There is a widespread recognition within Bangladesh that corruption is endemic and its roots lie deep in bureaucratic, business and political institutions. Corruption, however, has become a worldwide problem and has been brought to the forefront of the development agenda with the World Development Report 97: The State in a Changing World. It was followed by the World Bank report "Helping Countries Combat Corruption", which presented a four-pronged approach to guide the Bank's anti-corruption activities:
Preventing fraud and corruption in Bank-financed projects
Helping countries requesting Bank support to reduce corruption
Taking into account corruption in country strategies, lending, policy dialogue, analytical work and in the choice and design of projects
Adding voice and support to international efforts to lower corruption.
The ongoing anti-corruption work in Bangladesh will help to address the four-pronged approach. This report summarises the findings of four diagnostic studies on corruption conducted by Transparency International Bangladesh (TIB) for the World Bank, and includes recommendations that could used for the Bank?s dialogue with the government.
Objective, Scope and Limitations
The objective of the diagnostic studies is to help improve our knowledge of the manifestations of corruption, analyse the factors / causes leading to the phenomenon of growing corruption, determine the reasons that impede anti-corruption work, and propose remedies. A key objective is to improve our knowledge of areas where corruption is most prevalent along with improved information on the magnitude of bribe payments, the mode of payment of bribes, and the process involved, so as to come up with some specific remedial action plan.
This report recognises that measurement problems are a serious obstacle facing any work on corruption. Given its intrinsically secretive nature, it is difficult to collect reliable quantitative information on corruption. Nevertheless, the diagnostic studies, which essentially comprised of case studies in selected public sector departments, do allow us to evaluate, even though imperfectly, the extent of corruption and to ascertain the areas where it has the largest impact and deserves urgent remedial action. The four departments covered by the studies are the Bangladesh Power Development Board, Customs Department, Roads and Highways Department and the Banking Sector.
BANGLADESH POWER DEVELOPMENT BOARD
The number of new 'Jamuna Bridges' that can be built from the savings arising from a reduction in 'system loss' in the power sector may be a somewhat contentious issue. What is more relevant to the Bangladesh Power Development Board (BPDB) today is how much generation capacity it could finance itself by plugging some of its revenue and expenditure leakage.
At a rough estimate, a 10% reduction in system loss would yield Tk 3 billion in savings, sufficient to add to the system 200 MW of simple cycle gas turbine generation every year. Alternatively or additionally, a mere 5% reduction in the inefficiency of spending the Tk 15 billion annual development budget of the government's power sector could yield Tk 750 million, sufficient to add another 50 MW to the system, raising the total additional generation capacity by 250 MW. In one year, the current power crisis of greater Dhaka could be tackled and in two years, the shortage of generation capacity in the entire country could be put right.
Genesis of Corruption
Corruption in the power sector had not assumed serious proportion until after the independence of Bangladesh. In the 1960s, stealing of electricity was significantly more widespread in West Pakistan than in East Pakistan. Suspicions about corruption were mainly focussed on the purchase and construction contracts relating to the power department headquarter, and not so much on execution of large projects or appointments of consultants of which there were many.
As shame and remorse once attached to corruption gradually vanished and certain sections of employees became gradually emboldened under protection of their Collective Bargaining Agents, corruption spread to a wider sphere of BPDB's activities and cases once confined to only subordinate staff extended to certain sections of officers.
Payment of a small percentage of a bill to the accounts section by contractors has become standard practice and is now taken for granted. The same is the case of gratification required by junior officers for certifying measurements, recommending quoted rates for unscheduled works, and for higher level officers approving bills. Engagement of ghost labour in the master roll, particularly during an emergency, is fairly common. These types of corrupt transactions would be fairly common in most government agencies and departments. But however prevalent such petty corruption may be, it is the large scale corruption associated with BPDB's technical and commercial functions that has been eating away at the vitals of the organisation and hurting the economy and the society.
Invitation to Corruption
Scarcity increases the opportunity cost of any service and provides opportunities for corruption. The acute shortage of generation capacity and its consequent effects - frequent load-shedding, low voltage and low frequency - on different economic sectors, as well as on essential services such as water supply, hospitals, and telecommunications, have opened up doors for many types of corruption.
If BPDB had taken more seriously its own past estimates of the required power supply growth and had tried to impress upon the government the necessity of adding at least 250 to 300 MW of new generation capacity every year over the last 4 to 5 years, there would be no power shortage today. But the protracted pondering, indecision and inaction by the BPDB and the government have led to the gradual worsening of the prevailing power crisis. With its back to the wall, the government's search for quick-fix solutions has resulted in some good (opening up the sector to independent power producers, allowing self generation by industries up to 10 MW capacity) and not so good (pushing power distribution organisations into generation, rehabilitating old and obsolete plants) policy decisions.
Apart from suspicions about high-level, large-magnitude corruption in the procurement processes resulting from the government's crisis avoidance actions, the shortage of generation, transformer, and distribution line capacity provides incentives to fairly widespread corruption in giving new electric connections and increasing the authorised load.
The most pernicious phenomenon nurturing corruption is the so-called system loss which involves the theft of a substantial volume of electrical energy. What was initially a minor issue became gradually more serious due to the neglect in enforcing discipline at a time when things were still under control. With no disciplinary actions forthcoming, delinquent BPDB employees developed an attitude of having the "right to steal". Protected by strong trade unions that claimed political support and patronage, and with the connivance of certain sections of officers, the employees have been an active party to the system loss, causing huge revenue losses to BPDB and undermining its financial viability. This has led to the loss of donor trust and aidworthiness.
At the same time, demand management has been handled most casually. Some classes of electricity tariff (residential and commercial) continue to be higher than rates prevailing in regional countries. Consumers, faced with high electricity bills relative to their income, are tempted to get their bill totals reduced by bribing meter readers, billing clerks, and customer account keepers.
Corruption in Procurement
Top officials in the BPDB have hinted that major corrupt practices in large contracts take place "outside the organisation", which would seem to indicate the ministry level. None, however, denied the existence of minor vices at different levels of BPDB, a phenomenon which they felt was common to most development-oriented government departments that handled large construction and supply works. In contrast, Dhaka Electric Supply Authority (DESA) officials suggested that corruption in procurement was not significant, while Rurual Electrification Board (REB) officials claimed that well-developed procurement procedures and effective supervision of their procurement system offered little scope for corruption.
The rate of corruption is generally thought to be between 15 to 20 % of the value of procurement contracts, although in limited cases it was reportedly as high as 30%. Illegal gratifications that are required to be paid are of three forms:
1. Payments for information, which could give a bidding contractor an edge in the bidding process. The amounts involved are usually small since junior grade officers and subordinate staffs are involved.
2. Payments for manipulating tender specifications to favour certain types or brands of plant and equipment or for influencing the evaluation criteria. Fairly senior officials are involved here and the process is more difficult and risky. Hence larger payments are involved.
3. Payments for recommendation and approval of contracts are very large and made to high level officers in the BPDB or the Ministry of Energy.
Senior BPDB officials have to put up with direct approaches from bidders during the evaluation stage, as well as disguised lobbying by influential people in government (e.g. late night telephonic dropping of hints). Even members of the Cabinet Purchase Committee, sitting in formal meetings, have been known to raise queries on matters not contained in the official files placed before them.
Corruption in Getting a Connection
Getting a electric connection from the BPDB or DESA is a very difficult process, involving hassles, delays and, for the average consumer, bribery. The application form for a service connection asks for details of property ownership, lease deeds, and, for industrial connections, clearance certificates from the fire department and the Health Division. It is easy to find faults in the dozen or so attachments, unless appropriate palms are greased. Six signatures of various BPDB officials are required for the approval (shortened from the previous thirty), while the time involved for moving the case from one office to another is inversely related to the amount of gratification paid.
A new domestic consumer may get away with paying between Taka 5,000 to 10,000, but a commercial or industrial connection would cost a lot more. For example, a small factory requiring a bulk low-tension connection of 45 KW capacity could easily spend Tk 50,000 or more. For small and medium enterprises, a connection "surcharge" of Tk 1,000 per KW is the norm. The ever-helpful BPDB or DESA employees offer their services for arranging new connections, thereby avoiding the hassle of doing the complete desk round. Very large high tension consumers have a much easier time of it, as they generally are influential persons. For them, bribing is mainly limited to paying baksheesh to working level people.
In fiscal 1998-99, BPDB generated 14,150 MkWh of electricity, purchased another 450 MkWh from private sources, but billed for only 11,462 MkWh, giving a system loss of 22%. This was better than DESA's 40% but poorer than REB's 17%. The weighted average system loss in the power sector as a whole is estimated at 35%, which includes 21% technical loss. The balance 14% (non-technical loss) was due to pilferage, theft and unauthorised use. In 1999-2000, total generation by BPDB and independent power producers is projected at 17,535 MkWh. Theft of electricity at the rate of 14% is therefore estimated to be 2,434 MkWh. At an average tariff of Tk 2.10 per kWh, the value of the theft would be Tk 5 billion.
The corruption related to the theft of electricity has become very pervasive. Apart from meter readers, supervisors, ledger keepers and other positions connected with billing and consumer accounting, many Assistant Engineers and some high level officers are involved in this vice. With the involvement of officers, supervision becomes impossible. On the consumer side, people across the economic spectrum are involved in dishonest practices.
The number of illegal connections is enormous. Although no one knows the actual figure, it could be as high as 300,000. Theft also takes place by way of tapping distribution lines, bypassing meters, 'fixing' the meters, and misusing free electricity supply for BPDB employees. High tension consumers, particularly some textile mills, jute mills and chemical plants, often remove the fuses from instrument transformers in order to disable the energy meters.
Case Study: Lifestyles of the Rich and Infamous
A Ledger Keeper in DESA, a very low level employee, became the envy of many when he purchased a house in a middle-income residential area of Dhaka for Tk 3.8 million and an allotment in a shopping arcade.
Many Assistant Engineers of BPDB own private cars, which they cannot afford to buy and maintain on their official salary.
A particular Assistant Engineer, with close links with the Collective Bargaining Agent, comes to office in a luxury four-wheeler, while another mints money by making various interventions in the name of a minister.
A meter reader who was placed under suspension joined the ruling political party, got his job bank, became a CBA leader, and is now the happy owner of two houses and a shop.
An corrupt and overweight meter reader, who employed agents to do his job and concentrated on eating instead, was transferred from Dhaka to an outstation by an over-zealous DESA officer. Fretting and fuming, the reader came to see a very senior DESA official and told him in no uncertain terms, "Sir, I have been working for 25 years in one place and nobody dared to touch me. You have not done well by transferring me. I will see how you can move me." Sure enough, he stayed where he was, with the help of his co-operative union leaders.
The Power of the Trade Unions
Both BPDB and DESA are hostages in the hands of union leaders whose sinister influence reaches every section of the organisation. They dictate what can or cannot be done in matters of posting and transfer of officers, award of small contracts, and settlement of the financial claims of contractors and suppliers. Very few officers dare to challenge the unions' illegal authority for fear of bodily harm, knowing that support from the head office would not be very forthcoming.
Over-manning of serious proportion provides the numbers to boost the rank and file of the unions. According to unofficial statistics, 40 percent of the 6000 or so DESA employees do not work regularly or at all. In addition to the regular wages, many of these ghost workers collect overtime money, part of which finds its way into the union's coffers. About 30 percent are thought to be active participants in union activities. DESA has three trade unions, each claiming affiliation to one of the three major political parties. Each wing contributes to their respective party election funds.
Causes of Corruption in BPDB
From the above discussion, the following factors emerge as the significant causes of corrpution within or connected with the BPDB:
Centralisation of decision-making powers with respect to procurement of capital equipment in the hands of the political government, who are less accountable and controllable in comparison to BPDB officialdom.
The acute shortage of generation capacity and consequent scarcity of electricity which has opened up many opportunities for corrupt transactions.
Poor demand management which has resulted in very high tarriff rates for some classes of consumers.
Consistent failure of successive governemts over the past 30 years to take effective action against beneficiaries and providers of stolen electric power.
Over-manning and the growing power of politcally backed trade unions which support and profit from the corruption related to non-technical system loss, local contracts, etc.
Unnecessarily stringent and lengthy procedures for getting a new connection.
Why Corruption Continues Unabated in BPDB
To deal with electricity theft, there simply is not enough special magistrate courts and mobile courts to handle the huge backlog of cases to prosecute. The few fines, disconnections and even imprisonment have not created any deterrent effect. Illegal consumers, whose lines have been disconnected, are able to re-establish the connection in no time, illegally of course. The rate of disposal of cases is very slow, with the magistrates and BPDB / DESA blaming each other for the delay. The vested interests are too strong as the scope for making illegal gains is considerable, both in terms of ease of operation and the money amounts involved.
There have been no significant anti-corruption drives within the BPDB nor any court actions against corrupt employees. On occassions, mid-level officers have been suspended from duty on suspicion of moral turpitude and financial irregularities. But most were re-instated for lack of evidence. Instances of departmental inquiries or disciplinary actions against lower grade employees are even rarer due to the supposed or real fear of retaliation by trade unions.
The network of BPDB officers and staff who have been consistently robbing DESA and BPDB with impunity, with the backing of so-called trade unions, has growth in strength over the last three decades. But no matter however powerful this corrupt group of petty thieves appear to be, they are no match for the forces at the government's disposal. Therefore, the obvious conclusion to be drawn is that an absolute lack of commitment and the absence of political will on the part of the government are nurturing the continuation of corruption. The maintenance of the status quo benefits many vested interests. Conscientious officers eventually fall in line with the system, some perhaps joining it, when they discover that the known culprits enjoy the protection of powerful godfathers, some of whom come in the guise of lawmakers.
Suggested Remedial Measures
Given the institutional hold of corruption within BPDB and DESA, radical changes and drastic measures will be needed to redress the situation. To date no government has demonstrated the political will to take on the powerful nexus composed of dishonest workers, corrupt officials in the agencies and the ministry, opportunist traders, lobby groups and most certainly political leaders. A government having the required political conviction might have considered the following options:
Declare electricity generation, transmission and distribution as an essential service, and enact a law banning all trade unions in organisations involved with these functions for five years.
Arrange sufficient funds for "golden handshakes" to all corrupt meter readers, bill clerks, and inefficient supervisors whose assets do not match their legal income in order to clean the slate in one go.
Until new meter readers, bill clerks, and supervisors are appointed or alternative arrangements made, induct the help of non-commissioned army officers in meter reading and billing in order to establish a benchmark position.
Convert all distribution organisations into limited companies with private sector participation and allow them to function as normal private companies without interference from the government.
Establish a regulatory body to monitor, co-ordinate, regulate and facilitate the functions of all the power utility organisations and ensure that consumer rights are protected.
Rationalise the staffing of utility organisations, revise salaries and allowances making them commensurable with the cost of living, provide employment on contract basis with the flexibility of hiring and firing.
Conduct intensive training programmes for skill improvement in all important functions (BPDB's current training budget is a paltry 0.2% of the annual operating budget).
Allow utility companies total freedom to handle own procurement without having to go to the ministry or the Cabinet Purchase Committee, with provision for regular external audits built into the system.
Genesis of Corruption
The legacy of corruption and malpractice in the banking sector can be traced back to the pre-liberation (pre-1971) days. The Pakistan government, bent on rapid industrialisation and modernisation of agriculture, provided liberal refinance facilities to specialised development finance institutions, who were encouraged to dole out large amounts of money to budding industrialists and large agriculturists. There were reports of borrowers bribing bank officials in cash or kind for getting loans. Large industrial loans required political patronage, some of which was thought to have had a price tag attached to it. Insider lending was common in private banks, as was the use of bribes to mobilise scarce deposit funds from owners or controllers of government and military funds. The incidence of fraud and forgery was however very limited and/or not made public.
Growth and Spread of Corruption
After independence, all private banks, excepting foreign banks, were nationalised and brought under the direct control of the bureaucrats. The government allowed the remission of interest and, in some cases, even the principal for borrowers who could claim that they had been adversely affected by the war of liberation.
The acute shortage of manpower in the banking sector forced the government to go for hasty, quota-based recruitment drives. The prolonged government ban on new recruitment of officers (forced upon by trade union pressure) even when the branch network was expanding rapidly created pressure for promotion from the clerical ranks. This resulted in a decline in the average quality of the work force.
The government's policy of mandated credit for agriculture, to be disbursed through local level government officials and rural power brokers, practically institutionalised corruption in agricultural lending. Dishonest bank officals took a 10 to 20 percent cut of the loan amount, as a matter of routine.
The new government inherited from its predecessor an enthusiasm for rapid industrialisation. Government-owned development finance institutions (DFIs), using soft donor loans, financed numerous projects. However, a large proportion of such loans represented political patronage to party supporters, former and serving civil / military bureaucrats, and their relatives. In such cases, the lending decisions were obviously not based on sound banking principles. At the same time, commercial banks offered lines of credit indiscriminately without reference to the customers' bankability, safe in the knowledge that the bank's lending risk would be covered by Bangladesh Bank's credit guarantee. The free-wheeling banking operations came to a shuddering halt in the early eighties, following the hardly unexpected revelation that the DFIs were burdened with large non-performing loan portfolios. The flow of donor credit dried up soon afterwards.
Large borrowers wilfully defaulted on the loan repayments to the DFIs and nationalised commercial banks (NCBs), emboldened by their close links with the corrupt civil-military bureaucracy. Subsequently, the defaulters extracted concessions in the form of interest waivers, segregation of loans into "blocked accounts", and repeated rescheduling. Some defaulters are alleged to have used the defaulted funds to start private banks and insurance companies. This gave them a further opportunity for insider lending and for diverting yet more funds to various pet ventures. Herein lies the origins of the 'default culture'.
The Situation Today
A recent study on the bank loan default problem found that in the sample group of 125 defaulters, 78% utilised political connections, including ministers' influence, to get loans sanctioned. Of the 37% directly involved with the ruling party, a large proportion had changed their political affiliation at least once.
Successive governments have made half-hearted attempts to tackle corruption in the banking sector. Recommendations made by various committees set up to investigate corruption never received the priority that they deserved. In some cases, the final report was not even published. The attitude of major donors was ambivalent. The Financial Sector Adjustment Credit programme (World Bank) and the Financial Sector Reform Program (USAID), two major aid projects focussing on the financial sector, neglected the issue of combating corruption in banks.
The political patronage enjoyed by the defaulters and dishonest senior bankers was sufficiently strong to prevent the Anti-Corruption Bureau (ACB) from investigating suspected bank officials without the clearance of the Prime Minister's Office (PMO). Defaulters were allowed to contest the 1991 general election. In the 1996 elections, the caretaker government initially took a strong stance against the participation of defaulters. The government later reversed its position and allowed defaulters to contest, provided they got their default loans rescheduled on payment of only a single instalment of 10% of the defaulted amount. After getting elected a Members of Parliament, their default status no longer mattered.
Recently, the government, with some sustained prodding from the donors, has brought in new laws to fight defaulters in spite of the powerful defaulter's lobby in the parliament. But these reform measures has not reversed the poor trend; the banking sector remains fragile and capital deficient. The proportion of total bad loans has increased (67% for DFIs, 40% overall) despite the fall in the proportion of classified loans disbursed during 1996-98. Today, the NCBs and many private banks of Bangladesh would be considered insolvent by international standards.
As for the default loan scenario, the entire focus has been on the borrowers. Bank officials have been very fortunate to escape blame for their role in many corrupt, or at best ill-judged, lending decisions. There appears to be a lack of awareness in the government and the banking community that bank officials can be penalised by the law for wilful or negligent conduct in disbursing loans.
Magnitude of Corruption
Reliable estimates of the monetary involvement in cases of bribery, fraud and forgery in the banking are hard to come by because of the high degree of secrecy maintained by the concerned parties. Good borrowers who are active abettors in the game prefer to conceal their involvement whereas defaulters are prone to exaggerate their costs of doing business with banks.
The cumulative losses through frauds and forgeries is estimated to be Tk 1 billion at the end of November 1998, at 0.2% of total bank deposits. Bribes related to agricultural loans are said to range between 10 to 20% of the loan amount; but a lower rate (2-10%) applies in the case of larger loans which are usually taken out by relatively influential borrowers. In the case of project loans for agriculture, fisheries, and dairy, bribes collected by the bank officials are sometimes shared with the local government project development officers. In the case of commercial loans, the banker not only collects outright bribes (1-5% of the loan limit), but often receives occasional gifts and regular hospitality or entertainment from the client. For term loans, the bribes range from 1 to 5 %, depending on the (a ) type and size of the projects, (b) special services, if any, to be rendered by the bank staff in preparation of the project feasibilty report and processing the loan proposal as a "package deal", and (c) the status of the person influencing the loan sanctioning decision. The successful borrower has to pay a further sum at the time of disbursement. Working capital loans involve a separate payment of 1 to 5% to the bank's managers, employees and trade union leaders.
Nature of Corruption
The diversity of bank services and the numerous steps involved in loan processing, disbursement, and monitoring provide corrupt bank officials with a wide range of opportunities for extracting bribes. The more common and significant of these include:
Sanctioning of loans not on the basis of prudent banking principles but for some other considerations, such as
outright bribes in the form of cash, valuable gifts, allotment of land, house construction, acquisition of apartments, share in business (usually in the name of dependants), appointment of dependants in good jobs, scholarships and admissions in educational institutions
political pressure and patronage for posting, promotion, and extension of job tenure
future lucrative employment in the borrower's company
Over valuation of properties and assets of the borrower which are offered as collateral
Cash credit without actual physical pledge of goods, contrary to documentary evidence
Allowing withdrawal of funds in excess of or after expiry of the loan limit
Loans sanctioned to the banks directors in driblets over a period, each sanctioned amount being within by the managing director's authorisation limit.
Institutional malpractice include:
Payment of substantial contribution to ruling party political funds and to key middlemen who have an effective say in the granting of licences for opening a new bank or a new branch of existing bank
Entertaining or bribing bureaucrats who have regulatory control over large potential deposit funds. An increase in the incidence of such practices is very likely given the increase in the number of private banks and the formulation of a new government policy which allows 40% of government funds to be deposited in private banks.
Case Study: Corruption related to Working Capital Financing
The Principal Office of a bank extended loan facilities to a private steel mill owned by one of the richest families in Bangladesh by extending the loan limits and repayment period without the required authorisation, collateral and loan margin. The company subsequently defaulted on the repayment of the loan principal and unpaid interest. The company's factory ceased operations in 1993.
This case involved collusive arrangements between the borrower on the one side, and the Branch Manager and his superiors in the Head Office on the other, taking advantage of a government directive to extend term loans and working capital facilities to the industrial sector. Subsequent investigation revealed several irregularities, including:
The borrower's cash credit (CC) limit was extended but the bank did not ask for repayment within the original stipulated period.
The company, with active connivance of the branch manager, failed to deposit the proceeds from the sale of pledged goods. The manager also failed to monitor the end-use of the loans.
The borrower received illegal banking facilities without providing the required collateral or margin.
The interest rate on the CC amount was only 6.5%, half the the original borrowing rate of 13%.
The branch manager inflated the valuation of collateral securities without taking any advice from a professional surveyor.
The branch manager sanctioned loans against imported merchandise without having the authority to do so.
The branch manager did not take legal advice about the status of immovable property which was taken as the primary security.
The branch manager did not verify the stocks of goods pledged.
No legal action was taken against the defaulting borrower up to June 1997. There is no evidence of any concerted effort by the bank's management to recover the loans from the borrower or of any administrative action against the officers involved. Therefore, it can be assumed that the chain of corruption reached up to the highest executive level of the bank. Some justice was dispensed with the subsequent removal of the managing director from service for "his general reputation as a corrupt person".
Trade Union Activities in Banks
Trade union activists, particularly the Collective Bargaining Agents (CBAs), are often involved in pressurising the authorities to sanction loans to themselves, as well as to outside borrowers. CBAs in banks are not averse to using strong-arm tactics to influence the management in decisions relating to recruitment, postings and transfer, officer promotion, award of construction contracts, and even loan applications.
CBAs have fairly strong links with the ruling political parties and receive their protection. Such support have allowed the CBAs to successfully resist government moves towards an outright ban or a 3-year suspension or a curtailment of union activities in banks.
Causes of Corruption in the Banking Sector
The findings of the diagnostic study indicate that the following factors played a significant role in the growth and continuation of corruption in the banking sector in general, and the nationalised commercial banks in particular:
The government's rapid drive towards industrialisation during the first decade following independence whereby large amounts of industrial loans financed from soft donor sources were liberally doled out to favoured persons.
The government's policy of mandated credit for agriculture, disbursed through local level officials.
Interference by senior government officials in lending decisions, directing the bankers to lend to dubious projects owned by political or business allies of the ruling party, in violation of sound banking principles.
Leniency of successive governments towards known loan defaulters, most of whom belong to the highest social and political classes in the society.
The poor calibre of bank officers, many of whom lack the requisite background and training needed to carry out proper banking functions.
The ambivalent attitude of the major donors with regard to the issue of combating corruption in the banking sector.
The growing power of politically backed trade unions.
Low compensation package for bank officers and staff.
Reasons for the Continuation of Corruption
As a general proposition, grand corruption in the banking sector, manifested in the form of large loan defaults, has continued to fester because governments of the day either did not have the required level of commitment to combat this disease or did not consider it politically expedient to take action against the defaulters who had strong business or political links with the ruling cliche. In many cases, the influential ruling party members or the lawmakers themselves have been the direct or indirect beneficieries of bank corruption.
However, there are other deficiencies in the system which have allowed and encouraged the maintenance and growth of corruption. These include:
Inadequate and ineffective internal controls within banks
Weak supervision and monitoring by the Bangladesh Bank
Reluctance of management to take appropriate disciplinary actions against recalcitrant and delinquent elements
Archaic institutional procedures to deal with the delinquents
Jurisdiction of Administrative Tribunals over the NCB personnel
Pressures from politicians and trade unions
An inefficient and corrupt Anti-Corruption Bureau
Suggested Remedial Measures
Serious and committed efforts towards reducing corruption in the banking sector could consider the following remedial measures:
Appoint an Ombudsman exclusively for the banking sector.
Set up special tribunals to facilitate expeditious trial of defaulters.
File test cases against some delinquent large borrowers to send a strong signal to others.
Retrench surplus manpower through "golden handshakes".
Curtail trade union activities. Allow only one registered union per bank, and prohibit the installation of the trade union office within the bank premises.
Restore the ACB's professionalism, expertise and credibility by drastic revamping it.
High Courts could play a non-discriminatory and proactive role by issuing suo moto rules on the government why incidences of glaring corruption committed by ministers and other high level officials should not be properly investigated.
Corruption should not pay and a corrupt person should not be allowed to enjoy his / her ill-gotten assets. The Penal Code should be amended to allow confiscation of such assets.
Conduct both 'off-site' and 'on-site' inspections of banks. Look into the feasibility of mandatory audit of each branch by external auditors every alternate year at the cost of the inspected bank.
Make external auditors more accountable for their failure to report gross irregularities.
Delegate further the powers for sanctioning an disbursement of loans, without jeopardising prudent banking and security considerations.
Bangladesh Bank should have complete and effective autonomy. The Governor and Deputy Governors should have fixed tenures. No civil servant should be appointed as Deputy Governor. The Governor and Deputy Governor should not be allowed to take up employment in private banks / non banking financial institutions within three years of retirement.
Bank directors should not be allowed to borrow from the bank in which s/he is a director, to eliminate "insider lending" and reduce default culture. (This rule has recently been implemented by Bangladesh Bank).
Greater transparency in political party funding sources will make it more difficult for political parties to receive major contribution from bank defaulters.
Corruption is pervasive in the Customs department mainly because of the immense discretionary and monopoly powers vested in and enjoyed by customs officers in a system where accountability is conspicuous by its absence. A secondary reason is the absence of institutional discipline, whereby career planning decisions, transfers and postings are made on the basis of pressures, gratification and other considerations instead of clearly established principles. The situation is made worse by an absence of moral commitment on the part of customs officers, arising from a flawed system of recruitment which is based on transfers or promotions from other government departments or ministries, instead of direct and focussed recruitment followed by training. Corruption is certainly not a transitory phenomenon here.
Corruption does not have any institutional dimension as such, since a customs officer's corrupt behaviour is the result of his voluntarily decision to act at his own risk and responsibility. The institutional angle is limited in the sense that the sharing of a decision relating to the acceptance of a bribe may lead to sharing of the bribe money. But there is no institutional chain of start and finish in the corruption activities. Furthermore, the corruption activities do not stretch beyond the department to any great extent.
Corrupt officers take money directly from the importers or their agents mostly at their (officers') residences or at a neutral venue, and sometimes at the place of work. It is difficult to quantify the amount of bribe as a percentage of revenue, since the amount for any particular transaction depends of the monetary benefit to the bribe-giver. However, bribe amounts and rates are usually subject to shameless haggling.
The payment of "speed money" to staff and officers at every stage in the movement of a Bill of Entry or a file involving decisions on assessment of goods or adjudication of offences is a standard feature of customs transactions. However, it should not be considered a corrupt practice of significance and seriousness. The real game is elsewhere.
Corruption in the Assessment of Goods
Evasion of custom duty by a dishonest importer is the most common form of corrupt transaction in the customs department. In most cases this is done with the active connivance of customs officials, who allow the misdeclaration of value or quality or quantity of goods, smuggling or other commercial fraud.
The basic function of the customs involves the assessment of value and collection of duties and other taxes at the customs ports, airports, and land stations. The customs officers are the kingpin in the entire process. The present regulations pertaining to valuation provide a high degree of discretionary powers to the officers. Not surprisingly, an officer interprets and enforces the law in such a manner as suits his or her convenience.
The process of appraisement involves the examination of the imported goods to ascertain the correctness of the declaration made by the importer in the Bill of Entry. The procedure of 'first appraisement', where the goods are examined before making an assessment, is time consuming. The 'second appraisement' system, where assessment is made first and examination carried out later, is more convenient to the trade and conducive to the expeditious assessment and clearance of goods. However, the existing legal framework identifies the first appraisement as the standard method to follow, leaving the use of the optional second appraisement to the discretion of customs officers. To avoid delays, importers will often pay a bribe to ensure the use of the quicker method.
Corruption in the Detention of Goods During Assessment
The law requires customs officers to complete assessment and clearance "without undue delay". However, this phrase is not clearly defined and is open to subjective interpretation. In practice, delay is the order of the day. To avoid this, importers pay "speed money" as a matter of routine. If the customs officer causes due or undue delay in assessment, the goods remain virtually detained for a period which is decided by the officer and as a result the importer is bound to suffer financial loss.
Corruption in the Valuation of Goods
Valuation is a critical factor in the customs assessment procedure since duties on imported or exported goods are calculated in terms of a percentage of value (ad valorem). Until recently, the valuation method used was based on the concept of "normal price", which is the estimated price (in the opinion of the assessing officer) which the goods would fetch at an open market sale at the time of delivery. Valuation based on normal price is often arbitrary, fictitious and unfair.
The use of normal value has been the main bone of contention between the customs authority and the importers. However, the system can be mutually beneficial to corrupt officers and dishonest importers since it encourages under-invoicing of high tariff items. The loser is the government which receives a lower revenue as a result of the under-valuation. Corrupt officers can extract bribes by threatening to assess goods at a higher value on the basis of the recorded price in their possession.
In contrast, the "transaction value" system conforms closely to commercial realities and prohibits the use of arbitrary value. Under the terms of the WTO agreement, Bangladesh must eventually switch to this system, but exactly when it will do so no one knows. The use of transaction value is likely to reduce corrupt practices connected with valuation of imports.
The pre-shipment inspection (PSI) procedure for assessing imported goods has some merit in breaking the monopoly power of the customs department in matters of valuation, thereby reducing the scope for corruption. Such a system was introduced a few years ago for limited categories of import goods. But it was withdrawn because dishonest importers were able to get grossly under-valued certifications by unscrupulous PSI agents, who had no legal liability for the valuations they certified. A mandatory and hopefully legally sound PSI system based on the WTO agreement is expected to be implemented from early 2000. Three international PSI firms have already been selected using a competitive bidding procedure.
Corruption in Adjudication and Appeal Systems
Senior customs officers enjoy absolute discretion in deciding the fate of customs cases which are under investigation. Under such circumstances, they often abuse their powers of adjudication, and can very easily pass an order for confiscation of goods or imposition of penalty. Orders and decisions passed in adjudication are not supported by written reasons or documentary evidence. Thus, the doctrine of natural justice is not followed. The adjudication process can be lengthy as there is no legally provided time frame for deciding a case. This provides a scope for illegal gratification to expedite a case. After an order is passed, the actual issuance of the order can be subject to unusual delays. Here too incentives are required to get the order issued.
In 1995, the entire appellate jurisdiction of the National Board of Revenue was transferred to an Appellate Tribunal and the revisional power of the government was repealed. As a result, the tribunal's judgment in an appeal case is treated as final, unless the case is referred by the Tribunal to the High Court for determination of any question of law related to any order of the tribunal. There is, to date, no record of any application for reference to the High Court on any question of law. The finality of the Tribunal's order is effectively absolute, a situation which is bound to result in corrupt practice in the event of the Tribunal being constituted by persons of doubtful integrity. The Tribunal also handles cases relating to valuation or classification of assessment, even though it does not have jurisdiction over such matters. There are strong grounds to suspect ill motive behind such actions of the Tribunal.
Anomaly in the Tariff Structure
Many of the opportunities for corruption in the Custom Administration emanate from the tariff anomalies present in the Customs Tariff. High tariff on essential items of common consumption (e.g. fabric) leads to a path of duty evasion through misdeclaration of quality or quantity or under-invoicing of the imported goods in connivance with customs officers. Another anomaly is the existence of multiple rates of duty on similar or identical goods. Custom officers receive bribes to apply a lower rate on an actually high tariff item.
Case Study: Corruption resulting from anomalies in customs tariffs
The highest duty rate of 40% ad valorem applies to fabric of all description. After adding the 15% value added tax, 8% advance income tax, surcharge and fees, the effective duty is a prohibitive 72%.
Bangladesh's annual requirement of grey fabric is 3.3 billion metres, of which local consumption need is 1.5 billion metres and the export-oriented ready-made garments (RMG) sector need is 1.8 billion metres. Domestic production of 1.1 billion metres is not sufficient to satisfy the local consumption. Therefore, it appears that at least 0.4 billion metres of fabric needs to be imported to fill the local demand gap.
Yet customs record show that practically no fabric is imported for local consumption. This is not surprising given the 72% effective duty. What is surprising is that fabric of foreign origin are available aplenty in the local market. These fabric leak out from the bonded warehouses of RMG firms who are allowed duty-free and tax-free import of fabric.
An estimated Tk 25 worth of duty and tax evasion occurs for every metre of cloth imported for the RMG sector. This amount is broken down as follows: Tk 10 is paid as bribe to officials of customs and other related agencies which are involved in the assessment and clearance of fabric import; Tk 5 is paid as commissions to non-government agencies which are involved in issuing Utilisation Declaration and Utilisation Permit, in establishing back-to-back letters of credit, in supplying the goods and also in the clearing and forwarding or transportating the facbric to the local wholesale markets; and the remaining Tk 10 remains as windfall gain to the traders and the concerned RMG unit.
The practice described above is quite common amongst RMG units and therefore the amounts involved in duty evasion are quite large. Recently two RMG units were identified as having evaded Tk 307 million in government duties and taxes by selling duty-free import fabric in the local markets. In both cases, fake Utilisation Declarations were issued by the Bangladesh Garment manufacturers and Exporters Association.
Causes of Corruption in the Customs Department
Sweeping discretionary powers bestowed upon customs officials by the authority of the law allow endless opportunities to engage in corrupt transactions.
The absence of clearly established departmental guidelines governing recruitment, postings, transfers and promotions of officers, has resulted in a work-force of low ethical and moral standards and in an absence of institutional discipline.
An assessment system which uses a highly subjective valuation method to determine the amount of duties and taxes to be paid by importers provides the corrupt officer with the perfect tool to extract bribes with.
The absence of clear-cut time frame for completing the tasks of assessment and clearance encourages widespread bribery to expedite the customs procedure..
The adjudication and appeal procedures applicable to customs offences are characterised by high discretionary powers in the hands of the adjudicators and a departure from the norms of natural justice.
The presence of significant anomalies in the tariff structure provides incentives for evasion of revenue through methods of misdeclaration and underinvoicing of imported goods..
Why Does Corruption Continue in the Customs Department?
Corruption in the customs department takes place in such a subtle way in the regular performance of statutory functions by the customs officers that it becomes almost impossible to prove a charge of corruption against a particular officer. It is very difficult to gather the required evidence since usually only two or three persons are involved in the transaction. Given that accountability of officers is conspicuous by its absence, departmental anti-corruption measures are non-existent. The few, token efforts at tackling corruption have come from without, in the form of the Anti-Corruption Bureau (ACB).
However, the ACB, which is manned by enquiry officers who have little undertanding of the legal environment in the customs department, finds it very difficult to make any headway in corruption investigations against customs officer. Even if an officer is caught red-handed at the time of taking a bribe, the corruption charge does not get proved as such. The ACB investigator has to establish that the amount involved in the corruption offence constituted an "illegal gratfication", which is not very easy to do in practice. The mere exchange of money does not automatically mean that an offence has been committed. The ACB's impotency is reflected in the fact that not a single procesution has resulted in a successful conviction. There is thus no reason why corrupt customs officers should take the available anti-corruption measures very seriously.
Suggested Remedial Measures
The main thrust of corrective action should clearly target the reduction of the discretionary and monopoly powers vested in customs officers by appropriate changes in the legal and procedural system relating to assessment, appraisement, and detention of goods. At the same time, a departmental control system must be introduced to make officers accountable for any misuse of of power for gainful purposes.
New officers should be recruited through competitive examinations and put through planned training course. Subsequent promotions should be based on written or oral tests to determine efficiency and merit, with minimum dependence on annual confidential reports.
A transparent system should be introduced for keeping officers informed about their position and standing in matters of transfers and postings, promotion, and training abroad.
The incidence of "speed money" could be reduced by cutting down the redundant steps in a Bill of Entry's journey, without compromising the safeguards of revenue interest, and by setting down time limits for the completion of each stage of the assessment procedure.
When goods are detained, the detaining authority should follow a specified time schedule by which the detention and disposal procedure is completed. This is necessary to protect the rights of the importer, who must be informed of the fact of detention of his goods under a written order indicating the reasons for such detention.
There should be scope for making an appeal to the Appellate Division of the Supreme Court. The Appelate Tribunal should not meddle in matters of valuation and classification, which is best dealt by Commissioners as executive authority.
Tariff anomalies should be removed. This will not only reduce opportunities for corruption but in many cases will actually increase the government's revenue collection from import duties and taxes.
ROADS AND HIGHWAYS DEPARTMENT
The Roads and Highways Department (RHD), under the Ministry of Communication, is responsible for building and maintaining (a) national highways, (b) regional highways, (c) feeder roads which connect thana headquarters to the arterial road network, and (d) bridges and culverts. Additionally, RHD operates ferries of various types and sizes to link the rest of the system.
RHD receives a healthy allocation from the government's development budge. In FY 1999-2000, RHD's allocation was Tk 14 billion (USD 270 million), of which the foreign aid component was 55 percent. The bulk of aid funds (83%) came from IDA, ADB and OECF Japan.
The chief operating officer of RHD is the Chief Engineer who sits at the top of a pyramid organisation structure, with engineers dominating the line functions. Apart from the 9,000 or so permanent employees, RHD is burdened with at least an equal number of temporary lower level staff, who were originally employed under specific projects but managed to stay in employment with support of the unions and other vested groups. Not surprisingly, the RHD is grossly over-manned.
Corruption in the Selection of New Roads
The identification and selection of new roads to be constructed should be based on cost-benefit analysis, considering the availability of financial resources. In practice, such analysis is rarely done except in the case of donor-funded projects. The task of identifying new road projects has traditionally been "delegated" to ministers, members of parliament, bureaucrats, and the influential local elite, for whom the construction of a road is an effective means of buying future votes. Thus, many of the road projects which are taken up have very little to do with national or regional priority and availability of financial resources. Yet, neither the Planning Commission nor any other relevant agency raises any question about the justification of such "mandatory" projects.
Until a road completed, the project sponsors will often invoke the support of a minister or even the prime minister to successfully lobby for additional financial allocations, causing even more wastage of scare developmental funds. Sometimes pressure is brought upon divisional RHD officers who, under the government's administrative and financial rules, are authorised to write cheques on the government account without any limit.
Because of the large numbers in the implementation schedule, projects are rarely completed in time. When a particular stretch of a road is ultimately built and opened to traffic, repairs become necessary before the full length of the road is completed. Development funds are usually diverted for such repair work, with little regard to proper maintenance of accounts for such expenditure.
Corruption in Road Construction
Widespread corruption is involved in determining the path a new feeder road should follow. It is quite common for affected landowners to bribe junior level RHD officials or use of their political connections to change the course of a road. As a result, a road that had a straight alignment as per the original plan ends up with numerous bends.
After the commencement of civil work, RHD officials receive kickbacks from the contractors either a direct payment (usually a percentage of the contract value) at different stages of the job, or as a share of the contractor's surplus arising from an over-billed or fictitious or substandard contract work which was knowingly approved by the RHD engineers in the first place.
A common example of the second type is the frequent re-carpeting of roads. The annual re-carpeting which takes place in Bangladesh would not be required had the work been done according to RHD's written specifications. By producing sub-standard work, the contractors and the collusive RHD officials jointly ensure the continuity of future corrupt earnings.
Earthwork is another source of rampant corruption. Embankments of 6 to 8 feet height are often required to protect the road from flooding during the rainy season. Private contractors will usually make the road measurements just before the onset of the rainy season (March to June) and carry out earthwork during the rainy season when parts of the earthwork are washed away, making it impossible to verify the extent of the work. It is common practice for contractors to bill for trucked-in earth which involves a higher cost, when in fact the earth is usually dug up from the depressed areas on either side of the road. The windfall gains resulting from such fraudulent activities are pocketed by the contractor, who shares a part of it with the RHD executive engineer who certified the work and cleared it for payment.
Corruption in Engineering Supply and Repair Contracts
In engineering supply contracts (e.g. spare parts for ferries), original or genuine parts are never supplied. The contractor, after paying bribes to the RHD hierarchy, has to make some profit for himself after all. There would be nothing left if he purchased a genuine or new part. Sometimes, the contractor will purchase an original part - one which has been stolen from RHD stores with the connivance of the store-keeper. For repair works, most contracts end up is false or fictitious works since there is no physical supply involved. In some cases, the contract itself is fictitious. If the work is to be done outside of Dhaka, chances are even greater that no actual work or supply will take place.
The rates of bribe paid to the different levels of RHD officials are well established and known to all relevant parties. Deviations from the standard rates are the prerogative of the higher level officials. The total bribes paid by a contractor ranges from 37% to 47% of the gross contract value. The effective rate between 40% to 52% of the net contract value, after deduction of VAT and advance income tax.
Selection of Local Contractors
Local contractors are usually selected through covert negotiation, although records would show that a competitive bidding system, as required by government rules, was followed. Prior to the submission of bids, a tacit understanding between the RHD officials and the contractor syndicate on the allocation of contracts amongst contractors and the contract prices. Competitors do not object to such an arrangement, and wait obediently for their turn in some other contract.
Outside experts are rarely used for determining the volume of material and labour input, or for preparing the design specifications. As a result, the quantity of work budgeted for is usually much higher than actual requirements. Besides, few projects can be completed within the stipulated period for want of adequate resources. For such delays, contractors are compensated by increasing rates and in other forms providing additional benefits.
Selection of Consultants and Contractors in Aided Projects
For aided projects, the method of selection of consultants and international contractors is guided by the terms of the loan / grant agreement and the guidelines of the respective development partner. Even so, RHD officials enjoy considerable discretion in determining the ranking criteria for contractors involved in the pre-qualification. Advance information is passed to select international firms or individuals through their local agents with a view to favouring them in the final selection. In some cases the bid documents are manipulated to favour a particular firm.
Although the donor agency usually approves shortlist of consultants, the final selection lies with the RHD, based on weights assigned to the various selection criteria. There is scope for considerable discretion here, mainly at the higher levels of officials. The bid evaluation report and the recommendations of the evaluation committee are not made public before the final selection.
Cases have also been reported where RHD officials had to make decisions (in selecting consultants / contractors) respecting the wishes of the administrative and political authorities and the ministry. As a result, there have been cases where the selection changed when the "authority" changed. In the Jamuna Bangabandhu Bridge project, selection of the consultant for construction of the access road was changed several times with change of such "authorities". This process may lead to selection of consultants who are not technically the best, but are found "acceptable" on other considerations, at times with disastrous consequences.
Corruption in Consulting Activities
Consultants pay, on average, 12 to 15% of their fee as bribe at the time of commissing of the contract. The money is divided between ministry officials, and the members of RHD's Technical Evaluation Committee. Interestingly, the corruption level in the RHD is judged to be "moderate" compared to other government departments. The RHD rate is usually between 2 and 6% of the consultant's fees, whereas in other departments, the rate is not only higher (up to 15%) but is applied to the sum of consultant fees plus out-of-pocket expenses. RHD is by far the largest user of consultants and the recipients of bribes apparently abide by the dictum of "not killing the goose that lays the golden egg".
Case Study: The many ways to bell the cat
In a particular donor-funded bridge construction project, the foreign consultant recommended that a consignment of steel supplied by a local company be rejected since it failed the quality test. RHD officials were very unhappy with the foreign consultant's note, complaining of unnecessarily high standards, and put all kinds of pressure on the consultant to withdraw the note. RHD even put pressure on the local consultant, giving veiled threats of black-listing them in future if they failed to convince their foreign counterpart to withdraw the objection.
It was only when the foreign consultant took a hard stance and threatened to bring the issue to the notice of their embassy officials and even the Minister for Communication, that RHD grudgingly accepted the disqualification. But this was not the end of the story. RHD blacklisted the company which was to supply the requisite quality of steel. This company then paid RHD to get the blacklisting removed. So RHD found an ingenious way to collect the bribe in the end.
Causes of Corruption in the RHD
Centralisation of decision-making powers relating to the selection of consultants and construction firms for big projects in the hands of ministry officials, who are less accountable and controllable in comparison to RHD officials.
The selection of locally-funded feeder road projects is not based on economic cost-benefit analysis, but on the relative political clout of a vested external group, composed of ruling party leaders, politicians and local elite.
Lower level RHD officers have too much discretion to change the alignment of rural and feeder roads.
Outside experts are rarely used to independtly determining the volume of material and labour input, or for preparing the design specifications. As a result, the quantity of work budgeted for is usually much higher than actual requirements.
Senior RHD officials have too much discretion in the setting of micro criteria to be used in the evaluation of consulating firms.
The technical evaluation comiitttee's report is not required to be published within any stipulated time period.
Reasons Why Corruption Continues
Although RHD has elaborate rules for proceeding against corrupt official, these procedures are seldom invoked. In the few cases when departmental action has been initiated, the accused officer was either let off completely or subjected to minor punishment. The reason behind such blatant unconcern is easy to understand since corruption has taken firm hold at each level in the RHD official hierarchy, reportedly starting at the very top.
Very few cases have been referred to the Anti-Corruption Bureau, since most of the officers who would make such a decision are themselves the beneficieries of corruption. Moves to control corruption from RHD controlling ministry are not forthcoming reportedly for the same reason.
Suggested Remedial Measures
In foreign-aided projects, the concerned donor agency and RHD should jointly set down the micro-criteria to be used for technical evaluation.
During technical evaluation, at least one representative of the donor should sit in as an observer in the Technical Evaluation Committee, to ensure that evaluation does not suffer from undue delay.
The Evaluation Committee should not take cognisance of anonymous complaints made to the minister or the secretary. This is used as a blocking tool when committee decisions do not appear to be going the way of the interested party.
The criteria for shortlisting or prequalification of consultants and contractors should be made public before final decision is taken.
An investigation of possible collusion between consultants and RHD / ministry could start with an analysis of the contract award history, relating the findings to close familial or known business links between the key decision-makers and the consultants.
Local government bodies should be handed the authority to plan and implement all feeder and regional roads, along with the power to raise matching funds for financing these projects.
The Chief Engineer of the RHD should be selected on the basis of merit, not seniority.
The cheque issuing authority of RHD should be revoked except in situation in situations of disaster management.
Rooting out corrupting from the RHD is a long-term proposition. Any workable solution must include steps to drastically down-size RHD's present scope of activity. The aim of such down-sizing would be to limit RHD's main function to regulatory and policy-making roles, with all line work to be carried out be consultants.
SUMMARY AND CONCLUSION
This report summarised the findings of diagnostic studies on corruption in four government departments. The studies have revealed the existence of pervasive corruption at almost all hierarchical levels and sections of the departments. Whilst the specific nature and causes of corruption may differ from department to department, there clearly are common organisational characteristics which have helped to create an environment in which corruption is nurtured and sustained. These are: generally low ethical standards in personnel, absence of institutional discipline, and a lack of moral commitment on the part of employees to resist corruption and on the part of the department's top officials to fight corruption.
The evidence provided by the diagnostic studies indicate that corruption is on the whole an institutional phenomenon in three of departments - Power Development Board, Roads and Highways Department and the state-owed banking sector. Incidence of petty corruption, such as the ubiquitous culture of "speed money", is widespread amongst the department's rank and file. Grand corruption, involving larger sums of money, generally involves fewer people, mainly at the higher organisational level, and often extending beyond the departmental boundary to the controlling agency or ministry. The case of the Customs Department is somewhat different. Here the typical corrupt transaction is confidential in nature and involves only two or three persons, who have decided to engage in corruption not so much as a result of institutional pressure, but rather on their own volition and risk.
While this report has suggested specific causes of corruption pertaining to the different departments, as a general proposition, it can be argued that corruption thrives in each department because of excess discretion and monopoly in decision-making power, weak accountability and poorly paid personnel. The lack of political will on the part of successive governments to fight corruption has allowed the situation to deteriorate to an alarming degree.
Departmental procedures and programs to eliminate corruption have concentrated on better enforcement of the rules and procedures - an approach intrinsically flawed by its dependence on the incorruptibility of the enforcing agents, hampered by the weak legal system, and susceptible to political interference. The tendency to view corruption as a 'personal misdeed' has led to an excessive reliance on punishment. Even then, there are very few instances of any serious departmental attempts to tackle corruption.
The existing institutional mechanism for tackling corruption centres around the Anti-Corruption Bureau (ACB) which, by most accounts, is a totally dysfunctional agency, and one which is said to have been used by successive governments, politicians and administrators or their allies either to victimise people belonging to opposing political camps or to frighten off competitors in the corruption game. The general public perception would seem to be that the ACB is not only a further source of corruption, but has actually increased the quantum of bribery and spread corruption to previously untainted areas.
The ACB receives numerous requests of investigation from various sources. The largest number involves the banking sector (over-invoicing, misuse of power of directors and senior officers), followed by cases to do with assessment of value (e.g. customs), and the third most frequent involves the government's development related expenditure (e.g. RHD). There are no clearly established rules guiding the taking up of cases, and case selection is arbitrary, without reference to the significance of the offence or the ACB's internal resource limitations. The resulting gridlock created by a large number of mostly petty investigations serves to conveniently support the ACB's complaints about lack of resources. It takes an average of three years to investigate cases, of which only 15 percent actually get to the courts, the rest most likely "disposed off" at lower levels. The success rate of cases sent to the court by the ACB is an appalling 4 percent.
A previous World Bank study on governance has suggested that, in order to be an effective vehicle for reigning in corruption, the ACB needs to be vested with independent powers to conduct investigation into senior government officials, be made accountable to an autonomous legally constituted Standing Committee, and be headed by a statutorily appointed and protected public prosecutor.
As far as the departments under study are concerned, effective remedial measures against corruption would need to address some common problems areas which are present in the RHD, BPDB and banking sector. These include: serious over-manning,
centralised decision-making relating to award of large contracts, deviant trade unionism, and poor quality of personnel. For the Customs Department, while low staffing quality is certainly a problem, what is required most is a reduction of the discretionary powers enjoyed by officers in matters of revenue collection.