Parliamentarians and corruption – the problem or the solution?

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Tearfund partners EFZ with APNAC Zambia Chair, Hon. Cornelius Mweetwa MP

This week the Global Organisation of Parliamentarians Against Corruption (GOPAC) 5th conference has been taking place in Manila.  But is this just another conference where we meet, talk and then return home with little change?  Should Parliamentarians even be included in the anti-corruption movement when they are often the worst offending corruptors? 

Parliamentarians can be a force for change.  But I also know that they are too often key contributors.  Research conducted on the Zambian Constituency Development Fund (CDF) by Tearfund and our partner the Evangelical Fellowship of Zambia (EFZ) has demonstrated this. Where Parliamentarians and others in the CDF process failed to exercise transparency and community participation then CDF projects were often found incomplete, unused, or susceptible to allegations of the misuse of funds.

CDFs are present in at least 23 countries and have the one defining feature that the Parliamentarian has some control over the use of the fund in their constituency.  In Zambia, constituencies receive approximately $200,000 per annum which is intended for local development.  The MP sits on, and appoints, the majority of the CDF committee who control the use of the fund – quite shocking from a UK perspective (and takes the expenses scandal to a new level!). 

Despite the challenges and allegations, in Zambia the CDF is a widely popular fund.  Perhaps because it is a more ‘visible’ form of development and decentralisation policy.  For example the CDF has been used to construct school buildings, clinics and market shelters. 

But Parliamentarians can take certain actions to enhance the effectiveness of this fund.  In the case of one constituency, Choma, the CDF enabled a prison clinic to be extended in order to provide services for the surrounding community.  The research indicated that the community were satisfied with the project and the clinic remains well used.  In this example, transparency and participation were seen throughout the CDF process, in particular:

i) Participation in identifying projects: the community identified the project as an area of need and therefore applied for CDF funding.  
ii) Transparency in decision-making process: the CDF committee made public its reasoning for funding the project on local notice boards and the community radio stations.
iii) Community involvement in project implementation: community members contributed labour and materials.
iv) Transparency in procurement: materials were sourced by suppliers recommended by the local community.  At the clinic, the CDF committee kept a log book of all suppliers and materials delivered, which local people were free to check.
v) Transparency and participation in monitoring: progress reports were posted in public places and feedback was sought from the community at public meetings.

 

So what can we learn, and what actions can Parliamentarians do to ensure better use of local development funds?  At the GOPAC conference EFZ and Tearfund presented the need for Parliamentarians to:

  • Enhance transparency, ensuring that information is useful and understandable at the local level. 
  • Promote meaningful community participation throughout the process, from the decision making to the monitoring of projects.
  • Reduce the level of influence that the Parliamentarians have over decisions on the use of CDFs.

These aspects may not be the panacea – but the research indicates that they can make a difference to the outcome of local development projects.  So it is great that in the closing ceremony the African Parliamentarian Network Against Corruption (APNAC) noted their intention to work to reform CDF practices.   So let’s continue to call on Parliamentarians to model best practice and urge them to become key partners in the fight against corruption.

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Can greater transparency in government budgets help solve the global hunger crisis?

Today the 2012 Open Budget Survey was released; at the same time as the iF campaign to end world hunger is being launched. It may seem like these two have little connection, but read on…

The Open Budget Survey is an independent global measure of budget transparency and accountability around the world.

Open Budget Index Country rankings 2012

This year’s findings don’t make particularly happy reading. According to the authors, the International Budget Partnership, “the 2012 Survey reveals that the national budgets of 77 of the 100 countries assessed fail to meet basic standards of budget transparency.” These countries represent half of the world’s population and mean that fewer than half the world’s citizens have access to key documents and information about budget proposals or government spending – they cannot see where the money has come from or where the money is being spent. This lack of transparency gives greater opportunities for corruption and misuse of funds.

The Survey also finds that there governments are guilty of a “widespread failure” to provide sufficient opportunities for citizens and civil society to engage in budget processes.

However, it is not all bad news and the Survey shows that over the past 6 years, most countries involved have made improvements, often simply by putting information into the public domain that is already produced. Change is therefore possible and all countries can quite easily reach high levels of budget transparency and participation.

Farmers in India. Photo: Layton Thompson, Tearfund

Farmers in India. Photo: Layton Thompson, Tearfund

Returning to the IF campaign (full name, “Enough food for everyone iF…”), this seeks to mobilise UK and international action to end global hunger. Laura Taylor has given a good summary of the campaign which, among other things, seeks greater transparency so that ordinary people can follow government revenues and spending and make sure it’s spent on tackling poverty and combating hunger.

That’s where the connection comes. Transparency in government budgets enables citizens to see where money is being spent and helps ensure that the best investments are made, whether they be in health care, education or to promote food security and better nutrition.

One example is the Subsidios al Campo campaign in Mexico, which succeeded in getting the government to publish details of the agricultural subsidies to small-scale farmers. The information showed that many of the subsidies went to the wealthiest 10% of farmers, which led to effective pressure to reform the programme and redirect the spending to those most in need.

The iF campaign is therefore calling for the UK and other G8 governments to take a lead in promoting greater transparency across the board – in tax revenues, in land deals and in budgets. Not all of the G8 members fair well in the Open Budget Survey (although the UK is in third place, behind New Zealand and South Africa). Some of their counterparts in the G20 have even further to go.

The UK has two major opportunities to galvanise support for international action around budget transparency in 2013 – as chair of the G8 and co-chair of the Open Government Partnership. The next Open Budget Survey in 2014 – for which the data will be gathered at the end of this year – will show whether they have been successful or not.

To finish, I echo the words of Warren Krafchik, Director of the International Budget Partnership: “Reforms can be accomplished at little to no financial cost and can benefit billions of people. Good budget practices have been identified and standards have been set. Substantial technical assistance is available. The framework to improve exists – all that is typically missing, in many individual governments, is the political will to act. That must change.”

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Happy New Year!  Enough time off – now back to work.  To mark the start of 2013 we’ve made some changes to Just Policy, so that it’s easier for you to follow the items you’re interested in.

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European leaders must take this golden opportunity to tackle corruption

Bishop Munga speaking at the European Parliament

By Bishop Stephen Munga

I came to the European Parliament in March this year as part of Tearfund’s Unearth the Truth campaign to ask MEPs to pass strong transparency legislation.

Today they sent a very clear message in the vote on the Accounting and Transparency Directives. The Legal Affairs Committee, under leadership of MEPs Klaus-Heiner Lehne and Arlene McCarthy, has insisted that project level reporting by extractive industry companies is the only way to produce meaningful information. Their proposed payment threshold of 80,000 euros is also welcome, as is the removal of all possible exemptions. This means that Europe is matching the US and we are moving towards a global standard. We are entering a new season as the benefits of transparency are now recognised at a global level.

Now the only stumbling block to effective legislation being passed in Europe is resistance by the Council and the Commission – under pressure from businesses who still want to keep certain payments hidden from us. This must not be allowed to happen. Commission and Council proposals still exclude project level payments and have payment thresholds at 500,000 euros that would produce meaningless information. Incredibly, they still entertain the idea of exemptions, allowing corruption in through the back door. Over the next few months as they come to a final position, they have the chance to change this and show they are serious about leading the way on transparency.

The information that is produced by extractive companies reporting their payments at project level will enable the communities I work with to know what money is being paid for the resources extracted from their land, and to be able to hold the district and national governments accountable for their use.

In the rural areas, Tanzanian citizens already have experience of monitoring government expenditure on issues such as health and education and we have seen a reduction in funds that have been diverted, and even some stolen funds that have been recovered. This means that more resources are available for vital development projects.

I call on European leaders to pass legislation that will support our efforts to empower citizens and not to miss this golden opportunity to work with us to combat corruption.

TrustLaw interviewed Bishop Munga in March about his campaign to increase resource transparency in Tanzania and the rest of the world. Click here for the full interview.

Bishop Stephen Munga is a member of the working group of the Tanzania Extractive Industries Transparency Initiative and chair of the Interfaith Standing Committee of Tanzania. He travelled to the EU with Tearfund as part of the Unearth the Truth campaign.

Originally posted on Reuters Trust Law, http://www.trust.org/trustlaw/blogs/anti-corruption-views/european-leaders-must-take-this-golden-opportunity-to-tackle-corruption

A bright day in the fight against corruption

New transparency rules published by the US Securities and Exchange Commission (SEC) yesterday are a significant step forward in the fight against corruption and will benefit many communities where Tearfund works. We welcome this move, although we all need more time to plough through the 232 page document.

The Dodd Frank Act (Section 1504) will mean that communities will have information in their hands about payments by companies to their governments for oil, gas and minerals that have been taken out of their ground. This will help them to seek greater accountability and to make sure that it is used for the most pressing needs such as education and health services.

In Tanzania, where vast reserves of gas have recently been discovered, and could potentially bring in billions of pounds of government revenue, these rules will enable ordinary citizens to know how much US-listed companies are paying to their government. Furthermore, with similar legislation proposed by the EU and pressure for countries such as Canada and Australia to follow suit, most extractive industry companies in Tanzania will soon need to provide such information.

On the ground, work by Tearfund partner CCT has shown that when villagers have the right information about projects that directly impact on their lives, they will mobilise and make sure the money ends up where it should. This is positive both for greater citizen participation and strengthening of democracy as well as for combating corruption and using vital resources for development.

Big step forward, but what’s in a project?

Although delayed by two years, these rules are a historic move towards greater transparency in both industry and government.

They require companies to report on payments on a country-by-country and project-by-project basis and include a wide range of payments such as taxes, royalties, production entitlements and bonuses. They also require companies to report on all payments above $100,000 and have resisted company pressure to include any exemptions (p162). This will make a significant difference.

Although we are concerned by the lack of clear definition of ‘project’ – something that could cause confusion at the time of reporting – the rules nevertheless provide clear guidance that equates ‘project’ with contracts, arguing that “contract generally defines the basis for determining the payments… that would be associated with a particular ‘project’” (p86). This point should not be overlooked, especially as in its reasoning the SEC flatly rejects company arguments that projects are defined as countries, geographical basins or simply internal reporting units.

The EU must match the US and go further

The EU has the chance to match the US regulations and to go further, particularly by defining project more clearly and by providing a lower level of materiality that will provide more meaningful information to communities.

EU Transparency and Accounting Directives are on track to be agreed by the end of the year and could pave the way for a global transparency standard and show EU leadership and commitment to development and responsible business.

The priority is for the EU legislation to define project as based on lease, licence, agreement or other form of contract that gives rise to payments to governments. This will show where the money has come from and where it has gone to.

There should be no exemptions (as there currently are in the Commission proposal) and the EU should consider a materiality threshold of £10,000, so that all relevant payments are reported.

The UK government has taken a lead in Europe and must continue to do so. MEPs are on the whole in favour of strong legislation, but there has been pressure from companies and from some other governments to water it down. This must not be allowed to happen or communities will continue to see increased natural resource extraction with few benefits.

Investors could see profits disappear through corruption claims

Last week the High Court  ordered Mabey Engineering (Holdings)* Ltd. to pay £131,201 of dividends that had previously been paid out to investors from contracts gained through unlawful conduct in anIraq bridge-building project.

On conclusion of the case Richard Alderman, head of the SFO, commended the Mabey and Johnston Group for having referred itself to authorities when it realised that there were irregularities in the contracting arrangements, and for introducing new management, anti-bribery and anti-corruption procedures.

That the company acted quickly when it discovered the wrongdoing is certainly commendable, but could it have been avoided? Shareholders around the country will be asking themselves the same question, if not for altruism or ethical reasons, then certainly to protect their investments. It is the first case of its kind and although the sums are small, the Financial Press has already expressed concern over potential repercussions.

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Lesson to business and investors

On concluding the case Alderman sent a clear message to business that “shareholders who receive the proceeds of crime can expect civil action against them to recover the money. The SFO will pursue this approach vigorously.” This is even when the shareholders are totally unaware of any corrupt practices going on.

This links with his second take-home point that “shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in.”

Strong language with practical consequences, but will this lead to increased shareholder and investor pressure for companies to show that they have dotted all the ‘i’s and crossed all the ‘t’s when it comes to issues like prevention of bribery, supply chain management and transparency in contracting processes?

It should do if they see which way the wind is blowing.

Legislation that will protect investors from risk

It is already illegal to bribe foreign officials under section 6 of the Bribery Act, which came into force on July 1st 2011. The Act also requires companies to implement due diligence so as to prevent bribery. If properly implemented, this should act as reassurance to investors and shareholders that the companies are doing all they can to prevent bribery.

However, as pointed out in a recent submission by the BOND group of development NGOS, the failure to prevent bribery doesn’t cover bodies such as trusts, charitable organisations or other third parties. Bribery could still be ‘outsourced’, which should be a concern for investors. The guidance from the Ministry of Justice needs to be clear and to close this potential loophole and strengthen the due diligence requirements.

Secondly, the EU Accounting and Transparency Directives currently being discussed in the European Parliament and Council should be a further reassurance to those investors connected with the mining, gas, oil and forestry industry.

This legislation will require all of these sectors to publish revenues paid to governments where they are operating, both at country and project level.

Transparency in revenue payments will ensure that all payments are accounted for and will further serve as protection for companies against potential involvement in corrupt practices, including by third parties. It could even serve to improve relationships with local communities as they can see how much money is being paid for their natural resources and can compare this with the benefits they receive.

However, some of the companies have been lobbying hard at the EU level to try and undermine this legislation and hide potentially corrupt practices. This could have the adverse effect of undermining investor confidence and putting their investments at greater risk.

So, while last week’s ruling should serve as a warning to shareholders and investors, forward thinking legislation is going some way to strengthen the requirements of due diligence in anti-corruption measures and should serve to assuage some fears that may have arisen.

* Mabey Engineering (Holdings) Ltd is the parent company of modular bridge manufacturers Mabey and Johnson Ltd and part of the Mabey Holdings group.