FAQs on Corruption

Following are some of the more common FAQs on corruption:

(1)  How is corruption defined? 

Unfortunately corruption has become an ambiguous term.  While no single universally accepted definition has been developed, generally speaking, it can be taken as “the abuse of entrusted power for private gain”.  In the case of international development terms, this can be expanded to include:

Financial corruption such as fraud, bribery and extortion – but also encompasses non-financial forms, such as the diversion of … assistance [or any other form of resources] to benefit non-target groups; the allocation of … resources in exchange for sexual favours; preferential treatment for family members or friends in assistance or hiring processes; and the coercion and intimidation of staff or beneficiaries to ignore or participate in corruption.

Here ‘private’ means in contrast to the concept of the public good. Private gain refers not just to individuals but to families and communities; ethnic, regional or religious groupings; political or social organizations; corporations or militia.  ‘Gain’ is not always financial: the abuse of power may enhance personal or organizational reputation, or be for social and political purposes (Transparency International).

Building on this, the Norwegian Agency for Development Cooperation (NORAD) has suggested a slightly modified version, being ‘the abuse of entrusted authority for illicit gain’; a recognition that in many parts of the world, corruption is often a systemic deep-seated political problem, that goes beyond the private (individual) level.

 

(2)  What are the costs of corruption?

There is no way to measure the true cost of corruption with any degree of accuracy.  By its very nature, it is a secretive activity masked by a veil of silence.  Corrupt transactions are difficult to detect, as many of them involve concealment, take place outside formal accounting systems, and rarely leave a paper trail.  When detected, many organisations suppress the details for fear of reputational damage.

Notwithstanding this, various studies and reports have attempted to quantify some of the costs.

At global level:

  • Corruption is now estimated to be the third largest industry in the world (B20 Anti-Corruption Working Group)
  • Estimates show that the cost of corruption equals more than 5% of global GDP or US$ 2.6 trillion (World Economic Forum), with over US$ 1 trillion paid in bribes each year (World Bank) 
  • A report by the African Union, estimated that 25% of the combined GDP of African countries (up to $148 billion) is lost annually due to corruption, increasing the cost of goods by up to 20%
  • A recent European Commission report estimating that corruption costs European Union economies around €120 Billion per year

 In development terms:

  • The World Bank estimates that each year US$20 to US$40 billion, corresponding to 20% to 40% of Official Development Assistance, is stolen through high-level corruption from public budgets in developing countries and hidden overseas (World Bank)
  • Since 1949, up to US$130 Billion of funds lent by the World Bank for development projects has been misused, the bulk during project implementation (United States Foreign Relations. Committee)
  • In 2012, corruption cost the private sector in developing countries $500 billion, 3.7 times more than the total Official Development Assistance (Center for Strategic and International Studies)
  • Over the last 50 years, Africa is estimated to have lost in excess of $1 trillion in illicit financial flows, an amount roughly equivalent to all of the Official Development Assistance received by Africa during the same timeframe (AU/ECA Conference of Ministers of Finance)

 At organisational level:

  •  An annual worldwide survey undertaken by the Association of Certified Fraud Examiners, shows that the average organisation loses 5% of revenues in occupational fraud each year.

There are also a number of indices that attempt to measure corruption. Two of most well known being Transparency International’s Corruption Perceptions Index and their Global Corruption Barometer.  Drawn from business, the general public, and country analysts, care should be taken when using them, as they are based on people’s perceptions of the level of corruption, making them a proxy indicator only.

 

(3)  What environments does corruption thrive in?

Corruption thrives in an environment where an individual (or a group) has a monopoly over institutional power combined with an excessive level of discretion.  It is characterised by low level’s of transparency, the lack of accountability, opaque decision making, the absence of appropriate check’s and balance’s.  It is further exacerbated where the rewards of acting corruptly outweigh the consequences.

At organisational level, the International Federation of Accountant’s advise that corruption “is much more prevalent in entities with poor governance, poor culture (dubious ethical values), a poor attitude toward internal control, and less than competent people holding key positions”.

It is therefore important to establish appropriate prevention and control mechanisms, and systemic hurdles, to prevent people from intentionally (or unintentionally) abusing their power.