Tackling corruption overseas Contents

1Introduction

The nature and impact of corruption

1.Corruption has a devastating impact on the lives of people around the world, raising income inequality and disproportionately affecting the poor.5 Although it is difficult to monetise its effects precisely, the ONE campaign estimate that —in developing countries alone— around $1 trillion is lost to corruption each year through activities such as illegal tax evasion, money laundering and bribery.6 A Global Financial Integrity report from 2014 cites similarly alarming figures, stating, “From 2003–2012, US$6.6 trillion left developing country economies illicitly”.7 Corruption leads to the diversion of essential tax revenues that could—and should—be used to reduce poverty and invest in public goods such as education, healthcare and infrastructure. Petty corruption, such as bribe paying, also has a negative impact on people’s lives and is a widespread problem in many developing countries, where “individuals and organisations regularly violate formal-legal rules at all levels of society”.8 Corruption can fuel societal tensions and conflict, undermine governments and have a detrimental effect on economic development by deterring investment.

2.The term corruption is difficult to define and spans a variety of misconducts, from “unethical behaviour to political misconduct to bribe-taking to the sale of government property for personal gain”9 or, more concisely, “the abuse of public office for private gain”.10 As Professor Heywood told us: “Corruption is generally used as a catchall term, but in reality it encompasses a vast array of different types of activity.”11 The UK Government’s Anti-Corruption Plan admits that, “There is no universally accepted definition of ‘corruption’”.12 DFID’s submission to this inquiry reiterates this point, but states:

“Transparency International defines corruption as ‘the abuse of entrusted power for private gain’. This definition, although it does not include the full spectrum of corrupt behaviours, is most widely accepted and used by DFID and the UK Government.”13

3.Corruption occurs at different levels, from individual cases of petty corruption, to national or transnational levels involving companies and governments, including the worst violations of grand corruption. It varies according to the country and sector, differing “between being top-down corruption and bottom-up corruption, and reflecting different cultural norms, dispositions and ways of operating”.14 The complex, variable and borderless nature of much corrupt activity makes it very difficult to combat and the UK’s approach must cut across all government activity, through its international and domestic policy, to be effective.

Achieving the SDGs: tackling corruption

4.Tackling corruption has been creeping up the development agenda since the 1990s.15 Following a recent surge in global attention to the problem, further stimulated by revelations such as the Panama Papers and the recent Bahama leaks, it is now at the forefront of the international agenda. As Dr Heather Marquette of Birmingham University told us,

“[…] anti-corruption work is having a ‘moment’. There is quite a lot to show for the last decade and a half: a changed global discourse on corruption; significant advances in corruption measurement and indicators; international forums for discussion and collaboration; and, of course, the United Nations Convention against Corruption (UNCAC).”16

5.Tackling corruption was put at the very heart of the Addis Ababa Action Agenda (AAAA) (see Box 1), adopted by UN member states following the Third International Conference on Financing for Development. The Agenda states:

“We underline the need to promote peaceful and inclusive societies for achieving sustainable development, and to build effective, accountable and inclusive institutions at all levels. Good governance, rule of law, human rights, fundamental freedoms, equal access to fair justice systems, and measures to combat corruption and curb illicit financial flows will be integral to our efforts.”17

6.When the Sustainable Development Goals (SDGs) were agreed in September 2015, anti-corruption efforts also featured prominently. Robert Barrington, Executive Director of Transparency International UK, told us this reflected “an understanding that if you want to achieve your other development objectives you have to work on corruption as well”.18 Within SDG 16, which covers peace, justice and strong institutions, there are two specific targets—16.4 and 16.5—which focus on corruption:

“16.4 By 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime

16.5 Substantially reduce corruption and bribery in all their forms”.19

Both the AAAA and the SDGs recognise the need for a ‘beyond aid’ approach to raise the billions of dollars required to eliminate poverty, encourage development and create a fairer and more sustainable world. In addition to encouraging economic growth, a big part of this will be enabling countries to prevent vital revenues being lost through corruption. Although not legally binding, by signing up to both the AAAA and the SDGs, the UK Government has made a political commitment to contributing to a ‘significant’ and ‘substantial’ reduction in illicit flows, corruption and bribery across the world by 2030. In doing so, it recognises that supporting countries to prevent revenue loss through corrupt activity will have a far greater, and more sustainable, effect than increasing aid spending alone.

Box 1: Corruption in the Addis Ababa Action Agenda

“We will redouble efforts to substantially reduce illicit financial flows by 2030, with a view to eventually eliminating them, including by combating tax evasion and corruption through strengthened national regulation and increased international cooperation. We will also reduce opportunities for tax avoidance, and consider inserting anti-abuse clauses in all tax treaties. We will enhance disclosure practices and transparency in both source and destination countries, including by seeking to ensure transparency in all financial transactions between Governments and companies to relevant tax authorities. We will make sure that all companies, including multinationals, pay taxes to the Governments of countries where economic activity occurs and value is created, in accordance with national and international laws and policies.” (para 23)
“We urge all countries that have not yet done so to ratify and accede to the United Nations Convention against Corruption and encourage parties to review its implementation. We commit to making the Convention an effective instrument to deter, detect, prevent and counter corruption and bribery, prosecute those involved in corrupt activities, and recover and return stolen assets to their country of origin. We encourage the international community to develop good practices on asset return. We support the Stolen Asset Recovery Initiative of the United Nations and the World Bank, and other international initiatives that support the recovery of stolen assets. We further urge that regional conventions against corruption be updated and ratified. We will strive to eliminate safe havens that create incentives for transfer abroad of stolen assets and illicit financial flows. We will work to strengthen regulatory frameworks at all levels to further increase transparency and accountability of financial institutions and the corporate sector, as well as public administrations. We will strengthen international cooperation and national institutions to combat money-laundering and financing of terrorism.” (para 25)
“We also recognize that illegal wildlife trade, illegal unreported and unregulated fishing, illegal logging and illegal mining are a challenge for many countries. Such activities can create substantial damage, including lost revenue and corruption.” (para 92)
“We will effectively strengthen national institutions to combat money-laundering, corruption and the financing of terrorism, which have serious implications for economic development and social cohesion. We will enhance international cooperation for capacity-building in these areas at all levels, in particular in developing countries.” (para 112)

Source: UN, Addis Ababa Action Agenda (July 2015)

The inquiry

7.Given the profound impact of corruption on developing countries, in recent years DFID has taken steps to advance its work on anti-corruption, following sustained criticism of its efforts in this area by the Independent Commission for Aid Impact (ICAI)20. This has coincided with a broader drive across Government to tackle global corruption, demonstrated by the agenda for the UK’s G8 Presidency in 2013, the release of a cross-government UK Anti-Corruption Plan in 2014 and the recent London Anti-Corruption Summit in May 2016. However, the Government’s efforts have recently come under question, particularly with relation to the continued tax haven status of many of the UK’s Overseas Territories and Crown Dependencies and the release of leaked papers from Panama firm Mossack Fonseca which revealed the major role which some individuals and companies based in the UK and the Overseas Territories and Crown Dependencies have played in global tax evasion and aggressive tax avoidance.

8.To address some of these issues, in advance of the then Prime Minister’s Anti-Corruption Summit on 12 May 2016, the Committee launched an inquiry into Tackling Corruption Overseas, with the following terms of reference:

Should DFID have a zero tolerance policy towards corruption in the countries where it is working or is a more nuanced approach needed to tackle corruption over the long-term? How can DFID manage the risks associated with corruption and reconcile them with its value-for-money agenda?
In 2013 DFID published anti-corruption strategies for all the countries it works in; how effective have these been? Do they adequately take into account the political and social context of the countries in question? Do certain sectors require particular attention? How should success be measured?
What should the balance be between seeking to tackle corruption top-down at institutional level and bottom-up at the grass roots? What works and what is not working as well and why?
Corruption and poor governance can be a key cause of instability in fragile states. Is the UK Government appropriately prioritising and managing anti-corruption strategies in these settings? What are the challenges in practice and what could it be doing better?
How important is UK domestic anti-corruption policy and practice to international efforts to curb its effects? Is there a coherent ‘One HMG’ strategy to combating the effects of corruption on developing countries, and what should DFID’s role be within this? What are the challenges in practice?
What more should the UK Government be doing on issues such as beneficial ownership, tax havens, illicit flows and the arms trade to limit the effects of corruption on developing countries? How might it use its influence to encourage coherent international action?

9.We received 32 submissions of written evidence to the inquiry. We held an oral evidence session with academic, private sector and NGO stakeholders on 22 March 2016, prior to the London Anti-Corruption Summit. We also had an informal meeting with Rt Hon. Sir Eric Pickles MP, the Government’s Anti-Corruption Champion, to discuss the Government’s ambitions for the Summit. Following the Summit, we heard oral evidence from the then Minister of State at the Department for International Development, Rt Hon. Sir Desmond Swayne MP and Government officials, on 28 June 2016.

10.Rather than addressing all of the questions set out in our terms of reference, our Report highlights the main themes of the evidence we received. It reaches conclusions and makes recommendations about DFID and the UK Government’s approach to tackling corruption overseas. In order to focus our report, we have not on this occasion included specific reference to DFID’s efforts to prevent corruption in its own operations, although this is referred to in the UK Anti-Corruption Plan21 and forms a part of DFID’s anti-corruption country strategies. However, this is an area that the Committee, the Independent Commission for Aid Impact and the National Audit Office monitor closely on an ongoing basis. We have also been unable to specifically address some of the individual cases that were brought to our attention during the course of the inquiry, although we have borne them in mind whilst considering our more general conclusions and recommendations.

11.In addition to our final Report, we wrote to the then Secretary of State for International Development, Rt Hon. Justine Greening MP, before the Anti-Corruption Summit in May 2016. This included recommendations for the UK to address its role in facilitating global corruption by getting our own house in order, the need for the UK to prioritise enforcement and increase transparency, and implementing—and encouraging others to implement—public beneficial ownership registers and country-by-country reporting.22

5 DFID, Why corruption matters: understanding causes, effects and how to address them: evidence paper on corruption, January 2015

6 The One Campaign, Trillion Dollar Scandal (2014)

7 Global Financial Integrity, Illicit Financial Flows from Developing Countries: 2003–2012, (2014) p. 25

8 Charles Kenny (TCO0020) para 9; Professor Mushtaq Khan (TCO0030) p. 1–2

9 Hanna, R., Bishop, S., Nadel, S., Scheffler, G, Durlacher, K., The effectiveness of anti-corruption policy: what has worked, what hasn’t, and what we don’t know–a systematic review. (2011)

10 Ceda Ogada Deputy Director, Legal Department IMF, at The Parliamentary Network meeting Washington, 4 October 2016

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12 HM Government, UK Anti-Corruption Plan, December 2014, p. 9

13 DFID (TCO0026) para 1

14 Q1

15 Williams, A. ‘Beyond Zero Tolerance’, in Chr. Michelsen Institute, 28 June 2016

16 Dr Heather Marquette (TCO0029) para 1