Digital Reach

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ORRUPTION IS ONE

of the primary causes of poverty. Its

most profound and deadly impact is on the poor.

Corruption makes the eradication of poverty much more

difficult by siphoning resources away from their intended purpose

and undermining the basic services (security and law enforce-

ment, health services, education, public infrastructure) on which

the poor especially count to improve their condition.

Transparency International estimates that in Africa USD148

billion are lost every year to corruption. This figure is equivalent

to half of Africa’s external debt, which, according to the

International Monetary Fund, reached USD284 Billion in 2005.

The World Bank estimates the total worldwide cost of corrup-

tion is USD1 trillion per year, and emphasizes the potential

benefit of effective measures designed to address the problem.

The Word Bank’s research has found that there is a ‘400 per cent

dividend’ of good governance and corruption control: in the long

run, countries that improve control over corruption and establish

the rule of law can expect on average a four-fold increase in income

per capita. Thus, a country with an income per capita of USD2 000

could expect to attain USD8 000 in the long run by making strides

to control corruption. Similarly, such a country could expect, on

average, a 75 per cent reduction in child mortality.

Because of the misuse of funds which should be available for

general education, it can be argued that efforts to close the digital

divide and to promote inclusiveness in the implementation of infor-

mation and communication (ICT) will be less effective if the problem

of corruption is not tackled effectively. Fortunately, ICT can come to

the rescue. In addition to being a direct instrument to support devel-

opment, ICT can have an important role in the fight against

corruption by fostering transparency in the calculation and subse-

quent recording of transactions.

The most important international actions that must be taken

to address corruption are policy driven and aim to create an envi-

ronment that clearly sanctions this practice. These include the

ratification and implementation of the United Nations

Convention Against Corruption and of the OECD Convention

on Combating Bribery of Foreign Public Officials.

One of the main objectives of these conventions is to stem the

‘supply side’ of the problem by enforcing the laws against bribery

and ensure that companies no longer view bribery as an accept-

able way to win contracts. The OECD convention, which follows

many of the principles set by the 1977 US Foreign Corrupt

Practices Act, marks an important step in the international move-

ment to criminalize bribery, in that its signatories account for

about two-thirds of all global exports and approximately 90 per

cent of worldwide foreign direct investment.

The OECD convention requires that national laws establish the

bribery of foreign public officials as a criminal offence and estab-

lish the liability of enterprises for the offence. In practice, a private

company can be held liable in its home country if an employee of

one its foreign branches engages in corruption activities, even

without the knowledge or consent of the head office. There are also

important provisions relating to the maintenance of sound internal

controls and of properly supported and complete books and records.

The national implementations of the convention – along with

other well known pieces of legislation, such as the US Sarbanes-

Oxley Act of 2002 – define a clear responsibility and a challenge

to the top management of international companies in view of

their increased personal exposure in the face of misconduct by

company employees or agents/partners, or failure to maintain a

truthful record of all business transactions.

To manage this risk, many companies have adopted compliance

programmes which aim to avoid and detect non-compliant behav-

iour and processes. Compliance programmes – based on guidelines

such as the Business Principles for Countering Bribery developed by

Transparency International – are probably the single most impor-

tant measure contributing to prevention and deterrence.

In some countries, national laws consider effective and robust

compliance programmes as mitigating or liberating factors in

case of violation of the law by rogue employees or agents.

Transparency represents one of the factors that contribute to

the meaningfulness and robustness of a well-structured compli-

ance programme, which requires a proper accounting system

to be in place.

An example of how ICT can help foster transparency relates to

accounting systems. Modern Enterprise Resource Planning solu-

tions make it much easier to implement effective internal controls,

improving the audit trail of business transactions and increasing

transparency.

Electronic invoicing – defined as the exchange of machine-

readable documents between commercial partners, which allows

the automation of the invoicing reconciliation and routing process

– represents a further, promising measure to foster transparency

and to support the fight against corruption. Invoices received for

non-existent transactions represent the usual method to set up the

funds out of which to pay bribes, a practice that is much easier

to detect and suppress in an electronic invoicing scenario.

Electronic invoicing is an attractive option because it could

become pervasive in a comparatively short time, given its poten-

tial benefits to businesses and tax administrations. Electronic

invoicing can save companies hundreds of millions of dollars

in transaction costs worldwide, and can help tax administra-

tions fight tax evasion while allowing for a significant

simplification in the administrative tax burdens companies must

comply with. This is increasingly recognized by forward-looking

companies such as ABB, which has launched an electronic

Using ICT to fight corruption and save costs

Jermyn Brooks, Member of the Board Transparency International

Written in collaboration with Fabio Annovazzi