The Hindu Business Line : Public shame adds to price of corruption

Public shame is the new tool in the fight against corruption. If a nation is unable to rid itself of this scourge, it is good that external agencies have taken it upon themselves to make corruption public, hoping that this additional pressure will motivate some action.

C. Gopinath

It is bad enough for Satyam Computers, the Hyderabad-based computer software company, to be facing a crisis arising out of its corporate governance practices. But its problems appear to have been compounded with the report from the World Bank that the company has been barred for eight years “for providing improper benefits to the bank staff and for failing to maintain documentation to support fees charged for its subcontractors.” The newspapers have widely inte rpreted this as bribery, and the company has vigorously denied the charges. We may learn more in the days to come.

Charges of bribery

It is quite easy to jump to conclusions about charges of bribery. When a decision seems to unduly benefit someone, it is but a short leap to put the blame on corruption. In Satyam’s case, the World Bank’s charges, at this time, would in our minds help to construct a pattern of behaviour and make the charge of bribery believable. The stature of the World Bank adds to the believability factor and makes us wonder what else was going on in this company.

In 2006, the Bank suspended support for three projects in India and released funding only after the government took action on the “serious deficiencies in procurement and practices.”

The Bank’s Department of Institutional Integrity that investigates impropriety in projects where it has provided assistance provides a listing of the projects where it has found fraud and corruption.

If you visit their Web site, you might even catch a glimpse of pictures of a road that is half the width of what was proposed by the borrowing government! Public shame is the new tool in the fight against corruption. If a nation or a corporation is either unwilling or unable to rid itself of this scourge, it is a good thing that external agencies have increasingly taken upon themselves to highlight corruption and make it public, hoping that this additional pressure will motivate some action.

Nation on notice

Bulgaria was made an example by the EU recently. Last November, the EU took the unusual step of cancelling 220 million euros (Rs 1,435 crore) of grants and subsidies due to Bulgaria on the grounds that the country would not be able to prevent the amount being siphoned off by corruption and organised crime. It should come as no surprise to Bulgaria for the funds were first frozen in July which put the nation on notice to do something about it.

A statement from the EU said that the actions taken and assurances given were insufficient and it let the funding deadline lapse. Bulgaria, as a recent member of the EU, is due to receive about 11 billion euros (Rs 71,750 crore) by 2013, meant to help modernise the nation, restructure its administration, build roads, and so on. The EU clearly wanted to send a strong signal that it means business.

The Satyam situation also highlights the role of private companies in corrupting a process. Businesses tend to treat corruption as a cost that they will have to incur in some transactions. They have no qualms about the moral issues involved as long as they can stay clean on the legal side of the issue.

Another justification normally touted by companies is that the poorer nations are so corrupt that it is the only way to do business there. Until 1999 in Germany and till 2000 in France, companies could deduct bribes as an expense as per local tax laws.

However, over the years, many countries have put in place the laws and regulations that will allow them to go after these firms and bring them to justice and have begun to coordinate their efforts.

Unsavoury practices

One example is that of Siemens, the Munich (Germany)-based electronics company. Prosecutors found that the company had established slush funds to bribe potential customers in Nigeria, Libya and Russia.

When many countries started enquiring of prosecutors in Germany about suspicious payments, they were able to put together a convincing case that was proven in court and resulted in high fines. Siemens’ competitor, Alstom, a Swiss engineering company is under investigation by the authorities there for indulging in similar practices.

Switzerland, with its banking secrecy laws, is often the hub for illegal transactions. All the attention these companies are getting for their unsavoury practices should hopefully result in the setting up of ethics checks within. The nature of their bribing suggests that it was not ‘rogue’ operations but systematic practices.

The US similarly caught a high profile company in its net. A senior executive of Halliburton Co. was convicted recently of bribing officials in Nigeria for lucrative contracts related to the natural-gas business. Halliburton’s important connections in the US government (the present Vice President, Dick Cheney is a former CEO) did not help.

Clean politician, an exception

Political figures are often the focus when it comes to corruption. The slightest suspicion against a politician makes one immediately smell corruption so much so that a clean politician must be the exception rather than the rule.

In the recent case in the US of Illinois Governor, Rod Blagojevich, the 76-page indictment accuses him of various charges including that of trying to collect funds for appointing a senator to fill the recently vacated seat of Barrack Obama.

The investigation lasted five years and he knew his phones were being tapped during this last year but it did not deter him from his influence-peddling ventures. Yet, the publicity accompanying the details of the charges quickly made all politicians in the vicinity distance themselves and claim to have had no connection with him.

Lots of governments claim that they want to root out corruption. They rarely follow it up with action that suggests that they mean it. In India, governments in power tend to protect their own party members and charge only people in the opposition, suggesting harassment rather than serious intent.

A government must put its investigating agencies beyond political reach if it is serious about corruption. Often, people affected by corruption do not want to give evidence for fear of retribution. That is when sting operations, and phone tapping — two techniques frequently used in the US — helps to collect the data that the prosecutor can use in court.

Investigating agencies should also regularly release the details of their investigation to the press so that the sordid nature of the actions are made public. Corruption is insidious. One needs to keep raising the stake for those want to indulge in it.

(The author is a professor of international business and strategic management at Suffolk University, Boston, US. blfeedback@thehindu.co.in)

More Stories on : Economic Offences | Insight | American Periscope

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Stimulus Version 2.0

2008: A forgettable year

Impact on trade with Pakistan

More to housing than meets the eye

Who runs the show?

The way things work

Public shame adds to price of corruption

Price signals

Land for industry