The scourge of corruption - how it damages infrastructure development

The scourge of corruption - how it damages infrastructure development

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.

Whos 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

Refernce

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).

“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