Why it’s so easy to find corruption stories

Page 24 of OECD foreign bribery report

Page 24 of OECD foreign bribery report

The OECD has a new report about corruption. It gives people like me a good guide to where to look for scandal stories.

The OECD says state-owned enterprises are responsible for a huge part of the problem. Eighty percent of discovered cases of foreign bribery involved state companies. The natural resource industry is most vulnerable. Three quarters of cases involve intermediaries, many of them in offshore tax havens.

State companies, natural resources, and intermediaries in offshore tax havens. Where could we find such things? Sounds like there will continue to be work for those of us interested in energy corruption stories in Latin America.

Hat-tip to Global Witness for pointing out the new report. They want to help reduce corruption by pushing for an end to anonymous corporate registration. I think that will take some very concerted international cooperation. There is always some poor country that will want to whore itself out to corporations, whether as a tax haven, internet domain registry, or anonymous corporate registration hideout. Panama gets more transparent, along come Nevis and Mauritius.

Global Witness’s statement:

Today the OECD – a club of rich countries – has published a fascinating review of 427 bribery cases taken since 1999, when the OECD’s anti-bribery convention came into force. Before I jump into the detail, it’s worth underlining why I think this matters – bribery is not a victimless crime. It means vast sums of money that should be building things like schools, hospitals and railways in poor countries go missing, and keeps those countries reliant on taxpayer aid.

There are four findings that really stand out for me from today’s report, and tell the story of why bribery and corruption hurt developing countries in a way that very few of us are aware of.

  • The extractives sector has the most bribery cases, with 19% of the total. For Global Witness, this is not surprising. For 20 years we’ve campaigned for transparency in the oil, gas and mining business to ensure that these vast sums of money benefit civilians rather than  disappearing into the pockets of a small, corrupt elite. The solutions include transparency over payments made by the industry to governments, and much better information on who gets awarded lucrative contracts.
  • Three-quarters of the cases involved intermediaries who helped to funnel the bribe money. In 35% of the cases, these intermediaries were companies, often located in offshore tax havens. Global Witness’ investigations have shown time and time again the crucial role that anonymous company ownership plays in bribery and corruption. It is incredibly easy for corrupt politicians, and other criminals, to use secretive company structures to hide their involvement in dodgy deals (see our Idiot’s Guide to Money Laundering). That’s why we’recampaigning for an end to anonymous companies and the creation of public registries of who really owns and controls companies. The UK’s on board, and the EU is in the midst of debating this issue.
  • Senior management was involved in making the decision to pay a bribe in over half of the cases.Corruption can go right to the top of organisations and senior managers often play an active role in any criminality. It’s really important that senior managers are properly incentivised to stamp out corruption and criminality. This is particularly true in the financial sector where the incentives for senior management teams to ensure their banks comply with legislation are skewed. The business rewards for taking dodgy money from corrupt politicians can be high, with very little downside if banks get found out. The solution is to hold senior managers personally to account when things go wrong.
  • Over 80% of bribes were paid to officials from state-owned enterprises (SOEs). It shouldn’t come as a surprise to anyone in fighting corruption that state-owned companies pose a particular risk. They’re often opaque, while those who should be holding them to account frequently have their hands in the till. However, it is shocking that they represent such a large proportion of the total cases. Global Witness has called for greater transparencyover the management of SOEs, especially in the oil sector. It’s also important for countries to separate the body that hands out licences from the state oil company in order to reduce to risk of conflict of interest and corruption.

The report makes for fascinating reading. I’ll end with a plea to the OECD to make the database behind it public. This sort of detailed information is rare, and it’s incredibly helpful for trying to spot trends and for campaigners to work out where to focus our attention.

Personally, I don’t think any one policy change is the answer. As long as “everyone does it,” corruption is the only way to live. It takes a widespread public rejection of corruption, within the culture, to end it. And that, I think, takes an atmosphere where people feel comfortable that there is enough to go around. It helps to actually have enough to go around, and not have it all hoarded by some tiny minority of the population. I am not one to say that the Gini coefficient can predict the murder rate. But I can see how great wealth disparities and limited social mobility would make corruption, from queue-cutting at the market to billion-dollar kickback schemes, more acceptable in a society.