Trade Capacity Vietnam
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Corruption: Definition and Concepts
What is Corruption
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Definition of corruption (1)
• Corruption has no common international definition.
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• Corruption is as an umbrella term covering a range of
manifestations of corruption, including: Bribery,
Facilitation, Fraud, Collusion, Embezzlement, Abuse
of power/functions, Money-laundering, etc…
What is Corruption
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Definition of corruption (2)
Bribery: To offer, promise or give any undue pecuniary or other
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advantage, whether directly or through intermediaries, to a foreign
public official, for that official or for a third party, in order that the
official act or refrain from acting in relation to the performance of
official duties, in order to obtain or retain business or other improper
advantage.
A bribery offence may also be committed where a person in authority
is aware or suspects that a bribe is being offered, paid, requested or
received, but turns a blind eye to the situation and does not
investigate it or do anything to stop it.
What is Corruption
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Definition of corruption (3)
Abuse of functions: refers to a public employee or public office holder
that is doing something which is illegal or something that the official
has no legal authority to do, in order to obtain a personal economic
benefit or cause an illegal damage to others.
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Collusion: is an agreement, usually secretive, which occurs between
two or more persons to limit open competition by deceiving,
misleading, or defrauding others of their legal rights, or to obtain an
objective forbidden by law typically by defrauding or gaining an unfair
advantage.
What is Corruption
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Definition of corruption (4)
Embezzlement: Embezzlement is the fraudulent appropriation of
money or property by a person entrusted to safeguard the assets in
another's interests.
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Facilitation Payments: Facilitation payments are a form of bribery
made with the purpose of expediting or facilitating the performance
by a public official of a routine governmental action and not to obtain
or retain business or any other undue advantage.
What is Corruption
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Definition of corruption (5)
Fraud: usually occurs where a person dishonestly makes some false
representation in order to gain some financial or other advantage or in
order to cause a loss to another person. In this case, a person is acting
“dishonestly” if he makes a representation knowing that it is, or might
be, untrue or misleading.
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Money Laundering: Money laundering is a process whereby the
identity and origin of illegally obtained money, such as bribes, are
concealed or disguised.
What is Corruption
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Various categorisations of corruption (1)
Corruption in terms of impact circles of enterprises
Manifestations:
Corruption within the
company
Baord Management,
Employees,
Owners,
Forms of corruption:
 Fraud
 Conflict of interest
 Insider trading
 Bribery
Competitor
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Authoritiey, Political
parties, Civil society,
Corruption in the value chain
Corruption in the extented
commerce
Corruption in the social
environment
What is Corruption
 Extortion
Money laundering
Suppliers, Customers,
Service,
 Collusion (e.g, Illegal
cartels)
 Undue influence
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Various categorisations of corruption (2)
Active Corruption
Passive Corruption
Act of Corruption
Offering, promising or
giving (e.g.bribery,
advantages granted)
Request or acceptance
(e.g. bribery, acceptance of
benefits)
Business Relationship
Business to Public
Institution
Business to Business
Direct Corruption
Indirect Corruption
Direct Connection to the
counterpart
Use of middlemen or
organizations
Way of Performing
What is Corruption
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Types of Corruption (in India)
• Systemic: Routinely dominated to sustain
economic/social or political system. Regularly prevalent
with no alternatives
• Sporadic: Irregular and individual based, No threat to
control mechanisms or economy
• Political: Unfair transactions between political and
private parties (High level corruption), Abuse of law and
regulations leads to misallocation of resources
• Grand: Synonymous to political corruption, High level
corruption in policy formulation
• Petty: Everyday corruption affecting common man,
prevalent in implementation end of politics like small
scale, bureaucratic decisions
What is Corruption
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Causes of corruption (1)
Corruption does not happen spontaneously.
Someone will engage in corruption only if the potential
benefit is high and the risk of getting caught is low.
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Classical example:
A low level bureaucrat who does not get paid enough to
support his or her family would be very tempted to accept
bribes to supplement his income if he or she believes that
there is very little chance of getting caught.
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Causes of corruption (2)
Robert Klitgaard’s formula explaining how corruption
happens:
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C=M+D–A
•
•
•
•
C: Corruption
M: Monopoly
D: Discretion
A: Accountability
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Causes of corruption (3)
Factors that contribute to corruption:
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• Involvement of Public Institutions
• Lack of transparency and
accountability
• Lack of competition
• Cultural determinants
Factors that increase the likelihood of
encountering corruption:
•
•
•
•
•
•
•
Country corruption
Corporate corruption
Corrupting pressures
Corrupting incentives
Lack of adequate corporate controls
Lack of adequate salaries
Lack of knowledge
Companies felt that in most cases corruption was able to take place because of:
• Ignorance and lack of information
• Fear of reprisals
• Lack of effective enforcement of existing legislation
What is Corruption
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Causes of corruption (4)
Sources of corruption include:
• Lack of transparency and accountability in the public
sector
• Lack of transparency and accountability in the private
sector
• Poor regulation of political contributions
• Low public sector wages
• Weak enforcement of laws and regulations
• Lack of free and independent media
• Excessive discretionary authority of public officials
What is Corruption
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Root Causes of Corruption in India
•
•
•
•
•
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Poor Incentive Structures
Desire for an unfair advantage
Lack of Transparency
Lack of Punitive Measures (law enforcement)
Problems with the law; lawlessness or overregulated
governance
• Dysfunctional Systems
What is Corruption
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Corruption in India: possible Causes
• Confusion of confused Nehruvian Socialism- 5 year planning,
Mixed economy led uneducated politicians control on
economic policies, scattered administrative institutions
resulting in slow decision making and pending approvals,
“Neta-Baburaj”
• Hypocrisy of current Liberalism
• Weak and ineffective local governments
• Lose control on state government from Centre
• Vote bank politics
• Low income levels of government officials
• High involvement of politicians in administrative proceedings
• Inclination towards convenience
• Lack of Knowledge related to laws and rights
What is Corruption
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Why do employees commit corruption?
Crucial
Person
Problem
Personal
assessment
Influencing factors:
 Benfits
 Costs
 Probability of
occurrence
Societal
expectations
Decison
Influencing factors:
Pressure from the:
 Workimg environment
 Privat environment
 Public space
Commit
Corruption
Profitability
Employee
Corruption
Societal Pressure
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Setting
Refrain
from
Corruption
Influencing factors:
 Ethical values
 Knowledge of negative
consequences
 Integrity
Based on Esther Pieterse / HUMBOLDT-VIADRINA, Employees facing corruption: Aligning anti-corruption measures to the influencing factors of decision-making, 2013
What is Corruption
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Personal assessment: Profitability
 Benefits: monetary and non-monetary benefits such as a bribe, salary increase, (perceived)
promotion, improved relations with supervisors or business partners or the realization of other
personal preferences.
 Cost: all monetary and non-monetary losses incurred by the employee in case of discovery of
the corrupt act, e.g. Penalties from your own pocket, imprisonment, loss of job, withdrawal of
the professional licence.
 Probability of occurrence: the probability to be discovered. This is, inter alia, influenced by a
knowledge of internal controls and the level of law enforcement, but also by the size of the
contract, the number of people involved and the degree of transparency in procurement.
Profitability = Benefits - (Costs x Probability of Occurrence)
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 All three Influencing factors depends on personal perception.
 Profitability must be positive, so that it may come to a corrupt decision.
What is Corruption
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Personal assessment: the setting
 The decision to act corruptly is not driven exclusively by weighing costs and benefits
emotionlessly.
 Ethical values​​: strongly influenced by culture, religion and education; ethical values ​depend
strongly on the social context in which the employee moves.
 Knowledge of negative consequences: the understanding of the employee to the damage
caused to third parties through the corrupt act  interviews with convicted offenders of corrupt
acts often lack the perception of what damage their actions lead to ("victimless crime").
 Integrity: compliance of the words and actions of the employee. People with low integrity act
opportunistically while people with high integrity act in accordance with their principles..
 Setting can vary from clear rejection to tolerance.
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The setting consists of "soft" influencing factors which are difficult to quantify and
influence.
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The art of rationalization
Why are employees involved in corruption, if they reject it personally?
 Employees usually (consciously or unconsciously) have a rationalization strategy to justify
their own actions.
 Rationalization means that an individual finds a strategy to apologize an unethical action
(e.g. corruption) for himself and others morally, e.g.
o “I‘m not getting enough content for the work i‘m doing”.
o “If I don‘t do it my company will not get the contract and have to dismiss people”.
o “If I disregard corruption it doesn‘t make any difference anyway”.
o “Corruption hurts nobody”.
 Studies have shown that the smaller the advantage of an unethical act, the easier it is to
excuse the act morally for the individual.
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 Societal pressure has a strong influence on the ability to rationalize unethical behaviour
(“They are all doing, so why you don’t?").
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Influencing factors
Target
Reduce Profitability
Reinforce negative attitude towards
corruption
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Increase social pressure against
corruption

Reducing benefits

Increase costs

Increase probability of occurrence

Strengthen ethical values

Increase awareness of the negative
consequences

Strengthen integrity

Increasing pressure from the working
environment

Increasing pressure from private environment

Increase public pressure
Companies should, based on a risk assessment, design their anti-corruption measures so
that they can effectively influence the decision-making processes of their employees (and
not only paying attention to the reduction in profitability).
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