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INTEGRITY PACT A WAY TO REDUCE GRAFT
MARCH 25, 2001 -
THE STAR
HOW Malaysia fits into the new economy, with its very much more
demanding standards of "public" behavior, will depend on how
determined we are, as a country, to decide to manage our
business affairs.
Given that the Malaysian private sector has now become the
Anti-Corruption Agency's latest target, and perceived to be
part of the problem of corruption in, this country, the time
has come for this sector to ensure that transparency and
accountability feature much more robustly in the management and
operation of Malaysian companies.
An area of business that is vulnerable to malpractice is public
procurement. This article introduces a new initiative, and
explores ways of putting integrity to work in companies that
value their business reputation. Transparency International's
"Integrity Pact" can help companies in their quest, for that
elusive "level playing field" so vitally important to our
national economic recovery efforts.
A new legal framework. The adoption, in November 1997, of the
OECD Convention on Bribery of Foreign Public Officials
inInternational Business Transactions marked a tremendous step
forward in the fight against bribery and corruption. Despite
this historic measure, we should not be lulled into unwarranted
complacency.
The ambitious December 1998 deadline for entry into force of
the Convention, as well as its narrow criminal focus, leaves
gaps that point to the need for other tools to combat
corruption.
Strengthening controls against extortion and acceptance of
bribes is a massive undertaking involving the development of a
complex set of institutions, laws, rules and regulations.
TI's long-term response to this challenge has been to mobilise
coalitions of civil society, the private sector, and the
government to design, and implement, practical strategies for
controlling corruption. In the short term, as a practical
expedient for relatively immediate relief, we continue to
promote the introduction of change in comparably
self-contained, areas, in small markets, where all actors are
known and can be brought into a system of simultaneous reform
for integrity: the concept of "Islands of Integrity."
Islands of Integrity Many governments and business leaders have
recognised the high cost of bribery and extortion in
procurement contracts, which are often very large and complex,
relative to the overall economic and social development of the
host country. Therefore, they seek ways to curb and,
eventually, eliminate corruption in such procurement
transactions. Many businesses leaders have expressed their
desire to stop paying bribes, but are held back by the fear of
losing orders if their competitors continue to pay bribes.
The TI Integrity Pact intends to accomplish two objectives:
1. To enable companies to abstain from bribing, by providing
assurances that
* THEIR competitors will also refrain from bribing; and
* GOVERNMENT procurement agencies will undertake to prevent any
form of corruption, including extortion and to follow
transparent procedures.
2. To enable- governments to reduce the high cost and the
distortion impact of corruption on public procurement.
A government may wish to begin by establishing first, one or
several Islands of Integrity, where for selected projects, or
for all projects in a sector, corrupt practices would be
eliminated by agreement and those companies interested in
bidding -for services or the supply of goods. The Integrity
Pact concept could also be employed in similar situations, for
example, when a government, as part of its privatization
programmed, invites bidders to tender for the acquisition of
government assets, or for telecommunications, mining or logging
licenses.
A government, when inviting contractors or suppliers of goods
and services to tender for a specific contract, informs the
potential bidden, that their tender offer must contain a 4
commitment, signed personally by the bidder's chief executive,
not to offer or pay any bribes in connection with this
contract. This covers, of course, all stages of the procurement
process, including implementation of the contract by the
successful bidders.
The government, on its part, will commit itself to prevent
extortion and the acceptance of bribes by its officials, and to
follow transparent procurement rules. Legally speaking, these
commitments are nothing other than a commitment to respect and
invoke the existing laws of the country. It is expected that
the explicit commitment, and the mode of operation established
by it, can make a significant difference in the political and
business reality.
The sanctions provided for violations, and the monitoring
system put in, place, may go well beyond the existing legal
system. Bidders who violate their commitment not to bribe will
be subject to significant sanctions, such as loss of contract,
liability for damages (to the government and the competing
bidders), and forfeiture of the bid security. The government
could also debar the offender from. all government business for
an appropriate period of time.
By empowering unsuccessful bidders, who have evidence of
corruption by their competitors or the principal, to enforce
sanctions themselves (through the courts or by international
arbitration), their confidencein the integrity of the process
of a whole will be increased.
At a bidding company acts through many employees and Agents,
the chief executive's commitment must (not least for his own
protection) be implemented through a compliance programme,
which assures that all employees and agents will observe the
no- bribery commitment.
Where the company already has a written anti- bribery policy in
place, it can furnish a copy of that policy, together with the
compliance programme underpinning that policy. Where a company
does not have such a policy, or does not have a written
compliance programme, it can furnish a copy of the compliance
programme established for the particular contract.
(The Government would not need to evaluate the system adopted
by every bidder unless and until there is cause to , suspect
mal- practice; any shortcomings identified then would be
relevant to the sanction, including the length of any period of
debarment to be imposed for breach.)
One key lies in transparency relating to payments to agents and
other third parties in connection with the contract. There are,
of course, good and valid reasons why agents should be engaged
to perform legitimate sevices. However, agents' commissions
are a traditional avenue for the concealing of bribes.
The Integrity Pact, therefore, envisages a requirement that all
past and intend future payments to third parties be disclosed
at the bidding stage, and that they be formally recorded and
reported during the execution stage by the successful bidder,
with appropriate certification by the CEO.
(This requirement has now been adopted by the World Bank under
its revised Procurement Guidelines.)
A second feature of the Integrity Pact is the involvement of
CEOs personally or through other appropriate senior managers.
The procedure requires them personally to certify amounts of
payments to third parties. They will be required to be
personally involved, so they will not be able to disclaim
knowledge of malpractice, as is presently often the case. This
requirement is bolstered by the compliance provisions, which
the successful bidder normally must have in place.
The TI-Integrity Pact is an attempt to deal systematically with
one of corruption's most vulnerable areas: the relationships
between the government and the private sector, as well as among
those within the private sector community itself. Given the
desire of many responsible companies to operate ethically, the
TI-Integrity Pact looks set to play an important role in good
governance.
In an effort to promote transparency and integrity,
Transparency International will be collaborating with the
Malaysian Institute of Management on a public dinner lecture on
April 17, 2001, on the subject "Transparency, Accountability
and Governance in Asian Markets," to be delivered by Andrew
Sheng, Chairman of the Hong Kong Securities and Futures
Commission. For further details, contact Vivian Tan/Salinah
Saadon at 03-2165 4611 or 2164 5255, fax: 03,244 9319, or
e-mail: actreg@mim.edu
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