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The ACFE formally defines corruption as "the wrongful use of influence as a benefit for the actor or another person, contrary to the duty or the rights of others." But in more common terms, corruption is that under-the-table, quid pro quo that wreaks havoc on societies. Public power for private gain.
Some countries and organizations worship before the monolith of corruption. Others resignedly capitulate to it. Regardless, many believe that the gears of the marketplace and government can't turn without a little grease. Don't count Peter Eigen in that number.
"I used to work as the director of the World Bank office in Nairobi for East Africa," Eigen says during a 2009 TED Talk. "At that time, I noticed that corruption, that grand corruption, that systematic corruption was undermining everything we were trying to do. And therefore, I began to not only try to protect the work of the World Bank, our own projects, our own programs against corruption, but in general, I thought, ‘We need a system to protect the people in this part of the world from the ravages of corruption.'
"And as soon as I started this work, I received a memorandum from the World Bank, from the legal department first, in which they said, ‘You are not allowed to do this. You are meddling in the internal affairs of our partner countries. This is forbidden by the charter of the World Bank, so I want you to stop your doings,' " he says.
Well, Eigen didn't "stop his doings." In 1993, he convened a small group of eight colleagues in Berlin, the recently restored capital of a reunified Germany, which agreed that corruption didn't have to be the norm. They began Transparency International (TI) — a global, nonpartisan nonprofit with chapters in more than 100 countries — that has helped governments, businesses, civil societies and individuals fight the scourge of corruption.
Eigen had to quit his job to begin TI, but it was worth it. Fighting corruption is now a key focus of the World Bank's analysis and consideration of lending to a country.
TI is most known for its Corruption Perceptions Index (CPI) — a scorecard on corruption in countries' public sectors. But TI also works with leaders and citizens to create international anti-corruption conventions, disseminates publications, prosecutes corrupt leaders, supports national elections for tackling corruption and holds companies accountable. It has begun a global movement with one vision: "A world in which government, business, civil society and the daily lives of people are free of corruption."
That's one tall order. But in the 1990s, Eigen had seen such massive corruption in Africa that he could no longer remain silent. "I became convinced that it is this systematic corruption, which is perverting economic policy-making in these countries, which is the main reason for the misery, for the poverty, for the conflicts, for the violence, for the desperation in many of these countries," he said in the TED Talk.
In the 1990s, he says the members of the World Bank — including Germany, his home country — thought that foreign bribery was okay. "In Germany … it was even tax-deductible. No wonder that most of the most important international operators in Germany, but also in France and the U.K. and Scandinavia, everywhere, systematically bribed. … And this is the phenomenon, which I call failing governance.
"When I then … started this little NGO … we were told, ‘You cannot stop our German exporters from bribing, because we will lose our contracts. We will lose to the French, we will lose to the Swedes, we'll lose to the Japanese,' " he says. "And therefore, there was indeed a prisoner's dilemma, which made it very difficult for an individual company, an individual exporting country to say, ‘We are not going to continue this deadly, disastrous habit of large companies to bribe.'
However, TI's efforts, which have engendered global laws and regulations, are freeing companies and countries to stand up to the bully of corruption and say, "No more."
Eigen retired as chair of TI in 2005 but is now chair of the organization's advisory council. He will be a keynote speaker at the 25th Annual ACFE Global Fraud Conference , June 15-20 in San Antonio, Texas.
Fraud Magazine spoke to Eigen in his Berlin office.
FM: In 1993, at a relatively young age, you "retired" and founded Transparency International. How had your work as a World Bank manager and director prepared you for that moment?
PE: I was really well prepared. I had a huge network — particularly in Africa and Latin America. I knew how large projects were prepared, negotiated and contracted. I spoke many languages. And I had a pension, so I didn't need money for myself.
FM: Can you describe how TI began?
PE: I gave a talk to a retreat of World Bank Representatives in Swaziland and pointed out that our work was being totally undermined by corruption. I wanted the World Bank to develop a systemic approach to control corruption, and so I founded a task force with a handful of colleagues, to begin the design. It focused on grand, transnational corruption — we left out petty corruption within countries. This was swiftly followed by our first national chapters in Africa and Latin America.
FM: Can you describe some of the corrupt projects you saw at the World Bank donor meetings when you were the director of the World Bank office in Nairobi, Kenya?
PE: Experts from the "Global North" [mostly countries in the Organisation for Economic Co-operation and Development (OECD)] who prepare many mega projects often tend to design sector policies and individual projects with an eye on the export interests of their home countries. If this is combined with powerful promoters from huge companies and weak political leaders in fragile countries, it's easy to imagine that large infrastructure projects, ports, railways, pipelines, hydropower projects, mining operations and arms supplies all are vulnerable to corruption.
FM: Was there one particular corrupt project that finally made you think, "Enough is enough. I need to do something"? What gave you the courage to fight against this corruption when all around you seemed to grudgingly accept it as a necessary evil to keep systems working?
PE: I was particularly angry about an AIDS clinic we were funding in the slums of Nairobi (my late wife worked there as a doctor), and the money never arrived. Many friends encouraged me [to fight]. The argument of the legal department of the World Bank — that fighting corruption was illegal under its charter — was blatantly wrong. I knew this as a lawyer. I knew that corruption mainly caused poverty, misery, conflicts and violence — particularly in the developing countries.
FM: Why did the World Bank at first discourage you about speaking against corruption?
PE: The majority of its members — with the honorable exception of the U.S. — allowed its nationals, companies, investors and suppliers to bribe outside their borders. In a globalized market, seemingly without governance, this was considered necessary. Therefore, until 1999 the management of the World Bank was not allowed to address the cancer of corruption.
FM: Can you describe the fight you had with the World Bank at that time?
PE: I received a memo from the legal department, telling me to stop.
When I continued the work in my free time, I got another memo from President Conable who said that as a director of the World Bank I was an embarrassment to the institution. I had to leave, if I wanted to continue.
FM: Can you describe what you call "failing governance"?
PE: That's when the governance in a society, in an institution, in a company doesn't deliver effective and just results. If this failure is important — such as destruction of the environment, hundreds of millions of people in absolute poverty, millions of children dying before the age of 5, conflict and violence affecting hundreds of millions of people in the globalized economy — than one can speak of "failing governance."
FM: When you were discerning what you could do, why did you settle on beginning a non-governmental organization (NGO)?
PE: Because NGOs — or the broader "Civil Society Organizations" [CSOs] — can complement the failing governance of nation states or the commercial sector and establish good governance. This has been proven by TI, Extractive Industries Transparency Initiative [eiti.org] and by numerous other CSOs in many sectors.
FM: How did you pick whom you wanted on your small team?
PE: I wanted experts and activists. And I was interested in hearing from the perspectives of those in governments, the private sector and civil society, and from different cultures and continents. Eight of us legally established the "verein" [German for "association"] in January 1993. We had grown to about 60 people from all over the world when we officially launched TI in May of 1993 in Berlin.
FM: At your TED Talk in 2009, you said that "systematic corruption was undermining everything we were trying to do. … We need a system to protect the people … from the ravages of corruption." What was the thought process as you and your team devised this system?
PE: Three principles:
- Holistic approach (e.g. not only punishment).
- Empowerment to CSOs for independent cooperation with companies and governments.
- Decentralization of diagnosis and design of reforms in different countries by establishing national chapters.
FM: Can you walk me through how TI began to persuade major players and competitors to come to the same table to construct an "escape route from the prisoner's dilemma" of bribery, as you've put it? How were you able to persuade them to devise concepts of collective action?
PE: There are many examples. I give you the most important example: the genesis of the OECD convention against bribery of foreign officials.
In fact, our concept of collective action became an important solution for a stalemate we reached at a decisive series of meetings with the business community. From 1995 to 1997 we arranged three meetings at the Aspen Institute on the Wannsee Lake in Berlin with about 20 leaders of German business — including top managers from Siemens, ABB, Lufthansa, Daimler, Schering et al — to discuss international corruption and possible reforms. Richard von Weizsäcker, who had just ended his presidency of Germany, chaired the first meeting.
The first meeting ended badly. The company representatives claimed that what they were doing abroad was not corruption but legitimate business acquisition as is customary in foreign markets with different legal systems and values. It was a sign of respect for other cultures and traditions to not impose Western mores on other societies.
The second meeting a few months later was marked by a growing awareness of the damage caused by grand corruption everywhere in the world. Also, a few scandals of international corruption had hit the media. Hence there was some recognition that what the companies were doing abroad would be called corruption if they were done at home. But since everybody else was bribing in the world market, there was nothing one could do about it without untold damage to one's business.
The third Aspen meeting in early 1997 brought the breakthrough. Again, the company representatives admitted that international corruption was causing a lot of damage, that they would like to stop and compete with their excellent products on a corruption-free market but they could not unilaterally end this practice.
It was at that point, that we proposed the TI Integrity Pact. We promised to identify relevant markets where we would identify all competitors, arrange for a legally binding non-bribery pact, organize independent monitors — perhaps TI National Chapters — and help design sanctions against breaches. These sanctions included blacklisting of defaulters, liquidated damages or forfeiture of bid securities.
Based on this proposal, the business participants agreed to support TI.
In fact they sent an open letter to the Kohl government, requesting that Germany support an effort by the OECD to stop the bribery of foreign officials. This effort, which TI had supported for a number of years, was, in essence, collective action at the global level — all OECD members and a number of other large exporters promising to stop bribing abroad.
The situation began to change rapidly. World Bank president James Wolfensohn made his famous "cancer of corruption" speech to the organization's shareholders at the 1996 annual meeting.
In the fall of 1997, the "OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions" was signed; it entered into force in early 1999. This was the most important watershed in terms of fighting international corruption. It would not have been thinkable without the open letter sent by the German business community to its government. With the exception of a very few supporters of our cause, the government had been openly hostile to any attempts to restrict foreign bribery. It was quite similar in other European countries — without the German initiative this powerful convention would never have seen the light of day.
Since then, all other international agencies — from the U.N. to the smallest international organization — have adopted anti-corruption fights. The signatory states of the OECD convention have also introduced judicial prosecutions.
FM: Did you have a model to follow, or did you develop ideas as you went along? Does TI basically use the same methods today?
PE: We followed, mutatis mutandibus, the National Chapter Model of Amnesty International. My brother, Jochen Eigen, piloted the strong role of civil society in promoting the Sustainable Cities Programme for UN-Habitat. But most of our concepts developed over time. The main principles still apply today.
FM: How do you define what you call "soft power"? Why does it work? How do you see the power of civil societies working to reform governmental societies?
PE: The OECD convention evolved from soft power; the minister of member countries wanted to formulate a recommendation to stop foreign bribery. It would not have been binding. However, in the course of deliberations it became a binding hard power.
The Extractive Industries Transparency Initiative, for example, is a voluntary disclosure standard: soft power. But it develops through peer pressure to become a binding standard. For example, a Chinese company in Afghanistan might be bound by Afghanistan's voluntary standards.
FM: Dr. Joseph T. Wells, CFE, CPA, who founded the ACFE more than 25 years ago, has focused on the prevention and deterrence of fraud rather than just examining it after the fact. Specifically, how have you seen the efforts of TI prevent and deter corruption and other types of fraud?
PE: Our holistic approach very much follows the philosophy of Dr. Wells. This has been successful in many situations, although backsliding and failure is also to be expected in the 109 countries where TI now has national chapters.
FM: Can you describe how TI is helping normal citizens refuse to participate in corruption?
PE: Awareness building. We're creating incentives through standards, laws, institutions to make corruption more risky and avoidable. We're bringing in schools and faith-based organizations. And, yes, we're fighting impunity.
FM: Has the U.S. government's reemphasis on the enforcement of the Foreign Corrupt Practices Act (FCPA) helped anti-corruption efforts, and if so, how? How has the UK's Bribery Act affected the equation?
PE: The FCPA was a great act of leadership; it has set the standard that the world is now following. The UK's Bribery Act has been very late in coming; it's now gaining traction.
FM: Without giving away too much, what are some things you want to share with the attendees of the 25th Annual ACFE Global Fraud Conference?
PE: Global corruption is both the result and the cause of failing global governance. Empowering CSOs can be an answer: A Magical Triangle of state, business and civil society can provide many answers.
FM: What practical advice can you give our members to encourage them as they fight in the trenches?
PE: Invite CSOs to the table.
FM: How do you feel about the future of TI? What elements have you put in place to ensure the organization continues to thrive under the spirit you intended?
PE: TI has grown tremendously. (The TI Secretariat in Berlin now has 180 staff.) Some of the 109 National Chapters have thousands of members. It has an outstanding board and a very wise and prominent advisory committee. Its membership meets regularly to participate in building a powerful consensus against corruption. Its network of partners is growing — the ACFE and its more than 70,000 members is a good example.
FM: What motivates you to continue your work?
PE: A strong sense of justice and compassion for people.
Dick Carozza, CFE, is editor in chief of Fraud Magazine. His email address is: dcarozza@ACFE.com.
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