Keuleers, Patrick, Renata Rubian, Andre Standing, and Paul Steele (2009) Corruption and Natural...

658 Perspectives on Corruption and Human Development

15

Corruption and Natural Resources

PATRICK KEULEERS, RENATA RUBIAN, ANDRE STANDING

AND PAUL STEELE

‘Earth provides enough to satisfy every man’s need, but not every man’s greed.’

– M.K. Gandhi

‘If the misery of our poor be caused not by the laws of nature, but by our institutions, great is our sin.’

– Charles Darwin

ABSTRACT

Natural resources – water and land resources, fisheries, forests, wildlife and minerals – arekey to lifting some of the poorest people and regions of the world out of poverty. Naturalresources are often the major source of wealth for poor people and for low-income countriesin the Asia-Pacific. But because of the natural wealth they represent, natural resources areoften plagued by corruption – bribes, fraud, conflict of interest and favouritism. This paperexplores the linkages between poverty, environment and natural resources as environmentally-exposed landscapes are often where poor and marginalised people find land or eke out anexistence. The authors describe the measures that can be taken to curb natural resourcecorruption, taking into account their particular characteristics. Most importantly, the authorsclaim that a country’s natural resources do not inevitably lead to corruption. Instead, the‘resource curse’ can actually become a blessing depending on the actions taken by different

stakeholders.

Keywords: Natural resources, Poverty, Environment

Corruption and Natural Resources 659

1. INTRODUCTION

Natural resources – water and landresources, fisheries, forests, wildlife andminerals – are key to lifting some of thepoorest people and poorest regions of theworld out of poverty. Natural resources areoften the major source of wealth for poorpeople and for low income countries inAsia-Pacific.1

But because of the natural wealth theyrepresent, management of natural resourcesare often plagued by corruption – bribes,fraud, conflict of interest and favouritism.This ranges from petty bribes to publicofficers, to grand corruption by politicians,to extreme examples of ‘state capture’ whenprivate interests dominate the statemachinery and control natural resourceprofits. In some cases, the distinctionbetween public and private natural resourcecorruption becomes blurred and corruptionmay be a mutually beneficial partnershipbetween some state and private groups.Natural resource corruption arises partlyfrom the special characteristics of naturalresources, which include:

• Lack of access rights, particularlyrights for poor people.

• Limited supply leading to extremescarcity.

• Remote location and difficult access,as well as lack of financial transpa-rency that allow corrupt behaviour toflourish.

• Excessive state discretion over naturalresources in some cases as the statehas a monopoly and often de jureowns many natural resources.

• Excessive private discretion overnatural resources, particularly withstate capture or in remote areas wherethe state is weak.

• Lack of market prices for some

aspects of natural resources –primarily their ecosystem services –means that the true cost of corruptbehaviour is not borne by those whoare corrupt.

These different types of corruption affectpoor people in Asia and constrain humandevelopment in many ways. Corruptionimpacts directly the livelihoods, health andpower of poor people. Corruption indirectlyimpacts poor people by contributing toconflict and lost state revenues, whichimpact the poor most of all. Moreover,corruption fundamentally underminesgood governance and erodes the rule of law,with implications for economic growth; andthus weakens efforts to reduce povertyreduction.

Natural resources, corruption also perpe-tuates disempowerment of marginalisedgroups, particularly indigenous groups andwomen.

However, the picture is not all bleak –there are many measures that can be takenand some positive steps are emerging fromthe region. Actions have been taken againstnatural resource-related bribery, fraud andnepotism. Some of these are genericresponses to corruption, but there are alsoparticular lessons that can be learned fromnatural resource specific solutions. Theresponses must respond to the particularcharacteristics of natural resources(Table 1).

In addition to these separate measures,there is a need for an integrated approachto address the natural resource curse.While there have been allegations thatnatural resources in a number of countriesin Asia are the cause of various forms ofcorruption, there are good examples ofusing natural resource profits to diversifythe economy and invest in other areasincluding poverty reduction and human


Natural Resource Specific Characteristics

Lack of property rights of natural resources andparticularly rights for poor people

Limited supply: while much of the corruption is relatedto scarcity, with natural resources this is embodied inthe physical form of the product which only grow slowly.

Physically remote location and difficult access whichallows corrupt behaviour to flourish as well as lack offinancial transparency

In some cases, excessive state discretion as the statehas a monopoly and often de jure owns many naturalresources

In other cases excessive private discretion over naturalresources – particularly in cases of state capture or inremote areas (e.g. mining and forest concessions)where the state is weak

Complex chains of traded commodities with smugglingacross Asian countries and links between domesticproducers and foreign consumers

Lack of market prices means that corruption is not costly

TABLE 1: Recommendations to Address the Specific Characteristics of

Natural Resource Related Corruption

Recommendations

Rights and resistance of poor people– Participatory management– Organised resistance by poor people– Environment and social impact assessment– Participatory monitoring and social audits– Indigenous rights

Increased supply of natural resources– Better management of natural resources– Plantations and aquaculture

Monitoring and transparency of natural resources– New technology for monitoring– Mobilising finance industry– Transparency of revenues– Cracking down on tax havens– Increased access to information and role of the

media– Civil society advocacy

Reduced state discretion in natural resource use– Privatisation and public private partnerships– New technology to limit administrative discretion– Natural resource funds– Decentralisation

Less private discretion in natural resource use– Cautious approach to privatisation– More enforcement and prosecutions– Prosecuting corrupt companies in their home

countries– Voluntary approaches by the pr ivate sector:

certification and codes of conduct

Controls on cross-border natural trade and exports– Tougher domestic measures– Cross-border controls and regional cooperation

Tackling the absent market challenge– Domestic action– International market creation

development. (OECD 2008b). Some of thericher countries in the region Australia,New Zealand, Malaysia and Thailand haveused their natural resources as aspringboard for wealth creation. So naturalresources do not inevitably lead tocorruption, and whether they are a curse orblessing depends on the actions taken bydifferent stakeholders.

2. NATURAL RESOURCES,POVERTY AND HUMANDEVELOPMENT IN ASIA-PACIFIC

Most poor people in Asia still live in ruralareas. Poor people’s livelihoods remainheavily dependent on natural resources –soil, water, forests and fisheries underpin


commercial and subsistence activities andoften provide a safety net for the poor intimes of crises. Dependency on naturalresources for sustaining livelihoods does notautomatically translate into poverty. Butlack of access to resources does. Landlessfarmers are commonly among the poorestin a country (WRI 2005).

Natural capital is particularly importantfor growth in low income Asian countries.It is estimated that it accounts for 26 percentof the total wealth in low income countries,13 percent of wealth in middle incomecountries and only two percent of wealthin industrialised or OECD countries. Asia-Pacific’s fast growing economies remainhome to over 770 million people living onless than US $1 per day, and 80 percent ofthem live in rural areas. Moreover, primaryproduction represents a much higher shareof production, exports and national incomein developing countries compared to thatin industrialised countries. Naturalresource-based enterprises, thus, provideimportant employment and incomeopportunities (OECD 2008a). In Cambodiafor instance, although agriculture representsonly 31 percent of the GDP, the jobs gene-rated in this sector represent 75 percent ofthe labour force. In India, the agriculturesector accounts for 17.6 percent of the GDPbut 60 percent of the labour force (WorldBank 2008).

The poor are often highly dependent onopen-access natural resources – resourcesthat are not owned so that there is nocontrol on use or access. Such open-accessresources can include fallow fields, forests,fishing grounds, pastureland and wetlands.For many rural poor, such natural resourcesare an important source of food, fodder,fuel, building materials, medicinal plantsand income. In India, it has been estimatedthat such resources provide about 12 percentof household income to poor households

(Beck and Nesmith 2001). In general, thepoorer the household, the more importantincome contribution through open accessnatural resources becomes.

Generating pro-poor growth is key to theachievement of the Millennium Develop-ment Goals (MDGs). The world economyis expected to double in size by 2030. Theextraction and trade of natural resources isessential to sustain this increase. The Asia-Pacific region contains some of the world’smost resource-hungry economies as well assome of the major producers and exportersof natural resources. Hence, over the pastdecade the Asian region has started to playa key role in the ‘demand and supply’process of natural resources (OECD 2006).

For example, rapid economic progress,combined with population growth, hasmade global energy consumption jumpfrom US $650 billion in 2002-03 to morethan US $1 trillion in 2005. Asia nowconsumes about 25 percent of the world’stotal energy supply. Asia’s share of the worldeconomic output is expected to rise from20 percent in 2005 to 30 percent in 2030.Its share of global energy trade has risensharply, from 16 percent in 1980 to 23percent in 2004. By 2030, energy demandfrom the region will account for one-thirdof the world’s total. This is mainly due tothe large increase in China’s demand forenergy imports and also to economicgrowth in India, Malaysia, the Republic ofKorea, Viet Nam and Indonesia (OECD2006).

Land, Poverty and Growth

Land is a key resource for the majority ofpoor people in Asia’s rural and urban areas.Often the poorest do not own land on whichto live or farm. In the case of shelter, theymay live in illegal or semi-legal settlements.In rural areas, they may rent or share-cropland, or be landless and work as hired


labour on the land of others. Even if theydo own land it will typically be the mostmarginal land. Women and marginalisedgroups are at a particular disadvantage inaccessing land. Access to land and water areclosely connected. In many countries,women lack rights to land, which meansthat they cannot reap the full benefits ofirrigation. Similarly, in many urban areas,poor people lack tenure, reducing theiraccess to water, electricity and other urbanservices.

Water Resources, Poverty and Growth

The importance of the contribution of waterresources to pro-poor growth lies in water’srole as an input into other sectors such as(irrigated) agriculture, energy, industry, butalso the environmental and other ‘sectors’.While developed countries managed toharness water resources to sustain economicdevelopment through investments, institu-tions and infrastructure, least-developedeconomies are challenged by marked climateseasonality, variability and/or rainfallextremes, while capacity, institutions andinfrastructure to manage and mitigate thesepotentially major challenges are generallyinadequate. For the 2.5 billion people livingin low-income countries, agriculture is themost important sector for employment, andby far the largest user of water. Access towater is closely linked to land values andlivelihood potential. Both surface andgroundwater are important – for example,over half of the population of India,Pakistan and Bangladesh has a livelihood-stake in groundwater irrigation. Irrigatedland currently produces 40 percent of theworld’s food on 17 percent of the world’sagricultural land (OECD 2008b).

Fisheries, Poverty and Growth

Fisheries are an important source of wealth

for many coastal and island developingcountries. Over 80 percent of the world’s 35million fishers live in Asia-Pacific – andmany of them are poor. The tuna fishery ofthe South Pacific provides an estimated14,500 direct jobs and at least an equalnumber of indirect jobs. Fisheries alsoprovide significant employment in market-ing and processing, which in many countriesis primarily undertaken by women (OECD2008b). The value of internationally tradedfish products from developing countries arefar above all other export commodities, andin some countries fisheries provide up to 25percent of total exports and generate up to30 percent of fiscal revenues (OECD 2008a).Asia accounts for more than one-third ofglobal exports of fish and fish products.Fisheries contribute significantly to GDP inmany low-income countries. For example,in Bangladesh, fisheries provide over fivepercent of the GDP and full-time employ-ment for over two million people. (OECD2008a). In Palau, fishing activities aloneaccount for 25 percent of the total GDP. Astrong dependence on natural resourcesmakes the Pacific islands especially vulner-able. In almost all Asia-Pacific countries,fisheries are a source of protein to manylow-income households (OECD 2008b).

Forestry, Poverty and Growth

It is estimated that more than one billionpeople in poor countries depend on forestsfor their livelihoods. Over 90 percent of thepeople living in extreme poverty depend onforests for some part of their livelihoods.But global forest cover has been reduced byat least 20 percent since pre-agriculturaltimes. While forest area has increasedslightly since 1980 in industrial countries,it has declined by almost 10 percent indeveloping countries (OECD 2008b).Deforestation is also causing massive loss ofbio-diversity, flooding and soil erosion and


will exacerbate global climate change. Theformal forestry sector can provide signifi-cant revenues, but it is important that thisis sustainable and pro-poor, which is rarelythe case at present.

Wildlife, Poverty and Growth

An estimated 13 percent of the all peopleliving on less than a US $1 per day rely onwildlife as a key element of their livelihoodasset base (OECD 2008a). In other cases,damage from wildlife – especially wild boar,but also elephant and more rarely rhino andtigers – can impose a significant cost on thepoorest households. Damage by elephantsto crops, property and loss of life is a majorissue in the poorest parts of Sri Lanka whereup to one person and two elephants die eachweek from human-elephant conflict (IPS2005). In South East Asia and East Asia, themajor issue is the wildlife trade fueled bytraditional medicine production in severalcountries in the sub-region. Poor peoplemay be involved in various stages of thewildlife trade (TRAFFIC 2002).

Minerals, Poverty and Growth

The extractive industries are important forover 50 developing countries, althoughaccurate statistics are difficult to obtain. Itis estimated that the formal mining sectoremploys 30 million people worldwide,approximately one percent of the totalglobal labour force. But artisanal and smallscale (ASM) operations represent themajority of people engaged in the sector inmany developing countries, most of whomare abjectly poor. It is estimated thatartisanal and small scale mining producesup to 31 percent of the global productionof minerals (OECD 2008b). To respond toan ever-growing demand for minerals,explorations in the extractive industriessector have increased by roughly 250 percent

in the past four years (Standing 2007) andare set to increase further. Consequently,despite growing discovery costs, stricterregulations on environmental protectionand an increasingly vigilant civil society, themining industry is likely to become moreaggressive in exploration and thus takeincreasingly risky ventures in areas that werepreviously seen as far too precarious(Standing 2007).

3. CORRUPTION AND NATURALRESOURCES

[…] the wealthy and powerful outsiders who

own the trawlers and tuna nets are friendswith local authorities and give them generousdonations for public functions such asindependence day celebration. (Indonesianvillager, quoted in Mukherjee et al. 2002.)

3.1 Natural Resource and Types ofCorrupt Actions

The standard definition of corruption asabuse of public power to lead directly orindirectly to private or corporate gain(Transparency International 2008a) can bewidely applied to natural resources. Corrup-tion may occur at various stages of naturalresources use. For example, there may bebribery, fraud and favouritism in issuingpermits, licences and enforcing environ-mental regulations and programmes, as wellas undue influence in developing nationalpolicies, which in extreme cases can becomestate capture with corruption as an embed-ded feature of governance. Corruption canalso occur when trying to cover up the envi-ronmental and human rights abuses thatmay accompany natural resource extractionoperations. This paper adopts a broad viewof natural resource corruption, covering:

• Bribery (abuse of discretion in favourof benefits given by another party).


• Fraud and embezzlement (abuse ofdiscretion without third partyinvolvement).

• Favouritism, nepotism, clientelismand conflict of interest (abuse ofdiscretion for the interest of family,clan, political party, ethnic group).

Bribery is the act of offering someonemoney or other valuables, in order topersuade them to do something for you andis widespread in the natural resourcecontext. Bribery varies based on the legalityof the decision to be influenced. Forexample, there is bribery for legal acts (e.g.bribes to get permits for legally allowingcutting and transporting of timber) andbribes for illegal acts (e.g. bribes for remov-ing timber from protected areas). Customsofficials, police and other enforcementofficers may accept bribes from thoseinvolved in illegal natural resource activitiesto ‘look the other way’. For example, thelivelihoods of residents of a floatingvillage at the end of Cambodia’s lake (theTonlé Sap) were threatened by commercialfishing operations. While there have beeninitiatives aimed at ensuring the viability ofcommunity fisheries – e.g. a ban on fishingin the lake from August to October –according to community leaders ‘illegalmethods used by the commercial fishers,and attempts to bribe fisheries and lawenforcement officials tend to underminethe benefits from these approaches’(Seneviratne 2007).

Judges and prosecutors often acceptbribes from guilty parties. A corrupt legalsystem also ensures that detection isavoided. Even where crimes and relatedcorruption are detected, it often sets inmotion, yet another corrupt system thatleads to release and cover up, on thecondition of additional bribes and payoffs.

Senior officials involved in awardingcontracts or concession agreements oftentake bribes, or bribe payments to the sameofficials may produce particularly favourableterms of trade, including reduced taxburdens, lower royalty fees and so on.

Fraud and embezzlement (abuse ofdiscretion without third party involvement):Corruption may take the form of officialsrunning ‘off the book’ businesses with theuse of state natural resource assets. It alsocovers forms of embezzlement and fraud bystate officials and elected leaders in their useof natural resources and environmentalprogrammes.

Favouritism, nepotism, clientelism andconflict of interest (abuse of discretion forthe interest of family, clan, political party,ethnic group). Corruption involves muchmore than the crude exchange of cashbetween a ‘bribe taker’ and a ‘bribe giver’.Perhaps, most complex is the issue ofconflicts of interest, which includes politicianshaving direct investment in companies,those in positions of power awardingconcessions or favours to family membersor political allies, and the infamous ‘revolv-ing door’. The revolving door syndromedescribes the phenomenon, whereby peoplemove between public office and privatecompanies and use their time in publicoffice to benefit their private corporateinterests. An example of revolving door syn-drome is an official in the forestry depart-ment who supports pro-timber policies andthen moves onto the board of directors ofa major timber company. It is a practice thatis frequent in the oil and energy sectors. Allthese forms of corruption may not involvebribe payments, and indeed, the relationshipbetween the abuse of authority on the onehand, and the resulting benefit on the other,can be ambiguous and occur over a longperiod of time.


3.2 Natural Resources and CorruptActors

Another way to view natural resourcecorruption is by identifying who is theprimary ‘actor’ causing or driving thecorruption, although in practice there isoften overlap between these different actors:

Public Administration andPetty Corruption

‘Petty’, bureaucratic or administrativecorruption takes place in the publicadministration, at the implementation endof politics, where the public, particularlypoor people, interacts with public officials.Petty corruption refers to the relativelymodest sums of money usually involved,and has also been called ‘low-level’ and‘street-level’ corruption. While the sums arelower than other types of corruption, it canstill be significant for poor households. Inthe natural resource context, this form ofcorruption is common for poor people whoneed to access permits to use resourcessuch as land, water resources or forestproducts. Bureaucratic corruption isusually distinguished from high-level,‘grand’ political corruption to the extent it

is possible to distinguish administrationfrom politics.2

Political Interests andGrand Corruption

High-level or ‘grand’ corruption takes placeat the policy formulation end of politics. Itrefers not so much to the amount of moneyinvolved as to the level in which it takesplace: grand corruption is at the top levelsof the public sphere, where policies andrules are formulated in the first place. It isusually (but not always) synonymouswith political corruption. Political orgrand corruption takes place at the higherlevels of the political system, whenpoliticians and state agents use theirauthority to sustain their power, status andwealth.3 In extreme cases, kleptocracy arisesas a political system dominated by thosewho steal from the state coffers, treat theministry of finance as their private purseand extortion becomes widespread. This hashappened in some natural resource richcountries.

Private Sector and State Sapture

State capture refers to the capacity of firms

BOX 1: Allegations of State Capture in the Forestry Sectorin the Solomon Islands

In 1989, a Commission of Enquiry reported that foreign logging companies operating in thecountry regularly bribed politicians and forestry officers to gain increased forest concessions.When in 1994, the government increased taxes for foreign logging companies some of thesecompanies allegedly paid two Ministers to resign and join the opposition party in order to bringabout policy changes – a vivid example of attempted state capture. Reports on the SolomonIslands suggest corruption may be still rife and the rate of deforestation has quickened. A reportpublished by the Auditor General in 2005 found that companies had paid almost US $1.5 millionin bribe payments to politicians and officials to gain tax exemptions and forest concessions. Thismay partly explain the significant rates of deforestation on the Islands. In 2005, logging companiesharvested 1.2 million cubic metres of timber, which by some estimates is over five times as muchas can be harvested on a sustainable basis.

Source: Masalai iTokaut 2006.


to shape and affect the formation of thebasic rules of the game (i.e. laws,regulations, and decrees) through undueinfluence like private payments to publicofficials and politicians. The traditionalimage of corruption is the bureaucratextorting bribes from powerless individualsand firms, or a state extracting rents fromthe economy for the benefit of politiciansand bureaucrats (for instance kleptocracy).Alternatively, if interests outside of the state– private business interests in particular, andmafias – are the stronger party and able toshape the laws, policies, and regulations totheir advantage, we are talking about statecapture. This has been recognised as themost intractable corruption problem.4

When analysing the phenomena of statecapture there is difficulty in distinguishingbetween outright criminal activities and themore subtle ways in which companies mayexert undue influence on policy making.This includes political lobbying, companiesoffering donations to political parties andthe conflicts of interests that may existbetween politicians and certain firms (seeBox 1).

We may also note the tendency ofcompanies to ‘bully’ governments intochanging policies by threatening to relocateto more favourable economic environments.Because these forms of undue influenceneed not always break the law, or they areallowed to occur due to legal loopholes,Kaufmann introduces the concept of ‘legalcorruption’ or the ‘privatisation of publicpolicy’ (Kaufman and Vincente 2005).Hence, the growing conviction that corrup-tion is not only the abuse of public officefor private gain, but also the use of publicoffice for private gain by third parties: thegrabbing hand of the state is joined by thegrabbing hands of private companies. This isan important move from the initial publicofficial-centred definition.

Corruption as a Form of PublicPrivate Partnership

At its simplest, orthodox state-centeredtheories of corruption and the somewhatless orthodox theories of private sector-ledcorruption may seem contrasting. A theore-tical model of corruption distinguishesbetween a situation of kleptocracy at oneextreme, and a situation of ‘state-capture’ atthe other. In fact, corruption is often mutu-ally beneficial for both state and privateparties. The simple distinction betweenpublic and private is often blurred in manycountries, especially those where resource-based state capture has occurred. There areoften conflicts of interest that can getexacerbated by privatisation, with ambi-guous networks or associations betweencolluding state officials, political elites andprivate businessmen.

Asia has a very long experience withcorruption as part of economic regulation.Governments in Asia historically have reliedon well-known networks (patron-clientnetworks) to implement their economic andpolitical strategies. Corruption in the regionserved to facilitate business transactions inparticular countries with weak legal systems.But while Asia’s kinship systems historicallyalso had a distributional and protectionpurpose, today’s corruption seems to havechanged gears. It has moved to increasinglysophisticated forms of grand corruptionand money laundering, infiltrated bytransnational organised syndicates. Whilecorruption may not significantly slow downeconomic growth, it is now considered tocontribute substantively to the increasedinequalities that undermine poverty reduc-tion achievements in the region.

Based on his research on the implemen-tation of the Rajasthan Forestry Act,Robbins (2000) provides an interestingalternative view of corruption as an


BOX 2: Allegations of Corruption in the Mining Sectorin Mongolia

As Mongolia makes its rapid transition towards democracy and a market economy, the miningsector has experienced rapid growth. Mining represents at least 10 percent of GDP and nearly 60percent of export earnings. However, a report published in 2005 by USAID on corruption inMongolia identified the mining industry as one of the key areas of the economy prone tocorruption. Lack of information on mining contracts and revenue flows is a cause for concern.Despite legislation on mining and exploration permits, many experts in the country feel thatforeign mining companies have paid bribes to gain preferential access. The situation is complicatedby pervasive conflicts of interest at senior levels of government and the legislature. Observersquoted in the report suggest that political elites not only demand kickbacks from companies,but that they would also expect ownership in and control over the mining companies. The reportclaims that ‘economic and political elites are, if not one and the same, then certainly operating inclose cooperation with each other for mutual benefit’, and thus ‘the line between public andprivate spheres is blurred, and conflicts of interest is rampant, particularly at the highest levelsof the economy and polity’. In addition to elite-level corruption, the researchers who worked onthe report revealed widespread concern that mining companies paid bribes to circumventenvironmental and health and safety regulations. Moreover, it was noted that corruption canexplain why there are such few investigations or prosecutions against companies and corruptofficials.

Source: USAID 2005.

BOX 3: Corruption and the Poor – Natural Resource Managementin Rajasthan, India

In one small community living next to a wildlife sanctuary (managed by the Forestry Department)in the province of Rajasthan, corruption took the form of people paying lower-level forest officerson a weekly or monthly basis for materials to which they were not entitled by law. By paying thebribes, producers gained access to larger or unlimited quantities than would otherwise be illegal,or simply unavailable (such as protected wildlife). It is widely believed that money collected forillegal forest use was divided into shares that traveled upwards in the Forest Departmentbureaucracy and that foresters who were loyal to ‘the system’ had a greater chance to be promoted.Those that would choose not to comply with the cooperative bonds of the institution, either bynot complying with powerful villagers who expected access to forest products, or by not sharingthe bribes, would ran the risk of being transferred. Hence, by changing the de facto rules of thegame, the system had become for its practitioners more like a legitimate protocol for the use ofthe forest. Predictability was based on a system of clan expectations amongst a largely homogenouscommunity of foresters. With the exception of a handful of stubborn producers who resistedcooperation with forest guards, most of the households participated in these transactions. Butthe system of bribery also had expensive ‘entrance fees’ in the form of preliminary bribes thatexcluded many poorer households from the lower caste groups, who were also under representedin the Forestry Department. Moreover, women were not in a social position to establish ‘closeness’to the forester through the highly masculine practices of eating or drinking. Hence, relationshipswere not spontaneous and needed to be established over time.

Source: Robbins 2000.


BOX 4: State Capture and Global Linkages in World’s Oil Industry

Geopolitics and global competition for oil explain the hidden connections among natural resourcemanagement, state capture and the lack of international pressure to curb corrupt practices,human rights abuses and violations of laws and international conventions. It explains why theworld’s leading democracies, all dependent on resources, still show little signs of using diplomaticpressure to demand better ‘resource governance’ from some of the resource-rich countries orfrom their extractive businesses. In 2002, it was estimated that the US government’sdemocratisation assistance from all sources, public and private totaled approximately US $ 2billion per year, notcounting the assistance to Iraq. At the same time, billions of dollars werespent every year to subsidise oil suppliers in military aid and training (NYT 2002). Fifteen totwenty percent of US oil imports were from countries that are not transparent about their oilrevenues. Geopolitics may explain why in 2002, the US government intervened in a lawsuit againsta large company oil relating to the company’s activities in Indonesia. The action, filed by theInternational Labour Rights Fund, was brought under the Alien Tort Claims Act, which essentiallyallows actions against US companies that violate international laws. The US State Departmentargued that the case could endanger Indonesia’s cooperation in fighting terrorism (Feng 2004).The United Kingdom took the same stance when it dropped a bribery investigation concerninga defence contract with one of the Gulf States. In response, the OECD Working Group on Briberyreaffirmed its concerns at its March 2007 meeting about shortcomings in the UK anti-briberylegislation and decided to conduct a supplementary review of the progress in enacting a newforeign bribery law (OECD 2007).

Sources: NYT 2002; Feng 2004; OECD 2007.

institutionalised system ‘of stabilised extra-legal rules, transformed from legal authorityand cemented through relationships ofcooperation and trust, both within the stateand society’. Contrary to conventionalwisdom, corruption may thus well beestablished within existing social regimes,not outside of them. In such an institu-tionalised system, enforcement throughcoercion is replaced by enforcement throughcollaboration and trust, which then becomesa prerequisite to corruption and rendersimpotent legal techniques of monitoringand enforcement (Robbins 2000).

The system described above does notrepresent the abandonment of state autho-rity. Rather, ‘the de facto rules that governcorrupt exchanges are forged out of the rawmaterials and social resources supplied byde jure rules, adapted and curved around thecontours of local power’ (Robbins 2000). Aninteresting point in the Rajasthan case study

was the willing participation of the majorityof the most marginal households (Box 3).Hence, ‘by co-opting the poor, corruptionis structurally perpetuated into a stateideology of favours and privileges and aslide towards the criminalisation of the dailylife of the poor’ (Robbins 2000).

Regional and International Linkagesand Corruption

Previous analysis has focused on thenational context, but natural resourcecorruption is often linked with the role ofsuch resources as internationally tradedcommodities. International stakeholders(multinationals, foreign investors, overseasconsumers, etc.) have several implicationson the analysis of natural resourcecorruption. State capture may arise fromforeign corporations and interests – and thiscan also affect developed countries as in thecase of the global oil industry (see Box 4).


Some Asian companies may also impli-catedin corruption in other countries. Mostof the new Asian economic powers score lowon the Transparency International’s perception-based Bribe Payers Index (TransparencyInternational 2006). According to the Index,China, India, Taiwan, Province of China,and Malaysia top the list of countriesperceived to host companies that frequentlypay bribes when conducting businessoverseas. All companies in the extractiveindustries depend on good relationshipswith host governments to allow them tocontinue extracting natural resources. Thepolitics of the Cold War have been replacedwith the economic war of the drills andbulldozers raging through the developingworld in search of resources. The increas-ingly important economic role played byemerging economies on the global scenemerits attention.

China’s oil imports are growing by morethan 30 percent per year, making China thesecond biggest oil importer after the US. Oilimports are expected to triple over theperiod 2000–2030 (The Economist 2007).There is also a massive demand for mineralsand timber for which the Chinese economyis looking to its Asian neighbours andfurther afield to Africa. In April 2006, Chinaannounced to the Cambodian governmenta US $600 million aid package – mainly forinfrastructure – and equivalent to the entireinternational aid budget. That generositymay have an ‘energetic’ justification. An oiland gas bonanza lies just offshore in Cam-bodia’s waters and they are of great strategicvalue in the region (Graham 2006). Nothingexceptional, aid provided by developedcountries often had a geopolitical rationale.

After China imposed a total logging banin 1998, forest coverage in China started toincrease rapidly; at the same time there wasincreased timber production in West Africa,Indonesia, Papua New Guinea, Lao People’s

Democratic Republic, Myanmar andCambodia, largely due to increase inChinese demand. Similarly, after exhaustingtheir own forests, Malaysia’s timber industrynow seems to be going after supplies inIndonesia and Papua New Guinea. Thelargest logging company in Papua NewGuinea and the Solomon Islands is ofMalaysian origin. Washington Postreporters, recently interviewed ethnicKachin people of Myanmar working for aChinese logging boss bringing illegal woodinto China. The Kachin agents explainedhow they rode ahead of the logging truckson motorbikes and gave soldiers US $40 pertruck at eight government checkpoints.They further detailed the bribery occurringin the logging industry and even displayeda logbook documenting payments. In oneinstance, US $125 per truck was paid toBurmese soldiers, US $83 to the forestrydepartment and US $25 to the drug police.At Laiza, the final stop before the border,the Kachin group collected a payment fromChinese truckers and then issued docu-ments declaring the shipments legitimate(Goodman and Finn 2007).

Although given far less coverage byinternational campaigns, the story of illegallogging on either side of the border betweenPakistan and Afghanistan appears to be ofsignificant proportion. During the 1980sand 1990s, unregulated logging to supplyPakistan markets is thought to havedestroyed over half of Afghanistan’s naturalforests. Reports indicate that the situationin early 2000 had spiraled out of controlwith 25 to 50 trucks crossing the borderevery day with illegal logs (UNEP 2003). Ina report published by the Pakistan Adminis-trative Staff College in Lahore, it is allegedthat an association of powerful businessmenhave formed something akin to a ‘timbermafia’ in the country, and this group waswell represented in government and state


FIGURE 1 (

Con

td...)


from the special characteristics of naturalresources, which include:

• Lack of property rights, particularlyrights for poor people so there islimited political resistance to naturalresource corruption.

• Limited supply: while much corrup-tion is related to scarcity, with naturalresources this is embodied in thephysical form of the product, whichonly grows slowly.

• Remote locations that are difficult tomonitor – this allows corrupt beha-viour to flourish.

• Excessive state discretion in somecases as the state has a monopoly andoften de jure owns many naturalresources.

• Excessive private discretion in othercases over natural resources – parti-cularly, in cases of state capture or inremote areas (for example, miningand forest concessions), where thestate is weak.

• Complex chains of traded commo-dities with smuggling across Asiancountries and links between domesticproducers and foreign consumers.

FIGURE 1: ‘How Illegal Timber Travels’Sources: Yourish et al. 2007.

institutions (Thomson and Kanaan 2003).Consumers in developed nations also

share part of the blame. According to a 2005report commissioned by the Australiangovernment, around Australian $400million worth of illegally logged timberproducts are imported into Australia everyyear. In 2005, China exported US $8.8billion of wood furniture, an eightfoldincrease since 1998 (Goodman and Finn2007). While these represent legal trades, theorigin of the timber can sometimes be acause of concern. Based on data obtainedfrom the World Bank, Global TradeInformation Services and Forest Trends,Washington Post reporters have illustrated(Figure 1) how illegal timber travels fromMyanmar forests to western consumermarkets. Increasing the number of logginginspectors and introducing timber productexport certificates are some of the measurestaken by retailer companies, in collaborationwith the national governments, to clampdown on illegal timber exports.

3.3 Why Natural ResourceCorruption Differs fromCorruption in Other Sectors?

Natural resource corruption arises partly


• Lack of market prices for someaspects of natural resources, primarilytheir ecosystem services means thatthe corrupt behaviour is low cost.

The result of these special characteristicsis that there is wide scope for both state andprivate elite groups – often acting together– to monopolise access to resources and ex-clude the poor. As a result, the benefits fromnatural resources often accrue to a smallelite and do not contribute to the country’sgrowth, let alone contribute to lifting peopleout of poverty. This has severe impacts onpoor people and undermines progress onthe MDGs. However, this does not have tobe the case and there are ways to reducenatural resource related corruption.

Many of these natural characteristics canbe seen illustrated in the context ofcorruption associated with access toirrigation water in South Asia. Irrigationwater exhibits a lack of clear property rightsespecially for the poor. Limited supply, isdifficult to monitor, and involves a combi-nation of both state and private discretionand the lack of a market price for the water.From an economic perspective, a group offarmers is likely to engage in a corrupttransaction if the expected benefits exceedthe potential transaction costs. The benefitsare equal to the value of the additional cropproduced with the extra illegal water. Thetransaction costs include the bribes andopportunity cost of the time and otherresources spent in negotiation. Given thehigh socio-economic heterogeneity offarmers, the expected benefits and costs ofcorruption may differ significantly from onegroup of farmers to another (Azam andRinaudo 2004).

Elsewhere in Asia too, better-off farmersnear to the ‘head end’ of the water sourcebribe or pressure officials to turn a blindeye to ‘illegal enlargement of official canal

outlets, breaking off gates so the outletscannot be shut, cutting extra outlets in thecanal banks, or blocking the flow of waterimmediately downstream of an outlet toforce more water through. Use of thesemethods in upstream villages squeezes watersupply to villages downstream, so thatfarmers lower down have to exert them-selves even more to protect their supply(Lipton 2007). Poorer and lower-lying usersmust compete in the bribe market with themore powerful head-enders and the better-off, creating a bribe market that increasesthe money bled out of the system and theuncertainty and unreliability of irrigation.

3.4 Challenges and Complexitiesof Linking Corruption andNatural Resources

Limited Data

A major challenge is limited availability ofevidence and data: tangible evidence on thenature and extent of corruption remainsscarce. Natural resource extraction conti-nues to involve opaque decision-makingprocesses, entangled with geo-politics andoften involving powerful national andinternational syndicates, both legal andillegal. The number of corruption casesbrought before the courts is also limited, letalone the number of convictions.

Legality and Corruption

It would seem that, especially for naturalresources, the relationship between corrup-tion and legality is complex (Kaufmann andVincente 2005). There can be ‘corruption’,which is legal in the form of state captureand there can be illegal behaviour, which isnot corrupt. In terms of legality and corrup-tion, indicators of conventional ‘illegalcorruption’ would include the payments ofbribes by private firms while indicators of


‘legal corruption’ would include aspects ofundue influence including political dona-tions and the influence of powerful firmson policy making. Most importantly, theresults suggest countries may have differentlevels of these different types of corruption.For example, the United States tends toscore well on conventional corruptionindices, suggesting bribe payments are rare.But the United States also allows companiesto exert strong influence on policy-makingincluding in natural resource sectors suchas oil exploration. One example is thedemand by American oil companies to openparts of Alaska to exploration. Hence, somedeveloped countries may be connected with‘legal corruption’ to a much larger extentthan many developing countries, eventhough the latter are typically depicted ashaving the worst levels of corruption in theworld. On the World Bank’s list of firmsineligible to receive contracts due to fraudand corruption, more than half were basedin the United States or the United Kingdomas of November 2002 (WRI 2003b).

In terms of illegal behaviour that is notcorruption, much illegal natural resourceextraction occurs because of weak and limit-ed enforcement – which may be due to lackof financial and human resources ratherthan deliberate corruption. But it is hard todistinguish between excessive environmen-tal degradation caused by legal business andpolicy choices and excessive environmentaldegradation which is a result of corrupt acti-vities. Indeed, as the concept of state captureand other forms of corruption show, laxlaws and weak monitoring and enforcementmay actually be a deliberate outcome ofcorrupt public and private actors.

Other Causes of Environment Damageand Natural Resources Limits

Beyond cases of illegality not linked tocorruption, there are cases where environ-

mental degradation and lack of access tonatural resources may not be due to corrup-tion, but to other issues. Lack of naturalresource access may arise due to inequalityand discrimination. For example, access toirrigation water, like land, is heavily biasedin favour of wealthy farmers. Water enteringthrough surface irrigation passes alongchannels from the head-enders, whosesupply is more assured, as compared to thetail-enders, whose supply is less reliable.Groundwater irrigation is also more likelyto be affordable to wealthier farmers,although poor farmers tend to find ground-water easier to access than large surfacewater schemes. There is a need to addressthe politics of unequal access to waterservices. Social factors such as gender, casteand ethnic discrimination may be keyfactors that explain reduced access toservices in some areas. In India, for example,caste may be a key factor in determiningwater access (OECD 2008b).

3.5 Linking Corruption andSpecific Natural Resources

This section reviews different types ofcorruption associated with the main naturalresources (see Table 2).

Land and Corruption

Land-related corruption ranges from pettycorruption often associated with landadministration to grand corruption andstate capture associated with land grabs.Land administration includes determining,recording, and disseminating informationabout ownership, value and use of land. Asthe administration of land lies under thedomain of government authority, abuse ofpublic power can become an issue (see Box5). In addition, countries under customarylaw, which recognises access to land asdependent on kinship, might be more


vulnerable to nepotism, favouritism, andclientelism (Van Der Molen and Tulander2006).

In East and South East Asia, corruptionin the land sector is typified more by grandcorruption and land grabbing. It is perceivedto permeate the system all the way down tothe local authorities and often involves themilitary and the police who help perpetuatethe violation of existing laws and regula-tions. A survey on corruption in Viet Namindicated that land management topped thelist of areas prone to corruption. Accordingto the survey, land-related corruption prac-tices included: (1) using government pro-jects to appropriate land, particularly inforestation and residential areas, and reset-tlement programmes; (2) abuse of power inleasing large areas of land at low prices forinvestment purposes, while bypassingroutine administrative procedures; and (3)abuse of power in asking for gifts andmoney to perform administrative servicesrelated to land (for example, land allocation,lease, land rights transfer, certificategranting, land compensation and siteclearance) (Viet Nam Net 2005).

Water Resources and Corruption:Where Does the Money Flow?

There is often corruption in the provisionof water infrastructure and water flows,inevitably affecting the poor who have theleast ability to pay and exert political pres-sure as compared to non-poor. In Pakistan,it is considered routine to bribe irrigationofficials to ensure continuous supply ofwater (World Bank 2002). Corruption isalso a major factor in water resourcesdevelopment. While dams and largeirrigation schemes are motivated by manyfactors, one factor often overlooked is thatimproving the efficiency of existing waterprovision offers much less potential forkickbacks and corruption than awardingcontracts for constructing new large scalewater infrastructure. Large engineeringfirms aggressively pursue these contracts,and both they and the government arepresumed to engage in bribery in the awardof contracts. This type of situation can beovercome through transparency inprocurement decisions and by ensuringproper assessment of the relative economic

TABLE 2: Some Forms of Corruption in Natural Resources

Land Fisheries Water Resources Wildlife Forestry Minerals

Grand Bribes for Bribes for Deliberate non- Bribes for large Bribes for Bribes and

corruption major land access to investment in scale illegal forestry con- kickbacks

transfers major fisheries water structure trade Nepotism- cessions for mining

Nepotism- Nepotism- maintenance based conces- Nepotism- concessionsbased based and kickbacks sions based con- Nepotism-

concessions concessions for larger-scale cessions based

water systems concessions

Nepotism-based

concessions

Petty Bribes for Bribes for Bribes for Bribes for Bribes for Bribes for

corruption land trans- small-scale water access small scale forest artisanal

actions fishery access trade permits mining

State Interference Interference Interference Interference Interference Interference

capture in land in fishery in public water in wildlife in forestry in mining

regulations regulations investments regulations regulations regulations


cases for new water construction versusimproving the efficiency of existinginfrastructure (OECD 2008b).

Fisheries and Corruption: Catch ofthe Day

Fish stocks in many coastal areas of thedeveloping world are severely threatened byoverfishing. Institutional weaknesses andlack of capacity for effective policy imple-mentation underlie overexploitation. Severalchallenges in the fisheries industry, includ-ing illegal and unreported fishing, have tobe addressed (OECD 2008a). Illegal,Unreported and Unregulated (IUU) fishingis a serious global problem, particularly tosome of the poorest parts of the world. It

BOX 5: Corruption in Land Administration in South Asia

Household studies conducted by Transparency International Bangladesh (2005), TransparencyInternational India (2005), Transparency International Pakistan (2002), and TransparencyInternational Nepal (2003) reveal that land administration is in the top three sectors prone tocorruption. Corruption is manifested through: (i) bribery (payment by third parties) for theregistration of property rights or change of title, acquiring land information, cadastral landsurvey and land use planning; (ii) fraud (personal gain without third party involvement) in thesales of land and shares of plantations; (iii) nepotism, favouritism and clientelism (abuse ofdiscretion for the benefit of family and friends) in issuing property rights to land that belongto others.

In Bangladesh (Transparency International Bangladesh 2005), a survey of 2000 householdsreveals that 97 percent of households paid bribes for land registration; 85 percent paid bribesfor land mutation; 85 percent paid bribes to obtain land related documents; 83 percent paidbribes for land survey; and 40 percent paid bribes to receive land. In India (TransparencyInternational India 2005) the scenario is not different. Among those surveyed, 79 percent ofthose interacting with the Land Administration Office perceived this agency to be corrupt. Amongthose who paid bribes, 36 percent paid to department officials; and 33 percent paid money tomiddlemen (e.g. document writers, property dealers, etc.). Out of these, 39 percent paid bribesfor property registration; 25 percent for land mutation; 12 percent for land survey and fourpercent to obtain documents. Most strikingly, in Nepal (Transparency International Nepal 2003),respondents indicated land administration as the most corrupt sector, followed by customdepartment, police and judiciary. Land related corruption in South Asia is very much anadministrative phenomenon. Therefore, proposals to minimise corruption in this sector shouldtarget measures to promote efficiency and transparency in the public sector.

Sources: Van Der Molen and Tuladhar 2006; Transparency International Bangladesh 2005;Transparency International India 2005; Transparency International Nepal 2003; TransparencyInternational Pakistan 2002; UNECE 1996.

represents a major loss of revenue, and canreduce food security and can involvecorruption (see Box 6). Most fishery value-added production is capital-intensive,technology-intensive and skill-intensive. Tobenefit, fishery producers may need togroup into associations to negotiate betterterms. Fisheries cooperatives, over the lasttwo decades have become discredited, asaccess to subsidised equipment and credithas led to elite capture and politicisation(OECD 2008a).

Forestry and Corruption: MoneyGrows on Trees

Natural forests, as distinct from treeplantations, are valuable resources that are


the products, and illegal operators (seeBox 7).

TABLE 3: Southeast Asia IndicativeEstimates of Illegal Logging

Country % of Logging Conducted Illegally

Cambodia 90

Indonesia 70–80

Lao People’s 45

Democratic Republic

Malaysia 35

Myanmar 50

Papua New Guinea 70

Thailand 40

Viet Nam 40

Source: World Bank 2006b.

Wildlife and Corruption:Trading on Bribery

Asia’s wildlife trade is extremely valuableand yet largely illegal so often involvescorruption. Southeast Asia is believed to beresponsible for an estimated 25 percent ofthe global multibillion dollar illegal wildlifetrade. TRAFFIC, the main NGO investi-gating such trade, puts the figure at US $15billion for all wildlife products (forest-related or not) and nearly US $160 billion

in most countries under state ownership.But weak enforcement of forest manage-ment regulations and large-scale corruptionlimit the potential of forest for povertyreduction in many countries. Betterinstitutions are needed both for ensuringthe long-term sustainability of the forestsector and for the purposes of improvingrevenue capture by the state (OECD 2008b).The global timber trade is plagued by highrates of illegal logging (for example, seeTable 3 on Southeast Asia), a lucrativebusiness with some species reaching US$500 per metre that appears to involvewhole networks of corrupt officials insidethe law enforcement agencies, the customsand the military forces, and powerfulnational and international syndicates. Illegallogging and the corruption that surroundsit is considered to cost the governments ofthese countries annually US $10 billion inassets and revenues (Goodman andFinn 2007). In each of the stages of theproduction and trade chain of logging thereare opportunities for collusion betweengovernment officials and agencies entrustedin issuing permits and licences forwood harvesting, inspecting and exporting

BOX 6: Corruption in the Fishing Industry

At the turn of the century, corruption in the fishing industry was an area of concern in thePhilippines and Indonesia, where destructive fishing, continued to be used even though they areprohibited. Research showed that between 1999 and 2002, out of 223,000 reports of illegal fishingin the Calamianes (the Philippines), only 40 arrests were made. Where perpetrators were caught,it took time for cases to reach the courts and prosecution was often thwarted by corruptionwithin the law enforcement system. Cyanide fishing is also widespread in Indonesia. Researchconducted on fishing in the Togean Island of Sulawesi, Indonesia showed that ‘culpability incyanide use cannot be understood apart from the larger structures of corruption that permeatesresource extraction throughout Indonesia’ (Lowe 2002). Poor fishers are the first to suffer penaltiesand to assume the greatest risks in live fishing, and they are also excluded from the highest livefish profits and from protection from prosecution. Rules as they are enforced often tend to enrichbureaucrats and traders while failing to protect coral reef ecosystems and the local communitiesthat depend on them.

Source: Lowe 2002.


if wild-sourced timber and fish products areincluded (TRAFFIC 2002). The problemseems to be particularly acute in the Asiaregion, which hosts nine of the 10 mostendangered species on the 2004 IUCN RedList of Endangered Species. In Thailandin 2003, a one-day raid on Bangkok’sChatuchak market seized 1,000 protectedspecies worth US $1.25 million (World Bank2005). In Mongolia, it is estimated that theillegal and often corrupt trade in fur ispossibly the third largest contributor to theeconomy after minerals and tourism (WorldBank 2006a).

Minerals and Corruption:Digging Up the Dirt

Mining related corruption is well docu-

mented in Asia and the Pacific (GlobalWitness 2004). Such corruption occurs withthe extraction of many minerals from sandmining to oil and gas exploration. Sandmining in rivers and costal areas is anenvironmentally damaging activity occurr-ing in many countries across Asia. In SriLanka, mechanised sand mining is alucrative business and facilitated throughlocal patronage systems. As a result, sandmining has been subject to little effectiveregulation up until the end of 2003. Miningcompany permits are supposed to berequired from the Geological Survey andMines Bureau (GSMB), and permits toaccess a resource through the local autho-rities, Divisional Secretary, and in somecases forest department and police. But

BOX 7: Corruption, Logging and Cross-Border Timber Trade

According to one research report, in 1997 bribes to government officials in the forest and landdepartments of Cambodia was estimated at US $200 million, with the total amount that theCambodian government received from legal forest operations was estimated at US $15 million(WRI 2003b). The scale of corruption and illegal plunder has been acknowledged by thegovernment, however, despite repeated commitments to address the problem, official informationon land concessions remain sparse, arrests are rare and intimidation of environmental activistsand local communities allegedly persists. According to a group of NGOs, seizure of land byforeign firms, legislators and people with family or business connections to high-rankinggovernment officials is on the rise in the provinces (WRI 2003b). But whether this is related tocorrupt local officials or powerful central forces that overstep local authority or prevent localscrutiny through fear and coercive power is not always clear. The reality is that it is probably acombination of both.

In Lao People’s Democratic Republic, illegal logging and related cross-border trade is said tobe possible because of the presumed collusion between importers, customs officers, the militaryand local officials. Much of the border trade is conducted informally and illegally, largely inresponse to customs officials’ demands for illicit payments (ADB 2006). Quantities of goodswould be systematically under-reported, with the savings in tariffs presumably shared betweenthe importer and local officials. Attempts in 2000 to give more responsibility to the provinces formanaging their revenues only aggravated the problem. But information on where corruptionoccurs and how it is perceived within society is not easily available, in particular when it comesto getting more details on some of the more sensitive corruption-prone areas such as logging,land concessions and the mining sector. More recently, the government of Lao People’s DemocraticRepublic has become far more open on these issues and a policy debate is currently ongoing inthe government and the parliament on how to address these problems.

Sources: WRI 2003b; ADB 2006.


much illegal mining has occurred eitherwithout a permit or in locations or quan-tities larger than permitted. In some cases,this is because there is no enforcement dueto lack of capacity, but it may also be dueto fears about going against politically-connected local businessmen. In other cases,it is alleged that permits can be procuredthrough bribery, and that the policethemselves are involved in illegal mining(IPS 2005).

A few countries in the region face majorchallenges in managing the new oil andgas resources. Generally speaking, lessdeveloped countries with weak politicalinstitutions may be particularly vulnerableto environmental degradation by miningactivities. Mining often involves pollutionand the contamination of the environmentwith highly toxic substances. The mostharmful pollution occurs when waste,known as tailings, is either directly dumpedinto the environment with little processing,or when tailings pile up in rivers as dams.In poorer countries, there is often morefocus on improving the economy than tobalancing economic considerations withenvironmental concerns. Where there isinadequate state capacity to regulate mining,unethical and criminal activities mayflourish more easily. The World ResourcesInstitute in a consultancy report to theWorld Bank’s Extractive Industry Reviewindicated that ‘Many mineral-dependentcountries in the developing world lackimportant safeguards to ensure thatresponsible mining occurs, such as theability to enforce laws, control corruption,and foster a strong civil society. Nearly onequarter of active mines and exploration sitesare located in countries where governancestructures are weakest’ (WRI 2003a). Theprospect of responsible mining is perhapsfurther diminished where political elites

have personal stakes in mining ventures andthus face conflicts of interest.

4. IMPACTS ON POORPEOPLE AND LOW-INCOME COUNTRIES OFNATURAL RESOURCECORRUPTION

Whether it be high-profile embezzlement or a

low-level br ibe to a petty bureaucrat,

corruption is a major force undermining

environmental equity and destroying

ecosystems (WRI 2003b).

Human development as embodied by theMillennium Development Goals is definedby expanded capabilities of individuals tomake choices about the life they wish tolead. Indicators of human developmentshould not only include economic (GDP)and social indicators (literacy and lifeexpectancy), but also indicators of respectfor human rights, equality and freedomfrom oppression. While sustainable deve-lopment depends on a combination ofadvances in health, literacy and educationas well as material economic progress, therespect for human rights principles anddemocratic values is a sine qua non forpeople to be able to make informed choices,both as individuals and as members of acommunity.

4.1 Impacts of Corruption onPoverty: LivelihoodsUndermined andVulnerabilities Increased

The linkages between poverty, environmentand natural resources are visible acrossAsia-Pacific as environmentally exposedlandscapes are often where poor andmarginalised people find land or eke out an


existence. The extent to which these linkagesare exacerbated by corruption will under-mine the livelihoods and increase thevulnerability of poor people. The Environ-mental Sustainability Index (ESI) exploresthe hypothesis that higher levels of corrup-tion are detrimental to the environment(CIESIN 2008).

In several countries, it is argued thatnatural resources slows down economicgrowth and hence undermines livelihoods.This is known as the so-called ‘resourcecurse’ (Ross 2001). In the case of Indonesiain the 1970s, the large petroleum revenuesin the state system (including state-ownedenterprises) has been one of the factors thatallowed corruption and poor governance toreach such levels. Corruption and nepotismare seen as having hindered Indonesia’sdevelopment, representing a missed oppor-tunity for poverty reduction. Further, theinstitutional and governance weaknesses leftIndonesia more vulnerable than others tothe 1997–99 Asian Financial Crisis, resultingin a reversal over three to five years of manyof the poverty gains from the precedingdecade and contributing to political turmoilthat weakened the government’s ability torespond effectively (UNDP 2007).

Natural resources are vital to the liveli-hoods of the poor. Conversely, when accessto natural resources is limited by corruption,the livelihoods of the poor are undermined.Two of the key resources for poor people’slivelihoods are land and water, and accessto both may be constrained by corruption(see Box 8).

In several water-scarce countries, accessto water is associated with corruption. Sinceirrigation water is vital to agriculturalincomes and food security, this underminesthe livelihoods of the poor. According toWade, corruption in the irrigation sector inPakistan and India used to arise both in

the form of state capture – with wealthierfarmers ensuring that new state invest-ments in irrigation benefited them dispro-portionally – but also as bribery to accesswater from existing irrigation systems(Wade 1982).

Irrigation corruption particularly harmsthe poor by favouring those with connec-tions and capacity to bribe; worseningdistribution and discouraging agriculturalproduction. Numerous small per-hectarecorrupt payments can provide a largeincome to the manager of a single watercanal (Lipton 2007). In Andra Pradesh,Wade (1982) found that bribes paid toirrigation were funnelled upwards throughthe political system as an important sourceof support for parties. New irrigationconstruction and rehabilitation wassimilarly rewarding, but the crucialmaintenance activity was not, so there wereincentives to disregard and downgrade it. Asa result, in South Asia the dominant modelof irrigation infrastructure provision hasbeen aptly described as ‘build-neglect-rebuild’. By an international yardstick,replacement and maintenance of irrigationinfrastructure requires annual spending ofabout three percent of the value of thecapital stock. In the Punjab in Pakistan,actual spending is less than one-tenth of thisbenchmark. Financing for irrigationmaintenance in India is greater but still lessthan half the minimum needed. (UNDP2006a). Huppert and Wolff (2002) indicatethat such conditions persist in many Asiancanal systems, generating incentives toofficial and politicians to resist reforms, suchas participatory irrigation management thatmight threaten incomes from corruption.

Financing for irrigation systems oftenreinforces the inefficiency-inequity cycle. InSouth Asia irrigation charges are typicallyvery low by comparison with those in EastAsia, both in absolute terms and as a share


FIGURE 2: Relationship Between Corruption and Illegal Forest Activities

Source: Seneca Creek Associates and Wood Resources International 2004, quoted in Contreras-Hermosilla

et al., 2007.

Note: Size of balloons represents volume of suspect roundwood, including imports.

of the value of production. These lowcharges are sometimes defended on thegrounds that they are good for food securityand for poverty reduction. This overlooksserious equity problems if water is inequit-ably distributed. Some of South Asia’s

poorest farmers pay more for their irrigationwater than their countries’ largest land-owners once the charge is computed perunit of water. In China and Viet Nam,charges are higher overall than in SouthAsia, but water is more equitably and reli-

BOX 8: Livelihoods Undermined by Land Corruption

In China, complaints about the illegal approval of farmland for construction (e.g. for roadconversion, industrial and residential purposes) and the granting of rights to exploit mineralresources at low prices have increased over the years due to growing urbanisation, economicdevelopment and population pressure. This jeopardises local food security, while driving a massof small farmers and peasants into poverty. In 2006 a former minister of land and resources wasexpelled from the Communist Party of China Central Committee and deprived of Partymembership on corruption charges. Because cultivated land is collectively owned, eitherby the state of village cooperatives, each individual farmer has limited legal right over the use ofthe land and limited recourse in the case of expropriation. Overall, it is estimated that there are40 million landless farmers in China and two million are said to be added to this figureevery year.

Sources: People’s Daily 2005; Van der Molen and Tuladhar 2006.


ably distributed across the system, enablingpoor producers to finance paymentsthrough higher productivity (Hussain 2005).

Another example of deliberate environ-mental mismanagement is the poor mainte-nance of flood control structures. ‘Floodprevention mechanisms such as riverembankments and sluice gates are delibera-tely left unmaintained’ (Financial Times2007). According to the Hindustan Times(9 August 2007): ‘Every time they arewashed away, it means more money for thecontractors, technocrats and politicians’.Omesh Sinha, relief commissioner for UttarPradesh said: ‘the problem of corruptionsometimes comes in the restoration ofinfrastructure, roads and embankments’(Financial Times 2007).

Illegal harvesting of natural resources isnot always the same as corrupt naturalresource use – but the two are closelyrelated. Figure 2 demonstrates that there isa positive correlation between higher levelsof corruption, measured by the Transpa-rency International Perception Index, andthe volume of illegal forest activities in agiven country of origin (supplier).

In the Asia-Pacific region, the problemof deforestation is typically located in therich tropical forests which stretch fromSumatra and Myanmar to Papua NewGuinea and the Solomon Islands.

4.2 Health Impacts fromCorruption-RelatedEnvironmental Pollution

Some forms of natural resource extraction,particularly mining can cause serious healthimpacts if not properly regulated. Corrup-tion typically in the form of state capture isone cause of weak regulation and enforce-ment. In 1996 on Marinduque Island, thePhilippines, more than four million metrictons of waste was spilt from a failed tailings

dam. Some 20,000 people were evacuatedin the resulting flood, and a local river wasdeclared biologically dead. Research byUNEP (Doyle et al. 2007) suggests thePhilippines has one of the worst trackrecords in tailing dam failures in the worldwith approximately 16 serious cases over thelast 20 years. A recent Fact Finding Missionin the Philippines, led by British MP ClareShort, strongly criticised internationalmining companies from Canada, the UnitedKingdom, the United States and Australiafor dumping toxic waste into the oceans inthe Philippines – a practice banned in theirhome countries (Doyle et al. 2007).

Papua New Guinea is considered to havesome of the worst cases of environmentalpollution caused by mining, and, as in thePhilippines, of particular concern is thedumping of tailings into rivers and theocean. The OK Tedi mine apparentlydumped somewhere in the region about80,000 tonnes of tailings into the Ok Tediand Fly rivers every day for two decades.One report suggested the scale of pollutionat OK Tedi was so high it could take up to300 years to clean up toxic waste in orderfor biodiversity to return to levels recordedbefore the mine began (Kirsch 2002).Perhaps most notorious is the PanguraCopper mine in Bougainville. This mine wasbelieved to have dumped one billion tonnesof toxic waste into nearby water systems,resulting in the near total loss of aquatic lifein a 480 sq km region. Massive environ-mental degradation caused by this mine wasone factor leading to civil conflict andprotest, which eventually resulted in themine’s closure (World Rainforest Movement2004). Leith also reports that one of theworld’s largest mining companies, dumpednearly 230,000 tonnes of toxic waste per dayinto Indonesia’s river system (Leith 2003).This company’s in famous track record onpollution was the central reason for


Norway’s pension fund to disinvest from thecompany in 2006 (Ministry of FinanceNorway 2006). There is also corruptionassociated with gold mining in Myanmar(see Box 9).

4.3 Lost Revenue Due to CorruptNatural Resource Extraction

Corruption is associated with extensive lostrevenue due to natural resource tax evasion.While it is difficult to attribute this directlyto corruption, a large part of this tax evasionis the inevitable result of state capture.

It is estimated that globally around US$15 billion in revenues or 10 percent of totalexisting revenues are lost due to illegallogging (Contreras-Hermosilla et al. 2007).For example, the government of Indonesiaestimated that lost forest revenue costs thenation up to US $4 billion a year, or aroundfive times the annual budget for theDepartment of Health. According to theWorld Bank, illegal logging costs Indonesiaat least US $600 million in lost royalties andexport taxes, more than double what thegovernment spent to subsidise food for thepoor in 2001 (Goodman and Finn 2007).

In 2003, the half-brother of formerPresident Suharto was found guilty by aJakarta court of misusing Rs 100 billion (US$10.8 million) of reforestation funds andsentenced to four years in jail. The SupremeCourt upheld the sentence, prompting theaccused to claim that he had spent the

equivalent of US $1.7 million trying tooverturn the verdict (Komandjaja 2005). InCambodia, bribes to government officials inthe forestry and land departments in 1997were estimated at US $200 million per year,while official revenue from legal forestoperations was only US $15 million (WRI2003b).

In fisheries, tax evasion is associated withillegal, unreported and unregulated (IUU)fishing. It has been roughly estimated thatthe total value of the IUU catch is US $9.5billion (MRAG 2005), although not all ofthis would have been subject to tax. WithinAsia, the countries most affected by taxevasion in fisheries are in the Pacific whoserich tuna fishery is fished by commercialfleets. It is estimated that the cost to PapuaNew Guinea from IUU is over US $30million per year (MRAG 2005).

In the mining sector, lost revenues arehard to calculate. But profits are growingrapidly. Between 2000 and 2005 the valueof world trade in minerals grew by 17percent annually while production rose by2.5 percent. Mineral prices are volatile, butthey have risen significantly in the past fiveyears. This has been driven in part by highdemand and growth rates in China andIndia (OECD 2008b). In 2005, shareholdersof mining companies around the worldreceived US $18 billion in profits, up by 82percent, from the previous year. In line withglobal developments, the mining sectors in

BOX 9: Health Problems and Gold Mining in Myanmar

According to the NGO, KDNG, bribe taking is institutionalised in the gold mining sector. It isperhaps due to this corruption that health and safety regulations are alleged to be ignoredcompletely, and mining companies seem to operate with no concern for the natural environmentor the people living in close proximity to the mines. Mining is reported in several protectedforests and mercury contamination is feared to be very high. There is no system of managing theenvironmental impact of mining and there appears to be no prospect of mining companiesbeing held responsible for their actions.

Source: KDNG 2007.


the Asia-Pacific region are also experiencingrecord expansion. In Mongolia and LaoPeople’s Democratic Republic, revenue frommining has increased by well over 300percent in the last four years. While statecapture may explain low tax levels andcollection in the formal mining industry,the informal and frequently illegal natureof small scale mining activities alsoresults in significant lost governmentrevenues.

In addition to lost tax revenue, corrup-tion can also mean less government revenuewhen it creates incentives for costly buildingprojects instead of cheaper managementsolutions. This would occur when officialsand politicians will typically prefer costlynew dams, energy investments and engi-neered coastal protection than cheaper andmore environmentally sound solutions. Forexample, instead of dams and new powerplants, more water and energy efficiencyimprovements can be made, while vegetativesolutions can be found for coastal protec-tion. These cheaper approaches are oftenavoided as they offer less potential forcorruption and kickbacks than large publicengineering contracts.

4.4 Conflict Due to NaturalResource Corruption

Corrupt use of natural resources sustainsauthoritarian governments and militaryconflict. It undermines the productiveinvestment and reduces need for the eliteto raise domestic taxes – so also underminesaccountability. In the Asia-Pacific regionthere are several historical examples, whereauthoritarian governments have relied onwealth from the exploitation of resources(Global Witness 2004). In Indonesia, forexample, the longevity of the Suharto erawas partly facilitated by the wealth receivedfrom both timber and oil. It is estimatedthat the Cambodian Khmer Rouge received

between US $220 and US $390 million peryear from the sale of timber. The militaryregime, in Myanmar, has received an esti-mated US $112 million per year from itstimber exports. The Taliban in Afghanistanreceived a total of approximately US $90–100 million annually from the sale of eme-ralds, lapis lazuli and opium (Renner 2002).

Corruption also often creates local levelconflicts because it benefits large-scalenatural resources extraction at the cost ofpoor subsistence households who oftendepend on the same resource. This arises inthe case of land, forests and fisheries. Forexample, land-poor households in Asia-Pacific have faced sudden invasions ofmining and logging companies that gainedconcessions through non-transparent andoften corrupt agreements with high-levelpoliticians and senior civil servants. Forsome countries in the region, the prospectof a just and transparent approach to thegovernance of land seems distant. Violationsof land rights in several developing coun-tries remain widespread, and often lead toviolent conflict. Victims are typically poorresidents and the offenders are wealthy andpolitically connected private entities. Themilitary often plays a role in ensuring thatcomplaints are kept quiet through the useof intimidation and force. It is often verydifficult for victims to pursue legal remediesbecause of time-consuming procedures,complicated systems, and a lack of aware-ness on legal rights. There is also the issueof a corrupt judiciary that serves monetaryinterests instead of people. As a result, vic-tims of land-related abuses resort to othermeans to secure their rights (Guttal 2006).

4.5 Discrimination and Loss ofPolitical Rights from NaturalResource Corruption

Indigenous groups often live in naturalresource rich areas. Natural resource


extraction remains characterised byintensive concentration of legal, politicaland economic power in the State (Daes2001) and the latter’s economic/contractualrelationships with powerful corporationscontinues to directly conflict with theindigenous peoples’ rights claims to lands,territories and resources (Roy 2003). Aglaring example is the violence meted outto tribal or adivasi people protesting the lossof their lands for mining in the Indian stateof Orissa (Goodland 2007) or the negativeimpacts from timber extraction on ethnicminorities in Bangladesh (Roy and Halim2007). Corruption further helps to under-mine their already precarious position as adisadvantaged group and helps to perpe-tuate the pattern of discrimination thatundermines their economic, social andcultural development.

5. RECOMMENDATIONS: WHATCAN BE DONE ABOUTNATURAL RESOURCECORRUPTION

The solutions to natural resource corruptiondepend on its causes. Generic approachesto tackle corruption are also applicable tonatural resources. This includes institutionalchanges such as strengthening governmentinstitutions, improved enforcement, andgreat accountability through media and civilsociety watchdogs. A higher level of insti-tutional quality with accountable politicalstructures that guard against a narrowconcentration of power and allow for poli-tical choice and expression can help ensurethat economic policy is managed in thepublic interest and particularly to thebenefit of the most vulnerable and disad-vantaged (Sen 1999). This requires thesupport of public opinion and thus theengagement of other forces beyond the statesuch as the media, the civil society and the

private sector. In the short term, effortsshould focus on political accountability androbustness of bureaucratic institutions foroversight and control.

Poor people have no access to the policestation, bank, government offices, and thejudge of the village court. The rich peopledominate these institutions’ – a villager inBangladesh (World Bank 2000).

Corruption is also bound up with under-lying political and economic processes,particularly the distribution of power. Manyof the factors explaining who the poor areinclude social, political and economicprocesses. While these processes lead to thecontinuation of poverty in the Asia-Pacificregion, they may also benefit some groups.Where resources are scarce, interest groupsin the capital city will lobby for urbanservices so that rural investments may loseout. Dominant ethnic groups will tend tofavour investments from which they benefit.Some men may resist the loss of power thatgender equity entails. Wealthy groups maybe reluctant to share power and resources.Powerful leaders in the public and privatesphere may seek to advance their ownpersonal and business interests. Thissuggests that reducing poverty will requirea change in power relations. As Drèze andSen (1989) conclude, ‘The demands of diffe-rent classes typically do not receive equaltreatment because of strong links betweeneconomic inequality and the distribution ofpolitical power’. Corruption is embedded inthis unequal political and economicframework.

While these generic solutions are key, thissection focuses on the specific interven-tions proposed for combating naturalresource corruption. The responses need toaddress the root causes of natural resourcecorruption, which arise partly from the


special characteristics of natural resources:

• Lack of property rights of naturalresources and particularly rights forpoor people.

• Limited supply: while much corrup-tion it is related to scarcity, withnatural resources this is embodied inthe physical form of the productwhich only grow slowly.

• Physically remote location anddifficult access, which allows corruptbehaviour to flourish as well as lackof financial transparency.

• In some cases, excessive state discre-tion, as the state has a monopoly andoften de jure owns many naturalresources.

• In other cases, excessive privatediscretion over natural resources,particularly in cases of state captureor in remote areas (for example,mining and forest concessions),where the state is weak.

• Complex chains of traded commodi-ties with smuggling across Asiancountries and links between domesticproducers and foreign consumers.

The different characteristics will requirea mix of different responses but includingincreased rights of poor people, increasedsupply of natural resources, improvedmonitoring and transparency, toughercontrol over the state and the private sectorand ways to include the ecosystem valuesof certain natural resources. These arereviewed below in more detail.

5.1 Rights and Resistance of PoorPeople for Natural ResourceAccess and Use

Corruption of natural resources is heavilyinfluenced by rights, customs and regula-tions regarding resource access and use.

Different types of rights can give rise todifferent issues of corruption. In many cases,corruption arises when the state or theprivate sector – or both working together –limits access to natural resources. Often, theproperty and access rights surroundingnatural resources are not certain, parti-cularly affecting women and indigenouspeople. In several Asian countries, thesignificant incidence of corruption and lackof transparency allied to rising economicand military appropriation of communallands has exacerbated land disputes, andskewed land ownership patterns to thedisadvantage of both rural and urban poor,with negative impacts on the living condi-tions of indigenous populations andwomen. One way to limit this aspect ofcorruption is to provide more rights topoor people.

Participatory and CollectiveManagement by Poor People

There are examples where decentralising themanagement of natural resources hashelped to solve many of the problems thatexisted before. Thailand used to have a top-down forest and resource managementapproach. Certain state agencies havealready incorporated a participatoryapproach toward natural resource manage-ment incorporating the views of indigenousrights holders (Ngamcharoen 2001). Indiahas also experimented with increasedparticipatory forestry (Box 10) along withcountries such as Nepal.

In the case of extractive resources, lawsand regulations, complemented by memo-randa of understanding between communi-ties and companies can identify how poorpeople will engage with the local authoritiesand companies to ensure meaningful parti-cipatory decision-making. Platforms need tobe created that allow local residents to gainincreased knowledge of laws, policies and


BOX 10: Promoting Co-Management ofForest Resources in India

While the poor’s access to resources is declining in many areas, there have been attempts by thegovernment to promote more access to poor households. Perhaps the most widespread of theseis the forest sector, through so-called joint forest management (JFM), which began in the 1970sout of tension between the Forest Department and local groups. It began in West Bengal inArabari with villagers allowed to reap the benefits of forests that they helped manage. Duringthe 1980s, the experiment later spread to Orissa and Andhra Pradesh. The scheme has proved asuccess in regenerating forests and allowing greater access to the forests by poor households. By2002, co-management of forests was underway in 27 states, through over 62,000 forest protectioncommittees and covered 14.2 million ha or 18 percent of the total forest area. In Andhra Pradeshalone, 1.2 million people (mostly tribal peoples) were involved. However many challenges remain,particularly on the marketing side with non-timber forestry products and timber still marketedthrough uncompetitive channels that reduce the prices for low-income households.

Source: WRI 2003b.

issues related to the operations of theextractive industries inclusive of allagreements local authorities make with thecompanies. Training sessions and publichearings conducted by NGOs/CSOs wouldalso help to expose the flaws in the licences,laws and policies. This would also help inthe process of reviewing these laws from aright-based angle. More than just dialogue,there is the need to create joint managementsystems, where robust government institu-tions co-manage resources with the involve-ment of legitimate representatives of thelocal population. Integrity pacts can beintroduced, as in the Philippines’ miningindustry, where the company has beengranted the right to operate at the local leveland has undertaken binding commit-ments in terms of upholding of humanrights standards and compliance withenvironmental standards.

Organised Resistance byPoor People

While the poor are frequently the victimsof natural resource-based corruption theyare often not passive, although they mayface major hurdles. Much can be learned

from processes where the poor themselveshave initiated political resistance to naturalresource corruption. Due to the dependenceof some poor households on naturalresources, they face strong incentives toprotect their access rights. There are somestriking examples of poor groups, often withsupport from others, organizing to demandaccess to natural resources – such as land,fisheries and forests.

Environmental and Social ImpactAssessments (ESIA)

Environmental and social impactassessments (ESIA) are an important stepin the process of ensuring the communitiesfree, prior and informed consent to large-scale development projects in the extractiveindustries. Legislation is needed to lay downthe process of granting environmentalclearance to large development andinfrastructure projects. This necessitates twomajor activities: (1) the conduct of an ESIA,and (2) the conduct of public hearings onthe findings. Although ESIAs exist in somecountries, they are often not implementedor the process is used (abused) by the samepowerful interests that are at the origin of


many of the problems in the sector.Environmental impact assessments areusually conducted by specialised consultingfirms that rely on companies for theirincome. To what extent these consultingfirms can claim to be objective is, therefore,moot. There are cases where these impactassessments seem dubiously favourable totheir clients. Independent assessments andthe companies that produce them are notliable for misinformation or mistakes.Impact assessments are usually also part oflending agreements with internationalfinancial institutions, but past experienceshave also shown some negligence in thesector. There are, however, examples wheresuch assessments have been conducted in ameaningful and unbiased manner, with thefull involvement of the local people and civilsociety organisations. Even where imperfect,they may be the best mechanism availableto limit state capture.

Participatory Monitoring andSocial Audits

To enable poor people to play a moremeaningful and participatory role in naturalresource management and allow govern-ments to get a better idea of how people atthe grassroots perceive the policies anddecisions that impact their lives, effectivemonitoring systems that rely on public,private and civil society input are needed.The state-centred approach to naturalresource management has resulted in anorganisational culture that has shown littleregard for the expectations of the localcommunities. The lack of transparency thatis characteristic for the sector adds to thisproblem. In the context of responsivegovernance, a renewed attention to the stateinstitutions and their relationships with thecitisenry is needed. Today, in a number ofcountries in the region (for example,

Mongolia, Thailand, Pakistan, Viet Nam, thePhilippines, Cambodia and Indonesia),UNDP is supporting the government withthe implementation of participatory perfor-mance or social audit systems allowingcloser involvement of citisens in themonitoring and evaluation of the deliveryof public services. These participatorymonitoring systems can be a powerful toolto respond to growing demands foraccountability by a more educated public.Some concerns have been raised (Halachmi2005) regarding the cost of some of theseaudits (mounting in some cases to severalmillion dollars per year), their potentialimpact, and their sustainability (many aredonor driven and financed); but they canoffer real benefits.

Indigenous Rights

The concerns of indigenous peoples usuallytake a back seat to ‘national interests’ or tomarket-driven business objectives aimed atdeveloping new economic activities, andmaximising productivity and profits. Fewcountries in Asia have specific constitutionalprovisions dealing with indigenous peoplesrights (for example, Malaysia, the Philip-pines, Thailand, Samoa). The Thai Consti-tution of 2007 stipulates that personsassembling to […] a traditional localcommunity shall have the right to […]participate in the management, mainte-nance and exploitation of natural resources,the environment and biological diversity ina balanced and sustainable fashion (article66) . Any project or activity which may seri-ously affect the quality of the environment,natural resources and biological diversityshall not be permitted, unless its impacts onthe quality of the environment and onhealth of the people in the communitieshave been studied and evaluated andconsultation with the public and interested


parties have been organized … prior to theoperation of such project or activity (article67). In addition, the State shall encouragethe public to participate in the preservation,conservation and exploitation of naturalresources (article 85). The articles on localgovernment also stipulate that legal provi-sions should also address (amongst others)the participation (of the local communities)in considering the initiation of any projector activity outside the area of the localitywhich may affect the quality of the environ-ment, health or sanitary conditions of theinhabitant in the area. But most consti-tutions in the region take a more state-centred approach, stipulating that naturalresources shall be owned by the state andthat their proper utilisation shall beregulated by law. The Mongolian constitu-tion stipulates explicitly that the subsoil isproperty of the State. The doctrine is verymuch in line with the Charter of EconomicRights and Duties of States (December 12,1974), which stipulates that every State hasand shall freely exercise full permanentsovereignty, including possession, use anddisposal, over all its wealth, naturalresources and economic activity (Article 2).Article 30 of the draft UN Declarationstipulates that every State has and shallfreely exercise full permanent sovereignty,including possession, use and disposal, overall its wealth, natural resources andeconomic activity (Article 2). Article 32 ofthe UN Declaration on the Rights ofIndigenous Peoples stipulates thatIndigenous peoples have the right todetermine and develop priorities andstrategies for the development or use oftheir lands or territories and other resources.The article also stipulates that States shallconsult and cooperate in good faith with theindigenous peoples concerned through theirown representative institutions in order toobtain their free and informed consent prior

to the approval of any project affecting theirlands or territories and other resources,particularly in connection with thedevelopment, utilization or exploitation ofmineral, water or other resources. Free,Prior and Informed Consent (FPIC)assumes adequate access to information.The free and prior informed consent is a keyprinciple that has so far been seriouslyneglected in the extractive industries.

5.2 Increased Supply of NaturalResources

Creating greater supplies of naturalresources has an important role to play inreducing natural resource scarcity, so limit-ing the incentives for corruption. One wayto increase supply is to better manage theremaining natural resources available. Asecond approach is to develop alternativesources of natural resources: plantedforests, farmed fish, and rainwater harvest-ing for irrigation. These supply increasesfrom alternative sources have to be donecarefully in ways that do not penalise thepoor or damage the environment, but thegains from such approaches can be signifi-cant. For example, it has been estimated thatplantation forests managed exclusively forwood and fibre on just four percent ofexisting forest lands could meet 50–60percent of world forestry demand in 2050(Kishor and Oksanen 2006). Farmedfisheries are also controversial, but withplunging natural fish stocks such farmedfish already provide a major portion ofglobal fish production.

5.3 Increased Monitoring andTransparency of NaturalResources

Natural resources are often remote and/ormobile so it may be difficult to monitor andprevent corruption. The problem of state


capture by the elite through corruption andpolitical patronage is more prevalent inremote areas, far from official concern andpublic scrutiny, precisely those areasinhabited by the poor (OECD 2008b). Thiscan be countered by increasing informationand transparency with new technologies andmore funds devoted to monitoring neworganisations involved (as with third partymonitoring) and increased demand formonitoring through consumer awareness.

New Technology for Monitoring

New technologies for monitoring can beseen in the innovative way that remotesensing is used to monitor corrupt forestactivities in a growing number of Asiancountries. For example, in Cambodia andIndonesia, remote sensing is used to trackforest concessions that were awardedillegally and often involved corruption.

Mobilising the Financial Industry

Measures for greater monitoring andtransparency include mobilising the financeindustry to take a more active role. Agrowing number of pension funds arefollowing mandated or voluntary standardson ethical, social and environmental aspectsof their investments. In June 2006, theNorwegian government instigated agroundbreaking decision that may haveprofound ramifications. The country’sCouncil on Ethics, set up in 2005, maderecommendations that the NorwegianPension Fund should cease Investing incompanies that are associated with humanrights violations and irreversible environ-mental damage. The Norwegian PensionFund – the largest pension fund in theworld – has sold all stocks and shares inthese companies and it remains possible thatit will disinvest from several other compa-nies in the future. In 2004 and 2005, two

New York pension funds had also requesteda large mining company to provide moreinformation on the relationship of thecompany with the Indonesian military(Global Witness 2005). Export creditagencies are also developing more robustguidelines to combat bribery in thecompanies they support, although there arestill political pressures in their imple-mentation (Hawley 2003).

Transparency of Revenues

Aspects of corruption are allowed to occurin the natural resource sectors due to theopaqueness of the industries and the largerevenues that are involved. Based partly onthe experience of Norway and Alaska, USA,there has been a growing movement amonginternational NGOs to put pressure oncompanies and governments to increasefinancial transparency. Indeed, no otheranti-corruption measure has received asmuch support. A coalition of more than 190civil society groups worldwide campaignedfor the disclosure of payments made bymultinational companies to host govern-ments, known as Publish What You Pay(PWYP) that was launched in June 2002.The initiative also seeks for protectivemeasures for those who decided to disclosetheir payments following the experience ofa British oil company that was going todisclose payments to a country and wasthreatened by that government with losingits license.

Progress at an inter-governmental levelis attributed to then British Prime MinisterTony Blair, who launched the idea of theExtractive Industries Transparency Initiative(EITI) in 2002 at the World Summit forSustainable Development. This was latergiven support by the G8 summit in 2003.EITI took PWYP a step further by includingthe need for host governments to disclosetheir transactions – Blair argued that PWYP


must be joined with publish what you earn.

At present, there is one EITI compliantcountry and 25 other developing countrieswho have achieved EITI candidate status,although only two are from the Asia-Pacificregion – Mongolia and Timor Leste. EITIencourages resource-dependent developingcountries to voluntarily sign up to a set ofprinciples and implement reportingguidelines to make public information oncompany payments and governmentrevenues available, in consultation with localcivil society and extractive companies. Oncea host government commits to implementthe ‘Initiative’, all companies (includingstate-owned enterprises) must comply. EITIimplementation is carried out with theactive support and financial assistance ofdonor agencies, international financialinstitutions, corporations, and civil societyorganisations (Salim 2004).

It is important to recognise that trans-parency of revenues flows does not addressother dimensions of corruption at all, andit should, therefore, be presented as a partialeffort to stem corruption. In particular,transparency of revenue flows tells us verylittle about the political economy ofcorruption – the way in which conflicts ofinterest affect policy decisions, or the myriadways in companies may capture the state.Secondly, achieving transparency is acomplex technical exercise. Information onfinancial transactions can only be under-stood with full access to contractual agree-ments. These are not always made open tothe public, in part due to confidentiallyclauses which may be justified by companieswishing to keep certain information secretfrom their competitors. Transparency alsorelies heavily on third parties being able toprocess and understand data. Moreover, asFlorini (2000) explains, too much disclosurecan produce a ‘white noise effect’, ‘making itdifficult to know what is significant or even

to have the time to sort through all the data’.Transparency requires strong commitmentfrom all parties, which may not be evidentfor reasons of self-interest and expediency,if not outright criminality. Transparency,therefore, does not guarantee that informa-tion is accurate, nor does it diminish theneed for closer scrutiny of facts. Butmovements such as PWYP and EITIhave gained impressive momentum andthey will influence culture and norms offuture governments and civil society. TheAsia-Pacific region needs to embrace thenorm of transparency and find practicalsolutions to overcome the technicaldifficulties.

Cracking Down on Tax Havens

In addition to the OECD Convention, theUN Convention on Anti-Corruption of2003 now proposes cross-border solutionsto address problems related to moneylaundering. Experiences from tax havensaround the world (for example, the ChannelIslands, Switzerland, Singapore) ranked byTransparency International among the leastcorrupt countries in the world, point to theneed for the corruption debate to shift focusurgently to practices in these countries andhow their financial arrangements maysupport and perpetuate corruption indeveloping countries and across the world(Transparency International 2008b). Tackl-ing the secrecy culture of these financialsystems should, thus, be the highest priorityfor anti-corruption campaigners. This is acourageous undertaking as it concernsinstitutions with relations to some of themost powerful elites in the global world ofpolitics and economics (Christensen 2007).A corruption ranking, therefore, should notjust look at how bad corruption in a givencountry is perceived to be, but ideally shouldalso include estimates of the conduct of


representatives of governments andcountries, individuals or firms when theyoperate internationally. Governments wouldget a poorer rating if ‘their’ companies wereperceived to be taking part in cross-borderbribery, or if their politicians appeared tobe applying political pressure to obtainpolitical or industrial benefits. It is alsoimportant to note that the Tax Justice Net-work is currently developing the metho-dology for a Financial Transparency Index,which will rank financial centres accordingto the degree of transparency of theirfinancial institutions. It is very probable thatthis index will considerably alter perceptionsof the geography of corruption. It is alsolikely that some countries which arereported as being amongst the least corruptnations, will rank amongst the leastfinancially transparent offshore centres and,therefore, high on the list of countries mostsusceptible to being used as a corruptioninterface (Christensen 2007).

‘Access to Information’ and the Roleof the Media

Access to information and freedom ofexpression are basic human rights that areconsidered a key weapon in the fight againstpoverty and corruption. Indeed, of the 10best performers in Transparency Interna-tional’s corruption perceptions index (CPI),most countries have adequate legislation inplace to access to information. On thecontrary, of the 10 worst performers in theCPI, few, if any, have adopted or enactedlegislation to secure Citizens’ Right toInformation. Unfortunately, the transpa-rency record in the Asia-Pacific region is notencouraging (Darbishire and Carson 2006).This may not be due only to these countries’reticience, but also to lack of resources andcapacity. Donor support is being providedto the Mongolian government to improve

its capacity to provide environmentalinformation (World Bank 2006b). Trainingof journalists on how to report in anobjective but investigative manner oncorruption and natural resource manage-ment is important. The Open SocietyInitiative published a Toolkit for Journalistswho want to cover the oil extractionbusiness. Covering Oil, a Reporter’s Guide toEnergy and Development (2005) providesjournalists with practical information ineasily understood language about thepetroleum industry and the impact ofpetroleum on a producing country (Svetlanaand Schiffrin 2005). Even where countriesin principle guarantee the right toinformation, the denial of such rightremains widespread. Over the past years, theAsia region has seen more journalistsinjured, threatened and imprisoned thanany other region in the world and many ofthese killings and intimidations were linkedto corruption investgiations and allegationsincluding over natural resources.

Civil Society Advocacy

Experience has shown that improvementsin criminal justice, as well as successfulprosecutions, tend to rely heavily oncampaigns and investigations conducted bycivil society groups and the media. In thisregard, it is interesting to note that muchinformation is usually available on thosecountries where international NGOs likeGlobal Witness, Transparency International,TRAFFIC and Environment InvestigationAgency, are active. But while internationalNGOs are effective at international lobby-ing, they often rely on a host of nationallevel NGOs to gather information andmobilise domestic pressure. Often, thesenational NGOs work at great personal riskand with very limited budgets. This chapterhas drawn on the reports of such


BOX 11: Private-Community Partnerships inPapua New Guinea OK Tedi Mine: A Novel Approach

Mines in Papua New Guinea are vital to the economy – but the relationship with the poorlandowners who live around the mine has always been controversial. With mines so dominantin the economy and providing over US $750 million in government revenues, it is hard to avoidstate capture. OK Tedi, a mine of gold, copper and silver was once a byword for mining disasterswith the foreign private company involved in a bitter dispute over water pollution following adisastrous mine tailing collapse. In response, the company ceased ownership and transferred its52 percent shares to the Papua New Guinea Sustainable Development Programme Ltd. Two-third of the dividends are kept for when the mine closes and one-third for current development– with a split between the Western Province where the mine is located and the country as awhole. The mine is also investing US $130 million to resolve the long standing pollution problemthat continued even with the change in mine ownership.

Source: Profile 2007.

organisations and it is vital that these NGOsand CSOs continue to be funded andsupported.

5.4 Reduced State Discretion inNatural Resource Use

Many Asia-Pacific countries give the state amajor role in natural resources. TheConstitution of Viet Nam clarifies that thenatural resources ‘and all other propertydetermined by law as belonging to the State’come under the ownership of the entirepeople (the latter being represented by theCommunist Party of Viet Nam, which is theforce leading the State and society). InBhutan’s Constitution, every Bhutanese is atrustee of the Kingdom’s natural resourcesand environment for the benefit of thepresent and future generations … (Article5, Par. 1). However, as the sections on statecapture have shown, de jure state control ofnatural resources may provide major scopefor corruption. There are also exampleswhere state-owned timber enterprises are apotential source of corruption in SoutheastAsia (ADB 2006). This can be countered byreforming and limiting the involvement ofthe state in natural resource management

and decision-making to reduce the statediscretion that encourage corrupt statebehaviour.

Privatisation of Natural ResourceExtraction and Management

Privatisation is the most extreme form ofreduced state control. Typically governmentshave moved away from state extraction ofnatural resources, although the role ofstate enterprises is increasing in themineral sector partly as a way to curb whatare seen as excessive profits by foreigncompanies. One of the most innovativeapproaches is the approach taken by PapuaNew Guinea’s largest mine the giantOK Tedi gold, copper and silver mine (seeBox 11).

In addition to natural resource manage-ment being privatised, governments canreduce the potential for corruption-relateddiscretion by involving a private companyto support environmental managementand monitoring. For example, the Swissforest monitoring firm, SGS is nowundertaking forestry monitoring in severalcountries including Papua New Guinea (seeBox 12).


BOX 12: Monitoring Illegal Logging in Cambodiaand Papua New Guinea

In October 1999, to control rampant corruption in the forestry sector, the Government ofCambodia established the Forest Crime Monitoring and Reporting (FCMR) unit. The resultshave generally been positive. A number of corrupt forest officials have been suspended andthere have been investigations of allegations of illegal logging by high-ranking officials. However,the project has been plagued by a lack of full information sharing among three entities andexternal funding has been available only in fits and starts. In 2003, Global Witness was replacedas the independent monitor by a Swiss-based company, the Société Générale de Surveillance(SGS). The SGS had been contracted for three years, but the contract was suspended prematurelyin February 2006 because of lack of funding. The latest assessment by SGS suggests that whilethe government has been doing a competent job of monitoring and detecting forest crimes, theprosecutorial system is weak and prone to excessive delays (SGS 2008).

In Papua New Guinea, export taxes on logging were estimated to be about US $50 million orequal to about 30 percent of export values (in 2007). The government hired the Swiss certificationfirm, SGS as independent monitors to check on timber exports and reduce evasion. It is estimatedthat SGS have ensured US $6.6 million of additional taxes in 2007 and about US $10 million bythe deterrence effect of avoided tax evasion (SGS 2008). It is vital that the government commitsto a long-term contract for timber export monitoring.

Sources: Kishor and Damania 2007; SGS 2008.

Technology to Limit AdministrativeDiscretion

Simplification of rules combined with newtechnology can limit the potential for dis-cretion to drive natural resource corruption.In Karnataka, India, the Bhoomi pro-gramme has facilitated the computerisationof land records, which are often a majorsource of corruption. Land registration isoften an issue in agriculture-dependentcommunities. Village Accountants (VAs) orvillage revenue officials often monopolisethe revenue records, including the Recordof Right Tenancy and Cultivation (RTC).The RTC is often required for land trans-actions, to obtain crop loans and conces-sions from credit institutions. Corruptpractices such as harassment of citizens, andtampering of records had become a routine.In Karnataka, where 66 percent of thepopulation is located in rural areas, thereare approximately 6.7 million farmersowning 20 million holdings. In this region,

land holdings were traditionally donemanually by 9,000 VAs. So the Ministry ofRural Development in Kanartaka decided tocomputerise land records (Harris andRajora 2006).

Natural Resource Funds

Countries that provide examples of bestpractice in managing their resource wealthinclude those that have put in placededicated resource funds. Both Alaska andNorway are notable examples (Takizawa etal. 2004). Through the use of its ‘oil fund’,Norway has been able to harness its oilwealth for social and economic developmentthrough responsible revenue managementpractices based on clear transparency rulesand openness in decision-making by thegovernment. Likewise, Alaska’s impressivedevelopment has been largely due to theopen and equitable distribution of its oilwealth, where citizens are given annualdividend cheques from the government.


This ensures not only that oil wealthcontributes to human development, but alsothat the citizens of Alaska, USA and thepeople in Norway too, have a sense ofownership over their natural resourceendowments. Oil funds also need policiesand mechanisms to be in place to make surethat these funds are insulated from politicalpressure and to facilitate transfers from therich to the poor.

Decentralisation

Since the 1990s, decentralisation has gainedmomentum in the region, including inChina, Viet Nam, Indonesia, Thailand,Cambodia and the Philippines. But decen-talisation, although promising in terms ofpromoting locally-tailored solutions, doesnot appear to have delivered thedevelopment benefits that were intended. Italso has not always fostered the transparencyand accountability that was intended. Oneof the causes for this has been the limitedcapacity and incentives to accompanydecentralisation. Hence, despite energeticsupport from within the donor community,the relationship between decentralisationand good governance remains a matter ofdebate. If poorly designed, decentralisationcould even exacerbate existing governancedistortions, thus, leading to the proliferationof corrupt practices (Fjeldstad 2003). Thishas been a challenge in Indonesia,Cambodia, Papua New Guinea, Mongoliaand Lao People’s Democratic Republic. Thisconfirms other findings that decentralisa-tion under weak central control can rapidlylead to the proliferation of patron-clientrelationships at the local level and, hence,result in higher levels of ‘unpredictable’corruption (McIntyre 2003).

However, one should be cautious and notconclude that decentralisation is per se acause of corruption. It can also provide

resources for local development (see Box13). It is also a fact that a stronger focus onlocal governance, as a result of decentra-lisation policies, amplifies the attention andinformation available about what ishappening at the local level, includinginstances of corruption.

5.5 Tackling the Absent MarketChallenge

Some of the intangible services provided bynatural resources are currently not chargedby the market price, hence, private andpublic sector corruption has a lower costthan if these intangible services wereincluded. For examples, the benefits offorests include water catchment, biodiversityprotection and carbon sequestration, butcorrupt private and public loggers do notbear these costs when the timber is removed.Similarly, over-use of irrigation water incertain countries which may have beenexacerbated by corruption leads to thewater-logging and salinisation, but this isnot borne by corrupt irrigation officials.

Domestic Actions

The government needs to address this by atwo-pronged approach by cracking down oncorruption and by raising costs throughtougher enforcement or trying to includethese prices in the market price throughcharges or fees. However, where the beha-viour is corrupt this fee is typically not paid,illustrating the double impact of corruptionwhen linked to goods and services that arealso not properly priced by the market.

International Actions

There is, however, one major exception ifinternational regulation is able to create amarket for such environmental goods andservices. This has become a possibility with


the recent proposals to include greenhousegas emissions from avoided deforestation inthe global carbon market. The focus onReduced Emissions from Deforestation(RED) may create a market for the carbonstorage benefits of timber, which dependson agreements with foreign private sectorfirms rather than on domestic regulation.If sufficiently high, these prices could beenough to internalise both the environ-mental benefits of carbon storage and theartificially lowered costs of timber extrac-tion due to corruption.

5.6 Less Private Discretion inNatural Resource Use

Cautious Approach to Privatisation

When emphasis is given to the abuse ofpublic office for personal gain (the grabbinghand of the state), corruption is usually seenas a hindrance to the free market and priva-tisation is the recommended response. Butwhen corruption is understood to include

forms of corporate corruption and statecapture, then privatisation may only shiftthe power from one corruptor to the other.Concerns are also raised as to how thepower of those third parties and non-stateactors may further undermine democraticgovernance. There are also numerousexamples where privatisation processes havethemselves been fraught with corruption,for example, in the sale of state utilitiescompanies both in the industrialised anddeveloping countries. In other words, incontrast to seeing corruption as primarily ahindrance to free market dynamics, corrup-tion is also viewed as integral to theweakening of the nation state and thedomination of policy by those with economicpower. Arguably, policies of economicliberalisation greatly increase the power ofprivate companies, and therefore, it isunderstandable why they can be viewed asexacerbating the conditions vulnerable tostate capture.

The problem of state capture suggests

BOX 13: Indonesia – Revenue Sharing Arrangements andTheir Impact on Poverty

Indonesia’s national revenue sharing programme introduced in 2001 ensures that a considerableportion of natural resource revenues is allocated to the regencies in the producing provinces.The measure sharply increased the resources available to local authorities to address the needsof the poor. Bontang receives about US $16 million annually, which in 2005 would haverepresented about a quarter of its total budget. Moreover, the town’s three large industries operatecommunity development programmes to which the town administration submits projects forwhich it would like to receive their support. Bontang (which hosts the biggest natural gasliquefaction plant in the world) has a lower incidence of poverty (6.8 percent) than is the averagein Indonesia (16.2 percent) or the province (11.6 percent). This is likely a consequence of theenergy industry and exports, as Bontang is a town that was created through the natural gasindustry. Residents also have a number of material advantages, notably a level of access to cleanwater that is much higher than in the country as a whole, along with better access to electricityand higher levels of school enrolment. Until the arrival of the gas industry in the 1970’s, therewere no asphalt roads and virtually no other physical infrastructure. In Aceh province, 70 percentof government’s income from the natural gas extracted from the province is now shared withthe state.

Source: UNDP 2006b.


quite different policy priorities from theproblem of corruption emanating largelyfrom within the state. The goal of policymaking may be to restrict the hidden powerof multi-national and other private companiesand empower citizens to have greatercontrol over decision-making. In combatingcorruption, the primary purpose may notbe to create an efficient environment forcapital accumulation and foreign invest-ment, but rather the intention is to ensurethat the wealthy do not capture policymaking for their own self-interests. Protec-ting and expanding natural resources, whichare of particular importance to the poor is,therefore, an important way to support pro-poor growth. A first step is to ensure thatopen access to natural resources on whichthe poor depend are not de facto privatisedby elite groups. Such unwanted privatisationmay occur, in particular, when traditionalsystems of regulation of common propertyuse that worked in the past have brokendown, partly due to population pressure aswell as other factors. It can also happenwhen public resources such as forests areleased out to commercial-scale operatorsunder concessions agreements, which grantexclusive access, driving out the poor.

Enforcement and Prosecutions

Governments have a key role to play inenforcing laws that prevent private sectornatural resource corruption. However, onechallenge with enforcement is the difficultyof actually imposing sufficient seriouspunishments to make corruption morecostly than non-corrupt behaviour. Forexample, the scale of the corruption prob-lem has been acknowledged by Indonesia’scentral government. In a concerted effort tocombat illegal logging, the Indonesianauthorities have passed extremely punitivelegislation, including the provision of the

death penalty for those involved incorruption and illegal logging. But reports(Thomson and Kanaan 2003) suggested thatcorruption in Indonesia’s judiciary has madesuch measurements ineffective, and thatsome of those believed to be instigatingillegal logging were protected fromprosecution and investigations.

Successful prosecution of those guilty ofcorruption is a vital component topreventing natural resource corruption.Occasional high profile prosecutions maynot guarantee a deterrence effect. Indeed,there is a danger that highly politicizedattempts at prosecuting corruption cases canmorph into political witch-hunts and arestrategic to furthering political battles. Yet,where there is a widespread view that thoseengaged in corruption are able to exist withimpunity rather than apathy, resentmentand popular protest will flourish. Moreover,where there is no justice, a message isconveyed that corruption is tolerated, andthis may breed a normalisation of corruption.Although prosecuting those involved incorruption should, therefore, be pursued,addressing corruption through the criminaljustice system at a national level faces anawkward dilemma. Those countriessuffering the highest levels of corruptionalso tend to have the weakest institu-tions of criminal justice. In this respect,corruption can become a self-reinforcingsyndrome. Judicial reform and the supportof impartial, consistent criminal justicesystems are at the heart of combatingcorruption. It is an area that is receivingincreasing attention in the Asia-Pacificregion, and this is a positive development.Yet, it is important to recognise someof the specific obstacles to litigation inthe resource sectors if future and currentefforts of reform are to be successful (seeBox 14).


BOX 14: Corruption and Prosecutions in Indonesia’s Timber Industry: AMixed Record

Indonesia’s government is well aware of the problem of corrupt logging. It was estimated thatabout half the staff of the Ministry of Forestry regularly received bribes. When PresidentYudhoyono was elected there was optimism that his anti-corruption campaign would finallyyield some results. In March 2005, the President issued a Presidential Instruction on Eradicationof Illegal Logging to 18 government agencies. This is coordinated by the Minister for Political,Law and Security Affairs, and involves the ministries of forestry, defence, law and human rights,finance, the heads of police, military and intelligence, and regional governors. Progress reportsmust be made to the President every three months. At the same time, the President dispatched1,500 police, military and forestry officers to Papua at a cost of US $1.3 million. The clampdownrapidly staunched the flow of illegal logs and halted most of the logging operations across theprovince. As a result, prices for merbau logs rose sharply across the region. In Shangai, the world’sbiggest market for stolen merbau from Papua, prices nearly doubled in six months. But twoyears after the launch of the operation, there were only a limited number of convictions. Out of186 suspects named by the police, only 13 had been sentenced, with the longest jail term just twoyears. Most of the convicts were workers at the lower levels of the illegal timber supply chain,while the major timber barons remain at large. The networks involved are simply too powerfulwith complex relationships among a number of interconnected participants. Timber tycoonsrun for political office to get political immunity, business people finance the political campaignof politicians in return for protection and members of parliament themselves run businessesrelated to the timber exploitation (shipping companies, freight forwarding companies). Untilthe problem is tackled at its roots – the untouchable timber barons – the threat to Indonesia’sforests will remain.

Weaknesses in the forestry law also explained part of the problem. The law is restricted tolocus delicti offences committed either in the forest or during the transportation. A few agencieshave tried to break the chain of impunity. The financial intelligence unit (PPATK) has raisedhopes that by following the money trail the timber bosses could be brought to justice. It hasdeveloped a number of cases involving police officers, which have been forwarded to the policefor further investigation; it cannot, however, file cases directly with the Attorney General’s Office.The Indonesian anti-corruption commission or Komisi Pembarantasan Korupsi (KPK) with itsdedicated team and special court has won some notable victories. But despite sincerecommitments and intentions, the enforcement initiative is dependant on other institutions inIndonesia for its success – notably the police, prosecutors, and judiciary, which are perceived bythe public to be prone to corruption. Bribes to try to overturn verdicts can be significant.

It is not only the domestic timber barons and corrupt officials that have profited from thedecimation of Indonesia’s forests. The global timber industry is a willing participant. More thanhalf of the illegal logs are told to be shipped to Chinese factories where they are transformedinto furniture for the western markets where shoppers consume without much concern aboutthe wood’s origin or the environmental cost that lies behind its logging. There are reports thatvessels with illegal logs are regularly diverted from Indonesia towards Malaysia where they getstamped as origin Malaysia. Many developed countries have largely turned a blind eye to theillegal nature of the raw materials. Bilateral agreements bring some hope but commitments andrealities seem difficult to match. The tax havens and money laundered through banks in othercountries are also responsible.

Sources: Capgemini and Merrill Lynch 2006; EIA and Telepak 2007; Goodman and Finn 2007.


Prosecuting Corrupt PrivateOperators in their Home Country

Partly due to the steady pressure put ongovernments by NGO investigations andcampaigns, since the mid-1990s there hasbeen growing recognition that ‘home’countries have an obligation to enforcelegislation and prosecute their companieswhen they are guilty of corruption at homeand elsewhere. Indeed, as highlighted by anExecutive Opinion Survey conducted by theWorld Economic Forum, OECD based com-panies operating in non-OECD countriesadmit to adapting their ethical behaviour tothe standards of the country in which itoperates. Many of the home countries of themultinational companies have, therefore,formulated legislation that better targets thecorrupt activities of their companiesoperating abroad. These new criminal lawdevelopments are encouraged throughseveral international agreements, the mostimportant being the UN ConventionAgainst Corruption (2003) and the OECDConvention on Combating Bribery ofForeign Public Officials in InternationalBusiness Transactions (1999). Since theOECD Convention came into force in 1999,at least 30 individuals and companies thatcommitted foreign bribery have beenpenalised with fines, in some cases of up toUS $28 million (Pieth et al. 2007). Whilestill modest compared to the massiveamounts of profits in some sectors, thisrepresents progress that would not havehappened without the OECD Convention.Not so long ago writing off bribes againsttax was still allowed in several OECDcountries. Hence, optimists argue that weare witnessing a cultural climate changewith regard to bribery in internationalbusiness transactions. Convictions in theRepublic of Korea and Sweden and a trialof a major engineering firm in Germany

owe much to new OECD-inspired nationallaws (Pieth et al. 2007). But much moreremains to be done. In 2008, only 12 of the36 countries that ratified the OECD Anti-Bribery Convention, which came into forcein 1999, are actively enforcing it, and evenamongst these there are serious issues.

There have also been regional treaties inthe South that address bribe payments, suchas the Southern African DevelopmentProtocol Against Corruption (1999) and theAfrican Union Convention on Combatingand Preventing Corruption (2003). Asia sofar has no such regional protocol. Tothis end, it is a matter of growing concernthat countries in the Asia-Pacific regionhave shown little interest in ‘policing’their companies abroad. But Asian coun-tries should not be isolated, for the samecriticisms can be leveled at countries in theWest also that have companies operatingoutside their national jurisdictions.

Voluntary Approaches by the PrivateSector: Certification and Codes ofConduct

This section has so far focused on the roleof the state in controlling private sectornatural resource corruption. However, thereare a growing number of voluntary appro-aches by the private sector. Perhaps, the keytrend is the rise in certification of naturalresource processes, which is now growingrapidly in the forestry and fishery sectorsacross Asia. Certification of legal sustainableresource extraction with a more transpa-rent chain of custody should also addresscorruption. The leading forestry accredi-tation association is the Forest StewardshipCouncil (FSC), which promotes a chain ofcustody tracking system to ensure sustain-able logging and timber manufacture.‘Sustainable Timber Trade’ labelling systemis suggested in three steps: (1) ‘Timber from


a Legal Origin’, (2). ‘Validated Legal Timber’and (3). ‘Sustainably Produced Timber’.Each step is conditional on a certificateissued independently by an accredited thirdparty verifier/certifier at different stages ofthe process (Brack et al. 2002). Impressively,FSC certification is growing faster in Chinathan anywhere else in the world with over300 companies in China now holding FSCcertificates. In the fisheries sector, theMarine Stewardship Council (MSC) is pro-moting a similar approach to achievesustainable fisheries.

There are also more generic internationalcodes of conduct. The United Nations hasbeen promoting the Global Compact, avoluntary programme that brings compa-nies together with governments, labour, andenvironmental organisations to encouragegood corporate citizenship. So far over 3,000companies from over 90 countries havevoluntarily signed on to the United NationsGlobal Compact, based on nine principlesin the areas of human rights, labour and theenvironment. The group agreed, in January2004, to add a 10th principle based ontransparency and anticorruption. WhileAmnesty International, Human RightsWatch and other NGOs initially welcomedthe global compact, some now question itseffectiveness because the pact is voluntary,its standards are unclear, and no monitoringor enforcement process exists.

5.7 Controls on Cross-BorderNatural Resource Trade andExports

Natural resource corruption is exacerbatedby the complex chains of traded commo-dities with smuggling across Asian countriesand links between domestic producers andforeign consumers. Since many naturalresources are traded, the source of corrup-tion in natural resources often lies in the

complex power dynamic among theresource-exporting country, the resourceimporting country and its geopoliticalinterests, and foreign companies. For thisreason, the solutions that are proposed inthis chapter span the national, regional andinternational scene. For these internationallytraded natural resources, solutions can beintroduced both at the supply side as out-lined above, but also at the demand side inthe importing countries (Brack et al. 2002).

Cross-border corruption trade is achallenge for many natural resources in theregion. For example, the illegal wildlife tradehas increased due to the economic boom inthe major clients (China, Viet Nam, Repub-lic of Korea) that has fuelled that demand.Second, poverty, lack of environmentalawareness and institutionalized corruptionhave contributed to the emergence of awilling supply source in several SoutheastAsian countries (in particular Viet Nam, LaoPeople’s Illegal trade is further facilitated bylong and porous borders amongst theSoutheast Asian nations. But smuggling ofprotected wildlife is not just the business ofthe poor. Because of the extraordinary profitlevels involved, syndicates of organisedcriminal groups (also involved in drugs,logging and human trafficking) operatingfrom various countries in South-East Asiaappear to be heavily involved in thebusiness.

Cross-Border and RegionalCooperation

One way to tackle these cross-border issuesis tougher cross border controls andregional cooperation. Within Asia-Pacific,the main regional groupings ASEAN andSAARC have been fairly absent when itcomes to setting regional standards forimproved governance of natural resources,with the exception of the wildlife trade. At


the 13th Meeting of the Conference of theParties (COP) to the Convention onInternational Trade in Endangered Species ofWild Fauna and Flora (CITES) held inBangkok between in October 2004, ASEANannounced an initiative to work together toaddress the region’s rapidly growing illegaltrade in CITES-protected species. All 10ASEAN countries committed towardsdeveloping a Regional Action Plan for2005–2010 in order to collectively addressthe problem and contribute to the globaleffort to protect the world’s biodiversity. Butso far, attempts to limit the wildlife tradeand protect the environment have largelyfailed and illegal, criminal and corruptactivities continue (Lin 2005). Theannouncement of a trans-boundary wildlifetrade action plan between Lao People’sDemocratic Republic and Viet Nam is apositive sign, but greater engagement ofChina as the main consumption market isneeded.

On a broader level, ASEAN’s latest Planof Action 2004–2020, signed in Vientiane,pays increased attention to governanceissues, human rights, the strengthening ofthe rule of law, judiciary systems, ethicalcivil services and good governance in publicand private sectors. Combating corruptionwas explicitly mentioned as a governanceissue that requires special attention. BothASEAN and SAARC could also start to takeaction to bring more transparency in thenatural resource extraction businesses in theAsia-Pacific region. The new draft ofASEAN’s governing charter says thatregional stability rests on the activestrengthening of democratic values, goodgovernance and the rule of law. Regionalinitiatives would include both preventiveand curative measures. Among the preven-tive measures would be better informationsystems managed with regional support.This could involve satellite detection

systems, exchange of information regardingdubious shipments or money transactionsas well as regional blacklisting of companiesinvolved in environmental crimes.

5.8 An Integrated Approach toAvoid the Curse of NaturalResource Corruption

I call petroleum the devil’s excrement. Thesetrends do not mean that oil and mineralwealth necessarily lowers human welfare. Theopposite can be true if the following require-ments are met: first, those who are affected

by resource exploitation must be consulted;second, successful resource exploitation musttangibly benefit citizens; third, a pre-determined set of environmental criteriamust be met; fourth, all transactions must betransparent; and fifth, efforts must be madeto promote democracy if the previous fourcriteria are to be consistently achieved.

Juan Pablo Pérez Alfonso, co-founder of the

Organisation of Petroleum Exporting

Countries (OPEC) quoted in Dell (2004)

The most extreme form of natural resourcecorruption is when the so-called ‘resourcecurse’ arises and corrupt and illegal naturalresource extraction slows down economicgrowth exacerbating poverty (Ross 2001). Inaddition, oil exploitation often creates fewlocal jobs and with the oil lying offshore,imported skilled labour could work withoutever setting foot in the country. Once theoil revenue hits the government coffers, itcan create inflation, which could drive upthe price of the nation’s other industries andwiden the gap between rich and poor.

However, there are countries whoseexperience suggests that the so-calledresource ‘curse’ is not inevitable (Rosser2006). Corruption may be contained withineconomically acceptable boundaries if thecountry has strong leadership (whether


individual or political) and has robust(stable and professional) bureaucraticinstitutions. Resource-rich countries withrobust institutions would achieve greaterlevels of investment and savings thanresource-rich countries with poor institu-tions. There are also resource-rich industria-lised countries whose growth was predicatedon their natural wealth – and this includesthe United States and Canada and withinAsia, both Australia and New Zealand.Economically there needs to be diversi-fication away from natural resources so thatthis is no longer the only source of wealthwhich reduces the opportunity for completestate capture. Politically there needs to be away to move away from natural resourcesas the basis of political patronage andelection financing (Auty 2001).

Within Asia-Pacific, apart from a fewexceptions, the overall situation is lessapocalyptic than what is witnessed withnatural resource countries in the Africancontinent. Several resource-rich countries inthe Asia-Pacific region have combinednatural-resource wealth with high levels ofhuman development and impressivereductions in poverty, achieved under statedirected leadership operating in non- orsemi-democratic policies. Energy exporterssuch as Indonesia and Malaysia have largelyavoided the ‘resource curse.’ with respect totheir oil. Strong growth in Malaysia’s exportsin the 1980s played an important part inoverall economic growth that was accom-panied by significant progress in reducingthe incidence of poverty. Since then, theMalaysian economy has diversified, growthin energy exports has slowed and to a pointwhere Malaysia is becoming a net energyimporter, the incidence of poverty is belowfive percent (UNDP 2007). Malaysia is alsoamong the developing countries in theregion that score highest on the Transpa-rency International Corruption Perception

Index and the World Bank’s corruptioncontrol indicator.

However, the need for stable and robustgoverning institutions means that there is aparticular risk when the process of naturalresource extraction coincides with theprocess of state and nation building, understill weak accountability systems. This is verymuch the situation in Timor Leste, and stillan ongoing process in Cambodia andMongolia, where political reforms are lessthan two decades old (Ghazavi 2006). TimorLeste became an independent nation in2002. Its infrastructure was largelydestroyed, and its per capita income wasonly about US $300 a year. But three oil andgas fields are located in the Timor Sea, andthe first was brought into production in2004, resulting in initial annual revenues ofUS $129 million (Petroleum Fund ofTimor-Leste 2006). Under the 2002 TimorSea Treaty, Australia agreed that Timor Lestewould receive 90 percent of the petroleumrevenues from the Joint Petroleumdevelopment Area (mainly gas). Theserevenues are estimated to bring Timor Lestearound US $15 billion over the next 20years, averaging around US $2–4 million perday. In addition to these, discussionscontinue over the Greater Sunrise Field,which lies just 150 km from the Timorcoastline (compared with almost 300 kmfrom Australia). The latter claims ownershipover the oil field based on a 1972 treaty withIndonesia. An agreement on this field wasreached between Timor and Australia inJanuary 2006 (Treaty on Certain MaritimeArrangements in the Timor Sea), butdevelopment is still under discussion. Whenincluding the Greater Sunrise Field, totalincome from the Timor gap is estimated tobe around US $30 billion over the next 20years. Annual income from oil is likely torepresent by far the greatest income for thenew government, and its distribution


represents a massive political, as well aseconomic, challenge. Reports suggest thatthe unstable environment and potential forincreased conflict is hampering spending ofoil wealth, with considerable surplus of oilmoney yet to be spent. But so far large scalecorruption has not yet arisen and there isan active debate about use of the revenue.Cambodia is facing similar challenges.Cambodia is a country of 14 million people,one-third of the people live on less than 50cents a day 30,000 children die every yearfrom preventable diseases and half thechildren never complete their primaryeducation. In 2004 and 2005, the Americancompany Chevron sank five explorationwells offshore and found oil in four of themExploitation in other wells is to start duringthe coming years. A United Nations analysisin January estimated that Cambodia’s oiland gas could be worth US $6 billion to US$7.5 billion a year over the next two decades– generating revenues of about US $1 billiona year. The country’s Gross DomesticProduct is only about US $5 billion a year.Although there is a hope that this wealthmay help tackle extreme poverty in thecountry, many development partners havevoiced concern that this massive flow of oilrevenues may undermine the country’stransition towards an open and moredemocratic society (Graham 2006).

In both Timor Leste and Cambodia,much will depend on whether the politicalestablishment is able to control corruptionuntil institutions to further mature and gainrobustness. This includes having clearresponsibilities and being able to coordinateeffectively with other institutions (henceoverlapping mandates of ministries need tobe avoided). Equally important will be tostrengthen the (still weak) oversight andcontrol mechanisms. For that to happen,some degree of political stability is required.The second imperative is that the short-

term income boom should not detract formthe longer term goal to ensure that qualitymanpower is being trained to run thecountry. Malaysia and Indonesia investedheavily in education (and continue to doso). Hence, economic growth driven by theoil and mineral revenues has to be comple-mented by economic growth driven byincreases in human capital.

ENDNOTES

1. The authors would like to thank andacknowledge the extensive commentsprovided by Nalin Kishor from the WorldBank, Sergio Feld from the World ResourcesInstitute, and Elena Borsatti from UNDP.This paper draws facts and data from a draftunpublished paper by Keuleers andStanding (2007). This paper is also basedon OECD (2008b).

This chapter was originally written as aTechnical Background Paper for the Asia-Pacific Human Development Report onCorruption, published in June 2008. Theauthors acknowledge that researchundertaken for the original manuscript insome countries or regions may no longerreflect their current situation.

2. Definition provided by the U4 Anti-corruption resource centre: http://www.u4.no/document/faqs5.cfm.

3. Definition provided by the U4 Anti-corruption resource centre: http://www.u4.no/document/faqs5.cfm.

4. For further information, see the Anti-corruption resource centre at: http://www.u4.no/document/faqs5.cfm.

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