Globalisation of Corruption

People’s greed has increased the tendencies for corruption to be globalized (Neild, 2002). Kalinde (2003), Mbaku (1998) and the Strait Times (18 March, 2003), argue that for the past 10 years, the extent of corruption has been rising. This is supported by Euro Money Magazine (September, 1996, p. 2) that:

“Corruption has been going up geometrically over the past 10 years”

The International Monetary Fund [IMF] reported in over five years more than $4 billion had gone missing in Angola (Sunday Times, Johannesburg 27 October; 2002). Similarly, the Angolan government is yet to account for about $1 billion oil money that vanished from the state treasury yearly (Financial Times, 2 September, 2002; African Confidential, 21 February, 2003). In Bangladesh, the cost of corruption amounted to $745 million dollars in 2002 with the police taking the lead (Agence France Presse, 1 April, 2003). In Mexico every year, about 23.4 billion pesos (US$2.16 billion are paid in kickbacks for public services (Crnica, 13 March 2003). Similarly, the Moldovan businesses pay one billion lei (71.4 million dollars) a year in bribes to public functionaries to work normally and bribery and corruption is estimated to cost private citizens at least 2.8 billion dollars a year (BASA, 28 February, 2003). In Central America – Guatemala, Honduras, Panama and Nicaragua – corruption has taken a new turn under the region’s fledgling democracies and it has become more corrosive than any time in recent memory (The New York Times, 25 February, 2003).

In Nigeria, N23 billion was stolen from the public till by ten Federal Ministries in the 2001 financial year (Newswatch, 24 February, 2003). If this amount was stolen in only 12 calendar months, how much then must have been stolen before and after the audit?

In the same vein, the Philippines’ Government lost 95 billion pesos about (US$1.889 billion at PhP 50.034 = $1), in 2001 because of corruption which included kickbacks from lax in government procurement deal (Manila Business World, 3 June 2002). Consequently, the government of Philippines lost $48 billion because of corruption over a 20 year-period (The World Bank 2000). Morgan Stanley Research estimated that losses from corruption in Philippines totaled $204 billion from 1965 to 2001 (Philippines Daily Inquirer, 14 October 2003).

In Russia, corruption also took a toll, costing the economy 30–36 billion dollars [between 10 and 12% of gross domestic product] yearly (The Moscow Times, 22 May, 2002; RIA and Novosti, 21 February, 2003). Moran (2001) opines that corruption perpetrated by state officials in recent years is alleged to have taken from the Russian economy more than $100 billion especially from mineral industries, gas and oil.

In the United States, 100 cases of corruption were uncovered because of foreign bribes for contracts totalling up to $45 billion (Thomas and Theil, 2002). Also, it was revealed that about 2000 contractors were awarded various contracts in Iraq worth $1.9 billion by the U.S. from the Iraqi fund and the oil-for- food fund (Washington Post, 5 August 2004).

Over the years in Zimbabwe, it is feared that more than $44 billion have been embezzled through dubious circumstances and corrupt deals (The Daily News, 20 September, 2002). Furthermore, it is important to highlight how globalisation and extent of corruption could be seen from the World Bank projects perspective in developing countries.

Case study of corruption in World Bank Projects in developing countries
This section explores the extent of corruption in World Bank projects with a case study of corruption. Also it discusses the extent of capital flight from developing to developed countries.

Dr. Peter Eigen, now Chairman of Transparency International [TI] in Germany, worked for the World Bank for 25 years and rose to senior programme manager. He was stationed in Nairobi, Kenya, East Africa, before quitting and becoming one of the founding members of TI, a decade ago. Professor Eigen left the World Bank because the Bank failed to tackle corruption. The World Bank told him emphatically that ‘fighting corruption was not part of its mandate’. He then resigned from the World Bank and started his campaign against corruption known as ‘Transparency International’.

What caused the World Bank to drag its feet and fail to nip corruption in the bud then? Does this have any bearing on what erudite scholars such as Moody-Stuart (1997) and Stiglitz (2002) pointed out: that no one knew what was happening in the World Bank’s revolving doors?

Several World Bank projects failed due to corruption and the World Bank’s study of states’ audit in Nigeria, found many institutions weak with no proper accountability (Akintunde and Ogunwale, 2005). Similarly, six Nigerian companies and two Burkina Faso consultants were involved in corrupt violations of World Bank procurement and consultancy guidelines and they were permanently banned from bidding for future contracts (Daily Sun, 22 August 2006). Consequently, the Budget Monitoring and Price Intelligence Unit (BMPIU) confirmed that due to rampant abuse of procedures for award of public contracts, inflation of contract costs and lack of transparency frauds and malpractices arising from manipulation of contract procedure, Nigeria is losing about N40 billion annually (Akintunde, 2005; Aderinokun, 2006). A typical example of World Bank project corruption in Nigeria was an educational project where the World Bank paid $2,200 for 18 cups of tea (Daily Sun, (Nigeria) 22 August, 2006). Also, the same World Bank contracts manipulation was found in Kenya (Kelly, 2002), and other developed, transitional and developing countries (Daily Sun, (Nigeria) 22 August, 2006). From these facts, it can be argued that the World Bank projects have always recorded corruption not only in Africa but other parts of the world. Generally, bribes influence decisions wrongly, inflate costs and delay completion of many projects because of revaluations and cost overruns (Daily Sun, 22 August, 2006).

The World Bank identified mis-procurement in its funded projects of a total contract value of $37 million. According to the World Bank (1999), it finances about 45,000 contracts annually amounting to $25 billion – $40 billion. The audit reports similarly identified some weaknesses in financial management in procurement practices, which encouraged fraudulent and corrupt practices from the borrowers included lapses in the system, poor procurement practices, fraud and corrupt practices from borrowers. For example, between July 2003 and March 2004, 18 cases of fraud or corruption affected the Bank’s projects in Argentina, Paraguay and Lesotho (The Financial Express, 14 May 2004). Also Professor Jeffery Winters revealed that the World Bank lost about $100 billion of its loans to corruption, and it approved $550 billion loan over the past 60 years for about 9,700 projects worldwide, of which 1,800 are extant (Daily Sun, 22 August, 2006).

Middle East and North Africa Region had the lowest at three. Similarly, at the end of June 2005, the integrity department of the World Bank had received 244 open cases of corruption (Ghanaian Chronicle, 16 December, 2005). This does not mean that misappropriation of the World Bank’s project funds does not take place in other countries, but this report is a sample of what goes on in other developmental projects globally. It is important to highlight that these regions where the World Bank discovered serious reported cases of mis-procurement, fraud and corruption from borrowers, are where there were reported cases of collusion by the Bank’s staff and the officials of the home country.

Initially, the World Bank was unwilling to tackle corruption (Eigen, 1999; Financial Times, 13 October 2003; Financial Times, 21 July 2004; Stiglitz, 2002). Corruption has been identified in various projects of the World Bank (Hancock, 1989; Moody-Stuart, 1997; Stiglitz, 2002). Some researchers such as Stiglitz (2002) and Williamson (2002) have established that corruption is increasing, worsening and equally taking its toll not only in developing but in developed countries. According to Azmi (2005), Finer (2003), Hancock (1989), Stiglitz (2000) and the World Bank has continued to fund projects in countries where corruption is prevalent, for example, in Angola, Democratic Republic of Congo, Indonesia, Kenya, Philippines, Nigeria. Similarly, Nordin and Baker (2004) point out that between 1970 and 2002, the World Bank and the IMF disbursed $232 billion to Indonesia, about $94 billion to the Philippines; Nigeria received $28 billion and DRC (Zaire) got $10 billion. Azim (2005) confirms that:

“Hundreds of billions of dollars in direct and indirect, bilateral and multilateral loans and grants have hardly made a dent in Third World poverty.”

“For every $1 the west distributes in assistance across the top of the table, we take back some $10 in illegal proceeds under the table
(Nordin and Baker, 2004)

Senator Lugar of the U.S argued that between 5 % and 25 % of the $525 billion that the World Bank has lent since 1946 has been misused (Australian Broading Corporation, 14 May, 2004). Because of incidents of corruption in the World Bank projects, the World Bank barred several firms from many developed countries for using bribes to obtain contracts (Hawley and Philips, 2004). Classic examples are Acres, a Canadian firm which was convicted for using bribes to obtain a dam contract in Lesotho, and 85 other companies (Hawley and Philips, 2004). According to an associate professor at Northwestern University, World Bank corruption has wasted about $100 billion; when other multilateral development banks are included, the total rises to about $200 billion (The Financial Express, 14 May, 2004).

Capital flight/money laundering

The past decade has witnessed capital flight from developing to developed countries due to lack of control and necessary checks. Rampant corruption has helped in the facilitation of flighting capital/money laundering from developing and transitional to developed countries. According to Bivbere (2002), the reasons for capital flight range from economic to non-economic reasons. This development is causing grave concern because it means that countries are forgoing their potential investment (FitzGerald and Cobham, 2000). Capital flight is defined by Schineller (1997b, p. 1) as:

“International capital movements which respond to heightened domestic economic and political uncertainty. Capital flight responds to the degree of domestic macroeconomic mismanagement, postulated to generate a domestically undiversifiable risk that can significantly reduce the returns to investment.”

The misappropriation and looting of the public treasury became rampant with various heads of state [dictators] in developing and transitional countries. As a result, many countries were affected economically and the citizenry also affected through reduction of welfare, bad investment climate, debt accumulation arising from the direct impact, inflation, reduction of standard of living and exchange rate.

The developed countries act as safe haven and encourage the plundering and laundering of public funds by corrupt leaders of developing and countries in transition (Nwankwo, 1999). These are the examples of leaders that have on various occasions wrecked their countries economically by siphoning large amounts of money to foreign banks: Bokassa of Central African Republic, Roh Woo of South Korea, Alvarex and Portillo of Mexico, Bhutto of Pakistan, Suharto of Indonesia, Vladimiro Montesinos of Peru, Marcos of the Philippines, the Shah of Iran, Trugillo of Columbia, Said Papa and Baby Doc of Haiti, Somoza/Aleman of Nicaragua, Fernando Collor de Mello of Brazil, Gnassingbe Eyadema of Togo, the late Samuel Doe and Charles Taylor of Liberia, Banbagida, the late Abacha and their cohorts all of Nigeria (Christian Science Monitor, 9 August 2004; Nwankwo, 1993, p. 231; 1999). These leaders corruptly enriched themselves with billions of dollars (Moore, 1997). For instance, Mobutu peculated £2.4 billion, with at least 20 known properties in ten countries worth an estimated £23 million (Moore, 1997, p. 47). Nigeria’s Abacha raped the nation’s treasury empty by misappropriating innumerable billions of dollars (Asia, 2001; Nwankwo, 1999). The capital flight from Russia approximated $50 – 70 billion (Moran, 2001). Moran failed to mention whether the capital flight was recent or in the past. Short (1999, p. 2) opined that:

“Developed countries have the responsibility to root out sources of corruption and be ready partners in assisting the tracking and reclaiming of funds looted from developing countries.”

Capital flight in Nigeria during Shagari’s administration from 1979 – 1983 amounted to $15 billion (Falola and Ihonvbere, 1985; Osaghae, 1985; 1998). Nigeria’s case is interesting judging from the analysis of the Wall Street Journal of 1986. For instance, the breakdown of the total amount believed to have been lost between 1972 and 1989 was $22.98 billion, in 1995 $15.7 billion and between 1993 and 1999 it skyrocketed to about $91.83 billion (Bivbere, 2002). But the $10 billion published by the Wall Street Journal does not tally with Bivbere’s figures. Between 1972 and 1986 in retrospect, more than $10 billion must have been funneled out of Nigeria. Moody-Stuart (1997) pointed out that obtaining detailed information on the precise capital flight of a country is difficult. That is even one of the reasons why monies funneled from developing to various developed countries have been tolerated. Short (1999) argues that:

“We should also recognize that the flow of corrupt finance is a cycle. Deposits of corruptly acquired money are returned to financial institutions in richer countries. We are implicated at all stages of the cycle.”

The UN Industrial Development Organization report released in July 2004 stated that: “Nigerians stash $407 billion abroad” (Adesina and Madunagu, 2004). This is supported by the $17 billion which some governors in Nigeria were alleged to have siphoned to foreign banks (IRIN, 2005). Indonesia, Nicaragua, Peru, Nigeria and Republic of Congo [formerly Zaire] are classic examples of countries where money has been laundered. For instance, in spite of the $14 billion external debt accumulated by Mobutu and his cronies, at the same time they extracted $18 billion from the Congolese treasury capital flight (Ndikumana and Boyce, 1998). According to the U.S federal agencies, US $300 billion is laundered annually in Russia. It would be difficult to account for monies siphoned to foreign banks from the developing countries, since the recipient countries do not reveal people’s accounts. The UN anti-corruption treaty must have urged Britain to arrest two state governors from Nigeria who laundered more than £3,000,000 in Britain.