Combatting the Cascading Costs of Corruption


Corruption imposes significant economic and social costs on development across all sectors, undercutting both democratic governance and economic prosperity. To solve this immense global problem, the development community and the private sector will need to work together to target the sources of corruption

To this end, USAID’s Governance and Rule of Law Program released a guide to anti-corruption programming entitled “Practitioner’s Guide to Anticorruption Programming” earlier this year.

“Sometimes I see that the private sector and NGOs are at loggerheads and don’t see each other’s perspective or how they can work together,” said Kenneth Barden, a key contributor to the guide. This realization, in part, inspired the creation of the Guide in order to, “let everyone know what we’ve learned and build on those experiences – and to think abstractly and to harmonize, get a more focused approach,” said Barden.

Clarification and harmonization were both motivating factors that led to the outline for the guide, which lays out a process to identify the sources, assess the risks, and identify entry points for anti-corruption opportunities – all with the aim of developing initiatives that can cut through corrupt tendencies. The guide supports further harmonization among a wide range of actors, from the development community to the private sector, to create the conditions necessary to combat corruption together.

CIPE, an affiliate of the U.S. Chamber of Commerce and a core institute of the National Endowment for Democracy, works at the intersection between economic reform and democratic development. Since its inception in 1983 CIPE has built private sector networks in countries across the world and has extensive experience with business advocacy, anti-corruption initiatives, democratic governance, and building enterprise ecosystems. In 2013, CIPE saw an opportunity, having already built a strong network of business associations and chambers of commerce, to address the supply-side of corruption by focusing on emerging and frontier markets.

As the global market expands, there is greater opportunity for small and medium-sized businesses to participate in global value chains. But strict anti-corruption laws like the FCPA and UK Bribery Act mean that multinationals strongly prefer to partner with suppliers who can show robust compliance programs and a commitment to operating corruption-free. Recognizing this growth potential for business communities in developing nations, CIPE has been building the business case for anti-corruption programming through compliance based on identifying incentives for firms to turn toward compliance.

CIPE has launched programs in Thailand, Russia, Ukraine, Pakistan, Kenya, and Uganda, developing affordable programs and services to be delivered through its network of Chambers of Commerce and Industry (CCIs) to assist small and medium-sized enterprises (SMEs) to develop a culture of compliance and increase their value in the global market. The reason for this is because the long-term benefits of compliance enhances not only the efficiency and competitiveness of individual SMEs, but over the long run helps develop a business culture where corruption is not tolerated.

USAID’s guide emphasizes taking a long-term approach, working with strong networks and institutions to build capacity and programs, allowing sufficient time for substantial behavioral and societal change. Doing this both protects individuals who may otherwise be singled out for reporting instances of corruption and protects the initiative itself from public skepticism or even abandonment. Working with large networks consistently over a longer period of time provides a level of security that is often not afforded to individual anti-corruption champions or to the initiative itself. Longer-term investment increases the likelihood that cultural change can take hold and by empowering networks and institutions that are strongly independent, while well-designed initiatives minimize the risk of state capture.

The guide indicates that anti-corruption initiatives should be collaborative in nature to inspire commitment and help to ensure local ownership. It is especially important to frame anti-corruption programs as initiatives that build economic growth and expand opportunity, as the guide reiterates, in countries where political will is minimal or questionable and the country’s stability is tenuous.

Anti-corruption compliance programs place the emphasis on clean business because profits are powerful incentives for change. Though it does not specifically reference the supply-side of the anti-corruption equation, the ultimate aim of the guide is to inspire holistic change. “Reading the guide, [you] need to read between the lines, to look at the holistic approach. Compliance programs are certainly a part of that,” said Barden.

The real costs of corruption are often cascading costs. Considerable resources and effort are wasted not just in paying individual bribes, but in maintaining informal corrupt relationships and hiding corrupt payments through illicit accounting. The opportunity to participate in global value chains adds another layer of motivation. As multinationals face more scrutiny for corrupt practices down the production line because of the FCPA and the UK Bribery Act, this has become an increasingly important shift in global development. Global value chains hire agents, suppliers, and other third parties across the world, but in order to participate, SMEs must convince their multinational partners that they will not be exposed to corruption liability.

The incentive for firms to adopt anticorruption compliance programs is significant not only because it is a natural step to enter the global market and remain competitive, but also because it combats corruption through collective action. Through compliance programs, business associations and chambers of commerce are integrating a compliance culture into the mainstream without putting the opposition, or the perception of democracy itself, at risk.

This is where CIPE’s specialty lies – in identifying legitimate local champions who are able to translate global standards into reality, building broad networks and alliances of stakeholders across the business and development communities for anti-corruption compliance. To this end, CIPE’s new guidebook, Anti-Corruption Compliance: A CIPE Guide for Mid-Sized Companies in Emerging Markets, is an example of a complementary guidebook on an approach that addresses corruption at its source safely and realistically as a collaborative effort across, with buy-in from a diverse range of actors, very much in line with USAID’s own guide.

Rachel Grossman is an Assistant Program Officer for Eurasia and South Asia at CIPE.