What information is available on the political
dimensions of corruption in procurement?
Purpose
We are looking at various dimensions of procurement and can
find quite a lot of information on formal systems but very
little on political dimensions (this includes diverting money
through high level procurement processes to fund political
parties, or multinational bribery of high level political
figures to gain large contracts).
Content
Part I sets out a synthesis of general
material on political corruption arising from procurement processes;
Part II presents material on corruption
in key sectors;
Part III provides reports of political
scandals arising from corruption in procurement processes; and
Definition of Query:
The questioner is interested in the relationship between corruption
in procurement and politics. We understand this to refer to the nexus
between political corruption, i.e. corruption involving high-level political
figures, and procurement processes. We will examine this issue from
two angles: first, how do corrupt politicians exploit procurement
processes for explicitly political purposes? This includes the use of
illicit funds for financing of political parties or for political activities
(including support to one side in a civil war) and the concomitant unfair
advantages enjoyed by companies involved in the procurement contracts.
Second, we will document available information on sectors in which
large-scale procurement processes can typically be abused for the individual
benefit of politicians and to the advantage of national and multinational
companies.
We include texts produced by academics, multilateral organisations,
governmental and non-governmental organisations, as well as newspaper
reports.
Part I: Political Corruption in Procurement Processes
The literature on political corruption describes some procurement-related
issues, although few sources refer solely to procurement.
J. Olaya, "Political Corruption and the Politics of Procurement"
in TI's
Global Corruption Report (2004): Special Focus Political Corruption,
at p.62 (Box 4.1).
Olaya identifies some instances where procurement processes give rise
to political corruption. She identifies cases where (a) political parties
and politicians use government assets (among them public policy, contracts,
jobs, state property and immunity) for their own private benefit and
(b) power is used to pay back political supporters or to secure future
support. Olaya comments that although it is of course legitimate for
governments to use procurement processes as public policy tools to bolster
local industries, employment or impact on overall expenditure, it is
essential that contracts are awarded according to transparent processes
and that competing claims are adjudicated fairly and transparently.
D. della Porta and A. Vanucci, "Corrupt exchanges: actors,
resources and mechanisms of political corruption" (1999)
New York: Aldine de Grutyer.
Corruption in Italy is examined and is used to develop a model to
analyze corruption as a network of illegal exchanges. The authors
explore in detail the structure of that network, by examining both
the characteristics of the actors who directly engage in corruption
and the resources they exchange. Chapter 3 examines the phenomena
of "business politicians" and Chapter 7 examines "The
Market for Corruption and the Economic System".
Tanzi, Vito and Hamid Davoodi (1997), "Corruption,
Public Investment, and Growth"(IMF Working Paper 97-139)
Corruption, particularly grand corruption distorts the decision-making
processes connected with public investments projects. This is especially
likely to happen if controlling or auditing institutions are weak.
Larger expenditure for high profile investment projects such as roads,
airports, power plants and ports "may come at the expense of
smaller expenditures for less visible and politically attractive expenditure
on operations and maintenance (O&M). When "commissions"
paid out by enterprises to public officials to win an investment contract
are tied to the projects' costs, an incentive may be created for larger
projects. The net results are (1) an increase in the share of public
investment in the total budget, (2) a fall in the average productivity
of public investment; and, because of budgetary constraints and other
considerations, (3) a possible reduction in some other categories
of public spending, such as O&M expenditures and expenditures
on education and health. Reductions in O&M expenditures result
in deteriorating infrastructures and lower growth rates."
Susan Rose-Ackerman, "Corruption and government: causes,
consequences and reform" (1999) Cambridge University Press.
Chapter 3 deals with corruption of high level officials including
payments to obtain major contracts and concessions.
George Moody-Stuart, "Grand Corruption: How business bribes
damage developing countries" (1997) World View Publishing.
Moody-Stuart sets out the various ways that officials can take percentages
on government contracts, using foreign bank accounts and circumventing
the public procurement rules laid down by international lending institutions.
A. Ades and R. Di Tella (1997), "National Champions and Corruption:
Some Unpleasant Interventionist Arithmetic" The Economic
Journal Vol. 107 No. 443.
This paper discusses interventionist industrial policy regarding procurement
processes that favour national champions. It shows that favourtism
can lead to corruption, which offsets any possible economic benefits
to be derived from such a policy.
Hartley and Sue Arrowsmith (Eds). (2992) "Public Procurement",
International Library of Critical Writings in Economics, Elgar, Cheltenham,
144.
In the section on "Corruption" the authors set out current
thinking on the impact of corruption on procurement processes. Evidence
suggests that corruption increases the costs of goods and services,
promotes unproductive investments and leads to a decline in the quality
of public services. "For example officials may design a major
procurement project at too large a scale and with too much specialised
equipment as a method of generating large bribes and concealing them".
They comment that public sector anti-corruption strategies include
the establishment of an ethical code and anti-corruption agencies;
improved pay; privatisation of state enterprises where private sector
accounting methods and competitive market pressures can reduce corruption
and make it more difficult to hide.
Ian Ayres and Bruce Ackerman, 'Voting with dollars', Yale
University Press (2003). This book describes influence on public policy
through party financing.
J. Roeber, "The Politics of Corruption in the Arms Trade: South
Africa's Arms Scandal and the Elf Affair"TI
Global Corruption Report 2004: Special Focus on Political Corruption
at p.59. See
Roeber, an investigative journalist who has also written on this subject
in Prospect
magazine ("Hard-wired for corruption"), describes corruption
in procurement processes in the arms trade. He notes that monitoring
the market is difficult because of government-sanctioned secrecy in
security matters. Post cold-war the arms market is plagued by over capacity
and European companies struggle in a market dominated by the US. He
states that all players use bribes to generate a competitive advantage
and also indulge in "offsets": complex arrangements
that help buyers generate the foreign exchange needed for transactions.
"Offsets are opaque, difficult to monitor and hence an efficient
route for corrupt payments". He describes South Africa's arms scandal
and the arms dimension of the Elf case.
N. Shaxson, "The Elf Trial: Political Corruption and the
oil Industry",TI
Global Corruption Report 2004: Special Focus on Political Corruption
at p.67
Shaxson explores political corruption in the oil industry and considers
the pros and cons of initiatives such as the "Publish What
You Pay" campaign.
General resources:
Unicorn, the global unions' anti-corruption network archives a
wealth of newspaper stories detailing political corruption and procurement
scandals. We recommend that you look through
this archive for examples. For more information on cases of corruption
see US Securities and
Exchange Commission.
Specific cases The Anglo-Leasing Scandal
See: John Githongo's Report
on the Anglo-Leasing Scandal
This scandal centres on the Kenyan Immigration Department's award
of a huge contract to provide passport-issuing equipment, to "Anglo
Leasing and Finance" - a fictitious company. Githongo claimed
that the money raised would have funded the government's forthcoming
election campaign. The Report details the links between government
ministers and the Anglo Leasing entity that was set up to perpetuate
a huge fraud of public money.
The
Alvis Case
The UK sale of tanks to Indonesia was a corrupt affair in which local
agents were required to be Indonesian army family members, and the
proceeds were split with a company owned by the Indonesian military.
