By Dr. Inder Jeet Dagar
Corruption: Bribery, Extortion and Nepotism
Corruption can be defined as misuse of power of official position for private benefit or advantage. It can take the form of money, special treatment, promotion, and even protection. It can be said that the crux of the legal definition of corruption is taking or giving of money or money’s worth for performance or non-performance of a bureaucratic duty, governmental duty or other duties.
Corruption may include bribery, extortion and nepotism. It may be lubrication which involves a relatively small sum of cash as gift, or a service made to a low-ranking official. Subornation, whereas, involves large sums of money designed to entice an official to commit an illegal act.
Corruption in Private Sector
Corruption and other forms of white-collar offences such as cheating, extortions and criminal breach of trust, which occur in private sectors including multinational companies, are done in a very secretive manner. It is clear that even with a strict enforcement of law by the local enforcement agencies it does not deter foreign corporations from paying to locals to obtain the favor done.
The reasons why corrupt practices are being carried out or exist in private sectors, including large corporations, are:
- Companies with uncompetitive products, which are ailing and sick and which have uncompetitive products and services. They indulge in corrupt practices for the sake of survival.
- Local customs — in countries where corruption is part and parcel of the way of life and where bribery payments are customary, it would be very difficult for a company to escape such practices.
- Expedite transactions — since without bribing, they would not be able to get things done faster. And any delay means cost.
- Long-term business risks — the payers cannot complain if they do not get what they have paid for. The first payment would lead to continuous demand and, if they try to break off a corrupt relationship, they may face a variety of threats including violence.
The Effect of Corruption on Corporate Sectors
White Collar Offences
Tax Deductibility — In some countries such as the Federal Republic of Germany, the bribe changes hands abroad and if it is declared in the Income Tax Return, it is still tax deductible.
Corruption distorts the market. In cases of bidding for contract, the least-cost firm should win the bid, but another firm may pay the big bribe to get the contract.
Corruption can have a direct influence on business success. Corruption leads to wastage of resources. It increases the cost of production of a product.
Corruption leads to monopolies. Corruption is generally detrimental to the free operation of market forces and the cost of corruption would be ultimately passed on to the customers at large.
Legislation and Regulations in Fighting Business Corruption
Most of the countries in the world have anti-corruption legislation which states that it is an offence to solicit or accept bribes for a public servant or any other person, including companies, but the only country which enacted a Foreign Corrupt Practices Act (FCPA) is the United States of America.
The FCPA applies to all Americans and to their multinational corporations. U.S. corporations and their employees may be held accountable under this Act. In addition, U.S. corporations and their employees may be accountable where the third party makes illegal payments on their behalf.
Even though the FCPA does create some competitive disadvantage to U.S. firms who are bidding on projects or contracts abroad versus their rivals, who do not face such legislation, as in Japan and Western Europe.
Changing Corporate Policies in India
India: Most Corrupt — citizenship, self-discipline and corporate honesty is one of the most sorely needed exercises in India.
Recently, Indian companies have realized the need for ethical behavior and an end to corrupt government practices. In 1995, the Federation of Indian Chambers of Commerce and Industry issued a ten-point declaration of “Norms and Business Ethics” for Indian companies to follow. The following summarizes the intent of this declaration:
- Business must maintain the highest standards of behavior for the benefit of industry, employees, customers, shareholders, and society.
- Goods and services must conform to the commitment promised to customers.
- Businesses must be realistic and truthful in stating claims.
- Customers must be given the best possible services and treated with respect and fairness.
- Businesses must understand and respect the needs, concerns, and welfare of the community and society.
- They should use knowledge and experience to increase the quality of life and business endeavors must combine the qualities of private excellence for the public good.
The purpose of this document was to promote high standards of business practices through self-regulation. It was an important step in the development of Indian business because it was the first time that the subject of ethical behavior was linked to a mission statement and the core values of companies.
An additional change in the way Indians are doing business is the structure of the board of directors, especially in privately run companies. There is an awareness that to run a company effectively, outside members are needed for impartiality. At a minimum companies are striving for a 30% outsider quota.
One prominent family-run company, the Eicher Group, has recently restructured its board. The founder and CEO named a professional manager to succeed him as CEO rather than promoting one of his own children. This goes away from the traditional family/clan value system where jobs are given to family members, regardless of their ability.
Changing the Global Intellectual Climate on Corruption
Corruption is a global problem that requires international solutions. Bribery is common in international business transactions involving developing-country governments, including international government procurement. To be successful, efforts to reduce this kind of corruption must deal at the source, in developed as well as developing countries.
Work along these lines is being carried out by international, particularly regional, organizations, and by international business groups. The World Bank is collaborating with the OECD, the European Union, the United Nations, the Council of Europe, as well as the International Chamber of Commerce, to curb transnational bribery and money laundering.
Coordination with the IMF in such areas as expenditure policy and management, tax policy and administration, banking reform, trade policy, government financial management, and measures to increase transparency in government operations is particularly important.
Corruption is a serious evil and it must be controlled. The fight against corruption should be integrated — an approach combining legal, ethical, moral, cultural and other good business practices. The efforts should be made not only at the national level but also at the international level.
Rules, laws and other standards should be honestly and effectively implemented. One of the planks of our mission should be to “be a good corporate citizen”.