Global Issues Seminar Series

May 4, 2006

Global Economy: Governance and Corruption

Vinay Bhargava, Director International Affairs, The World Bank

Slide 1: Definition

The World Bank

defines corruption as:

the abuse of public office

for private gain

Slide 2: Corruption is present in all countries in the world—pervasiveness varies

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Slide 3: Consequences—corruption lowers incentives for investment

Slide 4: Consequences—corruption affects the personal lives of citizens and hurts the poor the most

Slide 5: Consequences— corruption undermines institutions

Slide 6: Consequences—corruption undermines trust in institutions

Slide 7: Globalization of the Fight Against Corruption

UN Oil-for-Food Scandal

Slide 8: Globalization of the Fight Against Corruption

UN Oil-for Food Scandal Of $100-billion-plus worth of transactions,

$1.8 billion diverted as illicit payments More than 2,200 companies were involved Illicit kickbacks came from companies and

individuals from 66 countries Illicit surcharges were paid by companies

from or registered in around 40 countries

Slide 9: A Global Consensus for Fighting Corruption

Millennium Declaration adopted by the UN General Assembly in 2000 commits member to good governance nationally and internationally—reaffirmed in Monterrey Consensus of 2002 and 2005 World Summit

NEPAD (2001)—African leaders pledged to fight corruption; G8 matched this with support under G8 Africa Action Plan and at G8 Economic Summit in 2005

European Consensus on Development stresses good governance (European Parliament, Council, and Commission)

Slide 10: Forces Shaping Evolution

of Corruption as a Global Issue Demand: Policies to increase transparency in

public, corporate, and international finance arenas; research supplying credible information

Supply: Anticorruption measures —national and international

Institutions: Speed at which national and international governance institutions mature

Integrated financial systems—harder to monitor; increases risks of corrupt behavior

International TI: CPI (1995-), Source Book, BPI (1999-),

GCR (2001-), GCB WBI (1996-) IFC: Costs of Doing Business and Enterprise

Surveys National

SWS in Philippines Opinion survey in Norway

ADVOCACY

Slide 11: Demand for Controlling Corruption

Slide 12: Disclosure—The Right to Know

Slide 13: Increasing the Supply

of AC Measures ADB-OECD Anti-Corruption Initiative for Asia-Pacific: 2000, 36 members launched, 25 endorsed (2005); 3 pillars

Transparent systems for public service Anti-bribery actions and integrity in business

operations Active public involvement

Anticorruption Institutions National Integrity System: judiciary, regulatory

agencies, ACAs, Ombudsman, media, civil society, etc.

Slide 14: International Actions to Combat Corruption

Ensuring that loans and grants to developing countries are used effectively

Bolstering donor support for reform Reducing the incentives for multinational

businesses to pay bribes Promoting international programs to control

organized crime and the flow of illicit funds Improving the institutional framework for

resolving international disputes

Slide 15: International Actions to Combat Corruption

UNCAC: 133 signed; 30 ratifications to enter into force reached on Sept. 15, 2005—preventive measures, criminalization and law enforcement, international cooperation, asset recovery

OECD Convention Against Bribery: all 30 OECD members and 6 non-members have complied with making it a punishable offense to bribe an official in a host country; as of 2005, only 4 have prosecuted more than 1 case; uses a 2-step peer review system

FATF: national and international policies vs money laundering and terrorist financing; 30 countries + HK, EC, and Gulf states are members

Slide 16: Civil Society Initiatives Transparency International

EITI: 8 countries implementing; 14 more have endorsed; IFIs, donors, mining and oil companies, NGOs included

Global Witness: investigative org to break link between natural resource exploitation and the funding of conflict and corruption—led to demise of Khmer Rouge, now active in Asia and Africa

Global Organisation of Parliamentarians Against Corruption (GOPAC): 400 parliamentarians from 70 countries fighting corruption

Slide 17: Raising International Disclosure Standards in Corporate Sectors International Accounting Standards: 10 countries in

1974 to over 70 countries to date International Chamber of Commerce: published Rules

of Conduct to Combat Extortion and Bribery in 1977 (revised in 1999)

International Organization of Securities Commissions has benchmarks for transparency—members regulate 90% of global securities markets

Global Reporting Initiative: GRI Sustainability Reporting Guidelines released in 2000— now over 800 companies from 80 countries file reports

Slide 18: Raising International Disclosure Standards in Corporate Sectors Publish What You Pay (George Soros, 2002): now a

coalition of over 280 NGOs worldwide Wolfsberg Group: 11 major international banks

published the Wolfsberg Anti-Money Laundering Principles of Private Banking

Partnership Against Corruption Initiative: WEF in 2004 Global Compact: 10th principle against corruption

added in 2004—hundreds of companies have committed to the compact which urges them to lobby for ratification and implementation of the UNCAC and collaborate with other anticorruption efforts

Slide 19: World Bank governance and anticorruption strategy (PW 4/11/06) Country approach

Expand World Bank’s anticorruption work at the country level to support country-partner reforms

Invest in professional expertise Back up teams in the field with governance specialists

Develop strategies in high-risk countries to mobilize all World Bank instruments, loans, grants, research, technical assistance, and private-sector investment to strengthen the fight against corruption

Increase investments in such key areas as judicial reform, civil service reform, the media, freedom of information, and decentralization of public-service delivery

Slide 20: World Bank governance and anticorruption strategy (PW 4/11/06) Implement a new system for minimizing the risk of

corruption in World Bank–funded projects Deploy anticorruption teams in many Country Offices to

work with local institutions like government audit units and anticorruption commissions to protect Bank projects and strengthen public procurement systems

Re-design projects to address the incentives and opportunities to fight corruption right from the start

Example: communities can determine village investments, control funds, and monitor project results

Strategies are published on the Web; Investigations Unit empowered with staff, skills, and resources to detect and follow-up allegations of corruption in Bank-financed projects

Slide 21: World Bank governance and anticorruption strategy (PW 4/11/06) Expand partnerships with stakeholders

Private sector—work with firms and individuals to identify misuse of funds in World Bank–financed private-sector projects

Multilateral development banks—heads agreed on a common approach to the problem

Common strategy to blacklist firms that engage in corruption on MDB projects (WB publishes list)

Share information on these firms Civil society—key to holding governments

accountable; can help ensure that aid dollars flow to communities that they are intended to go to

Slide 22: Role of the World Bank in Combating Corruption In February 2005, the Bank released its first

annual report on corruption and fraud investigations involving Bank-financed projects as well as internal cases

The Bank spends $10 million annuallyon investigations and sanctions—more than all other MDBs combined

The INT has over 50 staff and is larger than any other unit in similar organizations

Among MDBs, the Bank pioneered in the use of voluntary disclosure

Slide 23: Role of the World Bank in Combating Corruption The Bank actively supports international

and inter-agency programs Joined the IMF and the RDBs in reaching a

consensus agreement on the broad policies and practices needed to address corruption within the organizations and in member countries

Partners with institutions for research such as BEEPS with EBRD

WBI research is highly participative; has partnership agreements with nearly 200 organizations from all sectors