Systemic Corruption: Corruption in High and Low Places

By Christopher Warburton, Ph.D (Econ).

The ramifications of corruption at any level can only be well understood when the conduct of corruption is placed in a proper context. Corruption is a crime. It is that variety of crime which is best categorized as white collar crime. The fundamental difference between conventional crime and white collar crime is that white collar crime is not generally associated with violence, except for egregious and corrupt medical malpractices which involve surgery. White collar crime is therefore based on deceit, concealment, obstruction of justice, and/or conspiracy. Precisely why clever humans don’t brag about how corrupt they are. We invariably expect corruption to be depraved and surreptitious conduct. To the extent that corrupt behavior is criminal conduct, the level at which it is perpetrated is irrelevant; meaning that principal, agent, and corrupt individuals are criminally liable for a corrupt conduct.

What is Corruption in International Law?

In international law, corruption is regarded as the abuse of authority for personal gain at the expense of the welfare of a nation and nations. Implicit in this definition is intent, mens rea (guilty mind) and action, actus reus (guilty act or criminal acquiescence). The corrupt public official is conceivably a fiduciary person who has been entrusted with the privilege to govern by lawful means. However, the fiduciary concept poses a problem for most African countries where leaders are not actually voted into office or mandated to rule.
The allusion to international law is important for intuitive and substantive reasons. Simply put, international law is a combination of rules, conventions, and municipal laws which are binding on civilized nations for the realization of their mutual and collective interests in the conduct of domestic and international affairs. Sources of international law are: customs; conventions/treaties/protocols; judicial settlements; general principles of law; equity; and authoritative writers. I will focus on convention; specifically the United Nations (UN) Convention Against Corruption, which was ratified in December 2005 to become a part of international law.

Because Sierra Leone ratified the convention in September 2004, the provisions of the convention are binding on Sierra Leone. Ratification of the treaty and its entry into force no longer makes it a treaty that is declaratory of intent. A ratified treaty has direct effect, meaning that there is no need for legislative action to give it effect within a nation that has ratified it.

The contracting parties, including Sierra Leone, have evident concerns, some of which include the following: (i) That corruption undermines the institutions and values of democracy, ethical values, and justice; (ii) That corruption has a direct link to economic crimes, including money-laundering; and (iii) That the illicit acquisition of personal wealth damages the rule of law, national economies, and sustainable development.
Treaty obligations mean that the laws of Sierra Leone or municipal laws for that matter must be consistent or well aligned with the peremptory provisions of the UN Convention Against Corruption. Chapter III of the convention defines parameters of criminalization and law enforcement for legislative action. For example, to discourage bribery:

Each state Party shall adopt such legislative and other measures as may be necessary to establish as criminal offences, when comitted intentionally:
(a)The promise, offering or giving, to a public official, directly or indirectly of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties;
(b)The solicitation or acceptance by a public official, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties (Chp III, Art. 15).

Subsequent articles of the chapter criminalize embezzlement; the laundering of dirty money; abuse of functions; bribery in the private sector; illicit enrichment; concealment; and obstruction of justice.

Systemic Corruption and its Economic Implications

Systemic corruption is entrenched corruption within the public sector which results in the reduction of the quality and availability of public goods and services as a result of the systematic use of public office for personal gratification. Widespread corruption is usually symptomatic of a moribund state. The institutions which are supposed to guarantee the efficient use of scarce societal resources are inevitably incapacitated and corruption imposes a colossal tax on foreign investment which discourages the inflow of foreign capital.

There are very simple examples of detrimental corruption. For example, if D&Z owes the Government of Sierra Leone Le 2 million and tax collector James gets Le 1 million from D&Z so that D&Z could conveniently evade taxation, tax collector James who is a low level official has conspired to defraud the Government and people of Sierra Leone of Le 2 million. The money is lost revenue which is essential to finance a national debt that imposes severe hardship on the poor. There are of course multiple examples involving high ranking public officials, money-laundering, proxy mining, and economic crimes going as far back as the late 1960s; the catalog of which does not serve any marginally useful analytical purpose here.

Ever so often these crimes are overlooked by apologists who direct their anger and scathing attacks at international organizations. In The Evolution of Crises and Underdevelopment in Africa, I make the argument that despite the similar experiences of colonialism in Sierra Leone and Taiwan, the East Asian Tiger has been able to register remarkable economic successes notwithstanding its comparative lack of natural resources. The miracle in Taiwan could unequivocally be attributed to enlightened government, which ensured that an uncompromising revulsion against corruption was integral to post- independence economic reconstruction.

The grease hypothesis, the unproven but testable assertion that corruption speeds up the wheels of commerce, does not seem to be working favorably for most developing countries and it has been extensively discredited. Some economists have discovered that corruption discourages foreign investment. As a juxtaposition, I have argued elsewhere that excessive debt discourages foreign direct investment.

How is Sierra Leone Doing?

Table 1: The Corruption Perception Index

2003 2004 2005 2006

Sierra Leone 2.2 2.3 2.4 2.2

Taiwan 5.7 5.6 5.9 5.9

Source: Transparency International

The Corruption Perception Index (CPI) is compiled by Transparency International and it provides quantitative scores on qualitative corruption on a scale of 1 to 10; where 1 is exceedingly corrupt and 10 is least corrupt. It measures the overall extent of corruption (frequency and/or size of bribes) in the public and political sectors. Information for compilation is generally taken from surveys, country experts, investors, residents, and non residents. There are other indices of corruption including that of the World Bank, but the CPI also has world acclaim among academics, researchers and investors.

Table1 indicates that the perceived level of corruption in Sierra Leone from 2003-2006 is far from favorable. In fact the 2006 index coincides with that of Nigeria. There was a time when Sierra Leoneans will derisively scoff at this level of corruption. With similar exposure to post colonial adversity, the Taiwanese scores call into question the ability of public officials in Sierra Leone to create a competitive business climate to attract foreign investment and foster economic growth.

Systemic corruption can easily permeate and destroy the economic and social foundations of any society, which include: imports; exports; invoicing; taxes; banking; money and capital markets; the provision of health care; employment; procurement licenses; and national output. It is not entirely surprising that countries with very corrupt public officials make very negligible or poor economic progress, while countries with democratic and transparent institutions make comparatively rapid economic progress. Economies with transparent institutions even enjoy the luxury of financing their debts by long-term capital inflows. It must be pointed out that the cost of any good or service in a corruption-infested society is the market price plus the mark-up of a bribe or leakage.

Principal-Agent Conspiracy

Apart from the criminal connotation of low level corruption, there are very good reasons why low level corruption in underdeveloped economies cannot be exculpatory. The ocular and blatant manifestations of tribalism, nepotism, grafting, kickbacks, and patronage in these underdeveloped economies understandably evince a prima facie evidence of a conspiracy to be corrupt.
Adverse selection for public office, which is at times also contingent on the prospects of remuneration (kickbacks), does not only provide an incentive to exacerbate the level of individual corruption, it provides fertile preconditions for a principal-agent conspiracy to profit from a corrupt act. Conspiracy of course presupposes five main elements: (i) An agreement to execute a plan/act [corrupt act]; (ii) Plurality i.e. two or more people; (iii) An unlawful object i.e. to defraud the state; (iv) Knowledge and intent; and (v) An overt act i.e. an outward act in pursuance of a crime.
The typical principal-agent framework incorporates a principal who employs an agent as a surrogate to perform a corrupt set of tasks. The principal then monitors the agent haphazardly. The agent can then function within a prescribed corrupt mandate, or overextend his/her corrupt mandate with impunity to obtain personal rewards via the trajectory of public office.

What can be done?

Corruption is a global problem for which there is no easy cure. The corrupt public official normally weighs the marginal (incremental) cost against the marginal benefit of corruption. The marginal cost-benefit matrix is a useful mitigating barometer of optional policy choices but not necessarily a solution. When the benefits to be accrued from a corrupt act exceed the cost (which includes potential punitive measures), a public official is usually less mindful of the repercussions of corruption, the odds favor corruption. Although tougher legislative and enforcement provisions are necessary to preempt corruption at all levels, legislative and enforcement provisions are necessary but insufficient mitigating prescriptions. The payment of efficiency wage; civic education; witness protection for whistle-blowers; institutional reforms; judicial oversight and independence; and general public aversion to corruption are equally significant deterrent. Accountability and prosecution of public officials for their misconduct or crime in public office at all levels of bureaucratic government is an indispensable requirement for the development of any nation, Sierra Leone being no exception.