FINAL REPORT
The Integra Foundation - "Coping with Corruption ToolKit"
Promoting Islands of Integrity: Measuring and encouraging the ability of Slovak SME's to resist corruption and do ethical business
Bratislava, August 3 1, 2000
Award number: 193-A-00-99-00104-00 (previous award number: 193-0020-G-00-9104-00) Prepared by: Monika Benfoddova Allan Bussard The Integra Foundation MiSikova 28/B 81 1 06 Bratislava SLOVAKIA phone: +421 (07) 52444246-7 fax: +42 1 (07) 52494 184 e-mail: [email protected] web: www.integra.sk Project Activities from October 1,1999 to May 31,2000
1. Key parameters determination
Based on consultation with specialist In discussion with the local branch of Transparency International (TI) In discussion with David Murray of Transparency International UK. In discussion with representatives of the Association of MicroFinance Institutions of Slovakia. (AMIS) and on the basis of specialized studies related to the theme of corruption we determinated 24 key parameters which were tracked in the course of the project. These were anticipated to revolve around the common issues of bribery, kickbacks, extortion, nepotism, influence peddling, collusion, etc.
2. Client Survey creation
On the basis of the parameters determined above we compiled a questionaire. The survey contains 43 questions which can be divided into the following parts: personal attitude to corruption practices 0 practice / reality that entrepreneurs meet potential solutions to these problems This survey was created in order to determine the primary environmental issues - legislative, judicial, economic, social - that impact ethical business behavior in Slovakia and find out some possible methods which Slovak SME's can use to avoid corruption practices. Before finalization of this survey we met with representative of the Agency FOCUS Mr. DianiSka and with Mrs. Emilia Sicakova from TI. The purpose was to gain their professional advice related to the creation and use of the client survey.
3. Test Group creation:
In order to have our test group big enough to receive objective results we contacted various SME and Microfinance agencies in Slovakia, and gained their co-operation in doing the client survey and creation of the test groups. List of contacted agencies is in Appendix 1.. Also we had presented the project at the meeting of the Board of the Association of Microfinance Institutions of Slovakia (AMIS). Not all of the addressed institutions were willing to cooperate or responded our challenge.
Regarding our database, for purpose of this project we made selection of Integra past, current and potential clients who participated in the annual Integra regional training conference held in Piestany November 12-14, 1999 Here is the list of slected clients, members of test group:
Client Company size Business activity Location (workers) Colegium Ltd. 6 Architects studio Bratislava ~aldirLtd. 4 Graphic design Bratislava studio ArtForum Ltd. Book Bratislava
retail/wholesale I FBE Ltd. Management I Bratislava 1 consulting- I I Komrska Plumbing Plumbing Bratislava Runa Souvenir ~roduction Bratislava Folk Dkcor Handcrafts retail Bratislava Nay Ltd. Electronic goods Bratislava retail Tespol Ltd. Tyre service Michalovce Control systems Michalovce design Agroslutby Ltd. Garden Centre Michalovce FotoProfi Ltd. Photographers Liptovsk$ MikulaT; studio Sal6n Katka Wedding studio Levice Sajben Farms Ltd. Rabbit growers Levice K&UCdairv Dairy farm Humenni: Pila Rez Sawmill Martin Fanna Pamiru Rabbit growers Nitra MikroFond 20 women in Various Bratislava microenterprises
Our test group met following criteria: Willingness to cooperate Industry - a balanced representation from retail, service and manufacturing sectors will be sought Location - representation from all regions of Slovakia is essential Size - for the purposes of this project, SME is defined as having less than 25 workers.
The client survey was confidential. Total amount of surveys sent/delivered among entrepreneurs was 120. In the term demand we received and evaluated 56 answers. Mentioned respondents was clients of following microlending institutions: RPIC Zvolen (12), VOKA (1 I), Nadhcia Integra (1 I), PICPoprad (9), RPIC Povaiska Bystrica (8). Regarding geographic area, although in spite we tried to cover equally all areas of Slovakia respondents were mostly from banskobystricky region 35,7 % and we had no answers from trnavslj and ko8ick$ region. As for the legal form of the business companies which participated in the survey three of the addressed companies was joint-stock companies, 22 was limited liability companies and 30 of them were soleproprietorships. Regarding industry, in survey participated 23,7% representatives of manufacturing sector, 32,4% representatives of service sector, 43,7% representatives of retail. Regarding size of the firms most 82,1% had less than 30 workers the rest 14,3% had more. In effort to secure proper results we focussed mostly on competent responsible people owners of the firms, managers or deputies.
4. Test Group survey conducted
Data was evaluated using statistical methods of SPSS software for Windows. But the results are not statisticly significant considering whole Slovakia especially owing to the size of the test group. It's more correct to speak of a sampling, rather than a survey. Even in that research participated mostly entrepreneurs which are clients of microlending institutions. It means that test group was group of developing businesses which are in the phase of dynamic growth struggleing for survive in a difficult environment. In spite of this, the authors of this material believe that also opinions of that strictly defined test group have significant value and it can tell us much about attitude of entrepreneurs to problem of corruption in Slovakia. For optimum tabulation of the results of the client survey we have consulted Dr. LukSik from Slovak Academy of Sciences. He recommended us to use Excel1 as a more convenient software tool than the originally planed Access.
The main corruption problems faced by the businesses in the survey were (in priority): 1. vehicle registration process 2. firm registration process 3. carrying out place for busines 4. carrying out building permit 5. loan application process 6. contact with tax officials 7. speeding up of legal process 8. effort to win the public tender which was offered by state institution obtain subsidy or grant from state 9. effort to win the public tender which was offered by private organization 10, state trade inspection 11. obtaining of export and import licences 12. effort to win a state order
One of the main task of the research was to identify if entrepreneurs in Slovakia know any usefbll anticorruption strategy. These are some answers to the following question: "What can be, in your opinion an anticorruption strategy?" 20,8 % replied "I do not know" the rest of the test group responded: 18,8 % transparent legislation l2,5 % punishment of trespasser 10,4 % act according to your own conscience 14,6 % respect the law 6,3 % control 4,2 % education 4,2 % breaking of byrocracy 6,3 % medialization 2,l % develop a real and healthy competitive environment and market
5. Global practice awareness
Part of the project was to conduct research within the international network of Transparency International to determine whether programs to assist SMEs face corruption exist elsewhere in the world. This research was conducted by Mr. David Murray, a leading Business Ethics consultant from Britain and member of the UK Advisory Board of Transparency nternational. The research revealed no substantial anti-corruption programs that had microenterprise or SMEs as a focus. Anti-corruption programs tend to focus instead on the public sector or large- scale enterprise. The results of Mr. Murray's survey are presented in Appendix 2..
6. Case studies collection
Assembly of evidence of measures taken by small businesses to counter corruption in their business environment and of experiences they have. Six case studies were written, based on the most common corruption-related problems faced by Slovak SME's. These are included in the Appendix 3..
7. Draft toolkit design An initial toolkit was produced. The toolkit serves as a training material and is designed to initiate a discussion on the corruption issue, and to determine what strategies are being used to avoid corruption. First page contains introduction and suggestions how to use this material. Then there are six case studies each on different corruption situation, based on reality and collected while working with our clients. At the end of each story there are questions which should provoke a discussion regarding solution of described problem. On the basis of the results gained from discussions we prepared manual ,,Coping with Corruption Toolkit".
8. Toolkit test
The experience of entrepreneurs, results of the survey and testing initial toolkit material became a main theme of the Integra Foundation annual conference held in May 19-21, 2000 in Moravany nad Vahom. Altogether 21 small business owners, diverse as to business size and type, from all regions of Slovakia and from abroad took part in the two halfday workshops. An important part of this initial toolkit material were case studies which presented a dilemma regarding various corruption practices. Main aim of this workshops was to stimulate a valuable discussion leading toward conclusions containing some strategies and tools how to solve discribed situations. Case study method allowed adequate anonymity to stimulate a free discussion. On the basis of the feedback from discussions was written analysis of active approaches to coping with corruption. Analysis is part of the manual.
9. Toolkit revision
Based on feedback from the groups we revised the initial material "Coping With Corruption Toolkit".
10. Toolkit publishing
The result of the project is manual: ,,The Problem of Corruption in small and medium entreprises in Slovakia? It is available in Slovak language and soon will be translated into English. Manual consist of following chapters: Project activities In this part you can find brief description of project activities. Research Contains detailed results of the survey. Case studies One of the main results of the project was the creation of a set of case studies, each based on actual experiences of a Slovak company. These case studies are presented as discussion material for small business development agencies that want to help their clients initiate public discussion about the problems they face. Legal Comments Project also includes legal opinion related to the case studies by Dr. Jan Hrubala, who is also the author of booklet: "Corruption sickness and remedies" (you can find it in Enclosure of this manual). This work wasn't originally written for needs of SME but there is a lot of useful information. Breaking the corruption cycle Finally, based on the research and discussion groups with SME owners, some possible proactive approaches are outlined that could help break the corruption cycle among Slovak SMEs. These are: The creation of functional professional associations, with standards and lobbying capacity. The creation of capacity to provide assistance for SMEs in developing an ethical codex The creation of capacity to carry out systematic and professional social audits of companies The creation of a regular competition and a prize for ethical business, "The Good Sport Business Award".
Part of this manual is also Enclosure Contains questionaire mentioned in p.2 of this report and also booklet: "Corruption sickness and remedies".
The basic concept is to give business consultants (such as members of AMIS, NADSME or Integra) tools that will help them work with clients on issues of corruption. Short run publishing will be used, with the materials made available to participating NGOs and development agencies at cost. These materials will also be available for download from The Integra Foundation website.
11. Dissemination 97 manuals were disseminated among the participating and also nonparticipating microfinance and SME support agencies in Slovakia. 10 manuals were sent among our clients. We also presented it to the government anti-corruption program.
12. Medialization of results of the project This report has also been made available via press releas.
13. Conclusion The Integra Foundation provides a range of support services for microenterprises and small and medium enterprises (SMEs) throughout Central and Eastern Europe. In the course of this work, it has become evident that our clients struggle with corruption in many forms. There is also strong evidence that corruption costs small businesses more than large companies. Some estimates place the corruption cost on Slovak companies in some industries as high as 5% of annual revenues. In a recent World Bank survey, both Slovakia and Romania showed that about one-third of companies that deal with the State regularly pay-kick back money In the course of this project, we determined that, among SME clients in Slovakia, it was discovered that in 1999, 55% incurred some form of corruption-related expense. These costs are enough to make a life or death difference for a company struggling to survive. Yet it is our experience and belief that the majority of Central European SME owners do not want to engage in corrupt practice. They find it costly and inefficient, as well as risky. But it is also our experience that these entrepreneurs lack information and support in avoiding corruption. They become resigned to corrupt practices as a necessary cost of doing business. We believe that there exists, nonetheless, within the Central European small business communities experience and motivation to find ways to avoid corruption. As a consequence, we have decided to make "Coping with Corruption" a permanent part of our strategy and this project is understood to be begining of the work on the transparency in between SME community in Slovak economic context. ENCLOSURE
1. List of contacted Microfinance agencies in Slovakia 2. Mr. Murray's Report 3. Case studies 4. Project Activities according to the workplan 5. Financial Report APPENDIX 1
List of contacted Microfinance agencies in Slovakia List of contacted Microfinance agencies in Slovakia:
RPIC Dunajski Streda RPIC Poprad Rudolf Horvath Ing. Peter Litavec Csc. Obchodni 18 PopradskC nibreiie 16 Dunajska Streda 929 29 Poprad 058 06 tel.: 0709 5529637 tel.: 092 7724157 fax.: 0709 5529638 fax.: 092 7721320 Email: [email protected] Email: [email protected]
RPIC Komarno RPIC Povaiska Bystrica Ing. Zuzana Szab6ovi Ing. Jozef Hosmaj PohraniEni 2 1 Nh.A. Hlinku 3619 Komimo 945 0 1 Povaiski By strica 017 01 tel.: 0819 701930 tel.: 0822 4325554 fax.: 0819 701938 fax.: 0822 4325556 Email: [email protected] Email: rpicpbapsgnetpxsk
RPIC Kolice RPIC PreHov Ing. Vladimir Cirbes Ing. Jin Hudacki Trieda SNP 48lA Nhestie mieru 2 KoSice 042 11 PreSov 080 01 tel.: 095 6419245 tel.: 091 7723896 fax.: 095 6446863 fax.: 091 7723682 Email: [email protected] Email: [email protected]
RPIC LuEenec RPIC TrebiHov Ing. Miroslav Hagko Ing. Jim Petr Nam. Republiky 8 M.R Stefinika, LuEenec 984 0 1 TrebiSov 075 01 tel.: 0863 4329241 tel.: 0948 6763413 fax.: 0863 4329690 fax.: 0948 672571 1 Email: [email protected] Email: [email protected]~apvt.sk
RPIC Martin RPIC TrenEin Ing. Jarmila Canidyovft Ing. Jozef Gerliczy Divadelna 17 Opatovski 23 Martin 036 0 1 Trench 91 1 01 tel.: 0842 4136327 tel.: 083 1 7443990 fax.: 0842 4239088 fax.: 083 1 7443991 Email: [email protected] Email: [email protected]
RPIC Nitra RPIC Zvolen Ing. DuSan Sliiik CSc. Ing. Miroslav GrekEo Nfibreiie mlftdeie 1 Studentski 986132 Nitra 949 0 1 Zvolen 960 01 tel.: 087 7722401 tel.: 0855 5321646 fax.: 087 7722400 fax.: 0855 5321647 Email: [email protected] Email: [email protected]
Appendix 1. List of contacted Microfinance agencies in Slovakia:
~niaiivnostnikov Medeni 10 Bratislava 8 1 1 05 tel.: 07 5293 1527 fax.: Email:
Zdruknie podnikatel'ov slovenska Mgr. Robert Tibenski Cukrovi 14 Bratislava 8 13 39 tel.: 07 59324430 fax.: 07 59324430 Email: [email protected]
VOCA Titl. Jana MeEiarovh Dolni 4 Banska Bystrica 974 0 1 tel.: 088 753803-5 fax.: 088 753801 Email: [email protected]
5P Podhronska podnikatel'ska poradiia pre profesiontilne podnikanie Ing. Katarina Veseli Nh.Matice slovenskej 4 iiar nad Hronom 965 01 tel.: 0857 6726168-72 fax.: 0857 6723960 Email: [email protected]
Appendix 1. APPENDIX 2
Mr. Murray's Report Anticorruption for SMEs
1. Impact of corruption on SMEs
Small companies in some economies pay seriously large proportions of the income on corrupt payments in order to stay in existence. It can frequently drive them to operating in the shadow economy.
1.1 Eizenstat 1999 quote AMBASSADOR STUART E. EIZENSTAT U.S. UNDER SECRETARY OF STATE FOR ECONOMIC, BUSINESS & AGRICULTURAL AFFAIRS, "AN ANTI- CORRUPTION & GOOD GOVERNANCE STRATEGY FOR THE 21ST CENTURY" Wednesday, February 24, 1999 at the Global Forum on Fighting Corruption, chaired by Vice-president A1 Gore. "New and powerful empirical work pioneered by Daniel Kaufmann and others at the World Bank provide us with precise analysis of the adverse economic consequences of corruption. The new research confirms that corruption particularly hinders the development of small and medium business -- the engine of jobs and growth in emerging markets. For example, data from a World Bank survey indicates that in one transitional economy in 1996 a typical small company employing less than 30 people paid about $30,000 US dollars a year in bribes. "Such costs not only force small companies into the unofficial sector or shadow economy but they also undermine the ability of governments to collect tax revenues and balance budgets. Not surprisingly, World Bank data also indicates that corruption disproportionately hurts the poor, who can end up paying a higher share of cornlpt 'economic rents.' Not surprisingly, it is the poorest and least well off in developing societies that often bear corruption's greatest burden."
1.2 USAID Handbook quote USAID Handbook on Fighting Corruption: The Costs of Corruption "Corruption also undermines economic development by generating considerable distortions and inefficiency. In the private sector, corruption increases the cost of business through the price of illicit payments themselves, the management cost of negotiating with officials, and the risk of breached agreements or detection. Although some claim corruption reduces costs by cutting red tape, an emerging consensus holds that the availability of bribes induces officials to contrive new rules and delays. Where corruption inflates the cost of business, it also distorts the playing field, shielding firms with connections from competition and thereby sustaining inefficient firms."
1.3 Rubin 1999 quote STATEMENT OF U.S.TREASURY SECRETARY ROBERT E. RUBIN Wednesday, February 24, 1999 at the Global Forum on Fighting Corruption, chaired by Vice-president A1 Gore. "Corruption disrupts normal business and public policy decision-making by benefiting the few at the expense of the majority. It distorts the allocation of financial and human resources to inefficient uses often inconsistent with a nation's social, political and
Appendix 2. economic objectives and needs. It discourages small business, entrepreneurs, and consumers who simply cannot afford the costs of bribery."
1.4 Potts at 1997 IACC "Ethics in Public Service: An Idea Whose Time Has Come" The Honorable Stephen D. Potts, Director, U.S. Office of Government Ethics IACC, Lima 1997 "In economic terms, corruption misdirects resources and discourages investment by the private sector. A recent study by the International Monetary Fund concluded that high rates of investment by the private sector are linked to low levels of corruption. More recently a study by the World Bank confirmed that conclusion. And in an increasingly competitive global economy, countries can no longer afford the cost of corruption. It simply makes them noncompetitive in world markets. Another study funded by the World Bank indicated that the cost of creating even a small business can be made incredibly high in markets that are infected by corruption. One experiment conducted in Peru demonstrated the enormous costs in terms of illegal payoffs that were incurred to set up a local dry cleaning and laundry business."
1.5 John Bray - "Costs" IACC-99 9th IAAC Transactions - p.24125 Costs to Business threefold 1. Transaction costs 2. Blackmail effect (Arab camel proverb) 3. Reputation
2. Needs - Ideas - Challenges
2.1 IACC LIMA Declaration 1997 page 2: "There must be a sustained campaign against corruption within the private sector as, with greater privatisation and deregulation, it assumes a greater role in activities traditionally performed by the state." page 3: "International institutions must realise that their international procurement practices are not yet fully satisfactory, and that they should further develop imaginative and new approaches to procurement in partnership with individual governments and the private sector, including the use of anti-bribery and integrity pacts. Bidders who bribe should be blacklisted. The GlobalCoalition for Africa should continue its imaginative work with Transparency International and governments in this area." page 5: "Governments should review their national and local administration procurement processes, in cooperation with the private sector and civil society, with a view to ensuring that these are fair, open and competitive, and so yield both value for money for the public and an enabling commercial environment for the private sector."
Appendix 2. 2.2 Eizenstat to OECD conf Text of a statement presented by Undersecretary of State Stuart Eizenstat 22 February 1999 at an OECD conference on "Fighting Corruption in Developing and Emerging Economies: The Role of the Private Sector": "Let me close by laying down a challenge for the fbture. As members of the private sector, you can be agents of change here. First, you can help by establishing your own internal corporate compliance programs and best practices on bribery, corruption and transparency and follow these standards in our business dealings. The concept of voluntary codes of conduct, now gaining currency, is an important bottom up approach on corruption. Second, you can offer to provide assistance to firms in emerging markets -- through training on best practices in transparency-related areas. Your expertise and know-how can be of significant value. Third, you can highlight -- for governments in emerging markets -- the importance of developing specific anticorruption measures and good governance to creating a hospitable environment for investment."
2.3 Protection of Complainants 2.3.1 Durban Declaration 1999 Protection of complainants against corruption. We will encourage the development of institutions, laws and practices which ensure that responsible citizens can report instances of corruption without fear of reprisals, wherever it may be occurring, and to ensure that the media is free to play its pivotal role in holding relevant individuals and institutions to account.
3. What can SMEs do?
3.1 SMEs Collectively 3.1.1 Citizen Feedback - Report Cards 3.1.2 Build a local anti-corruption NGO 3.1.3 Involvement in local Chambers of Commerce 3.1.4 Small Business Clubs 3.1.5 Points in TI-Bangladesh strategy 3.1.6 Journalism links
3.2 SMEs with Government and Community 3.2.1 ffIslandsof Integrity" model This was developed for large companies, but is now being adapted. Source: TI Newsletter, March 1995 for report on Ecuador experience to that point or reference to Nepal attempt to make Bhaktapur an "Island of Integrity" city. (TI Newsletter, June 1999, p.13)
Appendix 2. 3.2.2 TI Bulgaria: Local Anti-corruption Councils Setting up local anti-corruption councils in 12-15 municipalities including civil servants, NGOs, local business people, and media representatives. (TI Newsletter, June 1998, p.4)
3.2.3 Questionnaires in government offices TIZ programme to provide public questionnaires to be distributed at "allegedly inefficient and corrupt government offices" asking for the quality of service and whether bribes were solicited or accepted. (Result to be discussed with senior officials of these institutions).
3.2.4 Association of Miami residents Local TI Chapter trying to create an adapted Source Book appropriate to city government level.
3.2.5 Piraeus, Greece: Municipal audit (Mayor's invitation)
3.2.6 Public procureme~tprice databases Experience in Dominican Republic - source: 9th IACC Transactions and also paper published by Ocampo & Michele, in Governance (EDI, World Bank).
3.3 An SME individually 3.3.1 Ideas from LARGE companies
4. What are others doing?
4.1 U.S. Department of Commerce ANDREW J. PINCUS GENERAL COUNSEL, U.S. DEPARTMENT OF COMMERCE Remarks prepared for the Panel on "Global and Regional Anti-Corruption Frameworks" Wednesday, February 24, 1999 at the Global Forum on Fighting Corruption, chaired by Vice-president A1 Gore. "We in the U.S. Government are ... currently working very closely with the private sector on an APEC agenda which will address bribery, corruption, and transparency from a variety of different angles. Among the ideas that we are developing is a hands-on training program designed to work with Southeast Asian SMEs and promote the use of internationally accepted accounting standards in their financial record keeping."
4.2 Accountability Days LIMA Declaration, page 6: "Lastly, governments, civil society and the private sector should consider designating annual 'anti-corruption days' or 'accountability days,' which in several countries has proved to be a focus for awareness raising. This concept could then be extended by the United Nations designating an annual international day of action."
Appendix 2. 4.3 Integrity Pledges 4.3. I Langseth "International ,4pproaches to Improve Government Integrity and Transparency" Petter Langseth, Economic Development Institute of the World Bank Conference, "NATIONAL AND INTERNATIONAL APPROACHES TO IMPROVING INTEGRITY AND TRANSPARENCY IN GOVERNMENT" (undated, but probably 1998) "Besides the Action Plan, another activity which might take place at a National Integrity Workshop is the signing of an Integrity Pledge. These pledges are not legally binding, but participants commit themselves with their signatures to take certain actions against corruption. Pledges have included the following: i) launching a local chapter of Transparency International; ii) committing to act honestly and openly in all aspects of their lives; iii) putting the well-being of the people ahead of their personal and party interests; iv) uniting to fight corruption by using all opportunities both in their place of work and in their private lives; and v) sensitizing the public to the effects of corruption on the development of their countries. These pledges are given wide publicity at the end of the workshops by both print and broadcast media, and the names and signatures of participants are printed in newspapers in most cases. Such public commitment puts added pressure on the participants to take the fight against corruption seriously."
4.3.2 Ghana "Towards an enhanced role for civil society in the fight against corruption in Africa"; Prof. E Gyimah-Boadi, Center for Democracy and Development, Accra University of Ghana at the IACC, Durban, November 1999. Business Associations/Chambers of Commerce and combating corruption. "The private sector is important to anti-corruption strategies. As organisations representing the private sector, business associations and chambers can play a vital role in mobilising opinion against corruption among its members. By unilaterally taking an "integrity pledge," or committing themselves to an explicit code of ethics in business transactions, they choke off a main vein of supply of bribes and reduce the transaction costs of business, all at once."
4.4 International Chamber of Commerce STATEMENT BY THE HONORABLE DONALD J. JOHNSTON, SECRETARY- GENERALOFTHEOECD "Building Integrity in Government: The OECD as part of a Multiple Response" Wednesday, 24 February 1999 - at the Global Forum on Fighting Corruption, chaired by Vice-president A1 Gore. "I would also like to signal the important activities of the private sector in the fight against bribery. It is business firms that face extortion and the hard choice of whether to enter the bribery competition. Organizations like the International Chamber of Commerce are helping them to develop their individual responses and helping to shape OECD's policies and recommendations. " I contacted them regarding progress with their Code implementation programme, but it seemed to be more directed at larger organisations.
Appendix 2. 4.5 No bribery pledges (World Bank) "Helping Countries Combat Corruption: The Role of the World Bank," pages 3 1,32 "The objective of a "no bribery pledge" is to discourage bribes, primarily in international bidding, by committing firms to bid on a bribe-fkee basis, secure in the knowledge that competitors are similarly binding themselves. The most basic form of the no bribery pledge is a letter from the chief executive of each bidding company promising that the firm will obey the laws of the country and not bribe to obtain the contract. Furnishing such a pledge would be a condition of bidding. Typically, this would be matched by a public announcement by the head of government that officials would neither accept nor solicit bribes. More elaborate versions of the no bribery pledge extend the pledge to contract implementation and to subsidiaries and subcontractors. They propose the submission of codes of conduct and a certification at the completion of the contract that bribes have not been paid at any-time. The no bribery pledge could be part of a broader "integrity pact" entered into voluntarily by government and bidders, featuring efforts to address capacity constraints in government and enlist the support of civil society in monitoring compliance." Advocates of the idea argue that a no bribery pledge can be a powerful signal that the rules of the game have changed. Furthermore, a pledge not to bribe offers a solution to the collective action dilemma that many firms that bribe in foreign markets face - they would rather not bribe but cannot be sure their competitors will abstain as well. Bidders may therefore welcome the chance to reduce the cost of bidding, and a no bribery pledge might increase competition and lower prices. Countries with weak procurement capacity that find it difficult to effectively police the bidding process may welcome the approach. There is a risk, however, that aggressive firms may sign and bribe anyway. "To enable the Bank to respond to borrowers that request such a clause in Bank-financed projects, the Bank has amended its Procurement Guidelines so that, at the request of a borrower, an undertaking to observe the country's laws on bribery may be inserted into the bid form as part of a national anticorruption program. The key to the effectiveness of a no bribery pledge is credibility. This means it must be accompanied by supporting reforms which improve bidding and contract execution processes. Ideally, such reforms should emerge from a dialogue with the private sector in which constraints to efficient bidding for public sector contracts and their execution are discussed and remedies agreed on."
4.6 IACC Durban Declaration 1999 Private sector integrity We will explore the development of business standards which foster and promote integrity and equip the private sector with a tool which can demonstrate, in independently verifiable ways, their individual commitments to integrity in their business practices.
4.7 Council of Europe Article 7 - Active bribe y in the private sector Each Party shall adopt such legislative and other measures as may be necessary to establish as criminal offences under its domestic law, when committed intentionally in the course of business activity, the promising, offering or giving, directly or indirectly, of
Appendix 2. any undue advantage to any persons who direct or work for, in any capacity, private sector entities, for themselves or for anyone else, for them to act, or refkain fkom acting, in breach of their duties.
Article 8 - Passive bribery in the private sector Each Party shall adopt such legislative and other measures as may be necessary to establish as criminal offences under its domestic law, when committed intentionally, in the course of business activity, the request or receipt, directly or indirectly, by any persons who direct or work for, in any capacity, private sector entities, of any undue advantage or the promise thereof for themselves or for anyone else, or the acceptance of an offer or a promise of such an advantage, to act or refrain fYom acting in breach of their duties.
4.8 Other sources 4.8.1 "Cities" book (Klitgard et al) Corrupt Cities: A Practical Guide to Cure and Prevention - Robert Klitgaard, Ronald Maclean-Abaroa, and H. Lindsey Parris. Municipal corruption is a problem of growing concern around the world. When city governments grow systematically corrupt, they don't work - and, the authors argue, neither do the usual strategies for municipal reform. Klitgaard, MacLean-Abaroa, and Parris provide numerous examples of corruption that go far beyond "greasing the wheels." But the authors are anything but pessimistic about the prospects for change. The fascinating case studies they use to depict seemingly hopeless problems turn out to be the starting points for successful reforms. "Preventing corruption helps to raise city revenues, improve service delivery, stimulate public confidence and participation, and win elections," the authors contend. Corrupt Cities shows how it has been done, even in the most adverse settings, and how it might be done again. Paperback, 175 pp., indexed. ISBN: 1-55815-51 1-2 $19.95 http://www.icspress.com/BooksNew~Releases/new~releases.html#compt
4.8.2 World Bank study on costs of corruption Rose-Ackerman, Susan, and Andrew Stone. 1996. "The Costs of Corruption for Private Business: Evidence from World Bank Surveys". World Bank, Private Sector Development, Washington, D.C.
4.8.3 Paper: "Graft and the Small Business ff Sjaifudian, Shetifah, 1997, "Graft and the Small Business, " Far Eastern Economic Review, October 16, p. 32.
4.9 Government support to SMEs 4.9.1 Advice availability For example, provision of "one-stop-shop" easy, speedy and uncorrupt access to information about potential contracts and about relevant legislation, regulations, licensing procedures, etc.. (Ref. "APEC and SME POLICY: Suggestions for an action agenda" by Chris Hall, University of Technology, Sydney)
Appendix 2. 4.9.2 Uncorrupt financial grant schemes "Grant schemes have been an accepted way in market economies for Governments to target aid to small enterprises or to particular regions and sectors. Any grant scheme should have very clear eligibility criteria and carefully established administrative procedures to provide transparency and avoid corruption." (Quote from: The role of governments in the promoting small and medium-sized enterprises in countries in transition, by ANTAL SZABO Regional Adviser on Industry and Technology; prepared within the framework of the Regional Advisory Services Programme of the Industry and Technology Division, United Nations, Geneva, 1996).
Appendix 2. APPENDIX 3
Case studies Case Study 1: The elusive owner's permit
After thinking it over for quite a long time, Andrej decided to go into business for himself. From his friends he knows that owning a business is not easy. It demands the need to deal with bureaucracy and a lot of time can be spent visiting various offices. But he is committed to proceed. He recently lost his job (the third time in the last 10 years) and he believes he can gain some independence by striking out on his own. Andrej is an auto mechanic and he lives in a small town. He is well known for his experience and skill, and many of his fiends ask him for help when they have a problem with their car. So, he has decided to open a small auto service. For the money he had available (partly saved and partly borrowed from friends) he bought an old warehouse on the edge of town. It is perfect, though it will need a little reconstruction. The last step in the purchase process is still not complete. The town office needs to provide an owner's permit for the new property. He learned that they can issue an owner's permit "at the earliest" in 6 months. He also learned, which is common knowledge, that for about $120 he can get the owner's permit within 2 weeks.
He would much rather not give the bribe, for many reasons. But he feels caught in the following dilemma:
1. If he pays $120 "on the side", and gets the owner's permit, he can apply right away for the construction permit, begin reconstruction and be open for business in 2-3 months. 2. If he doesn't pay, and waits 6 months, he will threaten his financial projections, which could hurt his family finances and threaten his ability to repay his loans. 3. What other options does Andrej have? 4. Have you ever faced a similar situation? What did you do?
Appendix 3. Case Study 2 The Public Tender
Peter has a firm that installs security doors, locks and alarms for industry and new construction projects. In a time of recession in the construction industry he is struggling to obtain work, and is afi-aid he will be forced to lay some workers off. He would hate to do this, because he has very skilled workers. He will do whatever he can to avoid this. Recently he responded to a public tender, which was offered by a state institution. It is a very lucrative contract and would really help his company at this time. When Peter tried to get more information about the conditions of the tender, he ran into his friend and former classmate. By chance, this fiend had been entrusted with the preparation of the tender, was responsible to appoint the commission that would select the tender and was himself head of this commission. They had a good visit and were enjoying the chance to get caught up on old times. Then rather suddenly Peter's friend surprised him with an "interesting" proposal. For a share of the profit from this contract he would guarantee that Peter would win the tender. He explained how he could ensure this, "I will modify slightly the conditions of the tender by upgrading the specifications for the type of lock required to the kind that you are going to be offering. Likely you will be the only company that will offer precisely this type of lock and you will win. The commission is not going to be interested in exactly what kind of locks will be supplied (and whether they are any different from ordinary locks), but rather their interest will be who fills the specific requirements."
Peter was quite unpleasantly surprised by this offer. Until know, he had tried hard to build a name by offering quality products and excellent service. He was faced with a difficult decision.
1. If he agrees with his friend's conditions, he will get a good contract, and will not need to lay off staff. But if the circumstances of the tender ever came to light, he would not only lose the tender, but all his efforts to build a good name would be undone. 2. If he does not accept the offer, certainly it will be offered to a competitor, despite the fact that he may have a better offer. He will likely need to lay off some staff. 3. What other options does Peter have? 4. Have you ever faced a similar situation? What did you do?
Appendix 3. Case Study 3 Customs Concerns
Jozef has a friend with a firm in the Czech Republic. It is a consulting firm, and Jozef has been asked to open a new branch office in Slovakia. He has agreed to do so, and has a lot of work getting it set up. Registering the company, locating an office, setting up a bank account, dealing with the tax office and many other details. According to their agreement, the parent firm in Prague will sell Peter's office two notebook computers for a good price. Knowing that Jozef was eager to get the computers, the office assistant from Prague threw them in her car and brought them to Bratislava with the invoice. Jozef praised such initiative and got on with other tasks. He did not think to notice that the computers were not declared at customs. Jozef paid the invoice and registered the computers as part of the firm's assets. A year later Jozef was informed that he would be facing a tax audit, and he quickly did a check on his accounts to be sure everything was in order. And everything was fine, except for the two laptops. They did not have a customs clearance document, on the basis of which his company should have paid duty and VAT for the computers. Of course Jozef wanted to fix this problem. But he had already submitted his tax declaration, so he could not repair the problem in his accounts. He would need to deal with it at customs. A friend recommended a customs officer he knew, and he went to see him. Immediately this officer explained to Peter how he could solve his problem. He was faced with some unpleasant information. Jozef could submit a retroactive application to pay duty and VAT, but he would be faced with a penalty of at least SK 20 000 (about $450). Of course, plus the duty and VAT. But the customs officer, who was so serious and threatening when he was dealing with the Jozef's case, later let it be known through his friend that for "only" a SK 3000 private fee, he could supply the documents Jozef needed.
Jozef felt he had 3 choices:
1. He could pay the "fee" though it was against his convictions, but after all it was the customs official that made the recommendation, not him. He would clear his obligation to the state, put his accounts in order, and need not fear the tax audit. 2. He could reject the custom officer's recommendation, and pay the necessary duty, VAT and the penalty. But such a high penalty would threaten the firm's cash flow at this time, and of course could not be claimed as an expense! 3. He could do nothing, and hope that the tax auditor would not notice. But if he did notice, he would face a fine from the side of the tax office as well, would need to pay extra tax, incur a bad reputation with the tax office plus pay all the customs fees and penalties. 4. What other options does Peter have? 5. Have you ever faced a similar situation? What did you do?
Appendix 3. Case Study 4 The Attic Sale
A group of friends formed an architect's studio called Colonia. Their studio occupies a basement in an old building in the center of town. For 4 years this creative team has worked in this rather dark and damp office. The building is build not far from the old course of the Danube River and is not well insulated. They need to count with the problem of dampness into the future. Due to a long dispute with the original owners of the building (before the communist era) the process of restitution and sale of the building to its current occupants was delayed for a long time. The building has 10 flats and three commercial premises. The relationships among the occupants of the building have been very good and everyone was eagerly awaiting the chance to buy their own flat. Recently the mayor's office came to an agreement with the original owners and the way was clear for the residents to buy their flats. In the three floor building there is a very large and empty attic space. Part of it would be perfect for an architect's studio! Colonia submitted a request to the town office for the right to purchase the attic space. However, two other residents submitted the same request. These two residents live on the top floor, and as such have the recognised right of first choice on the attic purchase. The attic would be divided in two. However, one of these occupants has assigned his purchase rights to an elected representative in the local government, who just happens to be a member of the commission that decides about the attic space! In return for this favour, the city representative is renovating the flat of the top-floor resident. The family of the second top-floor family suddenly developed a tragic situation. The mother (with two small children) was discovered to have serious cancer. Further discussions with this family became impossible. They decided, given the circumstances, that they could not do anything with their option on the attic at this time. Though they remained interested and requested that their option to buy be retained for 6 months. The city representative came to Colonia with an interesting proposal. He would secure the approval for their proposal to buy the attic, and ignore the request of the family with the illness. In return, Colonia would do the design for his half of the attic for fkee, work with a value of around SK 200 000 ($4500).
The Colonia group felt they had two options:
1. To accept the offer of the city representative, gain a great investment and a long-term solution to their office problem. 2. To refuse this offer, severely reducing their chances to gain the space, with the likelihood that they will remain for a while to come in their dark and damp office. 3. What other options does Colonia have? 4. Have you ever faced a similar situation? What did you do?
Appendix 3. Case Study 5 The Electric Connection
Rasto is preparing a new project for the car owners of his country. Together with a foreign investor, he is building a service centre.. .restaurant, shop, petrol station and car service under one roof. He was able to buy an excellent site, along a busy road, to build the station. In the planning phase it was determined that they would need to connect to a low-voltage power source. For this he would need to obtain permission from the State Electricity Company (SEC). An engineer from the SEC studied the documentation, and declared that the station could be connected to a transformer about 30 metres away. This was discouraging news, since a connection at such a distance would be expensive, and the process of obtaining permission to bury such a long cable through a built up area would be a nightmare. But Rasto learned that there was a suitable transformer only 50 metres from his site. He asked his friend, who was doing the engineering plans for the project to look into this possibility. His fi-iend determined that it was technically possible, and of course much cheaper and quicker. Before long Rasto received a simple offer from the SEC official. The closer connection is "possible" but he would need a personal payment of 10% of the anticipated savings, to approve it. The savings are substantial, estimated at about $5500. What are Rasto's options?
1. He can give the SEC official the $550 fee via a third party (for which he gets an official tax receipt). And thus save almost $5000. However, he risks his reputation and his good relations with his foreign investors, who expect ethical business behaviour from him. 2. He can reject the offer, and put the project at risk with increased investment costs, and an extended timetable, not to speak of the risks and delays possible with laying the 300 metre buried cable. 3. What other options does Peter have? 4. Have you ever faced a similar situation? What did you do?
Appendix 3. Case Study 6 A Misuse of Power
Daniel's Romanian NGO organized a major conference on the theme, "Ethics in Business." It was a success, and he was enjoying himself as it was coming to an end. He had obtained the most beautiful building in the town at a very low price. The director of the building was very helpful and had given a very good discount to his NGO. By way of appreciation, Daniel gave the director a bottle of good wine. On the last evening of the conference, the building director came to Daniel and asked if Daniel's organization could pay for him a $30 restaurant bill. He had been to a restaurant "on business" a few days earlier and found that he did not have enough money to pay the bill. He begged Daniel to give him this money, in return for doing the favour of letting them use his building for the conference. He said that he just had a car accident, has family problems and is in need of money. The monthly average income in Romania is around $80, The income of a director like this is at least $400. Daniel was shocked and refused to take the bill. The reception of the last evening of the conference was organized by the same restaurant as the director had the bill from. It turns out that this owner is also a long-term client with Daniel's NGO. During the reception, the restaurant owner approached Daniel and asked very delicately, if Daniel could help her solve a problem. Then she began to tell us the story of two men, who came in to her restaurant on Thursday, the day before the conference started. They started to drink the finest beers, wines and brandies. Then they ordered dinner. After they had eaten all, they ordered a second dinner. After they have eaten all they could eat, they asked the waitresses to pack for home the remaining food. When she presented the bill their response was "Don't worry, someone else will pay." But they wouldn't say who this might be! Then they started to make indecent proposals and insulted the waitresses. The waitresses called the owner to help. When she came, the two guests invited her to drink with them. When she refused they left without paying their bill. This is the problem she was asking Daniel to help her with. These men were important figures in the town and have connections. She was afraid for her business, which could be threatened in some way. It turns out that one of these men was the director who had asked Daniel to pay this same restaurant bill for him! The two sides of the story came together for Daniel and he was angry. He felt like he should help the woman, who was a friend and a client of his organization. But at the same time he didn't want to jeopardize his relationship with the director, with whom he would like to do business in the future.
As Daniel thought about it, he felt like he had two options:
1. He could help the restaurant owner by paying the bill for her and maintaining "peace". But in this way the Director gets away with the injustice. 2. He could confront the Director, and risk the relationship or some retaliation. 3. What other options does Peter have? 4. Have you ever faced a similar situation? What did you do?
Appendix 3. APPENDIX 4
Project Activities according to the workplan Project Activities according to the workplan
Step Description Quantifiable outcomes Key parameters Parameters agreed: determination Defining corruption Barriers to business The degree of corruption Factors that encourage coirupt behaviour The extent of corruption in various key institutions Personal experiences with corruption The role of punishment The capacity to oppose corruption Opinions as to solutions for corruption Attitudes toward non- corrupt business Most effective tools against corruption Initiating the struggle against corruption The responsibility of the individual business owner Attitude change toward corruption The degree of awareness of the law Definition of an anti-corruption strategy Individual strategies against corruption Approaches toward illegal business activities Approaches toward questionable activities Resisting bribery Attitudes of acceptance Moral responsibility Adequate punishment Personal motivations
Client Survey creation On the basis of the above key parameters we created a sum of 43 questions. It's available in Slovak. The first part consists of basic business and demographic data, which we have used to divide the respondents into specific groups. The second part consists of questions relate( to definitions, attitudes, and practical avoidance strategies.
Test group creation We have engaged 16 SME and Microfinance agencies that distributed the survey among selected clients. This is in addition to the Integra Foundation database of SME and Microenterprises. Test Group survey conducted As of February 29, 120 surveys distributed among test groul and results tabulated Global practice awareness Global practice awareness survey was conducted by Mr. survey David Murray, a leading Business Ethics consultant from Britain and member of the UK Advisory Board of Transparency International. Our intention was to made research within the international network of Transparency International to determine whether programs to assist SMEs
face corruption exist elsewhere in the world. I
Appendix 4. Research revealed no substantial anti-corruption programs that had microenterprise or SMEs as a focus. Anti- corruption programs tend to focus instead on the public sector or large-scale enterprise.
Case study collection Assembly of evidence of measures taken by small businesses to counter corruption in their business environment and of experiences they have.
Draft toolkit design: Initial toolkit was produced. This material contains six case studies each based around a specific corruption situation. It served as a training material and was designed to stimulai discussion on the corruption issue, and to determine what strategies are being used to avoid corruption.
Toolkit test 2 half-day meetings with 21 SME owners in each meeting. This workshops helped us to collect recommendations for the modification of the Toolkit.
Toolkit revision Content and style of Toolkit was revised according to feedback from test group discussions.
Toolkit publishing Final form of the toolkit in Slovak language is published according to agreement. English version of the toolkit is in the process. We suppose that till September 15, 2000 will be available. Initial print run is 150 copies, but can be easily reproduced pending greater demand.
Dissemination Manual was distributed among all SME and agency participants. It was also offered to government. It was sent to our webmaster it should be soon available on our website. Medialization of results of A press report was released. the project Final project report By 3 1 August to USAID.
Appendix 4. APPENDIX 5
Financial Report VOUCHER NO. Ksri6od Dcfahr 1937 PUBLIC VOUCHER FOR PURCHASES AND 00grmn1of 10T-T 7-05/00 SERVICES OTHER THAN PERSONAL .DEPARTMENT. BUREAU. OR ESTABLISHMENT AN? LDCATION DATE VOUCHER PREPARED SCHEDULE NO. 0513 112000 ontroller's Office CONTRACT IdUUBER AND DATE PAID BY SAIDPoland 193-0020-G-00-9 104-00 6Aleje Jeozolimski 56 C lAECIUlSITlON NUMBER AND DATE 00-803 Warsaw POLAND I
Integra foundation Milikova 28h I piE2 AND 8 11 06 Bratislava ADDRESS Bank acc.: 8010-050233025317500
UNIT PRICE ARTlCLES OR SERVICES DU4N. IEc:sr description, item number of contract of Federal TITY ~WP~Y COST I PER
Reimbursement for Cost Incurred during Implementation of the Program funded under Cooperative Agreement 193-0020-G-00-9 104-00 For the period May 1 to May 3 1,2000. 1 e continuation sheet(si if necessary) {Payee must NOT use the space below) _i,TOTAL APPROVED FOR 'EXCHANSE RATE DIFFERENCES
-$ -$l.O!J COMPLETE EP g PARTIAL fl FINAL i Am:m: a.I zd. CC-e:: 'el Is TITLE !S+n&ire nor inir;a:s) PROGRESS E ADVANCE I -- i Purssant to suthority vesred In me, I certify tha~this (:~heris correct and propsr lor payment. i
] 1 CHECK NUMBER OM :tCOUNT OF U.S. TREASURY CHECK NUMBER 0 N Name ofbank) I -- DAY: IPLYEE I Chm stated tn lorelgn cutrency. Insert name ol currencr I1 the abilily to certifv and authority la rpgrore are crm.?ed in one person. one slgnalurE ordy a r&cessirg; o1krw:se ige appravino officer wnll sign in the space prowded. ovu his official title. KWn a voucher is receipted n lhe name of icoqanp c: :orpcration. the name of the Perso2 cmnp ihe company or cxporatanarra, as wet; as the capaclry h which he signs must appear. For exde: "John Oce CC~F~~Y.per Joh Srmlh. Sec:eiarym. or -T~easu:er'. as the czse may be. re- Attachment E
CERTIFIED FISCAL REPORT
Project No: 193-0020-G-00-9 104-00 Project: "Islands of Integrity"
The following is summary expenditure report No. 1 for the period May I, 2000 through May 3 1,2000, related to the reference "Islands of Integrity".
Expenditure
A B C A-C
Budget This Total Budget Line Item Amount period to date balance
Personnel Administration Office Supplies Communications Rent Contractual fees Supplies and Equipment Travel and Per Diem Meeting Costs
TOTALS
The undersigned hereby certifies that payment of the sum claimed under the Agreement is proper and due under the terms of the Agreement and or Amendments; that appropriate rehd to USAID will be made promptly upon request in the event of disallowance of costs not reimbursable under the terms of the Agreement and of Amendments; that information on the fiscal report is correct and supported by accounting records, invoices and receipts; and that such additional supporting information as the USAID may reasonably require will be furnished by the Integra Foundation upon request.
Date 3 0,5', 2mc7