Center for International Private Enterprise © 2003 Combating Corruption Anti-Corruption Initiatives from a Business View Point July 14, 2003 The Center for International Private Enterprise Washington DC

Center for International Private Enterprise © 2003 Overview of Corruption Corruption is often a “taboo” topic in many countries. Institutionalized corruption threatens the development of democracies and markets. Corruption increases transaction costs and undermines the competitiveness of the private sector in today’s global economy. It is essentially a waste of resources. Corrupt countries lack predictable economic environments and stable legal institutions – the base for international investment, trade and growth.

Center for International Private Enterprise © 2003 Roots of Corruption Corruption is not simply an abuse of the public office for private gain: corrupt behavior involves nepotism, cronyism, insider-trading, etc. Corruption is often institutionalized and is an acceptable behavior in many countries. Complex and vague legal systems along with governmental discretionary powers breed corruption. Over-regulation of the business sector creates perverse incentives.

Center for International Private Enterprise © 2003 Measures of Corruption Transparency International “Corruption Perceptions Index” ranks 102 countries on the scale of 10 – 1, with 1 being the most corrupt and 10 being the least corrupt country. RankCountryScore 1Finland9.7 2Denmark9.5 10United Kingdom8.7 15Austria7.8 16USA7.7 18Germany7.3 25France6.3RankCountryScore 57Mexico3.6 64Turkey3.2 71Russia2.7 77Philippines2.6 85Ukraine2.4 96Indonesia/Kenya Bangladesh6.3

Center for International Private Enterprise © 2003 Anti-Corruption Strategies 1.Break the taboo 2.Mobilize private sector initiatives and political will 3.Identify specific mechanisms that sustain corruption 4.Develop targeted programs and accountability 5.Evaluate

Center for International Private Enterprise © 2003 Corruption: Supply-Side vs. Demand Side

Center for International Private Enterprise © 2003 Demand Side of Corruption: The Role of the Private Sector corporate governance The business community has to gain a reputation for equity, fairness, transparency, accountability and responsibility by developing the institutions of corporate governance:  Transparency (full disclosure)  Independent Auditing  Conflicts of interest involving boards of directors and managers  Procedures for bankruptcy  Property rights  Contract enforcement  Corruption and theft

Center for International Private Enterprise © 2003 Principles of CG OECD Principles 1.Protecting the rights of shareholders 2.Treating shareholders fairly 3.Recognizing the role of stakeholders 4.Ensuring disclosure and transparency 5.Clarifying responsibilities of the board of directors

Center for International Private Enterprise © 2003 CIPE’s Experience For businesses to succeed in the world economy, they must have healthy corporate governance mechanisms including rule of law Building corporate governance in developing countries requires refashioning institutions Private sector must participate in developing governance mechanisms The reward is a thriving democratic society that supports economic growth

Center for International Private Enterprise © 2003 Case Studies TRACE (Transparent Agents and Contracting Entities) - a business-led effort to establish standards for agents and reduce due diligence costs Business Principles for Countering Bribery (Transparency International and Social Accountability International) – NGO and business community joint effort to establish standards of internal controls & ethics

Center for International Private Enterprise © 2003 Practical Approaches to Combating Corruption Coalition Building Coalition 2000 (Bulgaria) Identifying Obstacles Center for Liberal and Democratic Studies (Serbia) Journalist Support Journalists Against Corruption (Latin America)

Center for International Private Enterprise © 2003 Public-Private Efforts Center for Economic Development (Slovakia) Legal Reform Constitutional Reform and Legal Streamlining (Ecuador) Integrity Pacts Probidad (Colombia) Practical Approaches to Combating Corruption

Center for International Private Enterprise © 2003 Combating Corruption: A Policy Toolkit Supply-side Recommendations Independent media equipped with tools of analysis The role of think tanks, business associations and other NGOs OECD Anti-Bribery Convention Internationally accepted accounting standards Good standards of corporate governance Continue strengthening general OECD guidelines Demand-side Recommendations Establish sound procurement codes Require independent audits Legal reform and simplification Inventory of legal barriers and duplicative regulations Reduce the “shadow” economy Simplify tax codes Salaries of the civil servants have to be competitive with private sector ones Transparency in the financial/banking sector

Center for International Private Enterprise © 2003