Select Committee on International Development Minutes of Evidence

Memorandum submitted by Laurence Cockcroft, Chairman of Transparency International-UK

  This hearing is timely and is strongly welcomed by TI-UK. The terms of reference which you have issued have indicated your main areas of concern.

  Corruption impacts on the incomes of the poor by (a) diverting resources from social expenditure and investment and (b) minimising the effectiveness of education, health and agricultural services. It impacts on macro-economic performance by reducing levels of productive investment and facilitating capital flight. The origins of corruption are complex but "grand corruption" in the comtemporary world can be safely described as the result of economic arrangements set up between north and south, and between the west and the transition economies, which distorts markets in such a way that they work against rather than for progressive economic development. But just as corruption can be seen to worsen in some societies over time (eg Italy since World war II, Nigeria since 1960), so it can be seen to improve (the UK in the late nineteenth century, Singapore in the 1970s). Obviously the fight against corruption must recognise both its causes and the factors which have led to its "rollback" in specific circumstances.

  Recognition of the phenomenon, and the fight against it, has major implications for aid policies and process. Few forms of aid have completely avoided either directly or indirectly fuelling corruption. Where donors have directly turned a blind eye to this the consequences have been long term and negative.

  On balance and with regret TI-UK has concluded that where corruption is indeed endemic and a government which is in receipt of aid displays no real willingness to confront it, inter governmental aid shoud be suspended. Wherever possible in these cases most aid should be re-channelled through NGOs and civil society with a part continuing to be channelled to key institutions with a role to play in the anti-corruption fight, such as the offices of Auditors General. In relation to the funds released through debt relief for the HIPC countries, we welcome the current emphasis on Poverty Alleviation Frameworks and the involvement of civil society in monitoring these. Where governments are not specifically committed to this we question the value of either debt relief or of the Poverty Alleviation Framework.

  Whilst corruption undermines social investment, whether derived from domestic or donor sources, it frequently has an equally negative effect on corporate investment. Thus current surveys from sources as divergent as the World Bank and Worldaware confirm that, with exceptions, a high level of corruption can be correlated with a low level of foreign direct investment. Smaller countries with a rich minerals base are the main exceptions to this. The implication is that until the additional costs to investors created by corruption are minimised we will not see significant increases in flows of FDI to the countries in question.

  However, there is an element of cause and effect in this observation. TI's Bribe Payers' Index, first issued in 1999, and conducted by Gallup in 13 emerging market economies found that the senior officials polled stated that the civil construction and arms industries of the major exporting countries were conspicuous in their willingness to pay bribes. The case of the Lesotho Highlands Water Project, currently in the High Court in Maseru, illustrates the problem. Thus whilst corruption may act as a deterrent to investment, corruption is also frequently generated by the corporate sector, though an increasing number of large companies are recognising their responsibility for minimising it.

  Can the UK make a difference in rolling back global corruption? The answer is "yes" abut only if its response is much better co-ordinated and if the country is seen to be working in step with other OECD and developing countries who are active in this process. Aid strategies, whether at the level of DFID or the IFIs, are only a part of this framework. The other components concern the UK's contribution to the international regulatory framework, notably legislation consequent to the OECD Anti-Bribery Convention arrangements to control money laundering, effective mutual legal assistance, and conditions associated with ECGD's export credits.

  In relation to the first of these issues, the UK is currently gravely at fault, to an extent which can be described as a national disgrace. We have no legislation adequate to deter overseas bribery (and such bribes remain tax deductible). In relation to money laundering our nascent Financial Service Authority is apparently rendered speechless when factual Swiss evidence[4] confirms that "Know your Client" rules were ignored by London based banks in the case of the Abacha family. In relation to effective Mutual Legal Assistance, small Commonwealth countries may well find their requests for investigative assistance from the home Office in relation to specific cases so long delayed or even ignored that the response is meaningless. Only in the case of ECGD and its recent draft Mission Statement do we have an example of a UK institution, other than DFID, recognising its responsibilities in relation to global corruption.

  TI-UK submits that there is a great deal more which the UK could be doing to address these very urgent questions. Only if anti-corruption policy is prioritised and mainstreamed through the UK government machine can we lift the cloud of inadequacy—inviting and frequently attracting the contmept of other OECD countries—which now envelopes our position.

Mr Laurence Cockroft

Transparency International-UK

14 November 2000

4   From the Swiss Federal Banking Commission, September 2000. Back

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