United Nations Development Program
Topic A: Bureaucratic Corruption Topic B: Due Diligence for Development Investment
MUNUC 32
TABLE OF CONTENTS
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Letter from the Chair………………………………………………………….. 3
History of UNDP……………....………………………………………………... 5
Topic A: Sovereignty and Security of the Arctic and Antarctic…....… 6 Statement of the Problem…………………………………………….. 6 History of the Problem………………………………………………… 13 Past Actions…………………………………………………………….. 16 Possible Solutions………………………………………………………. 19 Bloc Positions…………………………………………………………… 20 Glossary…………………………………………………………………. 22 Bibliography……………………………………………………………. 24
Topic B: Cybersecurity and Sovereignty of Cyberspace……………. 26 Statement of the Problem…………………………………………….26 History of the Problem………………………………………………… 31 Past Actions…………………………………………………………….. 35 Possible Solutions………………………………………………………. 37 Bloc Positions…………………………………………………………… 39 Glossary…………………………………………………………………. 41 Bibliography……………………………………………………………. 42
2 United Nations Development Program | MUNUC 32 LETTER FROM THE CHAIR
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Dear delegates,
Every one of you is crucial to a discussion about development. When my Under Secretary General asked me to rank what countries I wanted in my committee, I requested all of the United Nations Member States, equally ranked. On the issue of development, there is no such thing as a more important country and a less important country; small countries without much name recognition on the world stage may in fact have the most insights into development issues.
I think that international development is a particularly good topic for Model United Nations because it invites participation from everyone. I am so excited to listen to speeches from all of you, read all of your contributions to working papers, and see all of you discussing development with your new committee colleagues and friends. The highest priority of me, my staff members, and MUNUC overall is that each of you contribute in your own way and learn from the experience. Please don’t be shy about asking us for guidance – we won’t be shy about approaching you and helping you get involved!
I competed in Model UN competitions both in high school and college, so I know how you feel. I know the anxious exhilaration of meeting a huge roomful of people with whom you will work closely, I know the intense nervousness before you stand up to speak and the power you feel when you are heard, the satisfying exhaustion of a weekend that demands enormous intellectual and social energy. Whether you want a few pointers of feedback to improve or encouragement when you overwhelmed, my team and I will be there for you.
You will have advisors and classmates to help you prepare for conference, but I wanted to give you a few pointers for this committee specifically. Throughout the background guide you will see bolded/underlined/italicized text with instructions for individual research and our work during committee. Please pay attention to these. Additionally, both of these topics are technical. It is important to become familiar with the terms we will use. Please read the glossary carefully, and
3 United Nations Development Program | MUNUC 32 make vocabulary flashcards if needed. Finally, I put a lot of work into finding hundreds of the best resources in existence on these topics – it is all there in the footnotes. When something in the background guide particularly interests you and you want to learn more, start with the resource I am citing for that sentence or paragraph before doing your own research.
I care deeply about development issues, and will most likely devote my career to this field. My own background is in the Eurasia region. I am a Russian and East European Studies major, with a minor in Creative Writing. I have lived for about two years total in Russia, Ukraine, Moldova and Azerbaijan, which allowed me to start to understand a lot of development issues firsthand. (An anti-corruption revolution while I was in Moldova for a gap year before college was what sparked my interest in fighting corruption!) I have completed internships about economic and democratic development in D.C., Kyiv and St. Petersburg and am writing my undergraduate thesis about corruption in Ukraine. Overall, my understanding of development issues comes equally from academics, professional experiences and kitchen table conversations. I am very excited to learn even more from all of you!
Please don’t hesitate to reach out with any questions before conference. I can’t wait to see you!
Best wishes,
Katrina
4 United Nations Development Program | MUNUC 32 HISTORY OF UNDP
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The United Nations Development Programme (UNDP) was created by the United Nations General Assembly in 1965. The UNDP merged the work of two previous bodies, the United Nations Expanded Programme of Technical Assistance and the United Nations Special Fund. Over time, the concept of the UNDP changed from approving technical assistance grant applications from developing countries to direct collaboration with developing countries.
The UNDP cooperates closely with other UN bodies in the UN Sustainable Development Group, such as WHO and UNICEF. The UNDP runs the UN Capital Development Fund and UN Volunteers. Their 2018-2021 Strategic Plan includes six Signature Solutions to development problems, related to poverty, governance, crisis resilience, the environment, energy, and gender equality. The UNDP is committed to helping every country meet the Sustainable Development Goals (SDGs).
5 United Nations Development Program | MUNUC 32 TOPIC A: BUREAUCRATIC CORRUPTION
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Statement of the Problem
What is corruption?
The broadest and widely accepted definition of corruption is “the abuse of entrusted power for
private gain.”1 The definition proposed by the World Bank is slightly more specific, replacing
“entrusted power” with “public office.”2 Neither the United Nations as a whole, nor the UNDP in particular, has adopted a concrete definition of corruption.
Definitions in dictionaries such as Merriam-Webster3 are not acceptable or useful for our purposes because they are defining the word corruption and how it is popularly used, not the term corruption. Dictionary definitions may focus on dishonesty, illegality, and immorality, all of which are indeed associated with corruption in everyday use of the word, but are also subjective (who decides what is considered immoral?) and inaccurate (not all forms of corruption are illegal in every country!).
While some definitions of corruption are broad enough to encompass corruption between private individuals, for example, the CEO of a company hiring her daughter instead of a more qualified applicant, most often when we talk about corruption we mean something that involves a public official, that is, someone elected or appointed to a job in the government. Such a job requires the trust of the people to use the power, information, taxpayer and other public funds available to a public official in the interests of the state rather than to serve their own monetary, career, family, or other interests. Thus, corruption is a breach of that trust.
General categories of corruption
1 “Anti-Corruption Glossary: Corruption,” Transparency International, accessed May 18, 2019, https://www.transparency.org/glossary/term/corruption. 2 Masood Ahmed, Cheryl Gray, et al., “Helping Countries Combat Corruption: The Role of the World Bank,” The World Bank Group, September 1997, http://www1.worldbank.org/publicsector/anticorrupt/corruptn/corrptn.pdf. 3 “Corruption,” Merriam Webster, accessed May 18, 2019, https://www.merriam-webster.com/dictionary/corruption.
6 United Nations Development Program | MUNUC 32 Corruption is usually grouped into two broad categories: grand corruption and bureaucratic
corruption.4 Bureaucratic corruption and petty corruption are essentially the same thing, and petty corruption is in fact a more common term. However, we will use the term bureaucratic, because the word “petty” has connotations such as unimportant and personal that may hinder understanding the issue. In contrast, the term “bureaucratic,” with its connotations of a system of everyday functions of a government, is more useful. However, remember that “bureaucratic” does not just involve office work, but may include police officers, teachers, healthcare workers, and other public officials.
The main difference between grand corruption and bureaucratic corruption is how highly-ranked the
public official involved is.5 When a corrupt act is committed by a person considered high-ranking, such as a mayor of a city or a member of the national parliament, then usually this will be labeled grand corruption. Grand corruption sometimes involves not only the high-ranking official herself, but
also some of her staff down the chain, leading to a scandal involving multiple people.6 These are the types of scandals that make the news when they are uncovered. In contrast, when an act similar in nature is committed by a lower-ranking official, such as an average customs officer, it is considered bureaucratic corruption. This type of corruption is typically limited to a single individual.
It is important to note that the impact of the corrupt act on society and its monetary value are not necessarily determinants of what is considered bureaucratic or grand corruption. Although a higher- ranking official sometimes has greater access to power, information, and funds, an act of bureaucratic corruption, especially if done repeatedly, can end up having a higher cost than an act of grand corruption. In certain circumstances a public official may even avoid a promotion, because the opportunities to earn money from bribes are actually higher in a lower-ranking position. Additionally, bureaucratic corruption can cause at least as many problems for society as grand corruption, especially if it is widespread.
4 Stephen D. Morris, “Forms of Corruption,” CESifo DICE Report 9 No. 2 (2011): 10-14. 5 Stephen D. Morris, “Forms of Corruption,” CESifo DICE Report 9 No. 2 (2011): 10-14. 6 “Grand Corruption,” Transparency International, https://www.transparency.org/glossary/term/grand_corruption (accessed July 21, 2019).
7 United Nations Development Program | MUNUC 32 When corruption is widespread, it is called systemic corruption.7 This means that the basic functioning of the government involves corruption, and may even be in a state of dependency on corruption, leaving any given individual little choice about being corrupt. It is assumed that corruption is a normal behavior, rather than an exception. For example, if a builder wants to get a building permit in a systemically corrupt city and has all her documents in order, then there is no reason to deny her according to the law. However, she may be unable to get her permit for years without paying a bribe since every official responsible for distributing permits processes them in the order of who pays the highest bribe. In another example, very low-paid nurses in state clinics may rely on bribes as part of their income, just as waiters in the United States pay rent and feed their families from tips, not just salary.
In contrast to isolated incidents of grand corruption, a country plagued by systemic bureaucratic
corruption is in equilibrium,8 meaning that people will naturally tend toward corrupt behavior, because, like in the examples above, they have little choice in the matter. The system– the regulations about how building permits are issued, the salaries of nurses– is set up to create corruption. Everyone might prefer to live in a society where no one is corrupt. However, given that everyone else is corrupt, individuals cannot rationally choose to not be corrupt.
Therefore, small and isolated changes will be difficult, expensive, and temporary because they will
be fighting the irresistible pull of this equilibrium.9 However, that does not mean there is not a possibility of the equally stable equilibrium of a non-corrupt society, in which people will naturally tend toward non-corrupt behavior. No individual or culture is predisposed or doomed to corruption. This committee will be dedicated to eradicating systemic bureaucratic corruption by seeking to fundamentally alter the corruption equilibrium.
7 “Systemic Corruption,” Geneva Center for Security Sector Governance, https://issat.dcaf.ch/Learn/Resource- Library2/SSR-Glossary/Systemic-corruption (accessed July 21, 2019). 8 Rajesh Chakrabarti, “Corruption: A General Equilibrium Approach,” SSRN Electronic Journal (January 2002), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=296859 (accessed July 21, 2019). 9 Ajit Mishra, “Persistence of corruption: some theoretical perspectives,” World Development 34 No. 2 (February 2006): 349-358.
8 United Nations Development Program | MUNUC 32 Specific types of corruption
When we talk about corruption, often we are thinking specifically of bribery. Bribery is itself a blanket term, but it always involves giving a public official money or gifts in exchange for something the official can provide as a result of their position: a permit, a contract, information, the absence of
a fine, changing a report, a decision, a job, and more.10
When that something should be provided anyway according to the laws of the country and the public official’s responsibilities, then the bribe is more specifically extortion. Extortion is when a public
official demands a bribe for doing their job properly.11 For example, a road police officer may stop a car that was following all laws and threaten to fine the driver for speeding unless a bribe is paid. This differs substantially from a situation in which the driver was actually speeding and pays a bribe– which is just called a bribe, not extortion or anything else– so that the police officer does not correctly fine her.
A slightly different situation is when the public official would provide a service to which a citizen is entitled eventually, but in order to get that service in a reasonable time frame, the citizen pays a
facilitation payment.12 When such a policy is public, it is just a normal payment to expedite government services. However, when it happens under the table, it is a type of bribe. This is frequently the case with various permissions and permits issued by government offices.
Judicial corruption is when a decision-maker in the judicial branch is bribed for a certain decision. This could be at various steps in the judicial process, from a bribe to the prosecutor for dropping (or starting) the case in the first place, to a bribe to a judge to suppress (or admit) evidence, to a bribe to
jury members for their verdict.13
10 “Bribery,” Transparency International, https://www.transparency.org/glossary/term/bribery (accessed July 21, 2019). 11 “Extortion,” Transparency International, https://www.transparency.org/glossary/term/extortion (accessed July 21, 2019). 12 “Facilitation Payment,” Transparency International https://www.transparency.org/glossary/term/facilitation_payments (accessed July 21, 2019). 13 “Judiciary,” Transparency International, https://www.transparency.org/topic/detail/judiciary (accessed July 21, 2019).
9 United Nations Development Program | MUNUC 32 Procurement is a process by which government bodies obtain goods and services from private
companies or non-governmental organizations.14 Usually multiple providers make bids on government projects, and the agency picks the best one. When a bidder pays a bribe so that their contract is selected over potentially more deserving ones, this is called the public official’s kickback from the project.
There are forms of corruption that do not involve bribes. Embezzlement is when a government
official keeps public funds or goods for themselves rather than using it as they are supposed to.15 Technically, even taking some pens from the office is a form of embezzlement, but of course bigger problems occur when a government official is supposed to spend some large amount of money on a project, a road, for example, and makes the project less expensive and lower quality so that they can pocket the money saved.
Conflict of interest is any situation, without the involvement of a bribe, in which a public official
could benefit personally from making a certain decision within their job.16 For example, the public official may have personal investments in certain companies, and therefore may have a financial interest in those companies doing well. Having a conflict of interest without acting on it does not imply corruption necessarily; we all have personal lives. However, if this public official gives those companies contracts over other, more qualified companies, that is corruption as a result of a conflict of interest.
More specific instances of conflict of interest include patronage, clientelism and nepotism, which all essentially mean the same thing. This is when a bureaucrat shows favoritism of any kind to someone because of personal or political ties, not as a direct result of financial interests or a bribe.
14 “Procurement,” Transparency International, https://www.transparency.org/glossary/term/procurement (accessed July 21, 2019). 15 “Embezzlement,” Transparency International, https://www.transparency.org/glossary/term/embezzlement (accessed July 21, 2019). 16 “Conflict of Interests,” Transparency International, https://www.transparency.org/glossary/term/conflict_of_interests (accessed July 21, 2019).
10 United Nations Development Program | MUNUC 32 Classic examples would be a public official giving a contract to a politically loyal company, or
speeding along a friend’s application for a visa.17
A more complicated version of patronage is raiding, which is when a government official targets companies that are not favored due to personal or political ties, and harrasses them or even shuts
them down, usually with excuses such as fire safety violations.18 These violations may even technically exist according to the law, but the regulations are intentionally made infeasible to follow or even conflict with one another so that all companies have violations and patronage is always required for the regulatory officials to look the other way. The purpose of raiding is to prevent successful companies from competing with favored companies or to seize their assets.
State capture, which is when powerful companies or individuals, frequently called oligarchs, control
the government,19 and market capture, when state-owned or quasi-state owned (for example,
owned by powerful politicians) companies control the market at the expense of private companies,20 do not directly fall under bureaucratic corruption. However, it is useful to keep in mind that when these phenomena are present, several factors important to our discussion may be relevant.
First, the laws themselves may be designed in such a way as to encourage corruption. For example, excessive regulation on starting a company, which provides more public official-entrepreneur contact that could result in bribes, may be intentionally designed to keep new companies out of the market and protect monopolies. Second, such high-level corruption may pull lower-level bureaucrats into a culture of corruption, since their superiors are corrupt anyway, all the way up the chain. Similarly, high-level corruption influences the public perception of corruption in society, which may lead people to think corruption is inevitable and to give up on change.
17 “Nepotism,” Transparency International, https://www.transparency.org/glossary/term/nepotism (accessed July 21, 2019). 18 Louise Shelley and Judy Deane, The Rise of Reiderstvo: Implications for Russia and the West (Arlington: TraCCC Consulting LLC, 2016). 19 Anne Mette Kjaer, “State Capture,” Encyclopaedia Britannica, https://www.britannica.com/topic/state-capture (accessed July 21, 2019). 20 Yulia Krylova, Corruption and the Russian Economy: How Administrative Corruption Undermines Entrepreneurship and Economic Opportunities (Abingdon-on-Thames: Routledge, 2018).
11 United Nations Development Program | MUNUC 32 How to measure corruption
Just as there are many forms of corruption, there are many ways to measure corruption, many of which are actually measuring more specific things than “corruption” as a whole. In some ways, this is good, because various measurements can point to specific aspects of the problem that can be more easily addressed than overall “corruption.” However, it is important to think critically about every corruption rating system and determine whether the information it provides is relevant to the problem being addressed.
The most popular method of measuring corruption is surveys. Of these, one of the most widely used
and popular surveys is the Corruption Perceptions Index (CPI)21 produced by the anti-corruption international non-governmental organization Transparency International. This survey gives an excellent overall picture of the trust citizens of a given country have in their government. However, it is not clear from the ratings alone why they think the country is corrupt. It may be that people pay bribes in their everyday lives, or it may be that one particular big scandal was in the news last year.
Transparency International also produces another popular measurement: the Global Corruption
Barometer.22 This measures the percentage of average citizens who admit that they themselves paid a bribe in the last year. This survey provides a minimum estimate of everyday bureaucratic corruption. It is a minimum because not everyone who paid a bribe will admit to paying a bribe because they don’t remember, are afraid of consequences, or are ashamed.
A similar approach is to survey a group of people who are particularly likely to encounter corruption: entrepreneurs trying to start, run, and grow their business. For example, the Business Environment
and Enterprise Performance Survey (BEEPS)23 of the European Bank for Reconstruction and Development and the World Bank provides data on how corruption affects businesses, based on
21 “Corruption Perceptions Index: Overview,” Transparency International, accessed May 19, 2019, https://www.transparency.org/research/cpi. 22 “Global Corruption Barometer: Overview,” Transparency International, accessed May 19, 2019, https://www.transparency.org/research/gcb. 23 “Business Environment and Enterprise Performance Survey (BEEPS),” European Bank for Reconstruction and Development, accessed May 19, 2019, https://ebrd-beeps.com/.
12 United Nations Development Program | MUNUC 32 interviews with heads of companies. The World Bank’s Worldwide Governance Indicators24 include a composite score for control of corruption based on multiple surveys.
Another composite approach is to indirectly measure the risk for corruption based on various
parameters. For example, Trace International creates the Bribery Risk Matrix25 based on information about factors like anti-bribery laws and freedom of the press to investigate corruption.
A relatively new approach is to use big data from government budgets, expense reports, and other
administrative documents.26 This can reveal inconsistencies that may indicate corruption. For example, computer programs can compare budgets for education expenses with hundreds of thousands of data points on expense reports, and if there is a gap between the two, that may indicate embezzlement. Big data can also be used to flag types of transactions that are at greater
risk for corruption, so that they can be subject to more oversight.27 However, this approach relies on available and accurate data, which limits its usefulness. This is especially an issue in investigating corruption, because a corrupt bureaucrat could alter the data or a systemically corrupt government could refuse to make it publicly available for analysis.
Why corruption is a development problem
Of course corruption sounds bad, greedy, unfair, and immoral. However, thinking of corruption like this puts a lot of blame on an individual, rather than on a system. That is why it is not productive to call corruption wrong in and of itself. Instead, it is important to demonstrate exactly why corruption has a serious negative impact on society.
24 Daniel Kaufmann and Aart Kraay, “Worldwide Governance Indicators,” World Bank Group, accessed May 19, 2019, http://info.worldbank.org/governance/wgi/#home. 25 “Trace Bribery Risk Matrix,” Trace Anti-Bribery and Compliance Solutions, accessed May 19, 2019, https://www.traceinternational.org/trace-matrix. 26 Daniel Berliner and Kendra Dupuy, “The promise and perils of data for anti-corruption efforts in international development work,” U4 Anti-Corruption Centre, https://www.u4.no/publications/the-promise-and-perils-of-data-for-anti- corruption-efforts-in-international-development-work (accessed July 23, 2019). 27 “Getting Smart about Data Helps Tackle Corruption,” Curbing Corruption in Government Contracting, http://redflags.govtransparency.eu/index.php/2018/06/06/getting-smart-about-data-helps-tackle-corruption/ (accessed July 23, 2019).
13 United Nations Development Program | MUNUC 32 Potentially the biggest problem with corruption is that it discourages investment.28 Investment in economically viable projects is how economies grow, and growing an economy (in a fair and sustainable way) is, by definition, development. Various types of corruption, such as judicial corruption, patronage, raiding, extortion, and facilitation payments harm investment in three major ways.
First, corruption makes property rights less secure. When an entrepreneur faces the possibility that their business will be subject to the whims of government officials, they are more likely to take
advantage of short-term opportunities rather than invest in larger, long-term projects.29 This is because long-term projects would entail more contact with corrupt public officials and the judicial system, the risk of changing political connections and bribery expectations over time, or attracting the attention of public officials, who could engage in raiding. This is a problem, because it is namely long-term investments that lead to sustainable economic growth.
Second, corruption causes too much risk for international investors from developed countries, leading to lower foreign direct investment (FDI), which is money that people spend opening or
expanding a business in a country that is not their own.30 Not only do international investors worry about the same property rights issues as local investors, but they also face high fines and loss of reputation if they become involved in corruption. This is because laws such as the United States’
Foreign Corrupt Practices Act (FCPA)31 and the United Kingdom’s Bribery Act32 punish companies that are associated with corruption abroad, even if a bribe was paid by partner companies, such as suppliers or distributors. The difficulty of obtaining capital and contracts from these large, international markets stunts the development of local enterprises.
28 Paolo Mauro, “Corruption and Growth,” Quarterly Journal of Economics 110 No. 3 (August 1995): 681-712. 29 J. Edgardo Campos, Donald Lien and Sanjay Pradhan, “The Impact of Corruption on Investment: Predictability Matters,” World Development 27 No. 6 (June 1999): 1059-1067.
30 Aparna Mathur and Kartikeya Singh, “Foreign Direct Investment, Corruption, and Democracy,” AEI Working Paper #135, May 15, 2007. 31 “Foreign Corrupt Practices Act,” The United States Department of Justice, https://www.justice.gov/criminal- fraud/foreign-corrupt-practices-act (accessed July 23, 2019). 32 “The Bribery Act,” Transparency International UK, https://www.transparency.org.uk/our-work/business- integrity/bribery-act/ (accessed July 23, 2019).
14 United Nations Development Program | MUNUC 32 Third, corruption raises the cost of doing business, leading to fewer firms investing in the market.33 What would otherwise be profitable investments are worth it to the entrepreneur. If she expects, for example, her return on investment to be 15%, but would have to pay 20% of her annual income in bribes to various regulatory, customs, and other public officials, she will not invest in the project and the economy will not grow as a result. Furthermore, the fact that there are fewer firms leads to a decreased competition of the market. Competitive and open economies are crucial to development because they lead to a society with high-quality and low-cost goods for their own consumers and for international markets.
Corruption, especially bribery in all of its forms, raises prices.34 This is because the companies' expenses are higher, and so in order to stay profitable they have to raise prices of their products and services. This is obviously bad for consumers, because they will have to enjoy less of the good or service than they would at regular equilibrium prices in a corruption-free economy. Whenever prices are raised, demand decreases, which in turn means that less of the good is produced and the economy grows less than it should.
Raising prices also has a more subtle, but no less important, effect. Higher prices for domestically produced goods makes internationally produced goods relatively less expensive. Therefore, it will be harder for companies from a corrupt economy to compete with companies from less corrupt
countries in international markets,35 leading to lower international demand for the products (and potentially the partial replacement of domestically produced goods with internationally produced goods even at home). Since many developing economies produce goods for export, this effect is especially severe for them.
33 “The rationale for fighting corruption,” CleanGovBiz, https://www.oecd.org/cleangovbiz/49693613.pdf (accessed July 23, 2019). 34 Elvin Mirzayev, “How Corruption Affects Emerging Economies,” Investopedia, https://www.investopedia.com/articles/investing/012215/how-corruption-affects-emerging-economies.asp (accessed July 23, 2019). 35 Qing Liu, Ruosi Lu and Xiangjun Ma, “Corruption, Financial Resources and Exports,” Review of International Economics 23 No. 5 (November 2015): 1023-1043.
15 United Nations Development Program | MUNUC 32 Corruption causes government services to be provided at a lower quality.36 Embezzlement leads directly to a reduced quality and quantity of goods and services, because funds intended to realize a particular project in the public’s interest are pocketed by a public official instead. For example, if public officials responsible for school textbook production embezzle some of the funds, children will get a lower quality education. This could be caused by a variety of mechanisms: fewer books, or lower quality books, due to cutting corners on the quality and experience of experts hired to write them, or the amount of time the experts are paid to develop engaging materials. Lower quality education, in turn, leads to worse economic outcomes down the line. The same is true for low-quality roads, healthcare, and so much else for which the government is responsible.
Bribery in procurement also leads to lower quality and higher costs for public projects. A corrupt procurement process means that some firm besides the least expensive, most efficient, highest quality, most innovative, or most responsible firm will get the contract. The difference between the quality that would have been provided by the best bidding firm and the firm that actually got the contract due to a bribe is a direct cost of corruption.
Corruption distorts incentives for firms in the market. When a firm knows that its success depends not on the quality of its goods or its low cost, but rather its relationship with public officials, it will put resources toward developing those relationships rather than improving the quality or decreasing the cost of its product. For example, profits that could be used for research and development of new products, or returned to investors to encourage more future investment, may instead go to “donations” for political campaigns so that the company stays in favor and therefore in business.
Corruption also distorts and reduces the labor market. Corruption decreases participation in the
labor market, leading to a larger amount of people working illegally.37 Additionally, if you are a bright and ambitious young person who wants to maximize your financial wellbeing in an environment without systemic corruption, you are likely to use your talents to create or grow businesses in the private sector, which leads to economic growth overall. The same person growing up in a
36 Sanjeev Gupta, Hamid Davoodi and Erwin Tiongson, “Corruption and the provision of health care and public services” in The Political Economy of Corruption ed. Arvind K. Jain (London: Routledge, 2001). 37 Arusha Cooray and Ratbek Dzhumashev, “The effect of corruption on labour market outcomes,” Economic Modeling 74 (August 2018): 207-218.
16 United Nations Development Program | MUNUC 32 systemically corrupt environment may decide instead to pursue a career in government because they realize they will be able to earn more from bribes and achieve more power than they would in the private sector. Or, even worse for a developing economy, that bright and ambitious young person might emigrate to a different country, where they will be able to pursue their career without
the barriers of corruption.38 This is one possible cause of the “brain drain” problem faced by many developing countries, in which the very people best suited to develop the economy are the ones who leave.
Corruption deepens inequality.39 Equitable development throughout all levels of society is not only an explicit goal of the UNDP, but also a foundation of the understanding of development in general because the more people who are included in economic growth, the more the economy will grow. In corrupt societies, only the privileged elite with connections to those in power and enough start-up capital to bear the costs of corruption will be able to start and grow businesses. Corruption may even
worsen gender inequality, because women are less corrupt,40 perhaps because of social stigma or because informal patronage networks are male-dominated. Therefore, where corruption is the norm, women may be particularly excluded from participating in the economy.
Corruption decreases trust in the government, which reduces government tax revenue.41 If people think that the government will misuse the money they give it, they will be less inclined to pay their taxes. This means the government has less money to provide services for citizens, including measures that may actually reduce corruption, such as increasing the wages of government officials.
38 Ortrun Merkle, Julia Reinold and Melissa Siegel, “A Study on the Link between Corruption and the Causes of Migration and Forced Displacement,” Deutsch Gesellschaft fur Internationale Zumsammenarbeit (GIZ), March 29, 2017. 39 Sanjeev Gupta, Hamid Davoodi and Rosa Alonso-Terme, “Does corruption affect income inequality and poverty?” Economics of Governance 3 No. 1 (March 2002): 23-45. 40 Anand Swamy, Stephen Knack, Young Lee and Omar Azfar, “Gender and corruption,” Journal of Development Economics 64 No. 1 (February 2001): 25-55. 41 Benno Torgler, “Tax Morale, Trust and Corruption: Empirical Evidence from Transition Countries,” Center for Research in Economics, Management and the Arts Working Paper: 2004.
17 United Nations Development Program | MUNUC 32 A History of the Problem
Corruption is probably one of society’s oldest problems. It was discussed at length in the
Arthashastra, an ancient Indian text on politics.42 Around the same time, political corruption
contributed to bringing down the Roman Republic.43 A complete history of administrative corruption and anti-corruption efforts, just like any social, economic or political issue, would mean rewriting a complete history of the entire world. Every nation coming to discuss this issue at the UNDP should dig into their own past to discover their particular story with corruption to come up with potentially valuable lessons and unique historical solutions.
However, global anti-corruption initiatives are a relatively new phenomenon. In 1977, the United States adopted the Foreign Corrupt Practices Act, which was one of the first attempts to curtail
corruption not just domestically, but throughout the world.44 The law states that any bribe involving the United States, including a U.S.-based company, a U.S. bank or even dollar bills can be prosecuted under U.S. law, even if the bribe itself occurs on foreign soil or is paid to a foreign official. For example, if a Starbucks contracts to buy coffee beans from a wholesaler in Colombia, and that wholesaler bribes a Colombian official, Starbucks can be held liable in the United States.
This led to the use of concepts like compliance and due diligence in reference to corruption. In the above scenario, Starbucks needs to make sure it complies with the law by performing due diligence on its partner in Colombia, which means investigating that the Colombian company does not have a history of corruption and has an internal anti-bribery policy. These internal policies are ideally robust
and involve elements like risk assessment, employee trainings, and whistleblower systems.45 In theory, this encourages foreign companies to be less corrupt, because they have to adhere to anti- corruption standards if they want to do business with American partners. It focuses on the so-called
42 Priti Pohekar, “Corruption Prevention Measures Recommended by Kautilya,” Socrates 2, no. 2 (June 2014): 107-13. 43 Rob Goodman and Jimmy Soni, “How Political Campaign Spending Brought Down the Roman Republic,” Slate, November 26, 2012, https://slate.com/news-and-politics/2012/11/citizens-united-massive-political-campaign-donations- during-the-roman-republic-are-a-cautionary-tale-for-the-corrupt-influence-of-money-in-politics-today.html. 44 The Foreign Corrupt Practices Act, 15 U.S.C. § 78 (1977). 45 “FCPA Compliance Guide,” GAN Business Anti-Corruption Portal, https://www.ganintegrity.com/portal/compliance- quick-guides/united-states/ (accessed July 2, 2019).
18 United Nations Development Program | MUNUC 32 “supply side” of corruption by criminalizing paying a bribe, as opposed to receiving one. It also puts the burden on developed countries to try to fight corruption in developing ones.
The Organization for Economic Cooperation and Development (OECD), which mostly consists of developed Western countries (with a few notable exceptions), adopted this approach in 1997 by signing the Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions.46 While the OECD Anti-Bribery Convention has no enforcement powers, unlike the laws of individual countries, the OECD periodically produces detailed reports on the progress of each nation. The United Kingdom introduced a similar law called simply the Bribery Act much more
recently, in 2010, which is now one of the strictest in the world.47
A different approach, led by civil society rather than governments, to fighting corruption on a global scale was spearheaded in 1993 with the creation of the anti-corruption nongovernmental
organization Transparency International (TI).48 TI is undoubtedly a global leader on this issue, specializing in uncovering cases of corruption and advocacy. Their research and surveys have become the international standard for measuring and understanding corruption, and they have played a key role advancing anti-corruption legislation internationally and in specific countries. Since then, a wide variety of other NGOs have tried to tackle corruption, including the Basel Institute on
Governance, TRACE International, the International Chamber of Commerce, and many others.49
Very recently, just within the past decade, a new intellectual development has changed our understanding of corruption. Throughout history, corruption was primarily dealt with as a principal agent problem, meaning that people viewed corruption as the greedy decision of an individual, which can be resolved by punishing individuals: either the payer or receiver of a bribe. Laws like the FCPA use a principal agent framework, since they target individual companies. However, now some
46 “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions,” OECD.org, http://www.oecd.org/corruption/oecdantibriberyconvention.htm (accessed July 2, 2019). 47 “The Bribery Act,” Transparency International UK, https://www.transparency.org.uk/our-work/business- integrity/bribery-act/ (accessed July 2, 2019). 48 “Our History,” Transparency International, https://www.transparency.org/whoweare/history/1993 (accessed July 2, 2019). 49 “Intergovernmental and Other Relevant Anti-Corruption Bodies,” Track by United Nations Office on Drugs and Crime, http://www.track.unodc.org/ACAuthorities/Pages/home.aspx (accessed July 2, 2019).
19 United Nations Development Program | MUNUC 32 scholars view corruption as a collective action problem, meaning that people would rather not be corrupt if everyone around them was also not corrupt, but since everyone around them is corrupt the only way to function in the system is to also be corrupt. When civil society organizations like Transparency International advocate for, like their name suggests, transparency, they are trying to solve the collective action problem by providing citizens with information, so they can unite to solve corruption. Likely, a combination of both of these approaches will be most effective in addressing
corruption in the future.50
50 Heather Marquette and Caryn Peiffer, “Collective Action and Systemic Corruption,” presentation, Joint Sessions of Workshops from European Consortium of Political Research, Warsaw, March 29 - April 2, 2015, https://ecpr.eu/Filestore/PaperProposal/b5944a31-85b6-4547-82b3-0d4a74910b07.pdf.
20 United Nations Development Program | MUNUC 32 Past Actions
The United Nations Convention Against Corruption (UNCAC)
When it comes to past actions on corruption, the most important single thing to know about UNDP,
and the UN as a whole, is the United Nations Convention Against Corruption (UNCAC).51 One of the UNDP’s top anti-corruption methods and priorities is supporting countries in their implementation of
the UNCAC.52 The UNCAC was adopted in 2003, and as of 2018, the vast majority of UN Member
States have signed it.53
The Convention is legally binding, but sovereignty issues prevent enforcement. Instead, the United
Nations developed an Implementation Review Mechanism to monitor each country’s progress.54 Member States are strongly encouraged to review their own profile on compliance with the
Convention.55
The UNCAC stipulates that:
1. States shall develop measures to prevent corruption, the bodies that are responsible for prevention shall be independent, and the state shall cooperate with international programs and projects to prevent corruption;
2. The State shall adopt hiring measures for public officials that are merit-based and transparent. Conflicts of interest shall be avoided, in part by asset declaration of public officials. Public officials shall act according to codes of conduct, and receive proper training
51 General Assembly Resolution 58/4, United Nations Convention Against Corruption (New York: United Nations Office on Drugs and Crime (October 31, 2003), available from https://www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdf (accessed July 25, 2019). 52 “Fighting Corruption,” United Nations Development Programme, https://www.undp.org/content/undp/en/home/2030-agenda-for-sustainable-development/peace/governance/fighting- corruption.html (accessed July 24, 2019). 53 “Signature and Ratification Status,” United Nations Office on Drugs and Crime, https://www.unodc.org/unodc/en/corruption/ratification-status.html (accessed July 25, 2019). 54 “Implementation and Review Mechanism,” United Nations Office on Drugs and Crime, https://www.unodc.org/unodc/en/corruption/implementation-review-mechanism.html (accessed July 25, 2019). 55 “Country Profiles,” United Nations Office on Drugs and Crime, https://www.unodc.org/unodc/en/treaties/CAC/country-profile/index.html (accessed July 25, 2019).
21 United Nations Development Program | MUNUC 32 and wages. Public officials that violate ethics standards shall be reported and disciplined. Elected officials shall finance their campaigns in a transparent way;
3. Procurement, the creation and execution of budgets, and the state functioning as a whole shall be transparent;
4. The judiciary and prosecution service shall be independent;
5. States shall take measures to prevent corruption in the private sector, including by promoting the financial transparency of the private sector;
6. Civil society shall be involved in the fight against corruption, the state shall increase public awareness of corruption issues, and the public shall have the opportunity to report corruption;
7. The state shall outlaw bribery and non-monetary unfair advantages, involving both domestic and foreign public officials as well as the private sector, and also embezzlement and money laundering;
8. The state shall develop a procedure by which public officials can be prosecuted and/or disciplined for corruption;
9. The state shall seize or freeze assets and property acquired as a result of corruption;
10. Whistleblowers, witnesses, experts and victims involved in corruption cases should be protected;
11. States shall cooperate internationally to investigate, prosecute and punish corruption.
It is recommended that delegates read the UNCAC in its entirety.
Global Projects
22 United Nations Development Program | MUNUC 32 The UNDP has run several multi-year global projects to fight corruption. The two most recent were
the Global Thematic Programme on Anti-Corruption for Development Effectiveness (PACDE)56 from
2008 to 2013, and the Global Anti-Corruption Initiative (GAIN)57 from 2014 to 2017.
PADCE was primarily responsible for helping countries gain knowledge about how exactly to implement the UNCAC after a surge of signatories in 2008. It also strengthened the UNDP’s partnerships with other major civil society organizations as each clarified its role in the global fight against corruption. GAIN expanded upon the work of PACDE by continuing to provide governments with recommendations, but also working with specific high-risk sectors, alternative organs of government like Parliaments, and civil society organizations such as the media, women’s empowerment groups, and youth organizations. It also focused on monitoring results of anti- corruption programs.
The UNDP currently does not have a global anti-corruption project. Delegates will be expected to develop a new, creative, modern, detailed global project to fight corruption as a result of this session.
Regional and National Projects
The UNDP also runs a great number of regional and country-specific projects to fight corruption. Delegates are strongly encouraged to research past and ongoing UNDP projects in their own country or region. Frequently the UNDP partners with, or helps create, local organizations. For example, the UNDP sponsored the creation of the Thai Youth Anti-Corruption network to raise awareness about
56 “Global Thematic Program on Anti-Corruption for Development Effectiveness (PACDE),” United Nations Development Programme, https://www.un.org/ruleoflaw/blog/document/global-thematic-programme-on-anti-corruption-for- development-effectiveness-pacde/ (accessed July 25, 2019). 57 Anga R. Timilsina, UNDP Global Anti-Corruption Initiative (GAIN) 2014-2017 (New York: United Nations Development Programme, 2014).
23 United Nations Development Program | MUNUC 32 the harms of corruption,58 and partnered with the Maritime Anti-Corruption Network to investigate
issues with corruption in the ports of Nigeria.59
Other projects are larger, run directly by the UNDP, and cover entire regions. The Anti-Corruption
and Integrity in the Arab Countries Project,60 which ran from 2011-2014, took a demand-based approach to providing support to interested states in the Middle East in providing specific recommendations for anti-corruption strategies and implementing in the UNCAC and reducing corruption, as well as targeting key sectors and crisis zones. Demand-based means that the strategy will be tailored according to the desires of individual governments. In 2016-2020, the UNDP is taking a similar approach to island nations in the Pacific, supporting governments in updating their anti- corruption policies, but also includes the component of strengthening the ability of civil society to
monitor corruption.61 These are just a couple of examples of the types of projects that UNDP undertakes; it works to fight corruption in one way or another in most countries of the world.
Guidance
In addition to in-person guidance to governments and other stakeholders, the UNDP writes a variety of guides with best practices for fighting corruption.
A 2008 primer on how corruption affects development covers areas that are not always immediately thought of in relation to corruption, such as HIV/AIDS and armed conflict, as well as more details on
UNDP experience with anti-corruption programming.62 In 2011, the UNDP prepared sector-specific
58 “UNDP-sponsored ‘Thai Youth Anti-Corruption Network’ wins best practice by World Economic Forum,” IGED-Africa, https://www.igedafrica.org/index.php/our-blog/95-youth-development/131-und-sponsored-thai-youth-anti-corruption- netwo-wins-best-practice-by-world-economic-forum (accessed July 25, 2019). 59 Maritime Anti-Corruption Network, “Concrete Actions to Combat Corruption -- the MACN-UNDP Nigeria Pilot Project,” Business for Social Responsibility, https://www.bsr.org/pdfs/our-work/working-groups/bsr-macn-pilot-ntroduction.pdf (accessed July 25, 2019). 60 “Anti-Corruption and Integrity in Arab Countries,” United Nations Development Programme, https://www.undp.org/content/dam/rbas/doc/arab_transformations1/Anti-corruption_Arab_countries.pdf (accessed July 25, 2019). 61 “UN Pacific Regional Anti-Corruption (UN-PRAC) Project,” UNDP, https://www.undp.org/content/dam/fiji/docs/ProDocs/UNPRAC_Phase%20II%20PRODOC.pdf (accessed July 25, 2019). 62 Phil Matsheza and Anga R. Timilsina, Corruption and Development: Anti-Corruption Interventions for Poverty Reduction, Realization of the MDGs and Promoting Sustainable Development (New York: United Nations Development Programme, 2008).
24 United Nations Development Program | MUNUC 32 guides for anti-corruption in key areas of water,63 health,64 and education.65 Delegates are encouraged to specialize in a particular topic or sector of interest to their country and research relevant solutions in more detail.
The UNDP has also prepared advice and toolkits for specific stakeholders. There are three most important ones to know:
1. Anti-Corruption Assessment Tool for Parliamentarians: User Guide,66 which provides information to members of parliament about how they can effectively contribute to the fight against corruption;
2. The Jakarta Principles for Anti-Corruption Agencies,67 which advise the best way to create a
government body with a specific anti-corruption focus. Some countries, such as Indonesia,68 have had success with these types of agencies, but not all countries have them;
3. The Guide to Corruption-Free Local Government,69 a fun, interactive guide for how local governments can reduce corruption was developed as part of the UNDP’s recent Corruption Free Cities project, which is based on extensive experience in Eastern Europe and Central Asia, but applicable to all cities.
Research
63 Jeroen Vos, Fighting Corruption in the Water Sector: Methods, Tools and Good Practices (New York: United Nations Development Programme, 2011). 64 Jillian Clare Kohler, Fighting Corruption in the Health Sector: Methods, Tools and Good Practices (New York: United Nations Development Programme, 2011). 65 John Wood and Laetitia Antonowicz, Fighting Corruption in the Education Sector: Methods, Tools and Good Practices (New York: United Nations Development Programme, 2011). 66 David Beetham, Kevin Deveaux, Nathaniel Heller and Marie Laberge, Anti-Corruption Assessment Tool for Parliamentarians: User Guide (New York: United Nations Development Programme, 2013). 67 “Jakarta Principles for Anti-Corruption Agencies,” United Nations Office on Drugs and Crime, https://www.unodc.org/documents/corruption/WG-Prevention/Art_6_Preventive_anti- corruption_bodies/JAKARTA_STATEMENT_en.pdf (accessed July 24, 2019). 68 Centre for Public Impact, “Indonesia’s anti-corruption commission: the KPK,” Centre for Public Impact, https://www.centreforpublicimpact.org/case-study/indonesias-anti-corruption-commission-the-kpk/ (accessed July 24, 2019). 69 “Guide to Corruption-Free Local Government,” UNDP, http://corruptionfreecities.org/ (accessed July 24, 2019).
25 United Nations Development Program | MUNUC 32 The UNDP conducts research on corruption. Research helps inform future policy, and is publicly available in English and the language(s) of the country it concerns. These take the form of in-depth studies, policy papers, or shorter blog posts written by experts. Sometimes it is broad, like a study on
illegal financial flows in developing countries from 1990 to 2008,70 and sometimes it is very specific,
such as how corruption impacts the ability to buy land in Viet Nam.71
The UNDP is particularly interested in studying how other problems intersect with corruption. For
instance, a 2018 blog post discussed the link between corruption and violent extremism.72 One of the most common topics of UNDP research is how gender issues affect corruption. In a 2010 report, the UNDP in partnership with the United Nations Development Fund for Women wrote an extensive report about how corruption affects women and men differently, gender differences in attitudes toward corruption, and how to incorporate gender dimensions into UNDP programming on
corruption.73 The UNDP extended its research to specifically consider how corruption impacts women on the grassroots level, as well as the value that the perspectives of grassroots women can
provide in developing solutions to corruption.74 A 2018 report provides an update on similar topics to
the 2010 report, with specific data from research in Ukraine.75
Given the amount of research that the UNDP has done on gender aspects of corruption, it is highly recommended that future solutions take gender into account.
Dialogue
70 Dev Kar, Illicit Financial Flows from the Least Developed Countries: 1990-2008 (New York: United Nations Development Programme, 2011). 71 Van Thang Nguyen, et. al., A Sectoral Study of Transparency and Corruption in Land Acquisition in Viet Nam (Ha Noi: National Economics University and United Nations Development Program in Viet Nam, 2017). 72 Anga Timilsina and Jide Okeke, “Reducing corruption could help prevent violent extremism,” United Nations Development Programme, https://www.undp.org/content/undp/en/home/blog/2018/Reducing-Corruption-could-help- Prevent-Violent-Extremism.html (accessed July 24, 2019). 73 Naomi Hossain, Celestine Nyamu Musembi and Jessica Hughes, Corruption, Accountability and Gender: Understanding the Connections (New York: UNDP and UNIFEM, 2010). 74 Sangeetha Purushothaman, Tara Tobin, Shruthi Vissa and Priya Pillai, Seeing Beyond the State: Grassroots Women’s Perspectives on Corruption and Anti-Corruption (New York: United Nations Development Programme, 2012). 75 Ganna Gerasymenko, Corruption in the Eyes of Women and Men (New York: United Nations Development Programme, 2018).
26 United Nations Development Program | MUNUC 32 The UNDP facilitates international dialogue about corruption issues. While the International Anti- Corruption Conference, the largest one of its kind, is organized primarily by Transparency
International, the UNDP has been a co-partner since 2003.76 The UNDP also facilitates dialogue on the local and regional level, such as facilitating conversations between Kosovo anti-corruption bodies and a regional Balkan organization RAI, namely by assistance with data collection,
monitoring, and events.77
Convening this convention is the next step in continuing this dialogue, and we are looking forward to a productive discussion!
76 Achim Steiner, “18th International Anti-Corruption Conference (IACC),” United Nations Development Programme, https://www.undp.org/content/undp/en/home/news-centre/speeches/2018/18th-international-anti-corruption- conference--iacc-.html (accessed July 24, 2019). 77 “UNDP Kosovo and RAI Join Efforts to Fight Corruption,” UNDP Kosovo, http://www.ks.undp.org/content/kosovo/en/home/presscenter/articles/2014/08/11/undp-kosovo-and-rai-join-efforts- to-fight-corruption.html (accessed July 24, 2019).
27 United Nations Development Program | MUNUC 32 Possible Solutions
Any anti-corruption strategy should both prevent corruption from occurring, as well as correct it when it does occur (and an effective enforcement plan will also serve as a preventative deterrent). Anti-corruption efforts should also include three key stakeholders: governments, civil society, and the private sector.
The following is only a brief outline of some solutions. Delegates will be expected to think of much more detailed, creative, and specific versions of the solutions listed below, as well as think of new solutions entirely, rather than just advocate for one solution or another. All the below solutions should likely be involved; the question is not which to choose, but how exactly to do them.
Government solutions
The first thing that a government can do to combat corruption is to make it illegal. It might seem like corruption is illegal by definition, but actually not all countries have outlawed every form of corruption. For example, some countries do not consider facilitacion payments to be bribes. United
Nations Convention Against Corruption (UNCAC)78 provides details on how exactly laws outlawing corruption should look in order to be in line with international best practices.
Unfortunately, that is the easy part. Much more complicated is the process of enforcing the laws. Corruption is common in many countries in which it is officially illegal, and even worse, sometimes countries are corrupt about the enforcement of corruption laws. For example, a judge may accept a bribe to overlook a corruption case. In fact, it has been demonstrated that sometimes the stricter the punishment for corruption, the more corrupt a place is; China is a good example of this; even the
death penalty doesn’t stop corruption there.79 This is because when the stakes are higher, it requires
78 General Assembly Resolution 58/4, United Nations Convention Against Corruption (New York: United Nations Office on Drugs and Crime (October 31, 2003), available from https://www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdf (accessed July 25, 2019). 79 Jiangnan Zhu, “Do Severe Penalties Deter Corruption? A Game-Theoretic Analysis of the Chinese Case,” China Review 12 No. 2 (Fall 2012): 1-32.
28 United Nations Development Program | MUNUC 32 higher and more bribes to avoid punishment. Consistent application of anti-corruption laws to everyone is much more effective than strict punishments for corruption applied selectively.
Enforcement of anti-corruption laws starts with the political will.80 This means that people high-up in government have to make a credible commitment to enforcing corruption laws, and not just for a few high profile cases, but systematically. Of course, these commitments are unlikely to be convincing if society thinks that the top officials in society are themselves corrupt. Because such instances of strong political will typically are the result of elections or revolutions, it is not practical to rely on them, and they are also very fragile, since they are based on the actions of a few individuals and public opinion. Therefore, the most important thing is to put systems in place to ensure enforcement of anti-corruption laws regardless of who is in power.
Independent courts are an incredibly important part of anti-corruption. Judicial corruption is one of the most dangerous forms of corruption, because it affects whether or not all other types of
corruption can be prosecuted effectively.81 When the court system is systemically corrupt, some countries have experimented with creating a special court system for prosecuting corruption cases. For example, as a result of international pressure Ukraine recently established a High Anti- Corruption Court, which will begin work this year independently from the rest of Ukraine’s judicial
system.82
Another way that governments can ensure that corruption is detected and prosecuted is through
transparency.83 Transparency is possibly the single most important principle to reduce corruption; it is no wonder that the largest international anti-corruption organization is called Transparency International. Transparency is when governments provide the public with information about its activities, so that journalists and other members of civil society can look for cases of corruption and
80 Derick W. Brinkerhoff, “Assessing political will for anti-corruption efforts: an analytic framework,” Public Administration and Development 20 No. 3 (August 2000): 239-252. 81 Siri Gloppen, “Courts, corruption and judicial independence,” in Corruption, Grabbing and Development: Real World Challenges ed. Tina Soreide and Aled Williams (Cheltenham: Edward Elgar, 2014): 68-82. 82 Mykhailo Zhernakov and Iryna Shyba, “Independent Anti-Corruption Courts in Ukraine: The Missing Link in Anti- Corruption Chain,” International Renaissance Foundation and Open Society Foundations, https://rpr.org.ua/wp- content/uploads/2017/02/Renaissance_A4_3ANTI-CORRUPTION-COURTS-.pdf (accessed July 28, 2019). 83 Leonid Peisakhin and Paul Pinto, “Is transparency an effective anti-corruption strategy? Evidence from a field experiment in India,” Regulation and Governance 4 No. 3 (September 2010): 261-280.
29 United Nations Development Program | MUNUC 32 then put pressure on the government to prosecute them. Transparency frequently looks like the
publication of budgets and expense reports and asset declaration84 of public officials.
Of course, it is then necessary to allow for a free press. When the government does not suppress independent media outlets, journalists will seek out, uncover, and publicize cases of corruption. Therefore, a government that does not control the country’s main news media outlets (either directly or when outlets are owned by powerful politicians or oligarchs) or practice censorship (either explicitly or by harassing and disadvantaging outlets and journalists that criticize the government) is
demonstrably less corrupt.85
Likewise, it is important to protect whistleblowers,86 or those who speak out against corruption from inside the system rather than from outside of it. For example, when an employee tells a prosecutor or the press about the fact that her supervisor embezzled money, there should be a system in place to ensure that she is protected from retribution by her supervisor. This frequently takes the form of an anti-corruption hotline, managed by a different part of the government than the one that the whistleblower works for, that allows people to leave secure and/or anonymous tips.
There are also many ways to reduce the likelihood of corruption in the first place. Research shows
that raising wages for public officials reduces corruption for two reasons.87 First, it reduces the need for corruption to supplement a very low, unlivable wage. Second, it makes the value of holding the job higher, which makes people less likely to do things that might get them fired, such as taking a bribe. This may be difficult, however, when budgets of developing countries are small.
One of the easiest, cheapest, and most effective ways to reduce corruption is to have fewer public officials doing less work in the first place. Reducing the size of government has a demonstrated
84 Richard Messick, Income and asset declarations: Issues to consider in developing a disclosure regime (Bergen: Chr. Michelsen Institute, 2009). 85 Aymo Brunetti and Beatrice Weder, “A free press is bad news for corruption,” Journal of Public Economics 87 No. 7-8 (August 2003): 1801-1824. 86 David Schultz and Khachik Harutyunyan, “Combating corruption: The development of whistleblowing laws in the United States, Europe, and Armenia,” International Comparative Jurisprudence 1 No. 2 (December 2005): 87-97. 87 Caroline Van Rijckeghem and Beatrice Weder, “Bureaucratic corruption and the rate of temptation: do wages in the civil service affect corruption, and by how much?” Journal of Development Economics 65, No. 2 (August 2001): 307-331.
30 United Nations Development Program | MUNUC 32 effect on reducing corruption.88 This might take a little extra time and money to set up, but once it is in place it will not only reduce corruption, but also encourage entrepreneurship and economic growth in and of itself.
One possibility to reduce the size of a government is deregulation.89 Unnecessarily complicated regulation -- frequently called “red tape” -- can often be reduced with no harmful consequences to society. Some regulation may be necessary, such as labor laws that prevent exploitation of workers, but other laws just slow down economic activity, add paperwork and increase opportunities y for corruption, such as requiring businesses to keep a physical book in their store for customer complaints. Overly complicated regulatory structures are not only difficult for single entrepreneurs to keep up with, but may actually lead to conflicts, making it impossible to follow all the laws. In a particularly egregious example, Russian police departments required that first floor windows be barred to prevent robberies, but the fire department required that they not be barred, in case of a
fire.90 In particular, corruption often occurs when regulatory agencies perform inspections of businesses, since they could extort bribes for violations. Therefore, reducing inspections can also
decrease corruption.91
Another way to reduce the size of government is digitalization and automatization, sometimes
called e-government.92 This separates government activity from bureaucrats, therefore making it near impossible for them to be corrupt. For example, if an entrepreneur has to apply for a permit to open a food store at a local government office, then the person working at that office could demand a bribe. Instead, the entrepreneur can apply for a permit online, and a software program could automatically review the permit application and approve it in minutes. This saves time, funds, and reduces the chance for corruption to nearly zero. E-government is also a very promising solution
88 Rajeev K. Goel and Michael A. Nelson, “Corruption and government size: A disaggregated analysis,” Public Choice 97 No. 1-2 (October 1998): 107-120. 89 Randall G. Holcombe and Christopher J. Boudreaux, “Regulation and corruption,” Public Choice 164 No. 1-2 (July 2015): 75-85. 90 Yulia Krylova, Corruption and the Russian Economy: How Administrative Corruption Undermines Entrepreneurship and Economic Opportunities (Abingdon-on-Thames: Routledge, 2018). 91 Emmanuel Dechenaux and Andrew Samuel, “Announced vs. surprise inspections with tipping-off,” European Journal of Political Economy 34 (June 2014): 167-183. 92 Dong Chul Shim and Tae Ho Eom, “E-Government and Anti-Corruption: Empirical Analysis of International Data,” International Journal of Public Administration 31 No. 3 (2008): 298-316.
31 United Nations Development Program | MUNUC 32 because it increases the opportunity for transparency.93 If all the data is already online, then it is much easier to share it with the public, as opposed to when the information is only held in paper form. South Korea, and the Seoul Metropolitan Government in particular, is an excellent example for
how e-government can be implemented first on the local level and spread to the national level.94
Finally, the size of the government can be reduced through privatization.95 If a company is owned privately rather than by the state, it is by definition (at least, our definition) no longer a corruption risk, because the employees are not public officials. Many people think that having companies in public hands is less risky than in private hands, especially for important sectors. They may think that private companies will be greedy or not responsible to the public. However, this point of view is usually misguided. In free market competition, the private sector will provide goods and services at a
high quality and low price.96 In addition, large private companies can be monitored by the market, as well as government regulations. Corruption risk is much higher when the government is responsible for overseeing itself. There may be exceptions, but by and large the state should own as little as possible, and use competitive and transparent procurement procedures when it needs to acquire a good or service. However, it is critical to ensure that the privatization process itself is not corrupt so
that certain people could become very wealthy at the expense of the public,97 and reforms of state- owned enterprises that can reduce corruption without privatization, such as independent oversight
boards, are also worth attention.98
All or some of these functions can be handled by an anti-corruption agency, if a government chooses to create one. Sometimes anti-corruption policies work better when spread across different
93 John C. Bertot, Paul T. Jaeger and Justin M. Grimes, “Using ICTs to create a culture of transparency: E-government and social media as openness and anti-corruption tools for societies,” Government Information Quarterly 27 No. 3 (July 2010): 264-271. 94 Seongcheol Kim, Hyun Jeong Kim and Heejin Lee, “An institutional analysis of an e-government system for anti- corruption: The case of OPEN,” Government Information Quarterly 26 No. 1 (January 2009): 42-50. 95 Cuneyt Koyuncu, Harun Ozturkler and Rasim Yilmaz, “Privatization and corruption in transition economies: A panel study,” Journal of Economic Policy Reform 13 No. 3 (2010): 277-284. 96 D. Andrew, C. Smith and Michael J. Trebilcock, “State-Owned Enterprises in Less Developed Countries: Privatization and Alternative Reform Strategies,” European Journal of Law and Economics 12 No. 3 (November 2001): 217-252. 97 Roger Tangri and Andrew Mwenda, “Corruption and cronyism in Uganda’s privatization in the 1990s,” African Affairs 100 No. 398 (January 2001): 117-133. 98 OECD, State-Owned Enterprises and Corruption: What Are the Risks and What Can Be Done? (Paris: OECD Publishing, 2018).
32 United Nations Development Program | MUNUC 32 government agencies, but other times it may make sense to unite everything in one place, depending on the situation of an individual state. If an anti-corruption agency is created, it is
recommended to follow the UNDP’s Jakarta Principles.99 The Jakarta principles are so named because the conference that developed them took place in Jakarta, Indonesia. Indonesia’s Corruption Eradication Commission (KPK), as well as Hong Kong’s Independent Commission against Corruption, are two examples of best practices in using specialized anti-corruption agencies to fight
corruption.100
Civil Society Solutions
Civil society, especially the media, play a key role in monitoring, investigating and publicizing
corruption.101 An individual citizen may not have the resources to look through huge banks of data or trace a money trail, but civil society organizations, including media outlets, have a mandate to do just that. Grand corruption scandals are frequently a top priority of newsrooms. However, it is just as important to the public to learn about systemic corruption issues, and so anti-corruption efforts should help build the capacity of civil society to effectively monitor large-scale corruption issues. For example, it would be productive to train journalists on how to make use of big data to uncover systemic corruption.
Civil society can also lobby the government for changes that will be most effective.102 They can provide original and independent research that will help the government decide on anti-corruption solutions, and then bring these solutions to the government for review, including in the form of draft
99 “Jakarta Principles for Anti-Corruption Agencies,” United Nations Office on Drugs and Crime, https://www.unodc.org/documents/corruption/WG-Prevention/Art_6_Preventive_anti- corruption_bodies/JAKARTA_STATEMENT_en.pdf (accessed July 24, 2019). 100 Sofie Arjon Schutte, “Against the Odds: Anti-Corruption Reform in Indonesia,” Public Administration and Development 32 No. 1 (February 2012): 38-48. 101 Rick Stapenhurst, “The media’s role in curbing corruption,” The World Bank, http://documents.worldbank.org/curated/en/893191468766225068/The-medias-role-in-curbing-corruption (accessed July 28, 2019). 102 Budi Setiyono and Ross H. McLeod, “Civil society organisations’ contribution to the anti-corruption movement in Indonesia,” Bulletin of Indonesian Economic Studies 46 No. 3 (2010): 347-370.
33 United Nations Development Program | MUNUC 32 legislation. Transparency International, for example, conducts international surveys and sets reform priorities for each country; local NGOs can also do extremely valuable work in this area.
Finally, it is important that society as a whole is aware of the dangers of corruption and does not tolerate it. Instilling in people the idea that corruption is truly bad for society, that they should not be proud of their friend who got rich through corruption, and that they should report corruption when the see it will all help reduce corruption. Civil society can play a crucial role in such public awareness
and education campaigns.103 They can, for example, spread information on what resources and options people have if they are asked to pay a bribe, or what steps they can take to reduce corruption in their towns and villages. People might trust this information more if it comes from an impartial third party, as opposed to directly from the government.
Private sector solutions
The private sector is frequently forgotten in anti-corruption efforts, which is absolutely unacceptable. The private sector has an enormous role to play in the fight against corruption, especially since it is a primary victim of bureaucratic corruption. While bribery occurs in direct contact with citizens, such as through the healthcare and education sectors, bribery is largely related to the government’s interaction with the market.
Private companies can refuse to pay bribes, and put a set of compliance policies in place to ensure
that neither their employees, nor their third-party contractors are involved in corruption.104 The latter is called due diligence; companies should investigate all their business partners to ensure that they are not corrupt. For companies in developed countries with laws against bribing foreign officials, such as the United States and the United Kingdom, anti-corruption compliance makes good
business sense as a way to avoid legal liability.105 For companies in developing countries, the rationale is somewhat different. First, assuming that international companies have due diligence
103 Jonathan A. Aderonmu, “Civil Society and Anti-Corruption Crusade in Nigeria’s Fourth Republic,” Journal of Sustainable Development in Africa 13 No. 1 (2011): 75-86. 104 “Compliance Program Guide,” GAN Business Anti-Corruption Portal, https://www.ganintegrity.com/portal/compliance-program-guide-success-kit/ (accessed July 28, 2019). 105 Karl Sidhu, “Anti-Corruption Compliance Standards in the Aftermath of the Seimens Scandal,” German Law Journal 10 No. 8 (August 2009): 1343-1354.
34 United Nations Development Program | MUNUC 32 policies, a corrupt local company won’t get any business deals with European, North American and international partners. Therefore, having an anti-corruption compliance policy is a way for companies in developing countries to grow. Secondly, if a company has a reputation for integrity and consistently refuses to pay bribes, it typically won’t be the victim of extortion. If a public official knows it will not succeed in getting a company to pay a bribe -- and might even get reported by the company to legal authorities and the media -- she won’t bother to ask for one. This saves the company money and reputation, which is an advantage for companies regardless of location or
size.106
The business community can also fight corruption collectively, through anti-corruption integrity
coalitions.107 These are groups of companies that join together to fight corruption. Like civil society organizations, they can act collectively to lobby the government for changes and educate the public about the dangers of corruption. However, business coalitions have several unique advantages in this regard over strictly civil society initiatives. First, they have much greater first-hand knowledge about the corruption risks that the private sector faces, so they can address the government about these issues with greater authority and more specific recommendations than a civil society organization could. Second, they can educate one another on how to develop effective compliance policies. Third, business coalitions directly reduce corruption, because they are a public commitment of potential bribe-payers to not pay those bribes. Citizens and consumers that want to support responsible businesses can then choose to buy from the companies in the coalition, which makes joining the coalition financially advantageous for companies. The more companies that join, the more corruption is reduced. Some examples of anti-corruption coalitions are the Integrity Initiative in the
Philippines108 and the Ukrainian Network of Integrity and Compliance.109
106 “The Benefits of Anti-Corruption and Corporate Transparency,” Transparency International, https://www.sustainabilityxchange.info/filesagri/2016_WP1_CorporateTransparency_EN.pdf (accessed July 28, 2019). 107 Mark Pieth, “Collective Action and Corruption” in Preventing Corporate Corruption: The Anti-Bribery Compliance Model ed. Stefano Manacorda, Francesco Centonze and Gabrio Forti (Cham: Springer, 2014): 93-108. 108 Integrity Initiative, http://integrityinitiative.com/ (accessed July 28, 2019). 109 Ukrainian Network of Integrity and Compliance, https://unic.org.ua/en/ (accessed July 28, 2019).
35 United Nations Development Program | MUNUC 32 Bloc Positions
Countries around the globe may face similar anti-corruption issues, and countries within a region may have radically different levels of corruption and attitudes toward corruption. Therefore, delegates are encouraged to form blocs on the basis of complementary ideas and c\ountry-specific nuances in approach to anti-corruption, not on the basis of geography.
Development status can be determined by UN classifications of each country.110 However, each state is encouraged to decide for themselves which category best applies; there are no hard criteria.
Developed Economies
More-developed states will likely be most concerned with fighting corruption abroad. The goal of developed countries is to enhance global security, development, and the expansion of markets for their companies, since cities of developed states are typically the headquarters of large, global companies. These countries frequently serve as donors to anti-corruption efforts in countries of particular significance to them, frequently within their region. They will therefore need to consider the effectiveness and impact of various approaches, so that funds directed toward fighting corruption are well spent. Since developed countries do not have the power to force a foreign government to change their policies, their efforts may be directed at strengthening anti-corruption efforts of the private sector and civil society. They may also support solutions that involve more international oversight and monitoring of anti-corruption efforts.
Developing and Transition Economies
Less developed states will typically be more concerned with fighting corruption domestically. Developing countries that have recently been successful in fighting corruption are best equipped to offer advice to foreign governments. They do not have the funds to be donors, and therefore may
110 “Development Status Groups and Composition,” United Nations Conference on Trade and Development, https://unctadstat.unctad.org/EN/Classifications/DimCountries_DevelopmentStatus_Hierarchy.pdf (accessed September 4, 2019).
36 United Nations Development Program | MUNUC 32 support mentorship programs to help willing foreign governments develop anti-corruption strategies. They will likely favor programs that involve providing technical assistance, such as support developing e-government solutions, and increasing international dialogue.
Developing countries still plagued by high levels of corruption are the primary target group of this conference. They know best what they need, and therefore their primary concern will be reducing corruption with methods and in areas that do not conflict with current political policies. Therefore, they are likely to support policies that maintain their sovereignty while maximizing desired financial and technical assistance, which could vary radically based on the individual circumstances of each country.
Economic system can be classified as more socialist or more capitalist based on whether the government tends to directly control more or less aspects of the economy. The World Population Review has a list of
countries that are explicitly affiliated with socialism.111 However, each state is encouraged to decide for themselves which category best applies; there are no hard criteria.
Capitalist states
Capitalist states will likely support solutions that emphasize the role of the private sector and civil society in combating corruption, especially bottom-up grassroots campaigns to reduce corruption. Additionally, capitalist states will likely favor strategies that reduce the size of the government, such as deregulation and privatization, as well as increased government transparency.
Socialist states
Socialist states will likely support government-led solutions to corruption, such as enforcement of anti-corruption laws, judicial system reforms, whistleblower systems within the government, higher salaries of public sector officials, and e-government. They may also support top-down public awareness campaigns and education programs.
111 “Socialist Countries 2019,” World Population Review, http://worldpopulationreview.com/countries/socialist- countries/ (accessed September 4, 2019).
37 United Nations Development Program | MUNUC 32 Glossary
Asset declaration: when public officials tell citizens what they own, such as businesses, stocks and real estate.
Beneficial ownership: who really owns something, as opposed to what legal entity owns it. For example, legally a small company might belong to a larger conglomerate company, but the beneficial owner of the small company is the real person who owns the conglomerate.
Big data: an approach to analyzing problems with computer programs that can interpret enormous data sets
Bribe: an unofficial payment to a public official in order to obtain a benefit from them
Bureaucratic corruption: corruption among low-level, average public officials
Civil society: actors in society besides the government and the private sector, including non- governmental organizations, the media, and everyday citizens
Clientelism: a more powerful person providing special advantages to a less powerful person in return for loyalty
Collective action problem: the difficulty that arises when a problem cannot be solved by individual actors, but only when a high percentage of society works together (compare to principal agent problem)
Compliance: having a set of policies and practices in place to ensure you are following the law, usually in reference to private companies
Conflict of interest: when a person has an opportunity to advance their personal financial or social interests by making a certain decision related to their job
Corruption: the abuse of entrusted power for private gain
38 United Nations Development Program | MUNUC 32 Corruption Perceptions Index (CPI): the most popular measure of corruption, released annually by Transparency International (although it is important to keep in mind that this measures perceptions of corruption, not necessarily actual corruption)
Deregulation: reducing the requirements placed on the private sector, which could include anything from the paperwork required to open a business to fire safety standards
Due diligence: the process of verifying that a person, company, or organization with which you want to do business is reputable and reliable
Embezzlement: a public official taking funds or goods from their job for their personal use
Equilibrium: a state of affairs to which things naturally tend without outside interference
Extortion: a public official demanding a bribe for doing their job correctly
Facilitation payment: an unofficial payment to a public official in order to get something legal done faster
Foreign Corrupt Practices Act (FCPA): a United States law prohibiting any company related in any way to the United States from bribing a foreign official anywhere in the world
Grand corruption: corruption that involves high-level public officials, and frequently a group of their subordinates as well
Jakarta Principles: Guidelines developed by the United Nations for forming a centralized state anti- corruption agency
Judicial corruption: corruption involving judges, juries, and prosecutors to alter the results of the legal process
Kickback: a payment given to a public official by a private company for giving the private company a contract to do business for the government
39 United Nations Development Program | MUNUC 32 Market capture: when public officials or their close relations control a large share of the market
Money laundering: when money obtained illegally, such as through corruption, is moved from one location to another, either within the country or between countries
Nepotism: when a public official gives an unlawful advantage to someone as a result of personal ties, like family or friendship
Oligarch: An unofficial term for a wealthy person who exerts influence over politics
Patronage: see “clientelism”
Petty corruption: see “bureaucratic corruption”
Political will: sincere commitment from top-level public officials, such as presidents and prime ministers, to accomplish some task
Principal agent problem: the problem that arises when a single individual has the ability to make a positive change but chooses not to do so (compare to collective action problem)
Procurement: the process by which the government selects a provider, typically a private company, of goods and services that it does not directly produce itself
Raiding: government officials abusing their power to do a hostile takeover a private business, sometimes in conspiracy with favored private companies
Red tape: unnecessary bureaucracy
Rent: a payment or benefit that a government official can collect as a result of their job besides their lawful salaries and benefits
Rent-seeking behavior: essentially, corruption; when a government official attempts to use their public office to collect rents
40 United Nations Development Program | MUNUC 32 State capture: when private companies and/or rich individuals (frequently called oligarchs) have a great deal of influence over the government
State-owned enterprise (SOE): a company owned by the government
Systemic corruption: when corruption is the normal way society functions rather than the exception
Transparency: openness of the government, so that civil society can monitor its work
Transparency International: the largest global anti-corruption non-government organization
United Nations Convention Against Corruption (UNCAC): a convention signed by most UN member states that commits them to outlaw and prevent corruption
Whistleblower: a person who reports unethical conduct, usually as a lower-ranking person reporting on one of their superiors
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47 United Nations Development Program | MUNUC 32 Torgler, Benno. “Tax Morale, Trust and Corruption: Empirical Evidence from Transition Countries.” Center for Research in Economics, Management and the Arts, 2004. Trace Anti-Bribery and Compliance Solutions. “Trace Bribery Risk Matrix.” Accessed November 9, 2019. https://www.traceinternational.org/trace-matrix. “Ukrainian Network of Integrity and Compliance.” Accessed November 10, 2019. https://unic.org.ua/en/. “UN Pacific Regional Anti-Corruption (UN-PRAC) Project.” United Nations Development Programme, n.d. https://www.undp.org/content/dam/fiji/docs/ProDocs/UNPRAC_Phase%20II%20PRODOC.pdf. UNDP Kosovo. “UNDP Kosovo and RAI Join Efforts to Fight Corruption.” Accessed November 10, 2019. https://www.ks.undp.org/content/kosovo/en/home/presscenter/articles/2014/08/11/undp- kosovo-and-rai-join-efforts-to-fight-corruption.html. IGED-Africa. “UNDP-Sponsored ‘Thai Youth Anti-Corruption Network ‘ Wins Best Practice by World Economic Forum.” Accessed November 10, 2019. https://www.igedafrica.org/index.php/our- blog/95-youth-development/131-und-sponsored-thai-youth-anti-corruption-netwo-wins-best- practice-by-world-economic-forum. United Nations Convention Against Corruption, Pub. L. No. 58/4 (2003). Van Thang Nguyen, and et. al. “A Sectoral Study of Transparency and Corruption in Land Acquisition in Viet Nam.” Ha Noi: National Economics University and United Nations Development Program in Viet Nam, 2017.
48 United Nations Development Program | MUNUC 32 TOPIC B: DUE DILIGENCE FOR DEVELOPMENT INVESTMENT
______
Statement of the Problem
What is development investment?
Development investment is, quite simply, investment in developing economies. Investment, as opposed to charity or donations, expects that there will be a greater payoff in the future than the
resources invested.112 As in the proverb, “give a man a fish, and you feed him for a day. Teach a man
to fish, and you feed him for a lifetime,”113 giving a fish would be a donation, whereas teaching how to fish would be an investment.
Some investment happens naturally, thanks to market conditions. If it is profitable for McDonald’s to open a branch in Bangkok, Thailand, then this would be an example of foreign direct investment
(FDI).114 It is important to study the policies that a country can make in order to create a favorable business climate that attracts investment, including FDI. However, discussing how to attract investment broadly speaking is beyond the scope of this topic. (One aspect of creating a favorable business climate is Topic A, Bureaucratic Corruption.) Instead, we will be discussing investments with the explicit intention of furthering development goals, rather than the pure intention to earn profits.
For our purposes, development goals will be defined as anything that falls under the 17 United
Nations Sustainable Development Goals (SDGs),115 which includes a broad range of economic, social and environmental objectives, such as eliminating hunger, gender equality, economic growth and combating climate change. Delegates are strongly encouraged to familiarize themselves with
112 James Chen, “Investment,” Investopedia, https://www.investopedia.com/terms/i/investment.asp (accessed August 24, 2019). 113 Anne Isabella Thackaray Ritchie et. al., “Give a Man a Fish, and You Feed Him for a Day. Teach a Man To Fish, and You Feed Him for a Lifetime,” Quote Investigator, https://quoteinvestigator.com/2015/08/28/fish/ (accessed August 24, 2019). 114 James Chen, “Foreign Direct Investment (FDI),” Investopedia, https://www.investopedia.com/terms/f/fdi.asp (accessed August 24, 2019). 115 Sustainable Development Goals, United Nations, https://www.un.org/sustainabledevelopment/ (accessed August 24, 2019).
49 United Nations Development Program | MUNUC 32 the SDGs, and to consider which SDGs are particularly significant priorities for their country, both domestically and internationally.
Investment that considers factors other than pure profits (remember, any investment does consider
profit as well) is frequently called impact investing,116 ethical investing,117 or socially responsible
investing.118 In the private sector specifically, the terms corporate social responsibility119 (for
established companies) and social entrepreneurship120 (for startups) are common. All of these types of investment consider effects of the investment project beyond the direct return on investment. Direct is emphasized, because impact investment frequently has indirect benefits to the investor, such as a favorable reputation. However, monetary return on these investments can be just as much
as profits on traditional investments.121
Development investment can come from the national government, foreign governments, private companies and individuals, and international organizations. Of particular note in the sphere of international organizations are the United Nations and the UNDP itself, and development banks.
Development banks, such as the World Bank, as well as regional banks and national banks, provide
longer-term and higher-risk funding for development projects than traditional commercial banks.122 Such banks can crowd-source investors from the private sector and governments, facilitating public-
116 “What You Need to Know about Impact Investing,” Global Impact Investing Network, https://thegiin.org/impact- investing/need-to-know/ (accessed August 24, 2019). 117 Grant Michelson, Nick Wailes, Sandra van der Laan and Geoff Frost, “Ethical Investment Processes and Outcomes,” Journal of Business Ethics 52 (June 2004): 1-10. 118 “SRI Basics,” US SIF, https://www.ussif.org/sribasics (accessed August 24, 2019). 119 “What is CSR?” United Nations Industrial Development Organization, https://www.unido.org/our-focus/advancing- economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility- market-integration/what-csr (accessed August 24, 2019). 120 MeiMei Fox, “5 Reasons Why Social Entrepreneurship Is the New Business Model,” Forbes, https://www.forbes.com/sites/meimeifox/2016/08/08/5-reasons-why-social-entrepreneurship-is-the-new-business- model/#787f299e44ca (accessed August 24, 2019). 121 “What You Need to Know about Impact Investing,” Global Impact Investing Network, https://thegiin.org/impact- investing/need-to-know/ (accessed August 24, 2019). 122 United Nations Conference on Trade and Development, The Role of Development Banks in Promoting Growth and Sustainable Development in the South: Economic Cooperation and Integration among Developing Countries (New York: United Nations Publications, 2016), https://unctad.org/en/PublicationsLibrary/gdsecidc2016d1_en.pdf.
50 United Nations Development Program | MUNUC 32 private partnerships123 so that risk is reduced for any individual investor, including by investing in
public goods124 that no individual investor would be willing to sponsor but that all can benefit from. For example, development banks frequently fund infrastructure, such as roads, electrical grids, and irrigation; educational and healthcare projects; environmental protection; and large numbers of micro-grants for people without access to credit.
Development banks also have a mandate to ensure that funding is managed in a responsible way. They typically provide not just money, but also expertise in developing and implementing projects.
It is namely managing investments in a responsible way that will be the focus of this committee.
What is due diligence?
Broadly speaking, due diligence is “the care that a reasonable person exercises to avoid harm to
other persons and their property.”125 While development investment can do an incredible amount of good, it can also do harm. Therefore, it is important to do due diligence on investment projects, to ensure that they will not have unintended negative consequences.
Another common use of the term due diligence in the business world is investigating a business partner, including financial records and reputational history, in order to determine whether they
conduct sound and ethical business.126 Since investments have to go to some recipients by definition, it is important to ensure not only that the project does not cause harm by design, but also that the recipients of the funds do not misuse them.
Potential problems with development investment
123 Ceyla Pazarbasioglu, “A new role for development banks?” World Bank Blogs, https://blogs.worldbank.org/voices/new-role-development-banks (accessed August 24, 2019). 124 Will Kenton, “Public Good,” Investopedia, https://www.investopedia.com/terms/p/public-good.asp (accessed August 24, 2019). 125 “Due Diligence,” Merriam-Webster, https://www.merriam-webster.com/dictionary/due%20diligence (accessed August 24, 2019). 126 James Chen, “Due Diligence,” Investopedia, https://www.investopedia.com/terms/d/duediligence.asp (accessed August 24, 2019).
51 United Nations Development Program | MUNUC 32 Many development projects are intended to improve social and environmental indicators, but without proper due diligence on the project, they can also create social and environmental
problems.127 For instance, projects that invest in agricultural projects for export could improve the income of farmers and grow the economy overall, but harm local food security, if farmers switch
from producing food crops to potentially more profitable export crops.128 Such a project could also harm the environment to a greater degree than local crops, if it is not a species native to the area.
In particular, a social problem associated with development investment is corruption. Large-scale and complicated projects, which by nature includes most development investment projects, are
highly susceptible to corruption.129 This is because when a project is large and complicated, it is harder to track all of the funds, and it is easier for some officials to pocket the money. Additionally, when a project is large, it is also lucrative, so there is more motive for corruption in the procurement or tender process of implementing partners. The project design itself could also be corrupt, and in fact this is perhaps most concerning, because a corrupt project could be a gateway for further
corruption.130 For example, a politician could promote a project that appeals to her supporters but that is not economically viable or socially justified, which leads to wasted funds.
Involving politics in development investment is generally problematic. Just as local politicians can have political motivation to promote certain investment projects, international donors can have their own agendas as well. Taxpayer-funded international aid agencies, such as the United States Agency for International Development (USAID), implicitly advance the foreign policy goals of the host government. These goals can be relatively benign, or they can be harmful to the local government.
127 Kathryn Gordon and Joachim Pohl, “Environmental Concerns in International Investment Agreements: A Survey,” OECD Working Papers on International Investment (2011), https://www.oecd.org/daf/inv/investment-policy/WP- 2011_1.pdf. 128 Jesper Karlsson, “Challenges and Opportunities of Foreign Investment in Developing Agriculture for Sustainable Development,” FAO Commodity and Trade Policy Research Working Paper 48 (2014), http://www.fao.org/3/a-i4074e.pdf. 129 Giorgio Locatelli, Giacomo Mariani, Tristano Sainati and Marco Greco, “Corruption in public projects and megaprojects: There is an elephant in the room!” International Journal of Project Management 35 No. 3 (April 2017): 252- 268. 130 Anita Sobjak, “Corruption Risks in Infrastructure Investments in Su-Saharan Africa,” 2018 OECD Global Anti-Corruption & Integrity Forum, https://www.oecd.org/corruption/integrity-forum/academic-papers/Sobjak.pdf (accessed August 24, 2019).
52 United Nations Development Program | MUNUC 32 The Center for International Private Enterprise argues that funds from authoritarian regimes
damages emerging and fragile democracies.131
One of the most well-established issues with development investment, which by definition is not purely based on market considerations, is that it can create a market distortion. If a development bank or other development investor is providing funds, this could displace other sources of funding,
such as traditional commercial banks and philanthropy.132 In particular, they could distort credit rates. If commercial banks would lend at 10% interest rate based on market conditions, but there is a lot of international funding at a 0% interest rate, the commercial banks may be forced to lower their interest rates to stay competitive, which would cause lending to too many customers, which in turn
could cause a financial crash.133
A bubble is when the benefits of a particular investment are widely overestimated, leading to a crash
in the sector.134 If, for instance, everyone thinks that wind turbines are the best investment for sustainable energy, and so everyone promotes wind turbines as the best way to “do good,” but it turns out that other options, such as solar panels, are much more effective, this could cause a crash in the wind turbine sector, meaning that the value of wind turbines would go down very quickly and investors and employees of the sector would suddenly lose money and jobs. While bubbles can occur in any sector, it is particularly risky for impact investors, since the definition of “doing good” is more based on general agreement about values and priorities rather than hard numbers, and is therefore more likely to change.
131 John Morrell et. al., “Channeling the Tide: Protecting Democracies Amid a Flood of Corrosive Capital,” Center for International Private Enterprise, https://www.cipe.org/resources/channeling-the-tide-protecting-democracies-amid-a- flood-of-corrosive-capital/ (accessed August 24, 2019). 132 Ceyla Pazarbasioglu, “A new role for development banks?” World Bank Blogs, https://blogs.worldbank.org/voices/new-role-development-banks (accessed August 24, 2019). 133 Justin Pritchard, “What Caused the Mortgage Crisis,” The Balance, https://www.thebalance.com/mortgage-crisis- overview-315684 (accessed August 24, 2019). 134 “Economic Bubble,” BusinessDictionary.com, http://www.businessdictionary.com/definition/economic-bubble.html (accessed August 24, 2019).
53 United Nations Development Program | MUNUC 32 Foreign dependence is when less developed countries become economically reliant on more
developed countries.135 This is a problem because donor countries or organizations could pressure national governments to adopt economic or political policies preferred by the donor. While some of these reforms may be helpful, such as those advocated by the World Bank as a precondition to receiving funding, others may go against the national interest of the recipient country, leading to long-term economic and political problems. In poor countries, investment dependence negatively
affects economic growth,136 and some see foreign investment as a form of neocolonialism -- an
attempt by richer countries to control poorer countries.137
135 “Foreign Dependency,” Encyclopaedia Britannica, https://www.britannica.com/topic/foreign-dependency (accessed August 24, 2019). 136 Jeanne G. Gobalet and Larry J. Diamond, “Economic Growth: The Role of Internal Structural Characteristics and Periods in the World Economy,” International Studies Quarterly 24 No. 3 (September 1979). 137 Leon E. Trakman and Nicola W. Ranieri, “Foreign Direct Investment: A Historical Perspective” in Regionalism in International Investment Law ed. Leon E. Trackman and Nicola W. Ranieri (Oxford: Oxford University Press, 2013).
54 United Nations Development Program | MUNUC 32 History of the Problem
Banks have been lending money since ancient times, such as in the Roman Empire,138 and countries
have been trying to regulate foreign investment with treaties equally as long.139 However, investing in development specifically is a relatively new idea, which emerged in the 20th century after World War II.
The first major development bank was the World Bank, which was founded in 1944 at the Bretton Woods Monetary Conference to help countries with post-war reconstruction,and soon expanded to
assisting developing countries.140 After that, a first wave of regional development banks was
established up through the early 1970s, including the Inter-American Development Bank,141 the
Development Bank of Latin America,142 the Asian Development Bank,143 the Islamic Development
Bank,144 the European Investment Bank145 and the African Development Bank.146 Delegates are encouraged to familiarize themselves with the specific work of the regional development banks relevant to them.
Alongside the foundation of multilateral development banks, the post-World War II era led to many unilateral development initiatives, that is, aid from one country to another. The United States played the most prominent role in unilateral post-War reconstruction in Europe under the Marshall Plan, formally known as the European Recovery Plan, which provided funding to rebuild areas
138 Andrew Beattie, “The Evolution of Banking Over Time,” Investopedia, https://www.investopedia.com/articles/07/banking.asp (accessed August 24, 2019). 139 Leon E. Trakman and Nicola W. Ranieri, “Foreign Direct Investment: A Historical Perspective” in Regionalism in International Investment Law ed. Leon E. Trackman and Nicola W. Ranieri (Oxford: Oxford University Press, 2013). 140 “History,” The World Bank, https://www.worldbank.org/en/about/archives/history (accessed August 24, 2019). 141 “History of the Inter-American Development Bank,” Inter-American Development Bank, https://www.iadb.org/en/about-us/history-of-the-inter-american-development-bank%2C5999.html (accessed August 24, 2019). 142 “Who we are,” Development Bank of Latin America, https://www.caf.com/en/about-caf/who-we-are/ (accessed August 24, 2019). 143 “ADB History,” Asian Development Bank, https://www.adb.org/about/history (accessed August 24, 2019). 144 “About IsDB,” Islamic Development Bank, https://www.isdb.org/who-we-are/about-isdb (accessed August 24, 2019). 145 “Some dates and figures,” European Investment Bank, https://www.eib.org/en/about/key_figures/index.htm (accessed August 24, 2019). 146 “History,” African Development Bank Group, https://www.afdb.org/en/about-us/corporate-information/history (accessed August 24, 2019).
55 United Nations Development Program | MUNUC 32 destroyed by the war and encourage new production.147 In 1961 the United States founded the US Agency for International Development (USAID) to continue and broaden the international aid ideas
developed during the Marshall Plan to countries all over the world.148 USAID continues to be a major worldwide actor in the sphere of international development today. During this period the Soviet Union, the main great power competitor of the United States, also was involved in major foreign aid
efforts.149
The United Nations has had four Development Decades starting in 1960, and since the turn of the century has set the international agenda for development with its Millennium Development Goals
and, currently, Sustainable Development Goals (SDGs).150 The UN and the UNDP’s development investment initiatives will be discussed in greater detail below under the section “Past Actions.”
A second wave of development banks has been opening from the 1990s to today. The European Bank for Reconstruction and Development was founded after the collapse of the Soviet Union to
support the transition of formerly communist countries.151 Within the last few years, the founding of
the BRICS countries-led (Brazil, Russia, India, China, South Africa) New Development Bank152 and
the China-led Asian Infrastructure Investment Bank153 have made headlines. These new development banks counter the traditional point of view that the West is the leader of international development efforts. Highly related are the recent efforts of some non-Western countries to
147 “Marshall Plan,” Encyclopaedia Britannica, https://www.britannica.com/event/Marshall-Plan (accessed August 24, 2019). 148 “USAID History,” USAID, https://www.usaid.gov/who-we-are/usaid-history (accessed August 24, 2019). 149 Marshall I. Goldman, “A Balance Sheet of Soviet Foreign Aid,” Foreign Affairs, https://www.foreignaffairs.com/articles/russian-federation/1965-01-01/balance-sheet-soviet-foreign-aid (accessed August 24, 2019). 150 “UN Documentation: Development,” Dag Hammarskjold Library, http://research.un.org/en/docs/dev/1960-1970 (accessed August 24, 2019). 151 “History of the EBRD,” European Bank for Reconstruction and Development, https://www.ebrd.com/who-we- are/history-of-the-ebrd.html (accessed August 24, 2019). 152 “About Us,” New Development Bank, https://www.ndb.int/about-us/essence/history/ (accessed August 24, 2019). 153 “Who We Are,” Asian Infrastructure Investment Bank, https://www.aiib.org/en/about-aiib/index.html
56 United Nations Development Program | MUNUC 32 unilaterally invest abroad. Of particular note is China’s broad-ranging development investment
initiatives, such as in Africa154 and the much-discussed regional Belt and Road Initiative.155
Issues of ethical development first began to be discussed on a broad scale in the 1970s, with a focus on environmental sustainability, since environmental issues generally gained prominence
worldwide.156 However, it was not until 1992 that the United Nations held its first conference
devoted to the relationship between development and the environment.157 In the private sector, while companies had previously donated to charities and undertook other socially beneficial projects, the idea of corporate social responsibility also took off in the 1970s and was fully solidified
as a business concept in the 1990s.158 Today, millennial investors are more than twice as likely to
support projects with social and environmental goals than projects that are purely profitable.159
Another recent development relevant to development investment is the rise of crowdfunding.160 In a way similar to development banks, crowdfunding decreases the risk of unilateral investment by drawing contributions from a variety of investors. However, in the case of crowdfunding, individuals from anywhere in the world can support projects, as opposed to national governments or large private companies. For example, the UNDP Live Lebanon project has gathered funds from individuals and companies, including the global Lebanese diaspora, for development projects in
Lebanon such as ambulances and recycling.161
154 http://eprints.lse.ac.uk/28168/ (accessed August 24, 2019). 155 Belt and Road Portal, https://eng.yidaiyilu.gov.cn/index.htm (accessed August 24, 2019). 156 Danny Stofleth, “A Short History of Sustainable Development,” Rethinking Prosperity, http://rethinkingprosperity.org/a-short-history-of-sustainable-development/ (accessed August 24, 2019). 157 “History of SD,” Sustainable Development Commission, http://www.sd-commission.org.uk/pages/history_sd.html (accessed August 24, 2019). 158 Archie B. Carroll, “A History of Corporate Social Responsibility: Concepts and Practices” in The Oxford Handbook of Corporate Social Responsibility ed. Andrew Crane et. al. (Oxford: Oxford University Press, 2008). 159 Belinda Thomas, “To cash in on the boom in impact investment, transparency is key,” Ethical Corporation, http://www.ethicalcorp.com/cash-boom-impact-investment-transparency-key (accessed August 24, 2019). 160 Alan Tomczak and Alexander Brem, “A conceptualized investment model of crowdfunding,” Venture Capital 15 No. 4 (2013): 335-359. 161 Live Lebanon, http://livelebanon.org/ (accessed September 4, 2019).
57 United Nations Development Program | MUNUC 32 Past Actions
Past initiatives
The United Nations, and by extension the UNDP, has gone through six major waves of development
investment activity:162
1. 1960-1970: the First Development Decade
2. 1971-1980: the Second Development Decade
3. 1981-1990: the Third Development Decade
4. 1991-2000: the Fourth Development Decade
5. 2000-2015: Millenium Development Goals
6. 2015-2030: Sustainable Development Goals
The UNDP itself was established in the middle of the First Development Decade, in 1965. Just a year later a partner organization, the UN Capital Development Fund (UNCDF), was founded to help
source financing from donor countries and the private sector for development.163 Its main focus is helping households and communities in the least developed countries lift themselves out of poverty by expanding access to finance instruments such as small loans.
The Second Development Decade broadened the understanding of development to include race and gender inequalities, as well as a global realization of environmental issues. The Third Development Decade did not have any major innovations, but rather continued the work of the previous
162 “UN Documentation: Development,” Dag Hammarskjold Library, http://research.un.org/en/docs/dev/1960-1970 (accessed September 4, 2019). 163 “History,” UNCDF, https://www.uncdf.org/history (accessed September 21, 2019).
58 United Nations Development Program | MUNUC 32 development decades. The Fourth Development Decade had a wide range of priorities such as natural disaster relief, drug abuse reduction, and reducing poverty.
The UN and UNDP became more ambitious and focused with development priorities at the turn of the millenium. The development goals set in 2000 and 2015 have helped organize international development efforts and funding based on globally-agreed upon priorities.
Current initiatives
The UN Global Compact was launched in 2000.164 It provides a set of principles that businesses can follow in order to carry out their operations responsibly, including anti-corruption, human rights, and environmental sustainability. Businesses can apply to become members by demonstrating their commitment to corporate social responsibility and paying annual membership fees. In return, they get access to Global Compact resources to support their plans to become more sustainable and socially responsible, and can use the Global Compact as an internationally recognized “brand” that consumers and partners will appreciate.
One of the most relevant and ambitious UNDP initiatives is SDG Impact, launched in 2018, which
“envisions a world in which all capital flows advance SDGs.”165 Essentially, the goal of SDG Impact is that all investment is development investment in one form or another, even if only in the sense that it promotes economic growth (SDG #8) in a responsible way. The main way that they do this is by providing interested development investors with information about concrete investment opportunities, such as regional and sectoral business intelligence reports so that investors can design their own projects, and networking and matchmaking services to connect people with ideas to people with money.
SDG Impact has created a set of guidelines called the SDG Impact Practice Standards166 targeted at private equity fund managers for ensuring investment will actually advance the SDGs. Private equity
164 United Nations Global Compact, https://www.unglobalcompact.org/ (accessed September 21, 2019). 165 SDG Impact, https://sdgimpact.undp.org (accessed September 21, 2019). 166 SDG Impact Practice Standards: Private Equity Funds, September 2019 consultation draft, United Nations Development Programme, https://sdgimpact.undp.org/assets/UNDP_SDG-Impact-Practice-Standards-for-PE-Funds-SEP- 2019-CONSULTATION-DRAFT-FINAL.pdf (accessed September 21, 2019).
59 United Nations Development Program | MUNUC 32 funds draw from the resources of multiple investors and put them in multiple investment projects, which spreads risk. For this reason, risky but do-good investments in SDGs are popular for mutual
funds.167 The guide focuses on the reason for investment in SDGs, how to measure impact, and how to ensure transparency and accountability. SDG Impact will produce future guides for impact investing through bonds and for individual enterprises. The guides will lead to certification opportunities, so that interested private equity funds and companies can market themselves as approved investors in the SDGs.
One of the most comprehensive initiatives is UNDP SDG Innovative Finance.168 They do work in a great variety of areas, such as academic research, public-private dialogue, impact measurement tools for investors, and creating finance instruments. One such innovative financial instrument is SDG bonds, which they encourage companies to propose in order to gain financing for corporate
social responsibility initiatives.169
One of the problems with social entrepreneurship is that projects are often small. Accelerate2030 is a program that selects promising projects developed by social entrepreneurs, and provides advice and
support as they increase in scale to achieve bigger effects.170
167 Anastasia O’Rourke, “The message and methods of ethical investment,” Journal of Cleaner Production 11 No. 6 (September 2003): 683-693. 168 UNDP SDG Innovative Finance, https://www.undpsif.org/ (accessed September 21, 2019). 169 SDG Bonds and Corporate Finance: A Roadmap to Mainstream Investments, (New York: United Nations Global Compact, 2018), https://www.unglobalcompact.org/docs/publications/SDG-Bonds-and-Corporate-Finance.pdf (accessed September 21, 2019). 170 Accelerate 2030, https://accelerate2030.net/ (accessed September 21, 2019).
60 United Nations Development Program | MUNUC 32 Possible Solutions
The UNDP has a lot of programs and instruments for helping development project find financing, as described in the section above. It also has some guidelines on how the private sector should evaluate impact investments. However, the UNDP does not have a clear set of guidelines for how exactly to do due diligence on development investment projects, especially for non-private actors -- unilateral governments, development banks and ourselves -- to protect developing countries from the potential harm that can come from poorly planned or managed investments.
The focus of this committee will be creating a policy on due diligence for development investment, as well as programs that incentivize stakeholders to follow this policy, protect developing countries from potential problems caused by investment, and remediate conflicts that may arise as a result of development investment.
Assessment, transparency and accountability are the key to any solution. Before investing, the investor has to assess the investment thoroughly for its potential impact, which requires rigorous research. During the investment, the investor -- and recipient -- must be transparent about how they are using the funds, meaning they must make their thinking and decisions clear to stakeholders like governments and civil society. After the investment, the investor must be held accountable for the outcomes achieved, good or bad.
There are many possible ways to achieve these goals. Most solutions so far have been developed for the private sector, and a challenge for delegates will be deciding how and they can be adapted to the public sector -- to states as a whole.
Mission Statements and Goals
Every investor should be clear about what their mission is. What exactly are they trying to achieve? No investment can directly impact all 17 of the SDGs, so which ones does the investor focus on? What kinds of criteria does the investor consider when evaluating projects? Most large companies have mission statements, but many include vague language, which makes it difficult to evaluate success. It is important to be as explicit as possible. For example, Ethical Investment Services has a
61 United Nations Development Program | MUNUC 32 website with a clear list of the kinds of investments it seeks out and avoids.171 Stating missions and goals clearly can help determine if investors are living up to the standards they set, and the mission and goals themselves can be critiqued for warning signs, like political considerations.
Risk assessment
Every investor has to balance risk with reward, and decide what projects are worth taking a chance on. Impact investors face many of the same risk concerns as traditional investors, most importantly whether the investment will actually be profitable, but they also face a variety of additional risks that
must be taken into account:172
• Liquidity risk: How easily an investor can sell their investment for cash if they need unexpectedly needs funds? This is a particular concern for impact investors, because they would have to sell to someone who shares the same values.
• Impact risk: Even if an investor is positively impacting one SDG, they may be negatively
impacting another. For example, in Ukraine the green energy sector is very corrupt.173 Therefore, investments in green energy in Ukraine may be helping the environment, but because of corruption risk they are undermining democratic governance and, ultimately, economic growth. Even if an investor only focuses on some of the SDGs, which is natural, they must evaluate risk for all of the SDGs.
• Manager risk: Since the field of impact investing is newer than traditional investing, there are fewer experienced managers of such projects, and managerial positions might experience
171 “Ethical Screening,” Ethical Investment Services, https://ethicalinvestments.com.au/ethical-screening (accessed September 21, 2019). 172 Jed Emerson, “Risk, Return and Impacts: Understanding Diversification and Performance Within an Impact Investing Portfolio,” Impact Assessments, https://www.impactassets.org/files/downloads/ImpactAssets_IssueBriefs_2.pdf (accessed September 21, 2019). 173 Oksana Stavniichuk and Anton Kryvko, “Бенефіціари “зеленого тарифу”: як нардепи, їхні сім’ї та помічники заробляють на електриці [Beneficiaries of the ‘green tariff’: how members of parliament, their families and their associates earn from electricity],” Ekonomichna Pravda, https://www.epravda.com.ua/publications/2019/02/6/644772/ (accessed September 21, 2019).
62 United Nations Development Program | MUNUC 32 higher turnover. This is also more of a problem because profit on impact investments may take longer to materialize than traditional projects.
• Measurement and reporting risk: It is much easier to report on straight profit -- a clear dollar amount -- than to measure and report on environmental and social impacts. Impact investors have to find and trust forms of measurement that are by nature not as highly precise, quantitative or comparable. There is a risk that the way that impact investing is measured and assessessed could be inaccurate, therefore misleading future investors.
• Subordinate capital risk: If the investment relies not only on the funds of profit-seeking entities, but also includes grants, which are not expected to be repaid, then the investor faces the risk that the donor of the grants could stop donating. For example, a long-term project to develop journalism in Kyrgyzstan might use some grant funding of the government of the Netherlands. However, if the Netherlands decides that it is no longer a priority to promote democracy in Kyrgyzstan over other pressing concerns, or tensions increase with the country over an international incident, or internal politics in the Netherlands force it to cut back on development spending in general, the grants could be cancelled. However, grants, especially from large and well-respected donor organizations, can also reduce the risk for private investors. They can help “unlock” private funding by providing some of the funds for free, which reassures the investor that the project is well-vetted and that they won’t lose the entire sum of the project even if it fails.This is a strategy used by the UNDP in its Least Developed
Countries Investment Platform.174
Stakeholder input
In conducting a risk assessment, it is important to take into account the opinions of others, especially
those that could be affected by the assessment.175 It may be difficult for an investor, however well-
174 “Least Developed Countries Investment Platform,” UNCDF, https://www.uncdf.org/least-developed-countries- investment-platform (accessed September 21, 2019). 175 Clara Barby et. al., Engaging All Affected Stakeholders: Guidance for Investors, Funders and Organizations (Cologny: World Economic Forum, 2017), https://sptf.info/images/SIWG-WEF-AG3-Engaging-all-affected-stakeholders-December- 2017.pdf (accessed September 21, 2019).
63 United Nations Development Program | MUNUC 32 intentioned, to understand all the circumstances and possible consequences of their investments. This is especially true if the investor is from a wealthier donor country, and the investee is in a developing country. Whenever an investment is international, and particularly if it goes to a part of the world with which the investor is less familiar, there is a high chance that they may not understand local realities or even the local language, making it difficult to do due diligence research on their own.
Therefore, they should consult actors in the local community, such as beneficiaries of the investment, staff members, the government, NGOs, and the public, in making investment decisions. This should be a continuous process: setting goals, implementing a program or activities to gather stakeholder input, making improvements based on the feedback, and setting new goals. For example, a company investing in water filtration systems in Uganda would want to speak with local governments for the regions where the project will be implemented, local NGOs concerned with public health and environmental issues, the people who would be consuming the water, staff members of the company, and so on. This could take the form of emails, phone calls, in-person meetings, and conferences where multiple stakeholders can gather at the same time. Then, it is crucial to turn the feedback into actual improvements in the investment project.
A more extreme version of this is to simply give the local community control over its own development projects by providing improving access to finance. This is a focus of the UN Capital Development Fund (UNCDF), which is affiliated with the UNDP. The UNCDF has an inclusive finance program that works to expand local access to financial resources like savings, credit, and insurance,
so that people can invest in themselves without the need for large outside development projects.176
Measurement, rating and reporting systems
Another way to establish validity, besides stakeholder engagement, is to follow international standards and rating systems. The most well known of these are the Impact Reporting and
Investment Standards (IRIS+)177 and B Analytics.178 IRIS+ provides a more holistic evaluation of
176 “Financial Inclusion,” UNCDF, https://www.uncdf.org/financial-inclusion (accessed September 21, 2019). 177 “IRIS+,” Global Impact Investing Network, https://iris.thegiin.org/ (accessed September 21, 2019). 178 “GIIRS Impact Rated,” B Analytics, https://b-analytics.net/giirs-funds (accessed September 21, 2019).
64 United Nations Development Program | MUNUC 32 impact investments, from strategies to risks to metrics. B Analytics, in contrast, provides a more holistic evaluation of an overall company, including its potential environmental and social impact as part of its normal operations.
Even if an investor does not follow these exact standards, it is critical that they collect and publicize information about their work. They should use quantitative indicators whenever possible -- such as emissions reduced or women employed -- but recognize that quantitative indicators are not always adequate to understand the full impact. They will also need qualitative data, such as individual success stories and the feedback from stakeholders. Collecting and publicizing data not only reduces the risk that the investor or other investors will repeat mistakes, but it also has a benefit for the investor: allowing them to show off their successes, thereby attracting more funding.
65 United Nations Development Program | MUNUC 32 Bloc Positions
Countries around the globe may face similar issues with development investment, and countries within a region may have radically different levels of corruption and attitudes toward corruption. Therefore, delegates are encouraged to form blocs on the basis of complementary ideas and country- specific nuances in approach to anti-corruption, not on the basis of geography or even the categories described below.
Development status can be determined by UN classifications of each country.179 However, each state is encouraged to decide for themselves which category best applies; there are no hard criteria.
Developed Economies
More-developed states will likely be donors and investors. They will likely want to preserve their ability to unilaterally invest in developing economies in ways that serve their interests, while limiting the ability of over developed economies and competing development banks to invest for political purposes. Therefore, they will be highly concerned with the politics of development projects. They also do not want to waste money, and want to protect their private investors from losing money as well. Therefore, they may be interested in international agreements about the rights of investors, and strict control of funds on the side of the investee, such as reporting. To make sure that funds are put to the best use, they may have an interest in resolving corruption-related issues with development investment.
Developing and Transition Economies
Less-developed states will likely be the recipients of investments. They will want to maximize the funding that they can receive, both from private and public sources. However, they will be concerned with adverse impacts of development investment at the local level. For example, they will want to insure that development investment does not create dependence or displace local industries. They
179 “Development Status Groups and Composition,” United Nations Conference on Trade and Development, https://unctadstat.unctad.org/EN/Classifications/DimCountries_DevelopmentStatus_Hierarchy.pdf (accessed September 4, 2019).
66 United Nations Development Program | MUNUC 32 will also want to ensure that a project attempting to promote one development goal does not adversely affect other development goals in their country. They also might not share the same development priorities as investors. For example, a developed country may be interested in projects that protect the environment, but the developing recipient country may think that protecting the environment is the responsibility of developed countries, and the developing country’s first priority is to have strong economic growth. In another example, some countries may have ideological restrictions on the extent to which women’s empowerment programs should be implemented, even if these programs are popular among investors. Therefore, developing countries will want to maintain maximum control and input over the types of investments they accept.
Economic system can be classified as more socialist or more capitalist based on whether the government tends to directly control more or less aspects of the economy. The World Population Review has a list of
countries that are explicitly affiliated with socialism.180 However, each state is encouraged to decide for themselves which category best applies; there are no hard criteria.
Capitalist states
Capitalist states will likely support solutions that emphasize the role of the private sector and civil society. They may be interested in trying to attract responsible private sector funding and expand local finance options. They will also want to ensure that conversations are held between a variety of stakeholders about development projects, such as local companies and civil society.
Socialist states
Socialist states will likely support government-led solutions. They may be interested in unilateral development funding or the role of development banks. They will want to maintain sovereignty in making decisions on behalf of their people about investments, and would likely want all investments to go through the government rather than being provided to people directly.
180 “Socialist Countries 2019,” World Population Review, http://worldpopulationreview.com/countries/socialist- countries/ (accessed September 4, 2019).
67 United Nations Development Program | MUNUC 32 Glossary
Bond: an investment in which the investor loans money at fixed interest rates
Bubble: a situation in which a product, service or investment is overvalued by its buyers, and when the true value becomes known the bubble “pops,” causing a crash in that sector
Civil Society: actors in society besides the government and the private sector, including non- governmental organizations, the media, and everyday citizens
Corporate Social Responsibility: the idea that the private sector has a responsibility to include environmental and social considerations in their business operations, rather than purely profit.
Crowdfunding: a method of finding funds in which many investors make small contributions through an online platform
Development Bank: a bank that invests specifically in development projects
Due Diligence: the process of investigating a project or business partner before starting work to ensure they are ethical and reliable
Ethical Investing: investing in a way that promotes social and/or environmental good, as well as earns profit
Foreign Dependence: a state in which a country’s well-being depends on the actions of another country
Foreign Direct Investment (FDI): investment of a foreign company in the host country, such as opening a branch of a business there
Impact Investment: investment with the goal of promoting social and/or environmental good, as well as earning profit
68 United Nations Development Program | MUNUC 32 Liquidity: the ease with which an investment can be sold for cash
Market Distortion: a situation when outside interference causes the market to behave in an inefficient way
Neocolonialism: the idea that after the colonial era, in which Western powers owned colonies on other continents, some countries still seek to indirectly control other countries through economic and cultural means
Private Equity Fund: a fund in which many people invest, and which invests in many projects, thereby reducing risk for individual investors
Public Good: a desired items or service that helps everyone, and that no individual can be excluded from or “opt out” of, such as national defense
Public-Private Partnership: a project in which both government (public) and private actors participate
Social Entrepreneurship: starting a business designed to further social and/or environmental goals, while still making a profit
Stakeholder: a party that is affected by a project, even if they do not have official decision-making power over the project
Sustainable Development Goals (SDGs): seventeen goals set by the United Nations for the period of 2015-2030, intended to improve every aspect of life for now and for the future
Unilateral Development Initiative: when a single country (as opposed to a multilateral development bank) directly funds a development investment project
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