Partnerships to Combat Corruption: The World Bank Global Context

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Partnerships to Combat CorruptionThe World Bank
Global Context the Case for Private Sector-Led
Collective ActionAPEC ANTI-CORRUPTION
TRANSPARENCY EXPERTS WORKSHOPCanberra,
Australia22 January 2007

• Dr. Djordjija Petkoski
• Head, Business, Competitiveness Development
  (BCD) Program
• World Bank Institute, The World Bank

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Outline

• The Broader Context
• Governance and Corruption what is the
  connection?
• The Private Sector Side of Corruption
• Why should the private sector be brought into the
  dialogue?
• Partnerships against Corruption
• Business-Led Collective Action

Special thanks to Sanjay Pradhan, Director,
Public Sector Governance Board, Daniel Kaufmann,
Director, Global Programs, World Bank Institute
and the World Bank Voluntary Disclosure Program
for additional slides in the presentation.
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Control of Corruption (2005)
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FACT
The total volume of bribes paid annually has been
estimated by the World Bank Institute to be at
US 1 trillion
nearly twice the gross domestic product of
Africa.
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I.

• The International Context for the World Bank
  Group
• Aid, Governance and Development

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I. Why? Aid, Governance Development
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I. Reducing corruption in high-risk countries
Priorities for action in the next stage

• Better understanding and management of political
  economy of reforms

• Tackle political drivers of governance challenges
  in sectors (e.g., power, ports, EI) and political
  corruption (party finance, electoral corruption)

• Partnerships and new instruments to support
  demand-side initiatives working with civil
  society, media, parliamentarians

• Leadership and ethics capacity building

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I. Corruption is not just a Developing Country
Problem
Percentage of firms that pay public procurement
kickbacks by country of origin of foreign direct
investment
Source Are Foreign Investors and Multinationals
Engaging in Corrupt Practices in Transition
Economies? by Kaufmann, Hellman, Jones, in
Transition, May-June 2000. Note Survey Question
was How often nowadays do firms like yours need
to make extra, unofficial payments to public
officials to gain government contracts? Firms
responding sometimes or more frequently were
classified as paying kickbacks. These figures are
subject to significant margins of error and thus
should be regarded as approximate.
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I. Corruption poses 3 significant risks to the
World Bank
Development Effectiveness Risk
That corruption will undermine the impact of
development efforts in general and in
donor-supported projects
Reputational Risk
Fiduciary Risk
That large amounts of aid in countries with
corrupt leaders will tarnish donors reputation
That donor resources will not be used for the
purposes intended
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I. The Bank has come a long way in a brief
period of time
The Bank has come a long way in a brief period of
time
State in a Changing World (97)
O.P. Mainstreaming AC in CAS (99)
PSG Implementation Update (02)
Governance Pillar - CDF (98)
Strategic Compact (97)

• Diagnostic/Data/ Monitoring Tools
• Public Financial Management and Procurement
• Administrative Civil Service Reform
• Civil Society Voice, Transparency, CDD
• State Capture
• Legal Judicial Reform

Governance Strategy (00)
JDW Cancer of Corruption Speech (10/96)
WDR on Institutions 1982
Anti-corruption Strategy (97)
Gov/A-C Diagnostics start (98)
TI CPI (5/95)
Broadening Mainstreaming
The Prohibition Era
"The World Bank is clearly the leader in helping
countries to diagnose governance problems, devise
policy responses, develop the necessary skills
and then implement programs to combat
corruption." -- US Department of Treasury,
Report to the US Congress, 2002
1st set of firms Debarred from WB (99)
Internal AC unit created in WB (98)
Board endorses Integrity Strategy (04)
Formalization of INT (01)
PDW Bank President (05)
1980
1990
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
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I. Good Governance has many dimensions Bank
operations focus only on some

• Effective Public Sector Management
• Ethical leadership asset declaration, conflict
  of interest rules
• Meritocratic civil service with adequate pay
• Transparency accountability in budget mgnt
• Transparent, competitive procurement
• Anticorruption in sectors

• Political Accountability
• Political competition, broad-based political
  parties
• Transparency regulation of party financing
• Disclosure of parliamentary votes

• Institutional Checks Balances
• Independent, effective judiciary
• Legislative oversight (PACs, PECs)
• Independent oversight institutions (SAI)
• Global initiatives UN, OECD Convention,
  anti-money laundering

GOOD GOVERNANCE

• Private Sector Interface
• Effective, streamlined regulation
• Transparent public-private dialogue
• Break-up of monopolies
• Transparency in Extractive Industries
• Corporate governance
• Collective business associations

• Civil Society Media
• Freedom of press
• Freedom of information
• Civil society watchdogs
• Public hearings of draft laws
• Report cards, client surveys
• Participatory country diagnostic surveys

• Local Participation Community Empowerment
• Decentralization with accountability
• Community Driven Development (CDD)
• Oversight by parent-teacher associations user
  groups
• Beneficiary participation in projects

Primary focus of WB operations in governance
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I. Key International Standards, Practices
Commitments

• US Foreign Corrupt Practices Act
• UN Convention on Bribery
• OECD Guidelines
• UN Global Compact 10th Principle
• Transparency International Integrity Pacts
• World Bank Strategy Paper on Governance and
  Anti-Corruption

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I. World Banks Anticorruption Strategy
World Bank
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• Quick Status Report
• The Good News

World Bank
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• Quick Status Report
• Still a Way To Go

World Bank
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Building New Tools

• It is the Banks RESPONSIBILITY, as for other
  international organizations
• to prevent corruption within Bank projects
• to ensure that Bank funds are used for their
  intended purpose
• ? Prompted launch of Voluntary Disclosure Program
• Allows participants to
• Voluntarily disclose information about their
  Misconduct in Bank-financed or supported projects
  or contracts
• In exchange for
• No debarment
• Confidentiality
• More details at www.worldbank.org/vdp

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II.

• The Broader Context
• Governance and Corruption What is the
  Connection?

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II. Good Governance Matters for Investment and
Growth
Income per capita Growth Rate
Investment share in GDP
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15
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Medium
Low
High
High
Medium
Low
Governance Quality
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II. The Four Pillars of Good Governance
Pillars of Good Governance
Voice And Accountability
Regulatory Quality
Rule Of Law
Control Of Corruption
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Economic growth and development
Think Comprehensively about Corruption and
Development
Effect of Corruption on
Sectors (education, health, infrastructure)
Stakeholders (public sector, companies, civil
society)

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Corruption can be thought of as a behavior that
imposes additional costs on
Corruption hurts the public and the private
sector.
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II. The Costs of Corruption

• Higher cost of doing business.
• Higher transaction costs.
• Restricted access to capital and funding.
• Restricted access to international markets.
• Reputational loss with partners, consumers and
  stakeholders.
• Lower quality of public goods.
• Misguided regulation and policy making.
• Exacerbation of poverty and inequality.
• Corruption hurts the public and private sector,
  as well as deteriorates the business environment.

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II. Supply Demand

• Both the public and private sectors engage in
  corruption.
• Corruption can be described in the framework of
  supply (private sector) and demand (public
  sector).
• For decades, the focus of anti-corruption
  measures was on the demand side (i.e. limiting
  the ability of government officials to accept
  bribes).
• Yet, the supply side (i.e. efforts to limit
  ability to engage in corruption) is equally as
  important.

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III.

• The Private Sector Side of Corruption

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III. The Private Sector Side of Corruption
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III. Costs of Corruption for Private Sector by
region
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III. Corruption as a Key Constraint for the
Private Sector by region
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IV.

• Partnerships against Corruption
• Business-Led Collective Action

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• fighting corruption requires a long-term
  strategy that systematically and progressively
  attacks the problem, and that is why any strategy
  for solving the problem requires the commitment
  and participation of governments, private
  citizens, and private businesses alike.
• Paul Wolfowitz, World Bank President, Jakarta,
  Indonesia, April 11, 2006

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IV. Business Action

• It is in businesses own interest to engage in
  the fight against corruption.
• If corruption part of business environment, not
  much was single company can do.
• Collective action with other companies and/or
  other stakeholders (i.e. NGOs, government
  agencies) can be key solutions.
• Collective action can create a level playing
  field on which to compete increases the impact on
  local business practices beyond the capacity of
  any company.

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IV. Advantages of Fighting Corruption Collectively

• Impact beyond the capacity of any single firm.
• No free riders.
• More effective implementation and enforcement of
  anti-corruption measures.
• Innovative approaches to fight corruption at the
  local level.
• Linking up to government allows for addressing
  the demand side of corruption.
• Establishment of public-private dialogue could
  lead to the long-term improvement of the business
  environment.
• Enhanced Competitiveness

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IV. Potential Approaches to Fight Corruption
Collectively

• On the demand side, the most common methodologies
  include
• Diminishing corruption by advocating for
  governments to improve business environments.
• On the supply side, the most common methodologies
  include
• Promotion of accountability standards for all
  participating sectors campaigns to build public
  understanding of the costs of corruption and the
  demand for change.
• Training and capacity building within private
  sector to implement anti-corruption measurements
  more effectively.

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IV. Example Extractive Industries Transparency
Initiative Key Principles

• Independent review of payments made to the
  government by oil, gas and mining companies and
  of revenues received by government from those
  companies by a reputable third party (i.e. audit
  firm)
• Publication in a readily accessible form of
  payments made by the companies and of revenues
  received by government
• Extension of all of the above to companies
  including state owned enterprises
• Active engagement of all stakeholders in the
  design, monitoring, and implementation process
• Commitment to a work plan and timelines for
  implementation

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IV. Role of WBG and Multilateral Organizations in
Collective Business Actions

• Often business are scared to be "punished" for
  addressing anti-corruption issues.
• The WBG can
• be an active mediator among private firms, the
  public sector and civil society.
• provide the right environment for successful
  business action by providing a politically-neutral
  territory.
• facilitate across stakeholders and constituents.
• enhance the replication of models across other
  regions and commodity systems (multiplier
  effect).
• Build capacity within specific sectors so that
  they are able to partner, and so they may
  contribute more effectively to the partnership.

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V.

• Walking the Talk
• BCD Team Involvement in Anti-Corruption
  Partnerships

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V. BCD Team Involvement
Facilitate
Effective Partnerships
Educate
Develop Capacity
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V.

• The BCD Team facilitates, educates, and develops
  capacity of our clients so that they may form and
  sustain effective partnerships to combat
  corruption.

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V. IMF/World Bank Annual Meetings

• Plenary Session, Partnerships to Combat
  Corruption Rising to the Challenge, during the
  Program of Seminars.
• Singapore, September 2006
• Moderator Dele Olojede, Pulitzer Prize winning
  journalist
• Panelists
• Paul Volcker, Chairman, Independent Inquiry
  Committee into the UN Oil for Food Program
• John Githongo, Senior Associate Member, St.
  Anthonys College, Oxford University and former
  Permanent Secretary for Ethics and Governance,
  Kenya
• Huguette Labelle, Chair, Transparency
  International
• Mohamed Ibrahim, Chairman, Celtel International
  B.V.
• Nuhu Ribadu, Chairman of the Economic and
  Financial Crimes Commission, Nigeria
• Development Outreach WBI leading publication.
• Fighting Corruption Business as Partner

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V. Key Institutional Partners

• Transparency International
• High-level seminars, conferences e-conferences.
• IMF/World Bank Annual Meetings, September 06.
• Publications Development Outreach.
• United Nations Global Compact
• Collective Action against Corruption online
  Toolkit.
• Forthcoming.
• Joint programs, conferences publications.
• World Economic Forum
• US Department of Commerce
• Firm-Level Business Ethics Responsible
  Management web-based course program.
• Joint programs, conferences publications.