Corporate Corruption Drains Capital, Global Report Finds

Corporate corruption has led to dire consequences as diverse as water shortages, exploitative work conditions and unsafe medicines, according to a just-released report by Transparency International (TI), a global non-profit aimed at exposing and preventing corruption.

The organization’s annual Global Corruption Report, released Wednesday, counts the ways that global corruption in the form of bribery, price-fixing cartels and undue influence on public policy is costing billions and blocking the path towards sustainable economic growth.

“Fostering a culture of corporate integrity is essential to protect investment, increase commercial success and ensure the stability sought by poor and rich countries alike, particularly as we climb out of an historical crisis,” said TI Chair Huguette Labelle. “Basing a company or fund’s future on personal relationships and unpredictable systems or simply operating in a dark space without oversight and accountability is a path to guaranteed failure.”

The report features analysis from more than 75 experts and documents many cases of managers, majority shareholders and other corporate figures abusing their power for personal gain, to the detriment of owners, investors, employees and society at large. In developing and transition countries alone, the report found, companies colluding with corrupt politicians and government officials have supplied bribes estimated at up to $40 billion annually.

Half of international business executives polled for the report estimated that corruption raised project costs by at least 10 percent. Citizens pay the ultimate cost, though, with consumers around the world being overcharged about $300 billion through almost 300 private international cartels discovered from 1990 to 2005.

The report also outlines several strategies for breaking the cycle of corruption. These include reducing red tape, enhancing access to capital, and recognizing the informal sector’s contributions to the formal economy while facilitating those contributions. Countries including as Ghana, Senegal and Vietnam have licensed or are considering licensing informal water vendors, for example, and have established guidelines for tanker operators and independent entrepreneurs.

Privatization of public services often leads to charges of corruption as well, the report found.

Water system privatization has provided many examples, with the failure of recent privatization efforts in Latin America, Africa, Asia and the United States. The failures followed opposition from public interest groups charging that deals with multinational contractors were not transparent, water rates rose unfairly and promised service improvements were never made.

The most high profile reversal came in 2000 in Cochabamba, Bolivia’s third-largest city, where steep water rate hikes followed the sale of the city’s water works to an international consortium. That led to a wave of public protests known as the “Cochabamba Water Wars” which included thousands of protesters, clashes with police, and a general strike that shut down the city for four days. The water works were finally returned to public control.

Last year’s Global Corruption Report (22.6 MB PDF) focused on the disastrous effects that corruption has on global water services, effects that fall disproportionately on the poor.

In China, for example, TI found that corruption undermines the effectiveness of environmental protection policies, abetting pollution and helping make nearly three-quarters of the nation’s urban rivers unfit for drinking or fishing.

In the United States, water management officials in New Orleans took campaign contributions or gifts from contractors and subcontractors hoping to win city contracts or influence elections, and a former Chicago Department of Water Management official was sentenced to nearly four years in prison for racketeering related to campaign contributions.

Last year’s report found the financial costs of corruption in the water sector to be a staggering $50 billion (€35 billion) or more, with experts predicting that corruption will raise the cost of meeting the United Nations Millennium Development Goals for water and sanitation by that amount. Dr. Donal O’Leary of Transparency International said that between 20 to 40 percent of all investments in the water sector are lost to corruption.

Source: Transparency International.