PART 3 - UNDP

PART 3RULES AND PRACTICES

FOR NATIONAL INTEGRITY

PILLARS

Handling Competition PolicyChapter

11

Malaysia is a market economy and Malaysiansare entitled to expect this economy to deliverincreasing standards of living. Indeed, a keypriority of the National Integrity Plan is toimprove the quality of life and well-being of allMalaysian citizens.1

The quest for enhanced integrity and the fightagainst corruption do not, of course, take placeonly within the public sector, or only where thepublic sector and the private sector do businessin the form of procurement.They take place, too,within private sector organizations when thoseorganizations indulge in corrupt abuses ofmarket power, in areas covered by a country’s‘competition policy’.

Understanding competitionpolicy

‘Competition policy’ is an essential tool forpromoting sustainable economic activity, andfor ensuring and underwriting the integrity ofprivate sector activities. It determines the placeof the state in the economic life of the nation bydefining those activities that the state will beinvolved in, and those that will be left to theprivate sector. It also regulates in appropriateways, the manner in which the private sector isto function so that the best interests of all areserved. Sound competition policy forms thebasis for significant elements of the NationalIntegrity Plan.

In essence, competition policy seeks to delivergoods and services to a country’s citizens at thecheapest sustainable prices; to encourageinnovation and development; to increaseproductivity; and to foster trade andcompetition in international markets.

Objectives of competitionpolicy

The prime objective of competition law is tocreate an open and well-regulated economy forthe benefit of all the people in the country. Thiscan be accomplished through the followingmeasures:

l Regulating market excesses and restrictivetrade practices (e.g. outlawing price-fixing,predatory pricing designed to drive acompetitor out of business, fraudulentadvertising, the formation of cartels, etc.);

l Providing efficient and effective regulationof banking and of stock exchanges;

l Reducing the scope for mergers and thedevelopment of ‘market dominance’ whichare contrary to the public interest;

l Reducing the scope for monopoly profits insuch fields as infrastructure, transport, andcommunications;

l Providing a framework for the protection ofintellectual property (patent, trademarks,and copyright); and

l Providing protection of investments and savings (through regulating the activities offinancial institutions and pension funds).

Competition policy does not operate simply bybanning certain types of behaviour. It doesmuch more than this. It establishes mechanismsthat oversee and regulate the various activitiesfor which they are responsible. In someinstances, a Competition Authority isestablished to oversee and enforce the wholegamut of pro-competition policies and laws; inother instances, specific and independentregulators are appointed to regulate definedareas of activity (e.g. telecommunications,electricity, and water).

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1 National Integrity Plan, p. viii.

NATIONAL INTEGRITYSYSTEM

Targets of competition

Market rigging

Competition policy works against cartels andagainst those who would manipulate positions,either through being the sole provider ofessential products or through combining withothers in a conspiracy against competition, aswell as against the public interest. Competitionpolicy also aims to reduce barriers to entry intobusiness activities and to expand opportunitiesfor small and medium sized businesses. But itsaims are not confined to the economic arena.They include social objectives, such as ensuringequity, promoting the welfare of consumers,and enhancing the quality of life for all(particularly the most vulnerable—the poor).

Many countries have been victims of cartelsover the years—the areas of vitamins, cement,and heavy electrical engineering being amongthe best-known. For decades, in the field ofheavy electrical equipment, collusive behaviourartificially inflated infrastructure costs aroundthe world. Manufacturers closed down theircartels in countries where they wereprosecuted, but elsewhere—largely in thedeveloping world—they continued whereregulatory agencies did not exist or werepowerless to intervene. Without doubt,suspicion of cartels fuels much of the hostilitywithin the contemporary globalization debate.

Other malpractices

Prevention of cartels aside, some of the othermore black-and-white malpractices whichcompetition policy seeks to restrain include thefollowing:

l Tied selling. Forcing a buyer to purchasegreater quantities of goods and servicesthan they need, or to buy the full range ofproducts in a particular category or otherproducts they neither need nor want.

l Pyramid selling. Granting franchises to sellproducts on the basis that the franchiseeswill bring in further tiers of franchiseesbeneath them ad infinitum. Eventually, whenthe bubble bursts, those at the topdisappear with the takings, while those atthe bottom, who thought they were buyingbusiness opportunities, find themselves leftwith nothing. (This phenomenon wasextremely destructive to the economy inAlbania.)

l Resale price maintenance. Dictating theprice that a seller can charge and making it acondition of supply that the price be nolower.

l Exclusive dealing. Creating localmonopolies by agreeing to divide marketsinto regions whether geographically or bycategory of goods.

l Refusal to deal. Forcing a purchaser to actunder instructions from the supplier underthreat of the withdrawal of products orservices. (This usually occurs where there arelimited options for alternative supply.)

l Differential pricing. Charging differentprices to different buyers on a basis otherthan those of quality or of quantity ordered.

l Predatory pricing. Charging of artificiallylow prices to undercut a competitor with theaim of driving it out of business.

Competition policy and civilsociety

Because competition is essentially indis-criminate in that it does not favour one interestover another, there are few politicalconstituencies that have a vested interest inpromoting and building a culture of faircompetition. This renders the consumermovement an important stakeholder in theanti-corruption movement. It also means thatimplementation of the National Integrity Planrepresents a rare opportunity for those whogovern and those whom they govern to take aholistic view as to what reforms are needed.

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HANDLINGCOMPETITION POLICY

Essentially, competition policy providesopportunities for civil society to mobilize andintervene in defence of consumer rights.Consumer groups such as the Federation ofMalaysian Consumers Associations (FOMCA)can take the following actions:

l Informally monitor compliance with the standards which have been set;

l Monitor the truthfulness of advertising;l Examine the safety of products;l Engage with the private sector, using legal

requirements as a minimum benchmark;l Make submissions to regulators; and l Run test cases in court, where dialogue with

the private sector interests in question fails.

At the same time, civil society (and consumergroups in particular) can foster the political willto pursue a process that stimulates anunderstanding of how a properly conceivedcompetition policy works in the interests of all.

Competition policy andinvestment

A sound competition policy can increaseinternational confidence and help thedevelopment of a country by rendering it moreattractive to investors, usually by increasinginvestor confidence. Nevertheless, competitionpolicy and competition law may be ineffectiveunless they are developed within the widercontext of regulation and legal frameworksrelating to the business environment.

Issues of corporate governance, contractenforcement, the judicial system, and disputeresolution mechanisms are also important. Thereform of competition policy and laws shouldgo hand in hand with the strengthening ofcorporate governance and the development ofappropriate codes of conduct.

Competition policy anddeveloping countries

Competition policy is not just for the developedcountries. At the national level, competitionpolicies are found in countries at various stagesof development. History seems to suggest thatcompetition policy is a means for acceleratingdevelopment by doing away with anti-competitive and anti-consumer practices.

The legislation of Canada, the United States, andthe United Kingdom, for example, dates back tothe end of the nineteenth century, when allthree had many of the less attractive features oftoday’s developing economies.There were smallcliques of powerful private sector interests(oligarchs) that did not hesitate to manipulatemarkets at the expense of the public interest.Likewise, bribes and kickbacks flourished in theprivate sector. The responses to the challengesthese interests posed can now be seen asmarking an emerging recognition of the needfor competition policy.

It was not that policy-makers in these countriesnecessarily had a very clear concept of whatthey were trying to achieve, or of where theirreforms would ultimately lead. The measureswere introduced in a piecemeal manner, notcomprehensively.

In the United States, for example, the law wasdeveloped progressively and in response todiffering problems. First, the Sherman Act of1890 rendered conspiracies in restraint of tradea criminal offence, but it recognized no role forthe State in actively regulating what was takingplace (Canada had done so a year earlier, in1889). Then came the Clayton Act of 1914, stillthe primary tool for the control of anti-competitive mergers and joint ventures in theUnited States. At the same time, the FederalTrade Commission Act created the Federal

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Trade Commission and so introduced anelement of active regulation. These countries,and other developed economies, are constantlymodernizing and adapting their competitionlegal frameworks to new situations—theUnited Kingdom as recently as in 1998, with itsCompetition Act.

So it is that today countries as far apart asThailand and South Africa are enactingcompetition laws addressing unfair andunjustifiable dominant market conduct,2 suchas mergers that may lead to monopolies orunfair competition, monopolies and thereduction of competition as a result of mergers,and unfair and restrictive trade practices.Malaysia has a plethora of laws in support of acompetition policy but has not as yetcompleted legislation that will embody thecountry’s policy in a Competition Act (e.g. FairTrade Bill). Such a development will mark asignificant advance in the execution of theNational Integrity Plan.

Competition policy and therole of the state

There have been times in the recent past whensome economists have attacked the notion ofthe state playing an economic role, assertingthat governments should withdraw from themarketplace entirely, privatizing as they go,abandoning the old control and commandeconomies they had been practising, andleaving the private sector more-or-less in solecharge. Most have now rejected the moreextreme elements in this minimalist view.Rather, the state is seen as having a crucial rolein ensuring that the principal players in theeconomy abide by well-defined and appro-priate rules. This approach is adopted by theNational Integrity Plan, which envisages thegovernment and the private sector as partnersin a distributive economic growth model.

This demonstrates the absolute necessity for astrong state, well equipped to protect the publicinterest and to regulate areas of the privatesector susceptible to corruption and otherforms of abuse. Not all players in the privatesector have the public interest at heart.

It is obviously nonsensical to suggest that suchcritical strategic activities as banking, themanagement of pension funds, and insurancecould ever be left free to operate entirely as theyplease. Indeed, the absence of effective bankingregulation was one of the major factors behindthe recent economic collapse of countries such asIndonesia and the Philippines. In an ideal world,self-regulation might be effective; in the realworld, in the face of competition, it tends to fail.

One may be able to agree that governmentintervention in the economy should berestricted to setting the ground rules for faircompetition, to providing a conduciveenvironment for efficient production andprovision of goods and services, and toregulating market excesses. At the same time,the state must also be strong and properlyequipped to be able to perform each of thesefunctions. This may be a lengthy process. Wherethe state has been deeply involved in theeconomy through state-owned enterprises, thegovernment itself may well have become amonopoly, and it can take a considerable timefor a competitive market to take responsibilityfor all of a government’s commercial activities.

Distortions in a domestic market, too, can oftenbe the result of government interventions, suchas the protection of inefficient local industriesproducing substandard and overpriced goods.These interventions may also work against theinterests of the poor in particular, by denyingthem access to cheaper goods of better quality.They need to be addressed in the context ofcompetition policy.

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2 See, for example, Thailand's Competition Act, 1999 (http://www.oecd.org/dataoecd/40/45/2491524.doc) and South Africa's Competition Act, 1998 (http://www.compcom.co.za/thelaw/thelaw_act_competition_acts.asp?level=1&child=1).


Competition policy andglobalization

As privatization continues to place more andmore previously publicly owned assets intoprivate hands, the way is paved for increasedlevels of international mergers and acquisitions.As the public barriers to competition areremoved, the private barriers must, cor-respondingly, be addressed, and even more sowith increasing globalization.

Countries with weak domestic institutions areparticularly vulnerable. They are open to cross-border restrictive trade practices andinternational business conspiracies. Integrationinto the global economy may increasecompetition, but it does not necessarily ensureit. Cartels, vertical restraints (agreementsbetween sellers and buyers), exclusivedealerships, and controls over domestic importscan effectively block people from receiving thedevelopment benefits which globalizationshould bring. Concern over these vulnerabilitieslies at the heart of some of the protests againstglobalization presently taking place around theworld.

For regulators, too, there is a growing headache.A merger in the host country of two previouslycompeting businesses may not result in anadverse reduction in competition there.However, in a foreign country, the two firms mayhave subsidiaries, previously the only two rivalsin a particular market.Thus the consequences ofa merger going ahead in one country can havevery serious consequences for another. Anti-competitive practices can also be imported

through foreign direct investment (FDI), withinternational franchisers using local franchiseesto source particular products and tie up localdistribution chains.

There is also the controversial question of therole of the World Trade Organization (WTO).Should it be to enforce competition policy atthe global level? Is it to be some kind of ‘globalcompetition policeman’? Is there to be aninternational framework, perhaps developed atthe WTO, to underpin the development of aglobal competition policy? And would such acooperative framework help to counter theabusive and corrupt practices that are adverselyaffecting international markets, particularly theeconomies of developing countries?

Some might be forgiven for thinking thatcompetition policy and laws are designed onlyfor rich and urban societies, or that competitionlaw is designed to impose forms of capitalism atthe expense of the poor and the weak. In fact, itsfunctions are, if anything, the very reverse.

Competition law builds and sustains publicconfidence in institutions, and in so doing, itcan help underpin the stability of democracies.It is the key to an effective market economy. If,as many now believe, the route to developmentfor the world’s poorer nations lies by way ofprivate sector activity, a sound competitionpolicy can provide the bedrock for a country’sdevelopment. When the institutions designedto promote competition policy are weak,corruption can flourish, which is why those whowould build integrity and contain corruptionshould see the role they are playing against thisbroader background.

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Integrity checklist for assessing the effectiveness of acountry’s competition policy

l Has the government articulated a clear competition policy? l Is such a policy being implemented effectively through law and other reforms of practices

and procedures?l Does the private sector support the development of a coherent and effective competition

policy? l Do consumer protection organizations support it? l Are sufficient efforts being made to educate the public as to how it benefits from an

effective competition policy (both in terms of lower prices and of protection against abuse)? l Are there clear and enforceable laws criminalizing the creation of cartels and bidding rings,

etc.? l Are monopolies or near-monopolies in private hands the subject of effective regulation that

protects the public interest? l Are mergers effectively regulated so as to block the creation of monopolies and the creation

of undue market dominance? l Are local regulators independent of political interference and protected against corruption?

Restoring Trust in the Public Service1

Chapter

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As we have seen, the essential building block fora nation’s integrity is the family. In the same way,too, is the Civil Service the bedrock of soundadministration. No matter how efficient andupright the political leadership, without a soundand professional Civil Service to support it, littlecan be achieved. Conversely, if members of thepolitical leadership of a country who areMinisters are unethical in handling publicaffairs, it is for the Civil Service to defend thepublic interest by acting as a brake. Moreover,politicians and Ministers come and go, but theCivil Service remains to ensure continuity andinstitutional memory.

A country must therefore have a Civil Servicethat it can trust to provide it with the services towhich it is entitled and that it can depend on forthe sound, efficient, just, and honest ad-ministration of public affairs.

A Dutch Minister of the Interior once commented:

The government either has integrity or it does not.You can’t just have a little integrity. An administrationstands or falls with the integrity of the government;any diminution of the integrity of the governmentmeans that the government loses the confidence ofthe public. And without the confidence of the public,democracy cannot work. Then there is no moredemocracy. That is a frightening picture.2

The integrity of a government can come underpressure in a variety of ways, not only stemmingfrom straightforward corruption in the pursuitof personal gain, but also, and above all, from animproper use of power. And the improper use ofpower is a broad concept, one that embracesdegeneration, decay, and erosion of standardsof conduct, escalating into fraud and corruption.

OECD principles for managingethics in the Public Service

A set of principles has been developed by theOECD to help countries review the institutions,systems, and mechanisms they have developedfor promoting Public Service ethics. These canbe adapted to national conditions, andcountries can find their own ways in which tobalance the various aspirational andcompliance elements, so as to arrive at aneffective framework that suits their owncircumstances. The principles are, of course, notsufficient in themselves but provide a means forintegrating ethics management into thebroader public management environment. It isuseful to review these principles against thebackground of Malaysia’s own code of conductfor public servants which is generally known asthe General Orders for Public Officers.

The OECD’s Principles for Managing Ethics in thePublic Service3 are as follows:

1. Ethical standards for Public Service should be clear.

Public servants need to know the basicprinciples and standards they are expected toapply to their work and where the boundariesof acceptable behaviour lie. The emphasis hereis on broad statements of principle. Thestatement should not be written in detail orresemble legislation, or simply be a list ofprohibitions and restrictions.

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1 The term ‘Public Service’ is taken to mean the civil service, armed forces, and police force of a country that implement the policies of the government.

2 Catherine I. Dales, Minister of the Interior, in an address to the Annual Conference of the Union of Dutch Local Authorities, June 1992.

3 PUMA Policy Brief 4, 1998, www.oecd.org/dataoecd/60/13/1899138.pdf.


2. Ethical standards should be reflected in the legal framework.

The legal framework is the basis forcommunicating the minimum obligatorystandards and principles of behaviour for everypublic servant.

3. Ethical guidance should be available to publicservants.

A code without a mentor or an adviser is arudderless boat adrift on a tempestuous ocean.Public servants need to know where, and towhom to turn, when they are confronted withpotential difficulties.

4. Public servants should know their rights and obligations when exposing wrongdoing.

Public servants need to know what their rightsand obligations are in terms of exposing actualor suspected wrongdoing within the PublicService. These should include clear rules andprocedures for officials to follow, and a formalchain of responsibility.

5. Political commitment to ethics should reinforcethe ethical conduct of public servants.

Unless political leaders demonstrate highstandards, they have no moral authority uponwhich to draw when they wish to reprimandothers who step out of line.

6. The decision-making process should be transparent and open to scrutiny.

The public has a right to know how publicinstitutions apply the power and resourcesentrusted to them. Public scrutiny should befacilitated by transparent and democraticprocesses, oversight by the Legislature, andaccess to public information. A corrupt and/or

inefficient administration will wish to shield itsshortcomings through denying access toinformation. The provision of channels forinformation and rights of access are importantantidotes to this malaise. The greater thetransparency, the fewer the shadows.

7. There should be clear guidelines for interactionbetween the public and private sectors.

Clear rules defining ethical standards shouldguide the behaviour of public servants indealing with the private sector, for example,regarding public procurement, outsourcing, orpublic employment conditions. Increasinginteraction between the public and privatesectors demands that more attention should beplaced on Public Service values and requiringexternal partners to respect those same values.

8. Managers should demonstrate and promote ethical conduct.

An organizational environment where highstandards of conduct are encouraged byproviding appropriate incentives for ethicalbehaviour, such as adequate workingconditions and effective performanceassessment, has a direct impact on the dailypractice of Public Service values and ethicalstandards.

9. Management policies, procedures, and practices should promote ethical conduct.

Management policies and practices shoulddemonstrate an organization’s commitment toethical standards. It is not sufficient forgovernments to have only rule-based orcompliance-based structures. This principlestresses the importance of the aspirationalaspects of ethical conduct, and the need toavoid a minimalist, rule-bound approach underwhich everything that is not expresslyforbidden is implicitly allowed.

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RESTORING TRUST INTHE PUBLIC SERVICE

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10. Public Service conditions and management ofhuman resources should promote ethical conduct.

Public Service employment conditions, such ascareer prospects, personal development,adequate remuneration, and human resourcemanagement policies should create anenvironment conducive to ethical behaviour.Using basic principles, such as merit,consistently in the daily process of recruitmentand promotion helps operationalize integrity inthe Public Service.

Ethical conduct can be fostered, just asunethical conduct can be contagious. Ifnepotism, favouritism, and the selectiveapplication and waiver of rules are allowed totake place, the standards of all can be expectedto come under pressure.

11. Adequate accountability mechanisms should be in place within the Public Service.

Public servants should be accountable for theiractions to their superiors and, more broadly, tothe public. Accountability should focus on bothcompliance with rules and ethical principlesand achievement of results. Corruption andinefficiency flourish in an environment devoidof accountability.

12. Appropriate procedures and sanctions should exist to deal with misconduct.

Mechanisms for the detection and independentinvestigation of wrongdoing such as corruptionare a necessary part of an ethics infrastructure.Mechanisms need to be fair and trustworthy.They should protect the innocent and the naïve,just as they should detect and punish theculpable. Penalties, where applicable, should beproportionate and should be consistentlyapplied. A sanctions regime which isidiosyncratic and viewed as untrustworthy bystaff can seriously undermine efforts to raiseand to protect ethical standards.

Everyone would prefer to be, and to be seen tobe, honest and respected for their personalintegrity, by themselves as much as by theirfamily, friends, and colleagues. This provides thestarting point for an ethics management systemthat has the potential to make serious inroadsinto ethical misconduct, bearing in mind thefact that transgressions can be as much theresult of misunderstandings and misperceptionsas that of blatant illegality.

The Malaysian approach toethics management

To reinforce integrity in the Malaysian CivilService, the government has continuouslyemphasized the need for civil servants to buildon the trust the public has in them, byinculcating positive values and by encouragingethical practices. In its desire to bring about a‘clean, efficient and trustworthy’ government,the National Integrity Plan stresses such valuesas trustworthiness, responsibility, sincerity,dedication, moderation, diligence, clean conduct,cooperativeness, honour, and gratitude.

An ethics-based approach is essentiallypreventative, and thus a much more profitableroute than one which relies simply on the bigstick of enforcement and prosecution. A well-motivated Public Service is much to bepreferred to one which operates in fear andapprehension and where any exercise ofpersonal initiative, however well-intended,invites investigation and possible censure.

Creating codes of conduct for theMalaysian Civil Service

In 1979, the Malaysian Government launchedthe Excellence in the Civil Service programmethat established a code of ethics for the CivilService. An accompanying ‘Guide’ provided a setof seven principles to guide the conduct of

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personnel. Guidelines were provided toindividual agencies to help implement theprogramme. A system of rewards wasestablished to recognize those who had givenexemplary service, and the ‘Look East Policy’,introduced in 1982, was intended to provide anew role model for performance and behaviour.

Under the ‘Look East Policy’, many Malaysianexecutives were sent for overseas training orattachment, particularly to South Korea andJapan, in the belief that the impressivedevelopment of resource-scarce countries likeJapan and Korea, with an emphasis on workethics and high productivity, was an excellentstandard for Malaysians to emulate, particularlyas it was based on shared cultural values.

The campaign for establishing a clean, efficient,and trustworthy administration (1982), the callfor the inculcation of Islamic values in theadministration (1982), and ‘Leadership byExample’ (1983) all extolled the virtues requiredof civil servants in their dealings with theircustomers and in the management of publicresources. It was stressed to managers that thepower of a good example has twice the value ofgood advice.

The main set of ethical guidelines in theMalaysian Public Service are now spelt out inthe Code of Conduct formulated under thePublic Officers (Conduct and Discipline)Regulations 1993, formerly known as theGeneral Orders for Public Officers (Conduct andDiscipline). These provide guidelines on specificareas of conduct applicable to a civil servantthroughout the course of his career. Failure tocomply with these regulations may result indisciplinary action being taken against the civilservant concerned. Among the key guidelinesare the following:

l Public officials should refrain from receivingany gifts from members of the public, wherethe intention might be to influence them inthe discharge of their official duties. Shouldthey be in circumstances where it would be

embarrassing to decline a gift, it must bereported to the appropriate authority.

l They should declare assets to theirsupervisors and a public official shoulddeclare his or her personal interest in anymatter that is being discussed in acommittee of which he or she is a member.

l They are expected to give priority to their public duties ahead of their personal interests.

l They must not behave in a manner thatmay damage their reputation as a civilservant of integrity and good character so asto ensure public confidence in the civilservant.

l Public accountability on the part of the civilservant, among other things, requires him orher to take personal responsibility for hisactions.

The punch clock system and name tags wereintroduced as early as the year 1979. Apart fromintroducing more discipline into the PublicService, these two efforts have a significantsymbolic value. The use of the punch clock isintended to instill discipline, a sense of concernfor punctuality, and a greater awareness of thevalue of time. The use of name tags is intendedto nurture a sense of pride and personalresponsibility among public sector employeesand to upgrade the quality of the Civil Service,especially in the area of public relations. Whenintroducing the requirement of name tags, thethen Prime Minister demonstrated leadershipby making a point of complying with therequirement himself, making it plain that no onewas ‘above’ the rules.

In support of the code of ethics, efforts havebeen made to upgrade productivity andefficiency through ethical practices. Theseinclude awareness programmes and policiesthat emphasize honesty, orderliness, politeness,public accountability, and professionalism in thedischarge of one’s duties.

Since intention is difficult to prove, guidelineson the giving and receiving of gifts have beendrawn up to prevent unethical and corrupt

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1

practices. Regulation 8, Public Officers (Conduct& Discipline) Regulations 1993, for instance,allows a civil servant (or anyone on his behalf )to receive or give gifts if the form, amount, orvalue of the present may be presumed to bereasonable, provided that the gift befits theoccasion and is considered appropriate. If itgives rise to reasonable suspicion that the gift isa form of reward for fulfilling a personal favourfrom a certain party pertaining to an official actor is in any way an object of gratification, thenthe civil servant may not be permitted to keepthe present and may be liable for disciplinaryaction. A gift received in this way must bereported.

Unless given official permission by his or hersuperiors, a civil servant cannot receive anysalary, wages, payment, or reward forparticipating in the management of anycommercial entity, undertaking employment inany private organization, lending his or herpersonal expertise, or acting as an executor,administrator, or receiver at any time, includingduring paid or non-paid leave of absence.However, government regulations are flexibleenough to permit outside employment subjectto conditions approved by the head of therelevant department.

Ensuring effectiveness of the codes ofconduct

It is important that an ethics code is tailored tothe conditions of the society it is designed toserve. For example, it may make sense topreclude a well-paid public official fromengaging in private sector activity but if thejunior staff is not adequately paid, this may bewholly unrealistic. Indeed, private sector activityof some sort can be a necessity where publicsector remuneration is very low. The challengethen becomes one of how to manageeffectively a situation where public officials arefrequently engaged in private sector activities.

A key to bringing about behavioural changes inthe Public Service is training. The NationalInstitute of Public Administration (or InstitutTadbiran Nasional—INTAN) has responded tothis need by incorporating values, ethics, andattitudinal components into its trainingcurriculum. A training programme that assignsequal importance to aspects of motivation andattitude, besides the regular components ofknowledge and skills, has been successfullyimplemented. Seminars and workshops onvalues and ethics are also held regularly at theInstitute for all levels of officers.

Trust and local government

Local government is the tier of governmentwith which the people have the most contact.With municipalities being foremost in the frontline, their position needs to be covered in anyassessment of Malaysia’s National IntegritySystem, particularly as the role of localgovernment has expanded well beyond itsinitial mandates of ‘grass, rubbish, roads, drains,and rates’.

At the local government level, too, varioussafeguards should be present, including thefollowing:

l A code of conduct for senior localgovernment leadership, in addition to thenormal criminal and Civil Service regulationsthat highlight corruption issues.

l Disclosure of assets by councillors andsenior officials to the public, which shouldbe effectively made known by the media.

l The existence of an independent, non-partisan complaints office that is effectiveand respected, and known to the public andto staff.

l Protection for whistleblowers and an ability to make anonymous complaints.

l An effective and regular system in placefor undertaking regular financial and

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managerial audits by independent offices ofall aspects of its operations with the resultsof these audits both publicized and actedupon.

Promoting and monitoringethical standards: TheStandards Board for England

A possible model for promoting ethicalstandards is that adopted in the UnitedKingdom. Confidence in local democracy is acornerstone of the UK way of life, as it is inMalaysia. But this can only be achieved whenelected and co-opted members of localauthorities are seen to live up to the highstandards the public has a right to expect fromthem. So it is that in the United Kingdom, inMarch 2001, the Standards Board for Englandwas established by an Act of Parliament.Notwithstanding its statutory base, the Board iscompletely independent of the government.4

The Standards Board for England is responsiblefor promoting high ethical standards andinvestigating allegations that the behaviour ofmembers of local authorities may have fallenshort of the standards required of them. TheStandards Board for England helps buildconfidence in local democracy. It does so bypromoting the ethical behaviour of membersand co-opted members who serve on a range ofauthorities through receiving and investigatingallegations that members may have breached aCode of Conduct.

The Standards Board also works with localauthorities to help them provide support andguidance to their members regarding ethicalbehaviour. Every local authority is required toadopt a Code of Conduct that sets out rulesgoverning the behaviour of its members. All

elected, co-opted, and independent membersof local authorities, including parish councils,fire, police, and National Parks authorities, arecovered by the Code.

Each Code must include the provisions of aModel Code of Conduct approved byParliament in November 2001. Authorities canchoose to add their own local rules to the ModelCode if they wish, although most have adoptedthe Model Code without additions. Authoritieshad until 5 May 2002 to adopt a Code ofConduct. After this date, the Model Code wasautomatically applied to those who had notadopted their own Code.

The Code of Conduct covers specific areas ofindividual behaviour such as members notabusing their position or not misusing theirauthority’s resources. In addition, there are rulesgoverning disclosure of interest and withdrawalfrom meetings where members have relevantinterests. Under the Code, members are alsorequired to record their financial and otherinterests on a public register.

The Board also seeks out and promotes goodpractice, so that local authorities may learn fromtheir peers. In many countries, the greatestproblem for local authorities lies inprocurement, with Council members and theirrelatives often being deeply involved in workwithin the private sector. Procurement thereforeneeds careful attention at the local level. As withprocurement at the Federal level, the localgovernment procurement system must be fairand based on competitive principles, witheffective conflict of interest rules andprocedures. Local procurements should beadvertised well in advance and made known tothe public. The process for selecting a biddershould be thorough and fair, and be subject toregular internal audit by an independent office.

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4 http://www.standardsboard.co.uk/.


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Integrity checklist for assessing trust in the Public Service

l How high is the level of trust in the Public Service?l What influences the level of trust?l Is it important that the public has a level of trust in the Civil Service? l What are the consequences when levels of trust are low?l What can members of the Civil Service do to increase the level of public trust in the Civil

Service?

Tackling Immunities and PrivilegesChapter

13

It is generally the position that a Head of Stateenjoys immunity, not for his/her personalbenefit but because it would be demeaning forthe country itself to have its Head of Statehaving to defend him/herself in court unlesshe/she has been impeached by Parliament.Particularly is this so where the Head of Statehas no executive powers and so is, in a very realsense, above the temptations of corruption.1

By contrast, politicians are a wholly differentmatter. Across the world, investigations intohigh-level corruption allegations have beenimpeded by claims of political immunity. Forexample, it is frequently cited that high-levelFrench, Italian, and Russian as well as Georgian,Kazakh, and Kyrgyz politicians have successfullyavoided appearing or testifying in cases ofcorruption, even when they are the focal point.In Nigeria, corrupt state governors hide behindtheir immunity, and enforcement agencies arepowerless to touch them. To many, it appears toshowcase a network whereby politicians scratcheach other’s backs in a Gordian knot of mutualfavours and interdependence. Indeed, there arenumerous countries where the scope ofpolitical immunity has been extended beyondits intentional remit, and in such cases thepoliticians enjoy de facto immunity fromserious crimes. In Russia, it is said that knownmajor criminals seek election to the State Duma(Parliament) precisely because of the immunitythis will bring them.

In many countries, senior public officials areshielded from the rule of law by immunities tosuch an extent that criminals seek public officesimply to avoid charges. In such cases, there is avery high risk that a vicious cycle of corruptpractices emerges. Even if a corruptedentrepreneur is unable to attain public office, hemay seek to attach himself to a political patronwho—from behind his shield of immunity—is

able to protect him. The exchange of favoursand bribes is highly unlikely in any suchsituation to have been made with regard for thepublic good. Through excess political immunity,politicians can increase their rent-seekingcapabilities, and corrupt behaviour snowballs.Their inviolability renders them virtuallyuntouchable.

Immunity vs. integrity

All forms of political immunity are notnecessarily offensive or detrimental to acountry’s integrity system. Indeed, appropriateforms of political immunity are as old as politicsitself, in that they represent a generallyaccepted way of protecting the legitimatepositions of senior state officers. If seniorofficials could be sued personally for everyhonest mistake they made, government couldwell grind to a halt. Often, too, immunity isdesigned to avoid politically motivatedprosecutions that may impede the publicofficial from conducting his/her daily business.Certainly, it is in the public interest to keeppoliticians away from endless and dubiouslitigation.

Substantial differences in immunity practicescan be noted between countries. For example, itis far more common to request the waiving ofParliamentary immunity in countries such asItaly and Greece than in Denmark, Finland,France, and Sweden. This, of course, does notnecessarily mean that there are more corruptpoliticians in the former group; it simply impliesthat the question of immunity is more lively andactive in those countries. Furthermore, in somecountries, the number of rejected requestsregarding waiving of political immunity issubstantially higher than in other countries.This

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1 In 2000, a French court ruled that President Jacques Chirac could not be investigated while in office in connection with an employment contracts scandal during his time as Mayor of Paris. The scandal involves allegations that some members of MrChirac's political party benefited from salaries paid for non-existent jobs as employees of the city. The court ruled that Frenchlaw barred prosecution of a president in office, but said that it was possible that Mr Chirac could be summoned once hispresidential term ended (http://news.bbc.co.uk/1/hi/world/europe/598803.stm). Thus he cannot escape liability unless —as inthe manner of the disgraced US President, Richard Nixon—he is pardoned by his successor.

TACKLING IMMUNITIESAND PRIVILEGES

appears to indicate that there is a more inclusivedefinition of political immunity, as can be seenin Portugal.

Categories of immunity

Nonetheless, certain generalizations can beobserved on the question of immunity.Generally speaking, there are two separatecategories of immunity:

l Principle of non-accountability or non-liability. This is the original, basic protectionafforded to politicians, and refers mostly tothe freedom of speech and expression.

l Principle of inviolability. This refers to a broader, more flexible protection whichgives the politician freedom from arrest.

Non-liability principle

The non-liability principle, which is usuallynarrowly defined, is nearly always absolute; inmost cases, there are no time limits orpossibilities of lifting the immunity. Closelyrelated to the principle of unconditionalfreedom of speech, it is generally based on thetacit understanding that accusations anddefamatory statements will be kept at anabsolute minimum.

If protection were not guaranteed by non-liability privileges, then Members of Parliamentwould feel constrained, compromised, andunable to speak freely and vote on behalf of thepeople they represent. Without immunity, thevery independence of the Parliamentaryinstitution would be called into question, as wellas its ability to function in the light of potentialpolitically motivated investigations intodubious defamation allegations.

The same principle applies to the Judiciary,which is also given a similar level of immunity. Itwould assuredly compromise the effectiveness

of the Judiciary as an institution if a judge wereto be held personally liable for an honestmistake of law made during a trial. It is far betterfor the state to be held liable in such instances,and for judges to be removed only if they areproven to be incompetent or unfit for duty.

Principle of inviolability

The question of inviolability (i.e. freedom fromarrest), however, is far more controversial. In theNetherlands, politicians do not enjoy anyParliamentary inviolability, and in the UnitedKingdom and Ireland, Parliamentarians aregiven very little protection on this question.Often, if Parliamentary involvement is required,it is a matter of giving authorization to aninvestigation which is inevitable anyway, if forno other reason than the fact that the publicdemands it.Thus, in Belgium, for example, policecan investigate the activities of Parliamentarianswithout interference, but authorization isrequired for the accused to be committed totrial.

Provision of immunity

The question of immunity requires that fourquestions be answered:

1. Who should be given the protection?2. What acts should be included in the

protection?3. For how long should the protection extend?4. In respect of what physical locations should

there be protection?

On the issue of non-liability, the scope of theimmunity generally refers to acts committed inthe performance of the politician’s duty, eitherin Parliament or on official occasions. Thus, itgenerally does not extend to statements madeduring non-official public speaking or innewspaper articles. The Parliament building isthe bricks and mortar manifestation of the limits

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of this form of immunity, outside of which thepolitician remains an ordinary citizen.

Some countries have particular provisions thatallow for persons other than Parliamentarians toenjoy the immunity privilege. In the UnitedKingdom, for example, all those who attendParliamentary debates and proceedings,including civil servants and expert witnesses,are included in the non-liability principle.2

On the issue of inviolability (i.e. freedom fromarrest, etc.), it is generally accepted that whenParliamentarians are caught in flagrante delicto—in other words, if they are caught during or soonafter committing a punishable offence—theninviolability does not offer protection. In termsof the actions covered under the inviolabilityprinciple, there is little international harmony.Some countries define particular crimes whichare not covered by inviolability; others draw aline on the length of the potential term ofimprisonment for the crime. The SwedishGrundlag states that the inviolability principledoes not include criminal offences that arepunishable by two years or more in jail.

Certainly, it is universally illegal for politicians tobribe or accept bribes, although the ability toprosecute such offences depends largely on howstrictly the inviolability principle is enforced in anygiven country. Although a country may nominallyforbid bribery among politicians and citizensalike, politicians are often protected not only bythe vague wording of immunity provisions, butalso by a circle of mutually dependent publicofficials, including those responsible for theprosecution of serious offences.

The duration of inviolability differs from countryto country. In some countries, the principle isonly relevant for the length of the Parliamentaryterm, whereas others limit the protection to theduration of a single Parliamentary session. InRomania, the immunity practices allow for aMember of Parliament to have his immunityautomatically restored if he is re-elected intooffice. Politicians in some countries are granted

immunity that even dates back to before theirterm of office commenced, a provision that canhave the dangerous effect of attractingcriminals seeking to avoid prosecution.

Certainly, life-long immunities are untenable;the privilege must be given up upon leaving theoffice. It is thus equally important to imposelimits on the length of time that an ExecutivePresident and/or Prime Minister can hold office.As a deterrent, there must be a regulation thatholds an office-holder accountable for his or heractions once they are out of office. In effect,immunity should be the exception rather thanthe rule. It is enforced not as an honour and apersonal privilege, but rather as a tool thatenables an individual to discharge his or herduties effectively. Once leaving office, aParliamentarian must be able to be held toaccount for any transgression that occurredduring his or her term in office.

Procedures for liftingimmunity

The procedures for waiving Parliamentaryimmunity often tend to be rather vaguelydefined, and to be ad hoc. Indeed, in manycountries, there is no procedure at all, eitherbecause there have been no cases to set astandard procedure or because there is adistinct lack of political will to clarify such adelicate matter. In some instances, theprocedures for lifting immunity are madedeliberately complicated and forbidding inorder to discourage any such requests.

It is nonetheless important to establish a stableset of principles to deal with such requests. As ageneral rule, such principles should take thefollowing into consideration:

l It concerns a grave crime, in which thereputation of the institution of Parliamentitself is at stake.

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2 In the Netherlands, there is very little scope for Parliamentary immunity; for common law offences, Members of Parliament are by law given the same status as ordinary citizens. The privilege extends only to the non-liability principle, and this covers onlyacts that are explicitly linked to the Parliamentary mandate. It has been more than 150 years since the authorization ofParliament to waive political immunity has been invoked; in fact, the immunity is so limited in scope that there are no definedlegal procedures to waive it.

TACKLING IMMUNITIESAND PRIVILEGES

l The request does not unfairly impinge uponthe politician’s freedom of speech andfreedom to independently carry out his orher mandate to represent the people whoelected him or her.

l The purpose of the request is not to unfairly single out and discriminate against thepolitician.

l The facts of the case are not clouded by political machinations.

Often, a specific Parliamentary Committee is setup to deal with a particular case. Dependent onthe conclusions of this Committee, Parliamentwill decide on the immunity status of theMember of Parliament in question. The initialrequest to list immunity for a givenParliamentarian is usually made by theprosecution services, a special prosecutor, or theMinister of Justice. In most cases, the relevantCommittee, the Parliamentary speaker, and oneor two Ministers are notified of a request. Oncethe Special Committee has made its decision onthe matter, Parliament tends to follow its explicitrecommendations. The level of majorityrequired to authorize the waiving of politicalimmunity is often two-thirds, though this variesfrom country to country.

The issue of political immunity also transcendsborders—firstly, because many allegations ofcorruption deal with the international armstrade or the discovery of excessive assets in aforeign country, and secondly, because theprivilege of political immunity extends to alarge corps of foreign diplomatic repre-sentatives. Thus, it is particularly important thatelected public officials are subject toextradition.

The establishment of clear, narrow, andenforceable standards of political immunity isan essential component of any national anti-corruption campaign, especially in countrieswhere important investigations are beingimpeded by privileges and protection. Theending of political immunity when there hasbeen a pattern of abuse can put faith into thedemocratic system; it can demonstrate aParliament’s trust in the objectivity of itsinstitutions and it demonstrates political will tomake things better.

The Declaration of the 11th International Anti-Corruption Conference in 2003 proclaimed inno uncertain terms that ‘immunities areafforded to far too many people, and in aneedlessly wide and general fashion.... Webelieve that governments must review thescope of any immunity as a matter of urgency,and then take any action necessary to restrictthese to legitimate and justifiable limits.’

There is a delicate balance between protectingthe work of democratic officials againstdisruptive and politically motivated trials on theone hand and potentially condoning corruptbehaviour in a Legislature on the other. Theproposition that the very people who makelaws should also be exempt from complyingwith them would be absurd.

Political immunity must never be allowed tobecome total impunity.

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Monitoring Public OfficialsChapter

14

Disclosure of assets

In many parts of the world, the argument isadvanced that one of the key instruments formaintaining integrity in the Public Serviceshould be declaration of assets.These should bemade by all those in positions of influence andshould cover their own and their immediatefamily members’ incomes, assets, and liabilities.Some countries also require senior office-holders to divest themselves of their majorinvestments, while others permit theestablishment of ‘blind trusts’.1

Those in positions of influence—be theyelected or appointed officers, or career civilservants—can frequently be at risk of beingmade enticing but illicit offers. As suspicion ofpublic officials has grown—fed by revelations ofthe ways some officials have looted theircountries’ treasuries or by doubt as to theorigins of the funds they have used to buyexpensive houses and cars—so, too, has grownthe belief that the assets, incomes, and liabilitiesof all public officials who might be at risk oughtto be monitored.

In the past, in developed countries it wasconsidered sufficient for Cabinet Ministerssimply to disclose their investments to the headof government on an informal basis. In today’ssomewhat more distrustful world, even thehead of government, as often as not and rightlyor wrongly, can be the object of suspicion.Something more rigorous seems to be calledfor, including an independent agency tomonitor the situation if the declarations are notto be open entirely to the public.

Although disclosures of assets and income will,of course, not be accurately completed by all

those who are taking bribes, it is thought thatthe requirement that they formally record theirfinancial position lays an important buildingblock for any subsequent prosecution. It would,for example, preclude them from suggestingthat any later wealth that had not beendisclosed was, in fact, acquired legitimately. Ifliabilities are monitored, the fact that a publicofficial’s financial affairs are getting out ofcontrol will serve as a red light and trigger anappropriate, and helpful, response.

Disclosure, the argument runs, should alsoextend to a certain post-employment period asa deterrent to the receipt of corrupt paymentsafter retirement. Studies have suggested that itis unlikely that corrupt payments are mademore than three years after an official hasretired.

The Westminster tradition

There are traditionalists who argue againstdisclosure rules and prefer to rely on the‘Westminster’ tradition of informal, largelyunwritten rules. These rules were believed toguide senior government figures in observinghigh ethical standards—standards higher andmore flexible than the demands of black-letterrules. However, all the evidence today points tothe utter inadequacy of this informal system.The UK Parliament itself has abandoned it as afailure in today’s world and has introducedmandatory disclosures. Corruption today canonly be reduced if it is made a high-risk and alow-profit undertaking. Informal rules do notwork nor do they wash with the public.

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1 See Bernard Pulle, ‘Conflicts of Interest Avoidance: Is There a Role for Blind Trusts?’, in Current Issues Brief 14, 1996–97,http://www.aph.gov.au/library/pubs/CIB/1996-97/97cib14.htm.

MONITORING PUBLICOFFICIALS

The US practice of assetsdisclosure

But does a system of disclosures actually work?In a democracy such as the United States, assetsdisclosures are seen by the pubic to be workingfrom time to time. These seem to work not somuch because of government enforcers(although there are those), but because of thirdparty enforcement. In elections, opposingcandidates, for example, will scrutinize eachother’s asset declaration forms and make it anissue if an opponent seems to be living beyondhis or her means; likewise with forms requiringdisclosures of campaign contributions andexpenditures. If a candidate claims to receiveonly modest contributions and yet is travellingin a leased jet and staying at top-class hotels, hisor her opponents will make it an issue.There arecivil society groups, too, which check forms andreport on politicians whose declarations seemproblematic and on donors who appear to havebenefited handsomely from their financialsupport of candidates.2

With US government bureaucrats, theseprocesses are less pronounced but they can stillbe effective. In public procurement, thedeclarations of officials making procurementdecisions will be examined by prospectivebidders to detect possible conflicts of interest orinexplicable wealth.

Other country practices

Elsewhere, experience with declarations ofassets has generally been patchy. Initially, insome countries with major corruptionproblems, politicians have legislated fordisclosure and then ignored the requirementscompletely themselves. Alternatively, politicianshave established an agency that merely receivesdeclarations, none of which are made availableto the media or the public. Moreover, such anagency generally has neither the power nor the

resources to check the accuracy of thedeclarations. In this way, the politicians havebeen able to ensure that third partyenforcement of the kind described above hasnot been able to take place.

It is true that recently, in several countries, theprocess of disclosure has claimed some victims,though whether through carelessness orcorrupt intent is arguable. What the declarationprocess can achieve is record formally ameasure of a person’s interests, informationwhich can be invaluable later should it come todealing with questions of conflict of interest.

The Malaysian approach todisclosures

At present in Malaysia, Regulation 10 of thePublic Officers (Conduct and Discipline)Regulations 1993 requires that a civil servantmust declare all properties and assets whichhave been acquired or disposed by him, hisspouse, or his children. A civil servant has toexplain to the Disciplinary Board if he issuspected of having acquired property throughimproper means or through any mannerinconsistent with his position as a public officer.False declaration may subject the civil servant toserious disciplinary action. Regulation 11 of thePublic Officers (Conduct & Discipline)Regulations 1993 requires the civil servant toprovide a reasonable explanation if he is foundto carry on a standard of living beyond hislegitimate means.

The National Integrity Plan envisages theextension of asset declarations to include allelected representatives, and to enable theinspection of the declarations by Parliament, thePrime Minister, and the Chief Ministers. Whetherthis form of inspection will satisfy the Malaysianpublic is an open question. It is, after all, a formof inspection conducted only by the party inpower whose own members are those most atrisk of being corrupted.

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2 For example, the Center for Public Integrity (http://www.publicintegrity.org) and Common Cause http://commoncause.org.


Having accepted the argument in favour ofextending disclosure requirements to electedpublic officials (as the National Integrity Planhas done), several questions follow:

l To whom should disclosure be made? l What matters should be included? l How wide should coverage of members of

the household be? l How often should disclosures be made? l What access should the media and members

of the public have to these declarations?

There are no simple answers to any of thesequestions. The Achilles Heel of asset declarationschemes has generally been the secrecy inwhich most of the declarations are shrouded. Inmany countries, the argument is made thatthese declarations should be open to inspectionby the press and by the public, to facilitate theexposure of those who make false declarations.This is countered by arguments in favour ofpersonal privacy on the part of those requiredto make them. Yet if a scheme is to be effective,some independent monitoring will be required.Otherwise, there will no sanctions for those whofail to comply.

The tricky part of the process is not so muchdeciding on the categories of assets to bedisclosed, and the categories of the officials whoshould be making disclosure, but rather ondeciding the extent to which there should bepublic access to the declarations.The litmus testwould seem to be whatever is needed toachieve public peace of mind, not whatever theopponents of disclosure are willing to concede.In Malaysia, as in Australia, a system whereby

officials make written disclosures to the head oftheir department annually has been seen asbeing effective. These are not made public. InCanada, similar disclosures are managed byEthics offices. However, in most countries, it hasbeen the practice to introduce wholly shamarrangements for these sorts of disclosures.

The South African model

Increasingly, however, governments areexamining more credible public disclosurearrangements. South Africa has designed aninteresting model. It has introduced a schemefor the monitoring of all Parliamentarians(including Ministers). There, a compromise hasbeen reached in an effort to meet legitimateclaims to privacy. The disclosure of certaininterests is made openly and publicly; otherinterests are disclosed publicly, but only as tothe nature of the interest, with the actual valuebeing disclosed privately. The interests of familymembers are disclosed, but in confidence. Theargument for the last is that members of aParliamentarian’s family have a right to privacy,and it should be sufficient for the disclosure tobe made on the record, but not on the publicrecord.

The development of effective and fair regimesfor the monitoring of the incomes, assets, andliabilities of senior public officials will befollowed closely by anti-corruption reformers. Ifthey can be made to work—and there areobvious difficulties—they can serve as avaluable tool in restraining abuses of office.

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MONITORING PUBLICOFFICIALS

Managing Conflict of Interests IssuesChapter

15

Serving the public interest is the fundamentalmission of a government and its publicinstitutions. Most basically, it is the sole reasonwhy the people cede power to them.

Citizens are thus entitled to expect thatindividual officials will perform their duties withintegrity, and in a fair and unbiased way. Privateinterests and affiliations constitute a threat tothese processes, and inadequately managedconflicts of interests on the part of publicofficials have the potential to weaken the trustof citizens in their public institutions.1

Understanding conflict ofinterest

A conflict of interest arises when a person, as apublic sector employee or official, is influencedby personal considerations when carrying outhis or her job. In such cases, decisions are madefor the wrong reasons. Moreover, perceivedconflicts of interests, even when the rightdecisions are being made, can be as damagingto the reputation of an organization and canerode public trust, as can an actual conflict ofinterest.

A number of countries consider the matter soimportant, and so fundamental to goodadministration, that they enact a specificconflict of interest law. This can provide, forexample, that ‘a State officer or employee shallnot act in his official capacity in any matterwherein he has a direct or indirect personalfinancial interest that might be expected toimpair his objectivity or independence ofjudgment’.2 Given the interplay between the

three concepts—conflict of interest, nepotism,and cronyism—the three are often rolledtogether in a single pithy phrase.

The drafters of Thailand’s 1997 Constitution3

saw conflicts of interest as being so importantas to require provisions in the Constitution itself,and not just be left to the ordinary law. Specificprovisions are included requiring governmentofficials to be politically impartial4 andprohibiting a member of the House ofRepresentatives from placing himself or herselfin a conflict of interest situation. Section 1105

clearly states that a member of the House ofRepresentatives shall not:

l hold any position or have any duty in any Stateagency or State enterprise, or hold a position ofmember of a local assembly, local administratoror local government official or other politicalofficial;

l receive any concession from the State, a Stateagency or State enterprise, or become a party to acontract of the nature of economic monopolywith the State, a State agency or State enterprise,or become a partner or shareholder in apartnership or company receiving suchconcession or becoming a party to the contract ofthat nature; or

l receive any special money or benefit from anyState agency or State enterprise apart from thatgiven by the State agency or State enterprise toother persons in the ordinary course of business.

Section 111 provides that:

a member of the House of Representatives shall not,through the status or position of member of theHouse of Representatives, interfere or intervene inthe recruitment, appointment, reshuffle, transfer,promotion and elevation of the salary scale of aGovernment official holding a permanent position or

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1 See OECD, Guidelines for Managing Conflict of Interest in the Public Service, http://www.anticorrutpionnet.org. The same website contains excellent training materials developed for the OECD by Howard Whitton ([email protected]). Also see OECD,‘Recommendation of the Council on Guidelines for Managing Conflict of Interest in the Public Service’ (June 2003),http://www.oecd.org/pdf/M00041000/M00041994.pdf.The Canadian website ‘Values and Ethics Codes for the Public Service’ isa further excellent resource, http://www.tbs-sct.gc.ca/pubs_pol/hrpubs/TB_851/vec-cve1_e.asp#_Toc46202807

2 For a detailed discussion of the issue at senior levels of government, see Conflict of Interest: Legislators, Ministers and Public Officials by Gerard Carney (TI, Berlin) at http://www.transparency.org/documents/workd-papers/carney/3c-codes.html.

3 http://www.kpi.ac.th/en/con_th.asp.4 Section 70, Chapter IV.5 Chapter VI, Part 2.


receiving salary and not being a political official, anofficial or employee of a State agency, Stateenterprise or local government organisation, or causesuch persons to be removed from office.

By virtue of Section 128, the provision alsoapplies to senators.

Identifying conflicts ofinterests

Most conflicts of interest are readily identifiable.Examples include situations when publicofficials award contracts to themselves,members of their family, their friends, or politicalpatrons, or when public officials who personallyor whose close relations hold shares incompanies the officials are supposed to beregulating, or to which they are grantinglicences, etc. These conflicts are obvious andrequire no explanation. They present cir-cumstances in which an official is confrontedwith temptation and however honest theofficials may in fact be, these circumstancespose a threat to the public interest. In mostcountries, any single such action wouldconstitute a breach of the country’s conflict ofinterest law and so render a public official liableto penalties that could include imprisonment.

Conflicts of interest situations cannot beavoided, as it is inevitable that, from time totime, everyone’s personal interests will comeinto conflict with their work decisions oractions. It is important for these to be identifiedfrom the outset if confusion and mis-understandings are to be minimized. A publicofficial who conducts him or herself ethicallywill be anxious to avoid suggestions that he orshe may have been guilty of an involvementthat constitutes a conflict of interest.

Checklist for identifying conflict ofinterest situations

The following checklist can help individualpublic servants identify potential conflict ofinterest situations:

l What would I think if the positions werereversed? For example, if I was one of thoseapplying for a job or a promotion and one ofthe decision-makers was in the position I amin, would I think the process was fair?

l Do I, a relative, a friend, or an associatestand to gain or lose financially from theorganization’s decision or action in thismatter?

l Do I, a relative, a friend, or an associate stand to gain or lose my/our reputationbecause of the organization’s decision oraction?

l Have I contributed in a private capacity inany way to the matter being decided oracted upon?

l Have I received any benefit or hospitalityfrom someone who stands to gain or losefrom the organization’s decision or action?

l Am I a member of any association, club, or professional organization, or do I haveparticular ties and affiliations withorganizations or individuals who stand togain or lose from the organization’sconsideration of the matter?

l Could there be any personal benefits for me in the future that could cast doubt on myobjectivity?

l If I do participate in assessment or decision-making, would I be worried if my colleaguesand the public became aware of myassociation or connection?

l Would a fair and reasonable personperceive that I was influenced by personalinterest in performing my public duty?

l Am I confident of my ability to actimpartially and in the public interest?

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MANAGING CONFLICTOF INTERESTS ISSUES

Handling conflict of interestsissues

When someone considers that they may have aconflict of interest, what should they do? Thefirst step should be to place the potentialconflict on record and seek the guidance of asuperior or an Ethics adviser, if there is one.

Clearly, some ‘conflicts’ will be so minor as not towarrant anything more than the conflict beingrecorded and made known to others who areparticipating in the decision-making process. Forexample, an official might hold a small numberof shares in a company that are so few that theirvalue could not possibly be affected significantlyby the outcome of the particular matter underreview. In such a case, the others involved in theprocess may feel comfortable with that personcontinuing to participate. Where they do not,however, the person should excuse himself orherself from further involvement.

Checklist for resolving conflict ofinterest situations

The following checklist can be used to assist inassessing whether a disclosed conflict ofinterest might require other members involvedin making a decision to ask the person with theconflict to stand aside:

l Is all the relevant information available to ensure proper assessment?

l What is the nature of the relationship or association that could give rise to theconflict?

l Is legal advice needed?l Is the matter one of great public interest?

Is it controversial?l Could the individual’s involvement in this

matter cast doubt on his or her integrity?l Could the individual’s involvement cast

doubt on the organization’s integrity?

l How would it look to a member of the public or to a potential contractor orsupplier to the organization?

l What is the best option to ensureimpartiality and fairness and to protect thepublic interest?

Although it is important to deal withperceptions of conflicts of interests, neither ofthese checklists should be seen as automaticallydisqualifying relationships that no fair andreasonable person would see as giving rise to aconflict of interest.

Other strategies for dealing withconflict of interest situations

Other strategies that an organization can adopt to avoid compromising, or appearing tocompromise, its integrity include the following:

l Keeping full and accurate records of itsdecision-making processes;

l Ensuring openness by making accurateinformation about the organization’sprocesses, decisions, and actions publiclyavailable;

l Where there is a risk of perceptions ofconflict of interests, ensuring that thetechnical/expert judgement of participantsin the decision-making can be substantiated.

Understanding nepotism

Nepotism is a particular type of conflict ofinterest. Although the expression tends to beused more widely, it strictly applies to a situationin which a person uses his or her public powerto obtain a favour—very often a job—for amember of his or her family.

The prohibition against nepotism is not a totalban on all relatives. Indeed, blanket bans onemploying relatives of existing staff (as opposed

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to the hiring of relations of staff to positionswhere one relative will be exercisingsupervision over another) can be held to be inbreach of human rights guarantees againstdiscrimination. But it does prohibit a publicservant from using (or abusing) his or her publicposition to obtain public jobs for familymembers.

The objective is not to prevent families fromworking together, but to prevent the possibilitythat a public servant may show favouritismtowards a fellow family member whenexercising discretionary authority on behalf ofthe public to hire qualified public employees.

As a member of South Africa’s Ombudsman’sOffice observed:

A typical example might be where it is alleged thatsomeone received an improper advantage in that hereceived, through the intervention of a familymember who works for a certain department,contracts which that department puts out. It mightbe found that no criminal act is involved butunethical behaviour is. Nepotism is not yet classifiedas criminal in our law, yet it is clearly reprehensibleand sufficiently unacceptable to require action on thepart of the Ombudsman. Furthermore, the act ofnepotism may be a red flag alerting the Ombudsmanto the possibility of the official’s perceived need tosurround him or herself with those considered to bemore than ordinarily capable of being relied upon toact with ‘discretion’.6

Nepotism frequently occurs in the privatesector, particularly in the context of promotingfamily members within family-owned com-panies, where it is seen as legitimate.The impactof any preference is ultimately on the bottomline (profit) of the corporation, and the bottomline is family ‘property’. Nepotism may cause ill-feeling in the workplace in the private sector,but there is no reason why the state shouldintervene and legislate against it.

In the public sector, however, nepotism isdamaging to the public interest. It means that themost suitable candidate may fail to get a post ora promotion, and the public as a whole suffer as a

consequence, not to mention the person who(had there been no nepotism) would have wonthe position. Or it could mean that a lesscompetitive bid wins a government contract atthe greater cost of the tax payers’ money.

Nepotism can cause conflicts in loyalties withinany organization, particularly where one relativeis placed in a direct supervisory position overanother. Fellow employees are unlikely to feelcomfortable with such a situation, and it is onethat should be avoided. An example of a legalprohibition from the State of Indiana, USA(applicable law IC 4-15-7-1) reads:

No persons related as father, mother, brother, sister,uncle, aunt, husband, wife, son, daughter, son-in-law,daughter-in-law, niece, or nephew may be placed in adirect supervisory-subordinate relationship.

Even worse, of course, would be a judge sittingin a case in which he or she had a financialinterest, or where a relation or good friend wasinvolved. In a civil case, the parties may be asked(in case of doubt) whether they are content withthe judge hearing the case, after he or she hasexplained the potential conflict to them. In acriminal case, the judge should simply declarehis illegibility and decline to sit.

More marginal, perhaps, is the question thatarises when the sons and daughters of judgesappear as lawyers in court before their parents.In some court systems, this has caused nocomplications, but in others it has aroused fiercecontroversy and given rise to serious allegationsof collusion and corruption.

Addressing the issue of nepotism

Nepotism primarily involves one or more of thefollowing:

l Advocating or participating in, or causing theemployment, appointment, reappointment,classification, reclassification, evaluation,

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6 Adv. Gary Pienaar, Office of the Public Prosecutor, Republic of South Africa,‘The Role of the Ombudsman in Fighting Corruption’,Paper presented to the 9th International Anti-Corruption Conference, Durban, South Africa, 10–15 October 1999.


promotion, transfer, or discipline of a closefamily member or domestic partner in acounty position, or in an agency over whichhe or she exercises jurisdiction or control;

l Participating in the determination of a close family member’s or domestic partner’scompensation;

l Delegating any tasks relating to employment,appointment, reappointment, classification,reclassification, evaluation, promotion,transfer, or discipline of a close family memberor domestic partner to a subordinate; and,

l Supervising, directly or indirectly, a close family member or domestic partner, ordelegating such supervision to asubordinate.7

However, the public interest requires that ‘onlythe best shall serve the state’. Of course, therewill be occasions where a relative isunquestionably the best-qualified person for aparticular post. This calls for a balancing ofinterests. For this reason, nepotism rules shouldnot be an insuperable barrier to theemployment of relatives by requiring that well-qualified candidates are invariably disqualified.

The following provision has been drafted interms of the utmost clarity:8

The [Ministry] is interested in hiring able qualifiedapplicants and will consider any person foremployment when they meet qualifications.

The goal of the [Ministry] is to hire the most qualifiedapplicant who is best suited for the position.Members of your family, members of your immediatehousehold or your relatives will be considered foremployment, except when:

l their position or your position would exercise supervisory, appointment, grievance adjustment,dismissal or disciplinary authority or influence, youor the employee would audit, verify, receive or beentrusted with public money or public property,

l circumstances would exist making it foreseeable that the interest of the [Ministry] and you or theemployee would be in conflict or question,

l where the [Ministry] must limit hiring to avoid a conflict of interest with customers, regulatoryagencies, or others with whom the [Ministry]conducts business, or

l where the [Ministry] must limit hiring to avoidemployment discrimination, personnel policyconflicts or related problems.

The [Ministry] will not knowingly place you in asituation where you are supervised by a member ofyour family, your immediate household or yourrelative, or where favouritism, interpersonal conflict,lack of productivity, lack of efficiency, or otherunsound employment conditions including thosementioned in this policy may develop. This policyshall not be retroactive, unless any of the aboveadverse conditions are being practised. In such a case,the [Ministry] reserves the right to assign the affectedemployees to different operating levels, pay scales orlocations.

Here there are no ‘ifs’ or ‘buts’, no room fordiscretion or for waiver. The rules are plain andspeak for themselves.

Understanding cronyism

Cronyism is a broader term than nepotism, andcovers situations where preferences are given tofriends, ‘regardless of their suitability’. It is mostlikely to occur in the context of the making ofappointments (sometimes called ‘jobs for theboys’), but it can arise in any instance wherediscretionary powers are to be exercised.

In Britain, cronyism is captured in suchexpressions as the ‘old school tie’or the ‘old boysclub’. In a number of countries around the worldfortunes have been made through cronyismand the abuse of connections, of whichIndonesia under Suharto was a classic example.But even there, the preferences given were allwithin the law and many do not appear to havebeen tainted by criminal conduct. However, fewof the decisions would have survived judicialexamination of the process and criteria invokedwhen the privileges were conferred.

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7 Board of Ethics, King County, USA.8 Adapted from the City of Bristol, Tennessee, USA, Nepotism Policy, September 1996.


Managing conflicts ofinterests

It is essential that organizations have clearlystated and well-understood policies andprocedures as well as written codes of conduct todeal with actual,potential,and perceived conflictsof interests, including nepotism and cronyism.

However, whereas it is possible to define‘nepotism’ in terms of blood relatives or relationsby marriage or partners, an effective legaldefinition of ‘cronyism’ is impossible. This has tobe dealt with more informally by posing thefollowing question: ‘Would well-informedreasonable people think that this appointmentor this decision was appropriate?’

At times, the matter can be dealt with quitesimply. If someone is applying for a position andone of the interviewing panel knows theapplicant very well, he or she can—andshould—excuse himself or herself from the panel.

In essence, at what point does a person whomone knows become a ‘crony’—a friend or acompanion’—so that a decision in their favourcould be categorized as ‘cronyism’? Just wherethe line is to be drawn is up to the personalethics of a panel member, but again, he or shecan pose the question: ‘What would the othercandidates think if they knew about therelationship? Would they think it rendered theprocess unfair?’ If in doubt, the matter can bediscussed and determined by the other panelmembers. What is necessary, of course, is theneed for complete transparency about thenature of the relationship, and for this to beplaced on record.

On the other hand, if a candidate is known tothe appointing authority to be one who hasdiscretion and sound judgement, there can begreater confidence in the appointment of that

person. It can come down to a question of trust.The primary concern is that decisions are madethat are defensible, both in the eyes of the otherapplicants and in the eyes of the wider public.

Some appointments are required by law to bemade by a particular office-holder. Should theoffice-holder feel compromised by his or herrelationship with a prospective candidate, itshould be possible for the office-holder to beable, in effect, to stand aside in the selectionprocess. He or she can ask for formalindependent advice from another official ofequal or senior rank as to who should beappointed, and act on that.9

However, at the end of the day, the emphasisshould be on being able to refute the charge ofa decision having been made ‘regardless ofsuitability’. It is familiarity between applicantsand decision-makers that quite rightly triggersthis debate.

Avoiding nepotism and cronyism inthe making of appointments10

To avoid charges of nepotism and cronyism inappointments, the New South WalesIndependent Commission Against Corruption(NSW ICAC) recommends the following basicprinciples for the Public Service, which also holdgood for much of the private sector:

1. Impartiality should be maintained in all recruitment and selection processes.

This is essential for public sector employees tomeet their public duty by acting ethically and inthe public interest. Therefore, to avoidperceptions of bias or corruption, a potentialapplicant should have no direct involvement inany part of the recruitment process for a job forwhich he or she may be a candidate. Thisincludes acting as the contact person for

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9 For example, in New Zealand, where an appointment is the responsibility of the Minister of Justice and his friends were among the possible candidates, he would ask the Attorney-General or the Solicitor-General to act in his stead. A decision would berecommended to the Minister which he or she would then take formally in their own name.

10 This section draws on materials developed by the New South Wales Independent Commission Against Corruption (NSW ICAC),Sydney, Australia. Its assistance in the preparation of these and other materials is gratefully acknowledged. For some casestudies, see the NSW ICAC publication, Best Practice, Best Person: Integrity in Public Sector Recruitment and Selection on theCommission’s website, where there is a wealth of valuable information and approaches in preventing corruption:http://www.icac.nsw.gov.au.


potential candidates, framing advertisements,or preparing the standard practice for preferredapplicants’ referees to be contacted. Eachreferee should be asked the same questionsrelating to the selection criteria and all thequestions and responses should be documented.

It should be clear to all concerned preciselywho is accountable for key decisionsthroughout the process and what the valuesare that will be applied. This should be formallyrecorded, and all decisions and the reasons forthose decisions during a selection processshould be documented.

As in all other aspects of sound administration,good record keeping increases accountability.In societies where there are particular pressuresfrom clans or a person’s extended family, it isadvisable for those involved in the decision-making processes to formally certify that noneof the applicants is a relative or is known tothem, or else to excuse themselves from theprocess entirely.

2. Competition should be fostered.

Advertisements should be framed to bothadequately reflect the requirements of the joband to maximize the potential field ofcandidates. Generally, advertisements should beplaced to attract the widest potential fieldpossible. Selection criteria should also bereviewed before recruitment action is taken toensure they adequately reflect the re-quirements of the position and attract thewidest field of applicants. Only in exceptionalcircumstances should truly competitivemeasures be bypassed. Where this is done, thedecision-maker must be able to demonstrateclear and unambiguous reasons for appointingthe candidate directly.

3. Openness should be maximized.

The risk of corruption is minimized where thereare policies and procedures that promoteopenness in dealing with conflicts of interests.

An administration that adopts a policy ofopenness for all its recruitment and selectiondecisions will avoid sending the wrong messageto staff about preferred practices in recruitmentand selection. This will also remove thejustification for others to act contrary to statedrecruitment practices and policies without validreasons. Openness, however, does not meanbreaching confidentiality.

4. Integrity should be upheld at all times.

Taking short cuts can compromise the integrityof the recruitment process.To ensure integrity inrecruitment and selection practices, an ad-ministration must have clearly stated sanctionsfor non-compliance with established policiesand practices and be seen to use them whennecessary. A number of countries have foundthat having independent persons involved inthe selection process can markedly enhance theintegrity of the process. These independentmembers should not be known to the othercommittee members. If this is not possible, theextent of the independent member’s affiliationwith other committee members should berecorded in writing before interviews are heldand form part of the recruitment file.

5. Appeals should be allowed.

Unsuccessful, but qualified applicants, whoconsider that proper procedures have not beenfollowed, should be able to appeal to anappropriate authority for an independentreview of the process and its outcome.

Avoiding conflict of interest issues inpost-separation employmentsituations11

Managing the separation process when a seniorpublic servant leaves the Public Service andenters the private sector has becomeincreasingly important when addressingconflict of interest issues.

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11 The discussion in this section is based on a dialogue between the NSW ICAC and public sector employers in that state. The full report is entitled Corruption Prevention Publications: Strategies for Managing Post-Separation Employment Issues and may beaccessed on the ICAC website, http://www.icac.nsw.gov.au.


This is a consequence of several factors.Efficiency reforms have led to the ‘downsizing’and contracting out of certain public sectorfunctions to the private sector. At the same time,there has been a convergence of managementpractices between the public and the privatesectors; the essential qualifications required towork in both are now similar. As a consequence,there has been a growing tendency in manycountries for public officials not to regard publicsector employment as a long-term career, but toconsider moving between the public andprivate sectors in the course of their workinglives.

To ensure that public administrators are nottempted by the prospect of jobs after leavingthe Public Service, a sound approach to postpublic sector employment is required. This bothreduces the risk of corruption, and rendersmuch less sensitive any confidential informationwhich the public servant who is leaving mayhave and which competing private sectorinterests may be keen to obtain for themselves.

The type of employment which may be causefor concern is one that has a close or sensitivelink with the person’s former position as a publicofficial. If a public official misuses his or herofficial position to obtain a personal careeradvantage, whether intentionally or innocently,it adversely affects public confidence ingovernment administration.

There are, perhaps, four main areas in post-separation employment that give rise tosituations of conflict of interest and that meritconsideration:

l Public officials who modify their conduct to improve their post-separation employ-ment prospects. Such conduct can involvefavouring private interests over public duty;individual public officials ‘going soft’ on their

official responsibilities to further personalcareer interests; an individual acting partiallyby over-identifying with prospectiveemployers’ interests; or outright bribery,where a public official solicits post-separation employment in return for acorrupt performance of duties.

l Former public officials who improperlyuse confidential government informationacquired during the course of officialfunctions for personal benefit, or for thebenefit of another person or organ-ization. The information here does notinvolve the information that has becomepart of an individual’s personal skills andknowledge that can be legitimately used togain other employment.

l Former public officials who seek toinfluence public officials. This involvesformer public officials pressuring ex-colleagues or subordinates to act partially byseeking to influence their work or securingfavours. This can happen in many ways, suchas through informal contact, ‘jumping thecounter’ to obtain government information,or lobbying.

l Re-employment or re-engagement ofretired or redundant public officials. Thismay involve the following situations:

(a) senior public servants receiving generousredundancy compensation payouts andre-entering the Public Service in non-executive positions while keeping theirfull redundancy payments;

(b) public officials leaving public employmentonly to be re-engaged as consultants orcontractors at higher rates of pay toperform essentially the same work; and

(c) public officials who decide to go intobusiness and to bid for work from theirformer employer after arranging theirown redundancies.12

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12 NSW ICAC, Strategies for Managing Post-Separation Employment Issues, www.icac.nsw.gov.au/pub/public/pub2_25cp.pdf.


In the area of post-separation employment, theuse of codes of conduct does not provide aneffective solution. The codes cease to haveeffect when people leave office—the verymoment when these provisions would becomerelevant. This leaves three generally acceptedapproaches to consider:

l Each government agency can develop specific post-separation policies, relevant tothe degree of risk and the likely impact ofthose policies on future careers, such asthose of highly qualified professionals withlimited fields in which to work.

l Employment contracts can have specific restrictions written into them. (However,some countries limit the legal right torestrict future employment, and this can giverise to difficulties.)

l Enacting legislation; this is a route that some countries have taken, but anylegislation should be careful to minimizerestrictions and not to impose them onpeople unnecessarily.13

There is, of course, a need to ensure thatrestrictions on post-separation employment arein proportion to the risks posed. For this reason,it was the view of public sector managers in theAustralian State of New South Wales that thebest approach is not to impose blanketprohibitions, but rather to deal with the matteron a case by case basis. They did not considerthat the level of risk to public sector integritywarranted the degree of hardship andinefficiency that broadly targeted public sectorrestrictions might impose. Views, of course, maydiffer elsewhere, but these are considerations tokeep in mind.

Avoiding conflict of interest issues inpost-separation employment ofministers

Ministers hold positions of power and influence.Some of the knowledge they acquire can be ofa confidential nature, or could confer on themadvantages if subsequently, as private citizens,they were to work in an area related to theirformer responsibilities. Restricting the conductof Ministers after they leave office is becomingincreasingly common.

Other country approaches tomanaging conflicts of interest

The US system

The US system is multi-tiered: there are limitedrestrictions to which every former governmentemployee is subject,which become progressivelymore onerous as staff become more senior.

Very senior personnel must comply with thefollowing restrictions:

l a lifetime ban (which covers all executiveemployees) on ‘switching sides’ to representany organization on a matter on which theydirectly worked as an executive employee;

l a two-year ban in cases on which they maynot have directly worked but for which theyhad ‘direct responsibility’;

l a one-year ban on representing anyorganization to any current representativeof the executive, regardless of what portfoliothey are with; and

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13 For the Canadian legislation, see http://strategis.ic.gc.ca/SSG/oe00002e.html.


l a one-year ban on representing a foreignentity ‘before any department or agency ofthe United States’ and on aiding or advisinga foreign entity.14

A statutory agency, the Office of GovernmentEthics, advises executive employees andensures compliance with this law.

The Canadian approach

In Canada, the Conflict of Interest and Post-employment Code for Public Office-holders15

was established in June 1994. This is anexecutive instrument rather than a statute, but itis administered by a statutory office, the Officeof the Ethics Counsellor. The Code governsMinisters. One of its stated aims for what it termspost-employment compliance measures is to‘minimise the possibilities of

(a) allowing prospects of outside employment to create a real, potential or apparent conflict ofinterest for public office-holders while in publicoffice

(b) obtaining preferential treatment or privileged access to government after leaving public office

(c) taking personal advantage of information obtainedin the course of official duties and responsibilitiesuntil it has become generally available to thepublic, and

(d) using public office to unfair advantage in obtain-ing opportunities for outside employment’ (s. 27).

The Canadian arrangement is similar to that inthe United States in the creation of tiers ofrestrictions. It contains a permanent ban on apublic office-holder ‘changing sides’ in any‘ongoing specific proceeding, transaction,negotiation or case ... where the former publicoffice holder acted for or advised theGovernment’ (s. 29[1]).

The key provision, however, is a two-year banpreventing Ministers from

l [Accepting] appointment to a board of directors of, or employment with, an entity with which theyhad direct and significant official dealings duringthe period of one year immediately prior to thetermination of their service in public office, or

l [Making] representations for or on behalf of any other person or entity to any department withwhich they had direct and significant officialdealings during the period of one yearimmediately prior to the termination of theirservice in public office’ (s. 30).16

Unlike in the United States, in Canada the PrimeMinister has discretionary power to reduce thetwo-year waiting period, subject to con-sideration of a range of factors.

As in Canada, post-separation ministerialemployment in the United Kingdom isgoverned by executive instrument, not astatute. Chapter 9 (‘Ministers’ Private Interests’)of the Ministerial Code guides post-separationemployment:

On leaving office, Ministers should seek advice fromthe independent Advisory Committee on BusinessAppointments about any appointments they wish totake up within two years of leaving office, other thanunpaid appointments.... If therefore the AdvisoryCommittee considers that an appointment couldlead to public concern that the statements anddecisions of the Minister, when in Government, havebeen influenced by the hope or expectation of futureemployment with the firm or organisation con-cerned, or that an employer could make improper useof official information to which a former Minister hashad access, it may recommend a delay of up to twoyears before the appointment is taken up.17

Whereas in Canada there is a two-year barunless the Prime Minister makes an exception,in the United Kingdom, former Ministers are

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14 Office of Government Ethics, Memorandum Regarding Revised Post-Employment Restrictions, 26 October 1990.15 http://strategis.ic.gc.ca/SSG/oe01188e.html.16 Office of the Ethics Counsellor website, http://strategis.ic.gc.ca/SSG/oe00001e.html.17 Cabinet Office, Ministerial Code: A Code of Conduct and Guidance on Procedures for Ministers, s. 140, July 2001,

http://www.Cabinet-office.gov.uk/central/1997/mcode/.


merely restricted if, after seeking advice fromthe Advisory Committee, it is recommendedthat they delay their activities.

Best practice suggests that

l post-separation employment be addressedin any Ministerial code, and

l there be a standing advisory body to assistMinisters in complying with any guidelinesthat might address post-separation em-ployment. (This feature is common tolegislative and executive ethics instrumentsinternationally and not just for dealing withpost-separation employment issues.)18

The Croatian example

A number of countries have explicit conflict ofinterest laws. By way of example, Croatia’slegislation provides not only for declarations ofassets and income and for the prohibition ofconflicts of interest, but also for a Commissionto receive declarations and to provide adviceand guidance. The Commission is elected byParliament, but politicians are excluded frombeing members.

The Croatian example also gives directions as tohow offers of bribes are to be handled:

Article 14(1) Officials shall have the obligation without delay

to reveal and inform the body that elected orappointed them, and the Commission aboutany pressure or improper influence to whichthey have been exposed in the exercise ofpublic office.

(2) Officials who, contrary to the provisions of thisAct, have been offered a gift or any otheradvantage related to the exercise of theirpublic office, shall:

1. Reject such an offer,2. Try to determine the identity of the person

making the offer,3. In case of a gift, which, due to specific cir-

cumstances, cannot be returned, the officialshall keep it and report it immediately,

4. List witnesses of this event, if possible,5. Within reasonable time, submit the

written report on the event to the com-petent person or body,

6. If a punishable offence is involved, reportit to the bodies in charge of conductingproceedings.

The Croatian approach strikes a balancebetween the need for a firm legal basis and arequirement for flexibility. However, given thecomplexities of the situations that can arise, theenactment of more ambitious, all-embracinglaws in the area of conflict of interest can besomething of a blunt instrument. Thus manycountries have chosen to address the moredetailed aspects of the problem in a diffused,management-led fashion.

In this approach, laws are enacted which dealwith the upper levels of government (forexample, as in the 1997 Constitution of Thailandquoted above) and with basic principles, but thedesign of appropriate policies is effectivelydelegated to agencies and departments, each ofwhich is expected to develop policiesappropriate to their own situations and needs.

Even in the implementation of these policies, alarge measure of common sense is called forand, as we have discussed elsewhere, theservices of an Ethics Office can be particularlyvaluable. Equally clearly, conflict of interest,cronyism, and nepotism should be covered inappropriate codes of conduct.

Anti-nepotism laws

The drafting of nepotism prohibitions posesparticular problems, and it is perhaps notsurprising that not all countries have anti-nepotism laws, desirable though these may be.Where these are lacking, favouritism shown to arelative on the basis of relationship and otherfamily member issues tends to be dealt with bylegal prohibitions such as those againstunwarranted privilege, direct or indirect

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18 This section draws from Post-Separation Employment of Ministers, Research Note prepared by the (Australian) Department of the Parliamentary Library (Research Note 40, 28 May 2002), http://www.aph.gov.au/library/pubs/rn/2001-02/02rn40.pdf.


personal financial interest that mightreasonably be expected to impair objectivityand independence of judgement, or theappearance of impropriety.

A typical example of a jurisdiction that has sucha law reads:

[(IC 4-15-7-1), on Nepotism] No person being relatedto any member of any state board or commission, orto the head of any state office or department orinstitution, as father, mother, brother, sister, uncle,aunt, a husband or wife, son or daughter, son-in-lawor daughter-in-law, niece or nephew, shall be eligibleto any position in any such state board, commission,office or department or institution, as the case maybe, nor shall any such relative be entitled to receiveany compensation for his or her services out of anyappropriation provided by law. However, this section

shall not apply if such person has been employed inthe same position in such office or department orinstitution for at least twelve (12) consecutive monthsimmediately preceding the appointment of hisrelative as a board member or head of such office,department or institution. No persons related asfather, mother, brother, sister, uncle, aunt, husband,wife, son, daughter, son-in-law, daughter-in-law, niece,or nephew may be placed in a direct supervisory-subordinate relationship.19

The United States has an Office of GovernmentEthics to handle conflict of interests at theFederal level, and Canada has chosen to dealwith the issue of conflict of interest byestablishing a series of Ethics Counsellors,whose role in post-separation processes hasbeen discussed above.

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19 State of Nebraska, USA.


Checklist for assessing and managing conflict of interestsissues

l Is the concept of conflict of interest clearly understood by politicians and by members of the Civil Service?

l Is there regular training for relevant officials and the management of conflict of interest situations?

l Are there adequate arrangements to ensure that appointments to the Civil Service are made solely on merit, without elements of nepotism and cronyism being involved?

l Is there any need for special arrangements to deal with public officials entering the private sector immediately on termination of their employment in the Civil Service with a view tochecking corrupt practices?

l Is there a need for advice to be available to public officials to enable them to handle apparent conflict of interest situations?

Promoting Transparent Public Procurement1

Chapter

16

Corruption in publicprocurement

The Bribe Payers Index (BPI) prepared byTransparency International in 2002 revealedthat public works and construction is the sectorin which the biggest bribes are likely to be paidin countries around the world. This suggeststhat reform efforts in the field of publicprocurement in Malaysia should have a specialfocus on the situation in the construction sector.

Industry players have asked the government tocheck the whole procurement chain and alsorequested industry players themselves tocorrect any weaknesses. By way of response, thegovernment has proposed a code of ethics andbest practices guidelines for some industries.

But will a code of conduct be sufficient?Provided the code has teeth and it is enforced inways that constitute a serious deterrent, itwould likely make a difference. However, theprospective gains from corrupt processes areconsiderable, and so the prospective penaltieshave to more than match these.This is especiallyso when a survey of public perceptions ofcorruption among students in publicinstitutions of higher learning (which aregenerally regarded as the country’s futuredecision-makers) revealed an alarming finding:some 30 per cent of the students said that theywould take bribes if they were in a position ofpower and able to do so.2

The complaints from the industry suggest thatmore than just a code of conduct is needed:rather, the whole system of public tenderingneeds careful review, with the industry itself as amajor partner in the process. The opening up ofpublic procurement, and the move away fromthe negotiated contracts of the past, as

announced by the Prime Minister, should setreforms along an effective path.3

Few activities create greater temptations oroffer more opportunities for corruption thandoes public sector procurement. Every level ofgovernment and every kind of governmentorganization purchases goods and services,often in quantities and monetary amounts thatdefy comprehension.

Procurement of goods and services by publicbodies amounts, on average, to between 15 and25 per cent of gross domestic product (GDP),and in some countries even more. In absoluteterms this means the expenditure of trillions ofmoney each year. If one adds in procurement byprivate corporations and other buyers, it is nosurprise that there is a great temptation formany players to try to manipulate the processesfor their own private benefit, to extort moneyand other favours from bidders, to bribepurchasing agents and to give contracts tofriends and relations.

A recent court case in Lesotho involving one ofthe world’s largest construction projects has laidbare the practices of firms from industrialisedcountries joining together to bribe a seniorprocurement official in a developing country,resulting in a series of convictions, large finesand the prospect of multinational corporationsbeing debarred from World Bank-financedprojects for some time to come.4

Corruption in public contracting is alarminglywidespread and is almost certainly the mostpublicised and the most damaging to the publicwelfare. It has been the cause of countlessdismissals of senior officials around the world,and even the collapse of entire governments. Itis also the source of astronomical waste inpublic expenditure, estimated in some countries

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1 The National Integrity Plan undertakes to enhance the effectiveness of the public delivery system, and to ensure transparency,rationality, openness, and fairness in the procedures for procurements, supplies, services and contracts. See National IntegrityPlan, p. 147.

2 ‘Shun corruption, students told’, New Straits Times, 6 September 2006.3 ‘No Let-up in Fight Against Corruption, Says Abdullah’, New Straits Times, 30 April 2005.4 http://www.sadocc.at/news2002/2002-323.shtml.


to run as high as 30 per cent or more of totalprocurement costs. In many countries it is theengine for much political party financingcorruption. Regrettably, however, it is moretalked about than acted upon.5

Such is the importance of public procurementthat South Africa accorded it special attention inits 1994 Constitution. Section 187 provides that

1. The procurement of goods and services for anylevel of government shall be regulated by an Actof Parliament and provincial laws, which shallmake provision for the appointment ofindependent and impartial tender boards to dealwith such procurements.

2. The tendering system referred to in sunsection (1)subsection shall be fair, public and competitive,and tender boards shall on request give reasonsfor their decisions to interested parties.

3. No organ of state and no member of any organ oforgan state or any other person shall improperlyinterfere with the decisions and operations of thetender boards.

4. All decisions of any tender board shall be recorded.

Corrupting the procurementprocess

Clearly, bribery and corruption need not be anecessary part of doing business. Experienceshows that much can be done to curb corruptprocurement practices if there is a desire and awill to do so. In order to understand how best todeal with corruption in procurement, it helps toknow first how it is practised.

Contracts involve a purchaser and a seller. Eachhas many ways of corrupting the procurementprocess, and at any stage.

Before contracts are awarded, the purchaser can

l tailor specifications to favour particularsuppliers;

l restrict information about contractingopportunities;

l claim ‘urgency’ as an excuse to award acontract to a single contractor without competition;

l breach the confidentiality of suppliers’ offers;l disqualify potential suppliers through

improper pre-qualification procedures; andl take bribes.

At the same time, suppliers can

l collude to fix bid prices;l promote discriminatory technical standards;l interfere improperly in the work of

evaluators; andl offer bribes.

The most direct approach is to contrive to havethe contract awarded to the desired partythrough direct negotiations without anycompetition. Even in procurement systems thatare based on competitive procedures, there areusually exceptions where direct negotiationsare permitted, such as the following:

l cases of extreme urgency because of disasters;

l cases where national security is at risk;l cases where additional needs arise and

there is already an existing contract; orl cases where there is only a single supplier in

a position to meet a particular need.

Of course, not all single-sourced contracts arecorrupt. In some instances, direct contractnegotiations may well be the most appropriatecourse of action. However, if justifyingcircumstances are claimed that do not reallyexist, the reason is often to cover up and permitcorruption.

Even if there is competition, it is still possible totilt the outcome in the direction of a favouredsupplier. If only a few know of the bidding

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5 Many, but by no means all, of the decision-making points addressed in this chapter are covered in part by various ‘procurement rules’ such as the ‘General Procurement Agreement (GPA)’ of the World Trade Organization with presently 26 signatories, the‘UNCITRAL Model Law on Procurement of Goods, Construction and Services’ issued 1995 by the UN Commission onInternational Trade Law (UNCITRAL), the World Bank ‘Guidelines for the Selection of Consultants and the Procurement of Goodsand Services’, and the ‘Manual of Procedural Rules (SCR)’ of the European Commission. All of these rules of late make an effortto address the issue of corruption prevention. But none of them offer or require a sufficiently broad structure of transparencyand accountability.The existing rules are unexceptional, but the fact that a high degree of corruption exists worldwide in publicprocurement suggests that, good as they may seem to be, the rules are simply not adequate.What is needed is full transparencyand reliable assurance of implementation of the rules through efficient inspection, and intensive internal and publicmonitoring and auditing.

PROMOTINGTRANSPARENT PUBLICPROCUREMENT

opportunity, competition is reduced and theodds improve for the favoured party to win. Oneploy is to publish the notification of biddingopportunities in the smallest, most obscurecirculation source that satisfies the advertisingrequirements, and hope that no one sees it.Cooperative bidders, of course, get informationat first hand.

Competition between bidders can be furtherrestricted by establishing improper orunnecessary pre-qualification requirements andthen allowing only selected firms to bid. Again,pre-qualification, if carried out correctly, is aperfectly appropriate procedure for ensuringthat bidders have the right experience andcapabilities to carry out a contract’srequirements. However, if the standards andcriteria for qualification are arbitrary orincorrect, they can become a mechanism forexcluding competent but unwanted bidders—’unwanted’ because they are not prepared tooffer kickbacks.

Unwanted prospective bidders, who manage tocircumvent these obstacles, can still beeffectively eliminated by tailoring specificationsto fit a particular supplier. Using the brand nameand model number of the equipment from thepreferred supplier may be a little too obvious,but the same results can be achieved byincluding specific dimensions, capacities, andtrivial design features that only a favouredsupplier can meet. The inability and failure ofcompetitors to be able to meet these features,which usually have no bearing on criticalperformance needs, are used as a ploy to rejecttheir bids as being ‘non-responsive’.

Competitive bidding for contracts can onlywork if the bids are kept confidential up untilthe prescribed time for determining the results.A simple way to predetermine the outcome isfor the purchaser to breach the confidentialityof the bids, and give the prices to the preferredsupplier to submit a lower figure that can beadjusted upwards after the contract has beenlet. The mechanics are not difficult, especially if

the bidders are not permitted to be presentwhen the bids are opened.

The final opportunity to distort the outcome ofcompetitive bidding is at the bid evaluation andcomparison stage. Carried out responsibly, thisshould be an objective analysis of how each bidresponds to the requirements of the biddingdocuments, and a determination of which one isthe best offer. If the intention is to steer theaward to a favoured bidder, the evaluationprocess offers almost unlimited opportunities: ifnecessary, and unless prevented from doing so,evaluators can invent entirely new criteria fordeciding what is ‘best’, and then apply thecriteria subjectively to get the ‘right’ results.They are often aided in this process by issuingbidding documents that are deliberately vagueand obscure about what requirements must bemet and how selection decisions will be made.

Cross-border procurement

In international (i.e. cross-border) procurement,the greatest single cover for corruption is the‘commission’ paid to a local agent. It is theagent’s task to land the contract. He or she isgiven sufficient funds to do this without thecompany in the exporting developed countryknowing more than it absolutely has to aboutthe details. This creates a comfortable wall ofdistance between the company and the act ofcorruption, and enables expressions of surprise,dismay, and denial to be feigned should theunsavoury acts come to the surface.

The process also enables local agents to keepfor themselves whatever is left of the handsomecommissions after the bribes have been paid.Much of the commission may have beenoriginally intended for bribing decision-makersbut none of it, of course, is accounted for. Thisgives rise to the practice of kickbacks all alongthe line, with even company sales staffeffectively helping themselves to their em-ployer’s money. If commissions can be rendered

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transparent, it would have a major impact onthis source of corruption. These techniques areonly a brief outline of some of the ways in whicha purchaser is able to corrupt the procurementprocess.

Post-contract corruption

The story does not end with the award of acontract. Indeed, the most serious and costlyforms of corruption may take place after thecontract has been awarded, during theperformance phase. It is then that the purchaserof the goods or services may

l fail to enforce quality standards, quantities orother performance standards of the contract;

l divert delivered goods for resale or for private use; and

l demand other private benefits (trips, school tuition fees for children, gifts).

For his part, the unscrupulous contractor orsupplier may

l falsify qualities or standards certificates;l over- or under-invoice; andl pay bribes to contract supervisors.

If the sellers have paid bribes or have offeredunrealistically low bid prices in order to win thecontract, their opportunities to recover thesecosts arise during contract performance. Onceagain, the initiative may come from either sidebut, in order for it to succeed, corruptionrequires either active cooperation andcomplicity or negligence in the performance ofduties by the other party.

Unscrupulous suppliers may substitute lowerquality products than were originally requiredor offered in their bid. They may falsify thequantities of goods or services delivered whenthey submit claims for payment, and pay morebribes to contract supervisors to induce them tooverlook discrepancies. In addition to accepting

bribes and failing to enforce quality andperformance standards, buyers may divertdelivered goods and services for their privateuse or for resale.

Corruption in procurement is sometimesthought to be a phenomenon found only incountries with weak governments and poorlypaid staff. The ‘most developed’ countries haveamply demonstrated in recent years thatcorrupt procurement practices can become anintegral part of the way in which they dobusiness. Nor is procurement corruption theexclusive domain of the buyer who controls thepurse strings: as we have seen, it can just aseasily be initiated by the supplier or contractorwho makes an unsolicited offer.The real issue, ofcourse, is what can be done about it?

Principles of fair and efficientprocurement

The following principles may go some waytowards ensuring fair and efficient procurement:

1. Procurement should be economical.

It should result in the best quality of goods andservices for the price paid, or the lowest price forthe acceptable quality of goods and services—not necessarily the lowest priced goodsavailable, and not necessarily the absolutelybest quality available, but the best combinationto meet the particular needs.

2. Contract award decisions should be fair and impartial.

Public funds should not be used to providefavours; standards and specifications must benon-discriminatory; suppliers and contractorsshould be selected on the basis of theirqualifications and the merit of their offers; andthere should be equal treatment of all in termsof deadlines and confidentiality, as in all otheraspects.

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3. The procurement process should be transparent.

Procurement requirements, rules, and decision-making criteria should be readily accessible toall potential suppliers and contractors, andpreferably announced as part of the invitationto bid. The opening of bids should be public,and all decisions should be fully recorded inwriting.

4. The procurement process should be efficient.

The procurement rules should reflect the valueand complexity of the items to be procured.Procedures for small value purchases should besimple and fast, but as purchase values andcomplexity increase, more time and morecomplex rules will be required to ensure thatprinciples are observed. ‘Decision-making’ forlarger contracts may require committee andreview processes; bureaucratic interventions,however, should be kept to a minimum.

4. Accountability is essential.

Procedures should be systematic anddependable, and records explaining andjustifying all decisions and actions, should bekept and maintained.

5. Competence and integrity should be upheld atall times.

Competence and integrity in procurementencourages suppliers and contractors to maketheir best offers and this in turn leads to evenbetter procurement performance. Purchaserswho fail to meet high standards ofaccountability and fairness are quicklyidentified as poor partners with which to dobusiness.

International financialinstitution projects

When a project is funded by an internationalfinancial institution (IFI), additional require-ments usually apply:

l A fair chance must be given to allsuppliers/contractors/consultants from all orsome other countries which are suppliersand contractors, usually donor membercountries;

l Suppliers/bidders or contractors from thehost country may sometimes be entitled to apreference expressed as a percentage of thecontract value (World Bank: 15 per cent forgoods contracts; 7.5 per cent for workscontract); this is usually announced in thebid invitation;

l For contractors, there is often a requirementof pre-qualification;

l For consultants, there is usually a ‘short list’of those invited to bid (the list to beprepared by the purchaser, not the fundinginstitution). This avoids expensive pre-paratory efforts by too many consultantswhen only one can get the contract. The‘short list’ must have geographic variety(usually no more than two from onecountry);

l There may be encouragement for foreignconsultants to include consultants from thehost country for at least part of the job; andthere may also be encouragement of jointventures involving foreign and localconsultancy firms.

Acceptance of gifts

Bribes can take the form of ‘gifts’ and ‘gifts’ cantake many forms—a lunch, a ticket to a sportsevent, a Rolex watch, shares in a company, aholiday abroad, the school fees for a child. Someare acceptable; others, which can create a senseof ‘obligation’, are not.

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Evaluations of such practices as ‘corporateentertainment’ may turn on whether or notsupervisors are in a position to monitor theconsequences of their purchasing officers’behaviour. Also relevant is whether a particularpurchasing officer disqualifies him or herself infuture situations where the firm in question isinvolved. Likewise, it will matter whether all thecompanies likely to get the business are actingin similar ways, so that no ‘obligation’ to preferone bidder over another is created.Furthermore, levels of hospitality which areexpected and usual, and which do not give riseto a sense of obligation, can vary considerablywithin the community.

What is clearly unacceptable is wherehospitality given is grossly excessive, such as all-expenses-paid holidays for a purchasing officerand spouse. Less obviously unacceptable aresuch things as lunches or festive presents;though even here, the acceptance of seeminglytrivial gifts and hospitality can, over time, lead tosituations where an official unwittinglybecomes ensnared by the giver.

The dividing line usually rests at the pointwhere the gift places the recipient under someobligation to the gift-giver. This point will differfrom one society to another, but it is usuallydefined in terms of cash (or hospitality) thatmust be reported as being in excess of a givenfigure. Attempts to make distinctions between‘private’ hospitality and ‘hospitality in a publiccapacity’ generally give rise to controversy, andso are best avoided.

The point is that purchasing officers are always‘at risk’ and need to be monitored carefully; anysign that they may be living beyond their meansis an obvious ‘red flag’.

A government should have clear and well-enforced rules about official conduct:

l Officials (and their family members) may not accept anything of value from anyindividual or company in contractual

dealings with the ministry or department forwhich that official works;

l ‘Public disclosure rules’ regarding theassets, liabilities, and income of seniorofficials should be introduced and enforced;unexplained wealth of officials should leadto an inquiry;

l Any suspicion of wrongdoing by anotherofficial must be reported, and officials will beprotected in carrying out that duty;

l Officials in posts involved withprocurement and other contractingactivities should be asked to sign a pledgethat they will not demand or acceptanything of value that in fact or perceptioncould influence the exercise ofgovernmental discretion; and

l Officials will be informed and trained aboutthe application of the rules.

Employment after holdingpublic office

A crucial area of corruption—and one of growingconcern—is the practice of corporationsoffering post-official employment to publicservants with whom they have had officialdealings. Clearly, regulations governing the postpublic sector employment of officials areimportant. It is neither practical nor sensible toinsist that former public officials not engage incommercial activity after leaving office.However,whole networks of corruption can be con-structed by outside suppliers, not only throughcash bribes and expensive overseas holidays, butalso through the promise to officials of lucrativeemployment when they retire.

It is tempting for a public official, blessed withrich work experience but a less than satisfactorypension, to accept employment with formersuppliers. Often, there will be nothing wrongwith such an arrangement. Indeed, it may be aconstructive and useful way to ensure thatvaluable experience is not altogether lost to thecommunity.

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But it is susceptible to abuse, particularly in thefield of public contracting. For example, anofficial who leaves the Public Service may takewith him detailed knowledge of the govern-ment’s impending contract bargaining strategyand the confidential discussions that may havebeen held with competitors of the official’s new,post-retirement employer. In such an instance,neither the public interest nor the private sectoris well served.

The promise of post-retirement employmentcan be used, too, by unscrupulous businesses asa ‘sweetener’ to gain contracts and is one thatwill not show in any monitoring of assets orincome. Although it is neither fair nor desirableto place an absolute ban on reemployment pastretirement, some kinds of employment afterleaving office are clearly contrary to the publicinterest. For example, a Minister or highly placedofficial may leave government service whilenegotiations for a large public works project arepending. Obviously, it would be improper forsuch a person to immediately take upemployment with one of the companiestendering or actively negotiating with thegovernment.

Combating corruption inprocurement

The most powerful tool is public exposure. Themedia can play a critical role in creating publicawareness of the problem and generatingsupport for corrective actions. If the public isprovided with the unpleasant details ofcorruption—who was involved, how much waspaid, how much it cost them—and if itcontinues to hear about more and more cases, itis hard to imagine that people will not come todemand reform.

Government officials around the world arediscovering that taxpayers still think of publicfunds as their money and do not like to see it

wasted. The public, of course, is particularlyunhappy when it sees its money going into thepockets of others as a reward for corruptpractices. Once public support is developed forthe reform of procurement practices, theproblem can be attacked from all sides.

Usually, the starting point will be thestrengthening of the legal framework,beginning with an anti-corruption law that hasreal authority and effective sanctions. The nextis a sound and consistent legal frameworkestablishing the basic principles and practicesto be observed in public procurement.

This can take many forms, but there is increasingawareness of the advantages of having a unifiedprocurement code, setting out clearly the basicprinciples, and supplementing this with moredetailed rules and regulations within theimplementing agencies. A number of countriesare consolidating existing laws, which haveoften developed haphazardly over many years,into such a code.

However, one of the greatest anomalies in thecontext of anti-corruption laws relating topublic procurement6 is that most countriesclearly prohibit bribery at home, but many aresilent when their exporters bribe abroad; someeven reward it through tax write-offs.

At best, this is justified by a misguided notion ofwhat is necessary for successful internationalbusiness; at worst, it reflects a cynical andpaternalistic view of what is good for others.TheUnited States has had a Foreign CorruptPractices Act since 19777 that specifically makesit a crime under its domestic laws to bribeforeign officials to gain or maintain business,even when these events take place abroad.More recently, the OECD Convention onCombating Bribery of Foreign Public Officials inInternational Business Transactions,8 directed atoutlawing international business corruptioninvolving public officials, in essence aims tointernationalize the US approach.

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6 See for example, Financial Management and Accountability Act 1997, and the Commonwealth ‘Procurement Guidelines’ (2005),issued under Regulations made under the Financial Management and Accountability Act.http://www.cipsa.com.au/Page.asp?CatID=300&PageID=870.

7 www.usdoj.gov/criminal/fraud/fcpa.html.8 http://www.imf.org/external/np/gov/2001/eng/091801.htm.


Transparent procedures

Beyond the legal framework, the next defenceagainst corruption is a set of open, transparentprocedures and practices for conducting theprocurement process itself. No one has yetfound a better answer than supplier orcontractor selection procedures based on realcompetition.

The complexity or simplicity of the procedureswill depend on the value and nature of thegoods or services being procured, but theelements are similar for all cases:

l Describe clearly and fairly what is to be purchased;

l Publicize the opportunity to make offers to supply;

l Establish fair criteria for selection decision-making;

l Receive offers (bids) from responsible suppliers;

l Compare them and determine which is best,according to the predetermined rules forselection; and,

l Award the contract to the selected bidder without requiring price reductions or otherchanges to the winning offer.

For small contracts, suppliers can be selectedwith very simple procedures that follow theseguidelines.

However, major contracts should almostinvariably be awarded following a formalcompetitive bidding process involving carefullyprepared specifications, instructions to biddersand proposed contracting conditions, allincorporated in the sets of bidding documents.Such documents may take months to prepare,and many more months may be needed forsuppliers to prepare their bids and for thepurchaser to evaluate them and choose thewinner. These steps commonly take six monthsor more from start to finish. With majorcontracts, procurement planning must be sure

to take these time requirements into account,and start early enough to ensure that the goodsand services will be ready when needed. Anypressures for ‘emergency’ decisions should beavoided.

Opening of bids

One key to transparency and fairness is for thepurchaser to open the bids at a designated timeand place in the presence of all bidders or theirrepresentatives who wish to attend. A practiceof public bid openings, where everyone hearswho has submitted bids and what their pricesare, reduces the risk that confidential bids willbe leaked to others, overlooked, changed, ormanipulated.

Bid evaluation

Bid evaluation in the procurement process isone of the most difficult steps to carry outcorrectly and fairly. At the same time, it is one ofthe easiest steps to manipulate if someonewants to tilt an award in the direction of afavoured supplier.

Evaluators can reject unwanted bids for trivialprocedural matters—an erasure or a failure toinitial a page—or for minor deviations fromspecifications that the evaluators decide aresignificant. After bids are examined, if no one isable to check them, evaluators may discoverentirely new considerations that should betaken into account in choosing the winner. Orthe bid evaluation criteria may be so subjectiveand so lacking in objective qualitative measuresthat the evaluators’ scoring can produce anyresult they wish.

All of this argues for requiring bid evaluationcriteria to be spelled out clearly in biddocuments and for an impartial reviewauthority to check the reasonableness of theevaluators’ actions.The former allows bidders to

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raise objections in advance if they consider thatthe criteria are not appropriate, and the latterprovides additional assurance that anevaluation has been conducted properly.

Independent checks and audits

The principle of independent checks and auditsis widely accepted as a way in which to detectand correct errors or deliberate manipulation,and it has an important place in publicprocurement. Unfortunately, it has also beenused by some officials to create even moreopportunities for corruption. In particular, thedelegation of authority for contract approvals isan area that warrants some discussion.

At face value, the rationale for delegation isconvincing: low-level authorities can makedecisions about very small purchases, buthigher levels should review and approve thesedecisions for larger contracts. The larger thecontract value, the higher should be theapproving authority.

In some countries and organizations, thissystem works without any problems. In others,where contract awards are the main path toriches, it means a graduated payoff can berequired at each step of the way: the higher thepath leads, the larger the percentagesdemanded. Coincidentally, it also means thatthe larger the contract, the longer the delay inreaching any decision.

All this points to a further essential element forreducing corruption: a well-trained, competent,and honest body of civil servants to carry outprocurement. Establishing such a grouprequires a long-term effort, one that is nevercompletely finished. It requires regular trainingand retraining programmes; security in theknowledge that one’s job will not be lost if thewinning contractor is not the one favoured bythe Minister; and at least a level of pay that doesnot make it tempting to accept bribes to meet

the bare necessities of a family. It is commonpractice around the world for would-besuppliers to trap relevant civil servants either bytempting them to breach the rules in minorways or by making them offers they simplycannot refuse (e.g. a scholarship for theirchildren at a university in a developed country).These corrupt suppliers are often experts atundermining the integrity of honest civilservants, and managers need to be on thelookout in order to protect their staff.

If a competent procurement cadre is developed,and there are a number of places where this hasbeen achieved, the chain of approvingauthorities, with its accompanying delays andother hazards, can be reduced to a minimum.

None of this is to suggest that all independentchecks and audits should be eliminated; theyhave an important role. However, there aresome countries where so many review andapproval stages have been built into theprocess that the system is virtually paralysed. Insome, it is impossible to award a major contractin less than two years from the time the bids arereceived.

Open hearings

The experience of a growing number ofcountries demonstrates that a series of well-publicized open hearings can be a particularlyeffective means of spreading information andobtaining stakeholder commitment to a largeproject. For the construction of a new subwayline in Buenos Aires, for example, three largepublic hearings were held at which the Mayor ofBuenos Aires himself laid out the plans andinvited suggestions on such matters as thesiting of the line, the location and design of thestations, and the process for selecting theconstruction companies. The hearings werejudged a great success; they were broadcast liveon local TV and were video-recorded for laterreference.

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Monitoring by civil society

Civil society in a number of countries has beenable to play an active role in monitoring majorpublic procurement exercises and in giving thepublic an assurance that all has gone well.

In such cases, the following criteria shouldapply:

l Monitors should be highly respected people of unquestioned integrity;

l Monitors should possess (or have easy access to) the required professional expertise;

l Where the local members of Civil Society do not possess the required expertise, theyshould promptly contract such expertisefrom outside, including where necessaryfrom overseas; non-availability of expertisemeans that problems may not bediscovered, convincing professionalcorrective proposals could not besubmitted, and the monitors would not gainthe respect of the officials;

l Individual Monitors should not be subject to a veto by government;

l Monitors should have free and unlimited access to all relevant governmentdocuments, to all relevant meetings, and toall relevant officials;

l Monitors should raise issues andcomplaints first with the authorities, and befree to go public, only when no correctiveaction is taken within a reasonable period oftime;

l Monitors should be prepared to offer a limited Pledge of Confidentiality regardingcertain business-type (proprietary)information;

l Monitors should have full access to and review the tender documents, theevaluation reports, the award selectiondecision, and the implementationsupervision reports, technical as well asfinancial; they should participate inmeetings and they have the right to askquestions.

However, it is often the case that civil society isnot able to attract the high degree of expertisethat is required, and arrangements may beneeded to ensure that this can be providedfrom a suitably independent source.

Use of the Internet

Another powerful instrument is the Internet.Against all claims from some quarters thatopenness of certain procurement processinformation would undermine and erode thequality of the process and endanger the entireproject, several countries (Mexico, Chile,Colombia, and more recently Austria) and anumber of major municipalities (e.g. Seoul,Korea) have placed their entire procurementinformation system on the web and allowedfree access to that information.

The Seoul city system, the On-line ProceduresEnhancement (OPEN) for civil applications, wasdeveloped to achieve transparency in the city’sadministration by preventing unnecessarydelays or unjust handling of civil affairs on thepart of civil servants. The web-based systemallows citizens to monitor applications forpermits or approvals where corruption is mostlikely to occur and to raise questions in theevent any irregularities are detected. It gets over2,000 visitors daily.9

Increasingly, all interaction between theadministration and companies doing businesswith it or wishing to obtain contracts, andcitizens in general, will be handled through thismedium. If everybody can check on a real-timebasis which contracts are offered by theprincipal at a given time, under what conditions,and who the competitors are, and what prices they offered, the opportunity formanipulation—and thus the temptation tobribe—is greatly reduced.

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9 http://english.metro.seoul.kr/government/policies/anti/civilapplications/.


‘Blacklisting’

Singapore has adopted a process of blacklistingthose found guilty of corruption in publiccontracting, and of excluding companies fromdoing business with the public sector for anappropriate length of time.

The sanction of ‘blacklisting’ (or ‘debarment’)should be available to the government when itscontracting partners breach ethical andperformance standards. Those found to havebribed, committed price-fixing or bid rigging, orprovided substandard or sub-specificationgoods or services, whether or not in collusionwith any official, should be debarred from futurecontracts with the government, indefinitely orfor an appropriate period of time, and shouldalso be subject to the following penalties:

l Loss or denial of contractual rights;l Forfeiture of the bid or performance

security; andl Liability for damages, both to the

government principal and to competingbidders for the losses they have incurredthrough bidding unsuccessfully.

Companies that have been debarred could bere-admitted after complying with certainrequirements, such as paying damages,terminating the employment of the staff whoactually bribed, introducing an effective no-bribery policy in the firm, and systematicallyimplementing that new policy through acompliance programme.

Debarment is widely practised in the UnitedStates, at both Federal and State levels, for suchcauses as

l conviction of or civil judgment for fraud violation of antitrust laws, embezzlement,theft, forgery, bribery, false statements, or

other offences indicating a lack of businessintegrity;

l violation of the terms of a government contract, such as a wilful failure to perform inaccordance with its terms or a history offailure to perform; or

l any other cause of a serious and compellingnature affecting responsibility.

Contractors are excluded from receivingcontracts, and agencies are not permitted tosolicit offers from, award contracts to renew orotherwise extend the duration of currentcontracts, or consent to subcontracts with thecontractors, unless the acquiring agency’s heador a designee determines that there is acompelling reason for such action. Debarmentsare for a specified term as determined by thedebarring agency and as indicated in thelisting.10

In addition to such countries as Singapore,similar blacklisting (or debarment) strategy isalso practised by the World Bank. The process isdiscussed in detail in a report prepared for theUtstein Group of countries against corruption.11

‘Integrity Pacts’

A recent innovation in procurement is the so-called ‘Integrity Pact’ (IP)12 in which a ‘no bribery’pact is negotiated with the interested biddersfor a particular government contract. The IPprocess begins with a meeting to which allbidders are invited to discuss a possible pact.The contracting body is present at the meeting(unless, of course, the presence of thecontracting body is likely to inhibit the biddersfrom talking freely).

The IP provides for the appointment of anindependent arbitrator to resolve anycomplaints made against parties involved in the

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10 The names of those debarred are placed on the Internet. EPLS is the electronic version of the Lists of Parties Excluded from Federal Procurement and Nonprocurement Programs (Lists), which identifies those parties excluded throughout the USGovernment (unless otherwise noted) from receiving Federal contracts or certain subcontracts and from certain types ofFederal financial and non-financial assistance and benefits; http://epls.arnet.gov/.

11 The aid donor countries; see http://www.u4.no/themes/debarment/main.cfm.12 In an Integrity Pact, the prospective bidders are brought together to discuss the ground rules they will all observe when bidding

for a particular contract. The IP includes a declaration that none of them will promote any of their staff to bribe officials. Theexercise continues until the end of the project, and it is monitored independently. If there are found to be any breaches of theIP, agreed sanctions are imposed on the successful bidder, including a forfeiture of profit in favour of the underbidder;http://www.transparency.org/global_priorities/public_contracting/integrity_pact


process. The arbitrator is given a free hand indeciding if sanctions should be imposed ininstances of alleged malpractice. The precisefunction of the arbitrator and sanctions are setout in the Pact.

If the process receives sufficient support fromthe likely bidders, the text of the IP (as agreedamong those participating) is signed by thehighest-ranking official in the contracting bodyand the highest-ranking representatives of therespective bidding companies. This approachhas been developed by TransparencyInternational, and Transparency InternationalMalaysia might be a possible partner in anysuch exercise in Malaysia.

Using contracts to countercorruption: a New York casehistory

For generations, New York City suffered fromendemic corruption and racketeering in itsconstruction industry. When State and Federalprosecutors, working with the FBI and the NewYork Police Department, undertook a series ofvery successful criminal prosecutions againstthe Mafia during the 1980s, virtually everyindictment included allegations that the Mafiawas profiteering from the City’s constructionindustry through extortion, bribery, bid rigging,labour racketeering, fraud, and illegal cartels.Despite the success of these prosecutions andthe imprisonment of dozens of Mafia bosses,corruption seemed to continue unabated.

The problem was so severe that the New YorkState Legislature refused to provide billions ofdollars in funding to the City’s Board ofEducation for capital improvements to the City’scrumbling school infrastructure, the largest inthe nation with more than 1100 schools servingmore than one million schoolchildren.

State officials were convinced that a majorportion of any monies allocated to the Board ofEducation would end up in the hands of theMafia, or be wasted on bribes and fraud. In orderto overcome this impasse, the City agreed to thecreation of a new City agency, the SchoolConstruction Authority (SCA), with a very activeand well-funded office of Inspector-General toward off Mafia influence and to protect thiscritical investment in the school system. In 1989,the SCA was given $5 billion for newconstruction and major repairs; the budget ofthe Inspector-General was just over $2 millionannually (i.e. less than 0.05 per cent of the total).

The SCA’s Inspector-General set about tacklingthe corruption and racketeering endemic inschool construction. Significantly, this wasaccomplished without new legislation andwithout spending millions of taxpayer dollarson costly preventive measures. The Inspector-General used existing state law and the conceptof civil contract to accomplish its goals, togetherwith simple monitoring and oversight measuresto insure compliance. This effort succeededbeyond anyone’s expectations.

For example, the Inspector-General redraftedthe standard bidding and contract forms toinclude requirements for

l full disclosure of ownership and performance history by each bidder(subcontractors as well as contractors);

l disclosure not only of details of previousarrests and convictions, but also of thepayment of any bribes, participation in anyfrauds or bid rigging, and association withany organized crime figures;

l commitment to a code of business ethics by each bidder; and

l certification that all this information was trueand correct, as well as an acknowledgementthat it was submitted for the expresspurpose of inducing the SCA to award acontract.

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The SCA’s standard contract included arescission clause making the contract subject totermination by the SCA on severe terms if thecontractor provided false information in itsbidding documents. In practice, if a contractorwas found to have lied in his biddingdocuments, or to have engaged in bribery orfraud during the execution of the contract, thecontractor faced not only the termination of hiscontract, but also a legally enforceablerequirement that he forfeit any and all moniesreceived for work already performed asliquidated damages. In addition, he and hiscompany would be disqualified from receivingany SCA contracts in the future.

The information supplied by each contractorwas subject to careful scrutiny by the Inspector-General’s Office, which also performedextensive background checks. Wheneverconcerns arose, a bidder or contractor wassummoned to the Inspector- General’s Office toanswer questions under oath. Any contractorwho refused to cooperate was subject to thetermination of his contracts and disqualificationfrom future work. Any who lied under oathwere, of course, liable to prosecution for perjuryunder the existing criminal law.

Contractors were required to make andmaintain records regarding the work performedfor the SCA for a period of three years after thecompletion of any contract. Such records weresubject to audit and inspection by the SCA. If anaudit disclosed overpricing or overcharging ofany nature and this exceeded one half of 1 percent of the contract billings, then, in addition torepaying the overcharges, the contractor alsohad to pay the reasonable costs of the audit.

Within the first five years of the SCA’s existence,several hundred contractors were barred frombidding on SCA contracts. Several dozencontracts were terminated, and contractorsforfeited many millions of dollars as a result. Allof this was achieved through the ordinary civillaw process with very few court challenges. In

addition, more than a dozen contractors wereconvicted of perjury as a result of falseinformation supplied to the Inspector-General.

More importantly, law enforcement officialsintercepted conversations among Mafiamembers complaining that the process waseffectively denying them access to SCAcontracts. Best of all, the pool of availableconstruction firms increased substantially withthe addition of law-abiding and competentcontractors who had previously declined to bidon school construction work because of theprevalence of corruption and racketeering. Thisincreased competition resulted in furtherreduced costs and even higher quality workoverall.

Finally, in suitable cases, where a contractor wasfound to be unqualified to bid on SCA work orwas liable to have his contracts terminated forreasons of integrity or character, the contractorwas given an option. He could drop out ofcompetition for SCA work, or he could agree tocontinue bidding on, and performing SCA work,subject to close monitoring and oversight by anIndependent Private Sector Inspector-General(IPSIG). The IPSIG, one of a number of qualifiedspecialist firms with expertise in forensicaccounting, law, and investigation, would beselected by, and would report to, the SCA’sInspector-General. However, all of the IPSIG’sfees and costs would be paid by the contractor.The advantages in this strategy areconsiderable, and the fact that the reforms havebeen shown to be effective is reason enough forthe ‘contract model’ approach to be seriouslyconsidered.

Questions of timing

Timing is crucial. Most public servants cannotsay ‘yes,’ but they can say ‘no,’ ‘perhaps,’ ornothing at all. Unreasonable postponement ofimportant decisions is usually the most visibleindicator that a corrupt deal is in the making.

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Procedures, therefore, should have strictcalendars (which although strict, still recognizethat procurement is often subject to frequentbut legitimate delays). If the calendar is notrespected, procedures should provide for analternative decision-making process to make‘blackmail by procrastination’ unrewarding.

Since partners to a corrupt deal are notprotected by law, such illegal deals can takelonger to put together than regular businesstransactions. Dummy companies or money-laundering channels require time to be set up.The arrangements must be both invisible anddeniable. Delivery of the bribe and thepromised reward has to be closely linked,because mutual trust is usually absent. In somecases, officials want to build in elements ofprofit-sharing. Sometimes two or three layers of‘mediators’ are built in to diminish the risk ofexposure of the parties to the deal. Negotiationsare delicate because, at any given moment, oneof the parties may bail out and expose thewhole scheme. All this takes time—time that aneffective regulatory framework will not allow.

Involvement of ‘outsiders’

The role of ‘outsiders’ is basically to hamper thecreation of insider corrupt relationships of ‘trust’during the decision-making and implementationprocesses. Procedures should always focus onkeeping ‘outsiders’ as ‘outsiders’, and not allowthem to be drawn into internal processes. Likeexternal auditors, the ‘outsiders’ should provideexpertise combined with integrity.

Several measures are worthy of mention here:

l Outsiders can assist in preparing bidding documentation (especially independentconsultants with public reputations todefend);

l Outsiders can participate in evaluation (adding an independent ‘audit’ note ofconcurrence or otherwise);

l The contract-awarding committee should comprise persons of known integrity, notnecessarily experts—with participation onthe committees being a post of publichonour and with the members’ own wealthbeing subjected to public scrutiny;

l The contract-awarding committee shouldnot have advance knowledge of theparticular projects for which their servicesmay be needed. There should be morepeople on the list than will be needed at anyone time. During the decision-makingprocess, the committee should be placed ina position where they cannot physicallycontact bidders individually (which mayinvolve their remaining within a controlledenvironment, such as a hotel). If thecommittee cannot make a decision within agiven time, a new session should be heldwith a committee of a different composition;

l The authority executing the works shouldnot have a vote in the bid evaluationcommittee, but rather be available to thecommittee to answer questions; the samegoes for any international consultant whoprepares the bidding documentation;

l Project implementation should be supervisedby a consultant other than the one respon-sible for preparing the bid documentation;

l Special procedures must close loopholeswhereby artificially created ‘cost over-runs’

are met through the national budget, andnot from a foreign loan;

l ‘Cost over-runs’ should only be acceptedwhere supervision reports exist whichidentify the reasons for the higher costs atthe time that these became evident. No expost facto supervision reports should beaccepted. This procedure makes thecontractor responsible for timely reportingof the difficulties encountered.

None of this is a question of morality. It isdirected towards undermining the reliability ofcorrupt deals, and maximizing the risk tooffenders of corrupt deals falling through orbeing disclosed.

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Assessing integrity in public procurement: a Hong Kongchecklist

A Procurement Practices Checklist developed in Hong Kong outlines some areas of potentialcorruption risk in procurement. A ‘No’ answer indicates a potential control weakness requiringfurther investigation.

Policiesl Are there written policies and procedures governing procurement?l Have these guidelines been promulgated and clearly explained to all staff?l Are the procurement instructions regularly reviewed and updated?

Requisitionsl Is there an official requisition for purchases?l Is there a defined approval process for a requisition?l Do all staff concerned know the requisition process?l Is a list of specimen signatures of the approving officers maintained for checking of

authenticity?

Approved Suppliersl Is there a list of approved suppliers?l Is there a prescribed system for the inclusion and/or deletion of suppliers from the list?l Is there a performance appraisal of the approved suppliers?

Quotationsl Are the circumstances for purchasing goods by quotation clearly specified?l Are there safeguards against order splitting?l Are checks carried out to confirm the authenticity of quotations or reasons for non-quotation?l Are random checks performed to ensure the prices obtained for direct purchases are fair and

reasonable?l Are security measures in place to prevent mislaid quotations and unauthorized release of

information?

Tendersl Is complete information given in the tender documents?l Is the tender box double-locked with the keys held separately by two staff members of

appropriate level?l Are there appropriate procedures for opening tenders and criteria for the evaluation of tenders?l Is the tender information kept confidential before a decision is made?l Are unsuccessful bidders notified of the tender result?l Are conditions and procedures in place for the waiver of competitive tender procedures?

Information programmes

Under Malaysia’s National Integrity Plan, publicprocurement is to be rendered rational, open,transparent, and fair. In so doing, publicinformation programmes about procurementwill be needed that address all parties—theofficials who have responsibilities for pro-curement, the suppliers and contractors whoare interested in competing for contracts, andthe public at large.

The messages should highlight the followingpoints:

l The Malaysian government and its agencies possess clearly stated rules of goodprocurement practice which they intend toenforce rigorously;

l Violators of the rules will be prosecuted under the law;

l Officials who indulge in corrupt practices will be dismissed; and

l Bidders who break the rules will be fined,possibly jailed, and excluded from con-

sideration for any future contracts, by being‘blacklisted’.

It should be clear that none of the actionssuggested in this chapter is sufficient by itself tocurb corruption in procurement completely, letalone overnight;however,a coordinated effort onall fronts will have dramatic effects. If anti-corruption laws are strengthened and publicized,if sound and proven procedures and good-quality documents are adopted, if procurementcompetence is increased by training and careerdevelopment, and if everyone knows that thegovernment is serious about enforcing honestand fair practices, change will come.

It must be widely understood that corruption inpublic procurement will not be tolerated, andthat guilty parties will be punished. Experienceshows that although these various actions maynot be able to stop all corruption in pro-curement, they will certainly curtail theproblem. Corrupt procurement is not inevitable.It can be cleaned up, and when it is, the public isthe great beneficiary.

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Miscellaneousl Is the organization’s policy on conflict of interest and staff acceptance of advantages made

known to all suppliers?l Is there clear segregation of duties to minimize the opportunities for corrupt collusion?l Are staff regularly transferred, both for career development and to minimize the potential for

syndicated corruption?

Checklist for assessing integrity in public procurement

l Under the present system, is the public receiving value for money? If not, what needs to be changed to ensure that it does?

l Under the present system, is there fair and open competition between the various bidders? Does each bidder get a fair chance? Is there any evidence of collusion between bidders tomanipulate the outcome of particular bidding rounds?

l Would independent monitoring of selected projects be likely to assist the government in securing value for money?

Documents

PART 3 - UNDP