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TRIC Public Lecture Combating Corruption in Procurement. Transnational Research Institute on Corruption (TRIC). Global Context. Poor countries Rich countries Rich companies operating in poor countries. Unit of analysis?. Global Context. Corrupt Societies Corrupt Organisations

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tric public lecture combating corruption in procurement

TRIC Public LectureCombating Corruption in Procurement

Transnational Research Institute on Corruption (TRIC)

global context
Global Context
  • Poor countries
  • Rich countries
  • Rich companies operating in poor countries

adam.graycar@anu.edu.au

slide3
Unit of analysis?

Global Context

  • Corrupt Societies
  • Corrupt Organisations
  • Corrupt Individuals
  • Corrupt Events

http://tric.anu.edu.au/

johnston s syndromes of corruption
Johnston’s syndromes of corruption
  • Influence markets
  • Elite Cartels
  • Oligarchs and Clans
  • Official Moguls (Johnston 2005, p.40)

http://tric.anu.edu.au/

case studies equipment procurement
Case Studies: Equipment Procurement
  • An FBI security specialist approved a $2 million contract to upgrade shredders in return for a Caribbean family cruise.
  • The cruise was worth $7,500.

(Roberts 2010)

adam.graycar@anu.edu.au

case studies infrastructure procurement
Case Studies: Infrastructure Procurement
  • A Swiss-based subsidiary of the French telco Alcatel contracted consultants to perform vaguely described marketing services, which included paying more than $US7 million to seven Costa Rican officials.
  • In December 2010, Alcatel was fined $US137 million
  • (Verrender 2011)

adam.graycar@anu.edu.au

case studies defence procurement
Case Studies:Defence Procurement
  • Darleen Druyun, a USAF procurement official inappropriately managed contracts with Boeing before taking a job as Vice-President with them
  • Druyun was jailed and Boeing fined $615 mil

(Roberts 2010)

adam.graycar@anu.edu.au

case studies politics procurement
Case Studies: Politics & Procurement
  • The former Taiwanese President Chen Shui-Ban and his wife sentenced to life for complex corruption issues including procurement.
  • Chen accepted $US 3 million in kickbacks for helping a contractor gain a government project.

(BBC News 2009)

adam.graycar@anu.edu.au

slide9
MASP
  • Methods
  • Activities
  • Sectors
  • Places

http://tric.anu.edu.au/

m ethods
Methods
  • Bribery
  • Extortion
  • Misappropriation
  • Self-dealing
  •  Patronage
  • Abuse of discretion
  • Creating or exploiting conflict of interest
  • Nepotism, clientelism and favoritism

etc

http://tric.anu.edu.au/

a ctivities
Activities
  • Appointing personnel
  • Buying things (Procurement)
  • Delivering programs or services
  • Managing disasters
  • Making things (Construction / manufacturing)
  • Controlling activities (Licensing / regulation/ issuing of permits)
  • Administering (justice for example)

etc

http://tric.anu.edu.au/

slide12

Sectors

  • Construction
  • Health
  • Tax administration
  • Energy
  • Environment & water
  • Customs & Immigration
  • Legal system etc

Places

  • Countries
  • Regions
  • Localities
  • Work places

etc

http://tric.anu.edu.au/

masp applied to cases
MASPApplied to Cases

adam.graycar@anu.edu.au

siemens
Siemens

BANGLADESH

  • 2004-2006, Siemens paid approx $5.3 million in bribes to Bangladesh officials for contract with the Bangladesh Telegraph & Telephone Board to install mobile telephone services.
  • The total value of the contract was approximately $40.9 million.
  • Ultimate recipients included the Minister and Prime Minister

NIGERIA

  • Siemens COM paid at least $4.5 million as bribes for four telecommunications projects with Nigerian government customers, including Nigeria Telecommunications Limited and the Ministry of Communications.
  • The total value of the four contracts was approximately $130 million.

(Source: SEC Indictment)

adam.graycar@anu.edu.au

siemens1
Siemens

ARGENTINA

  • 1998-2004, Siemens paid over $40 million to senior Argentine officials to secure a $1 billion project to produce national identity cards.
  • $2.6 million was transferred directly to the President, the Minister of the Interior, and the Head of Immigration Control.
  • Siemens promised to pay an additional $30 million+ to the President and his Cabinet.

ISRAEL

  • 2002-2005, Siemens paid approximately $20 million to a former Director of the Israel Electric Company for four contracts to build and service power plants
  • The total value of the contracts was approximately $786 million

(Source: SEC Indictment)

adam.graycar@anu.edu.au

siemens2
Siemens

VENEZUELA

  • 2001-07, Siemens paid an estimated $16.7 million in bribes to Venezuelan officials for the construction of metro transit systems in the cities of Valencia and Maracaibo.
  • The two projects, generated approximately $642 million in revenue to Siemens.

CHINA

  • 2002-07, Siemens paid approximately $22 million to business consultants who used some of those funds to bribe Chinese officials for seven construction projects for metro trains and signaling devices
  • The total value of the projects was over $1 billion.

(Source: SEC Indictment)

adam.graycar@anu.edu.au

combating corruption
Combating Corruption
  • Understand the opportunity structure
  • Identify and implement controls

http://tric.anu.edu.au/

opportunities
Opportunities
  • motivated offender,
  • a target
  • absence of a capable guardian.

http://tric.anu.edu.au/

opportunities1
Opportunities
  • Systematic Opportunities
  • Localised Opportunities

http://tric.anu.edu.au/

red flags corrupt procurement practices
Red Flags:Corrupt Procurement Practices
  • Kickbacks
    • Bribes
    • Kickback Brokers: Agents & Local Representatives
  • Bid Rigging
    • Bid Suppression
    • Complementary bidding
    • Bid rotation
    • Low Balling
  • Front or Shell Companies
  • Misrepresentation of facts (Ware et al. 2007)

adam.graycar@anu.edu.au

red flags kickbacks
Red Flags:Kickbacks
  • Improper bid selection
  • Unnecessary middlemen or agents
  • Officials accepting excessive gratuities
  • Unusually wealthy officials
  • Poorly performing contractors re-engaged
  • Former officials in the supply chain
  • Personal/family ties between suppliers/agents and officials

(Ware et al. 2007)

adam.graycar@anu.edu.au

red flags bid rigging
Red Flags:Bid Rigging
  • Identical bids from different bidders
  • Bids substantially higher than cost estimates or previous bids
  • Winner subcontracting to losers
  • Physical alteration of bid documents
  • Line items substantially higher in some bids
  • Wide gap between the winner and all other bidders

(Ware et al. 2007)

adam.graycar@anu.edu.au

red flags bid rigging cont
Red Flags:Bid Rigging (Cont)
  • Evidence of collusion
    • (eg same handwriting, same errors)
  • Qualified bidders do not bid
  • Re-bids have the same ranking order as original bid
  • Re-bids have substantial cost increases
  • Mysterious price drops when new bidders enter

(Ware et al. 2007)

adam.graycar@anu.edu.au

red flags front companies
Red Flags:Front Companies
  • Unknown sub-contractors with no track record
  • Subcontractor registered in a secrecy jurisdiction
  • Invoices originate from secrecy jurisdiction
  • Owners listed as law firms or incorporation agents, not individuals
  • Subcontractor has no visible corporate facilities

(Ware et al. 2007)

adam.graycar@anu.edu.au

red flags front companies cont
Red Flags:Front Companies (Cont)
  • Subcontractor point of contact is answering service or private residence
  • Opaque ownership structure
  • Friends/relatives of senior government officials are owners/managers of contracting companies
  • Government officials unnecessarily visit company premises

(Ware et al. 2007)

adam.graycar@anu.edu.au

red flags misrepresentation of facts
Red Flags:Misrepresentation of facts
  • Procuring entity does not keep minutes of public bid opening meeting
  • Minutes do not have all required signatures
  • Delays between bid opening and circulation of minutes to all bidders
  • Records of bid evaluation are incomplete or absent
  • Submitted bids contain alterations post-submission

(Ware et al. 2007)

adam.graycar@anu.edu.au

responses international political will
ResponsesInternational Political Will
  • UN Convention Against Corruption (UNCAC)

Article 9 – provides for anti-corruption measures in procurement

  • OECD Convention on Combating Bribery

Establishes standards to criminalize bribery of foreign officials in international transactions

  • GRECO – Group of States Against Corruption

Council of Europe’s body to monitor states’ implementation of anti-corruption measures

adam.graycar@anu.edu.au

responses domestic political will
ResponsesDomestic Political Will
  • US Foreign Corrupt Practices Act (FCPA)

Prohibits US entities from bribing foreign officials

  • Criminal Code Act 1995 (Cwth) Div.70

Prohibits Australian entities from bribing foreign officials

adam.graycar@anu.edu.au

responses operational entities
ResponsesOperational Entities
  • World Bank
  • Asian Development Bank
  • Organization of American States
    • Inter-American Convention Against Corruption
  • African Union
    • Convention on Preventing & Combating Corruption
  • Council of Europe
    • Criminal Law Convention Against Corruption
    • Civil Law Convention Against Corruption

Etc

adam.graycar@anu.edu.au

responses tangible controls
ResponsesTangible Controls
  • Criminalization, investigation, prosecution, sanctions
  • Anti-corruption agencies
  • Structural reform
  • Education, integrity building mobilization of the public
  • situational countermeasures

http://tric.anu.edu.au/

slide33

OPPORTUNITY

EVASION

CONTROL

Dynamic

http://tric.anu.edu.au/