| I. The FactsJust days before a much-awaited donor | | | | Index.Many rich world corporations and wealthy |
| conference, the influential International Crisis Group | | | | individuals make use of off-shore havens or "special |
| (ICG) recommended to place all funds pledged to | | | | purpose entities" to launder money, make illicit |
| Macedonia under the oversight of a "corruption | | | | payments, avoid or evade taxes, and conceal assets |
| advisor" appointed by the European Commission. The | | | | or liabilities. According to Swiss authorities, more than |
| donors ignored this and other recommendations. To | | | | $40 billion are held by Russians in its banking system |
| appease the critics, the affable Attorney General of | | | | alone. The figure may be 5 to 10 times higher in the |
| Macedonia charged a former Minister of Defense with | | | | tax havens of the United Kingdom.In a survey it |
| abuse of duty for allegedly having channeled millions of | | | | conducted last month of 82 companies in which it |
| DM to his relatives during the recent civil war. | | | | invests, "Friends, Ivory, and Sime" found that only a |
| Macedonia has belatedly passed an anti-money | | | | quarter had clear anti-corruption management and |
| laundering law recently - but failed, yet again, to adopt | | | | accountability systems in place.Tellingly only 35 |
| strict anti-corruption legislation.In Albania, the Chairman | | | | countries signed the 1997 OECD "Convention on |
| of the Albanian Socialist Party, Fatos Nano, was | | | | Combating Bribery of Foreign Public Officials in |
| accused by Albanian media of laundering $1 billion | | | | International Business Transactions" - including four |
| through the Albanian government. Pavel Borodin, the | | | | non-OECD members: Chile, Argentina, Bulgaria, and |
| former chief of Kremlin Property, decided not appeal | | | | Brazil. The convention has been in force since |
| his money laundering conviction in a Swiss court. The | | | | February 1999 and is only one of many OECD |
| Slovak daily "Sme" described in scathing detail the | | | | anti-corruption drives, among which are SIGMA |
| newly acquired wealth and lavish lifestyles of formerly | | | | (Support for Improvement in Governance and |
| impoverished HZDS politicians. Some of them now | | | | Management in Central and Eastern European |
| reside in refurbished castles. Others have swimming | | | | countries), ACN (Anti-Corruption Network for Transition |
| pools replete with wine bars.Pavlo Lazarenko, a | | | | Economies in Europe), and FATF (the Financial Action |
| former Ukrainian prime minister, is detained in San | | | | Task Force on Money Laundering).Moreover, The |
| Francisco on money laundering charges. His defense | | | | moral authority of those who preach against corruption |
| team accuses the US authorities of "selective | | | | in poor countries - the officials of the IMF, the World |
| prosecution".They are quoted by Radio Free Europe | | | | Bank, the EU, the OECD - is strained by their |
| as saying:"The impetus for this prosecution comes | | | | ostentatious lifestyle, conspicuous consumption, and |
| from allegations made by the Kuchma regime, which | | | | "pragmatic" morality.II. What to Do? What is Being |
| itself is corrupt and dedicated to using undemocratic | | | | Done?Two years ago, I proposed a taxonomy of |
| and repressive methods to stifle political opposition ... | | | | corruption, venality, and graft. I suggested this |
| (other Ukrainian officials) including Kuchma himself and | | | | cumulative definition:The withholding of a service, |
| his closest associates, have committed conduct similar | | | | information, or goods that, by law, and by right, should |
| to that with which Lazarenko is charged but have not | | | | have been provided or divulged.The provision of a |
| been prosecuted by the U.S. government".The UNDP | | | | service, information, or goods that, by law, and by right, |
| estimated, in 1997, that, even in rich, industrialized, | | | | should not have been provided or divulged.That the |
| countries, 15% of all firms had to pay bribes. The figure | | | | withholding or the provision of said service, information, |
| rises to 40% in Asia and 60% in Russia.Corruption is | | | | or goods are in the power of the withholder or the |
| rife and all pervasive, though many allegations are | | | | provider to withhold or to provide AND That the |
| nothing but political mud-slinging. Luckily, in countries like | | | | withholding or the provision of said service, information, |
| Macedonia, it is confined to its rapacious elites: its | | | | or goods constitute an integral and substantial part of |
| politicians, managers, university professors, medical | | | | the authority or the function of the withholder or the |
| doctors, judges, journalists, and top bureaucrats. The | | | | provider.That the service, information, or goods that |
| police and customs are hopelessly compromised. Yet, | | | | are provided or divulged are provided or divulged |
| one rarely comes across graft and venality in daily life. | | | | against a benefit or the promise of a benefit from the |
| There are no false detentions (as in Russia), spurious | | | | recipient and as a result of the receipt of this specific |
| traffic tickets (as in Latin America), or widespread | | | | benefit or the promise to receive such benefit.That the |
| stealthy payments for public goods and services (as in | | | | service, information, or goods that are withheld are |
| Africa).It is widely accepted that corruption retards | | | | withheld because no benefit was provided or promised |
| growth by deterring foreign investment and | | | | by the recipient.There is also what the World Bank |
| encouraging brain drain. It leads to the misallocation of | | | | calls "State Capture" defined thus:"The actions of |
| economic resources and distorts competition. It | | | | individuals, groups, or firms, both in the public and |
| depletes the affected country's endowments - both | | | | private sectors, to influence the formation of laws, |
| natural and acquired. It demolishes the tenuous trust | | | | regulations, decrees, and other government policies to |
| between citizen and state. It casts civil and | | | | their own advantage as a result of the illicit and |
| government institutions in doubt, tarnishes the entire | | | | non-transparent provision of private benefits to public |
| political class, and, thus, endangers the democratic | | | | officials."We can classify corrupt and venal behaviours |
| system and the rule of law, property rights | | | | according to their outcomes:Income Supplement - |
| included.This is why both governments and business | | | | Corrupt actions whose sole outcome is the |
| show a growing commitment to tackling it. According | | | | supplementing of the income of the provider without |
| to Transparency International's "Global Corruption | | | | affecting the "real world" in any manner.Acceleration or |
| Report 2001", corruption has been successfully | | | | Facilitation Fees - Corrupt practices whose sole |
| contained in private banking and the diamond trade, for | | | | outcome is to accelerate or facilitate decision making, |
| instance.Hence also the involvement of the World | | | | the provision of goods and services or the divulging of |
| Bank and the IMF in fighting corruption. Both institutions | | | | information.Decision Altering Fees - Bribes and |
| are increasingly concerned with poverty reduction | | | | promises of bribes which alter decisions or affect |
| through economic growth and development. The | | | | them, or which affect the formation of policies, laws, |
| World Bank estimates that corruption reduces the | | | | regulations, or decrees beneficial to the bribing entity or |
| growth rate of an affected country by 0.5 to 1 percent | | | | person.Information Altering Fees - Backhanders and |
| annually. Graft amounts to an increase in the marginal | | | | bribes that subvert the flow of true and complete |
| tax rate and has pernicious effects on inward | | | | information within a society or an economic unit (for |
| investment as well.The World Bank has appointed last | | | | instance, by selling professional diplomas, certificates, or |
| year a Director of Institutional Integrity - a new | | | | permits).Reallocation Fees - Benefits paid (mainly to |
| department that combines the Anti-Corruption and | | | | politicians and political decision makers) in order to |
| Fraud Investigations Unit and the Office of Business | | | | affect the allocation of economic resources and |
| Ethics and Integrity. The Bank helps countries to fight | | | | material wealth or the rights thereto. Concessions, |
| corruption by providing them with technical assistance, | | | | licenses, permits, assets privatized, tenders awarded |
| educational programs, and lending.Anti-corruption | | | | are all subject to reallocation fees.To eradicate |
| projects are an integral part of every Country | | | | corruption, one must tackle both giver and taker.History |
| Assistance Strategy (CAS). The Bank also supports | | | | shows that all effective programs shared these |
| international efforts to reduce corruption by sponsoring | | | | common elements:The persecution of corrupt, |
| conferences and the exchange of information. It | | | | high-profile, public figures, multinationals, and institutions |
| collaborates closely with Transparency International, for | | | | (domestic and foreign). This demonstrates that no one |
| instance.At the request of member-governments (such | | | | is above the law and that crime does not pay.The |
| as Bosnia-Herzegovina and Romania) it has prepared | | | | conditioning of international aid, credits, and investments |
| detailed country corruption surveys covering both the | | | | on a monitored reduction in corruption levels. The |
| public and the private sectors. Together with the | | | | structural roots of corruption should be tackled rather |
| EBRD, it publishes a corruption survey of 3000 firms in | | | | than merely its symptoms.The institution of incentives |
| 22 transition countries (BEEPS - Business Environment | | | | to avoid corruption, such as a higher pay, the fostering |
| and Enterprise Performance Survey). It has even set | | | | of civic pride, "good behaviour" bonuses, alternative |
| up a multilingual hotline for whistleblowers.The IMF | | | | income and pension plans, and so on.In many new |
| made corruption an integral part of its country | | | | countries (in Asia, Africa, and Eastern Europe) the very |
| evaluation process. It suspended arrangements with | | | | concepts of "private" versus "public" property are |
| endemically corrupt recipients of IMF financing. Since | | | | fuzzy and impermissible behaviours are not clearly |
| 1997, it has introduced policies regarding misreporting, | | | | demarcated. Massive investments in education of the |
| abuse of IMF funds, monitoring the use of debt relief | | | | public and of state officials are required.Liberalization |
| for poverty reduction, data dissemination, legal and | | | | and deregulation of the economy. Abolition of red tape, |
| judicial reform, fiscal and monetary transparency, and | | | | licensing, protectionism, capital controls, monopolies, |
| even internal governance (e.g., financial disclosure by | | | | discretionary, non-public, procurement. Greater access |
| staff members).Yet, no one seems to agree on a | | | | to information and a public debate intended to foster a |
| universal definition of corruption. What amounts to | | | | "stakeholder society".Strengthening of institutions: the |
| venality in one culture (Sweden) is considered no more | | | | police, the customs, the courts, the government, its |
| than hospitality, or an expression of gratitude, in another | | | | agencies, the tax authorities - under time limited foreign |
| (France, or Italy). Corruption is discussed freely and | | | | management and supervision.Awareness to corruption |
| forgivingly in one place - but concealed shamefully in | | | | and graft is growing - though it mostly results in lip |
| another. Corruption, like other crimes, is probably | | | | service. The Global Coalition for Africa adopted |
| seriously under-reported and under-penalized.Moreover, | | | | anti-corruption guidelines in 1999. The otherwise opaque |
| bribing officials is often the unstated policy of | | | | Asia Pacific Economic Cooperation (APEC) forum is |
| multinationals, foreign investors, and expatriates. Many | | | | now championing transparency and good governance. |
| of them believe that it is inevitable if one is to expedite | | | | The UN is promoting its pet convention against |
| matters or secure a beneficial outcome. Rich world | | | | corruption.The G-8 asked its Lyon Group of senior |
| governments turn a blind eye, even where laws | | | | experts on transnational crime to recommend ways to |
| against such practices are extant and strict.In his | | | | fight corruption related to large money flows and |
| address to the Inter-American Development Bank on | | | | money laundering. The USA and the Netherlands |
| March 14, President Bush promised to "reward nations | | | | hosted global forums on corruption - as will South |
| that root out corruption" within the framework of the | | | | Korea next year. The OSCE is rumored to respond |
| Millennium Challenge Account initiative. The USA has | | | | with its own initiative, in collaboration with the US |
| pioneered global anti-corruption campaigns and is a | | | | Congressional Helsinki Commission.The south-eastern |
| signatory to the 1996 IAS Inter-American Convention | | | | Europe Stability Pact sports its own Stability Pact |
| against Corruption, the Council of Europe's Criminal | | | | Anti-corruption Initiative (SPAI). It held its first |
| Law Convention on Corruption, and the OECD's 1997 | | | | conference in September 2001 in Croatia. More than |
| anti-bribery convention. The USA has had a | | | | 1200 delegates participated in the 10th International |
| comprehensive "Foreign Corrupt Practices Act" since | | | | Anti-Corruption Conference in Prague last year. The |
| 1977.The Act applies to all American firms, to all firms - | | | | conference was attended by the Czech prime |
| including foreign ones - traded in an American stock | | | | minister, the Mexican president, and the head of the |
| exchange, and to bribery on American territory by | | | | Interpol.The most potent remedy against corruption is |
| foreign and American firms alike. It outlaws the | | | | sunshine - free, accessible, and available information |
| payment of bribes to foreign officials, political parties, | | | | disseminated and probed by an active opposition, |
| party officials, and political candidates in foreign | | | | uncompromised press, and assertive civic |
| countries. A similar law has now been adopted by | | | | organizations and NGO's. In the absence of these, the |
| Britain.Yet, "The Economist" reports that the American | | | | fight against official avarice and criminality is doomed |
| SEC has brought only three cases against listed | | | | to failure. With them, it stands a chance.Corruption can |
| companies until 1997. The US Department of Justice | | | | never be entirely eliminated - but it can be restrained |
| brought another 30 cases. Britain has persecuted | | | | and its effects confined. The cooperation of good |
| successfully only one of its officials for overseas | | | | people with trustworthy institutions is indispensable. |
| bribery since 1889. In the Netherlands bribery is tax | | | | Corruption can be defeated only from the inside, |
| deductible. Transparency International now publishes a | | | | though with plenty of outside help. It is a process of |
| name and shame Bribery Payers Index to complement | | | | self-redemption and self-transformation. It is the real |
| its 91-country strong Corruption Perceptions | | | | transition. |