Page 1 § Business in Partnership Against Corruption Miami, Tuesday, May 20, 2008
Sep 05, 2014
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Business in Partnership Against Corruption
Miami, Tuesday, May 20, 2008
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Questions
- In your personal experience, have you known of instances of bribery affecting your organization or an organization you do business with?
Yes No
-Imagine yourself working at an agency/organization operating in a high risk environment that decides to stand up against corruption. Do you think that your agency/organization can be successful in reducing corruption on its own?
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… out of balance
Our world is …
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Our world is …
Global Gross Domestic Product (GDP)
Year 2000:
30 trillion – 5 billion people – 20% global GDP
Year 2050:
140 trillion – 8 billion people – 40% global GDP (assuming 3.5% growth)
Population Growth
2000 2025 2050
Developing Countries 5 billion 7 billion 8 billion
Developed Countries 1 billion 1 billion 1 billion
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Gender Distribution
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Data - Inequality
The 2007 Human Development Report (HDR) from the United Nations
Development Program shows that:
around 1 billion people living at the margins of survival on less than
US$1 a day;
2.6 billion (40% percent of the world’s population) is — living on less than US$2 a day :
20% of the population in the developed nations, consume 86% of the world’s goods;
In 1960, the 20% of the world’s people in the richest countries had 30 times the income of the poorest 20% — in 1997, 74 times as much.
Source pictures: United Nations World Water Development Report
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Data - Malnutrition
Source pictures: GAIN Website
In a review of 80 countries, the United Nations Children's Fund (UNICEF) and the Micronutrient Initiative found that:
Mental development of 40% to 60% of infants between 6 and 24 months was impaired due to iron deficiency;
Compromised immune systems due to vitamin A deficiency was affecting 40% of the world’s “under-fives” and was leading to the deaths of approximately 1 million children each year;
Approximately 18 million babies are born with mental disabilities annually owing to iodine deficiency;
60,000 young women die each year during pregnancy and childbirth as a result of severe iron deficiency anemia.
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Diagram - Inequality
0
10
20
30
40
50
60
LAC Asia OECD Eastern Europe
1970s 1980s 1990s
Source: “Inequality in Latin America and the Caribbean: Breaking with History?” World Bank, 2003
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Data – Water and Sanitation
The 2006 United Nations Human Development Report shows that water problems affect half of humanity:
Some 1.1 billion people in developing countries have inadequate access to water, and 2.6 billion lack basic sanitation;
Access to piped water into the household averages about 85% for the wealthiest 20% of the population, compared with 25% for the poorest 20%;
1.8 billion people who have access to a water source within 1 kilometer, but not in their house or yard, consume around 20 liters per day. In the United Kingdom the average person uses more than 50 litres of water a day flushing toilets (where average daily water usage is about 150 liters a day. The highest average water use in the world is in the US, at 600 liters day.);
Some 1.8 million child deaths each year as a result of diarrhea.
Source pictures: United Nations World Water Development Report
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Financial Flows to Developing Countries
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Of the 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs);
The top 200 corporations’ combined sales are 18 times the size of the combined income of 24% of the total world population;
MNCs account for a quarter of global economic activity, they employ less than 1% of the world’s labor force, while one third of the world’s willing-to-work population is unemployed.
Data - Inequality
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Overview
Anti CorruptionSolutions
Corruption Pressures
Corruptio
n
Dilem
ma
Government Companies Civil society
In high risk environment:
How to ensure that partners and competitors are ethical?
How to change culture of doing business?
How to get competitors and stakeholders on board?
Collective action can help to unlock corruption dilemma and create level playing field.
Collective action creates incentives to avoid corruption.
Part IIIPart IIPart I
Corruption has negative impacts on governments, companies, civil societies, economies.
Despite costs, some individuals/groups benefit from corruption.
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Map of corruption
According to World Bank Institute estimates, the total volume of bribes paid annually is US$ 1 trillion
…… which is nearly twice the gross domestic product (GDP) of Africa.
PART I
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Private sector side of corruption
Higher costs of doing business
Cost ofCorruption
Resourcemisallocations
Reducedcompetition, efficiency &Innovation
Lower investment
Lower employment
Loss of reputation
Lack oftransparency
and accountability
Complex & changing
laws & regulations
Low public
sector wages
Mistrust b/w &
within sectors
Lack of competition
Weak enforcement
of laws and
regulations
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0
10
20
30
40
50
60
OECD East AsiaNICs
East AsiaDeveloping
South Asia Sub-Saharan
Countries
Transition LatinAmerica
Infrastructure
Bureaucracy
Corruption
Tax regulations
Fir
ms
rep
ort
ing
co
nst
rain
ts a
mo
ng
to
p t
hre
e (p
erce
nt)
Source: Current Survey. The question posed to the firm was : “Select Among 14 constraints the five most problematic factor for doing business in your country
“Corruption adds as much as 25% to the cost of public procurement" (UNGC)
“31% of firms in Latin America have to pay bribes to – get things done -” (WBG)
Corruption as a constraint to the private sector
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Private sector NOT just a victim, but also source of corruption
0
10
20
30
40
50
60
70
80
90
100
OECD East Asia NICs Sub-SaharanAfrica
New EUAccessed
Latin America
Elite Capture (trough Bribes)
Undue Political Influence
Elite Capture, Political Corruption and Inequality of InfluenceView of the Firm, Percentile Ranks, Higher is better
worse
best
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Cycle of corruption: companies are both victims and participants
Once corruption becomes widespread, it becomes difficult for individual businesses to stand up to the problem.
They fear that they cannot win projects on the merits of
their bids alone and thus engage in corruption,
thereby contributing to its spread.
High risk
environment
PART II
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Corruption dilemma: How can an individual company break the corruption cycle in a high risk environment?
In high risk environment:
How to ensure that partners and competitors are ethical?
How to change culture of doing business?
How to get competitors and stakeholders on board?
Few incentives to fight corruption
Limited resources to counter corruption
No credible
enforcement
Lack of cooperation between stakeholders
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There are three main steps for companies to fight corruption
Collective
External
Internal
1. Assess risks
2. Implement anti-
corruption policies and
compliance programs
3. Provide guidance to
managers
4. Share internal policies,
experiences, best
practices and success
stories
5. Reach out to industry
peers, suppliers and
other stakeholders via
neutral facilitators and
initiate joint activities to
fight and advocate
against corruption
Each company individually Business environment
free of corruption
Collective
PART III
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In high risk environments internal and external responses alone may not unlock the corruption dilemma
Collective
External
Internal
Business environment
free of corruption
How to ensure that partners and competitors are ethical?
How to change culture of doing business?
How to get competitors and stakeholders on board?
Companies worry about corrupt competitors and fear being at competitive disadvantage
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Unlocking the corruption dilemma
… is a potential solution to the corruption dilemma. It helps to make compliance the norm and to isolate the guilty.
Strengthen corruption commitments between and among different stakeholders.
Create incentives for stakeholders to avoid bribery and corruption in transactions and eliminate cheating on commitments by individual members.
Create incentives to avoid corruption by individuals within companies and governments.
Central principles of collective action are to:Collective action...
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Primary stakeholders of Collective Action
Key characteristic of Collective Action is to involve various stakeholders – different types of Collective Action exist
Different types of Collective Action
Integrity pact Anti-corruption declaration
Formal, written contract between customer and bidding companies
Bidding and implementation processes monitored by external monitor
Sanctions may apply in case of infringements
Ethical principles bind signatories to not engage in corruption in the daily business
Public commitment leads to enforcement 'by honor'
All stakeholders are asked to sign declaration onanti-corruption principles
Public commitment leads to enforcement 'by honor'
Compliance-relatedprerequisites for membership
Adoption of membership requirements checked by external audits
Members get certified or will be excluded
Principle-basedinitiative
Certifying businesscoalition
CollectiveAction
XXXX ProjectName MM/YY – FileName.ppt
Project/ trans-action based agree-ment
Long-term-initiative
Companies
GovernmentCivil society
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All stakeholders can benefit from anti-corruption Collective Action
Benefits of anti-corruption Collective Action from different stakeholders' perspective
Bidding companies Customer Enhanced competition in bidding process – most efficient,
not best connected bidder wins bid1)
Enhanced reputation
Avoid time consuming lawsuits / blocking points after decision on supplier company
Focus of business relationships on quality and reliability of goods and services
Increased chance of fair selection as a supplier and enhanced access to markets
Protection from legal penalties
Saving of finances formerly paid as bribes
Enhanced reputation
Ensure employees and competitors behave ethically and responsibly
Government
Incentives to be transparent
Strengthened rule of law, increase credibility and political stability
Higher investment levels from domestic and foreign investors
Improve image of country
Effective governance mechanisms and more effective procurement
Civil society and NGOs
Improved access to essential resources, such as health care and education
Increased trust and confidence in business
Consistent and fair enforcement of regulations
Social development if money / taxes are used for social projects instead of bribery
Civil society part of government-business anti-corruption efforts
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Collective Action can be successful!
Examples of existing collective action initiatives
Integrity pact Anti-corruption declaration
Principle-based initiative
Certifying business coalition
CollectiveAction
Mexico suburban train
Frankfurtwaste
incinerator
China business leaders forum
Business Ethics Pact Paraguay
EMB Bavarian construction
industry
Berlin airport
Project / transaction based agreement
Long-term initiative
Code of pharmaceutical marketing practices
Business pact for Integrity and against corruption
Brazil Business coalition
Organi-zation A
CompanyC
CompanyA
Independent facilitator
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Results of selected collective action initiatives
BERLINAIRPORT
PACI IFPMA
Introduction of
transparent
bidding procedures
Suppliers have to
adhere to anti
corruption
principles
Raising
awareness about
corruption
Company
commitment to
be solution to
corruption
problem
Development
of sectoral code
of conduct
Introduction of
compliant
mechanism
Creation of incentives to
abstain from corruption
Introduction of certification
EMB
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Collective actions are not a panacea for corruption challenges
Common challenges of collective action initiative
Common Challenges
Finding facilitator as neutral party to initiate and implement a Collective Action
Building confidence among stakeholders
Securing funding for the initiative
Getting top-management commitment of participating companies
Creating public awareness
Agreeing upon enforcement and sanctions mechanism
Agree upon clear consequences in case of infringement / non-compliance
Collective Action is
difficult, it can fail.
Common
challenges include:
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Demand for guidance and tools
Collective Action Initiatives;
Joint effort of Companies, NGOs
and Multi-laterals;
25 case studies, 50 country profiles,
15 industry profiles;
Implementation guidelines.
Joint effort of:
World Bank Institute; United Nations Global Compact; Center for International Private Enterprise (US); Global Advice Networks (Denmark); Grant Thornton; Siemens; Transparency International USA; and as a supporting partner: InWEnt Capacity Building International (Germany)
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GUIDE: FIGHTING CORRUPTION THROUGH COLLECTIVE ACTION - A practical guide for business -
Page 39 January 2008
Involve third party to promote collective action to customer
Decision tree helps to design the approach for project related collective actions
Decision tree
1
1
Are tender documents
already finalized / released?
Is customer willing to fight corruption 2)
Are third parties available to influence
customer? (e.g. anti-corruption
offices of government, multilateral donors)
1) Decision has to be made by internal compliance / risk assessment team in headquarters. Various sources for country specific assessment are given on slides 81 - 83 2) For details: see slide 87
No
No
Yes Promote collective action to customer via facilitator
Yes
Prerequisites for project-related collective action not met – go to decision tree 2 to evaluate possibility of principle – based / Certified association
Yes 1.1
1.2
Does your company perceive
corruption as major barrier to do business in
respective country? 1)
No
No need for collective action – consider other ways to continue doing business with integrity
No
Yes
Integrity Pact / Anti-corruption declaration
Page 52 January 2008
How to get started?
Initiate business coalition (1/2)
2.1
IO: International Organization MDB: Multilateral Development Bank
Source: Interviews
Facilitator (NGO / IO)
Company
For details please refer to slide 55
1
2
…
4
43
Establish contacts to facilitator
Create concept
Approach government
Conceptnote
1st meeting with facilitator
Present company profile, compliance policy and concept for collective action (one may use material from chapter 4 of this manual)
Ask for feedback / recommen-dations
Identify appropriate facilitator
Create list of potential partners
Companies
NGOs
Religious groups
MDBs
Prioritize: which companies / other stakeholders need to take part to ensure sufficient attention / credibility?
Assess the potential oversight role of government (e.g. anti-corruption bureaus)
Conduct workshop to evaluate business situation, risk of corruption, benefits of anti-corruption activities and best practice examples
Summarize intention and objective of initiative in concept note
Facilitator to send out concept note to potential partners and follow-up
1 2 3 4
Certifying business coalitionPrinciple-based initiative
Page 83 January 2008
Four Integrity Pact contract examples provided – however contracts have to be adjusted to specific prerequisites of country and project
Integrity Pact contract examples
IP: Integrity Pact
Source: Internet, Interviews
IP from project "Berlin airport"
Seen as best practice example
Available in German only
IP contract from project "Hydroelectric power plant", Ecuador (English translation)
No "Social Witness"
Detailed description of Arbitration Tribunal
IP template from Transparency International
Specifically designed for contracts in the defense industry
IP contract used by ONGC India
Based on contract of Berlin airport
ONGC Integrity Pact
Integrity Pact template defence industry
Integrity Pact Berlin airport
IP Ecuador Hydroelectric
Classification and definition of Collective Action
Decision trees
Process steps
Highlighted topics and issues to consider(e.g. anti-trust)
Contract templates
Profiles of initiatives
Contact list
Basis
Find the right approachfor your situation
Benefit from various real life examples and
templates
Follow detailedprocess steps
Examples
XXXX ProjectName MM/YY – FileName.ppt
Definition of corruption, dangers of corruption
Overview on various ways to fight corruption
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Web Portal: www.fightingcorruption.org
Tools for practitioners
Lessons learnt
Case studies
Country and industry profiles
Country and Industry Profiles
Events and workshops
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Three key questions for panel:
How can the private sector participate in collective actions and governance reforms to create a business environment with reduced risk of corruption?
What are the biggest challenges in achieving and sustaining results through collective actions?
How can key stakeholder, such as government officials, business, NGOs and international organizations, partner to more successfully promote transparency and accountability?
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§
Djordjija Petkoski
World Bank Institute
THANK YOU