Fighting International Graft: Lending Bodies Can Bolster War On Corruption

By Washington Times | by Dr. Rachel Ehrenfeld
Wednesday, September 29th, 1999 @ 3:38AM

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It was James D. Wolfensohn, the president of the World Bank, who on October 1996 suggested a “war” against corruption, warning that: “the international community simply must deal with the cancer of corruption, because it is a major barrier to sustainable and equitable development.” His statement led the international lending agencies to consider better monitoring systems. But when the Russian money laundering scandal broke a few weeks ago, a World Bank official remark that “one does not fight corruption by fighting corruption,” reflected the prevailing attitude among many in the Bank and in international organizations claiming to fight this scourge.

How to fight corruption? For decades the Europeans ridiculed the “naive” Americans for their quest for an ethical and accountable economic system. In the Old World, corruption in politics and business were regarded as inevitable. But American lawmakers understood from the early days of the Republic that efficient and clean government and business practices were inseparable from economic growth and development and the proper functioning of a genuine free market system. Thus, having “human and market- friendly policies, lowering incentives, and addressing macroeconomic stability, politics, education and institutional development,” as that World Bank official recommended, will have no effect unless accountability is enforced at the highest levels of a given political system.

As evident in Russia, years of silence, indifference and willful blindness have greatly exacerbated the problem. Neglecting to identify corruption as a basic cause for economic catastrophes in Russia and elsewhere while pouring in more money to put out an erupting crisis, will do nothing to bring about reform. “Fighting corruption by encouraging competition in bribery,” as Anders Aslund from the Carnegie Endowment recommended lately, doesn’t seem to help either. Unchecked, corruption undermines stability — as one can see in Indonesia — or causes the death of thousands of innocent citizens — as witnessed in the Turkish earthquake — thus creating tremendous human suffering, economic hardship, and security concerns for the U.S. and other democracies. Nonetheless, businessmen and multinational corporations — often sanctioned by their governments — are willing to meet corrupt demands in order to continue the process of globalization, and to get rich.

When globalization replaced communism, it was ushered in by a menacing new world disorder: an enhanced form of corruption. This New world disorder twisted the concept of “free markets” to justify the accumulation of wealth by any means. This “anything goes” attitude is the outcome of unbridled greed joined with societies that have always had a weak code of public service.

And as noble as reducing poverty, defending human rights and advancing free market policies are, they hardly qualify as tools to combat corruption. The latest Russian scandal demonstrates how those policies have failed repeatedly. And if the past is any indication, they are unlikely to succeed because as the Chinese have realized centuries ago, the fish is rotting from its head. But Russia is not alone and billions of dollars have been siphoned off by many other governments of developing countries and countries in transition, while the lenders did very little to stop the leakage.

The international agreements regarding the control of corruption have little or no effect since all lack teeth. Neither the UN General Assembly’s “Declaration on Corruption”, or the OECD “Anti-Bribery Convention,” nor the Organization of American States (OAS) Convention, contain effective monitoring and enforcement mechanism. This weakness is compounded by the absence of: a) solid international political leadership or direction; b) a central information gathering body; and c) rational, uniform international legal and ethical definitions.

To develop policy to effectively curb this international threat, corruption’s most prevailing forms need to be acknowledged. They include more than Cronyism and Nepotism we read so much about. There is also Governance for rent (influencing policy and legal decisions by bribing public officials through illicit campaign contributions); Kleptocracy (the sale at less than market prices to favored customers of state assets); Colombianization (subverting the economic and then the political system with profits from the illicit drug trade), and Corruption of International Organizations (subversion and manipulation of legitimate international organizations by corrupt governments and administrators to purposely frustrate the unified goals of the organization). And while no list is complete, this tally provides a base-line and grounds for debate in respect to the all too common practices which handicap international trade, investment, exchange, and diplomacy.

The International lending agencies should and could do more. They should condition the provision of funds on compliance with performance requirements. While many will argue that this is a violation of sovereignty, this is a simple and reasonable condition for foreign assistance. Besides, performance requirements for other matters have been in place all along. End-user monitoring agreements are a common feature of most assistance programs. While there is always a temptation to waive control mechanisms for short term economic or political gains, recent events in Russia and Indonesia illustrate all too vividly how dangerous such actions can be.

The legislation to “increase the transparency of the international banking system” in the US, as introduced by Rep. Jim Leach, R-Iowa, chairman of the Banking committee this week is a step in the right direction to prevent abuse and corruption here. But it is expected to raise strong resistance from the banking industry and others objecting to government controls, and will have little effect on this global problem.

To bring about real systematic changes, the international lending agencies should condition funds to particularly corrupt sectors in a given country requiring specific programs to reform the governance and management practices of that sector. Their supervision should include a special system to monitor implementation and enforcement of laws regarding good governance and economic accountability such as ethical conduct rules, public integrity laws, anti-money laundering, and procurement laws, to mention a few. Corruption is a contagious disease which requires early detection and constant monitoring. Unlike HIV and Hepatitis C, corruption is a curable disease. But it takes political will.


Categories: ACD/EWI Blog, Anti-Corruption, Articles and Presentations on Economic Warfare, U.S. Policy