Wednesday, April 15, 2015

Is there a need for a global integrity standard?, by Oskar Karnebäck

How do you make sure that the money you invest in a country prone to corruption is not embezzled but spent according to intent? This discussion is very topical for international development cooperation agencies as they work in most of the countries that score poorly on the available corruption indices, such as the World Bank’s Worldwide Governance Indicators or the Transparency International’s Corruption Perception Index. How do we make sure that our funds are used for meaningful investments in health, education and good governance, and do not disappear into private pockets?

At the same time, from a development perspective we know that development aid (ODA) is a shrinking part of the capital available for developing countries, particularly in relation to foreign direct investments (FDI). But the money brought in by private investors is equally at risk to be embezzled or misused, meaning that they would not contribute to development. So even if the development agencies and the profit-making investors may have different goals, they face the same risks. Are there opportunities for them to learn from each other?

This was one of the discussions during the OECD’s annual Integrity Forum held in Paris last month which focused on Curbing Corruption - Investing in Growth. The Development Cooperation Directorate organised a panel on corruption risk management for actors operating in challenging environments. Development cooperation agencies such as the UK Department for International Development and the World Bank were among the participants. Big private sector actors were represented through HP and Huawei. Interestingly, there are many similarities between the development practitioners and the private sector actors in terms of both the risks that they see and what strategies they use to mitigate those risks. Reputation is a powerful incentive for both private and public sector actors and no one wants to be connected with corrupt practices. Therefore it is important that the organisation has integrity systems in place to prevent corruption and to protect the organisation from gaining a bad reputation. As systems are always made up of people, it is imperative that the systems are well understood by all staff. Some of the common features of integrity systems are rules for financial management (in particular procurement), codes of ethics and personal conduct for the employees, and continuous training of these human resources.
In order to foster a culture of integrity, organisations could have mechanisms in place which are transparent about wrong-doing and ensure internal sanctions are predictable, enforced and communicated. Staff should also be encouraged to report suspicions of mismanagement. At the World Bank for example, of the substantiated corruption cases over 50 % of the initial reports come from their own staff. Fostering a transparent culture is considered as having a positive effect when it comes to curbing corruption in aid. The Swedish International Development Cooperation Agency has for example just released their annual corruption report for 2014 in which they report the number of corruption investigations and the result of these. As from last year Sida also publish summaries of finalized corruption investigations on the Open Aid database.

Corruption may take advantage of the sluggishness of the operations of foreign actors. For development practitioners, there is sometimes a feeling that “we cannot pull out” regardless of how much corruption is being discovered because this will hit the poorest people the hardest. This was seen not least in the latest ebola scandal where the Sierra Leonean audit office reports that a third of the money allocated to fight the virus cannot be properly accounted for. For private corporations it is really not that much easier to pull out from markets due to the big investment costs and responsibilities towards the shareholders to make a profit. This may make actors stay in operation despite facing corruption, something corrupt agents can benefit from. In this regard, national legislation was seen as having a huge effect on organisations’ decision making. With the same argument as for individuals; if it is not only morally wrong to engage in corrupt activities but there is also a risk of being heavily sanctioned, organisations make sure to keep their house in order. The UK Bribery Act and the US Foreign Corrupt Practices Act are examples of instruments that have had an impact on micro economic decision making. The UN Convention Against Corruption serves as a global framework to encourage the inclusion of anti-corruption clauses in national legislation.

So what could be done? The OECD has recently initiated research through its Anti-Corruption Task Team on the integrity and risk management systems in place in bi- and multilateral development agencies. We are currently compiling and analysing data of existing integrity mechanisms in place and will complement this with in-depth interviews with key staff in various agencies. In an extension of the scope, the study could easily include private sector actors and foundations, which would give valuable insight into the theoretical framework that guides most operations in developing countries. The discussion in the Integrity Forum indicates that there is much in common between the different actors. So why not explore the opportunities to benefit from a common Integrity Framework?

Oskar Karnebäck

Policy Analyst, Anti-Corruption


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