There are two widely-acknowledged dimensions of corruption—supply-side and demand-side. Over the years, our anti-corruption measures have targeted only the demand side. Although legal measures against demand-side corruption are important in their own right, we have often ignored the supply side of the corrupt transaction and corruption in the private sector itself. In big corruption dealings with public institutions, private sector has often acted as an influential player. Recent news of lobbying by petroleum dealers to raise their commissions by spending hefty ‘grease money’ (reportedly Rs 8 million) to Nepal Oil Corporation (NOC) has exposed how private suppliers and public officials align their interests. The NOC board, upon receiving the corrupt proceeds from the dealers, had decided to raise the commission a few weeks ago, which now stands at Rs 3.3 paisa per liter of petrol and Rs 2.14 paisa per liter of diesel.
Not only in Nepal, the scale and rapid growth of lobbying by private sector has raised serious concerns worldwide. In Brussels, an estimated 2,500 lobbying organizations with 15,000 lobbyists vie for influence in EU policy-making. In the US, lobbying expenditures by companies have risen sharply and, at the state level, lobbying expenditures average US $200,000 per legislator, while five lobbyists vie for the attention of each lawmaker. From informal vendors in the least developed countries to multinational companies in the industrialized ones, corruption has become a central and a growing challenge for businesses and society all over the world.
In Transparency International’s survey of more than 2,700 business executives in 26 countries, nearly two in five respondents said they were asked for bribes when dealing with public institutions. Half of them estimated that corruption raised project costs by at least 10 percent, in some cases by more than 25 percent. One in every five respondents claimed to have lost a business opportunity because of the higher bribe paid by a competitor. In developing and transition countries alone, corrupt politicians and government officials receive bribes totaling between US $20-40 billion annually—the equivalent of some 20 to 40 percent of official development assistance to poor countries worldwide. This shows that private sector is an equal participant in corruption transaction, and efforts to limit its vulnerability to engage in corruption are equally and urgently needed.
PHOTO: ESSA MALIK/THE EXPRESS TRIBUNE
Corruption in private sector directly impedes development and makes a few people rich at the cost of many. Thus, lack of a coherent policy and an in-built system to prevent corruption within the private sector can distort the national economy and eventually limit the growth of the private sector. Addition of an anti-corruption principle to the United Nations Global Compact also underscores the increasing importance of the private sector in the global fight against corruption. The principle urges businesses or companies to work against corruption in all its forms, including extortion and bribery. Nepal as a party to the UN Global Compact and a state party to UN Convention against Corruption (UNCAC) is required to frame laws to prosecute corruption in and by the private sector. But there has not been any remarkable progress to this end even after ratification of the UNCAC last year.
The Global Corruption Report (GCR) 2009 mentions that bank loan default in Nepal exceeds Rs 40 billion, representing 30 percent of all credit flows into the country. Nepal’s Credit Information Bureau still carries a name list of hundreds of bank defaulters. But corruption scandals in private sector have failed to draw the attention of the Commission for the Investigation of Abuse of Authority (CIAA). The existing laws such as Prevention of Corruption Act and the CIAA Act (Second Amendment) have mandated this constitutional anti-graft body only to investigate and prosecute public post holders on corruption charges.
As corruption takes place at the interface of the public and private sector, bringing one into the legal net and leaving out the other has made our anti-corruption fight one-sided. We have seen many corruption scandals in the private sector over the years. In recent times, Gurkha Development Bank (GDB), Nepal Share Market Finance (NSMF), People’s Finance Limited, and Capital Merchant Banking have had to close down their operations and could not repay depositors. Nepal Rastra Bank had to freeze bank accounts and property of executive chairman of NSMF on suspicion of irregularities while issuing loans worth Rs 1 billion. Likewise, former chairman of GDB Dambar Bahadur Tamang was arrested for irregularities in releasing various loans. These cases represent only a tip of the iceberg of the increasing vulnerability of the private sector to scandalous corruption. Therefore, taking into account the rapidly changing forms of corruption, we need to address the corruption in and by the private sector as seriously as corruption in the public sector by widening the legal mandate of the anti-graft agency.
Existing anti-graft legislations exclude private sector corruption. They are limited to the improper activities or abuse of office or use of office for private gain by public post holders. The CIAA is also mandated only to investigate ‘improper activities’ and corruption incurred by the public post holders. The mandate further allows the CIAA to act as a recommendatory body in cases where it deems improvements in the functioning of any public office are needed. But many other countries such as Singapore, Malaysia and territories like Hong Kong have legally mandated their anti-graft bodies to investigate and prosecute perpetrators of corruption in all spheres, including the private sector.
In Nepal, corruption scandals within the private sector are most often referred to as frauds. Private sector as an intermediary of the state, in a deregulated governance system, is delivering various types of public services to the people. Therefore, corporate corruption has now become an issue of great public concern, warranting legal oversight and prosecution. Private sector playing a role of supply side and often as a lucrative domain for corruption desperately calls for various preventative and curative measures to institutionalize transparency and accountability for better corporate governance.
As the CIAA and National Vigilance Center are regulatory government agencies, probing corruption in private sector doesn’t directly fall under their jurisdictions. As a matter of exigency, supply side should also be taken as seriously as the demand side and investigation outreach extended to corrupt practices in the private sector. In many countries like Nepal ‘policy intentions’ have differed from ‘policy outcomes’ and the seemingly effective measures to reduce corruption have miserably failed to yield the expected results. Such policy gap should be addressed if corruption is to be reduced by bringing the private sector into the ambit of legal investigation.
In our mainstream corruption debate, the demand side often draws the attention while supply side is hardly a matter of public concern. Corruption has become so rampant that we now need to review the existing laws to prosecute even the bribers and the private sector corruption. As it is, the majority of the anti-corruption interventions worldwide have focused on the demand side only. Though the supply side doesn’t adequately figure in anti-corruption discourse, it has now become imperative to address this most ignored dimension by mainstreaming it in anti-corruption policies and laws. Dealing with corruption through a two-pronged approach—supply-side and demand-side—is now more urgent than ever given the magnitude of supply-side corruption and its adverse effects on economy, development and democratic system at large.