The Prisoner's Dilemma And Collective Action

Peter Eigen, a German lawyer and former World Bank manager in Africa and Latin America, may be the most influential person ever in the world of anti-corruption and compliance. In Berlin in 1993 he founded the NGO Transparency International.

The mission was to promote transparency and accountability in international development, and that's what it has done.

Eigen chaired TI from '93 to '05 and now heads its advisory council.

Here's a wonderful Ted Talk he gave last year on the history of collective action against grand corruption.



Macmillan In £11 million U.K. Civil Settlement

Macmillan Publishers Limited, which last year acknowledged attempts to bribe World Bank employees to win book sales in Africa, will pay £11 million in a negotiated civil settlement announced today with the Serious Fraud Office.

The World Bank debarred Macmillan last year for three years, and the company voluntarily withdrew from all public tenders by its education division business in East and West Africa, regardless of the source of funds.

Today's civil enforcement action was based on the Proceeds of Crime Act 2002 (POCA) and not the U.K. Bribery Act, a criminal law that took effect on July 1 and only has prospective application. POCA is a far-reaching anti-money laundering and forfeiture statute.

The SFO was criticized by judges in a couple of earlier cases for attempting to settle criminal prosecutions of overseas bribery through U.S.-style plea agreements. But after today's civil settlement with Macmillan, SFO director Richard Alderman said,

I am pleased with this outcome. Civil recovery allows us to deal with certain cases of corporate wrong-doing effectively. It delivers value for money to the public by saving the cost of lengthy investigations and protracted legal proceedings and removes any property obtained as a result of the wrong-doing. At the same time it forces the company to reform its practices for the future.

As part of the settlement, Macmillan agreed to a review by a compliance monitor "who will report to the director of the SFO within twelve months and to the World Bank. The monitor must meet strict criteria including clear independence from the company."

______________

View the SFO's July 22, 2011 release here.

The World Bank's April 30, 2010 announcement of Macmillan (U.K.) Limited's debarment is here.

Macmillan Publisher's May 6, 2010 announcement is here.

The Road To Corruption

By Richard E. Messick

A new World Bank study on corruption in the roads sector shows the challenges contractors and engineering firms working in developing countries face when trying to avoid being drawn into schemes that violate the Foreign Corruption Practices Act or the anti-corruption laws of other nations or both.

The study cites cases where government official have made participation in a bid rigging scheme the price of doing business in their country and other instances where consulting engineers refusing to go along with fraudulent schemes are blackballed.

Among the findings:

• World Bank investigators were told that foreign firms wanting to bid on roads contracts in Bangladesh were warned by a road agency official that they would be disqualified if they undercut the price local firms had agreed on.

• In India, a senior official reported that “road mafias” of contractors, engineers, the local police, civil servants, “and last but not least local politicians” all conspire to keep prices on road contracts above market rates; and in explaining roads sector corruption in the state of Jharkhand, a civil society activist told the New York Times that “the nexus of politicians, contractors and bureaucrats is very strong.”

• In Uganda, researchers found that “the tendering process has been turned into a business by politicians at the district to settle their economic problems. . . . [They] pressure evaluation teams” to select certain contractors.”

• In Indonesia, engineers admitted to investigators from the Bank’s Integrity Vice Presidency that they were bribed to ignore fraud, explaining that if they did not go along, local officials “in on” the fraud would refuse to hire them on future government projects.

• In a project in Africa, Bank staff received information that in return for approving inflated invoices the engineer received 15 percent of the amount overbilled. The practice is apparently widespread in that country; during the investigation Bank investigators learned that the builder had instructed its local affiliate to “develop partnerships with local consultants,” so that if they were appointed engineers on future projects, they would be sure to cooperate with similar schemes.

Titled "Curbing Fraud, Corruption, and Collusion in the Roads Sector," the study recommends a number of steps developing countries and the World Bank can take to reduce collusion in the tendering for road construction contracts and fraud and corruption in contract execution. It is available here.

Richard E. Messick, the study’s author, is a Senior Operations Specialist in the World Bank’s Integrity Vice Presidency where he advises Bank staff and policymakers in developing countries on anticorruption policies. He can contacted here.

Sorry For The Harm

The World Bank last week debarred a U.K subsidiary of Macmillan Publishers for six years (reviewable after three years) after the parent company self-reported to the bank corrupt payments to public officials in Sudan. The bribes were unsuccessful in landing sales of textbooks under the World Bank-administered Sudan Multi-Donor Trust Fund.

The company also announced last week that it self-disclosed the payments to the U.K.'s Serious Fraud Office.

Graft is always bad. In a country like Sudan, its impact is magnified. After 20 years of civil war and lawlessness, Sudan ranks fourth worst on the Corruption Perception Index and third worst on the Failed States Index, trailed only by Somalia and Zimbabwe. Its people can expect to live about 52 years, compared with 62 in Cambodia, 72 in Indonesia, and 82 in Japan. Per capita gross domestic product (purchasing power) for its 41 million people is $2,300 while the world average is $10,500.

Millions there struggle every day for shelter, drinkable water, food, medicines, and education. Public corruption diverts money from basic necessities. It literally takes food off the table and textbooks out of the hands of children.

The World Bank's press release about the debarment was all business but Macmillan's was different, carrying a hint of sadness that was entirely fitting. In her public statement, Annette Thomas, Macmillan's chief executive, did something rare in the business world: she acknowledged the victims of corruption and the harm inflicted on them (even unsuccessful bribes help perpetuate corrupt systems and rulers).

Awareness of that harm was a factor leading to enactment of the Foreign Corrupt Practices Act. Although this case doesn't involve the FCPA, it's a reminder of why the FCPA and laws like it matter.

When A. A. Sommer, Jr. was a commissioner of the SEC in 1976, a year before the FCPA became law, he said: "[T]here are moral problems as well as legal problems that go far beyond simply the question of illegal payoffs to foreign officials. There are questions concerning the role of multi­national corporations, the extent to which they have obligations to the countries in which they conduct their business, the extent to which they should seek to raise the standards of conduct there, the respect which they should show the laws of other countries." Three decades later the once skeptical Wall Street Journal could say the quixotic Foreign Corrupt Practices Act had turned into one of Congress's finer moments.

Corruption ruins millions, maybe billions of lives. Those who say graft is a crime against humanity are more right than the rest of us like to admit. The DOJ, SEC, Serious Fraud Office, and World Bank should use all available tools to pursue and punish those who commit public bribery anywhere. Prosecutors shouldn't be diverted by the weird corporatization of government services that blurs the distinction of who's a "foreign official." And they shouldn't compromise ethics because "black knights" will rush in where honest companies fear to tread. That's a short-term and short-sighted view of the world and the marketplace.

Macmillan didn't say how much it paid Sudanese officials. But a bribe of any size that could have deprived a child of a textbook would be disturbing. CEO Annette Thomas said, "We are deeply shocked to have discovered these issues, and are sorry for the harm that such behaviour will have done."

The World Bank's April 30, 2010 announcement of Macmillan (U.K.) Limited's debarment is here.

Macmillan Publisher's May 6, 2010 announcement is here.

The Press v. Corruption

In its landmark 2002 study, The right to tell: The role of mass media in economic development (here), the World Bank said a free press contributes to cleaner governments -- and to better education, improved public health, lower infant mortality rates, and higher incomes. "Secrecy is the bedrock of persistent corruption," it said, "which undermines confidence in democratic governments in so much of the world. As the expression goes, sunshine is the strongest antiseptic."

The correlation between press freedom and corruption is not perfect but apparent. Here, for example, are the best-ranked countries on Freedom House's 2008 Freedom of the Press World Ranking. In parentheses are the countries' rankings on the 2008 Corruption Perception Index:

Finland (6)
Iceland (7)
Denmark (1)
Norway (14)
Belgium (18)
Sweden (1)
Luxembourg (11)
Andorra (no CPI rank)
Netherlands (7)
New Zealand (1)

Here are the countries that are worst-ranked for press freedom and their CPI rankings:

Iran (144)
Equatorial Guinea (171)
Zimbabwe (166)
Belarus (151)
Uzbekistan (166)
Cuba (65)
Eritrea (126)
Libya (126)
Turkmenistan (166)
Burma (178)
North Korea (no CPI rank)

Of the 195 countries and territories in Freedom House's latest press-freedom survey, 72 were rated as free, 59 as partly free, and 64 as not free. In terms of population, the survey found that only 18 percent of the world’s people live in countries that enjoy a free press, while 40 percent have a partly free press and 42 percent have a not-free press.
.