The private sector plays a pivotal role in fi ghting corruption worldwide. Transparency International’s Global Corruption Report 2009 documents in unique detail the many corruption risks for businesses, ranging from small entrepreneurs in Sub-Saharan Africa to multinationals from Europe and North America. More than 75 experts examine the scale, scope and devastat- ing consequences of a wide range of corruption issues, including bribery and policy capture, corporate fraud, cartels, corruption in supply chains and transnational transactions, emerging challenges for carbon trading markets, sovereign wealth funds and growing economic centres, such as Brazil, China and India. The Global Corruption Report 2009 also discusses the most promising tools to tackle corruption in business, identifi es pressing areas for reform and outlines how companies, governments, investors, consumers and other stakeholders can contribute to raising corporate integrity and meeting the challenges that corruption poses to sustainable economic growth and development. Transparency International (TI) is the global civil society organisation leading the fi ght against corruption. Through more than ninety chapters worldwide and an international secretariat in Berlin, Germany, TI raises awareness of the damaging effects of corruption and works with partners in government, business and civil society to develop and implement effective meas- ures to tackle it. For more information go to www.transparency.org. Global Corruption Report 2009 Corruption and the Private Sector TRANSPARENCY INTERNATIONAL the global coalition against corruption CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo, Delhi Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521132404 © Transparency International 2009 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2009 Printed in the United Kingdom at the University Press, Cambridge A catalogue record for this publication is available from the British Library ISBN 978-0-521-13240-4 ISSN 1749-3161 Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this book, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. Edited by Dieter Zinnbauer, Rebecca Dobson and Krina Despota Every effort has been made to verify the accuracy of the information contained in this report, including allegations. All information was believed to be correct as of January 2009. Nevertheless, Transparency International cannot guarantee the accuracy and the completeness of the contents. Nor can Transparency International accept responsibility for the consequences of its use for other purposes or in other contents. Contributions to the Global Corruption Report 2009 by authors external to Transparency International do not necessarily refl ect the view of Transparency International or its national chapters. Contents Illustrations xi Contributors xiii Preface xvii Huguette Labelle Foreword 1 – Tackling corruption in business: profi table and feasible xix N. R. Narayana Murthy Foreword 2 – The role of the private sector in fi ghting corruption: essential for meeting local and global governance challenges xx Jomo Kwame Sundaram Acknowledgements xxii Executive summary xxiv Transparency International Part one: Corruption and the private sector 1 Introducing corruption and the private sector The scale and challenge of private sector corruption 3 Transparency International Beyond profi ts and rules: the moral case for business to fi ght corruption globally 11 Georges Enderle 2 Understanding the dynamics: examining the different types of business corruption Corruption inside the enterprise: corporate fraud and confl icts of interest 13 Dante Mendes Aldrighi Corruption in the value chain: private-to-private and private-to-public corruption 19 David Hess Small and medium enterprises: challenges in combating corruption 24 Elaine Burns v vi Contents Corruption in market competition: collusion and cartels 26 Pradeep S. Mehta Corrupting the rules of the game: from legitimate lobbying to capturing regulations and policies 32 Dieter Zinnbauer Corporate lobbying’s new frontier: from infl uencing policy-making to shaping public debate 39 David Miller View from the inside – Markets for carbon credits to fi ght climate change: addressing corruption risks proactively 41 Jørund Buen and Axel Michaelowa 3 The international dimension: corruption in a globalising and diverse economy Laying the foundations for sound and sustainable development: strengthening corporate integrity in weak governance zones 46 Georg Huber-Grabenwarter and Frédéric Boehm Corruption and bribery in the extractive industries 54 Gavin Hayman Foreign direct investment and global supply chains: do they spread or dilute corporate integrity? 57 Transparency International Strengthening compliance and integrity in the supply chain: what comes next? 63 Ayesha Barenblat and Tara Rangarajan When China goes shopping abroad: new pressure for corporate integrity? 67 Deborah A. Bräutigam Risky interstices: transfer pricing and global tax management 70 Sol Picciotto Where public and private merge: privatisation and corruption 75 John Nellis 4 Tackling corruption effectively: from corporate commitment to accountability View from the inside – Robust anti-corruption programmes in a high-performance with high integrity global company 81 Ben W. Heineman, Jr. The living business code: improving corporate integrity and reducing corruption from the inside 83 Muel Kaptein Contents vii From confl ict to alignment of interests: structuring internal corporate governance to minimise corruption risks 88 Dante Mendes Aldrighi New centres of economic power: new challenges and priorities for fi ghting corruption? Corporate governance and corporate integrity in India 97 Vikramaditya Khanna From voluntary commitments to responsible conduct: making codes and standards effective and credible 99 Alan Knight The role of investors in strengthening corporate integrity and responsibility 105 Dieter Zinnbauer View from the inside – How investors can boost anti-corruption efforts 110 Hans-Christoph Hirt and Jennifer Walmsley Sovereign wealth funds: a challenge for governance and transparency 112 Pierre Habbard Shedding more light on the transparency and accountability of sovereign wealth funds: ranking exercises 115 Transparency International 5 Towards a comprehensive business integrity system: checks and balances in the business environment The public rules for private enterprise: corporate anti-corruption legislation in comparative and international perspective 116 Indira Carr From rules to enforcement: regulators’ resources and enforcement action 123 Transparency International Smart enforcement: trends and innovations for monitoring, investigating and prosecuting corporate corruption 127 Cristie Ford Gatekeeping corporate integrity: the role of accountants, auditors and rating agencies 131 Transparency International Seeding corporate integrity: the challenges to accounting and auditing in Nigeria 136 Elewechi Okike Financial institutions and the fi ght against corruption 138 Gretta Fenner viii Contents Leveraging consumer power for corporate integrity 145 Oscar Lanza NGOs and corporate integrity: the tempo of effective action accelerates 149 Frank Vogl View from the inside – Shining the light on corporate wrongdoing: the role of business journalism 154 Rob Evans Tackling corruption risks in the defence sector: an example for collective action 156 Mark Pyman Part two: Country reports 6 Country perspectives on corruption and the private sector Introduction 163 Rebecca Dobson 6.1 Africa and the Middle East Burundi 166 Cameroon 170 Ethiopia 176 Ghana 180 Kenya 184 Lebanon 189 Morocco 195 Nigeria 200 Rwanda 204 Zimbabwe 207 6.2 Americas Argentina 212 Chile 217 Colombia 221 Nicaragua 227 Paraguay 230 Trinidad and Tobago 234 United States 238 Venezuela 243 Contents ix 6.3 Asia and the Pacifi c Bangladesh 247 China 253 India 258 Indonesia 262 Japan 267 Malaysia 271 Nepal 276 Pakistan 280 Papua New Guinea 285 Philippines 290 South Korea 295 Sri Lanka 300 6.4 Europe and Central Asia Armenia 305 Austria 310 Bosnia and Herzegovina 314 Finland 319 France 324 Germany 331 Greece 338 Hungary 343 Israel 348 Lithuania 352 Poland 357 Romania 362 Russia 368 Spain 372 Switzerland 377 United Kingdom 382 Part three: Research Introduction 391 Robin Hodess x Contents 7 Macro-perspective and micro-insights into the scale of corruption: focus on business Corruption Perceptions Index 2008 395 Johann Graf Lambsdorff Bribe Payers Index 2008 402 Juanita Riaño Corruption and post-confl ict peace-building 406 Susan Rose-Ackerman Public and private sector corruption in central and south-east Europe 409 Kristóf Gosztonyi and John Bray Corruption and the informal sector in sub-Saharan Africa 412 Emmanuelle Lavallée and François Roubaud Institutional determinants of corruption by Maghrebian fi rms 416 Clara Delavallade 8 Strengthening corporate integrity: empirical studies of disclosure, rule diffusion and enforcement Transparency in reporting on anti-corruption