Corruption Scandals and their Global Impacts

Omar E. Hawthorne, Stephen Magu

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351390811
• Edition: 1
• Topic: Politique et relations internationales
• Subtopic: Corruption politique et inconduite

Corruption scandals receive significant press coverage and scrutiny from practitioners of global governance, and bilateral and multilateral donors. Across the globe, the annual publication of TI's CPI and World Bank's Worldwide Governance Indicators elicits spirited denials and accusations of targeting, of neo-colonialism. Poor measures on corruption indices and the ensuing negative publicity can have serious consequences both externally, through a freeze or retraction of donor funding, and internally, through reducing the availability of public funds, and harming the credibility of serving governments and institutions.

Corruption Scandals and their Global Impacts tracks several major corruption scandals across the world in a comparative analysis to assess the full impact of global corruption. Over the course of the book, the contributors deliberate the exposure and reporting of corruption scandals, demonstrate how corruption inhibits development on different levels and across different countries, the impact it has on the country in question, how citizens and authorities respond to corruption, and some local, regional and global policy and legislative measures to combat corruption.

The chapters examine the transnational manifestation of corruption scandals around the world, from developed countries and regions such as the United States and the European Union, to BRIC countries Brazil and Russia, to developing countries such as Belarus, Jamaica, Kenya and Nigeria. In each case, chapters highlight the scandal, its impact, the local, regional and global responses, and the subsequent global perceptions of the country. Concluding with a review of the global impacts of corruption scandals, this book provides an important comparative analysis which will be useful to students and scholars of international development and politics, as well as to development practitioners, donors, politicians and policy makers.

1
Introduction

Corruption scandals and global governance

Omar E. Hawthorne and Stephen Magu

Corruption and its manifestation: an inherently human enterprise?

The expression “but I know it when I see it” was first used by Associate Justice of the US Supreme Court Hon. Potter Stewart in Jacobellis v. Ohio to explain his finding that the movie The Lovers (Les Amants) did not, in his view, contain obscenity; he implied that obscenity could perhaps not be well defined, but one would recognize it when one saw it. Sometimes the same is true of corruption: you know it when you see it – or when you hear about it; it ranges from brash notions of “eating the national cake” to a benign suggestion to “buy lunch”, “tea” or “chicken”, to “facilitate business”, sometimes codified as “missing files” that magically reappear when money changes hands, and bundles of cash passed discreetly, or briefcases brought to offices by burly bodyguards. In other places and times, it manifests as exceedingly complex, shadowy, pay-to-play, influence peddling, and underhand, covert meetings in back rooms where only the elites have admittance; it is about contracts and passports and oil deals and weapons acquisitions and cover-ups.

Rose-Ackerman and Palifka, while arguing that their list is inclusive rather than exhaustive, highlight eight types of corruption: bribery, extortion, exchange of favors, nepotism, cronyism, judicial fraud, accounting fraud, public service fraud, embezzlement, kleptocracy, influence peddling and conflicts of interest (2016: 8–9). The authors and contributors to this volume highlight other types of corruption, including, for example, “tenderpreneurship” and “javelin-throwing”, in addition to instances that fall within the Rose-Ackerman and Palifka framework, such as self-dealing, kickbacks and bribes. In other times and places and as the world becomes increasingly interconnected, corruption is (not-so/-well) well concealed behind bits and bytes, 0s and 1s, traveling at light speed through the ether of the internet, its nefarious purposes carried out by shadowy lawyers with postal boxes for addresses in exotic locations such as the Cayman Islands, Jersey Islands, Panama and a multitude of tax havens; in such cases, you really don’t know it when you see it. Sometimes, it takes prosecution in a second jurisdiction for a country to catch on to the fact that graft occurred, as was the case with Smith & Ouzman in the UK in the early 2010s.

The genesis of the concept of corruption, corrumpere, intimates “mar”, “bribe”, “destroy”. Corruption goes by other synonyms; dishonesty, fraud, graft, sleaze, bribery, unscrupulousness, criminality, moral depravity, decadence. The appearance of the term in written literature appears to have manifested itself especially profoundly in the early 19th century, decreased drastically in the early to mid-20th century and regained frequency later into the 20th century and the early decades of the 21st century. The magnitude of the funds moved through corruption has increased significantly even as its use decreases. Today, several major manifestations of the practice of “graft” or “corruption” are broadly considered. They range from simple bribery that might involve the exchange for money for a favor, pay-to-play, nepotism, cronyism, no-contract bidding, different forms of manipulation of the supply and procurement systems and chains, flouting international procurement (for example, of military equipment that may require no-bidding contracting), while other forms of corruption include “tenderpreneurship” and “javelin-throwing”.

Corruption is not a new phenomenon. Kautilya’s Arthashastra, written around 2,000 years ago, discussed corruption and corruption scandals. Even Shakespeare in his plays gave corruption a prominent role. The Financial Times, in its December 31, 1995, end-of-year editorial characterized 1995 as the year of corruption. That was also the year of the birth of watchdog group Transparency International. The degree of attention over the last two decades being paid to corruptions has led many to ask why and why so much attention now. For some political economists, the end of the Cold War also helped to stop the hypocrisy of developed industrial countries, which often ignored political corruption that existed in many developing and emerging market economies that were in their political camp.

The increase in the number of democratic governments, coupled with free press, helped to create an environment that facilitated discussion on the once-taboo topic of corruption. The increased role of non-governmental organizations such as Transparency International, amongst others, in publicizing the problems of corruption, has been successful in creating anti-corruption movements in many countries. Hawthorne (2015: 37) makes the case that it would appear that government corruption is more pervasive in countries where the structure of opportunities a/nd incentives are conducive to corrupt behavior. Sandholtz and Koetzle (2000: 31) assess another dimension that is related to the political sphere, that relating to “repertoires of cognitions, feelings, and schemes of evaluation that process experience into action”. Furthermore, Sandholtz and Koetzle add that “the effectiveness of democratic institutions in curbing corruption, however, depends on the presence of a set of democratic norms” (2000:31). Hawthorne (2015: 37) adds that in some societies where the government seems to have its hand in economic creation and development there is a positive correlation between the degree of state control of the economy and corruption. Hence, the political culture of a society might also affect how that society and its people conceptualize what is corruption. And, only when a society start disaggregating corruption, demanding accountability, and in what seems to be a dominant feature in corruption scandals, once an insider or an active civil society individual makes public such corrupt activities which result in a scandal, it continues to be business as usual.

Defining corruption scandals

It is important to highlight the differences between corruption and corruption scandals, despite the terms being used interchangeably by several authors. Corruption, defined as the misuse of public office for private gain, by no means implies the publicity of the actions, but instead just their occurrence, whereas corruption scandals can be defined as the revelation of corruption that generates a strong public reaction. Corruption that does not become scandalous can be considered “successful” in the sense that it achieves secrecy, which is a key concern of those committing the acts (Balán 2011: 460). Corruption is also one of the most difficult crimes to detect, report on and measure the impact. A corruption scandal implies both public disclosure of corruption as well as the public upheaval that follows. Applying Theodore Lowi’s (1988) views, in addition to John Thompson’s (2000), corruption scandals have a certain temporal and sequential structure. Balán expounded on Lowi’s and Thompson’s position and argued that three stages can be distinguished: (1) the trigger stage, when information on the transgression is leaked; (2) the spread stage, when the information is made public; and (3) the response stage, when those involved in the scandal react (2011: 460).

The duration and intensity of each stage may vary from scandal to scandal, but the general structure allows for comparisons across corruption scandals that initially seem to be unique events. Bearing in mind the differences in the stages, the trigger stage is pivotal for a number of reasons – in that this stage involves the disclosure or leaking of detrimental information. One must become cognizant that not all corrupt acts are triggered to become scandals; that is, there is no automatic transformation from corruption to a scandal. Furthermore, more disclosure of information does not automatically imply more corruption in a society and vis-à-vis a country perceived to be highly corrupt does not imply a likelihood for more disclose of corrupt events. Subsequently, using Balán’s (2011: 460) premise, the disclosure of information requires two main components. First, information must be previously concealed, which implies that someone is revealing previously unknown events. Second, information must come from reliable and credible sources, which is a function of the sources’ proximity to actors involved in the transgressions. Hence the individuals that have access to the undisclosed information and the credibility and reliability of sources are fundamental.

The second stage – the spreading of the information to the wider society – is crucial, and the role of media in addition to civil society actors is key. In some instances, individual journalists and newspapers may have political agendas that sometimes push either for or against the publication of certain corruption scandals. And, as for Thompson (2000), the media is far from “innocent”. But, with a competitive media market and at minimum a level of media independence, an individual willing to disclose information can find the means. Social media is a game changer. In that the rapid rate at which disclosed information can be shared and viewed via online portals, this added dimension in the spreading of information sometimes takes on a life of its own and in stark difference from the role of traditional media. The Panama Papers, although shared with a journalist once the information became available on social media, turned average citizens into investigative journalists trying to research on their fellow citizens.

The response stage to a scandal can become the trigger for new scandals, building chains of scandals. The knowledge of corrupt activities is often available to political actors due to their proximity to the acts. And thus members or associates of a political actor’s party or staff can be expected to possess information about their misdeeds. Hence, leaking, be it selective or publicly denouncing, as Tumber and Waisbord (2004: 1034) point out, “everyone in politics… realizes if you examine more closely and for long enough, damaging information can be found on almost anyone.” The role of whistleblowers or an “insider” is rather pivotal. As Waisbord argues, “had [insiders] not come forward with sensitive and compromising information, most reporters agree, it is doubtful that most exposes would have ever surfaced” (2000: 196).

Corruption scandals have become an important aspect of politics. The prevalence of the scandals that have occurred throughout the world and their impacts are relevant to today’s society, as are the lessons learned from them and how they can or will transform societies going forward. Beyond economic conditions of a country, the extent to which scandals shape approval might ultimately depend on the type of scandal. A scandal related to the misuse of public funds might be perceived to be graver than a scandal related to claims about the personal character of a public official. The literature is somewhat ambiguous, and there is no broad consensus about the theoretical underpinnings of what attribute to one and not the other.

Corruption scandals continue to shake the political landscape of Brazil, but what is often lost in the debate on Brazil’s corruption scandals is that several institutions and anti-corruption movements have ascended to the challenge. The Brazilian corruption scandals are pivotal for not only this generation, but also will be studied for decades to come. Noting that across Latin America vigorous investigations have not only implicated the elites of politics and business circles, but these previously deemed untouchables have been arrested, charged and in some instances convicted for acts of corruption. Brazil is replete with lessons for judicial institutions and cooperation for other countries to grapple with. Amidst the corruption scandals and investigations, the democratic institutions of Brazil are seemingly holding their mandate.

Quite often, some political corruption scandals emerge as a power struggle even within the same political party. An insider may selectively leak information on wrongdoings in an attempt “leapfrog” and strengthen their position in relation to a rival. Conversely, as David Apter (1962: 157) emphasizes, “when there is a [weak] opposition, factionalism and intraparty intrigue become the prevailing political style”. Leapfrogging can generate chains of scandals, as both those who leak and those who are involved in the scandal remain in the government, allowing for new leaks in response to corruption scandals.

Corruption: “cost of doing business”?

Is corruption a blot on the inherently good nature of humanity, or merely the cost of doing business, opportunities that present themselves to accrue revenues that one might otherwise not have had the opportunity to? If it is so widely pervasive, should it be considered part of the business fabric, where it can be written off as part of business costs, as Jeffrey Mistich points out the practices in some European countries prior to the adoption of the extra-territoriality facet of the US Foreign Corrupt Practices Act (FCPA)? On average, most firms can expect to lose 5 percent through corruption costs, but it would cost far more for them to prevent and/or prosecute corruption. For instance, Iyer and Samociuk argue that the recovery of $10 million requires an extra $100 million, and thus perhaps unjustifiable in the eyes of the business. When costs of investigations are factored in, for example, $1 million to investigate a $10 million loss, with the costs climbing to between 30 percent and 100 percent of the amount lost, it seems that preventing, finding and prosecuting graft presents increasingly diminishing returns (Iyer and Samociuk 2006: 6).

Additionally, sometimes in doing business with the government there is the added “tax” of corruption. Before “Mani Pulite”, more widely referred to as the “Tangentopoli scandal” in Italy, Nordio (1997) noted that Minister Martelli, an essential member of the Socialist Party, in a speech in Bari admitted that the Italian political parties had on their payrolls a small army of employees. The salaries of these employees had to come from somewhere. Mr. Martelli’s speech enunciates a problem with political parties and campaign finance in that the need to generate funds for activities related to political parties gives the opening for bribery. Jamaica’s Trafigura Beheer political campaign bribery scandal, among others, is a perfect example of how pressures build to generate funds. Rose-Ackerman perhaps captures the link between democratic political campaigns and corruption best when she notes, “Democracy gives citizens a role in determining their political leaders. Corrupt elected officials can be voted out of office. But democracy is not necessarily a cure for corruption.” Politicians will campaign on anti-corruption platforms and the usual rhetoric of being tougher on corruption, but as the various corruption scandals explored in the text show, the web of corruption often entangles those who campaigned with some of the strongest anti-corruption rhetoric.

The views of some of economists in the 1980s and 1990s which seemingly advanced the view that corruption might promote growth have been largely dispelled and the broad consensus now holds that corruption is unequivocally bad. The idea that corruption “oils the mechanism” or “greases the process” of Leff (1964) and Huntington (1986), the bidding competitions and highest bribe model of Beck and Maher (1986) and Lien (1986) and the concept of bribes as supplements for low wages put forth by Tullock (1996) and Becker and Stigler (1974) have all been shown to not be conducive to growth and development. Corruption and rent-seeking as political glue or as a wage supplement may be helpful in the short run, but they may lead to major problems over the long run, as it has been shown for a number of the cases discussed throughout the course of this text. Furthermore, corruption distorts markets and the allocation of resources. It reduces public revenues while increasing public spending, resulting in larger fiscal deficits that affect any government’s fiscal policy.

Measuring corruption

If corruption could be measured in its entirety, it could probably be eliminated. It goes far beyond the payment of bribes; thus measuring total bribes paid does not fully capture corruption, as it inadvertently ignores corrupt acts, which are not accompanied by the payment of a bribe. Furthermore, if we were to measure acts of corruption instead of the bribes paid, it would be a near impossible task – dealing with unimportant actions and not being privy to all the information. Due to the nature of acts of corruption, the scale at which it occurs and because in order to measure it with accuracy would require individuals involved in illegal acts to self-declare, it is near impossible to measure with accuracy. We instead rely on assessments and survey indices that measure the perception of corruption. A growing range of indices are being developed that focus on measuring corruption and good governance; some of the more established indicators are Transparency International’s (TI) Corruption Perceptions Index (CPI) and the World Bank’s Worldwide Governance Indicator. Both are composite or aggregate indicators, in that they combine different measures of a similar thing into a single measure. For TI’s CPI, on average, 14 sources are used, including the Asian Development Bank’s Country Performance Assessment ratings, the Heritage Foundation, Freedom House’s Nations in Transit, the World Economic Forum’s Global Competitiveness Report, and Varieties of Democracy. The World Bank, on average, uses 25 sources for its Control of Corruption indicator. The items used to create the indices measure very different things, despite having similar-sounding titles. Often, the only commonality in the measurement tools is a combination of terms such as “accountability”, “corruption”, “democracy”, or “transparency”. Additional tools of assessment and measurement, such as the Global Integrity Index, the Global Corruption Barometer, the Global Competitiveness Report, the Political and Economic Risk Consultancy and Political Risk Services, have also added to the debate – these public opinion surveys have sought to capture snapshots of corruption worldwide. While these surveys measure the perceptions of corruption rather than corruption per se, they provide a good lens into how a cou...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• List of contributors
• 1 Introduction: corruption scandals and global governance
• 2 The management or mismanagement of corruption in Trinidad and Tobago
• 3 Examining the potential impact of whistleblowing on corruption in the Caribbean’s financial sector
• 4 A fish rots from the head: corruption scandals in post-Communist Russia
• 5 Toa kitu kidogo: when “chai” is not tea – and Kenya’s corruption scandals
• 6 Campaign donation and extradition of the connected in Jamaica
• 7 Big, bigger, biggest: grand corruption scandals in the oil sector in Nigeria
• 8 A spoonful of laws doesn’t help the bribery go down: persistent contributing factors of corruption in the US pharmaceutical and medical device industry
• 9 The Foreign Corrupt Practices Act in the US and extra-territorial enforcement of an international anti-bribery regime
• 10 The dynamics of corruption in Brazil: from trivial bribes to a corruption scandal
• 11 “The theory of the world in-between”: corporatism and mafia-ness in the new type of corruption in Italy
• 12 Belarus: do stones thrown into a marsh make rings?
• 13 Conclusion: lessons learned
• Index