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    Denis Osborne, Associate Director Studies, RIPA International, London

    Based on a presentation at the WORLD ETHICS AND TRANSPARENCY FORUM,

    on the theme ‘Towards Greater Transparency for Global Competitiveness’

    in the session ‘Combating Corruption – Impact of Corruption

    on Developed and Developing Economies’

Personal introduction:

    I was glad to have the opportunity given by the Forum to learn from others and share ideas, and to meet friends in Malaysia including four Malaysians who came to a two-week seminar I led at RIPA International in London last November. I had also hoped to meet Syed Hussein Alatas. His books on 1 helped me in my early studies of the subject and I had a corruption published in 1986 and 1990

    delightful evening talking with him at his house in Kuala Lumpur two years ago. I could get no response when I tried to contact him by e-mail and telephone and I heard the day before I left London that he had died two weeks before. I dedicate this short paper to him, for I owe him much.

    Unfamiliar truths? This question reflects uncertainty about whether you, as the reader, find these claims unfamiliar and whether you think them true. For the most part I agree with the often-repeated advice about corruption and ways to combat it, but rather than repeat accepted wisdom I concentrate here on matters I think important (and true) but unfamiliar to many.

     The social consequences of corruption matter more than the economic 1

    When people write or speak about the impact of corruption most focus on the economy, but it is often not the economic impact that worries citizens most. Many are more concerned with the breakdown of trust in society and the risks to people‟s safety and lives caused by corruption than with its impact on the national budget. Some point to strong economic growth

    in countries said to be very corrupt and to „wicked‟ companies doing well.

    Corruption damages society by destroying trust at all levels. There can be stormy relationships in the family when relatives or friends think they are being cheated by each other. That is especially so in some extended families in traditional societies, as reported by some of their members. Working life is soured if employees think their colleagues are using corrupt means to gain unfair promotion, or that top management has made corrupt deals that put jobs at risk. There can be a breakdown of trust between management and staff or staff and clients. Corruption leads citizens to lose trust in government, including both elected leaders and public

     service employees. Sometimes this extends to disillusion with all parts of the political process

    politicians, elections and democracy. There is similar loss of trust at all levels of government

    national and local and in regional groups of countries and international organisations. This is matched by crises of confidence from time to time in private sector business and in non-profit non-governmental organisations, Governments are aware of the problem. Political leaders have expressed concern about lost public confidence in the competence as well as the integrity of politicians and appointed officials and are giving greater priority to winning the trust of citizens. Concern about a decline in customer confidence in the ability of the public service to deliver effectively was voiced clearly by the British Government and linked with the need for top managers to be „visible leaders who inspire trust‟ (Cabinet Office, 2003). The concerns of

     1 Copies of notes or ‘reviews’ written at that time, and since revised, are given in an annex to this paper.

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 1

    many elected leaders match those of their citizens so that for them, too, the social damage when corrupt practices cause a breakdown of trust is of greater concern than damage to the economy.

    Arguably the damage to personal safety and local and national security causes even more anxiety. Corruption puts lives at risk. Corruption kills. If corrupt payments enable managers to avoid compliance with regulations, the health and safety of employees is at risk and the environment may be subjected to unrestrained pollution. If there is corruption in the appointment of managers, their incompetence may endanger others. On a small scale there is the danger from those who pay bribes to get a driving licence for which they are not qualified.

    Those risks to safety and security are very serious if corruption affects law-enforcement. Bribes may then enable thieves and murderers to escape arrest, conviction and punishment, leading to increased crime that puts citizens at greater risk from theft, robbery, rape, murder (and terrorist crimes), the growth of criminal syndicates and failures of national security. The loss of personal safety for self and family drives people to despair and anger, and may boost the frustration with corruption that leads some to support extremists, about which an early warning was given by de Sardan (1999). A further danger of which many seem unaware but which may cause major concern in the next few years comes from irresponsible experiments in genetic engineering and neuroscience, „brain control‟ and other research fields, for which

    precautions and monitoring can be rendered inadequate when bribes are paid.

    The impact of corruption is important because concern about the damage done by corruption motivates people to combat it. There is nothing especially new in recognising this. Alatas (1990) argued that the case against corruption is moral rather than functional or economic. Corrupt acts are immoral because of the personal suffering they cause.

2 The scale of the economic impact is often under-estimated

    It has been argued above that the loss of trust and safety caused by corruption are more important than the damage to the economy. Nevertheless the risks to the economy are also important and the economic costs are sometimes under-estimated. In 1992 a „Clean Hands‟

    operation led to a reduction of corruption in Milan and it was found that contractors had been winning contracts with bribes 2% or 3% of contract value. After the clean-up it was reported that the costs per kilometre for building an underground railway fell by 57% and costs for other 2. Milan‟s local government had been getting very poor value projects by between 15% and 60%

    for money because bribes had made competition ineffective. But where had the money gone if bribes of 2% or 3% led to prices being doubled? It must have been the companies and their agents that made massive gains. When their agents knew that the companies would refund the cost of the bribes it would be easy to exaggerate the cost of the bribes needed to win a contract (the companies could not expect those paid the bribes to give receipts!) Those who paid the bribes the companies and their agents made much bigger profits than the officials

    who took them. Many efforts to combat corruption focus on officials and other employees who take bribes; it is important to recognise the very great motivation that drives people to pay them.

     2 e-mail of 29 November 1999 from Transparency International Italy ( circulated in virtual

    conference by

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 2

     3 the estimated losses of tax revenues In two Asian countries in which I have worked

    attributable to corruption have been 50%. Again it seems likely that relatively small bribes to a customs officer or tax collector could bring big savings in tax liabilities, with those who pay getting greater benefits than those who receive. This may help show money trails that can help investigate corruption, and serves as a further warning that those who pay bribes have a strong motivation to keep a system corrupt.

    Such costs, together with the distortion of policy when choices are made to get personal gain rather than benefit to the community, make it valid to argue an economic case for acting against corruption. Those arguments are especially necessary when seeking funds to combat corruption from ministries of finance, and from international sources such as the World Bank which have or had mandates to support only economic development. But this should not lead to forgetfulness about the costs of corruption to society and to personal and national security.

3 Corruption comes in one of two frequencies, Low or ‘Very high’

Corruption comes in many forms and all sizes but usually in one of two frequencies very

    seldom or Low Frequency (LF), or very often or Very High Frequency (VHF) in any group of

    business transactions. The claim is that it usually occurs at or near one of the extremes, seldom in between. Alatas (1986) suggested a three-fold classification:

    (1) restricted, not necessary to bribe to live;

    (2) rampant and all-pervading;

    (3) self-destructive, extortion, protection money.

    Alatas appears to associate these categories with nations rather than with more specific categories of business activity, and de Sardan (1999) describes a similar picture for the occurrence of corruption in African nations. What they describe for society as a whole, or a nation, is sometimes more obvious and explicable for any one type of business activity. When

    VHF corruption is found in several types of transaction involving several people the public reaction seems to follow the pattern shown in Table 1.

    Srinivasan (2002) draws on earlier suggestions that crimes of corruption may be helpfully understood (as are other crimes) as learned and copied behaviour. We can use that concept to carry out a „thought experiment‟ to show how a particular pattern of corrupt behaviour might become VHF in an environment where previously such practices occurred very seldom. Imagine an office with staff that travel from time to time on business. One is short of cash. Under pressure to raise a little money he makes a fraudulent expense claim thinking it may escape attention or at worst be thought accidental if done „just once‟. He gets paid the inflated sum. The financial pressures continue and he submits another fraudulent claim, then another. He has learnt what he can do without being detected. One day he tells his friend, and she copies his behaviour. Soon she tells her friends and they tell others until in that office it seems that „everybody does it‟.

    Somebody new joins the office staff. Those in the corrupt syndicate worry what might happen if the newcomer makes expense claims consistently below theirs for similar missions. Might

     3 Where work in a country leads to my having information that has not been published or made widely known, the disclosure of which may be to that country’s disadvantage, I do not reveal the name of the country concerned.

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 3

    management suspect the wrongdoing? The newcomer is told of the scam and encouraged to join in. If reluctant to do this they may be threatened…

    Situations like that happen in real life. Hong Kong in the 1970s was thought to be very corrupt, with the police having an especially bad reputation. A Commission of Inquiry found that new recruits in the police and elsewhere were corrupted at the start of their careers. The Chairman‟s Report (Blair-Kerr, 1973) shows the nature of syndicated corruption:

    “On a number of occasions during this inquiry I have been told that there is a saying

    in Hong Kong:

    1 „Get on the bus‟, meaning „join us in a pattern of corrupt behaviour, if you wish to

    accept corruption, join us‟ [and they would describe how they, the police, were taking

    bribes from those they were supposed to protect, and sharing these gains with each

    other and with the station‟s superintendent]; or if you don‟t wish to do that

    2 „Run alongside the bus‟ - if you do not wish to accept corruption, it matters not, but

    do not interfere, and you won‟t go so far or so fast;

    3 „Never stand in front of the bus‟ - if you try to report corruption, the „bus‟ will

    knock you down and you will be injured or even killed or your business will be ruined.

    We will get you, somehow.”

    Once they took part those recruits were trapped, scared of discovery and the risk of prison, scared even more of being beaten up by their colleagues.


    In any group of transactions bribes come in one of two frequencies,

    LF or VHF but seldom ‘in-between’, affecting people in different ways



    ; A few people bribe ; ‘Everybody’ pays

    to get unfair advantage to get fair treatment

    ; Few employees abuse ; Employees learn, demand

    position, take bribes payments and justify to

     themselves - extortion

    ; Subject seldom discussed ; Much discussed

    ; People, complacent ; People complain, pay

    ; Bribery a shameful act ; No shame

    ; Guilty fear trouble! ; Fear ‘group’ pressure (to take

     part in corrupt activities)

    ; if not, corruption vhf ; Trapped (as Hong Kong example)

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 4

    4 The objectives required for action against LF and VHF corruption are different

    Suggested objectives for LF and VHF corruption are listed in Table 2. Whether corruption is thought LF or VHF is a matter of perception, but probably what needs to be done is determined by perceptions, even if they are inaccurate. It is the perception of corruption that leads to mistrust, encourages criminals in their crime and deters investors. Each line in table 2 merits careful explanation but such objectives are familiar to many and readers may know how far these suggestions fit their experience dealing with corrupt practices. The last three lines of each column in table 2 draw on military, engineering and medical analogies, thus providing mental pictures of what might be done. The call to defend integrity where corruption is

    thought of low frequency is based on the finding that international criminal gangs, in their quest to make and launder money, target situations where they think people may be complacent. But though we may wish to attack corruption where it is seen to be of high frequency we need to remember that many acting corruptly may be trapped. They need rescue; they need to be offered a safe way of escape. The aim is to get people trapped in corrupt practices by threats, or by habit because they „get away with it‟, to change their ways. The aim is not to get

    everybody into prison though swift justice for some might be necessary to deter others.


    LF and VHF corruption call for different objectives when we consider



    ; Maintain integrity, trust ; Restore integrity, trust

    ; Prevent corruption ; Reduce corruption

    (outsiders try to subvert) though risk never zero

    ; Sustain good behaviour ; Help change behaviour

    ; Beware complacency ; Beware despair, disillusion

    ; Give warning of risks ; Give hope to the people

    ; Defend against invasion ; Attack, rescue!

    ; Repair, strengthen ; Rebuild

    ; Immunize, inoculate ; Cure, relieve pain

5 Controversial strategies have been found necessary to combat VHF


    It is people who act corruptly, not systems. Whether corruption is thought to be LF or VHF the aim is to have people act with integrity and co-operate with anti-corruption measures. With VHF corruption that will require those who have acted corruptly to change their behaviour and act with integrity instead. The options for action described here are classified as „soft‟, „tough‟, „amnesty‟ and „managing‟.

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 5

    ‘Soft’ measures may motivate and encourage them by ensuring they know more fully the damage corruption can cause. Those trapped in patterns of corrupt behaviour may be given hope by telling success stories about the reduction of corruption in some activities. People need to be informed, to be given ideas that will help them escape.

Campaigns to sell people ideas rather than goods or services social marketing as it is called

    are not without precedent. In many countries there have been campaigns for safer driving, immunisation, or precautions against HIV/AIDS. Every political party uses a similar approach in an election campaign. For an election there are, typically, three stages and these are compared below.

Create Awareness Create Awareness

    name the party and the candidate identify corruption as an issue

    explain the party‟s policies describe its damaging effects

Develop Attitude (of electorate) Develop Attitude (of staff or public)

    I want that party, that candidate to win I wish we could reduce corruption

    convince them policies are good convince people that something can be

    done convince policies of other parties are bad

    tell of successes elsewhere convince them „our‟ candidate is better than


Encourage Action Encourage Action

    cast a vote change behaviour if acting corruptly

    sign a petition or join a protest march report suspected corruption (know

    reporting channels, find easy to use, trust pay party subscription (or more) those receiving reports, confident)

    canvass in constituency

    Kindra and The use of social marketing to combat corruption is developed well elsewhere (Stapenhurst 1998). Although described here in terms appropriate for a national campaign the approach is equally applicable to managers seeking to motivate their staff. (In seminars I ask public service managers to imagine they were posted to a department that had a bad reputation and was allegedly a hot-bed of corrupt activity. What might they do?)

    It is also important in publicising policies and intentions not to promise or appear to promise too much. That leads to disillusion. Why do some talk of eradicating corruption?

    Corruption is a crime and we would like it eradicated, but we can expect no more success at eradicating corruption than of eradicating theft, rape, murder or other crimes.

    Tough measures are needed to deter some from continuing to act corruptly. These may include:

    ; Clarify laws, regulations and codes, keeping them simple and where possible making

    breaches ascertainable as matters of fact rather than a balance of opinions

    o Speed the courts if within our power to do so, or press for special courts to deal

    with corruption as, in some places, with employment disputes or family matters

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 6

    (clarifying laws and regulations also speeds the process by leading to fewer failed

    prosecutions or disciplinary actions);

    o Managers may adopt similar principles in delegating responsibilities to staff by

    seeking to clarify levels of delegation and responsibilities for reporting.

    ; Chase the money remembering that usually those who pay the bribes get away

    with the big profits.

    ; Set up ‘stings’ when somebody is expected to act corruptly in collaborating with the anti-corruption agency, police, or other body responsible for investigation.

    o But warn the potentially corrupt beforehand! The aim is not to catch them and

    have lengthy and expensive court cases ending in costly prison sentences, but to

    persuade them to change their behaviour;

    o Consider offering a reward to those whose information helps set up a sting

    operation, getting some or all the bribe they might have taken!

    ; Test integrity, using actors or ‘agents provocateurs’ to offer bribes or other corrupt

    inducements. Here too prior warning should be given as the aim is to deter corrupt activity rather than catch those engaging in it. For details see the note on Integrity Tests at

    ; Use random checks, and tell staff or clients beforehand that this will happen. If staff knew that one in one hundred expense claims would be selected randomly and checked in detail, with very severe penalties for any improper claims, that could deter fraud. It could be explained to staff that public trust in the organisation depends on an assurance that measures are used to check and ensure the integrity of its operations. The relations between management and staff or clients could be summed up in a proverb said by Schiavo-Campo and others (2001) to have Russian origins: „Trust but Verify‟.

     people from outside the community who are therefore distanced ; Use ‘outsiders’

    from local social and political pressures. They may work alone or with groups of local people for tasks where that independence of local influence is important and where that independence needs to have the confidence of the public. Judges at a certain level in India, for example, are not allowed to serve as judges in their own State. The practice advocated here is the equivalent for public service management of external auditors to ensure financial propriety or of international observers to monitor elections.

    ; Choose specific targets. Targeting resources is not simply a strategy but in many cases a necessity for other strategies to be effective. The strategies listed above may be selected and applied to activities where VHF corruption is expected. Many organisations try to spread efforts thinly and lack the resources to be effective. Many authors have advocated the „holistic approach‟, which is a recipe for failure if interpreted as „try to do everything at once‟. The success stories come less at

    national level than the level of one organisation or activity. In Nigeria, for example, an organisation responsible for ensuring the quality of food and drugs was allegedly corrupt, and is now considered trustworthy. Such changes do occur. The focus does not need to be announced beforehand (though those who may be subject to stings or integrity tests may be told). It may be changed every few weeks or months, with the majority of the available resources in an anti-corruption agency or body with similar responsibilities devoted at any one time to the reduction and if necessary uncovering and prosecution of corruption in one specific activity. Choices might include the motorway police, or collection of customs dues, or checking of safety-at-work regulations, health and hygiene in restaurants, issue of passports, etc.

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 7

    Offer an amnesty! Experience discussing such measures with international groups in seminars shows that any suggestion of an amnesty is highly controversial. Many think it would be unfair. But in countries where laxity in enforcing laws makes their sudden enforcement somewhat similar to the retroactive enforcement of new laws that change is also unfair. Where courts are crowded with a backlog of corruption cases and where cases are tried when the evidence has „gone cold‟ it is difficult to get a safe conviction.

    Such cases are time-consuming and expensive, the often fail and leave the suspect „not

    guilty‟ rather than „not charged‟. The pursuit of these cases take trained and competent

    people away from the task of deterring current and future corruption which may be achieved better by getting speedy justice for those continuing to act corruptly. However the aim in this argument is not to convince others that they should offer amnesties, but to show that the idea merits proper consideration.

    Similar questions arise for managers. Although not able to offer an amnesty from the law, a manager may wish to indicate that efforts to check and investigate staff behaviour will be focused on the future rather than the past.

Where corruption is now perceived as „VHF‟ it is reasonable to hope and expect that

    such measures will reduce corruption and reduce the damage it does to people‟s safety, their trust in each other and the economy.

‘Managing’ to combat corruption. Managers are responsible for ensuring their staff

    obey the rules, get good results by giving good service to customers, and for relationships among the staff (no bullying or harassment, for example), with customers and with the public more generally. Good service and good relationships are needed to build and retain the confidence and trust on which an organisation‟s reputation depends.

    There are many tools that promote good management in ways that reduce the risks of corruption. It has been suggested that variants of the soft and tough measures described above may be applied in management. Three more are outlined here.

    ; Transparency, where the requirement is not simply for more transparency but for

    clarity about what should to told and what information withheld. Obviously national

    security is a consideration, but so is the need for confidentiality about companies

    invited to bid for a contract so that their cannot be collusion between to fix prices. It

    is also important to recognise the cost of transparency in staff time and effort. ; Accountability, for which it is good to ask „to whom?‟ and „for what?‟ It is helpful if

    there is accountability to end users and beneficiaries of a product or service as well as

    to „the boss‟. Again the cost in staff time and the diversion of effort from serving the

    public to reporting on that service needs to be set against the benefits (bearing in

    mind that winning the trust of an educating public has an increasing priority). On

    transparency and accountability see Osborne, 2004.

    ; Intelligence! Managers should know the risks from corruption. Experience in a

    Fraud Forum convened by the Metropolitan Police in London, with representatives

    from government departments, the private sector, lawyers, accountants, etc, showed

    that different organisations experienced similar attacks of corruption and fraud at

    much the same time. Crime has fashions and it helps if managers know the fashion of

    the moment. The fashions change as criminals learn what crimes it is no longer safe

    for them to commit. Awareness of the risks from corruption is improved by co-

    operation between managers and those investigating corruption investigators know

    the current fashions.

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 8

    6 The risk of corruption is often greater in countries with developing (or transitional) economies than in ‘developed’ industrialised economies

    Problems with corruption in developing countries receive special mention from some (and were included in the title for the conference session for which this paper was prepared). Does corruption impact differently on countries having different levels of development? Does this suggest differences in the way corruption should be countered? Some in countries with developing or transitional economies have argued that concerns about corruption are a Western imposition alien to their cultures. The books by Alatas previously referenced give the lie to that. He wrote and his books were published in a country with a transitional economy and non-Western culture. In one (at least) Alatas gives several quotations expressing concern about corruption over the last 3,000 years in different cultures. Several use phrases similar to those voiced today. Osborne (1997) shows that religious leaders or „founders‟ in the main religious traditions have condemned

    bribery because it hurts people and causes injustice, not as a dogma that followers must obey and others might ignore. This offers a basis for co-operation to combat corruption between people of different faiths or claiming none.

    By his work Alatas also challenges the claims made by some that mention of corruption was taboo until the 1990s when Transparency International (TI) removed the inhibitions and the World Bank took up the cause. Alatas published on the theme before TI existed and his quotations show, as explained already, that corruption has been a matter of concern and open discussion for centuries. However there has been and continues to be an asymmetry about the risks of corruption in different countries:

; Change provides opportunities for corrupt acts that escape notice, and

    development requires rapid change.

; Power and wealth have been concentrated in the industrialised countries

    earlier than in countries with developing and transitional economies. Some business

    representatives from the industrialised countries have abused that power by offering

    bribes to win contracts. To be effective such offers required the collusion of those

    holding positions of responsibility for the award of contracts, and ready partners for

    corruption were found. A universal human weakness for corruption facilitates

    corrupt activity in countries at all levels of economic development.

; Outsiders misrepresent developing country cultures for their own ends.

    Alatas argued vigorously that the transparent gift of a chicken in village society does

    not excuse corrupt secret gifts to ministers of officials to win contracts. Business

    representatives from Western countries have said to me from time to time about a

    bribe by which they have just won a contract in some country they are visiting „it‟s

    their local tradition to give such gifts‟. I argue that such traditional gifts were small,

    shared and transparent, as shown by my experience in Africa (Osborne, 1997) and

    described for Asia by Alatas and others. To comply with local custom any outsider

    ought to publish in the media a statement of what was given to whom to win a


    Understanding why fast-developing countries and some with transitional economies may be especially vulnerable to corruption may help guide actions to reduce that corruption.

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 9

7 Mixing cultures may give cause for integrity

    This factor may be more relevant in some countries than others and merits explanation, starting with a personal experience that indicated some of the factors involved.

    At one time I had occasional meetings with British business representatives in an

    African country. Some African business managers heard of this and asked why I

    did not meet with them. I said I would if they invited me. When we met I

    remember the Africans telling me „we can never compete against the Asian

    business people in this country.‟ „Why not?‟ „Because they trust each other‟.

    One of them gave the example of a garage owner in one city who was asked to

    replace a tyre on a lorry. He did not have a tyre that size and after phoning

    round realised there were none available locally. At last he found an Asian

    colleague who had one in stock several hundred kilometres away. It was sent as

    cargo overnight on the regular bus service. The African giving the example

    explained that the two Asians trusted each other enough to make such a

    transaction possible without any actual exchange of funds. They knew neither

    would cheat on the other. Africans in the same business would not be able to

    provide a comparable service because they did not have the same levels of trust.

    That perceived trust between the members of the Asian group arose because

    the group was small and mostly knew or knew of each other. Also they felt

    under threat, fearing rejection by the African majority with whom they lived, and

    that threat made for their greater cohesion. None of them would dare cheat a

    fellow-Asian for that would make them an outcast from their own community.

    Locally, many people alleged that these same Asians acted „very corruptly‟ in

    business dealings with others outside their ethnic group!

    Expatriate communities elsewhere show similar signs of trust between members of the group that contribute much to their business success. That has been thought the experience of Jews in Europe and Asians from Uganda who went into exile in Britain. Trust has economic value provided the parties concerned are trust-worthy, as argued by Fukuyama (2001) though explanations in that work for alleged different levels of trust in different cultures are unconvincing. The problem is to build such cohesion and trust across ethnic and cultural groups to „the nation‟ and globe.

    The business advantages of trust may be reflected in formal guilds or associations or informal groups. That was true of traditional financial business in the City of London with those involved declaring „My word is my bond‟. Any who stepped out of line would be ostracised by the others and excluded from „the club‟, and that social pressure would be reflected in loss of business opportunities. (In a similar way sports teams and the military and police find that strong social cohesion is a condition for success in their work.)

    Denis Osborne, RIPA International, ? Denis Osborne, February 2007 10

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