• 
• 
• 
• 
• 
• 

Financing and anti-corruption

Print (optimised for IE8)

 Strategies for curbing corruption
 The scourge of corruption – how it damages infrastructure development
 Corruption within the infrastructure life cycle

•  Strategies for curbing corruption

  Card 85
  Topic: Financing and anti-corruption
  

  • What are the common drivers, and the effects, of corruption in construction?

    • Reasons for corruption, particularly in developing countries:
      ■ A large population with a large proportion of impoverished and uneducated
      ■ A political and economic elite enjoying monopolistic power
      ■ An environment of aggressive competition to garner maximum power
      ■ Lack of effective controls and enforcement
      ■ A complicated and unclear set of rules and regulations, allowing discretion in interpretation and ‘bending’ the rules
      ■ Underpaid civil servants
      
       
      Figure 1
      Opportunity for corruption
      Source: ‘Fighting Corruption in Developing Countries: Dimensions of the Problem in India’ (Singh, S. Deputy Secretary to Government of India
       
    • The effects of corruption:
      In many developing countries, corruption at project implementation stage often causes project cost and time overrun, concealment of defective work, delivery of poor service and potentially major safety incidents.
      
      
      How corruption inflates project costs: theoretical example
      
      
      
      (Source: GIACC) For more corruption examples and anti-corruption measures, refer to GIACC website.
      
       

  • Pursue a range of strategies, at all levels, to curb corruption

    • Strategies to curb corruption include:
      Perform financial and technical audits
      ■ These good management practices may identify financial irregularities, technical inadequacies, inappropriate design, failure to build in accordance with the specification, over-costing, or poor value for money, sustainability, or efficiency
      ■ It is important the auditors are aware that corruption may be the cause of these problems and they should report any suspicions to an independent assessor
      ■ Audits can act as a significant deterrent against corruption and may uncover the actual corruption
      Properly enforce anti-corruption criminal law: eg.
      ■ Blacklisting of firms by a relevant body or professional institution
      ■ Freeze/suspend funds for corrupt governments
      ■ Make sure the law applies to everyone regardless of position
      ■ Enforce contractual remedies and penalties. Corruption can only be reduced if it is reported, investigated and penalised. Encourage a culture where actions have consequences
       
    • And, more widely:
      ■ Encourage “whistle-blowing” and put in place easily available/ accessible, confidential systems for people to report corruption without fear of reprisals
      ■ State anti-corruption policies in employment terms and reward ethical behaviour. (Empowered, valued and rewarded workers will be less likely to engage in corrupt activities)
      ■ Allow workers a fair chance to improve their position and avoid nepotism
      ■ Put in place anti-corruption policies e.g. hospitality and gift policies and make all information public
      ■ Properly enforce anti-corruption criminal law provisions
      ■ Blacklist or avoid firms or bodies that engage in corruption
      ■ Freeze/ suspend funds for corrupt governments
      ■ Spend money from toll roads on maintenance i.e. the purpose for which the money was raised
      ■ Get engineers to sign up personally to an anti-corruption charter:
      
      
       

• The scourge of corruption – how it damages infrastructure development

  Card 84
  Topic: Financing and anti-corruption
  

  •  What is corruption and who is liable?

    • What is corruption? In general: “misuse of entrusted power for private gain” – Transparency International
      
      More detailed examples, in construction:
      
      Bribes:
      ■ Cash payment – as inducement for dishonesty
      ■ Shares in the owners, company, assets or profits
      ■ A share in the contractors’ profits of construction or use of his own companies to provide services or supplies to the project owner
      
      Extortion:
      ■ Engineer demands a bribe in order to certify monies due to contractor
      ■ Project manager demands payment in order to pay contractor
      ■ Government official demands bribe in order to issue an import permit
      
      Fraud:
      ■ False claims, or false evidence
      ■ Withholding certification, or payment
      ■ Provision or concealment of inadequate work
      
      Abuse of power: in buying or contract relationships
      
      Money-laundering: through contract cash flows
      
      Corruption can happen in any sector and at any phase of an infrastructure development project.
       
    • ISO 10845-1:2010, Construction Procurement
      
      Part 1: Processes, methods and procedures defines:
      
      Fraudulent practice – misrepresentation of the facts in order to influence the tender process, the award of a contract arising from a tender offer to the detriment of the employer, including collusive practices intended to establish prices at artificial levels, or the administration of the contract including compensation procedures.
      
      Corrupt practice – offering, giving, receiving or soliciting of anything of value to influence the action of the employer or his staff or agents in the procurement process or the administration of the contract.
      
      
      Who is liable? In most jurisdictions, both companies and individuals can be liable for a criminal offence. An individual may incur criminal liability even where:
      ■ He was not aware that the activity constituted a crime
      ■ He did not or would not make any personal gain from the activity
      ■ He is not directly involved
       
      
      Reference: Global Infrastructure Anti-Corruption Centre (GIACC)
       

  • Understand the huge negative impact of corruption

    • The problem…
      In 2006, the American Society of Civil Engineers estimated direct losses due to corruption on construction projects at US$ 400 billion, or 10% of worldwide construction turnover.
      
      ■ Corruption cannot be measured with any certainty as deals are secretive and results concealed. But estimates are that corruption in the African economy is between US$150 billion and US$250 billion per annum – roughly 25% of Africa’s GDP.
      
      ■ It is estimated that up to US$30 billion in aid for Africa ends up in foreign bank accounts annually.
      
      ■ In some developing countries, demanding and paying bribes has become the norm. A large proportion of national assets are turned into personal wealth for government officials.
      
      “In Africa we have two killers: AIDS and corruption… (And similarly to AIDS), corruption can also be reduced by Raising Awareness, Education, and Preaching Moral Standards. We the professional society have a duty to Educate and Preach. We cannot stop or be discouraged.” Eng. M. R. Meghji, President – Institution of Engineers Tanzania (2001 – 2003).
      
       
    • Human cost of corruption – corruption kills!
      ■ Corruption includes stealing public money
      ■ This can lead to fewer good roads, schools and hospitals, and poor safety and environmental procedures
      ■ People die due to lack of food, healthcare and dangerous infrastructure
      
      The economic cost of corruption includes:
      
      At the national level:
      ■ Corruption leads to the depletion of national wealth. It hinders the development of fair market structures and distorts competition, thereby deterring investment
      ■ More importantly, corruption undermines people's trust in the political system, in its institutions and its leadership. Frustration and general apathy among a disillusioned public result in a weak civil society
      
      At the company level:
      ■ A company that is perceived to be corrupt faces the danger of losing reputation and business
      ■ Failing to actively prevent corruption allows employees and third parties to rationalise stealing from the company
      ■ Regulatory censure
      ■ Cost of corrective action and possible fines
      
      Useful references and links:
      www.transparency.org
      www.anticorruptionforum.org.uk
      www.u4.no
      www.unglobalcompact.org
       

•  Corruption within the infrastructure life cycle

  Card 82
  Topic: Financing and anti-corruption
  

  • How and where does corruption occur in the infrastructure life cycle?

    • Corruption in project identification and selection
      People can be influenced to choose projects that divert resources away from pro poor projects towards defence or those projects which benefit an elite section of society. They can also encourage the selection of projects which are either uneconomical or less economical because of financial or political favours. Decision makers may also choose projects to promote a short term political agenda.
      
      Corruption in planning and approval
      During the planning and approval process, officials can be bribed to obtain planning permission, or to obtain approval for a design which does not meet relevant building regulations or environmental legislation.
      
      Corruption in project design
      Project requirements may be overstated or tailored to fit one specific tenderer or tenderers from a specific country. Corruption in the design phase deflates the value of work performed in project planning because subsequent detailed planning decisions do not depend on a careful assessment of needs and goals, but on other factors that are unrelated to the purpose for which the project was conceived.
      
      Corruption during implementation
      Corruption at the project implementation stage often causes project cost and time overrun, concealment of defective work, delivery of poor service and potentially major safety incidents.
       
    • Corruption in the project life-cycle:
      (Source: O’Leary, D (2006))
      
      
      
      
      Corruption during maintenance
      Neglect of maintenance is potentially the most serious form of corruption as it can lead to environmental damage, loss of quality of life, personal injury and even death.
      
      Further reading
      O’Leary, D (2006) The Role of Transparency International In Fighting Corruption in Infrastructure 
      www.usaid.gov
      www.transparency.org
      www.giaccentre.org
      
      
      
       

  • Implement review and auditing processes, at every ‘gateway’ in the life cycle

    • The delivery and maintenance of infrastructure needs to be managed and controlled in a logical, methodical and auditable manner. The Construction Industry Development Board’s Infrastructure Gateway System is based on the information flow as illustrated below (see also www.cidb.org.za):
      
      
      
      Source of further examples:
      Transparency International and UK Anti-corruption Forum joint report (2006) Preventing Corruption on Construction Projects - Risk Assessment and Proposed Actions for Funders
       
    • A gateway is a control point in the infrastructure life cycle where a decision is required before proceeding from one stage to another. Such decisions need to be based on information that is provided that is pertinent to the project. If done correctly, a gateway may provide assurance that a project:
      
      ■ remains within agreed mandates
      ■ aligns with the purpose for which it was conceived
      ■ can progress successfully to the next stage
      
      A gateway system allows managers to audit the life cycle of projects. This improves transparency which, in turn, reduces the opportunity for mismanagement and corruption in planning and implementation.
      
      The review systems can also be effectively used to balance expenditure of new construction against the maintenance of existing infrastructure. Decisions to proceed with new projects needs should only be taken if such infrastructure can be maintained.