SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS
1. DFID should seek to ensure that wider forms
of corruption, and not simply bribery and extortion, are considered
in designing measures to combat corruption in its projects and
programmes (paragraph 8).
2. We believe that tackling petty corruption is
vital if other efforts to reduce poverty are not to be undermined.
Successfully tackling petty corruption in a country could provide
the right context for successfully tackling grand corruption.
DFID should ensure that there is a coherent and comprehensive
strategy for tackling petty corruption running through all of
its country strategies. Opportunities for petty corruption should
be designed out of all projects and programmes (paragraph 11).
3. DFID should work with developing countries
to establish an environment for eliminating grand corruption.
We would ask DFID to examine what needs to be done to help developing
countries control the behaviour of ministers and senior officials
with discretionary powers. A useful starting point would be the
provision of technical assistance for the development of systems,
such as publicly available registers of interest, ministerial
and civil service codes, and oversight and scrutiny bodies such
as Auditors-General and Parliamentary Commissioners to investigate
allegations of corruption. We believe effective parliamentary
scrutiny over all financial matters including development assistance
is essential (paragraph 13).
4. We believe that building and strengthening
institutions and improving governance are vital if corruption
is to be eliminated (paragraph 15).
5. It is clear that building better institutions,
particularly in relation to criminal justice and the rule of law,
must be a priority for any donor seeking to tackle corruption
effectively. Donors must not underestimate the difficulties associated
with bringing about change in an environment where there is likely
to be resistance from vested interests, who will often be extremely
powerful (paragraph 17).
6. Low wages in the public sector and weak management
systems provide both the motive and opportunity for corruption.
We believe it is vital that public service reform should address
levels of pay, but this will only successfully reduce corruption
when it is combined with improvements in management controls and
systems (paragraph 21).
7. We have seen no evidence to suggest corruption
is a cultural phenomenon (paragraph 23).
8. There are no circumstances under which corruption
can be condoned and we believe that it is impossible for any government
committed to poverty reduction to tolerate any form of corruption
(paragraph 24).
9. DFID should ensure that the intended beneficiaries,
of any of the service delivery projects and programmes it is supporting,
have a clear understanding of their rights, how the service is
funded and what it should deliver. DFID should make this a part
of the formal arrangements with those providing services on its
behalf including NGOs and partner governments. External monitoring
of services, including parliamentary scrutiny, should check that
the intended beneficiaries have a clear understanding of the project
and their entitlement to the service (paragraph 33).
10. Tackling corruption is
not only important as a measure to attract foreign investment
but also to prevent the flight of domestic capital. Mark Malloch
Brown explained that while FDI in developing countries is five
times the level of official development assistance, domestic capital
formation was ten times the level of FDI. He stressed the importance
of forming and retaining domestic capital. He said foreign investment
had historically followed the formation or return of domestic
capital. The level of domestic and foreign investment will be
dependent on a number of factors including the development of
a trustworthy and active banking system. This underlines the importance
of improving the strength and regulation of local banking systems
(paragraph 38).
11. Corruption is a major
disincentive to foreign direct investment and thus limits a country's
prospects for growth, without which there is little hope of tackling
poverty. As part of its effort to eliminate corruption, DFID should
provide support and technical assistance to the financial sectors
in developing countries, particularly banking (paragraph 39).
12. International Development
Targets are a very blunt instruments for measuring the success
or failure of anti-corruption strategies. While we do not argue
that ultimately the success or failure of strategies will be shown
in the International Development Targets, there is scope for the
development of more specific targets and measures relating to
particular projects and programmes (paragraph 44)
13. DFID should consider publishing an anti-corruption
strategy that demonstrates how the excellent work that is being
done will be mainstreamed. The strategy should consider the split
between central and regional funding, set out criteria for allocating
funds and describe how DFID will handle requests for assistance
from countries. DFID should ensure that in mainstreaming anti-corruption
activities through all of its programmes these are built into
programme design and not bolted on at the last minute (paragraph
45).
14. DFID should encourage
developing countries to develop comprehensive anti-corruption
strategies. It should support developing countries engaged in
developing such strategies, encouraging them to make a full assessment
of corruption. DFID should promote a participatory approach to
the development of anti-corruption strategies in developing counties.
DFID could support the use of social audits, and participatory
poverty assessments in determining the scale and nature of corruption,
and should encourage the active participation of civil society
and the private sector in the development of any strategy to tackle
corruption. It should also encourage developing countries to insist
that donors coordinate their activity to provide effective backing
for the implementation of the strategy (paragraph
47).
15. The process of designing
out corruption should apply not only to corruption and public
sector reform programmes but should also be mainstreamed into
all the sectors where DFID is active including health and education.
An analysis of how corruption might affect a project or programme
and consideration of the steps necessary to limit corruption should
be part of every design process. Bids for funding where there
is no evidence that these matters have been considered should
be deferred until either evidence is provided or these issues
are fully considered (paragraph 49).
16. DFID should work with
the IMF and the World Bank to ensure that the guidance on the
development of a full Poverty Reduction Strategy makes clear that
the PRS must include an assessment of corruption and must set
out action being taken to tackle the problem. Parliament, civil
society and the private sector should all be involved in developing
this part of the PRS and should be engaged in monitoring any anti-corruption
strategy that emerges from the PRS planning process. This work
should begin immediately while there is still scope for corruption
to be drawn into some of the interim PRS that are currently being
developed (paragraph 51).
17. DFID needs to ensure that
its own preconditions are met before anti-corruption commissions
and bureaux are funded. Where such conditions do not exist anti-corruption
and governance assistance should be directed to creating the necessary
conditions "within the context of a programme for strengthening
judicial integrity and accountability" (paragraph 54).
18. DFID should examine the
scope for work that supports the development of democracy to contribute
to wider anti-corruption and better governance strategies (paragraph
56).
19. DFID should examine what
support and assistance needs to be given to help parliamentarians
in developing countries tackle corruption. It should also look
at what support regional groups of parliamentarians would need
to be an effective focus for anti-corruption work (paragraph 57).
20. There is a great deal
of scope for greater use of mentoring and twinning arrangements
so that public sector institutions and professional bodies in
the UK can directly help similar organisations in developing countries
to build stronger institutions. This is already happening but
could be done on a more systematic basis. DFID could provide support
to coordinate and facilitate such activity (paragraph 58).
21. There is certainly the
scope for donors to start looking at the kinds of capacity building
activities that will be needed to support effective decentralisation
of services once the institutions of central government have been
reformed and strengthened (paragraph 60).
22. Local people should be
involved in the external monitoring of projects and programmes
through social audits, participatory assessments of services and
service delivery. Local communities can usefully be involved in
directly monitoring services (paragraph 61).
23. Donors need to consider
how best to support the development of a free but responsible
media that is appropriately trained in the techniques of investigative
journalism (paragraph 62).
24. Where DFID has programmes
that are seeking to build anti-corruption coalitions with civil
society groups, civil action should be put forward as one means
of raising awareness of corruption and providing some form of
redress where the criminal justice system is failing (paragraph
63).
25. DFID and other donors need to look very carefully
at the work that has proved to be unsustainable in the past and
determine what lessons can be learned for the future. DFID should
also review its current anti-corruption and governance work to
determine the sustainability of the work. The political stability
of a country is likely to have an impact on sustainability. Engaging
in long term institution-building in an environment that is politically
volatile will mean there is some risk to taxpayers money but we
recognise that development of this nature is important (paragraph
67).
26. A stable and sustainable revenue base is essential
for development but is undermined by corruption. DFID should build
anti-corruption measures into any programmes for reform of public
finances, tax and revenue collection systems (paragraph 68).
27. Mark Malloch Brown said "First, as an
absolute precondition to be effective against corruption
you have to have a leadership who believes in the fight against
corruption". Corruption cannot be tackled without political
will, leadership and a genuine commitment to reform. No reform
programme will be successful without support from a country's
political and economic elite (paragraph 69).
28. A genuine commitment to reform is a prerequisite
for effectively tackling corruption. DFID will need to test carefully
the commitment of recipient governments on a regular basis to
avoid a situation like that in Kenya. DFID should seek to use
the leverage of other donors and particularly the UNDP in pressing
governments where commitment to address governance is weak (paragraph
71).
29. The response from donors to corruption must
be flexible. We are encouraged that DFID have demonstrated such
a flexible approach - the development of high and low funding
scenarios, a desire to work with governments committed to change,
a willingness to work outside government where there is little
option are all positive moves. We agree that Sector Wide Approaches
have the capacity to offer long-term sustainable development on
a country-wide scale but we have very real concerns about the
willingness of some governments to change. We support DFID in
adopting a flexible approach to funding. We would be keen to see
that key institutions in the fight against corruption such as
the offices of Auditors-General and anti-corruption commissions
continue to receive support and technical assistance even where
DFID is unable to move to sector wide or budgetary support. DFID
should also support parliamentary scrutiny and oversight and ensure
parliaments have knowledge of donor funding to governments and
NGOs in the country
(paragraph 78).
30. Donors must look at the need to build capacity
and strengthen institutions at a regional and local level in addition
to the work they are doing with central governments (paragraph
79).
31. We are concerned that the role of civil society,
including NGOs, in tackling corruption should not be overlooked
and that even where DFID is able to work through a government,
some support should continue to be provided to those building
support for tackling corruption outside government as mobilising
community support is an important part of the battle against corruption.
We are also concerned that NGOs supported by DFID are themselves
transparent, honest and open to investigation (paragraph 81).
32. DFID should take a lead in sharing information
on past, present and future work as a means of avoiding duplication
of effort by donors. It would provide a useful resource on successful
and unsuccessful strategies if evaluation was to be included.
We welcome the development of a common resource centre with the
Utstein partners and look forward to seeing this (paragraph 83).
33. We welcome the fact that DFID has recognised
that "Development programmes can themselves be vulnerable
to corruption in aid procurement and misuse or diversion of development
assistance" ... DFID has been improving procedures, upgrading
systems and training staff to ensure corrupt practices are prevented
and detected. This needs to be supplemented by internal and external
audit (paragraph 87).
34. We believe it is wrong for donors to be paying
people to attend meetings they should attend as part of their
duties. There may be legitimate expenses associated with travel
that can be reclaimed but donors should not be funding any projects
or programmes where money is routinely paid to government officials
or others simply to attend meetings (paragraph 88).
35. Building institutional and technical capacity
in the criminal justice and legal systems of developing countries
is essential if companies are to have the confidence that their
investment is protected by the rule of law and that the rule of
law will be evenly applied. Companies need to have the confidence
that they will have recourse to the police and courts where fraud
and corruption are discovered. Companies also need a non-corrupt
legal system so that business disputes can be settled fairly (paragraph
89).
36. DFID should try to develop a framework for
the delivery of humanitarian assistance that limits opportunities
for corruption. The Committee does not underestimate the difficulties
associated with this. DFID should engage with the organisations
routinely involved in the delivery of humanitarian aid to see
what can be done collectively to improve systems and procedures
to limit opportunities for corruption (paragraph 91).
37. The role that aid plays in fuelling conflict,
and the part that corruption plays in this, requires further research
(paragraph 92).
38. It is vital that donors work towards the establishment
of systems that can prevent both the corrupt use of discretionary
power and poor decision making (paragraph 93).
39. We consider that improvements in the World
Bank, in terms of the strengthening of internal controls, are
providing an important lead for the regional development banks.
However, there are still some improvements that can be made and
we believe that DFID should look again at the US General Accounting
Office Report on the World Bank to identify areas of concerns
that DFID together with the Bank can work to improve (paragraph
98).
40. DFID should also examine the concerns expressed
in the US General Accounting Office Report about the institutional
and technical capacity of borrower governments to assure that
funds are being spent correctly. Borrowing by national governments
should be transparent so that parliaments and civil society can
assess how funds are being spent. This will be key in safeguarding
British taxpayers' money spent through the World Bank and other
multilateral development agencies (paragraph 99).
41. DFID should make corruption a central concern
of the regional development banks, eliminating its effect from
all their activities. DFID must use its membership of their Boards
to ensure this takes place (paragraph 101).
42. DFID should encourage the multilateral development
agencies to ensure the complementarity and coordination of their
anti-corruption efforts. DFID should also seek to use the leverage
of the multilateral development agencies in working with difficult
governments or where DFID has a small presence (paragraph 102).
43. The Committee would welcome further details
from the Government on efforts being made by the EC to address
the problem of corruption in developing countries and in EC programmes
under its core policy area 'good governance and the rule of law'
(paragraph 103).
44. We request that DFID, in its response to this
Report, comment on the appropriateness and effectiveness of EC
controls against the corrupt and inappropriate use of its development
budget (paragraph 104).
45. We would encourage DFID to press forward with
work on sharing lists of debarred companies among development
agencies. The harmonisation of such lists around the world should
make tackling corrupt practice easier and signal that there are
no safe havens where companies willing to bribe can avoid exposure.
DFID said "The Government intends to come forward with practical
proposals for the UK which it will share with the Committee and
promote through other national development agencies". We
look forward to receiving these proposals (paragraph 105).
46. We welcome the fact that DFID will issue guidance
to staff on their rights under the Public Interest Disclosure
Act 1998 (paragraph 110).
47. DFID should consider setting up a hotline
for the reporting and recording of corrupt practice. Such a hotline
would need to be advertised widely within projects and programmes
that received British funding. It should also act as a help line
for those who need advice on how the funding of projects can be
safeguarded (paragraph 111).
48. The Corner House said that "The pervasive
use of corruption by Western companies operating in the South
also reflects the relaxed attitude of Western legal authorities
towards corruption". In a similar vein, Transparency International
claimed that "Those bribing overseas seem to have a rather
comfortable regime in this country". They went on to say
"Until there is fresh legislation in the UK, the OECD Convention
has no direct and immediate impact on UK law, which remains as
ineffective as it has been for the past century" (paragraph
115).
49. The current legislation on corruption, which
is over ninety years old, is inadequate to meet our responsibilities
under the OECD Convention on the Bribery of Foreign Public Officials
in International Business Transactions. New legislation is urgently
needed to meet our international obligations but, incredibly,
has yet to be introduced. We cannot understand why the Government
has not yet introduced legislation to deal with this shameful
situation, especially as the issue is unlikely to be controversial.
The Government should introduce such legislation without delay.
The Government should ensure that any legislation introduced is
consistent with other anti-corruption Conventions to which the
UK is a signatory (paragraph 123).
50. It is entirely unsatisfactory that confusion
remains over the issue of the tax deductibility of bribes. The
Inland Revenue and the Treasury should take steps to clarify the
situation and should make explicit that no form of bribery or
corrupt payment, anywhere, can receive tax relief (paragraph 124).
51. There has been a great deal of reflection
on the low number of prosecutions for corruption under the current
legislation. We believe that the number of prosecutions may not
be the best measure of effectiveness provided that legislation
is sufficiently simple and clear as to make plain the boundary
between right and wrong. We believe that any new legislation should
be as clear and as simple as possible (paragraph 126).
52. We must equip companies with the necessary
legislative backing to resist extortion and bribery. The law should
provide companies with a shield that protects them from those
who solicit bribes by giving them the argument that a company
and the individuals concerned would face the stiffest penalties
in the UK if they were to engage in corruption of any sort. We
believe that the DTI should work with companies to help them address
issues of corporate governance and ethics and through Trade Partners
should provide help and support on the ground to companies working
in countries where corruption is endemic (paragraph 128).
53. Co-ordinated global action is needed if the
cycle of grand corruption and money laundering is to be broken
(paragraph 129).
54. We are concerned at the under-reporting of
suspicious transactions by certain professional groups, in particular
lawyers and accountants (paragraph 135).
55. We believe the 'know you customer' principle
is key to the detection and control money laundering. We also
believe that it should extend beyond simply determining beneficial
ownership to understanding a customer's business and how their
wealth is derived. The FSA and Joint Money Laundering Steering
Group should take account of this in further developing their
money laundering rules and guidance notes (paragraph 136).
56. In revising legislative loopholes, the Government
must ensure that weakness and inconsistencies in the current system
for tackling money laundering are addressed (paragraph 138).
57. To tackle money laundering effectively the
Government can no longer rely on a process of reaction. The activities
of Mobutu and Abacha, for example, were well known at the time.
What interest or monitoring was there from the UK authorities
as to whether money was being laundered through the UK? A more
proactive investigatory system should be established to combat
money laundering. We do not believe that this need undermine the
duties of self-regulation (paragraph 140).
58. We believe that there is a case for training
on the prevention of money laundering to be made a mandatory part
of the initial training for lawyers and accountants. It should
be a component of any continuing education for these professions
and any ongoing training by compliance officers (paragraph 142).
59. We are concerned that there are insufficient
resources being dedicated to the detection and investigation of
money laundering, particularly the handling of suspicious transaction
reports. We anticipate that the situation could get much worse
unless the new legislation, which extends the scope of current
legislation to cover previously unregulated bodies, is accompanied
by the resources necessary to enforce it properly. The investigation
of money laundering is often time consuming and requires specialist
skills that need to be developed. If the Government is serious
about the fight against money launderers, the regulatory and investigatory
bodies must be adequately resourced (paragraph 146).
60. There are a number of reasons why money laundering
remains a major issue in the battle against corruption. First,
London is a major financial centre and so will be attractive to
money launderers. Secondly, the UK response to money laundering
is currently uncoordinated and piecemeal. Thirdly, the current
approach does not do enough to recognise the importance of tackling
the laundering of the proceeds of corruption. We are deeply concerned
about the vulnerability of one of this country's most valuable
financial assets - the City of London. The Government should take
coordinated, coherent and properly resourced action to fight money
laundering if the UK, through the City of London, is to maintain
its reputation as one of the most important international financial
centres (paragraph 147).
61. Investigations into money laundering are complex
and often require specialist skills. There is a need to refocus
efforts to control money laundering and look at ways of better
coordinating the response of the various agencies to make the
specialist skills needed for tackling money laundering available
when and where they are needed. The Government must ensure that
effective action to enforce the law is taken (paragraph 148).
62. We welcome the fact that the Government is
to bring forward legislation that will update existing legislation
on money laundering and address inconsistencies. We believe that
the UK Government should take the opportunity to make clear that
the bribery of foreign public officials and other forms of corruption
are predicate offences for money laundering (paragraph 149).
63. We welcome the Government's commitment to
work through Financial Action Task Force and believe that the
UK should play a leading role in international efforts to tackle
money laundering. DFID should examine the possibility of supporting
developing countries seeking membership of FATF. It should also
consider what more can be done to help countries access the specialist
skills of organisations such as the Financial Services Authority,
Serious Fraud Office and National Criminal Intelligence Service
in the UK in order first to tackle corruption and money laundering
but second to build their own capacity and institutions (paragraph
152).
64. DFID should examine the scope and practicality
for UK institutions engaged in tackling money laundering and corruption,
to provide technical assistance and direct support to similar
organisations in developing countries (paragraph 154).
65. The Government should consider what steps
are necessary to ensure that any funds that are confiscated, including
those confiscated by the new National Confiscation Agency, which
are the proceeds of corruption from a developing country can be
returned to the country of origin (paragraph 155).
66. We believe legislation should be introduced
to ensure that assets can be frozen on evidence of an investigation
rather than on evidence of charges, giving the UK the same powers
that Roman civil law countries currently use to freeze assets.
Any body charged with detecting and investigating money laundering
should also have the ability to request that assets be frozen
at the start of an investigation. As a wider long term goal, and
once we have appropriate legislation, the Government should encourage
other common law countries to make similar changes to their law
so that a harmonised international position on freezing orders
can be developed (paragraph 159).
67. Both DFID and the Foreign Office have a remit
to engage with the governments of developing countries on governance
issues. They must work together to ensure a coordinated and complementary
approach on governance and corruption issues (paragraph 160).
68. The Government must give serious consideration
to extending the role of the SFO to tackle corruption and money
laundering as well as fraud. Any change in its remit would need
to be properly resourced but could provide a much needed focus
for these issues (paragraph 163).
69. We believe that there is greater scope for
sharing information between government departments at both a policy
and operational level to ensure that anticorruption policies
are built in to wider objectives. The roles of the respective
investigative and regulatory bodies should be re-examined to ensure
that corruption is taken seriously and to avoid the situation
where each organisation believes it to be the responsibility of
another to address a particular issue. The Government should examine
the case for a single body or office performing a coordinating
function across Whitehall and the investigatory and regulatory
bodies active in this area. Corruption can only be successfully
tackled where there is a greater degree of cooperation and
coordination among all the interested parties (paragraph 165).
70. We are encouraged that DFID is planning a
forum with the DTI this year to promote the OECD Convention and
other anti-corruption measures (paragraph 169).
71. All companies should seek to conduct their
business in an open and transparent way and make information on
their dealings with the governments of developing countries publicly
available (paragraph 171).
72. If a company has been accused or convicted
of any corrupt practices, shareholders and other stakeholders,
such as employees or customers, should be informed by the audit
committee of the company concerned in a report to the annual general
meeting. Companies should also report on the controls and systems
they have in place to prevent corrupt practice. (Paragraph 172).
73. The accountancy and auditing professional
bodies should look closely at the role that their professions
must play in the fight against corruption and money laundering.
We would encourage them to play an active and vocal part in the
current debate on the best way forward (paragraph 174).
74. The DTI should encourage companies to put
in place codes of conduct that take account of corruption. This
issue should be considered during the preparation of the forthcoming
Company Law Bill (paragraph 177).
75. Corruption needs to be tackled across the
board and not in isolated pockets and it is vital that all parties,
including the private sector, are engaged in efforts to eliminate
it. The lack of response from the private sector to the anti-corruption
efforts of developing countries is particularly worrying (paragraph
178).
76. We welcome the interest companies have shown
in working with local partners through chambers of commerce. We
see such activities as being in the interest of both parties.
We believe that DFID should encourage this type of activity and
should seek to broaden the focus to include professional bodies,
associations and service organisations such as the Round Table,
Rotary International and Lions International. DFID should examine
what scope and need there is for building and strengthening the
capacity and institutions needed to create professional bodies
and associations in developing countries, especially for lawyers,
accountants, business and engineering, as such bodies could have
an important part to play in tackling corruption locally (paragraph
180).
77. We see no difference between bribery and facilitation
payments. Our legislation should make clear facilitation payments
are not acceptable and that anyone making them would be breaking
the law... Demands for such payments should be resisted by companies
and reported to the local authorities. The OECD Convention should
be amended so that it also forbids facilitation payments (paragraph
186).
78. We believe that the public opening of tenders,
the creation of audit trails to ensure a fair process is followed
and the use of integrity pacts will all help to eliminate corruption
in the allocation of contracts. We do not see why the concept
of integrity pacts should not be extended to become industry-wide
agreements not to engage in bribery, especially where there are
relatively few companies in a particular sector (paragraph 188).
79. The OECD Convention did not address bribery
through foreign subsidiaries and agents when it was originally
negotiated, although it is likely that the OECD will re-examine
this issue. The UK Government should address this deficiency in
any new legislation on bribery that it seeks to introduce (paragraph
189).
80. We welcome the introduction of a set of business
principles by ECGD and the use of a warranty that seeks to prevent
export credits being given to companies who have engaged in corrupt
practice. However, we remain concerned that internal procedures
and controls may be insufficient to prevent credits being given
to companies with a poor track record and which therefore present
a high risk. Applications for support should be subject to rigorous
scrutiny and there should be in place a system to check that the
scrutiny has been carried out. We would welcome further evidence
on the actions being taken by ECGD to strengthen procedural and
institutional oversight (paragraph 192).
81. Corruption undermines development, hampers
growth and has to be tackled. We must continue to help developing
countries build an environment that will eliminate corruption.
Building and strengthening the necessary institutions and systems
is key to creating the right climate for tackling corruption.
The impact of petty corruption must not be overlooked, for it
is petty corruption that will have the most direct impact on the
poor (paragraph 193).
82. The companies, financial institutions and
governments of the developed world share the responsibility for
eliminating corruption. We must not only support developing countries
who have made a real commitment to tackle corruption but must
look to put our own house in order. The Government cannot continue
to make improvements in governance a condition for development
assistance when it has failed to implement the OECD Convention
on the Bribery of Foreign Public Officials. A lack of focus and
coordination is hampering efforts to tackle corruption and money
laundering in the UK. There is a need for one department or body
to take a lead and provide a focus for current activity. We urge
the UK Government to act on these issues swiftly (paragraph 194).
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