The Hindu Business Line : A multilateral initiative to combat corruption

There may be protests from member-countries if the international financial institutions' initiative to combat corruption leads to new lending conditionalities. Yet, the fact remains that unless some tightening is done to reduce corruption where it happens, there will be little long-term benefit for the citizens of the borrowing countries, who bear the ultimate burden of the debts, says BHANOJI RAO.

The Global Corruption Perception Index (CPI), compiled by Transparency International, ranges from least corrupt (10) to the most (1). Assembling the index values for 2000 and 2004 for 88 economies, those with an index of six or more are considered relatively less corrupt. Such economies remained the same in 2000 and 2004 and numbered 26. They are the ones usually classified as industrialised. Developing economies in the relatively less corrupt group are rather few (with the CPI for 2000 and 2004): Chile (7.4, 7.4), Israel (6.6, 6.4) and Botswana (6.6).

Of the rest of the economies, numbering 62, as many as 22 had CPI below 3 in 2000. That number rose to 27 in 2004. India belongs to this group with a score of 2.8 in both 2000 and 2004.

These patterns indicate the extraordinary difficulty in even moderately overcoming the problem of corruption. In such a scenario, one should welcome attempts to promote the movement towards reducing corruption.

IFI'S JOINT STATEMENT

At the recent annual meetings of the International Monetary Fund and the World Bank Group in Singapore, a Joint Statement was issued by the Heads of the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank Group, the Inter-American Development Bank Group, the International Monetary Fund, and the World Bank Group.

The leaders agreed on a framework for preventing and combating fraud and corruption in the activities and operations of their institutions.

As a backgrounder for the agreement, they had the Uniform Framework for Preventing and Combating Fraud and Corruption prepared by an Anti-Corruption Task Force established by the constituent International Financial Institutions.

As per the Joint Statement, the signatory institutions "recognise that corruption undermines sustainable economic growth and is a major obstacle to the reduction of poverty."

Corruption affects growth by raising costs at a given level of efficiency of operations, and/or by reduction in efficiency. As for poverty, the most direct adverse impact will be seen if funds meant to combat poverty are misused and misappropriated.

To combat fraud and corruption, the IFIs endorsed their commitment to the following:

Standardised definitions of fraudulent and corrupt practices to facilitate their investigation in activities financed by member institutions;

Common principles and guidelines for investigations;

Exchange of information in connection with investigations;

Due diligence principles relating to private sector lending and investments;

Exploring how compliance and enforcement actions by one institution can be supported by the others.

UNIFORM FRAMEWORK

The Uniform Framework has come up with the following definitions. A corrupt practice is the offering, giving, receiving, or soliciting, directly or indirectly, of anything of value to influence improperly the actions of another party. A fraudulent practice is any act or omission, including a misrepresentation that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation.

A coercive practice is impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party. A collusive practice is an arrangement between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party.

`Principles and Guidelines for Investigations' form the bulk (five pages and 47 paragraphs) of the Uniform Framework document of eight pages. The relatively more important principles and guidelines — other than those that any routine investigative agency should follow — are noted below.

Each organisation will have an Investigative Office responsible for conducting investigations.

The purpose of an investigation by the Investigative Office is to examine and determine the veracity of allegations of corrupt or fraudulent practices with respect, but not limited, to projects financed by the organisation and allegations of misconduct on the part of the organisation's staff members.

The Investigative Office is to perform its duties independently from those responsible for or involved in operational activities and from staff members liable to be subject of investigations and shall also be free from improper influence and fear of retaliation.

The investigative findings are to be based on facts and analysis, which may include reasonable inferences. Recommendations shall be based on such findings.

Source of complaint

An important provision has been made with regard to the source of complaints. The Investigative Office shall accept all complaints irrespective of their source, including complaints from anonymous or confidential sources. Since anonymous complaints too are accepted, a quantum jump in the number of complaints can be expected.

The principles and guidelines are not limited to generalities only. There are instances of very specific and detailed ones as well.

For instance, Paragraph 37 states that to the extent possible, interviews by the Investigative Office should be conducted by two persons, while Paragraph 38 provides for interviews to be conducted in the language of the person being interviewed.

LOOKING AHEAD

One of the paragraphs under the principles states that each Organisation shall publish an annual report highlighting the integrity and anti-fraud and corruption activities of its Investigative Office in accordance with its policies on the disclosure of information.

True, one can expect loud protests from some of the member countries if the IFIs' collective initiative is to lead to new conditionalities in lending operations.

Yet, the fact remains that unless some tightening is done to help reduce corruption at the spot where it takes place, there will be little long-term benefit for the citizens of the borrowing countries, who happen to bear the ultimate burden of the debts.

(The author, formerly with the National University of Singapore and the World Bank, currently holds several honorary/visiting positions. He can be reached at bhanoji@gmail.com)

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