Searching for Transparency: Corruption and the Global Economy

David Nussbaum is the chief executive of Transparency International (“TI”), based at the International Secretariat in Berlin. TI is the leading global anti-corruption organization, with national chapters in about 100 countries. Nussbaum is also a non-executive director of Shared Interest and was previously the chair of Traidcraft plc. Prior to joining TI, Nussbaum was a director of Oxfam, including six months on secondment in charge of Oxfam’s program in India. After qualifying as a chartered accountant with PricewaterhouseCoopers, Nussbaum worked in venture capital with 3i plc, and then as finance director of a quoted European packaging group.

Multinational Monitor: What is corruption?

David Nussbaum: Transparency International defines corruption as the abuse of entrusted power for private gain. That is to say, we see corruption as inherently tied up with what power people have and where they got it from. Do they exercise it for the public good — the good of the people who entrusted it to them — or do they use it for their own interest or for their associates?

MM: From the standpoint of Transparency International, are activities that are formally legal ever considered corrupt?

Nussbaum: Yes. I think that is demonstrated by the fact that quite often, in countries around the world, new laws are brought in to make illegal activities that are generally regarded as unacceptable or even repugnant, but which had not technically been illegal. There are many examples of this. This I think indicates that the law has to catch up with the imagination of people who want to abuse the power they have, and who find ways around existing legal provisions in order to do so.

MM: Transparency International operates on a global scale. Is corruption a more serious problem in poor countries than rich countries?

Nussbaum: The people for whom corruption is most serious are those who are poor. They have less ability, capacity, money and power to do something about it, or to manage given that corruption is affecting them. Inasmuch as poor countries tend to have greater concentrations of poorer people, corruption affects them disproportionately. But it also affects the people, particularly the poorer people, living in rich countries.

MM: Should corruption be considered a development issue, and do international development institutions see corruption as a development issue?

Nussbaum: Yes. I think it is clear that the way societies develop is intimately related to corruption in that society. We know from a great deal of research that corruption is a barrier to success for development, and it is also an obstacle to putting that right. When governments and donors undertake interventions to facilitate development, they plan what effect they think these interventions might have. But if corruption is prevalent, there may be unintended consequences, or surprising outcomes that they have not anticipated.

Let’s also look at the implications in relation to business. Corruption causes huge reduction in investment. If you look at the level of investment in certain regions around the world, say sub-Saharan Africa, they are pretty low. And one of the important reasons is the issue of corruption. So, overcoming corruption has a big impact not only on official bilateral aid, but also on international investment and trade — one of the main ways that countries develop and work themselves through their development challenges to a position of greater welfare.

MM: To what extent does China stand as a counter-example to that story?

Nussbaum: China is certainly growing very rapidly economically. And the Chinese government would be the first to acknowledge that they have some major challenges with corruption within the country. We can say a few things about this.

One, we can never know how quickly and well China might develop if corruption levels had been much lower.

Second, the fact that the Chinese authorities themselves are so concerned about corruption indicates that they recognize that this is an impediment to continued successful growth.

Also, as economies develop, if corruption is allowed to take deep root in them, this can be deeply damaging to the way they can continue to develop and progress. So it is terribly important that corruption is tackled, including in successfully growing economies.

MM: How do you distribute responsibility for corruption in developing countries between internal and external factors?

Nussbaum: There is always a question as to whether what happened was extortion — that is, someone demanded a bribe — or bribery — somebody offered a bribe. Because corruption and bribery in particular are illegal, they are hidden, and it is quite difficult to observe what is going on.

If two parties are in discussion, and one winks at the other and offers some money, and the recipient says thank you, and then something subsequently happens or doesn’t happen — was this extortion or was this bribery? Unless we are there and can watch and analyze, we may never be sure.

What we do know is this: Many international companies are operating abroad in ways they would regard as completely unacceptable at home. They are operating abroad illegally — not only is bribery illegal in the country abroad, but it is also now illegal in the home countries. This is the case in the United States under the Foreign Corrupt Practices Act, which makes it illegal in the United States for a U.S. firm or affiliate to pay a bribe overseas. It is also true in the members of the OECD [the Organization for Economic Cooperation and Development, made up of the world’s industrialized countries] that have ratified the OECD convention against corruption, which criminalizes bribing abroad.

Of course, we understand that companies are concerned about getting things done, and don’t want their operations to be delayed and adversely affected by people not doing things they should because they expect bribes. But if big, powerful multinational companies simply roll over and say it is just simpler to operate unethically and illegally, they are not in a position to blame just the people who might be expecting bribes — they have to accept some of the responsibility themselves. That means that the companies are continuing to position themselves as part of the problem, and our view is that they need to become part of the solution. A number of large multinational companies have now made very clear public commitments, which they are seeking to follow through on, not to engage in bribery.

Once a company can establish a clear reputation that it simply doesn’t operate in that way, this provides a huge amount of protection for them — because everybody knows that you can’t get money out of this company like that.

One further point. It is simply not the case that people in developing countries accept that corruption is okay and part of their culture. There have even been cases when there has been a change in government, the population ceases to be prepared to pay bribes to police officers who stop them on the road and indicate that a modest payment would facilitate onward passage. They say no, that is not what is supposed to happen, and we are not prepared for it to happen — even when it has been happening for a decade or more. In other words, people know it isn’t right and isn’t how it is supposed to be. Ordinary people may be caught in the system and unable to do anything about it, but that is not how they want to live.

Multinational companies should be endorsing that view, and also saying, “It is not the way we want to operate. We want to be part of the movement that is going to effect change, so we can all work together on the basis of straightforwardness and honesty and not bribes.”

MM: What is the OECD Convention on Bribery?

Nussbaum: The OECD Convention on Bribery is an instrument ratified by all members of the OECD, which requires, among other things, that national governments make it illegal in their own country to bribe a foreign official in another country.

So now, if I am, say, a French businessperson on a business trip to Argentina and I pay a bribe there, that is not only illegal in Argentina. I could also be prosecuted in France, under French law in a French court, and be sent to a French jail or pay fines to the French government, for paying a bribe in Argentina.

MM: Have the OECD countries implemented the convention?

Nussbaum: They have all implemented it, but many of them have not done a great deal in following up. The U.S. is way ahead on this, because the Foreign Corrupt Practices Act, which was passed some decades ago with similar provisions, has given the U.S. quite a bit of experience in this area.

Transparency International recently did a review of progress in implementing and enforcing the OECD Convention, and in many countries there are quite inadequate efforts to enforce it.

There are some encouraging signs. For example, the UK Prime Minister recently appointed one of his cabinet minister colleagues to head up the UK’s response on international corruption, including looking at the enforcement and the UK’s enactment of the OECD Convention. We very much hope that that will lead to more rigorous action by the UK authorities in relation to companies based there that may be flouting not only national but international law.

MM: What kind of international agreements are now in place among developing countries regarding transparency and corruption?

Nussbaum: There is a whole series of agreements — one of the relatively new ones is the United Nations Convention Against Corruption, which has been signed by over 100 countries and ratified by about 50, including many developing countries. This has a whole series of provisions about criminalizing corrupt behavior; preventative measures to help stop it from happening in the first place; and international cooperation to follow and recover monies and goods that have been obtained illegally through corruption and so forth.

There are other conventions in different parts of the world. The African Union, the Organization of American States and the Council of Europe all have their own regional conventions.

There are other kinds of initiatives, such as the Extractive Industries Transparency Initiative, which involves trying to persuade companies and governments to disclose how much a company is paying to government for oil and gas and potentially minerals. There is no reason this information should be secret. If it is disclosed, the public can know how much the government is getting, and the government can then say what it is doing with the money. This responds to the concerns that a number of countries, such as Angola, seem to have very large amounts of money coming from their oil concessions — but this doesn’t seem to be reflected in the ability of the government to implement social programs. The issue is the gap between income and expenditure — where is it going? With greater transparency about income, people can demand a clearer accounting of expenditure, so that people living in these countries can benefit from their natural resources.

One of the areas that needs further work is to make it easier to track down where misappropriated money has gone. When we’re talking about large-scale corruption — where corrupt leaders of companies and particularly countries scoop off enormous proportions of the country’s wealth — this money doesn’t just sit in their house. It is taken and passed through the international banking system. Large numbers of lawyers and accountants and businesspeople are involved one way or another. We need to have much better provisions to track that down and deal with people who are accomplices to corruption.

MM: With all of the attention to corruption, are things getting better?

Nussbaum: It is hard to say. One of the problems for Transparency International is that the more you publicize how serious a problem corruption is, the more conscious people become of it, and start realizing that there is quite a lot of it about. They start noticing it, then they start worrying that everywhere you look, there is corruption. It is one of the ironies: the more successful we and others are in publicizing how serious an issue corruption is, the more concerned and even depressed people can become.

Secondly, because corruption is hidden by the people engaged in it, it is always very difficult to measure. Research by the World Bank indicates that overall, over the last 5 to 10 years, there has not been a significant change in the levels of corruption in the world, but there have been places or contexts where it has got better, and others where it has got worse.

To put the matter on an overall scale, the World Bank’s estimate of the total value of bribes paid around the world in a year is about $1 trillion. That is a big number. It is about 3 percent of global GDP, or about $150 for every person on the planet.

MM: Your most recent annual report focuses on the health sector. Why?

Nussbaum: We focused this year’s Global Corruption Report on the healthcare sector because we felt that corruption in healthcare has not received the attention it deserves.

When you go to your doctor, you want to know that what the doctor suggests is based on the best medical judgment of what is in your best interest. You don’t want it to be influenced by whether a pharmaceutical company has provided benefits to that doctor — say a trip to a seminar in a rather sunny part of the world, all expenses paid, with some briefing about the company’s product. Doctors do need information to know what is happening with pharmaceutical development. But the money spent on marketing to physicians in the U.S. alone is absolutely astronomical.

The second point is that in poorer countries, the consequences of corruption in healthcare can be devastating. If you are a poor mother and you take your child to a clinic, and then find that you do not have the money to pay a bribe to get the treatment to which you and your child are entitled — that’s a completely dreadful and unacceptable position to be in. We think that corruption in healthcare is devastating and needs to be rooted out.

In addition, an awful lot of people went into healthcare professions to do good and play a constructive role. They should not be caught in a system that makes them feel like they cannot operate with integrity.

MM: Does whether a healthcare system relies on public or private insurance have an impact on corruption levels?

Nussbaum: There are different issues that arise if payment is given regardless of the treatment provided, or whether providers are paid per treatment given. Obviously, in the latter case, the hazard is that unnecessarily expensive treatment is provided; in the former, the temptation may be to look at the cheapest possible treatment, even if it is not appropriate. So the risks are different. Whether it is in the public or private sector may have some impact, but is not, as far as we can see, the critical issue.

However we should be aware that in healthcare systems worldwide, both public and private sectors are always involved, and often it is the interface between the public and private sector which creates the opportunities for corruption.

MM: In recent years, there have been greatly expanded aid flows in the health sector, notably through the Global Fund to Fight Against AIDS, Tuberculosis and Malaria. How well have the mechanisms they have established to address corruption worked?

Nussbaum: As regards the Global Fund, it is certainly concerned to make sure the funds they are allocating are well spent on healthcare provision and not dissipated on corruption, and taking important measures to prevent corruption. Could more be done? Of course. And we particularly need to make sure that what can be done is being done consistently and rigorously all across the world.

I think at the end of the day, though, if there are strong systems for detecting corruption, there will be instances where corruption is detected. You have to act appropriately. But that does not always mean simply stopping the program completely, cutting it off and letting the people who were supposed to benefit suffer. Sometimes it might make sense to stop the program or suspend a program. At other times it might be necessary to mend a program — to make changes in the people and positions and processes. We have to make sure that the people who are supposed to be getting the benefits of these increasing expenditures on healthcare are still able to do so — it is a complex challenge.

There are many instances of successful measures to combat corruption. Those need to be used, replicated and extended so that we can get the maximum amount of benefit in health for people all around the world who should benefit from these increased foreign aid flows.