Saying “no” to corruption

Friday, 24 July 2015 00:05 - - {{hitsCtrl.values.hits}}

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From left: John Keells Holdings Group Finance Director Ronnie Peiris, Transparency International Sri Lanka Executive Director and Attorney-at-Law J.C. Weliamuna, Founder-Chair of LIRNEasia Rohan Samarajiva, Statistician and Former Assistant Governor of the Central Bank of Sri Lanka, Dr. Anila Dias Bandaranaike and Ambassador and Head of the European Union Sri Lanka, David Daly

The issue of corruption is unfortunately not new to the Sri Lankan landscape, as its effects have been thoroughly felt for decades in both the public and private sector, and over the years, corruption has kept rearing its ugly head in a myriad of new and worrying ways. At its latest Power Evening, the Sri Lanka Institute of Directors tackled this highly topical problem, through an eminent panel of speakers representing the public and private sectors, along with insights from a legal and international standpoint.

To enlighten the gathering on what businesses, directors and managers should know about corruption were Ambassador and Head of the European Union Sri Lanka, David Daly, Statistician and Former Assistant Governor of the Central Bank of Sri Lanka, Dr. Anila Dias Bandaranaike, Transparency International Sri Lanka Executive Director and Attorney-at-Law J.C. Weliamuna, John Keells Holdings Group Finance Director Ronnie Peiris and Founder-Chair of LIRNEasia Rohan Samarajiva as panel moderator.

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European perspective

The power evening commenced with a keynote address delivered by Ambassador David Daly who shared some of the good practices and standards adopted overseas, from a European perspective. Diving into the issue with some illuminating statistics, Daly revealed that the European Commission has estimated that corruption costs the European economy around €120 billion a year, which is just under 1% of EU GDP.

“In a recent public opinion survey conducted across the EU, 8% of Europeans say they have experienced or witnessed a case of corruption over the last 12 months. In a recent business survey, there were huge variations between member states in perceived corruption, with 99% of Greek companies citing corruption as opposed to only 10% of Danish ones. Furthermore, the smaller the company, the more often corruption and nepotism appear as a problem for doing business,” he noted.

Nonetheless, EU countries fare fairly well in the Transparency International ranking and most member states are in the top 50. Despite this, Daly observed that the GFC has demonstrated the pressing need for further structural economic reforms in many countries as well as the need for austerity measures in some.

“We cannot afford to have resources wasted through corruption. Similarly, globalisation has shown the need for companies and economies to constantly improve their competitiveness. However, the higher the corruption, the lower the competitive edge because amongst other things, investment – specifically foreign direct investment – is discouraged by prevailing corruption.”

He then drew out three issues which must be addressed in order to tackle corruption – firstly, having high standards and legal frameworks, secondly, having the political will to ensure compliance with those standards and thirdly, having properly resourced independent compliance institutions as well as properly resourced public services.

Daly stressed on the need for well-defined defences for corrupt practices and deterred sanctions, driven by a political will to ensure that the standards embodied in the legislative framework are actually complied with. “Public administration must become more transparent through measures such as the freedom of information. This is perhaps especially important with regard to the award of public procurement projects,” he added.

“Equally, politicians must refrain from the temptation of trying to interfere with the functioning of the independent monitoring compliance or enforcement bodies, be they the police, the judiciary or public audit bodies.” Daly went on to highlight the importance of properly resourced institutions and well-paid staff.

Turning to the actual question – saying “no” to corruption and what can corporates do, Daly started off simply – don’t pay bribes will be a start. “Corporates can refrain from corrupt practices and collectively agree on high ethical standards and this can include aligning yourself with best practices elsewhere,” he stated.

“My sense is that you already do this. I’ve seen many links between Sri Lanka and European countries like UK, France, Germany, Italy and others in terms of both business links but also academic links,” Daly noted. “For example, I understand that many Sri Lankan accountants qualify with UK qualifications. Alignment on these high standards is I think a great advantage.”

Another point he stressed on was for the corporate sector to call for and support the Government in strengthening key public oversight institutions. “In your conversations with Government, you can raise these issues when discussing how to attract FDI. Clear and consistent rules, transparency of procedures and various other issues are crucial to creating a friendly business environment attractive to others.”

Petty and grand corruption

The keynote address was followed by some insights from the panellists themselves, commencing with Founder-Chair of LIRNEasia Rohan Samarajiva, who started off with the legal definition of corruption in Sri Lanka, expressing the opinion that what law we’ve got, we should implement and then we should amend it.

He then looked at what is meant by petty corruption, defining it as: “There were always touts trying to get money from you at the passport office or we would call a buddy from university and get around the whole system.”

“But today, taking the Department of Immigration and Emigration, I don’t think there is petty corruption in the case of honest people getting honest passports. Why? Because we have systemised it, made the requirements transparent and in addition, we have taken the speed money problem and formalised it. This is one of the great achievements of governance in this country.”

Samarajiva then went on to broadly define grand corruption, citing a possible example in the telecom regulatory sector, in the issue of broadcasting licenses. “It is a monopoly – not everyone can get broadcasting licenses or the frequencies. Discretion – tremendous, no transparency – potentially, this is high.”

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Corruption: A rational response?

Transparency International Sri Lanka Executive Director and Attorney-at-Law J.C. Weliamuna too started off his insights with a definition of corruption, stating one that has evolved through Transparency International: “Corruption is the abuse of entrusted power for personal gain.”

He too delved into the issues of petty and grand corruption. “Petty corruption is a very interesting theme where you basically give money for some services. If you are copped you pay Rs. 100. Grand corruption goes beyond that, affecting the national economy, national policies and so on but generally it involves a huge amount but there is always confusion as to which is worse.”

“No doubt both are bad but when it comes to the amount there was a debate that grand corruption has a bigger value but studies show otherwise. It is actually petty corruption that has a higher frequency of occurrence, millions of times daily. Sometimes, grand corruption that happens once in a way doesn’t mean that the harm is any different but with petty corruption the issue is that it cuts across our culture and is internalised within ourselves. People think corruption is right because petty corruption is tolerated,” he noted.

He observed that grand corruption is no longer a local issue – it goes beyond jurisdictions and is cross border mostly because perpetrators accumulate such a huge wealth that they cannot spend it in one country, adding that to cover up the grand corruption, a global network is needed. Weliamuna cited the example of the former dictator of Panama, Ricardo Martinelli, to drive his point home.

He then shared some findings from latest research, commencing with the economic argument to justify corruption, which everybody thought was right earlier. It says that economically, corruption is justified because it gives opportunities to bypass inefficient regulators and red tape. Therefore, it allows the private sector to correct government failures. That was the justification forcefully made and 10% of research still upholds this argument.

Based on specific cases, now there is a new volume of research in this area, he revealed. One argument says that rather than promoting economic growth, what corruption does is it mitigates the impact of weak institutional frameworks. Second is while corruption can counteract the effect of overregulation, it supports the greasing the wheel hypothesis but it does not necessarily increase economic growth.

“There is nobody anywhere in the world that can show that corruption has contributed to economic growth in that sense,” he added. Weliamuna concluded by noting that although corruption may help reduce short term costs induced by administrative process and cumbersome red tape, it has long term detrimental effects on operations of companies and a corrosive effect on overall governance and rule of law.

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A private sector angle

John Keells Holdings Group Finance Director Ronnie Peiris looked at the issue of corruption from a private sector angle. “I would like to say that corruption is like any other economic transaction. You’ve got a supply and a demand. The demand is when someone demands a price for the service that he is willing to give by a means which is not in keeping with standards or procedure, and the supply is that when someone else is willing to pay that price for receiving that service.”

“The private sector needs to take collective action if we are to stop this cancer spreading through our entire system,” he stated strongly. Peiris listed, from a private sector view, some causes for corruption –one being unclear ambiguous frequently changing laws and regulations. He then explored why people in the public sector engage in corruption, some of the reasons identified being the lack of accountability, transparency and extremely low wages.

He observed that even if there are laws, the way that these laws are enforced depends on who you’re enforcing them on and that also leads to frustrations and that in turn leads to corruption, as they are enforced depending on the connections and other nepotistic views that you might have.

“In this environment, I think I would be speaking for the private sector – we have taken various steps to try and minimise the supply side of corruption. Some of these measures are externally induced through standards. In private companies, there is a big drive for better corporate governance, transparency and accountability. I’m not saying everyone is doing it at the same level but there is certainly a drive towards it,” Peiris stated.

He further noted that very often when the private sector has a storekeeper looking after Rs. 100 million worth of goods and earning just Rs. 50,000 – he’s ripe for corruption. “In procurement procedures, I think we take a lot of steps – procurement councils, good MIS, using Z scores to find outlier transactions, using ERPs, forensic digital forensics – all sorts of things happening in the private sector,” he said.

Whistleblowing has also been very successful, he added. In the last year alone, there were about five or six whistleblowing instances where it has led to finding in time certain corrupt activities happening and that also has been one measure of minimising corruption. Access to information is absolutely vital, Peiris stressed. “Promote independent media – we as the private sector need to encourage technical reporting, people who have a nose to be able to smell out certain corrupt practices that may be happening in the private sector or public sector, and adopt voluntary standards because if we don’t, our standing in the eyes of investors and the investment community will be eroded.”

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Collective action

Rounding off the insights from the panellists was Statistician at the Central Bank of Sri Lanka Former Assistant Governor Dr. Anila Dias Bandaranaike, who addressed the issue from the viewpoint of economic development. She noted that whether petty or grand, corruption creates huge inefficiencies, leading to loss of revenue or adding to expenditure which will affect the bottom line, and in turn resulting in the misallocation of human, financial and material resources.

“Many said we need collective action. Regulations and regulatory bodies are there but unless there is a commitment and will to adhere to those, and unless those of us who are in a position are willing to sacrifice the jobs that we do in the interests of ethics and getting rid of this scourge, we are not going to get anywhere,” she stated, adding that if the checks and balances are weak, and the systems of accountability are weak, the fight against corruption is not going to get anywhere.

“I believe the “why” of the corruption is because there is a lack of awareness about the short term versus the long term benefits. And the “I” versus “we,” mentality, whether it is in business or politics or among individuals, and the ingrained culture of patronage that we have in this country, a lot of that is what leads to the corruption,” Bandaranaike said.

She called for collective action among the private sector, to stand together through the various chambers or representative institutions such as the SLID, and to push for supporting existing regulatory institutions and frameworks and strengthen them, by collectively standing up against corruption and pushing for transparency. She stressed on the need for transparency even about the benefits that come with key positions both in the private and public sectors – such as additional benefits senior officials, directors and CEOs receive in terms of housing, rent, paid holidays, cars, fuel and other allowances etc.

However, she also pointed out that none of this will work even if all the information is available, unless citizens analyse such information and raise pertinent issues. Drawing upon Sri Lanka’s Fiscal Management Act as an example of this she stated that: “It basically became a mockery – no one analysed or raised issues when fiscal conditions were weak - The Act had no teeth because the citizens didn’t open their mouths and shout and the media put trivial stuff out, instead of real hard analysis of serious fiscal problems.”

“We are all collectively responsible. I found the emerging concept of “open government partnership” quite interesting and relevant to what we are discussing here – the idea is that there is openness between government and citizens to make things go better. Finally, my message is collective action.”

Q&A session

Samarajiva: You compared two models – one that corruption is a rational response to ineffective government, excessive regulation etc. and the next one you said there is only mitigation. Now in my book, we look at this when we are redesigning any government processes. The fact that there are a lot of people moving large suitcases between Chennai and Colombo tells me that there is something wrong with the Customs regulations, and we have to do something about equalising the duty rates on the two sides and then the suitcases will not go through Customs. So, isn’t that a possibility, if we intelligently look at this phenomena of corruption?

Weliamuna: You are right. We need to understand that each type of petty corruption is not equal. You took one example of the Chennai-Delhi-Colombo flight that we all see. That is something we need to address after understanding the systemic issue and regulation. If you take another example, where you are a party willingly. You want to put a child to a Government school in Colombo. If the principal demands money and you don’t have the money, you go to Bribery Commission and complain because this is extortion. If you have money, you don’t mind paying so much and both parties are happy. This is voluntary corruption.

That first type of corruption has to be dealt with differently to the second type of corruption. What we don’t have is that technical know-how in those who are addressing the issue. In fact, when we look at doing things for the future, we need nothing but reforms. Whatever the reform, you have that anti-corruption component in it and address that element separately. There is global experience in how this can be done. This is not rocket science, you just need to have a different approach. That’s what our Immigration and Emigration Authority did and I challenge the private sector to show me a better-run private sector organisation than that. The modernisation brought about modern thinking, they did away with old systems, brought in transparency and supervision.

That low salaries might be a reason for corruption – I respectfully disagree, you say that people with lower salaries are more likely to be corrupt but this is not the case. Corruption is greed. People will be disgusted if they are not paid well but a large section of people are not corrupt because of low salaries.

Samarajiva: If within your private sector organisations or your country, you had to prioritise attacking petty or grand corruption, what would you prioritise?

Peiris: I think I’ll be contradicting myself if I differentiate between the two because in my dictionary there is no difference between petty or grand. But to answer your question, I would say that grand corruption has an impact on the whole economy of your country, the impact would be that more profound. Petty corruption may be spread in a small way but grand corruption is endemic and systemic. One thing that worries me is the professionalism of all these people who work in important positions in all organisations. If we say the private sector is engaging in corruption, it is shameful that professionals are unwilling to stand against that kind of corrupt practice. Again, I go back to saying that people, particularly the professionals, must believe in their own ability to deliver, because if they do so they would not feel pressured to do the wrong and unethical acts. If we don’t take such a stance, very soon the so called “petty” corruption becomes a way of life and it transforms into grand corruption which will be endemic in this country.

Bandaranaike: I agree with Ronnie, I don’t think you can distinguish. Corruption is corruption and I will try and fight both. Petty leads to the grand. Transparent systems and a commitment to deliver on those systems is critically important, and it doesn’t matter who it is, the CEO’s son or whoever, if someone is in the wrong, there can’t be compromise. Unless you have that system entrenched there will always be room for making allowances.

Samarajiva: We have a draft of the Right To Information Act – it’s stalled and may or may not make it. What are your opinions on the priority we should give the RTI – being passed by the Parliament or as the first order of business in the next Parliament? Secondly, should we go beyond RTI which is reactive and should we have open Government which is proactive?

Weliamuna: Quite frankly, I don’t want this Parliament to pass the RTI Act for one reason because if you want to have right to information, you need to have least exceptions for it to be effective. You can say except on these things – national security and so on, and ultimately there will be more exceptions than the rights to enjoy. It is possible with this Parliament because the government doesn’t have a majority and you have to compromise with the majority opposition to control those rights. The Opposition is not progressive. So in those circumstances, I think it is better to try our luck with the next parliament. I think we need to go beyond that because right to information is one major step. If we want to be open, we need to go forward. In the whole of South East Asia, only Sri Lanka doesn’t have one. RTI is not for the media, it’s for the people. How important it is to an ordinary person will be seen when it comes. There are tools to fight corruption and transparency has been found to be the most effective way of fighting corruption.

Bandaranaike: I would like to see along with RTI a huge publicity campaign for people to understand what the Act is all about. These acts are there and people don’t make use of them. I’m now involved with a committee trying to do a national information system for evidence-based decision making. One of the problems that the information providers has is that there is very little critical, informed feedback from users of that information. While work is being done on the act from a legal point of view, there really needs to be an awareness programme on what it means and how it impacts our daily lives, so that when the act comes into being people are ready to make use of it in a productive way.

Daly: It has been a very important step to have the Freedom of Information Act in the member states. I would certainly encourage that type of act everywhere including Sri Lanka – if there are tactical reasons why it is better not done by the Parliament, I won’t argue with that, but it would be an important first step towards greater openness. Ultimately, you need to use all of these tools to help engender a change of expectation of people. Citizens need to understand that they have rights as well as obligations and they need to understand the role of public service in servicing them for the benefit of citizens.

Samarajiva: I think in a competitive market, it is very dangerous to go in and pull information out from companies because competitors may be doing this and you and I both know that has serious implications for the conduct of business, but is it possible for the large companies to come up with voluntary disclosure policies, where they will go one step beyond their legal obligations in order to satisfy the social requirements for transparency?

Peiris: I don’t know what the aim of your question is but I would say that is what is already happening in listed companies because the law demands that this happens. There is a whole host of mechanisms. In fact, to some extent, we wonder if we are being overregulated. I would say let’s salute the private sector for the corporate governance disclosures in annual reports. As to whether they are actually being done, I don’t know – but they are of a very high standard and these are being verified, pursued and enforced by lot of the agencies, and regulators, so I would say there is transparency. I don’t think any organisation would like to give out their specific ingredients and that sort of thing but certainly in terms of your transactions, for the benefit for your stakeholders, you have to be transparent, otherwise capital is not going to flow into your company because these are all questions that are being asked. It’s a stakeholder model that is in vogue today and there are active stakeholders everywhere.

Questions from the audience

Eardley Perera: I feel that we should address this [corruption] as a nation with a proper campaign to subvert, prevent and repent. On corruption, can we have this approach?

Kapila Sri Chandrasekara: One thing that really has been clear is there is a euphemistic term called “facilitation payments,” which are actually different from corruption. If you look at certain tax regimes even the UK until 2010, facilitation payments were tax deductible. In Australia, they are still-tax deductible. We are talking about corruption in society, of companies and the private sector. If governments aren’t really interested in closing down corruption, what hope is there for the private sector?

Daly: I think that facilitation payments is a difficult area. One of the key principles that should be employed is to have clarity and openness paying for a service – maybe at one point you get into a grey area where one man’s service is another man’s corruption. The key thing is to be able to resolve these sorts of issues, it’s also a reminder that in any system, you will not eradicate crime and fraud.

Weliamuna: Facilitation payments as you rightly said were accepted. Why is it not accepted now, at least openly? If you go into facilitation, it is a bribe or a kick-back. So once when you legally make a bribe a crime, you cannot accept it by changing the nomenclature. That is why you prohibit it.

Peiris: The same for facilitation fees could be said about lobbying. Lobbying is what I would call bribery in a suit but lobbying expenses are allowed in the US. The US Chamber of Commerce has spent some $550 million in lobbying and this is done at the highest level and if you are categorising it as petty versus grand, that is grand.

Samarajiva: I disagree, I think lobbying is a part of a democratic process.

Peiris: But just to go back to what you actually asked me to comment on, I wish to state that ultimately it is up to the individual. If I was to use an evangelical term I think our society will have to be born again to go into this sort of thinking. Having said that, I would say 90% of our society are good people, we are still being dominated by 10% who have immense power in their hands. I think huge majorities in parliaments, governance systems etc. create this type of situation – it’s very important to have a balanced opposition and such so that the questioning becomes more vociferous and open. This whole morality, repentance and wanting to be a good society is absolutely important.The tone from the top is a must. Once u give the tone, hopefully the right one, the individuals must follow. If they don’t then you must cut their feet off, it is as simple as that.

Weliamuna: Some people say that you must have an educated society. I can assure you that education, and anti-corruption and integrity have nothing to do with each other. You look at Parliament, you have people with PhDs, then you must say they are the best but that’s not the case, as we know. If you look at the profiles of 15 people in the FIFA scandal and they are the most educated people in the sports industry but they were the people who corrupted the sport. To have integrity, you have to develop it on your own.

Bandaranaike: When the Enron scandal happened, I read an article that said that the only thing common among the three companies that went under was that the CEOs were all Harvard Business School graduates and the comment was that in a two-year MBA programme, there isn’t enough time to teach a course on ethics! It has to come from within, it is not something that can be imposed by merely having regulators and suchlike.

Daly: On education we must distinguish. Clever and well-educated people do the cleverest of crimes, that’s not the real education issue. The real education issue is knowledge about what people’s rights are, what procedures are etc. I wouldn’t agree that lobbying is bribery in a suit – it might be if it consists of fancy holidays in Miami or whatever, but lobbying in the first instance is freedom of expression and the ability to put across an argument from one person to another. On the question of societal values, I think there’s an interesting thing to look at from Europe, in relation to countries of Central and Eastern Europe that lived for decades under the Soviet regime, and when the Berlin Wall fell, it was a cataclysmic event and it has had in many countries the effect of society by an large as a whole rejecting the systems they had been reared with for at least two generations and this has had an impact in terms of corruption, institutions openness and transparency. I wouldn’t suggest that they are perfect but they are a lot better today by virtue of one thing – to live by a different type of model and finding help for that model within the EU, they are in a better position today than they would still be did they not have that societal revulsion against everything we have been talking about in the negative.