Corruption Undermines Trust, Erodes Development

19 May 2009

Link:  http://www.america.gov/st/business-english/2009/May/20090424141654sjhtrop0.950741.html&distid=ucs

 

Corruption Undermines Trust, Erodes Development

World Bank bars 351 companies and individuals from bank contracts

By Jacquelyn S. Porth
Staff Writer

Washington — Glance at any set of headlines and you will likely read about allegations of corrupt activities to the north, south, east or west. Donors of foreign aid, seeing the same headlines, increasingly try to catch those who siphon aid intended for the poor.

The World Bank recently debarred seven companies and one individual from bank aid after concluding they were engaged in collusive practices on a road project in the Philippines. The E.C. de Luna Construction Corporation and its owner were permanently barred from participating in World Bank projects.

President Obama raised the subject when announcing his new strategy for Pakistan and Afghanistan, saying the Afghan government has been undermined by corruption. Anti-corruption is a tenet of U.S. foreign policy because corrupt practices sabotage development efforts, erode confidence in democratic institutions and ease the way for transnational criminals and terrorists.

The international community cannot turn a blind eye to corruption, which has caused Afghans “to lose faith,” the president said March 27. “We will seek a new compact with the Afghan government that cracks down on corrupt behavior and sets clear benchmarks for international assistance so that it is used to provide for the needs of the Afghan people,” he said.

Corruption takes many forms, but bribery alone accounts for around $1 trillion annually, according to the World Bank. The bank points to corruption and fraud as significant impediments to economic and social development, weakening institutions and the rule of law.

Georg Kell, executive director of the United Nations Global Compact, said corrupt practices waste vast amounts of public resources. His organization, described as the world’s largest voluntary corporate-responsibility initiative, endorses principles of ethical business transactions, such as urging companies to fight all forms of corruption, including extortion and bribery.

The United States ratified the U.N. Convention Against Corruption in 2006. U.N. Secretary-General Ban Ki-moon said the treaty should become the global norm.

CORRUPTION UNDERMINES TRUST, PRODUCTIVITY

Corruption raises its ugly head in other forms than bribery: embezzlement, hiring family members for jobs and misappropriation of public goods are cited by experts. Those activities undermine trust in government, and once that is lost, “it is a devilishly difficult thing to get back,” in the words of World Bank President Robert Zoellick.

Speaking at the bank’s recent observance of “Integrity Day,” Zoellick said public trust is essential for a functioning private sector and to attract foreign investment.

He pointed to a 2008 Gallup Poll in which respondents from every part of the world cited corruption as having a negative effect on economic growth and efforts to alleviate poverty.

Zoellick said the bank is not in the business of embarrassing private or public officials or scoring points, but it is “deadly serious about protecting funds, building integrity and getting ahead of problems.”

The institution has to be a good steward of donor funds, he said, showing client governments that bank financing will not be diverted for personal use. The bank will “hold people accountable if they steal from the poor,” Zoellick said.

One of the World Bank’s managing directors, Ngozi Okonjo-Iweala, witnessed corruption in Nigeria. She said dishonest officials siphon off teachers’ salaries and even leave students without chalk.

Author Michael Johnston published the book Syndromes of Corruption in 2006. The Colgate University professor says rural roadblocks that “tax” farmers traveling to cities and police shakedowns at markets “help keep poor people poor.”

Jonathan Shapiro, acting director of the World Bank’s Department of Institutional Integrity, told America.gov “the desire to defraud is international.” People all over the world “will seek to exploit gaps in a system for their own gain,” he said.

That is why Shapiro said “vigilance is absolutely critical.” The bank investigates allegations of fraud, corruption, collusion, coercion and obstruction involving its financing or personnel.

If development money is bled off for unintended purposes, it is a serious matter for the bank, Shapiro said, especially now when “dollars, euros and shillings are scarce.”

Since 2001, the bank has processed around 3,000 allegations and debarred 351 companies and individuals from receiving bank contracts.

“People need to have a sense that allegations are … acted on,” Shapiro said. When a debarment occurs, the bank posts it on its Web site to demonstrate public accountability.

Shapiro likened bank anti-corruption efforts to a policeman pulling over someone exceeding the speed limit. “You don’t have to pull over every speeder,” he said, “because everybody slows down when they see someone pulled over to the side of the road.”

As part of its anti-corruption mission, Shapiro said the bank conducts on-site training for countries requesting help. The World Bank Institute also brings ministry officials to Washington for training.

“We are confronting fraud and corruption … head on,” Shapiro said. More allegations are coming in now, indicating that “our message is getting out,” he said.

For more information about U.S. policy, see Anticorruption Initiatives on the State Department Web site.

More information is available on the Web site of the U.N. Convention Against Corruption. The World Bank’s list of debarred companies and people is posted on the bank’s Web site.