Select Committee on International Development Fourth Report


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).

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 4 April 2001