State for sale: Corruption and embedded networks of influence transcript

Michael Holman, John Githongo, José Ugaz, Devendra Raj Panday, John Williams, Soung-Jin Chung, 12th IACC, Plenary transcript, Governance, Development, Sustainability, Energy Market, Financial Sector, Human Security, Climate Change, Natural Resources, Civil Society, Private Sector

Michael Holman:

Welcome to Plenary 2, where the fun and subversion is going to begin. My name is Michael Holman. For twenty years I was Africa Editor of the London Financial Times. The last time I did anything like this I was sitting in the body of the hall waiting for the business to start. I turned to the person next to me and I asked, “Who is the chair of the next session?” hoping of course they would recognise me, but the reply was rather disarming. “I haven’t a clue,” they said, “no idea, but it’s only a journalist.”

So here I am, only a journalist, but I hope a bit more than that; a sort of licensed jester, someone who is encouraged to make trouble partly by seeking your good questions of the sort that moderators usually try to avoid and partly by raising topics that might otherwise be neglected.

But before we go any further I think it would be helpful if I were to set out the terms of engagement so to speak. My first is set my rules for Plenary 2. Rule number one – no jargon. Anyone who uses words or phrases such as paradigm, or refers to a hierarchical neopatrimonial society or to an oligarchical gender imbalance will be made to stay behind after the plenary session is over and explain themselves.

Rule number two – no boring questions. Awkward, difficult or embarrassing points, contributing to exchanges, are encouraged.

Rule number three – keep questions or interventions short. If questions become longer than the answers and interventions go on for far too long they will be treated as speech and that of course will break rule number four – no speeches.

The next rule is the final rule number five - speeches are banned.

I am now going to ask the panellists to introduce themselves. Between them they have got more degrees than I have got fingers, they have been exiled three times, imprisoned four times and mightily offended their governments most of the time. I am honoured to be in their company, so let’s start. John, do you want to go ahead?

John Githongo:

My name is John Githongo. I am a Senior Associate member of St. Antony’s College, Oxford; formerly a government official in Kenya and also head of Transparency International Kenya. Thank you.

José Ugaz:

José Ugaz, criminal defence attorney from Peru.

Devendra Raj Panday:

Devendra Raj Panday from Nepal. I belong to Transparency International and I have been in government in the past, but for several decades I have enjoyed being an actor in civil society.

John Williams:

Thank you. My name is John Williams. I am a Member of Parliament in the House of Commons in Canada and I also chair the Global Organization of Parliamentarians against Corruption (GOPAC).

Soung-Jin Chung:

My name is Soung-Jin Chung, the Chairman of the Korean Anti-Corruption Commission. Thank you.

Michael Holman:

Now I will begin to address the theme – the power of embedded networks which advance personal group interests through state institutions. Now I am not entirely sure what this means. It certainly comes close to breaking rule number one – no jargon, so I will be listening very attentively. The troublemaker from Nepal, will you kick off please?

Devendra Raj Panday:

Well it is good to be here and speaking to you. I thank the wonderful organisers for the opportunity and the privilege.

Dear colleagues, Dear friends, Ladies and Gentlemen,

I come from a country, Nepal, where the kings and princes have been looting the country for decades and centuries. I come from a region in South Asia where political and social leaders, elected or unelected, have been doing nearly the same – with some important exceptions.

I would like you to understand my views of the embedded network with this backdrop. The network of influences we want to discuss this morning is but a part of the network of reciprocal exchanges that exist in human societies all over.

Exchanging favours is a routine affair among us. As human beings we cannot exist without it. Not all such exchanges are corrupt exchanges, however. We even have reciprocal exchanges within the family, exchanges occur between priests, ministers and parishioners. So the question is which reciprocal exchanges entered into are corrupt exchanges and which are not?

From our expert on bribery, John T. Noonan Jr., from whom I borrowed the concept of reciprocal exchange, an exchange becomes corruption when it is socially identified and condemned. The probable idea is that social condemnation also means that the system of legal sanctions becomes more effective.

The problem is that social condemnation is as rare as corruption is rampant. Even in Transparency International we do not like to get involved in the naming and shaming of individuals and investigation of specific cases of corruption that such practice would entail.

To me reciprocal exchange becomes condemnable when transactions between two parties hurt a third party, and that is when it also becomes corruption. The victim can be an individual, as in the case of nepotism, or in the sale and purchase of public offices that denies the opportunities for employment to others. The victim can be a collective, as in the case of a company or firm that is denied a contract, or the community that suffers from shoddy public works by contractors. The government itself can be the victim when its policies, decisions, and legislative processes and outcomes are hijacked by corrupt elements that capture the state. Similarly even the [inaudible] of the rule of law and democracy can get hurt. So as I have tried to show in the chart on display there, this network is huge and very complex. I cannot really explain it all. I hope some day my paper will be on the website and you can look at it, particularly the annexes where I describe the exchanges and outcomes in some detail.

As you can see, there are five actors: the state, the political class, the citizens and civil society, the business, and the external sector. Each has expectations from the other and there are multidimensional and multidirectional transactions among them.

The politicians want votes from citizens. The citizens want favours, some ethical and politically viable and some that are not. We rightly value the role of civil society, but civil society is not something that is inherently and always sacrosanct. It can also have illegitimate interests that it may wish to realise by collaborating with public officials.

Later when you see my paper you will understand this in greater detail. Unfortunately I cannot go into it now. The main point that I am making is that many actors drive the network; it is not just politicians or the political class. It is not just the government or the public officials or the business sector for that matter. Citizens, professionals and others including actors in the international network can contribute to sustaining corrupt exchanges.

Let me briefly illustrate my point by sharing with you a case from Nepal in which the actual issue in a way is located outside the state. It is the case of non-performing and defaulted loans of the commercial banks. The problem is created and sustained by a network of many collaborators. Money borrowed in the name of industries and enterprises is siphoned off to be parked outside at the fiscal benefit of the principal borrowers. The enterprises register losses, loans are not repaid. The amount involved in Nepal is Rs 25 billion, which is 40 percent of government tax revenue currently. How did this come about? Here is how:

The political class and public officials are involved in brokering the loans. The professionals are involved in preparing falsified accounts and unprofessional project reports and overvaluing the collateral and assets created. The regulatory body, namely the Central Bank of the country, is involved because of relaxed and perfunctory supervision. The courts are involved because their verdicts prohibit the bank from taking actions and seizing the assets of the borrowers, and in the end the society is involved because there is no condemnation of the people involved.

Two of the businesspeople are the chiefs of the country’s two chambers of commerce and industry. They rub shoulders with politicians and diplomats in cocktail parties. There is little naming and shaming of them. It is like mocking the whole notion of social condemnation and the rule of law.

So what do we do? I now come to my conclusions and recommendations. As we have been saying in these conferences, we have made much progress in raising awareness about the value of transparency and accountability. We have made progress in creating systems and tools and passing conventions, resolutions, etcetera. But we have to do more, I believe, and something different too if we can. We can go on doing what we do best or we can also look for other valuable areas for advocacy, even when they are difficult and hard to handle. I identify and suggest two areas. One is about values and attitudes and the other is about people’s empowerment and the masses’ involvement in anti-corruption campaigns.

The mention of the ideas of values and attitudes might make some of you uncomfortable because they are somewhat fluid ideas, difficult to handle completely and deal with scientifically. But it is my firm belief that without entering this area in our discourse, much of the otherwise grand ideas informing systems and methods will not produce the expected results we want. Values are not about sentiments. They are about knowledge of what is right and what is wrong and making and keeping one’s commitment, including political commitments and commitments to international conventions and resolutions.

Yesterday at the plenary there was a question about the political will and how to generate it. My answer will be political will comes from generous politics and democratically and socially responsible civic and business culture. Look, it is not as if everything is hunky dory in our world and only corruption is spoiling it. Besides corruption the human race at present suffers from many other challenges and ills as observed in the [inaudible] of natural environment, social crises, injustices, terrorism, ethnic cleansing and the malfunctioning of democracy.

The conditional reason for all these problems may lie in the erosion of human values. This we must confront. Specifically I recommend ten areas; some of them concrete, some of them somewhat abstract:

  1. Emphasis on values and ethical conduct in our advocacy work to generate necessary political will and professional will.

  2. Studies and research to revisit, from the standpoint of anti-corruption, the concepts and practices of self-interest, rational conduct and so on. Amartya Sen and others have spoken and written about plurality of human motives and in that context what constitutes rational conduct. We should harness this wisdom to set the limits of particularly self-interest.

  3. Advocacy for revisiting the idea of education. Education is not only about having knowledge and skills in the IT world. It is also about learning about the purposes for which they are to be used.

  4. In politics, we should go beyond advocating electoral reforms or reforms in political financing etc. They are very important of course, but we have to look to the area of political culture and commitment. The transparency and accountability that we talked about have to be framed within the broader picture of democratic accountability, including public accountability and policy accountability

  5. If we can do this in politics, civil service also can be professional once again. Bureaucracy can autonomously oversee the maintenance of probity in public life which evidently they are not doing now in many countries.

  6. On people’s participation and ownership, I suggest that the movement, especially the national chapters of Transparency International, should be persuaded to involve ordinary people, especially the youth and the women at the grassroots level in large numbers. Sometimes awareness is not enough, we also need outrage. Peaceful outrage I mean. I also suggest that the relationship between poverty, injustice and corruption should be demonstrated to the affected people on the ground, not just in theory and rhetoric.

  7. We should press for full devolution of decision-making powers to local government and work with them in a more extensive way.

  8. If we claim moral authority by further legitimising our movement at the people’s level and in villages and towns of our countries, we can promote social condemnation as it were by naming and shaming the culprits as necessary.

  9. There is a lot that needs to be done about aid and corruption. I do not have time to get into that and we have said plenty on that as well. I only suggest that the anti-corruption movement should embrace the issue more comprehensively than we do at present.

  10. Finally, my final suggestion is for Transparency International. To make some of the things I have just suggested also possible, maybe TI should consider if it can design and conduct training programmes for political and civic leaders. It can use its national chapters for this purpose if necessary. The training is not about tools and systems, however. It should be about values and value-based politics and professions and social responsibility. It should be about what President Oscar Arias yesterday called ‘twenty-first century ethics’.

I thank you very much.

Michael Holman:

A wonderful combination of passion and practicality. Over to you.

José Ugaz:

Good morning. First of all I have to confess I have a problem with rule number one because I am using words such as ‘paradigm’ and ‘hierarchy’. I will try to find some synonyms when it comes to the slides. The second thing is that most of the ideas I am going to present have been inspired by a book from Moises Naim, his last book called Illicit that I think addresses in a magnificent way what is going on these days regarding networks and crime.

You see there is ‘paradigm’. There has been a change of paradigm, there has been a change of model these days regarding global crime because we have a new scenario in the world. There have been radical political changes that have affected the relations between countries, so borders now have loosened and we can move from one place to another much more easily than in the past. There have been geopolitical changes also. In the economic sphere the global market has changed the world. So now if you do business and you do business around the world you can obtain huge benefits, economic benefits, from this. The economic incentives for global markets and global business are really immense.

The technological revolution also has been visible in this new paradigm, in this new model, in this new scenario we are seeing in the world. The revolution of internet, genetics…the new financial products that allow you to move millions or billions of dollars from one place to another just by clicking a button and of course the revolution of communications. So we have a new world. If we look back some years ago the scenario has changed radically.

This change of model in the world, this change of scenario in the world has also determined a change regarding global crime. I think that we have moved from a traditional – regarding organised crime of course – we have moved from a traditional scheme of a mafia that was a hierarchical group with very clear levels of orders and command. There was a leader. The mafia is a centralised organisation, is rigid, orders move from the top to the bottom and mafias have been organised based around their specialisation, dealing with different commodities. There was a mafia for drug trafficking, a mafia for human smuggling, etcetera.

Mafias are territorial. They are usually located in some specific space. Of course the first image we receive when we hear the word ‘mafia’ is Italy. Regarding the Italian mafia and their territorial spaces, when they moved to the United States how did they divide the country – by territories. Now things have changed and I think we should not talk any more about mafias, I mean mafias still remain in some places, but now the new model for global crime centres around networks.

Networks are not organised in a hierarchical fashion, they work in a dynamic fashion around multiple agents and sales and move very fast from one place to another. They are decentralised. There is no centre from which orders are sent to the other groups linked to the network. They are absolutely flexible. They have no rigid standards and they can change easily from one action to another. The most important thing is that networks are not specialised. Now the same network that deals with counterfeiting, could the next day be dealing with drug trafficking, the trafficking of human organs, smuggling human beings, etcetera.

So networks move in a very dynamic and global fashion and that is particularly dangerous regarding global crime.

What is a network? A network is a system of nodes connected by ties. So then we have different groups, it could be hundreds of groups, connected by commercial ties – illicit commercial ties – regarding global crime.

So what do networks dealing with illicit trade have to do with corrupt practices? There is no way of developing an illicit business and illicit trade without corrupt practices. In order to obtain and generate profit and economic benefits all these businesses have to be laundered at the point of origin. They have to get into a legal system, and this is only possible through corruption. Corrupt practices are at the centre of a network’s activity.

Criminal networks have great economic power. They move billions of dollars and of course in order to succeed, they invest in politics. That is why they are embedded in the political system and the public service sector. They are present in congress; they probably have representatives in congress. They are present in executive power; they are present in the judicial system. They are absolutely embedded in the governmental structure. In the most radical cases corruption has taken power. That is when we talk about state capture and the problem of failed states.

There are dozens of states that have very little or no control of their territories. According to a CIA report some years ago, fifty states in the contemporary world have little or no control of their territory.

One of these examples is Transnistria. It is a country that is separated from Moldova and the whole country has been organised around illicit business. Now you have complete governments and territories linked to illicit business. Criminal networks are lucrative and are secure. They protect their people. They move in a local area but also project into the global system. They can easily deal with local issues but also have international projection. They are autonomous and self-sustaining. One group in a network does not depend on the others, so they can take their own decisions and one day do business with one part of the network and on another day with another part.

They symbolise what we call the ‘mercury effect’. When you try to grab mercury it suddenly splits into dozens of other little groups. I think that is a good image of what is going on with networks in illicit business now. They are deeply intertwined with the licit ones. It is very difficult to try to separate networks that are doing licit business from the ones that are doing illicit business because they can act in both spaces, in the legal one and the one linked to the illicit business.

In the past what we had were traffickers specialised according to merchandise, so the type of merchandise they were dealing with was the one that decided what kind of mafia or criminal group you had. These days what we have is mainly network skills, in order to obtain, transport and supply this merchandise. So if you develop these skills then you can transport, obtain and supply any type of merchandise so commodities are not the marker that define the kind of illicit group we are dealing with any more.

These days in order to be a member of an illicit network you need to be highly skilled in the issues linked to obtaining, transporting and supplying goods, and of course experience is always very well valued.

When things changed in the East they generated what Naim terms the ‘new entrepreneur’. He says that in communist societies a way of surviving was smuggling goods. You could not survive in these kinds of societies if you did not smuggle goods on the back of the official system. All this smuggling expertise is now in the market. It is in the global system and they are providing this expertise for networks that deal with illicit business. Criminal networks don’t believe in borders, they just work across borders. They use hundreds or thousands of intermediaries and provide different services.

This is a real example of how global networks can operate in these days. A guy in Brazil sold his kidney in the illicit market through an Israeli broker that never went to Brazil. Of course this deal was done online. The kidney travelled from Brazil to South Africa where it was transplanted to a German customer who was also recruited via the internet.

So you have four different networks interacting in this global illicit business and of course the benefits are huge because there is an enormous, wide market outside. You have the possibility of making a great business smuggling weapons. USD 400 billion are involved in the security business alone and 234 million weapons - small weapons -are all around the United States. This gives you an idea of the enormous market and we are not talking about big weapons and tanks and nuclear business that are of course much bigger.

In drugs: drugs is a huge market also. USD 20 billion have been invested by the Federal Government of the United States last year in order to control drugs. This gives you an idea of the enormous problem drugs and drug trafficking represents in these modern times.

Smuggling of human beings. Alone in South East Asia in recent years 30 million people have been smuggled into slavery and other inhuman conditions. 30 million people.

The market for organs, human organs, the illicit market of human organs such as the one I just presented. A kidney can go from USD 5000 in South America to USD 100,000 in the First World market. China is also now a huge supplier for this market. There is research demonstrating that prisoners in China are being used, their organs extracted and put on the market, the contemporary market.

Money laundering is also another huge area for illicit business. USD 100 billion of remittances goes from the First World to our countries in the First World [inaudible]. It is calculated that from USD 800 billion to USD 2 trillion, that is 2-5 percent of the GDP of the world, is laundered through illicit mechanisms.

The counterfeiting market represents around USD 500 billion in losses for companies that suffer the effects of this illicit activity.

Smuggling art – there are around 150,000 valuable art pieces in the illicit market right now.

Of course we can go for hundreds of activities under the auspices of endangering others.

There is an asymmetric struggle here. We have on one side states with problems and miseries. Lack of coordination and collaboration generate what we call ‘tunnel vision’; we cannot see the whole picture but we are reduced to a small activity or piece of action in the government. The activities of states are usually budget oriented and with various lacking resources there are many restraints.

There are also legal restraints. Obsolete laws impose several restraints on the action of states and territorial limits. Networks don’t have borders, states do have borders and they are always claiming sovereignty when we arrive at the point of international cooperation and pursuing global criminal action. On the other side we have networks. Networks interact in a very dynamic fashion. They move large monetary resources. They are task oriented. They have no budget restraints and, as I said, they have no borders. They can easily - through the internet, through electronics and technology or just moving from one place to another - cross borders with no problems.

One of the main restraints for states in this asymmetric struggle is territorial borders, because we find within states that there is mistrust among the people that are dealing in the apparatus of the government. The sovereignty problem is a problem and there are discussions and conflicts among states because of their borders. There are rivalries, bureaucracy, ineptitude and corruption.

All these issues of course offer networks business opportunities. Where we find a problem in a state, networks find a window for business opportunity. Borders provide safe havens where they can just rest after committing their crimes. So a terrible conclusion is that we are losing the battle. States are losing the battle against criminal networks because of all of these restraints. How can we level the field? How can we try to reverse this situation and more effectively deal with illicit networks that are at the base of all corrupt practices?

First we have to understand that there is an economic problem and, as we heard before, we have to do some research on economic issues in order to understand where the incentives are and how can we promote incentives for the legal market and not generate windows of opportunity for illegal activities and global crime.

We need to include governments in this understanding and try to make efforts in order to clean up governments and generate transparent spaces in governments. That is also a political problem.

Corruption and illicit crime is an economic phenomenon, but also a socio-political phenomenon. They are in the power centre and we need to address that situation. On the other hand we need to rethink institutions and rules that are absolutely obsolete and try to define what is reasonable now in 2006 and what would be reasonable for the future.

It is understandable that these days we have extradition rules, asylum rules, bank secrecy rules, that are supposed to protect citizens’ right to privacy, the sovereignty of countries, protect governors from illegal persecution, etcetera. But all these rules were designed in another era, so now that we have global terrorism, global crime; is privacy regarding bank accounts a priority?

Maybe not.

Is there any sense today in maintaining rules of asylum that were decided hundreds of years ago in order to protect citizens from persecution by the kings? We should probably examine many of the rules of asylum because they are providing safe havens for corrupt people and for criminals.

So we need to rethink, I think, many of the institutions in our systems. We need to generate a governmental strategy with a unified command; multidisciplinary, integrated and functional teams. When we try to reach agreements from government to government, it is very difficult to arrive at concrete points where we can establish some kind of agreement.

It is better, and has been proven to be better, to deal with small groups and face-to-face negotiations from one government to another. We need to establish multi-year plans and budgets in order to eliminate the restraints of short-term vision and of course we need to offer some solution to the cross border issue, and this is mainly in the field of international cooperation.

We need to develop a new approach among governments in order to establish rules - flexible rules, dynamic rules - that allow governments, to some extent, reach the same level of movement as illicit networks.

Finally civil society has of course to work on this problem and I think NGOs and organisations need to generate more public pressure, make connections. Whilst networks are easily communicating from one group to another, in most of our countries NGOs and civil society groups don’t talk to each other; they have rivalries, we don’t have short term and long term plans.

And of course we need to develop integrity networks. We have criminal networks, we have criminal cartels, I think a proposal is if we go, for example, to a construction sector where you have criminal cartels and generate integrity cartels, bringing together all those companies that are willing to deal with transparency and with integrity in their business in order to generate a powerful dynamic.

And technology. Technology these days is indispensable in order to address these problems. We need introduce software, surveillance techniques, identification and security devices in order to be much more effective in this struggle.

Thank you very much.

(Applause)

Michael Holman:

Excellent. Thank you so much.

John Williams:

State for sale - corruption and embedded networks of influence’. That’s a big big title and I can think of no greater network of embedded influence around government than parliaments, lobbyists, big business, labour, back room dealers, self appointed promoters of causes, and slick salesmen, all who want access to the government cash machine.

And that is just the democratic countries.

Add on the warlords, the drug lords, House of Lords, terrorists, blackmailers, smugglers, bribers, and other assorted scoundrels, and you have a substantial number of disreputable people trying to beat down the government to get their hands on the power and on the money.

And who is left? Oh yeah, the poor taxpayer. Always the poor taxpayer. He is not into state capture and the theft of state assets because it is his money that is being stolen. And unfortunately it is not being stolen before his eyes, but by secret deals hidden away and under the table. Greased palms, wads of cash, expensive gifts behind closed doors - all to buy influence with the government that has patronage to hand out and taxpayers’ money to spend.

A sordid situation indeed. So where does the answer lie? The answer lies in openness and transparency. Application of the rule of law. Proper accounting and auditing. Open and fair procurement policies, and that is just for a start.

To sum it all up, the solution lies in more and better governance, which will lead to less and less corruption. Because good governance tackles corruption head on.

If good governance is in place, the people will not tolerate the pillaging of their state assets that enrich the leaders and those who hang around them.

If good governance is in place, the people will demand – and get – ethics and honesty in government.

If good governance is in place, leaders and their friends will be out there building our societies, not building their secret bank accounts.

So how do we develop this ‘good governance’ that not only promises so much, but believe it or not, actually delivers it too? The answer lies in one simple word called ‘accountability’. Leaders will deliver good governance when they know that the price of failure is high. Because corruption can only be controlled, never eliminated, accountability is the only thing that will rein in those who want to get away with the money and the power. I define accountability quite simply as a ‘force beyond your control that causes you to think and act in a certain way.’

Now to explain this I give my public confession – I drive too fast. I always drive too fast on the highway because I know I will get away with it. I drive ten kilometres over the speed limit all the time, but I never drive twenty, thirty or forty kilometres over the speed limit because I know if I meet the police on the highway with radar they’re not going to stop me for ten kilometres, but they will stop me for thirty and forty kilometres over the speed limit and I will get a ticket. Expensive. I will get demerit points and too many of these and I have no licence. My insurance cost goes up. It’s not worth it.

But this tells me a simple thing - that if I think I am going to get away with it, I will do it. But if I think the price is going to be too high and I will likely be caught doing it, I don’t do it. I back off - human nature - and that’s the fundamental concept of accountability. People must think that they will likely be caught and they’re not going to like the price.

In Canada we had a sponsorship scandal – we couldn’t find $100 million. That’s a fair amount of money. So what happened? The government was out on its ear, some people went off to jail, not because they wanted to, but because they were held accountable.

Last week in the United States they had an election where the Congress changed hands and now the people spoke and said to the government, “you will listen to us”.

What about Georgia and Ukraine where the people stood up and said to the government, “you are gone because you are corrupt, because we will not tolerate any more”, and they were a force beyond the control of government that threw them out on their ear and made the changes.

Accountability. A force beyond their control.

So how do we get and find this accountability for government? It is the responsibility of a democratic parliament to hold its executive accountable. When parliament fails, and I’m a parliamentarian, when parliament fails, government fails and society fails. It’s that simple. We are the bedrock of accountability.

I explain democratic governance in a simple hourglass theory. We are all familiar with the standard triangle of an organisation. In government we have the people at the bottom being served by bureaucracy, who take their instructions from the cabinet, who listen to the prime minister or the president at the top. A standard triangle of an organisation. I call that the ‘service triangle’.

And above the service triangle, there is an inverted triangle where the cabinet and the prime minister or president reports to the parliament and through an open and independent media we report to the people at the top. The people are at the top on governance and they are at the bottom being served by government. And when that system is in place, accountability works, democracy works. But when parliament is sidelined, baulked, taken out of the loop, put in the pockets of government; then the whole thing collapses.

Parliament has four simple but fundamental responsibilities:

  1. We approve legislation for government. If we don’t like it, we can say no. Government has to come to parliament for authority to approve legislation.

  2. We approve the budget. For government to raise the taxes to run this nation. If we say we don’t like it, then it’s back to the drawing boards and likely a new government to try and get the job done.

  3. We approve the estimates, the line by line spending that says you can spend this amount of money on this particular programme and no more and in nowhere else.

  4. Government reports to parliament. They report to us. That is our job on behalf of the people who elected us.

Unfortunately as a parliamentarian I have to admit that many parliamentarians, many parliaments, are a sad excuse for what they are actually supposed to do on behalf of their citizens. So how are we going to rebuild these organisations that are fundamental to our society?

We started an organisation called GOPAC, the Global Organisation of Parliamentarians against Corruption. It has three pillars. Its mission first of all is to improve parliaments as democratic institutions of oversight of government.

The three supporting pillars:

  1. Peer support: Peer support for parliamentarians and others who are standing up and speaking out and putting their lives on the line in some cases against government and against corruption. They need to know they don’t stand alone.

  2. Education for parliamentarians: We send our people to university to be lawyers, doctors, engineers, accountants, and so on, but who trained a parliamentarian? Who told him what his job was? Who told him how to be an effective parliamentarian? Nobody. We elected them on some platform – vote for me and I will give you some kind of services. More government, less government, expensive government, cheaper government. It doesn’t matter, but if I am not in the cabinet then my job is oversight.

  3. Leadership for results: We’ve heard it time and time again. The time for talk is over, it’s time for action. So what are we going to do?

At our conference in Arusha, Tanzania a couple of months ago we resolved eight resolutions. Not to condemn a problem and go home, but to create task forces to engage parliamentarians around the world to stand up and start doing something.

1. Code of Conduct for parliamentarians: We need to demonstrate to our societies that we have ethics and we have standards.

2. Parliamentary Immunity: In far too many cases parliamentary immunity protects parliamentarians from prosecution rather than allowing them to do the job of governance.

3. Parliamentary Oversight: We need a task force to help us understand what our role and positions are.

4. Access to Information: We need more access to government information. We need an independent media, so we have a task force there too.

5. International Conventions against Corruption: A task force to support the UN Convention against Corruption. That needs to be ratified and implemented, especially in the most corrupt countries, who are the least likely to do that, therefore they have to be motivated and we have to engage parliamentarians in these countries to get the job done.

6. Anti Money Laundering Legislation/Combating Terrorist Financing/Return of Stolen Assets: They go together as a package. We have to do that and we as parliamentarians have to ensure on behalf of all the citizens who elected us that we get these jobs done.

7. Resource Revenue Transparency: EITI, Extractive Industries Transparency Initiative - we are saying let’s change the accounting standards so that every country in the world has to declare its extractive industry revenues.

8. Development Assistance Loans and Grants: Donor transparency so that parliaments are engaged in the grants and loans from donor agencies.

Ladies and Gentlemen it is time. It is time for parliamentarians to be engaged, to hold their governments accountable and to exercise the democratic responsibilities that we were given.

If you look at the Transparency International Corruption Index you will see a complete, simple and inverse relationship between democracy and corruption. More democracy, less corruption. Less democracy, more corruption.

Democracy means that parliamentarians have to do their job right. They have to be that force beyond their control, the force that holds the government accountable.

So GOPAC is an organisation for those who believe in honesty, ethics and integrity. GOPAC is for those who believe in parliamentary oversight and accountability. Openness and transparency should be the order of the day. GOPAC is for those who say, it is our obligation to serve our society, not to help ourselves to the government’s cash.

Strong leaders can only be constrained by strong institutions. That is a fundamental concept and if we cannot build a strong parliament, which should be the strongest institution in any country, then we have a problem. Because only parliament has the constitutional authority and responsibility to hold its government accountable.

I know Transparency International and other NGOs are trying to fill the gap that we have created through our failure. But we have that constitutional responsibility to hold governments accountable and it is time we started doing that because nobody voted for the state to be sold out from underneath them.

Nobody voted to give the leaders and their friends unfettered access to clean out the treasury. Nobody voted for poverty, illiteracy, disease, squalid living conditions, preventable infant mortality, no clean water, no jobs and no hope, all of which are by products of grand corruption and the theft of state assets.

So why does government keep getting away with the cash? The answer is simple. No openness, no transparency, no governance, no accountability.

So I say to the parliamentarians in the room, and if you can find them talk to them, are we going to stop all this or are we going to start doing something about it? Are we going to sit back and do nothing and abdicate our responsibility to those who voted for us and put their hope in us? The choice is clear, the choice is ours and I hope that parliamentarians stand up and start doing the responsibilities for which they were elected.

Thank you very much.

Soung-Jin Chung:

[inaudible] I would like to reiterate by thanking Transparency International and the government of Guatemala for hosting this conference and for the warm hospitality we have received. Let me also thank Honourable Justice Barry O’Keefe, Chairman of the IACC, and Dr. Huguette Labelle, Chair of Transparency International, for this opportunity to share with you the Korean government’s efforts to reduce the negative impact of networks of influence.

1. Networks of influence in the initial stage of economic development in Korea

Fifty years ago, the Republic of Korea was in a state of extreme poverty. Nearly four decades of colonial rule, followed by the Korean War, devastated our industrial infrastructure and impoverished our population.

In 1953, following the ceasefire, Korea’s per capita GDP was only USD 67. In 1960, as we were beginning to promote our economy, foreign exchange reserves were no more than USD 150,000. With the nation relying heavily on foreign aid to support its people, there was insufficient capital to devote to economic development. It was imperative that Korea effectively allocate what few resources it could muster.

For this reason the Korean government assumed the role of the market in allocating capital. It introduced foreign capital on credit and distributed it through state-controlled banks. The government even intervened in corporate activities in carrying out national development policy. Considering a need to accelerate economic growth with very scarce resources, it was understandable that the government employed selective and preferential strategies in fostering industries and controlling the market.

Indeed, such strategies produced stunning results. Some forty years after we launched our economic development drive, Korea’s per capita GDP today stands at more than USD 16,000. Our foreign exchange reserves exceed USD 230 billion. In two short generations, Korea has grown from one of the poorest to the tenth largest economy in the world.

On the other hand, Korea has seen some unwelcome consequences of these strategies, and I will now highlight some of those.

In exercising extensive authority over a vast part of the nation’s economic life, past administrations were unknowingly creating obstacles to Korea’s long-term development. Some businesses grew dependent on government support and preference for their growth, rather than on innovation in response to market demand. The government and the politicians presumed on such needs of businesses to further their own ends.

Recognising these problems, the Korean government has made steady efforts to ease regulations and liberalise the financial market since the 1980s. However, unethical ties between business and politics, have proven resistant to such efforts. Companies continued to take advantage of these longstanding networks to obtain government approval and permission, protect their markets, and secure monopolies. It was in the late 1990s that such shady practices emerged as a grave challenge for the Korean economy.

2. Challenges for the past networks of influence

In December 1997, Korea experienced an economic crisis unprecedented in our history. The Korean Won-to-dollar exchange rate plunged, our foreign exchange reserves were being drained, and the country was on the brink of defaulting on its foreign loans. Fortunately, Korea managed to overcome this crisis through relief loans from the International Monetary Fund and a series of drastic domestic reforms.

The experiences of late 1997 and 1998 taught Koreans an invaluable lesson: The past networks of influence are no longer a benefit to our national economy.

Observers have pointed out that corporate malpractices were one of the main causes of the financial crisis. Namely, several large conglomerates, under the auspices of political heavyweights, falsified their accounting records and obtained exorbitant bank loans in a bid to expand their business. The government was also to blame since it failed to oversee such practices and rein in those who used them for personal gain.

3. Anti-corruption initiatives to dismantle networks of influence

In the wake of the financial crisis, the Korean government has taken a wide range of initiatives to improve corporate governance and accounting transparency. It has strengthened protection for minority shareholders, while requiring business groups to file combined financial statements if their affiliates’ assets exceed a set amount. In addition, CEOs or CFOs must now verify the accuracy of publicly disclosed documents.

One may insist that recent wealth-transfer scandals involving Samsung and Hyundai are indicators of Korea’s lack of transparency. Paradoxical as it may sound, the fact that these cases have come to light is, in itself, evidence of improved corporate governance and enhanced accounting transparency.

Many agree that under the incumbent administration, the political neutrality and independence of the Public Prosecutors’ Office has greatly increased. Even a few years ago, one could not imagine crackdowns and investigations involving the President’s aides. This attests to the stricter and freer investigative powers now enjoyed by the Public Prosecutors’ Office of Korea.

Even as recently as the mid-1990s, Korea had rampant corruption involving political parties and businesses. However, for the past three years, we have yet to see a single case of systemic corruption in the central political arena.

Several factors have been responsible for this positive change. Among them were the amendment of key election laws in March 2004, which made political campaigning less costly. It is now illegal to operate district party chapters or to organise joint election campaigns. Furthermore, companies and organisations are now prohibited from making political contributions.

Another contributing factor in curbing corruption has been the rise of Korea’s civic groups since the 1980s. They have become a powerful watchdog of corporate behaviour and the unhealthy collusion between businesspeople and politicians. Naturally, the media too has played a crucial role in the nation’s crusade against corporate and government corruption.

4. The fruits of anti-corruption efforts

The fruits of Korea’s anti-corruption efforts continue to multiply. We can certainly see significant improvement in just the past five to six years, not to mention the advances made prior to the 1990s. As you can see from the Bribe Payers Index (BPI), the Corruption Perceptions Index (CPI) and other acclaimed international surveys, the status of corruption in Korea has improved steadily since 2000.

5. Challenges & future directions

Now, it is necessary to identify and cope with the ever-changing environment and demands of the day. In addition to public organisations, we also need to monitor private organisations and joint private/public committees more effectively. Specifically, we need to establish stricter criteria as to the transparency and fairness of their formation, their selection of participants, and in their decision-making processes.

Of particular concern, the non-transparent criteria governing these organisations has led to the re-employment of retired public officials as executives and outside directors of relevant private companies or law firms.

Conclusions

As I discussed earlier, networks of influence in Korea have been shaped and influenced by government-led economic development strategies, as well as by established custom and cronyism. We at KICAC will continue to make concerted efforts to develop and implement anti-corruption measures at home, while participating actively in the global movement against corruption. I hope Korea’s experience can serve as a useful reference point for other countries in eradicating the negative influence of embedded networks. In addition I hope that my presentation can participate in that discussion and contribute to drawing a meaningful conclusion.

Thank you for your kind attention.

Michael Holman:

Thank you very much. A message of hope from Korea. John it’s your turn.

John Githongo:

Thank you very much. I was going to start my presentation with an exploration of the need for paradigm shift when it comes to addressing corruption in neo-patrimonial states held hostage by embedded networks. But after those very brilliant presentations, I am going to limit my intervention to just a few minutes because I am aware that the audience has a range of questions that they would like to put to those very interesting presentations that have been made by the panel.

I will follow a bit on something that Jose Ugaz presented. He gave an overview of embedded networks at a global level. Allow me to present a snapshot of how an embedded network works in a national economy - a transitional economy – where there is limited executive accountability despite a democratic process being in place. My experience is mostly from Africa.

First of all my experience has been that grand corruption - the kind of corruption that affects government institutions like the judiciary, the legislature, the civil service, and security sector the most – occurs mainly in three particular areas of procurement:

  1. Extractive industries: Whether it is oil, diamonds, etc, extractive industries are a particular problem for grand corruption.

  2. Defence/Security: Whether you are talking about military procurement, intelligence sector procurement, the police.

  3. Communications: Now this is changing quite rapidly across the continent largely as a result not of anti-corruption efforts, but because of liberalisation in this area.

Typically at the national level embedded networks comprise four parties: politicians, bureaucrats, security sector officials, and business people (the so-called private sector). I will try and lay out some of the characteristics of each of these four players in an embedded network.

Politicians in embedded networks

First of all with regard to the politicians, even in a democratic situation where you have regular elections, the embedded network is able to continue its hold over vital procurement processes in those areas that I have raised of extractive industries, defence and communications.

Even when you have regular changes in the politicians themselves – new leaders elected, new members of parliament elected – that does not change the grip which the embedded network is able to have over these sectors. Politicians are interchangeable and they are quickly swallowed up by agents of the network.

This happens in two ways. The business side of the networks provide what is called ‘political finance’ or ‘campaign finance’. That is what it comes as. Politicians need resources, there is always a question asked - who pays for democracy? Unfortunately it is corruption that pays for democracy, particularly in transitioning nations.

So the resources are made available as ostensibly for political finance but very critically some of the resources are made available to the politicians personally. Somebody involved in drugs or in the defence sector or in the extractive industries in a negative sort of way who seeks to finance a politician or political party will not only give resources to the party and the process but also to the individuals themselves. That individual hook, whether it is a Rolex docState for sale: Corruption and embedded networks of influence transcript

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