Corruption

In philosophical, theological, or moral discussions, corruption is the abuse of bestowed power or position to acquire a personal benefit. Corruption may include many activities including bribery and embezzlement. Government, or 'political', corruption occurs when an office-holder or other governmental employee acts in an official capacity for personal gain.

The word corrupt when used as an adjective literally means "utterly broken".^[1] The word was first used by Aristotle and later by Cicero who added the terms bribe and abandonment of good habits.^[2] Stephen D. Morris,^[3] a professor of politics, writes that [political] corruption is the illegitimate use of public power to benefit a private interest. Economist Ian Senior^[4] defines corruption as an action to (a) secretly provide (b) a good or a service to a third party (c) so that he or she can influence certain actions which (d) benefit the corrupt, a third party, or both (e) in which the corrupt agent has authority. Daniel Kaufmann,^[5] from the World Bank extends the concept to include 'legal corruption' in which power is abused within the confines of the law - as those with power often have the ability to make laws for their protection.

Scales of corruption

Anti-corruption program in Ethiopia, 2000

Corruption can occur on different scales. There is corruption that occurs as small favors between a small number of people (petty corruption), corruption that affects the government on a large scale (grand corruption), and corruption that is so prevalent that it is part of the every day structure of society, including corruption as one of the symptoms of organized crime (systemic corruption).

Petty corruption

Petty corruption occurs at a smaller scale and within established social frameworks and governing norms. Examples include the exchange of small improper gifts or use of personal connections to obtain favours. This form of corruption is particularly common in developing countries and where public servants are significantly underpaid.

Grand corruption

Grand corruption is defined as corruption occurring at the highest levels of government in a way that requires significant subversion of the political, legal and economic systems. Such corruption is commonly found in countries with authoritarian or dictatorial governments but also in those without adequate policing of corruption.

The government system in many countries is divided into the legislative, executive and judiciary branches in an attempt to provide independent services that are less prone to corruption due to their independence.

Systemic corruption

Systemic corruption (or endemic corruption)^[6] is corruption which is primarily due to the weaknesses of an organization or process. It can be contrasted with individual officials or agents who act corruptly within the system.

Factors which encourage systemic corruption include conflicting incentives, discretionary powers; monopolistic powers; lack of transparency; low pay; and a culture of impunity.^[7] Specific acts of corruption include "bribery, extortion, and embezzlement" in a system where "corruption becomes the rule rather than the exception."^[8] Scholars distinguish between centralized and decentralized systemic corruption, depending on which level of state or government corruption takes place; in countries such as the Post-Soviet states both types occur.^[9] Some scholars argue that there is a negative duty of western governments to protect against systematic corruption of underdeveloped governments. ^[10][11]

Corruption in different sectors

Corruption can occur in different sectors, whether they be public or private industry or even NGOs.

Government/public sector

Public sector corruption includes corruption of the political process and of government agencies such as the police as well as corruption in processes of allocating public funds for contracts, grants, and hiring. Recent research by the World Bank suggests that who makes policy decisions (elected officials or bureaucrats) can be critical in determining the level of corruption because of the incentives different policy-makers face,^[12]

Political corruption

A political cartoon from Harper's Weekly, January 26, 1878, depicting U.S. Secretary of the Interior Carl Schurz investigating the Indian Bureau at the U.S. Department of the Interior. The original caption for the cartoon is: "THE SECRETARY OF THE INTERIOR INVESTIGATING THE INDIAN BUREAU. GIVE HIM HIS DUE, AND GIVE THEM THEIR DUES."

Political corruption is the abuse of public power, office, or resources by elected government officials for personal gain, e.g. by extortion, soliciting or offering bribes^[13] It can also take the form of office holders maintaining themselves in office by purchasing votes by enacting laws which use taxpayers' money.^[14] Evidence suggests that corruption can have political consequences- with citizens being asked for bribes becoming less likely to identify with their country or region.^[15]

Police corruption

Police corruption is a specific form of police misconduct designed to obtain financial benefits, other personal gain, and/or career advancement for a police officer or officers in exchange for not pursuing, or selectively pursuing, an investigation or arrest. One common form of police corruption is soliciting and/or accepting bribes in exchange for not reporting organized drug or prostitution rings or other illegal activities. Another example is police officers flouting the police code of conduct in order to secure convictions of suspects — for example, through the use of falsified evidence. More rarely, police officers may deliberately and systematically participate in organized crime themselves. In most major cities, there are internal affairs sections to investigate suspected police corruption or misconduct. Similar entities include the British Independent Police Complaints Commission.

Judicial corruption

Judicial corruption refers to corruption related misconduct of judges, through receiving or giving bribes, improper sentencing of convicted criminals, bias in the hearing and judgement of arguments and other such misconduct.

Governmental corruption of judiciary is broadly known in many transitional and developing countries because the budget is almost completely controlled by the executive. The latter undermines the separation of powers, as it creates a critical financial dependence of the judiciary. The proper national wealth distribution including the government spending on the judiciary is subject of the constitutional economics.

It is important to distinguish between the two methods of corruption of the judiciary: the government (through budget planning and various privileges), and the private.^[16]

Corruption in the educational system/universities

In some countries, such as certain eastern European countries and certain Asian countries, corruption occurs frequently in universities.^[17] This can include bribes to bypass bureaucratic procedures and bribing faculty for a grade.^[17][18] The willingness to engage in corruption such as accepting bribe money in exchange for grades decreases if individuals perceive such behavior as very objectionable, i.e. a violation of social norms and if they fear sanctions in terms of the severity and probability of sanctions.^[18]

Unions

Labor racketeering is the domination, manipulation, and control of a labor movement in order to affect related businesses and industries. It can lead to the denial of workers’ rights and inflicts an economic loss on the workers, business, industry, insurer, or consumer.

The historical involvement of La Cosa Nostra in labor racketeering has been documented:

More than one-third of the 58 members arrested in 1957 at the Apalachin Meeting in New York listed their employment as “labor” or “labor-management relations.”

Three major U.S. Senate investigations have documented La Cosa Nostra’s involvement in labor racketeering. One of these, the McClellan Committee, in the late-1950s, found systemic racketeering in both the International Brotherhood of Teamsters and the Hotel Employees and Restaurant Employees Union.

In 1986, the President’s Council on Organized Crime reported that five major unions—including the Teamsters and the Laborers International Union of North America—were dominated by organized crime.

In the early 1980s, former Gambino Family Boss Paul Castellano was overheard saying, “Our job is to run the unions.”

Labor unions provide sources for organized criminal groups to steal: their pension, welfare, and health funds. There are approximately 75,000 union locals in the U.S., and many of them maintain their own benefit funds. In the mid-1980s, the Teamsters controlled more than 1,000 funds with total assets of more than $9 billion.

In 2014, the FBI had several investigative techniques to uncover labor law violations: electronic surveillance, undercover operations, confidential sources, and victim interviews. They also have numerous criminal and civil statutes to use at their disposal, primarily through the Racketeer Influenced and Corrupt Organizations Act (RICO).

The Teamsters (International Brotherhood of Teamsters) is an example of how the civil RICO process can be used. For decades, the Teamsters have been substantially controlled by La Cosa Nostra. Since 1957, four of eight Teamster presidents were indicted, yet the union continued to be controlled by organized crime elements. The federal government has been successful at removing the criminal influence from this 1.4 million-member union by using the civil process.^[19]

Methods

In systemic corruption and grand corruption, multiple methods of corruption are used concurrently with similar aims.^[20]

Bribery

Bribery is the improper use of gifts and favours in exchange for personal gain. This is also known as kickbacks or, in the Middle East, baksheesh. It is the most common form of corruption. The types of favours given are diverse and include money, gifts, sexual favours, company shares, entertainment, employment and political benefits. The personal gain that is given can be anything from actively giving preferential treatment to having an indiscretion or crime overlooked.^[21]

Bribery can sometimes be part of the systemic use of corruption for other ends, for example to perpetrate further corruption. Bribery can make officials more susceptible to blackmail or extortion.

Embezzlement, theft and fraud

Embezzlement and theft involve someone with access to funds or assets illegally taking control of them. Fraud involves using deception to convince the owner of funds or assets to give them up to an unauthorized party.

Examples include the misdirection of company funds into "shadow companies" (and then into the pockets of corrupt employees), the skimming of foreign aid money, scams and other corrupt activity.

Extortion and blackmail

While bribery is the use of positive inducements for corrupt aims, extortion and blackmail centre around the use of threats. This can be the threat of violence or false imprisonment as well as exposure of an individual's secrets or prior crimes.

This includes such behavior as an influential person threatening to go to the media if they do not receive speedy medical treatment (at the expense of other patients), threatening a public official with exposure of their secrets if they do not vote in a particular manner, or demanding money in exchange for continued secrecy.

Types of corrupt gains

Abuse of discretion

Abuse of discretion refers to the misuse of one's powers and decision-making facilities. Examples include a judge improperly dismissing a criminal case or a customs official using their discretion to allow a banned substance through a port.

Favoritism, nepotism and clientelism

Favouritism, nepotism and clientelism involve the favouring of not the perpetrator of corruption but someone related to them, such as a friend, family member or member of an association. Examples would include hiring a family member to a role they are not qualified for or promoting a staff member who belongs to the same political party as you, regardless of merit.

Some states do not forbid these forms of corruption.

Preventing corruption

R. Klitgaard^[22] postulates that corruption will occur if the corrupt gain is greater than the penalty multiplied by the likelihood of being caught and prosecuted:

Corrupt gain > Penalty × Likelihood of being caught and prosecuted

The degree of corruption will then be a function of the degree of monopoly and discretion in deciding who should get how much on the one hand and the degree to which this activity is accountable and transparent on the other hand. Still, these equations (which should be understood in a qualitative rather than a quantitative manner) seem to be lacking one aspect: a high degree of monopoly and discretion accompanied by a low degree of transparency does not automatically lead to corruption without any moral weakness or insufficient integrity. Also, low penalties in combination with a low probability of being caught will only lead to corruption if people tend to neglect ethics and moral commitment. The original Klitgaard equation has therefore been amended by C. Stephan^[23] into:

Degree of corruption = Monopoly + Discretion – Transparency – Morality

According to Stephan, the moral dimension has an intrinsic and an extrinsic component. The intrinsic component refers to a mentality problem, the extrinsic component to external circumstances like poverty, inadequate remuneration, inappropriate work conditions and inoperable or overcomplicated procedures which demoralize people and let them search for “alternative” solutions.

According to the amended Klitgaard equation, limitation of monopoly and regulator discretion of individuals and a high degree of transparency through independent oversight by non-governmental organisations (NGOs) and the media plus public access to reliable information could reduce the problem. Any extrinsic aspects that might reduce morality should be eliminated. Additionally, a country should establish a culture of ethical conduct in society with the government setting the good example in order to enhance the intrinsic morality.

Anti-corruption programmes

A document^[24] produced by the economic and private sector professional evidence and applied knowledge services help-desk discusses some of the existing practices on anti-corruption. They found:

• The theories behind the fight against corruption are moving from a Principal agent approach to a collective action problem. Principal-agent theories seem not to be suitable to target systemic corruption.
• The role of multilateral institutions has been crucial in the fight against corruption. UNCAC provides a common guideline for countries around the world. Both Transparency International and the World Bank provide assistance to national governments in term of diagnostic and design of anti-corruption policies.
• The use of anti-corruption agencies have proliferated in recent years after the signing of UNCAC. They found no convincing evidence on the extent of their contribution, or the best way to structure them.
• Traditionally anti-corruption policies have been based on success experiences and common sense. In recent years there has been an effort to provide a more systematic evaluation of the effectiveness of anti-corruption policies. They found that this literature is still in its infancy.
• Anti-corruption policies that may be in general recommended to developing countries may not be suitable for post-conflict countries. Anti-corruption policies in fragile states have to be carefully tailored.
• Anti-corruption policies can improve the business environment. There is evidence that lower corruption may facilitate doing business and improve firm’s productivity. Rwanda in the last decade has made tremendous progress in improving governance and the business environment providing a model to follow for post-conflict countries.^[24]

The adoption of an anti-corruption programme is necessary for an organization to prove that despite a particular case of bribery it nevertheless has adequate procedures in place to prevent persons associated with it from bribing. The analysis of case law shows that companies are demonstrating the effectiveness of their programmes and reduce their potential liabilities by selfdeclaring situations to relevant authorities.^[25]

Legal corruption

Though corruption is often viewed as illegal, there is an evolving concept of legal corruption,^[5][26] as developed by Daniel Kaufmann and Pedro Vicente. It might be termed as processes which are corrupt, but are protected by a legal (that is, specifically permitted, or at least not proscribed by law) framework.^[27]

Examples of legal corruption

In 1977 the USA had enacted the Foreign Corrupt Practices Act (FCPA)^[28] "for the purpose of making it unlawful... to make payments to foreign government officials to assist in obtaining or retaining business" and invited all OECD countries to follow suit. In 1997 a corresponding OECD convention was signed by its members.^[29][30]

17 years after the FCPA enacting, a Parliamentary Financial Commission in Bonn presented a comparative study on legal corruption in industrial countries.^[31] As a result they reported that in most industrial countries even at that time (1994) foreign corruption was legal, and that their foreign corrupt practices had been diverging to a large extend:

Belgium: bribe payments are generally tax deductible as business expenses if the name and address of the beneficiary is disclosed. Under the following conditions kickbacks in connection with exports abroad are permitted for deduction even without proof of the receiver:

• Payments must be necessary in order to be able to survive against foreign competition
• They must be common in the industry
• A corresponding application must be made to the Treasury each year
• Payments must be appropriate
• The payer has to pay a lump-sum to the tax office to be fixed by the Finance Minister (at least 20% of the amount paid).

In the absence of the required conditions, for corporate taxable companies paying bribes without proof of the receiver, a special tax of 200% is charged. This special tax may, however, be abated along with the bribe amount as an operating expense.

Denmark: bribe payments are deductible when a clear operational context exists and its adequacy is maintained.

France: basically all operating expenses can be deducted. However, staff costs must correspond to an actual work done and must not be excessive compared to the operational significance. This also applies to payments to foreign parties. Here, the receiver shall specify the name and address, unless the total amount in payments per beneficiary does not exceed 500 FF. If the receiver is not disclosed the payments are considered "rémunérations occult" and are associated with the following disadvantages:

• The business expense deduction (of the bribe money) is eliminated.
• For corporations and other legal entities, a tax penalty of 100% of the "rémunérations occult" and 75% for voluntary post declaration is to be paid.
• There may be a general fine of up 200 FF fixed per case.

Japan: in Japan, bribes are deductible as business expenses that are justified by the operation (of the company) if the name and address of the recipient is specified. This also applies to payments to foreigners. If the indication of the name is refused, the expenses claimed are not recognized as operating expenses.

Canada: there is no general rule on the deductibility or non-deductibility of kickbacks and bribes. Hence the rule is that necessary expenses for obtaining the income (contract) are deductible. Payments to members of the public service and domestic administration of justice, to officers and employees and those charged with the collection of fees, entrance fees etc. for the purpose to entice the recipient to the violation of his official duties, can not be abated as business expenses as well as illegal payments according to the Criminal Code.

Luxembourg: bribes, justified by the operation (of a company) are deductible as business expenses. However, the tax authorities may require that the payer is to designate the receiver by name. If not, the expenses are not recognized as operating expenses.

Netherlands: all expenses that are directly or closely related to the business are deductible. This also applies to expenditure outside the actual business operations if they are considered beneficial as to the operation for good reasons by the management. What counts is the good merchant custom. Neither the law nor the administration is authorized to determine which expenses are not operationally justified and therefore not deductible. For the business expense deduction it is not a requirement that the recipient is specified. It is sufficient to elucidate to the satisfaction of the tax authorities that the payments are in the interest of the operation.

Austria: bribes justified by the operation (of a company) are deductible as business expenses. However, the tax authority may require that the payer names the recipient of the deducted payments exactly. If the indication of the name is denied e.g. because of business comity, the expenses claimed are not recognized as operating expenses. This principle also applies to payments to foreigners...

Switzerland: bribe payments are tax deductible if it is clearly operation initiated and the consignee is indicated.

USA: (rough résumé: "generally operational expenses are deductible if they are not illegal according to the FCPA")

UK: kickbacks and bribes are deductible if they have been paid for operating purposes. The tax authority may request the name and address of the recipient."

See also

• Graft (politics)
• Conflict of interest
• Conformity
• Guanxi
• Lobbying
• Transparency International
• Wasta
• Whistleblowers
• Regulatory capture

References

Further reading

• Melese, François (2008). "Corruption". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267. 
• Garifullin R.R. Bribe-taking mania as one of the causes of bribery. The concept of psychological and psychotherapeutic approaches to the problem of bribery and bribe-taking mania. J. Aktualnye Problemy Ekonomiki i Prava” (“Current Problems in Economics and Law”), no. 4(24), 2012, pp. 9-15

External links

Wikimedia Commons has media related to Corruption.

• Cohen, Nissim (2012). Informal payments for healthcare – The phenomenon and its context. Journal of Health Economics, Policy and Law, 7 (3): 285–308.
• The Chr. Michelsen Institute The largest center for development research in Scandinavia, with a subfocus on governance-and-corruption.
• Public Corruption: Courtroom for Sale FBI
• Public Corruption - FBI Agent Helps Protect His Native American Community