Government contracts generate valuable economic activity, but they are also prone to bribery on a global scale. A new report shows how policymakers might detect bribery in public procurement and suggests ways of defeating it as well.
The following is a true story. A senior civil servant oversees international procurements in an aid organisation. Several of his acquaintances own or hold top positions in small European trading companies that supply equipment and services to his agency.The total value of their business is over $20 million. The civil servant receives bribes from these companies worth over $500k. As the boss, he bypasses internal procurement guidelines and manipulates processes to favour these special clients. Rather than inviting the manufacturers to call for tender, he uses tiny trading companies, in which he owns a sizeable stake. The selected firms supply these small companies, and must go to the civil servant to secure the business. Bribes are deposited to various overseas accounts. One day the civil servant receives a car and invoices it as a compressor to be paid for by the organisation. As a highly trusted civil servant, he has little to worry about.Finally, though, a business representative from one of the “selected” suppliers breaks the silence and irregularities in procurements are investigated. The corruption costs $1.5 million to the organisation. Trust from donors is shaken.This is just one of a dozen or so true corruption cases outlined in a new report,Bribery in Public Procurement: Methods, Actors and Counter-Measures. Other cases examined in the report include one that was uncovered because of an anonymous tip-off, another by a disgruntled contractor. But too often corruption in government procurement goes undetected.From major public works projects such as constructing power stations and roads to building public universities and equipping them with telecommunications and rest rooms, government contracts are a magnet for international business and generate enormous financial flows. In OECD countries, public procurement is estimated to account for 15% of GDP, and more in many non-OECD countries. Public procurement is responsible for a high proportion of world exports in merchandise and commercial services–as high as 80%, according to some estimates.Government contracts mean valuable, often long-term, business opportunities for bidders and their suppliers. They are subject to fierce international and local competition. While all this generates enormous valuable economic activity, it also makes procurement vulnerable to bribery on a global scale.Bribes are paid for many different reasons, but most often, they are aimed at clinching new contracts. They may also be used to get a job done on time, or to secure indirect benefits, such as the geographical location of an airport. Sometimes bribes are offered by the company, but may also be demanded by public officials. Paying a bribe may ensure that the official signing off a delivery will not withhold payment if the goods are late. Political influence might also explain a bribe.However objectionable on moral grounds, seemingly upstanding business people yield to bribery, describing it as the price of staying in the bidding. Yet, evidence shows that far from driving business, systemic corruption simply destroys it.Millions of dollars are lost to corruption every year. Jobs are destroyed, development aid programmes are compromised, and lives are put at risk by substandard, dangerous buildings. Democracy and institutions are also jeopardised. Some weaker states choke on corruption, though more robust ones suffer too. Indeed, far from being desperate acts on the periphery of the global stage, corruption is a cause of concern in countries all around the world, including the fastest growing economies.Governments realise that fighting bribery pays, and are taking action. The 1999 OECD Anti-Bribery Convention, with its 36 countries, monitoring procedures and other reinforcing instruments, is one key weapon in their armoury.But one difficulty experts continually face is how to improve detection. After all, public procurement deals follow a long and complex process, involving many stages before a project finally reaches fruition. A bribe may occur at any point along the way, from the initial decision to launch a project right through to managing it after completion.In October 2005, the OECD Working Group on Bribery, the OECD body in charge of monitoring enforcement of the OECD Anti-Bribery Convention, undertook to develop a typology of bribery in public procurement, with the aim of improving knowledge of the mechanisms and patterns of bribery in public procurement and enhancing efforts in the prevention, detection, investigation and sanction of this criminal activity. Bribery in Public Procurement: Methods, Actors and Counter-Measures is the result of that work.The report summarises the techniques and means used to bribe, and examines the relationship between bribery and other financial crimes, as well as the motivations of those offering and accepting bribes. Drawing on real cases, the book offers insights into the prevention, detection, investigation and sanctioning of bribery.According to lead author Nicola Ehlermann-Cache, the new study fills a gap by bringing together international experiences which governments can use in dealing with bribery in public procurement. The report will raise public awareness as well as serve as training material for administrators involved in procurement and for law enforcement agencies worldwide. Moreover, the findings of the report are likely to be used in the review of OECD anti-bribery instruments.
Corruption can affect any sector, though as the report shows, some, like energy, defence and aid, are particularly exposed due to their complexity, the money involved and the international nature of the deals.Illicit acts masquerade as legitimate procedure. The relationship with money laundering, tax evasion and extortion enables corrupt players to exploit transnational financial networks and manipulate the regulations designed to prevent bribery from occurring in the first place. The act may involve several players working together over many years. Bidders for a major public procurement contract may collude, even choose to underbid, knowing that one of them will win the business for them all.Cash-in-hand bribes have been displaced, ironically, by the very payment methods that have helped spur global business, from free credit cards and company shares, to accounts in offshore financial centres. Sometimes no money changes hands until the contract is fulfilled. The contractor conceals the bribe in the invoice, the extra cost being attributed to delays, unforeseen subcontracting costs, or any number of other factors.Not surprisingly, much bribery happens under government noses as procurement deals are written up and signed off by “officials” operating in the system’s blind spots. An auditor can stare a bribe straight on and just not recognise it.What should governments do? Bribery in Public Procurement: Methods, Actors and Counter-Measures examines several areas for action, though three stand out.A first rudimentary step is to make sure the appropriate procurement and anticorruption laws are in place. Enforcement is key, of course, as clear rules with substantial penalties have proven time and time again to be the most effective means to combat bribery and corruption in public procurement. Indeed, current prosecutions of firms in the OECD area seem, in part, to result from doing business in non-OECD countries without effective anti-corruption rules and practices.Fighting corruption comes down to the political will of leaders in richer countries too. That is why parties to the OECD AntiBribery Convention have adopted legislation making bribery a criminal offence.A second step is to develop networks of experts with judicial and technical skills to improve prevention and detection within procurement administrations.Third, awareness and application of adequate procurement rules and controls must be cultivated within procurement administrations themselves. This demands a better understanding among officials of the detrimental effects of corruption. Though bribery is hard to detect, there may be tell-tale signs in staff behaviour. One challenge is to train personnel to spot these signs and to report them, which may mean having to handle crisscrossing loyalties, personal relationships and so on.The importance of locally-based action to deliver best practice cannot be overstated. After all, the mischief recounted in our introduction was uncovered by a business representative working closely with the aid agency. Public procurement has become so global that sifting through the haystack demands international co-operation. This also helps to strengthen resources, which is a problem for everyone, but particularly for poorer countries. The OECD’s anti-bribery instruments will evolve to continue leading the fight against bribery in public procurement, but their effectiveness ultimately depends on the people on the ground. Harnessing global, national and local strength is what co-operation is really about. RJCReferences
OECD Observer No. 260 March 2007
- OECD (2007), Bribery in Public Procurement: Methods, Actors and Counter-Measures, Paris. For more detail, contact Nicola.Ehlermann-Cache@oecd.org
- Visit www.oecd.org/bribery