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Introduction of Corruption

Corruption is a broad term covering a wide range of entrusted funds and power for private gain; Theft, fraud, nepotism, abuse of power etc. A corrupt act is often but not necessarily- illegal. In handling corruption you will often face a gray zones and dilemmas.

Corruption can be classified as grand, petty and political, depending on the amount of money lost and the sector where it occurs. Grand corruption consists of acts committed at a high level of government that distort policies or the central functioning of the state, enabling leaders to benefits at the expenses of the public good. Petty corruption refer to everyday abuse of entrusted power by low- and midlevel public official in their interaction with ordinary citizens, who often are trying to access basic goods or services in places like hospitals, schools, police department and other agencies.

Political corruption is a manipulation of policies, institution and rules of procedure in the allocation of resources and financing by political decision makers, who abuse their position to sustain their power status and wealth. See animated definition of many corruption terms in our Anti- corruption Glossary

Corruption is a form of dishonest or unethical conduct by a person entrusted with a position of authority, often to acquire personal benefit. Corruption may include many activities including bribery and embezzlement though it may also involve practices that are

legal in many countries. Government, or political, corruption occurs when an office holder other governmental employee acts in official capacity for personal gain.Stephen D. Morris, a professor of politics writes that corruption is the illegitimate use of public power to benefit a private interest.

Economist Ias Senior define corruption as an action to (a) secretly provide (b) a good or a service to a third party (c) so that he or she can influence certain action which (d) benefit the corrupt a third party, or both (e) in which the corrupt has authority.

Daniel Kaufman from the World Bank extends the concept to include ‘legal corruption’ in which power is abused within the confines of the law- as those with power often have the ability to make law for their protection

* Scales of corruption

Corruption can occur on different scales. There is corruption that occurs as small favors between a small number of people, corruption that affect the government on a large scale, and corruption that is so prevalent that it is part of the everyday structure of society, including corruption as one of the symptoms of organized crime

(1) Petty corruption

Petty corruption occurs at a smaller scale and takes place at the implementation end of public service when public official meet the public. Example including the exchange of small improper gift or

use of personal connection to obtain favours or a speedy completion of routine government procedures. This form of corruption is usually pursued by junior and middle level official, who are significantly underpaid.

(2) Grand corruption

Grand corruption is defined as corruption occurring at the highest levels of government in a way that requires significant subversion of the political, legal and economic systems. Such corruption is commonly found in countries with authoritarian or dictatorial government but also in those without adequate policing corruption.

The government system in many countries is divided into the legislative, executive and judiciary branches in an attempt to provide independent service that are less subject to grand corruption due to their independence from one another.

(3) Systemic corruption

Systemic corruption is corruption which is primarily due to the weaknesses of an organization or process. It can be contrasted with individual officials or agents who act corruptly within the systems.

*Corruption in different sectors

Corruption can occur in any sector, whether they be public or private industry or even NGOs. However, only in democratic

controlled institution there is an interest of the public to develop internal mechanisms to fight active or passive corruption, whereas in private industry as well as in NGOs there is no public control. Therefore, the owner’s investor’s or sponsor’s profits are largely decisive.

(1) Government /public sector

Public sector corruption includes corruption of political process and government agencies such as the police as well as corruption in processes of allocation public funds for contract, grants, and hiring. Recent research by the World Bank suggest that who makes policy decision can be critical in determining the level of corruption because of the incentives different policy-makers face.

(2) Political corruption

Political corruption is the abuse of public power, office, or resources by elected government officials for personal gain, by extortion, soliciting or offering bribes. It can also take the form of office holders maintaining themselves in office by purchasing votes by enacting laws which use taxpayer’s money. Evidence suggests that corruption can have political consequences with citizens being asked for bribes becoming less likely to identify with their country or region.

(3) Police corruption

Police corruption is specific form of police misconduct designed to obtain financial benefits, other personal gain, and/or career advancement for not pursuing, or selectively pursuing, an

investigation or arrest. One common form of police corruption is soliciting and/or accepting organized drug or prostitution rising or other illegal activities.

Another example is police officer flouting the police code of conduct in order to secure conviction of conduct in order to secure convictions of suspects- for example, through the use of falsified evidence. More rarely, police officers may deliberately and systematically participate in organized crime themselves. Most major cities, there are internal affairs section to investigate suspected police corruption or misconduct. Similar entities include the British independent police complaints commission.

(4) Judicial corruption

Judicial corruption refers to corruption related misconduct of judges, though receiving or giving bribes, improper sentencing of convicted criminals, bias and other such misconduct.

Government corruption of judicial is broadly known in many transitional and developing countries because the budget is almost completely controlled by the separation of power, as it creates a critical financial dependence of the judicial including the government spending on the judicial is subject of the constitution economics.

It is important to distinguish between the two methods of corruption of the judicial; the government, and the private. Judicial corruption can be difficult to completely eradicate, even in developed countries. Corruption in judicial also involve the government in power using judicial arm of government to oppress the opposition parties in the detriments of the state.

(5) Corruption in the educational system

Corruption in education is worldwide phenomenon. Corruption in admission to universities is traditionally considered as one of the most corrupt areas of the education sector. Recent attempts in some countries, such as Russia and Ukraine, to curb corruption in admission though the abolition of university entrance examination and introduction of standardized computer graded tests have largely failed. Vouchers for university entrants have never materialized. The cost of corruption is in that it impedes sustainable economic growth. Endemic corruption in educational institution leads to the formation of sustainable corrupt hierarchies. While higher education in Russia is distinct with widespread bribery corruption in the US and the UK features a reasonable amount of fraud. The US is distinct with grey areas and institutional corruption in the higher education sectors. Authoritarian regimes, including those in the former Soviet republics encourage education corruption and control universities, especially during the election campaigns. This is typical for Russia Ukraine, and Central Asian regimes, among other. The general public is well aware of the high level of corruption in colleges and universities, including thanks to the media. Doctoral education is no exception, with dissertation and doctoral degree available for sale, including for politician. Russian Parliament is notorious for “highly educated” MPs High levels of corruption are result of universities not being able to break away from their Stalinist past, over bureaucratization, and a clear lack of university autonomy. Both quantitative and qualitative methodologies are employed to study education corruption, but the topic remain largely unattended by the scholars. In many societies and international organization, education corruption remains a taboo. In some countries, such as

certain eastern European countries are certain Asian countries, corruption occurs frequently in universities. This can include bribes to bypass bureaucratic procedures and bribing faculty for a grade. The willingness to engage in corruption such as accepting bribes money in exchange for grades decreases if individuals perceive such behavior as very objectionable, i.e. a violation of social norms and if they fear sanctions in terms of the severity and probability of sanctions.

(6) Legal corruption

Though corruption is often viewed as illegal, there is an evolving concept of legal corruption, as developed by Daniel Kaufmann and Pedro Vicente. It might be termed as processes which are corrupt, but are protected by a legal (that is, specifically permitted, or at least not proscribed by law) framework

Examples of legal corruption

In 1977 the USA had enacted the Foreign Corrupt Practices Act (FCPA) "for the purpose of making it unlawful... to make payments to foreign government officials to assist in obtaining or retaining business" and invited all OECD countries to follow suit. In 1997 a corresponding OECD Anti-Bribery Convention was signed by its members.

17 years after the FCPA enacting, a Parliamentary Financial Commission in Bonn presented a comparative study on legal corruption in industrialized OECD countries[60] As a result, they reported that in most industrial countries even at that time (1994)

foreign corruption was legal, and that their foreign corrupt practices had been diverging to a large extend, ranging from simple legalization, through governmental subsidization (tax deduction), up to extremes like in Germany where foreign corruption was fostered,[61] whereas domestic was legally prosecuted. Consequently, in order to support national export corporations the Parliamentary Financial Commission recommended to reject a related previous Parliamentary Proposal by the opposition leader which had been aiming to limit German foreign corruption on the basis of the US FCPA. Only after the OECD Anti-Bribery Convention came into force Germany withdraw the legalization of foreign corruption in 1999.

1. Foreign corrupt practices of industrialized OECD countries 1994 (Parliamentary Financial Commission study, Bonn) EditBelgium: bribe payments are generally tax deductible as business expenses if the name and address of the beneficiary is disclosed. Under the following conditions kickbacks in connection with exports abroad are permitted for deduction even without proof of the receiver:

*Payments must be necessary in order to be able to survive against foreign competition*They must be common in the industry*A corresponding application must be made to the Treasury each year*Payments must be appropriate*The payer has to pay a lump-sum to the tax office to be fixed by the Finance Minister (at least 20% of the amount paid).

In the absence of the required conditions, for corporate taxable companies paying bribes without proof of the receiver, a special tax of 200% is charged. This special tax may, however, be abated along with the bribe amount as an operating expense.

Denmark; Bribe payments are deductible when a clear operational context exists and its adequacy is maintained.

France: Basically all operating expenses can be deducted. However, staff costs must correspond to an actual work done and must not be excessive compared to the operational significance. This also applies to payments to foreign parties. Here, the receiver shall specify the name and address, unless the total amount in payments per beneficiary does not exceed 500 FF. If the receiver is not disclosed the payments are considered "rémunération’s occult" and are associated with the following disadvantages:

*The business expense deduction (of the bribe money) is eliminated.

*For corporations and other legal entities, a tax penalty of 100% of the "rémunérationsbr occult" and 75% for voluntary post declaration is to be paid.

*There may be a general fine of up 200 FF fixed per case.

Japan:In Japan, bribes are deductible as business expenses that are justified by the operation (of the company) if the name and address of the recipient is specified. This also applies to payments to foreigners. If the indication of the name is refused, the expenses claimed are not recognized as operating expenses.

Canada:

There is no general rule on the deductibility or non-deductibility of kickbacks and bribes. Hence the rule is that necessary expenses for obtaining the income (contract) are deductible. Payments to members of the public service and domestic administration of justice, to officers and employees and those charged with the collection of fees, entrance fees etc. for the purpose to entice the recipient to the violation of his official duties, can not be abated as business expenses as well as illegal payments according to the Criminal Code.

Luxembourg: Bribes, justified by the operation (of a company) are deductible as business expenses. However, the tax authorities may require that the payer is to designate the receiver by name. If not, the expenses are not recognized as operating expenses.

Netherlands: All expenses that are directly or closely related to the business are deductible. This also applies to expenditure outside the actual business operations if they are considered beneficial as to the operation for good reasons by the management. What counts is the good merchant custom. Neither the law nor the administration is authorized to determine which expenses are not operationally justified and therefore not deductible. For the business expense deduction it is not a requirement that the recipient is specified. It is sufficient to elucidate to the satisfaction of the tax authorities that the payments are in the interest of the operation.

Austria: bribes justified by the operation (of a company) are deductible as business expenses. However, the tax authority may require that the payer names the recipient of the deducted payments exactly. If the indication of the name is denied e.g. because of business comity, the expenses claimed are not

recognized as operating expenses. This principle also applies to payments to foreigners...

Switzerland: Bribe payments are tax deductible if it is clearly operation initiated and the consignee is indicated.

USA: (Rough résumé: "generally operational expenses are deductible if they are not illegal according to the FCPA")

UK: Kickbacks and bribes are deductible if they have been paid for operating purposes. The tax authority may request the name and address of the recipient."

2. "Specific" Legal Corruption: exclusively against foreign countries Edit

Referring to the recommendation of the above-mentioned Parliamentary Financial Commission's study, the then Kohl administration (1991-1994) decided to maintain the legality of corruption against officials exclusively in foreign transactions and confirmed the full deductibility of bribe money, co-financing thus a specific nationalistic corruption practice (§4 Abs. 5 Nr. 10 EStG, valid until March 19, 1999) in contradiction to the 1994 OECD recommendation. The respective law was not changed before the OECD Convention also in Germany came into force (1999).According to the Parliamentary Financial Commission's study, however, in 1994 most countries' corruption practices were not nationalistic and much more limited by the respective laws compared to Germany.

Particularly, the non-disclosure of the bribe money recipients' name in tax declarations had been a powerful instrument for Legal Corruption during the 1990s for German corporations, enabling them to block foreign legal jurisdictions which intended to fight corruption in their countries. Hence, they uncontrolled established a strong network of clientelism around Europe (e.g. SIEMENS) along with the formation of the European Single Market in the upcoming EU and the EURO zone. Moreover, in order to further strengthen active corruption the prosecution of tax evasion during that decade had been severely limited. German tax authorities were instructed to refuse any disclosure of bribe recipients' names from tax declarations to the German criminal prosecution. As a result, German corporations have been systematically increasing their informal economy from 1980 until today up to 350 bn € per annum (see diagram on the right), thus continuously feeding their Black money reserve.