Anticorruption article #3 - Grand & Petty Corruption - TATA ...

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Anticorruption article #3

Grand & Petty Corruption


� Transparency International defined Corruption is the abuse of public power (entrusted

power) for private gain.

� It hurts everyone who depends on the integrity of people in a position of authority.

� Research has found that in countries with lots of corruption less of their GDP goes into

investment & they have lower growth rates.

� They invest less in education, thereby reducing their human capital

� They attract less Foreign Direct Investment (FDI)


Grand corruption case

In the presidential palace, an executive decision

is taken. “We must postpone the hospital

building programme”, says the president,

“because the defence needs of the republic

are of paramount importance. Instead we

shall buy 3 fighters which will cost us about

$100m.”


Petty corruption case

• A few miles away, an official in the

telecommunications department is talking to a

newly arrived expatriate resident, “I am afraid

that there is several weeks’ delay in getting a

telephone line, sir; but if you like to call my

brother on this number” – passing a slip of

paper – “he should be able to help”.


Grand & Petty Corruption

• These two examples are taken from opposite

ends of the corruption scale, sometimes

described as “grand” and “petty” corruption.

The first may put $10 million into the

president’s offshore bank account; the second

may put $100 into the official’s back pocket.


• There is no clear –cut and universal dividing line between “grand corruption" (practiced by senior officials, government ministers & heads of state), and “petty” corruption (which is the realm of customs clerks, immigration officers, and other low paid officials).

• Grand corruption is about the distortion of decision-making in matters of economic significance.

• Petty corruption is often about the removal of bureaucratic delays-”facilitation payments” & “speed money” paying people to do faster what they have been already paid to do.


• International (or offshore) corruption involves more than one legal jurisdiction.

• Domestic corruption- is within the control of a single government

• Grand corruption is usually international because of its scale.

• Petty Corruption is virtually always domestic, although the payer may not be a citizen, or even a resident of the country concerned.

• The Law commission UK has removed distinction between bribing a public official and of a private person.

• The public sector official owes a duty to the public at large. This is different from that owed by a private sector employee to his company, its shareholders or its customers.


2012 Scams in India

• Granite scam in Tamil Nadu - Loss of about 16,000 crore (US$3.02 billion

• Maharashtra Irrigation Scam – Loss of about 72,000 crore (US$13.61 billion).

• Kinetic Finance Limited Scam - Banks lost about 200 crore (US$37.8 million).

• Ultra Mega Power Projects Scam - Central government lost 29,033 crore (US$5.49 billion) due to undue favours to

Anil Ambani-led Reliance Power.[

• Andhra Pradesh land scam - 100,000 crore (US$18.9 billion)

• Forex derivates scam - 32,000 crore (US$6.05 billion)

• Service Tax and Central Excise Duty fraud - 19,159 crore (US$3.62 billion) crore)

• Gujarat PSU financial irregularities - 17,000 crore (US$3.21 billion)

• Maharashtra stamp duty scam - 640 crore (US$120.96 million)

• Maharashtra land scam

• MHADA repair scam - 100 crore (US$18.9 million)

• Ministry of External Affairs gift scam]

• Himachal Pradesh pulse scam[ 72][73]

• Flying Club fraud - 190 crore (US$35.91 million)

• Andhra Pradesh liquor scam

• Jammu and Kashmir Cricket Association scam - Approximately 50 crore (US$9.45 million)[

• Jammu and Kashmir PHE scam

• Jammu and Kashmir recruitment scam

• Jammu and Kashmir examgate

• Jammu and Kashmir dental scam


• Uttar Pradesh stamp duty scam - 1,200 crore (US$226.8 million)

• Uttar Pradesh horticulture scam - 70 crore (US$13.23 million)

• Uttar Pradesh palm tree plantation scam - 55 crore (US$10.4 million)

• Uttar Pradesh seed scam - 50 crore (US$9.45 million)[105][106]

• Uttar Pradesh elephant statue scam

• Patiala land scam - 250 crore (US$47.25 million)

• Tax refund scam - 3 crore (US$567,000)

• Bengaluru Mayor's fund scam

• Ranchi real estate scam

• Delhi surgical gloves procurement scam

• Aadhar scam

• BEML housing society scam

• MSTC gold export scam - 464 crore (US$87.7 million)

• TIN scam

• Nayagaon (Punjab) land scam

• Punjab paddy scam - 18 crore (US$3.4 million)

• NHPC cement scam

• Haryana forest scam

• Girivan (Pune) land scam (not to be confused with Pune land scam which came to light during 2011)

• Toilet scam


Corruption Perceptions Index (CPI)

• The CPI ranks countries/territories based on how corrupt their public sector is perceived to be.

• It is a composite index, a combination of polls, drawing on corruption-related data collected by a variety of reputable institutions.

• The CPI reflects the views of observers from around the world, including experts living and working in the countries/territories evaluated.


What is corruption and how does the CPI

measure it?• Corruption is the abuse of entrusted power for private gain.

• This is the working definition used by Transparency International (TI), applying to both the public and private sectors.

• The CPI focuses on corruption in the public sector, or corruption which involves public officials, civil servants or politicians.

• The data sources used to compile the index include questions relating to the abuse of public power and focus on: – bribery of public officials,

– kickbacks in public procurement,

– embezzlement of public funds, and

– on questions that probe the strength and effectiveness of anti-corruption efforts in the public sector.

• As such, it covers both the administrative and political aspects of corruption. In producing the index, the scores of countries/territories for the specific corruption-related questions in the data sources are combined to calculate a single score for each country.


CORRUPTION PERCEPTIONS INDEX 2011


Bribe payers index evaluates the supply side of corruption – the likelihood of firms from the

world’s industrialised countries to bribe abroad.

WHAT IS THE 2011 BRIBE PAYERS INDEX?

The Bribe Payers Index is a unique tool capturing the supply side of international bribery,

specifically focussing on bribes paid by the private sector.

The 2011 Bribe Payers Index is the fifth edition of the index, ranking 28 of the world’s largest

economies according to the likelihood

The 28 countries and territories ranked in the index are: Australia, Argentina, Belgium, Brazil,

Canada, China, France, Germany, Hong Kong, Italy, India, Indonesia, Japan, Malaysia, Mexico,

Netherlands, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Switzerland,

Taiwan, Turkey, United Arab Emirates, United Kingdom and United States.


The countries include the largest economies in terms of outward trade and investment

and together represent 78 per cent of global foreign direct investment (FDI) outflows and

exports. They cover all countries ranked in the 2008 Bribe Payers Index, all G20 countries

and other key regional economic trading powers.

The Bribe Payers Index scores are anchored to the 0 – 10 parameters of the scale. A score

of 0 corresponds with the perceptions of business people around the world that

companies from that country always pay bribes when doing business abroad.

A score of 10 corresponds with the perception that companies from that

country never engage in bribery when doing business abroad.

A score of 10 is therefore the benchmark which every country should aim for, as anything

less than a 10 is an indication that companies from these countries are perceived to

engage in bribery to some degree when doing business across borders.

Scores that fall significantly short of a 10 indicate a serious problem, suggesting that

companies from these countries are likely to engage in foreign bribery so frequently that

it is recognised by the business executives whose perceptions constitute the 2011 Bribe

Payers Index.


The mechanism of bribe transactions

• Bribes are paid to win or retain business. In the interest of both the payer & receiver of the bribe that it should be as concealed as possible. The recipient will not want any details to be known. The payer will like to distance itself from any questionable transactions.

• Hence the use of middlemen, often referred to as “representatives” or “agents” or a nominal joint venture.

• There are many legitimate tasks for a company’s representative in an unfamiliar country to perform-Advice on matters of law, finance, taxation, employment, security, etc

• A company needs to know when it is moving to payment of a bribe. Some indicators are :

– Representative claims to close familiarity with the decision maker of the contract concerned

– Representative claims he can arrange for terms of the contract to be modified in the company’s favour.

– It becomes evident when the representative is not taking instructions from the company but from another person

– The fee or commission being asked for is not commensurate with the work required from the representative or the local company.

– The representative stipulates that his commission must be paid offshore and a disproportionate part must be paid on signing of the contract, not pro rata to payments made by the seller.


Competitive tendering for all substantial contracts and purchases

are regarded as a strong defence against corruption:

• Slanting the tender specification so that it favours one supplier

• Holding a pre-qualifying competition, leading to a short list, which can eliminate potential threats to a favoured contractor

• Agreeing to variations in the specification that assists the favoured bidder.

• Giving extra weight to intangible non-price factors, such as “greater experience” or “better local representation”, in the adjudicating of the bids.

• Agreeing with the favoured contractor that the scope of the contract will be substantially increased after it has been awarded, enabling them to submit lower initial bid

• Makes life more complicated for the payers and receivers of corrupt payments than simple negotiations.

• It is foolproof only if the whole process from initial specification to final implementation is supervised by an individual or a body which does not stand to gain from a corrupt award. World Bank tries to ensure that competitive is genuinely competitive & not a mere cover for channeling business to a predetermined corrupt seller. For co financed projects. It is prepared to debar temporarily or permanently if a company has used corrupt means to win the contract.


In the context of facilitation payments, the following public interest factors tending in favour of and against

prosecution may be relevant. A prosecution will usually take place unless the prosecutor is sure that there

are public interest factors tending against prosecution which outweigh those tending in favour

Factors tending in favour of prosecution: Factors tending against prosecution:

Large or repeated payments are more

likely to attract a significant sentence

A single small payment likely to result in

only a nominal penalty

Facilitation payments that are planned

for or accepted as part of a standard way

of conducting business may indicate the

offence was premeditated

The payment(s) came to light as a result of

a genuinely proactive approach involving

self-reporting and remedial action

Payments may indicate an element of

active corruption of the official in the

way the offence was committed

Where a commercial organisation has a

clear and appropriate policy setting out

procedures an individual should follow if

facilitation payments are requested and

these have been correctly followed;

Where a commercial organisation has a

clear and appropriate policy setting out

procedures an individual should follow if

facilitation payments are requested and

these have not been correctly followed.

The payer was in a vulnerable position

arising from the circumstances in which the

payment was demanded.


Bribery is defined by Transparency International

(TI) as

• ‘The offering, promising, giving, accepting or soliciting or an advantage as an inducement for an action which is illegal, unethical, or a breach of trust.

• Inducements can take the form of gifts, loans, fees, rewards or other advantages.’

• Corruption is the abuse of entrusted power for private gain. It hurts everyone who depends on the integrity of people in a position of authority.


Damage done by bribes• The payer of the bribe will endeavour to recover the money in some way; then the cost

of things further down the supply chain will be higher than they would otherwise be.

• In countries suffering from a shortage of hard currency, harm is also caused by payment of grand corruption bribes paid offshore. In early 2011, several reports in Indian media alleged Swiss Bankers Association officials to have said that the largest depositors of illegal foreign money in Switzerland are Indian. According to White Paper on Black Money in India report, published in May 2012, Swiss National Bank estimates that the total amount of deposits in all Swiss banks, at the end of 2010, by citizens of India were CHF 1.95 billion (INR 9,295 crore or US$ 2.1 billion). In February 2012, Central Bureau of Investigation (CBI) director A P Singh speaking at the inauguration of first Interpol global programme on anti-corruption and asset recovery said: "It is estimated that around 500 billion dollars of illegal money belonging to Indians is deposited in tax havens abroad.

• The direct cost of grand corruption distorts the decision-making process. Procurement policy is driven by personal gain than by usefulness, quality & cost , hence may result in poor use of scarce resources or the purchase of equipment or goods that are unsuitable or of inferior quality. The national interest may be completely ignored in favour of projects or purchases carrying huge commissions. Besides the economic issue, the moral issue of a small group enriching themselves at the expense of their countrymen & setting a wrong example to those lower in the hierarchy whose petty corruption is damaging to the whole framework of society.

• Companies that are parties to grand corruption besides doing serious harm to the country directly or indirectly are also degrading the business environment in which the companies operate. There is also the risk that the corruption will become public knowledge & therefore damaging to the company involved.


Weapons against corruption

• Most important weapon is legislation against grand corruption.

• Until recently the USA was the only country to claim having a legislation in place.

• Under the 1977 Foreign Corrupt Practices Act (FCPA) it became criminal for an American Citizen to bribe a foreign public official as to bribe an official in USA. An exception was made for small “facilitation payments”.

• The OECD in 1999 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions has been ratified by 39 countries as of 2012. The list of these countries is shown in the next slide

• UK adopted the Bribery Act 2010 came into effect on 01 July 2011.applies to bribery of government officials and commercial bribery


Generally, the anti-bribery provisions of the FCPA prohibit United States issuers, persons, or anyone acting at their behest from authorizing, paying, or offering to pay money or anything of value, directly or indirectly, to any foreign official and/or foreign political party or party official in order to obtain or retain business.

A violation of the anti-bribery provisions may be parsed into the following eight elements1.Use of instrumentality of interstate commerce;2. To authorize a payment, make a payment, offer a payment, promise a payment;3. Of money or anything of value;4. With corrupt intent;5. To a covered person. Covered persons include: (a) foreign official; (b) foreign political party; (c)foreign party official; (d) candidate for foreign political office; and (e) any person while knowingor having reason to know that that person intended to pass any part of the payment to any ofthe above-enumerated persons;6. By a covered person. Covered persons include: (a) issuers; (b) domestic concerns; and (c) anyofficer, director, employee, or agent of such issuer or domestic concern, or any stockholderthereof, acting on behalf of such issuer or domestic concern;7. To (a) influence any act or decision of the foreign official in his official capacity; (b) induce suchforeign official to do or omit to do any act in violation of the lawful duty of the official; (c) inducesuch foreign official to use his influence with a foreign government or instrumentality thereofto affect or influence any act or decision of such government or instrumentality; or (d) secureany improper advantage; and8. In order to assist in obtaining or retaining business for or with, or directing business to, anyperson.


• Payments to facilitate or expedite the performance of “routine governmental action” are not covered under the anti-bribery provisions of the FCPA.

• The following are examples of expediting payments:

– obtaining permits, licenses, or other official documents;

– processing governmental papers, such as

• visas and work orders;

• providing police protection;

• mail pick-up and delivery;

• providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products; and

• scheduling inspections associated with contract performance or transit of goods across country.

• A person charged with violations of the anti-bribery provisions of the FCPA may assert as an affirmative defence that

– the payment or promise to pay was lawful under the written laws and regulations of the foreign official’s country, or

– that the payment or promise to pay was a reasonable and bona fide expenditure such as travel and lodging expenses to

(i) promote, demonstrate, or explain products or services, and

(ii) execute or perform a contractual obligation


• Corruption often goes unchallenged when people do not speak out about it. Witness accounts offer invaluable insights into corruption, and are powerful tools in the fight against it. From exposing multi-million dollar financial scams to dangerous medical practices, whistle blowers play a crucial role in saving resources and even lives.

• But in some countries, blowing the whistle can carry high personal risk –particularly when there is little legal protection against dismissal, humiliation or even physical abuse. Controls on information, libel and defamation laws, and inadequate investigation of whistle blowers’ and concern raisers’ claims can deter people from speaking out. Tata Power will protect the whistle blower and concern raisers

• Whistle blowers are less likely to report workplace misconduct when their employers do not provide clear internal reporting channels. And in some settings, whistle blowing carries connotations of betrayal rather than being seen as a benefit to the public. Ultimately, societies, institutions, employees and citizens lose out when there is no one willing to cry foul in the face of corruption or violation of TCOC.


• Whistle blowers are invaluable in exposing corruption, fraud and mismanagement. Early disclosure of wrongdoing or the risk of wrongdoing can protect human rights, help to save lives and preserve the rule of law.

• Safeguards also protect and encourage people willing to take the risk of speaking out about corruption. We must push countries to introduce comprehensive whistle blower legislation to protect those that speak out and ensure that their claims are properly investigated. Companies, public bodies and non-profit organisations should introduce mechanisms for internal reporting. Tata Power has the whistle blowing policy and Clause 25 of TCOC to facilitate this. And workplace reprisals against whistle blowers should be seen as another form of corruption.

• Public education is also essential to de-stigmatise whistle blowing, so that citizens understand how disclosing wrongdoing benefits the public good. When witnesses of corruption are confident about their ability to report it, corrupt individuals cannot hide behind the wall of silence


• A key challenge in preventing and fighting corruption is to detect and expose bribery, fraud, theft of public funds and other acts of wrongdoing. One of the most direct methods of shining the light on corruption is whistle blowing or raising concerns.

• Unfortunately, whistle blowers commonly face retaliation in the form of harassment, firing, blacklisting, threats and even physical violence, and their disclosures are routinely ignored.


• Tata Power believes that the individual right to freedom of expression includes the right to point out acts of wrongdoing – both in government and in private companies. Even beyond this basic right is the simple fact that people who step forward to disclose wrongdoing – particularly when public safety, health or resources are at stake – should be acknowledged and protected, not punished and ostracised.

• To help to ensure that whistle blowers are adequately protected from reprisals, and to provide them with easy-to-access avenues to make their disclosures, The MBE organization in Tata Power is engaged in a wide range of advocacy, public awareness and research activities. Through our Local Ethics Counsellors located in 24 locations, we advise whistle blowers and concern raisers in making their disclosures and work to make sure that their disclosures are duly addressed by appropriate authorities.

• We work closely with advocacy groups, legal experts and whistle blowers and concern raisers toward enhancing whistle blower and concern raisers protections and rights.


Entertainment & small gifts

• 4 Criteria can be used to determine the propriety of any gift:– Frequency

– Timing

– Reciprocity

– Value

• Fundamental difference between a gift given in the hope of winning a contract and a small gift in appreciation for having won a contract is that the value of the gift should not in any circumstance represent more than a tiny fraction of any business completed or under consideration


Conclusion

• Grand corruption in terms of the FCPA,UK Bribery Act and OECD Convention is always inexcusable, frequently (and increasingly often) criminal, and now carries grave risks for any company (or individual) that indulges in it.

• Petty corruption is always wrong and every effort should be made to avoid it. There maybe circumstances in some countries in which it maybe extremely difficult or dangerous to avoid succumbing to it. Individuals in isolation may find it unable to do the right thing.

• At times of doubt, “the newspaper test” maybe relied upon:

Either the receiver of a favour or a present would be embarrassed to see the details accurately reported in the newspaper.


Doing business without grease

Case study


Caveat

• This ppt contains general information only and is based on the experiences

and research of the author.

• The author is not, by means of this publication, rendering business, legal

advice, or other professional advice or services.

• This publication is not a substitute for such legal advice or services, nor

should it be used as a basis for any decision or action that may affect your

business.

• Before making any decision or taking any action that may affect your

business, you should consult a qualified legal advisor and or the CEC.

• The author, his affiliates, and related entities shall not be responsible for any

loss sustained by any person or entity that relies on this publication


Website: www.tatapower.com

Email ID: [email protected]

Contact No: 9223346450

Anticorruption article #3 - Grand & Petty Corruption - TATA ...

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