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A growing epidemic

by Thomas Schellen

When World Bank President James Wolfensohn opened the annual meetings of the World Bank and International Monetary Fund last month in Dubai, he said the world was out of balance, with one sixth of the global population controlling 80% of global GDP and the divide between rich and poor nations ever increasing. The head of the cornerstone institution for global finance felt the need to remind the assembled central bank governors and officials that world leaders had agreed to the goals of the United Nations’ Millennium Declaration in 2000 in order to address the world’s most pressing inequalities. UN member nations committed themselves to targets on improving provisions for health, education, equal opportunities for women and to cutting global poverty in half by 2015. To do so, developed countries pledged to open markets and increase aid, Wolfensohn said, while “developing countries promised to strengthen governance; create a positive investment climate; build transparent legal and financial systems; and fight corruption.”

When asking why many developing countries are not on track towards fulfilling the goals of the UN’s Millennium Declaration, Wolfensohn gave the answer himself. “Part of the reason is that reform is not happening fast enough in the developing nations,” he said. “There is still too much cronyism and corruption. In nearly every country, it is a matter of common knowledge where the problems are and who is responsible. Frankly, there is not enough bold and consistent action against corruption, particularly at the higher levels of influence.”

The reminder could not have been timelier for Lebanon. Over the past two months there has been much talk over several highly publicized cases involving corruption. The Al Madina banking scandal, the judicial investigation of former agriculture minister Ali Abdallah, and the outcry over funds that have disappeared at Electricite du Liban. Each charge involved allegations of corruption at high levels of influence. On the sidelines, the arrest and temporary detention of lawyer Mohammed Mugraby in August was decried by his supporters as an attempt to stop Mugraby from fighting corruption in the Lebanese legal community.

The standard definition of corruption is the abuse of public trust for illicit private or personal gain. This implies that the problem tends to manifest itself where the interaction of a public official with an enterprise or citizen opens the opportunity for improper conduct and illegal financial gain. As a rule, corrupt deals between the private sector and public servants involve a bribe giver and bribe taker. The initiative to embark on such criminal activity can originate from either side. Demand driven Ð the official whose responsibility it is to issue a permit or evaluate a project bid presents himself as unresponsive or slow, until his abilities are boosted with a bit of monetary medicine. In the most obvious and blatant cases, the bribe demand is blunt and explicit. On the other hand, the corrupting process may originate from the business end of the relationship. The corporation bent on acquiring a lucrative public project uses bribery, as a means to get a contract it might not win in fair and square bidding. In this example of supply-driven corruption, the criminal enterprise may explore the possibility of soliciting a public official by shelling out innocent gifts, which over time evolve into more and more lavish and potentially compromising favors that establish ties of complicity.

Beyond small-scale bribes there is of course high-level corruption, which can seriously damage a nation’s reputation, development and fiscal balance. Take for example Ferdinand and Imelda Marcos who plundered the Philippines; Nigeria’s Abacha regime which stole billions of dollars from the people of Nigeria; and Peru’s former president Alberto Fujimori who is wanted by his country’s prosecutors who claim he enriched himself from weapons deals and aid contributions while in office until 2000.

In these cases the sums of money in question are often hard to quantify. A declaration by African anti-corruption activists in 2001, estimated that corruption damages in Africa amount to anywhere between $20 billion and $40 billion. The Nyanga Declaration stated that this figure had “over the decades been illegally and corruptly appropriated from some of the world’s poorest countries, most of them in Africa, by politicians, soldiers, businesspersons and other leaders.” The declaration has since been quoted by a UN global study on illegal transfers.

The UN study, prepared at the beginning of 2003 for the committee deliberating on the world body’s impending Convention Against Corruption, listed some of the heads of governments and their families who plundered national resources, investing the money abroad. Mobuto Sese Seko pilfered $5.5 billion as president of Zaire, outdoing the Abacha regime’s estimated siege of over $2 billion; HaitiÕs Jean-Claude Duvalier transferred more than $120 million in presidentially embezzled funds out of the country, which is one of the poorest in the world. $227 million went amiss under Peru’s Fujimori government; the brother of former Mexican president Carlos Salinas raked in a fortune of $120 million as result of corruption, while Argentina’s Carlos Menem, left his country owing $90 billion.

Other reports on corruption in Africa suggest that, as a rough rule of thumb, a 5% bribe of a $200 million contract would get the personal attention of a head of state, while a government minister would be in the game at about one tenth of that. Nigeria’s problem is so chronic that the international community has suspended loans to the West African state.

These amounts are sharply set apart from the pots of petty corruption in the lower half of the corruption sphere. Here, you may be talking as little as a $1 bribe for a village official in an impoverished nation, or as much as $1,000 in exchange for gaining a contract to haul a company’s garbage or landscape the city parks in a G7 country. This realm includes anything from slipping a traffic cop a $20 bill rather than paying the $150 speeding fine, buying the city inspector a cozy lunch while the building crew pours that slightly doubtful looking concrete, the police detective enjoying himself “on the house” with the escort service – to a price fixing deal between the supplier of medical syringes and the purchasing manager in a public or private hospital.

In addition to dissecting these universally present layers of what has been called the “culture of corruption,Ó international corruption fighters Ð most vociferous among them the non-governmental watchdog organization, Transparency International (TI) Ð have been attacking specific cases of corruption such as that found in the global diamond trade, party financing, and money laundering. There is no indication that this web of grand and petty corruption, bribery, graft, and criminal egotism will shrivel up anytime soon, or that some countries and institutions are immune to the plague. The European Union, where six of the world’s ten least corrupt countries are located, has just been embattled by a $6 million corruption scandal at the Eurostat statistics institution and allegations of corruption in other departments. A glance into the pages of any respectable newspaper proves that corruption is one of the most frequently exposed evils to surface in media reports between Beijing and Cape Town, from Munich to Miami. The Enron scandal, showed that investor confidence can be maintained if corruption is dealt with immediately and swiftly.

In Lebanon, the general awareness of the existence of corruption appears to be nothing short of pervasive. “Corruption definitely exists in this country,” said a member of parliament who won his seat as an independent. “Even more, it is a requirement. The system here will reject anyone who doesn’t agree to be involved in a network of corruption.” As many local politicians will point out, corruption is found anywhere, said Yehya Sadowski, a political science professor at AUB. “The difference is that in most countries, you can reap revenue from corruption but you still have to deliver something. In many Middle Eastern countries, it is often a transfer of income without the bribe taker having to deliver anything,” he said.

From business leaders, journalists and consultants to financiers Ð Executive encountered no one who would deny the existence of corruption in Lebanon. The question, “does corruption exist in Lebanon” typically led to one of two initial responses; laughter, or a resounding “No!” of the type that a grownup would answer a five-year-old who asked: “Didn’t Santa Claus look just like uncle Joseph in Santa’s suit this year?”

The harder question is how prevalent corruption is in this country. Pundits claimed that the former minister of agriculture, Ali Abdallah, is being investigated for embezzlement of agricultural aid funds because his greed became too excessive, eventually grating the political circles that had previously tolerated his activities.

In the course of the Al Madina banking scandal, allegations of money laundering piled up on accusations of embezzlement and check fraud, standard financial crimes which the country’s financial and judicial authorities are usually more than keen to prosecute. As the Al Madina case dragged on for the better part of the past year, observers have repeatedly crowed that Lebanon’s central bank should have stepped in much earlier, and hinted at political interference in the investigation.

In the often-murky reports of the daily press, the case against Al Madina was supposedly even about to be suspended at one point this summer because the financial damage had been contained, and the file sent back to the Special Investigation Commission at the central bank. Amid the outrage, the central bank quickly clarified that it was only updating the information for the prosecutor’s office, and the office confirmed that the investigation into the criminal offenses was continuing.

Undeniably, the current policies and practices on informing the Lebanese public about cases of alleged or proven corruption, leave much to be desired. Accountable and transparent procedures in addressing the issue of corruption, evaluating its extent and exposing individual cases are imperative for improving the public perception that corruption is being fought. But Lebanon is at least not the last country to be in the dark. On a global scale, the fight against corruption is a recent one. Measuring and comparing the infestation of corruption country by country as a tool to strengthen the fight against this scourge has been a project that TI initiated first in 1995. By introducing the Corruption Perception Index (CPI), TI has significantly increased awareness of the issue and countries with a low score for good practice, such as Nigeria, have become bywords for countries that are bad for business. In many nations, TI’s CPI has become a widely used instrument of alarm that helps responsible officials and civil society groups in their fight against the syndrome. However, Lebanon until now had not ranked in the CPI, leaving it up to every person to guess where the country might stand in the global ranking. Lebanon’s corruption is of “Nigerian proportions,” suggested Sadowski, and the country should set itself a goal to reach the standard of China for its level of corruption in global comparison.

Here comes the good news. Starting this year, Lebanon will be included in the CPI, and there will be no more guessing about how the country is being perceived, based on the compounded findings from at least four studies sponsored by international agencies and independent consultants. TI set the release date for the 2003 CPI, rating 133 countries including Lebanon, for October 7. Although the exact ranking for Lebanon was not available at time of going to print, Executive learned that Lebanon will not score the lowest.

Whatever the score, some people will certainly be disappointed.

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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