BRIEF

Combatting Corruption

May 11, 2017

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The World Bank Group considers corruption a major challenge to its twin goals of ending extreme poverty by 2030 and boosting shared prosperity for the poorest 40 percent of people in developing countries. In addition, reducing corruption is at the heart of the Sustainable Development Goals and achieving the ambitious targets set for Financing for Development. It is a priority for the World Bank Group and many of its partners.

Businesses and individuals pay an estimated $1.5 trillion in bribes each year. This is about 2% of global GDP—and 10 times the value of overseas development assistance. The harm that corruption causes to development is, in fact, a multiple of the estimated volume, given the negative impact of corruption on the poor and on economic growth.

Empirical studies have consistently demonstrated that the poor pay the highest percentage of their income in bribes. For example, in Paraguay, the poor pay 12.6 percent of their income to bribes while high-income households pay 6.4 percent. The comparable numbers in Sierra Leona are 13 percent and 3.8 percent. Every stolen dollar, euro, peso, yuan, rupee, or ruble robs the poor of an equal opportunity in life.

In addition, corruption discourages poor people from accessing health services and negatively impacts health outcomes, such as infant mortality. It contributes to higher-order crimes: when money is lost through illicit financial flows (IFFs), it often finds its way across borders to fund drug and human trafficking. Its presence works to erode the social contract between citizens and the state.

Economic activity is similarly harmed by corruption – with corruption operating as a strong disincentive to foreign investment. Countries capable of controlling corruption are able to use their human and financial resources more efficiently, attract more foreign and domestic investment, and grow more rapidly. Recent research suggests that there is a 300 percent dividend for improving governance from weak to strong.

The Bank Group recognizes that corruption comes in different forms. It might impact service delivery, such as when police officers ask for bribes to perform routine services. Corruption might unfairly determine the winners of government contracts, with awards favoring friends or relatives of government officials. Or it might affect more fundamental issues of how the institutions work, a form of corruption that is often the costliest in terms of overall economic impact. Each of these forms is important, and tackling them all is fundamental to achieving progress and sustainable change.

Successful anti-corruption efforts are often led by a 'coalition of concerned' – by politicians and senior government officials, the private sector, and by citizens, communities, and civil society organizations. Increasingly, addressing corruption will require the concerted attention of governments and businesses and use of advanced technology to capture, analyze, and share information in order to prevent, detect, and sanction corrupt behavior. Much of the world's highest-value corruption could not happen without institutions in wealthy nations: the private sector firms that give large bribes, the financial institutions that accept laundered money, and the lawyers and accountants who facilitate corrupt transactions. Data on international financial flows shows that money is moving from poor to wealthy countries in ways that fundamentally undermine development. Corruption is a global problem that requires global solutions.

The World Bank Group is committed to fighting corruption in Bank-financed projects, in an effort that involves the work of its Integrity Vice-Presidency. Last year, the Bank’s Integrity department (INT) substantiated investigations that involved 43 projects and 124 contracts worth about $633 million, resulting in 58 sanctioned entities.

STRATEGY

The World Bank Group works at the country, regional and global level to build capable, transparent, and accountable institutions and design and implement anticorruption programs. Our work revolves around changing outcomes by helping both state and non-state actors establish the competencies needed to implement policies and practices that improve results and build public integrity.

Following the Anti-Corruption Summit, May 2016, the Bank Group reaffirmed its commitment to confront corruption as a core development issue wherever it exists and to support integrity in public sector institutions. The Bank Group also agreed to:  

  1. build the capacity of country clients to deliver on their commitments to enhance transparency and reduce corruption;
  2. enhance its support for implementation of anti-money laundering requirements and for the recovery of stolen assets, and
  3. extend its work on tax reform, illicit financial flows (IFFs), procurement reform, and preventing corrupt companies from winning state contracts.

The World Bank Group has included Governance and Institutions as a theme in IDA-18 – its Fund for the Poorest Countries – in order to focus global attention on the issue. Read more about the status update on the Bank Group’s commitment at the UK Anti-Corruption Summit.

Regional and Global initiatives:

Leadership in creating international transparency standards (Global Initiative on Financial Transparency, Open Contracting Standard, Asset Disclosure Standards) and support for the implementation of open government (through support for the Open Government Partnership).

Active assistance in the implementation of transparency and accountability efforts such as Extractive Industries Transparency Initiative (EITI), Publish What You Pay, Fisheries Transparency, Anti-Money Laundering rules.

Engagement and active support for international alliances and regional anti-corruption forums, such as the International Corruption Hunters Alliance and LAC Regional Parliamentary Network.

Engagement in international forums on anti-corruption including the G20 Anti-Corruption Working Group, the Financial Accountability Task Force, the OECD Anti-Corruption Task Team.

Fighting corruption within World Bank-financed projects:

The Bank Group's approach to fighting corruption combines a proactive policy of anticipating and avoiding risks in its own projects with a commitment to helping clients and stakeholders identify and combat corruption at national and international levels. The Bank Group subjects all potential projects to rigorous scrutiny and works with clients to reduce possible corruption risks that have been identified. Public complaint mechanisms built into projects encourage and empower oversight, and projects are actively supervised during implementation.

The World Bank has a zero-tolerance policy toward corruption in its projects. When allegations of fraud and corruption are substantiated, companies involved in misconduct are debarred from engaging in any new Bank-Group-financed activity. Concerned governments receive the findings of Bank Group investigations. In the past 7 years, the World Bank Group has debarred 368 firms and individuals.

Selected country examples include:

Nigeria — The country was the first African government to implement the Extractive Industries Transparency Initiative (EITI), and one of the first steps it took was a comprehensive audit of the oil sector value chain to verify that all payments were correct and settled. The audit revealed $9.8 billion in outstanding recoverable revenues from 1999 to 2008, including an estimated $4.7 billion owed by the state-owned Nigerian National Petroleum Corporation (NNPC). As a result of the audit, at least $2.4 billion of the lost revenue was recovered.

India — Some of the country's largest social welfare programs suffered because of ineligible beneficiaries receiving payments and officials taking a cut of or delaying payments meant for the poor. Now the government has distributed smartcards based on the country's biometric identification system to 19 million villagers in connection with the $5.5 billion National Rural Employment Guarantee Scheme. This reduces the chances for misconduct and gets money faster to the people who need it most. (Checking with SAR for the latest number.)

Dominican Republic — Public officials, civil society, private sector leaders, and other committed citizens formed the Participatory Anti-Corruption Initiative, a forum that gives thought-leaders a unique opportunity to tackle corruption and take on powerful interest groups in many areas, including medicine and procurement. By 2014, reforms in this area had lowered drug prices, improved medication quality and reduced public spending by 64%.

 

Last Updated: May 11, 2017




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