 11 basic services provided by the government, like education, healthcare, judiciary, police, etc., to be around Rs.21,068 crores. India still ranks in the bottom quartile of developing nations in terms of the ease of doing business, and compared to China and other lower developed Asian nations, the average time taken to secure the clearances for a startup or to invoke bankruptcy is much greater.

III Anti-corruption efforts Right to information act

The Right to Information Act (2005) and equivalent acts in the states, that require government officials to furnish information requested by citizens or face punitive action, computerisation of services and various central and state government acts that established vigilance commissions have considerably reduced corruption or at least have opened up avenues to redress grievances. The 2006 report by Transparency International puts India at the 70th place and states that significant improvements were made by India in reducing corruption.

Ombudsmen

The LokAyukta is an anti-government corruption organization in the Indian states. These institutions are based on the Ombudsman in Scandinavian countries. An amendment to the Constitution has been proposed to implement the Lokayukta uniformly across Indian States as a three-member body, headed by a retired Supreme Court judge or high court chief justice, and comprise of the state vigilance commissioner and a jurist or an eminent administrator as other members.

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 Bhoomi is a project jointly funded by the Government of India and the Government of Karnataka to digitize the paper land records and create a software mechanism to control changes to the land registry in Karnataka. The project was designed to eliminate the long- standing problem of inefficiency and corruption.  Introduction of smart cards for vehicle registration and drivers licenses by Karnataka Regional Transport Organization.  Enforcement automation of traffic violations by Bangalore Traffic Police.

Whistleblowers

Whistleblowers play a major role in the fight against corruption. India currently does not have a law to protect whistleblowers, which was highlighted by the assassination of Satyendra Dubey.

Creation of Anti-Corruption Police and Courts

Some have called for the Central Government to create an anti-theft law enforcement agency that investigates and prosecutes corruption at all levels of government, including state and local level. Special courts that are more efficient than the traditional Indian courts with traveling judges and law enforcement agents are being proposed. The proposal has not yet been acted upon by the Indian government. Certain states such as Andhra Pradesh (Andhra Pradesh Anti-corruption Bureau) and Karnataka (Lokayukta) have similar agencies and courts. The creation of a central agency with specialized courts with broad powers, however, is likely to have greater impact in curbing corruption at all levels.

Private sector initiatives

Several new initiatives have come up in the private sector to raise awareness about Corruption related issues and to build anti-corruption platforms. 5thpillar.org is one such organization that is promoting the use of Zero Rupee Notes to fight corruption by shaming the officials who ask for bribe. Another popular initiative Jaago Re!One Billion Votes from Tata Tea has now changed its focus from voter registration to fighting corruption. nobribe.org is another platform for corruption free India and advocates the use of direct and regular measurement of corruption to force the hands of the leadership into dealing with corruption related issues.

International Journal of Research in IT & Management www.euroasiapub.org Page 90 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) Conclusion

1.) Corruption is a global phenomenon that causes poverty, obstructs development and derives away investment. It also debilitates the judicial and political systems that should be working for the public good. Not surprisingly, as the rule of the law is weakened and voice of the people remains unheard, citizens trust in government officials and national institutions dwindles. Every year, millions & trillions are paid in bribes around the world, enriching the corrupt and robbing generations of a future. 2.) Corrupt societies are unable to support their citizens, say Stuart Gilman, head of the UNODC Anti- Corruption Unit. They starve their children, not only of food but of education and health care. They are on going nightmares. When ever it is present this scourge involves public officials, business managers and private citizens, who engage in such illegal acts as embezzlement of public funds, trade in influence and bribery and Multi National Companies pay hefty bribes to secure lucrative public contracts. 3.) Although petty corruption does not make the head lines, its cost is arguably greater than that of larger scale corruption. It happens in nickels and dimes, in pounds and errors, in single denominations, but it happens over & over again, tens of thousands f times. Many people pay bribes in cash or gifts to get an education & proper health care, to speed up administrative procedures or to avoid paying a fine. But what they simply see as a way to get things done is infact a crime. In turn, corruption facilitates human trafficking, organized crime & terrorism,. The good news is that as daunting as the task might seem, corruption can be stopped. The United Nations convention against corruption provides a global legal framework to do so. This International instrument, which enter into force on December 14, 2005, has been ratified by 37 countries and signed by 137 states parties to this convention are expected to co-operate with one another in every aspect of the fight against corruption, including prevention, investigation, asset recovery and the prosecution of offenders. They are also required to take action in the private and public sectors and to promote the work of civil society in this area. Both civil society and the private sector should join government in taking a stand against corruption. There is no doubt that non-government organizations (NGOs) can make a difference of raising public awareness, lobbying for the introduction of effective reforms & exposing the wrong doings of financial & political leaders. 4.) The reports of courageous individuals & organizations around the world have lead to the resignation, indictment or conviction of those implicated. The private sector must also take steps to

International Journal of Research in IT & Management www.euroasiapub.org Page 91 IJRIM Volume 2, Issue 4 (April, 2012) (ISSN 2231-4334) curb corruption within its ranks. Certain National & Multi National Companies have infact, implemented initiatives to enhance corporate transparency & integrity. 5.) Whether working independently or together governments, the private sector & civil society can play a key role in the effort to stop corruption. Individuals, too, can help counter this global problem by refusing to engage in criminal activities that can have devastating effects on their society & country.

References  African corruption 'on the wane', 10 July 2007, BBC News  "Nigeria's corruption busters". Unodc.org.  "When the money goes west". New Statesman. 2005-03-14.  "Will Growth Slow Corruption In India?". Forbes.  Corruption Perception Report accessed on January 9, 2007  "Global Corruption Report 2009".  CPI 2009 table". Transparency International. http://www.transparency.org/policy_research/surveys_indices/cpi/2009/cpi_2009_table. Retrieved 2009-11-18.  "A Users' Guide to Measuring Corruption". Global Integrity & UNDP. http://commons.globalintegrity.org/2008/09/users-guide-to-measuring-corruption.html.  N.Vittal, (2003), Corruption in India, ―The road block to national prosperity‖ by Academic foundation, New Delhi.  K.N.Gupta, (2003), Corruption in India by Anmol Publications pvt ltd, New Delhi  Michael W. Collier. (2009) Political Corruption in the Caribbean Basin: Constructing a Theory to Combat Corruption.  Kimberly Ann Elliott, (ed.) (1997) Corruption and the Global Economy.

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