Slow Crawl On Corruption

A long walk to freedom need not mean a slow crawl on combating corrupt government

BY PETER O’BRIEN*

The recent (May 12) London Summit on Anti-Corruption resulted in another small step in the right direction. About 40 countries were represented, along with a number of international sports associations and similar bodies that have come under scrutiny for corruption. No real agreements were made, but some initiatives were announced. The UK Government, which for the last several years has been concerned about that country’s poor reputation due to its role in money-laundering, confirmed its plans to establish a register (with retroactive force) of large property owners. The so-called Beneficial Owners Transparency Initiative will shortly be made law. Despite the efforts to persuade other significant countries to follow the same path, to date only 4 of the G20 countries have committed to ending the practice of Secret Company Ownership. The sports associations present (which did not include FIFA, perhaps because of its major meetings in Mexico the following day) agreed to launch, in 2017, an International Sport Integrity Partnership, though the details of this are still unclear.

La Suisse lave plus blanc

The London meeting sensibly sought to focus on a single dimension only of anti-corruption efforts, namely financial secrecy. It is now some 35 years since the Swiss campaigner, Jean Ziegler, published a fierce tract on money-laundering in his own country, “La Suisse lave plus blanc” (in English translation: “Switzerland Washes Whiter”) , and it was towards the end of the 1980s that activities against the international drug trade started to place priority on tracking down where and how the money had been used (especially through the efforts of the Financial Action Task Force, set up with the participation of both national and international institutions). Notwithstanding the flood of additional information (that will require very careful analysis) provided by the Panama Papers, this route remains a tough one.

There are at least three problems to overcome. First, and most important, the reluctance of countries ( and states/regions within them) to embrace full transparency. Put simply, that elusive animal, political will, is hard to manage. Second, the complexity of legal and other arguments relating to what should be the boundaries separating legitimate claims for privacy from claims designed to shroud illegal behavior. Third, the major practical difficulties in carrying out investigative work on the scale required. To date, no international body has been given the resources adequate to such a task.

Corruption vs. Money

Discussions of corruption and money often mix together issues that should be kept separate. Africa’s countries are faced with two challenges: the use of money to distort decisions (such as those involving public procurement) and the avoidance of payments that should be made to the State (leading to what is variously called the “shadow economy” or the “informal economy”). Both things make governance more difficult, and tend to impede economic growth. Both can lead to money laundering. And at least the former often involves foreign entities.

While the London Summit did not unfortunately shed much new light on these matters, the information made available again underlined how so many other countries are locked into the same battle. For instance, data referring to 2012 and covering 20 EU Member States show that best estimates of the size of the shadow economy in relation to GDP are quite alarming. Of the 20 countries measured, the lowest percentage (shadow to total GDP) was for Austria, at 7.6% while the highest was for Bulgaria (31.9%). The median figure, 15.5%, was for Slovakia, a striking finding given it is a country that for years has had only a single, and low, tax rate (meaning tax evasion might be expected to be small). Indeed, both Germany and Sweden have a shadow economy/legal economy ratio of around 14/15%. In other words: the advanced countries not only have a problem with aggressive corruption (that aimed at particular projects and programs) but also with the silent corruption of the shadow economy.

Governance & Incentives

The governance issues, not really examined in London, remain for Africa at the center of the problems. It is now a full 20 years since the then President of the World Bank declared that governance was the great obstacle to be overcome in the efforts towards development, and further declared that “the cancer of corruption” was the central issue in governance. Since then, it seems that little progress has been made. Or, to put it differently, the efforts of a political and technical nature have been neutralized by the growing sophistication (legal, technological and financial) in the criminal world.

The measures against money laundering operate from the premise that if criminals are faced with a high risk that they will never be able to enjoy the benefits of their actions, they will be much less inclined to behave badly. This is a fair line of policy to follow, yet so far the deterrent effect does not seem to have been too powerful. An opposite way of tackling things is to find ways of reducing the incentives to corrupt behavior to start with. Given that for Africa it is this which would seem to provide the best, if modest, hope for achieving home-grown policies against corruption, future efforts should be made along these lines.

No doubt many countries are already experimenting with their own tentative policies. It might be made worthwhile establishing simple information exchanges among countries about how they have designed and implemented such policies, and the results they are achieving. For some years, it has been normal to use an experimental approach towards assessing and improving various anti-poverty programs. It is perhaps now time to follow the same path with regard to anti-corruption.


* About the author: Peter OBrienPeter O’Brien is economics & trade advisor to Africa consulting boutique Pr1merio. With over 30 years’ international expertise in economic and financial analysis, trade negotiations, and deal making, Peter O’Brien has advised governments, NGOs, and private clients on economics, policy, and diplomacy matters. Peter has worked worked in all regions of Africa, providing advice to clients ranging from South African conglomerates to Ethiopian government ministries.  A native of Ireland, Peter is fluent in English, French, Spanish, Portuguese, Italian and German.

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“Just a math issue”: Anti-Corruption Efforts in Kenya take Center-Stage for Obama

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Anti-Corruption Efforts will Require some “Visible Prosecutions”

President Obama opined that it was “absolutely the right thing to do for President Kenyatta [to] emphasize” the Kenyan government’s stepped-up anti-corruption efforts.  He called public corruption potentially “the biggest impediment to Kenya growing even faster.”

“Just a math issue”

Business efforts being “constantly sapped” was a real risk to foreign direct investment, as Obama pointed out: “International businesses are concerned if the price of investing in Kenya is 5-10% going to some place that doesn’t have anything to do with the project.  It’s just a math issue.”

Acknowledging that corruption is not only an African problem (noting that even the U.S. and his hometown of Chicago had faced significant public fraud & bribery problems), the President highlighted what AAF has often stated: anti-corruption efforts imply serious cultural changes and necessary at both the top as well as the grassroots levels.  They will “require some change in habits,” and most notably “require some visible prosecutions,” according to Obama.

It is not hard to predict that President Kenyatta’s cabinet will see more shake-ups as a result of the promised stepped-up anti-corruption efforts.

The Ethics and Anti-Corruption Commission offices in Nairobi

As we noted in “Increased anti-corruption enforcement across Africa?“:

“You will read about record-breaking fines imposed; and you will hear about ever-longer jail sentences for violators.  African nations are no different in this regard than the U.S., where the DOJ has an annual tradition, almost invariably touting record-setting numbers resulting from its various enforcement divisions.  Even a quarter billion dollars of cumulative fines in South Africa are insufficient evidence of true deterrence, however — what is needed going forward is a culture of anti-corruption compliance, which goes deeper and spreads its roots more widely throughout the business & governmental community than any single record fine or jail sentence can ever accomplish,” says Andreas Stargard, an attorney with Primerio, an Africa-focused law firm and boutique business consultancy, advising on anti-corruption and competition & regulatory matters across the continent.

“Tender-preneurs” holding back tech investment in Africa

Will technological tender process end the reign of “tender-preneurs”?

Biztech Africa‘s Tom Jackson reports from Connected East Africa conference in Diani, Kenya, that former Kenyan permanent ministry secretary Dr Bitange Ndemo has given a speech on how corruption is holding back technological investment in the country.

Image: By BiztechAfrica

The paper reports that development as a tech hub in East Africa is “being held back by corruption and “tender-preneurs” who take advantage of lax procurement regulation.”

The speaker was in the ministry until 2013 and has since returned to the University of Nairobi.  Referring to new government initiatives to digitise the procurement process (in order to prevent and/or limit corrupt tenders), he said that “I hope, and I pray, that this anti-corruption process at the moment reveals the true ‘tender-preneurs’.”

“Because the problem is in the procurement law and the PPP law. We have super wheeler dealers behind and then you are the one that gets in trouble. But if they were to decide to work for the people then Kenya would be developed in one year. Because they can execute.”

Anti-Corruption Enforcers from Commonwealth Countries to Meet in Africa

International agency cooperation at heart of 4th Commonwealth Africa Regional Meeting for Heads of Anti-Corruption Agencies (May 26 – 30)

The theme of this year’s conference will be one of international cooperation – a trend we see globally as practitioners: enforcement agencies are able to increase exponentially their success rate in uncovering and prosecuting bribery, corruption and public fraud by closely cooperating with their international sister authorities.

The event’s title is therefore aptly (if blandly) put: “Coordinating National Anti-Corruption Agenda within Commonwealth Cooperation.”  The event will be hosted by the Ghanaian government and organised by the Commonwealth Secretariat.  (Last year’s conference, held in Mauritius, was more intriguingly entitled: “Fighting corruption without fear and favour”).  The event has been described as “peer-to-peer” / “south-south” and is designed to strengthen the network of heads of regional anti-corruption enforcers.

According to a Ghanaian government report, the country’s Commission on Human Rights and Administrative Justice (CHRAJ) issued a statement, saying that combating corruption has been identified by the Commonwealth Secretariat as crucial to its work: “To this end, Commonwealth Secretariat has established the Network of Anti-Corruption Agencies (ACAs) in Commonwealth Africa to enable South-South collaboration and learning,” and a Commonwealth Africa Anti-Corruption Centre has been established in Botswana to aid in coordinating the Commonwealth-African agencies’ team work in the future.

Criticism

The CHRAJ, based on a provision in the 1992 Constitution, has not been without its critics., who have emphasised that the solution to corruption in African countries “lies in not the establishment of more structures to fight corruption but the reorganisation of existing ones to strengthen and improve their efficacy.”

The conference may accomplish just that, notably by strengthening international cooperation in the region.  Such information-sharing coordination not only enhances agency skills, investigatory readiness, and network effects, but may also have as a positive side effect an improved checks-and-balances system that would otherwise lack if each authority operated without a close watch by sister agencies vis-a-vis each other.

Seminar on public tenders in S. Africa now ongoing: Hyatt Johannesburg

Nortons Inc. is hosting a seminar on all aspects surrounding public tenders.  More at https://twitter.com/NortonsInc and below:

PUBLIC PROCUREMENT AND TENDER AWARDS: UNLAWFUL AND ILLEGAL PRACTICES ASSOCIATED WITH TENDER PROCESSES

09 MAY 2014

Hyatt Regency Johannesburg
191 Oxford Road, Rosebank, Johannesburg

SPEAKERS AND PANEL MEMBERS:

Neren Rau (CEO – SACCI)
Advocate Glynnis Breytenbach (Former Senior Deputy Director of Public Prosecutions in the Pretoria Regional Office for the Specialised Commercial Crime Unit)
Kenneth Brown (Chief Procurement Officer – National Treasury)
Steven Budlender (Advocate of the High Court)
Andreas Coutsoudis (Advocate of the High Court)
Luke Kelly (Advocate of the High Court)
David Lewis (CEO – Corruption Watch)
Mike Hellens SC (Advocate of the High Court)
Vincent Maleka SC (Advocate of the High Court)
Gilbert Marcus SC (Advocate of the High Court)
Anthony Norton (Director – Nortons Inc.)
John Oxenham (Director – Nortons Inc.)
Anton Roets (Director – Nortons Inc.)
David Unterhalter SC (Advocate of the High Court)

TO REGISTER: Contact Carina Basson at 011 666 7567 or carina@nortonsinc.com by 02 May 2014.

Sponsor

PUBLIC PROCUREMENT AND TENDER AWARDS: UNLAWFUL AND ILLEGAL PRACTICES ASSOCIATED WITH TENDER PROCESSES PROGRAMME

Download the Programme PDF here.

Exploring overlap of anti-corruption & competition laws

ICC FraudNet Spring 2014 conference

AAF & AAT editor John Oxenham of Nortons Inc. was an invited speaker on current trends in African anti-corruption and anti-fraud enforcement. See more details on the conference and FraudNet here.

The emerging overlap of antitrust and anti-corruption issues – including significant efficiencies from combining preemptive internal audits as well as corporate compliance programmes in these two respects – presents a natural synergy for legal departments, allowing them to economise outside-counsel spend whilst at the same time enhance the rigour and comprehensiveness of their compliance and audit programmes.

Please contact the authors for more information on the services we can provide in Africa, the U.S., in Europe and Asia.

John Oxenham, editor