Corruption Information
What is corruption
There is no international legal definition of corruption.
In its narrowest sense, corruption is interpreted as referring to bribery and extortion.
In its wider sense, corruption includes one or more of bribery, extortion, fraud, deception, collusion, cartels, abuse of power, embezzlement, trading in influence and money laundering. These activities will normally constitute criminal offences in most jurisdictions although the precise definition of the offence may differ.
In this website, and in GIACC’s work generally, corruption is interpreted in the wider sense.
Bribery
Bribery is a criminal offence in most jurisdictions.
In general terms, bribery is committed where a person (A) offers or gives some benefit to another person (B) as an inducement for that person (B) or another person (C) to act dishonestly. It may also occur where B requests or solicits a benefit from A as an inducement for B or another person (C) to act dishonestly. In such cases, all those persons (A, B and C), as well as other persons who were complicit in the offence, may be guilty of bribery.
Nature of a bribe. A bribe may be a cash payment, or it may be a non-cash advantage (such as the promise of a future contract, or a holiday).
The dishonest activity includes any dishonest act or omission. It may be an act or omission done by someone in relation to his employer’s or principal’s business. For example, a government officer acting on behalf of a government department may, if offered a bribe, dishonestly award a contract.
Institutional bribery refers to a situation where a bribe may be paid or received with the full approval of the organisation which is the employer of the individual paying or receiving the bribe. This may occur, for example, where a contracting company authorises its commercial director to pay a bribe to win a tender.
Personal bribery refers to a situation where a bribe may be paid or received by a representative of an organisation without the approval of that organisation. This may occur, for example, where a government officer receives a bribe to award a contract, where the government department in question would not approve the bribe.
Supply-side bribery refers to those persons or companies who are responsible for offering or paying bribes.
Demand-side bribery refers to those persons or companies who are responsible for demanding or receiving bribes.
A "facilitation payment" is the term often used in relation to payments made to officials so as to obtain or expedite services to which the payer is entitled (for example, the obtaining of contract payments which are due, import or work permits, or installation of telephone lines). The amounts which are paid are often quite small, yet the consequences of not paying can be serious. (For example, a contractor may not receive a large part of contract payments due, or a delay in issuing an import permit could delay a project, which could increase the contractor’s costs and cause the contractor to have to pay liquidated damages to the project owner for delay.) In practice, the following distinction is sometimes made between bribes and facilitation payments. A bribe is regarded as being a payment made to someone to act in a way in which he should not act (for example, by wrongly awarding a contract to the bribing party, or wrongly releasing a party from a legal obligation) whereas a facilitation payment is regarded as being a payment (other than the fee required by law) made to a person to do something which he should already be doing (for example, issuing a visa or customs clearance that is properly due). However, although there may be this distinction, most countries treat the payment and receipt of facilitation payments as a form of bribery.
Examples of bribery. Bribery in relation to an infrastructure project can occur in numerous ways. For example:
- A project owner may bribe a government official in order to obtain planning permission for a project.
- A bidder may bribe the project owner’s designer to design a project in a manner which improperly favours that bidder over other bidders.
- A bidder may pay a bribe to the project owner’s representative to win the contract.
- A contractor may pay a bribe to the project owner’s representative to have defective or non-existent work approved.
- The project owner may pay a bribe to the project engineer in return for the engineer refraining from issuing a payment certificate or an extension of time to a contractor.
- If the parties are in dispute in relation to the construction of the project, one party may bribe a witness, expert, arbitrator or judge in order to give false evidence, or to give a favourable opinion or verdict.
- A maintenance contractor may pay a bribe to a representative of the project owner in return for being awarded a contract to maintain the project during its operation.
For examples of how bribery may occur in the different phases of the project cycle, see How Corruption Occurs. For detailed examples of bribery, see Corruption Examples
Extortion
Extortion is a criminal offence in most jurisdictions. It is a form of blackmail where one party makes threats against another party of adverse consequences unless demands, usually for payment, are met by the other party. Such blackmail may constitute, for example, refusal to provide customs clearance for equipment or materials, or refusal to make payments or issue certificates that are due. Sometimes such threats may involve threats of physical harm. If the party who is the victim of the extortion provides the payment or other benefit, it will normally become liable for the offence of bribery. However, the party making the extorted payment may have a defence to bribery if the threat was of imminent death or personal injury. For examples of how extortion may occur in the different phases of the project cycle, see How Corruption Occurs. For detailed examples of extortion, see Corruption Examples.
Fraud
Fraud is a criminal offence in most jurisdictions. It is sometimes referred to as “deception”. Fraud usually involves one person (or group of persons) deceiving another person in order to gain some financial or other advantage. In the context of an infrastructure project, fraud offences may include:
- Manipulation of pre-qualification or tender requirements so as to favour a particular bidder
- Concealment of defects
- Dishonestly levying liquidated damages
- Dishonestly withholding payment
- Dishonestly exaggerating the quantum of a claim
- Fabricating or falsifying evidence to support claims
Parties may be liable for the offence of fraud where they deliberately undertake the fraudulent action with full knowledge of the circumstances. Alternatively, it is possible for a party to be liable for fraud if it was reckless as to the circumstances. For example, a company may be liable for fraud if it submits a claim for additional payment which it suspects is inflated but fails to take reasonable steps to determine that the claim is accurate. For examples of how fraud may occur in the different phases of the project cycle, see How Corruption Occurs. For detailed examples of fraud, see Corruption Examples.
Cartels
Cartel activity is a criminal offence in most jurisdictions. It occurs where two or more bidders unlawfully collude to rig a bid to favour one bidder or to exchange or fix bid prices in advance of tendering. For examples of cartel activity, see How Corruption Occurs and Corruption Examples.
Abuse of power
Abuse of power is a criminal offence in many jurisdictions. It occurs generally where a person in public office deliberately or recklessly acts in a way that is contrary to his duty and in breach of his position of public trust. This can include an official allowing a conflict of interest to affect his judgment, or favouring friends or relatives for appointments or contracts (nepotism or “cronyism”), or victimising or intimidating staff so that they make decisions which support the official’s view or stay silent in the face of the abuse of power. For example, a government official may secretly own, or be a director of, a tenderer, and may wrongly make a decision in favour of the tenderer (either as a result of deliberate corruption, or because the conflict of interest affects his impartial judgment).
Money-laundering
Money-laundering is a criminal offence in most jurisdictions. It occurs where a party moves cash or assets obtained by criminal activity from one location to another. For example, a company submits a fraudulent claim to a project owner for work which it did not carry out. The project owner pays the fraudulently obtained sum into the company’s bank account with Bank A. If the company then moves the payment to Bank B, this may constitute the offence of money-laundering. Money-laundering is often used to conceal the criminal source of funds.
The relationship between bribery and fraud
Bribery normally involves a degree of fraud. A bribe paid to win a project will normally be concealed by some fraudulent act with the aim that the project appears from the outside to have been won on a genuine arms-length basis. Fraud (such as collusion during bids and submission of false claims) does not necessarily involve bribery. However, many acts of fraud may need an act of bribery in order to complete the fraud. For example, a contractor may submit a false claim to a project owner (which is fraud) and may then bribe the certifier to approve the claim (which is bribery). Alternatively, a project owner may wish fraudulently to withhold payment from a contractor and may bribe the certifier to certify falsely that liquidated damages or costs for rectification of defects are payable by the contractor. Although bribery normally receives a higher public profile, the financial wastage in a project due to fraudulent practices such as claims inflation is often higher than that attributable to bribery.
Other related offences
Corruption offences may also involve breaches of tax and accounting laws and stock market regulations. For example, a bribe wrongly shown in the accounts as an agency commission for legitimate services would constitute a false accounting entry which may be in breach of accounting laws and stock market regulations and may also constitute other types of criminal offence. Deduction of a bribe against tax may also constitute a breach of tax law. Prosecutors may find it easier to prosecute under accounting or tax laws rather than bribery laws as proof may be easier. Thus, a wide range of people may be caught in both the initial offence (such as bribery or submission of fraudulent claims), which may involve site and commercial staff, and in subsequent offences, which may involve accounting and legal staff.
© 2008 GIACC