australia, corruption to good governance

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From Corruption to

Good Governance



From Corruption to

Good GovernanceMarch 2008



This paper by the Justice and International Mission (JIM) Unit, Uniting Church in

Australia, Synod of Victoria and Tasmania contributes to the current debate about

increasing overseas aid to developing countries. The JIM Unit is a member of the

Micah Challenge campaign

Authors:

Dr Mark Zirnsak, Director, Justice and International Mission Unit

Ms Kerryn Clarke, Social Justice Ofcer

Ms Annie Feith, Social Justice Ofcer

Editors

Bessy Andriotis, UnitingCare Victoria and Tasmania

Cath James, Environment Project Ofcer

Typesetting and design

Jesse Cain

AcknowledgementThe Justice and International Mission Unit would like to thank Ben Thurley of

TEAR Australia for examples of good governance at the local level in developing

countries and to Amanda Jackson of Micah Challenge for providing comments on

the draft of the report.



Executive Summary 6Why should Australia be active in curbing corruption?The role of wealthy countries in corruptionDenitionsThe role of human rights in good governanceModels of successWhat attempts are being made internationally to deal with these problems?Conclusion

Summary 8

Why should Australia be active in curbing corruption?The role of international aidStructure of the reportThe role of human rights in good governanceModels of success Australian Catholic Bishops ConferenceThe role of wealthy countries in corruptionWhat attempts are being made internationally to deal with these problems?How does Australia perform in dealing with corruption?OECD assessment of AustraliaSummary of Australia’s performanceConclusion

Recommendations on what Australia could do to combat corruption globally 18

Introduction 20

Good governance and corruption 222.1 Participation, equality and inclusion2.2. Rule of law2.3. Transparency and accountability2.4. Efciency and effectiveness2.5. Dening corruption

Theology of Corruption and Good Governance 24

Models of transition from corruption to good governance 264.1 Fighting corruption needs funding4.2 Need to build demand for good governance4.3 Integrating traditional governance with liberal democratic methods of governance4.4 Good governance and respect for human rights4.5 One size does not t all4.6 Examples of successful good governance projects and actions4.7 Conclusion

Aspects of the global nancial system that encourage corruption in developing

countries 335.1 Wealthy country bodies paying bribes5.2 Tax havens and tax competition5.3 Recovering looted funds from western nation bank accounts5.4 Corruption in lending5.5 Beneting from products obtained with the involvement of corruption

Table of Contents



5.6 Corruption and multilateral development bank loans5.7 Asian Development Bank: accountability and transparency?

What attempts are being made to deal with corruption? 436.1 UN Convention Against Corruption6.2 OECD Anti-bribery Convention6.3 Partnering Against Corruption Principles for Countering Bribery (PACI) Principles6.4 Extractive Industries Transparency Initiative6.5 The Equator Principles6.6 Publish What You Pay and Publish What You Lend6.7 The APEC Code of Conduct for Business6.8 Actions against tax injustice6.9 Stolen Asset Recovery (StAR) Initiative6.10 International collaboration to deal with money laundering

How does Australia perform in dealing with corruption? 487.1 The Financial Action Task Force’s assessment of Australia7.2 OECD assessment of Australia7.3 Australian Wheat Board bribery scandal7.4 Recovery of funds stolen through corruption7.5 Australian efforts to deal with tax havens and tax avoidance and evasion7.6 Corruption under the occupation forces in Iraq

7.7 Allegations of Australian bodies beneting from corruption7.8 Operation Wickenby7.9 Australia leading by example7.10 Dealing with imports produced with the involvement of corruption7.11 AusAID’s approach to good governance7.12 Tackling corruption for growth and development policy7.13 Building Demand for Better Governance program

Conclusion 60

References 63



Why should Australia be active incurbing corruption?

Corruption hurts countries, communities and

individuals. It is a threat to the economic stability and

security of countries whose resources have been

stolen or diverted. When a country’s health budget

is stolen, clinics are left without the medications they

need, hospitals are left without equipment, doctors

are left unpaid, and babies are not immunised. Inthe words of Australia’s former Minister for Foreign

Affairs, The Hon. Alexander Downer, “It is the poor

who suffer if funds are diverted through corruption”.

The role of wealthy countries incorruption

The relationship between aid and development

is complex and corruption and poverty are key

factors. Some have tried to argue that governments

in developing countries are corrupt and thereforeoverseas aid is wasted or used to prop up such

governments.

One of the key factors often missing from the debate

is the role of wealthy countries. Some wealthy

countries can be seen to actively foster corruption,

reward it and seek to benet from it. They do this

through:

providing tax havens to allow corrupt companies

and individuals to avoid paying their fair share oftax;

allowing a whole industry of accountants, lawyers

and bankers to operate to assist rich companies

and individuals in avoiding paying their fair share

of tax;

lax banking laws that allow for money laundering

of funds stolen through corruption;

failing to assist developing countries in recovering

funds stolen through corruption that are thendeposited into investments in wealthy countries;

the failure of laws to deal severely enough

with bribery and, in some cases, even allowing

companies to claim bribes as tax deductions; and

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making loans to corrupt governments for

unproductive purposes, saddling developing

country communities with the repayments of

debts from which they have had no benet.

Denitions

Anti-corruption organisation Transparency

International has dened corruption as ‘the misuse of

entrusted power for private benet’.

The Tax Justice Network has suggested that a

possible broader denition for corruption would be

“an activity which undermines public condence in

the integrity of the rules, systems and institutions that

govern society is corrupt.”

The role of human rights in goodgovernance

Effective promotion of ‘good governance’ and

challenging corruption requires respect for basic

human rights. Corruption often ourishes in an

environment where basic human rights are violated.

The Australian Government’s support for the

promotion and protection of human rights globally has

been mixed.

Models of success

Whilst there is no one model that will t all

circumstances, there are some universally applicable

conditions that offer a society protection from

corruption - political and economic stability, strong

social infrastructures, respected institutions,

functioning systems of accountability and

transparency, and a relatively narrow equality gap.

Currently, donor funds for good governance programs

are largely directed to strengthening law and order

institutions, building national security, reforming

public sector administration and economic capacity

building. The majority of good governance projects

are not directed at the community level.

However, for a culture of good governance to

develop, there is a need to build demand for it within

the general community. Good governance requires

6.Executive Summary



and fosters participation by the whole community

in decision making processes, especially the

disenfranchised and marginalised.

What attempts are being madeinternationally to deal with theseproblems?

There are a number of concrete initiatives being taken

internationally to shift cultures of corruption to those

of good governance.

These include:

UN Convention against Corruption (2003);

OECD Anti-bribery Convention (1997);

Asian Development Bank – OECD Action Plan

for Asia-Pacic;

The Partnering Against Corruption Principles

for Countering Bribery (PACI Principles), aninitiative of the World Economic Forum in

partnership with Transparency International

and the Basel Institute on Governance;

Extractive Industries Transparency Initiative

(EITI) (2002);

The Equator Principles;

Publish What You Pay and Publish What You

Lend; and

The APEC Code of Conduct for Business.

There are bodies that assist government agencies incombating money laundering. The Financial Action

Task Force, the Egmont Group and the Asia Pacic

Group on Money Laundering are three that Australia is

a member of.

In September 2007, the World Bank and the UN

Ofce of Drugs and Crime launched a new effort to

assist developing countries in recovering billions of

dollars of looted funds, known as the Stolen Asset

Recovery Initiative.

Conclusion

While lecturing developing countries about

corruption, wealthy countries often play a role in

fostering, rewarding and beneting from corruption in

developing countries. Eliminating corruption globally

will require signicant effort by all countries. It will

not be assisted by withholding aid from developing

countries. In fact withholding aid is likely to increase

corruption. Instead, aid needs to targeted in ways

that does not assist corruption and supports parts ofsociety that are seeking to tackle corruption.

The effort to eliminate corruption will need to include:

Building a global culture to respect basic human

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rights;

A global effort to address tax competition, tax

havens and tax evasion;

Wealthy countries being willing to return funds

looted from developing countries;

Wealthy countries being willing to punish

bribery by companies and citizens that

operate from their country;Governments of wealthy countries introducing

measures to prevent the importation of goods

produced through corruption, such as illegally

logged timber; and

A willingness to cancel odious debts, to

discourage those that would make corrupt

loans.

The Australian Government has made signicant

efforts to assist in addressing corruption in developing

countries, including tackling the role that companiesfrom developed countries can play in fostering and

beneting from corruption in these countries. The

Australian Government has made commendable

efforts to tighten up domestic law to prevent money

laundering and nancing of terrorism.

However, it remains to be seen in practice if the

steps taken are sufcient to prevent Australians from

participating in and beneting from corruption in

developing countries and then being able to keep

their ill-gotten gains in Australia.

Australia’s aid program also contains a number of

positive and well-thought through elements to combat

corruption and promote good governance in countries

that receive aid from Australia.

Regrettably, there are black marks on Australia’s

commitment to dealing with corruption, with Iraq

being the most prominent recent example. The

Australian Government appears to have largely looked

the other way with regard to many cases of alleged

human rights abuse in Iraq committed by US-led

forces. It also failed to take much action as Iraqis

were cheated out of billions of dollars of oil revenue

by mismanagement and corruption within the US-led

Coalition Provisional Authority.

Australia could also be doing more at the global level

to address tax competition, tax havens, tax evasion,

odious debts, and the promotion of international

standards to combat corruption and promote good

governance.

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SummaryWhy should Australia be active incurbing corruption?

Corruption hurts countries, communities and

individuals. It is a threat to the economic stability and


stolen or diverted. When a country’s health budget

is stolen, clinics are left without the medications they

need, hospitals are left without equipment, doctors

are left unpaid, and babies are not immunised. Inthe words of Australia’s former Minister for Foreign

Affairs, The Hon. Alexander Downer, “It is the poor

who suffer if funds are diverted through corruption”.

Curbing corruption is part of the means to creating a

more accountable, efcient and effective government.

It also allows for development that assists those in

poverty. Anti-corruption measures should focus on a

fairer distribution of resources for all in society.

Donor countries, including Australia, cannot expectsignicant change in the short term. A long term

approach is needed.

The role of international aid

The relationship between aid and development

is complex and corruption and poverty are key

factors. Some have tried to argue that governments

in developing countries are corrupt and therefore

overseas aid is wasted or used to prop up such

governments.

In reality, without sufcient aid, poverty increases.

Poverty then encourages corruption and corruption

in turn undermines efforts to address poverty. This

cycle is not broken by withholding nancial assistance

to impoverished communities. Instead, breaking the

cycle requires a more sophisticated approach to shift

a culture of corruption to one of ‘good governance’.

One of the key factors often missing from the debate

is the role of wealthy countries. Some wealthy

countries can be seen to actively foster corruption,

reward it and seek to benet from it. They do this

through:

providing tax havens to allow corrupt companies1.

and individuals to avoid paying their fair share of

tax;

allowing a whole industry of accountants, lawyers

and bankers to operate to assist rich companies

and individuals in avoiding paying their fair share

of tax;

lax banking laws that allow for money laundering

of funds stolen through corruption;

failing to assist developing countries in recovering

funds stolen through corruption that are then

deposited into investments in wealthy countries;

the failure of laws to deal severely enough

with bribery and, in some cases, even allowing

companies to claim bribes as tax deductions; and

making loans to corrupt governments for

unproductive purposes, saddling developing

country communities with the repayments ofdebts from which they have had no benet.

Structure of the report

The report is organised into sections that examine:

Denitions around good governance and

corruption;

Lessons about what is needed to change a

society from one where corruption ourishes

to one in which good governance exists andthe opportunities for corruption are minimised.

This section also provides examples of where

corruption has been dealt with successfully and

good governance systems have been installed.

The ways that wealthy countries can foster,

reward and benet from corruption.

International measures being pursued to address

corruption as a global problem.

Australia’s performance in relation to corruption.This section looks at how Australia rates in

dealing with corruption; ways it seeks to address

corruption globally, and what inadequacies exist

and where is further improvement needed?

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The needs of the poor are more

the freedom of the dominated is more

enabling marginalised groups to participate

which



important than the wants of the rich;

important than the liberty of the powerful, and;

is more important than retaining a system

excludes them. Australian Catholic Bishops Conference

Denitions

Good Governance is dened by the United Nations

Economic and Social Commission for Asia and the

Pacic as:

participatory, consensus oriented, accountable,

transparent, responsive, effective and efcient,

equitable and inclusive and follows the rule of

law. It assures that corruption is minimized,

the views of minorities are taken into account

and that the voices of the most vulnerable in

society are heard in decision-making. It is also

responsive to the present and future needs of

society.

Anti-corruption organisation Transparency

International has dened corruption as ‘the misuse of

entrusted power for private benet’.

The Tax Justice Network has suggested that a

possible broader denition for corruption would be

“an activity which undermines public condence in

the integrity of the rules, systems and institutions that

govern society is corrupt.”

The role of human rights in goodgovernance

Effective promotion of ‘good governance’ and

challenging corruption requires respect for basic

human rights. Corruption often ourishes in an

environment where basic human rights are violated.

The Australian Government’s support for the

promotion and protection of human rights globally has

been mixed. For example, the Australian Government

has pressured the Government of the Philippines

over murders of human rights defenders, church

members, trade unionists, journalists, lawyers and

anti-corruption campaigners.

In contrast, with regard to the case of an Iraqiallegedly tortured to death by US-led forces in Iraq,

the Department of Foreign Affairs and Trade has

stated that Government policy is, “not to comment

on the actions of other countries in relation to matters

in which Australia has no involvement.” In the latter

case, such a policy seems at odds with promoting an

environment which respects human rights and good

governance. This stance sets a very poor example

to the Iraqi authorities and the Iraqi people. Further,

such a policy is likely to undermine the commendable

programs the Australian Government has run to

promote human rights and good governance in Iraq.

Models of success

Whilst there is no one model that will t all

circumstances, there are some universally applicable

conditions that offer a society protection from

corruption - political and economic stability, strong

social infrastructures, respected institutions,

functioning systems of accountability and

transparency, and a relatively narrow equality gap.

Currently, donor funds for good governance programs

are largely directed to strengthening law and orderinstitutions, building national security, reforming




However, for a culture of good governance to

develop, there is a need to build demand for it within

the general community. Good governance requires

and fosters participation by the whole community

in decision making processes, especially the

disenfranchised and marginalised.

Combating corruption requires being exible and

adaptive to local contexts. For example, the use of

standard competitive tendering for demining projects

in Bosnia resulted in contracts being awarded to

commercial companies that cut corners on safety.

This resulted in an accident rate three times higher

than for non-commercial, non-government demining

organisations.

It also needs to be recognised that in weak states

in post-conict situations, effective systems of

governance are rarely established, and rules can be

bypassed through extra-legal mechanisms such as

bribery and favouritism.



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Local communities should be involved in the planning,

implementing and monitoring of aid projects, to

minimise the risks of corruption. Citizens need to be

empowered to hold their governments to account

– especially for the delivery of basic and essential

services. There is a need to empower those people

who have the greatest needs and make sure they

have the ability to hold authorities to account. Donor

countries, such as Australia, have an important role toplay in facilitating this engagement in the aid projects

they fund.

Progress toward good governance will be most

effective using incremental approaches which respect

local social and political constraints, rather than

attempts at comprehensive reform.

The role of wealthy countries incorruption

Corporations, individuals, and governments in

wealthy countries sometimes facilitate and benet

from corruption in developing countries. In the words

of the World Bank and the UN Ofce on Drugs and

Crime1:

“While the traditional focus of the international

development community has been on

addressing corruption and weak governance

within the developing countries themselves,

this approach ignores the “other side of the

equation”: stolen assets are often hidden in the

nancial centres of developed countries; bribes

to public ofcials from developing countries

often originate from multinational corporations;

and the intermediary services provided by

lawyers, accountants, and company formation

agents, which could be used to launder or

hide the proceeds of asset theft by developing

country rulers, are often located in developed country nancial centres.”

Bodies in wealthy country paying bribes

The World Bank estimates that US$1 trillion is paid in

bribes each year globally. Transparency International

is concerned that corruption in developing countries

is in fact sustained by bribes paid by Western

countries. A 1997 estimate of bribes paid by

international companies to do business in developing

countries put the gure at US$80 billion per year,more than the total overseas aid to these countries.

UN Ofce on Drugs and Crime and the World Bank, ‘Stolen

Asset Recovery (StAR) Initiative: Challenges, Opportunities and

Action Plan’, The World Bank, June 2007, p. 1.

In some cases, wealthy countries have been slow

or reluctant to act on issues of bribery in developing

countries. For example, the OECD has criticised the

UK Government for taking into consideration the

possible impact on the UK economy, or its relations

with other states, before being willing to take forward

a bribery case. In fact, there has not been a single

prosecution of a UK company in the UK for bribery of

a public ofcial in a developing country.

Tax havens and tax competition

Over the last two decades, tax competition has led to

a ‘race to the bottom’ in corporate tax rates in many

developing countries that now have signicantly lower

tax rates than OECD countries. In trying to attract

foreign investors, there has been a dramatic decrease

in tax rates for foreign owned subsidiaries and

afliates of trans-national companies.

Oxfam estimates that developing countries could

be losing annual tax revenues of at least US$50

billion as a result of tax competition and the use of

tax havens. The recovery of some of this revenue, if

used effectively, could have an enormous impact on

alleviating extreme poverty in developing countries.

Alex Cobham at the Oxford Council on Good

Governance has shown that poorer countries forego

US$385 billion in revenues per year as a result of tax

avoidance and tax evasion, nearly four times what

they get in foreign aid.

The Tax Justice Network estimated in March 2005

that there was US$11,500 billion held by individuals

in approximately 73 tax havens around the world. The

worldwide tax revenue lost as a result was estimated

at US$255 billion per year. With so much revenue

lost due to international tax evasion and avoidance

by large companies and wealthy individuals,

governments are forced to either reduce public

spending and/or increase taxation on less mobile

small companies or poorer individuals.

Banking secrecy and trust services provided by global

nancial institutions operating offshore provide a

secure cover for laundering the proceeds of political

corruption, fraud, embezzlement, illicit arms trading

and the global drug trade. The lack of transparency

in international nancial markets contributes to the

spread of globalised crime, terrorism, bribery of

under-paid ofcials by western businesses, and the

plunder of resources by business and political elites.

Corruption clearly threatens development, and itis tax havens that facilitate the money laundering

of the proceeds of corruption and all types of illicit

commercial transactions.



Tax havens create an illusion. Through the use of

nominees and trust arrangements, tax haven activity

can appear to take place nowhere, which means

it is accountable to no government, pays no tax to

anyone, and has no duty to report anything because it

can deny it is anywhere.

In combination, tax competition, aggressive tax

avoidance, tax evasion and the associated illicit

capital ight to offshore nance centres imposes

a massive cost on developing countries. This cost

usually far outweighs the amount of aid received.

Recovering stolen funds from western bank

accounts

Developing country governments often have

difculties recovering funds stolen through corruption

by past regimes, when such stolen funds have been

placed in the banks of wealthy developed countries.

A report by the Paris-based Comité Catholique contre

le Faim et pour le Développement in March 2007

estimated that the value of wealth stolen by the most

prominent dictators over recent decades amounted to

US$100–180 billion. The report found that only US$4

billion has been repatriated from wealthy countries

and a further US$2.7 billion has been frozen.

However, the UN Convention Against Corruption

contains detailed asset recovery provisions which

are now in force, but still need to be implemented bycountries that have ratied the Convention.

Corruption in lending

Leaders of developing countries may take out loans

for corrupt purposes. The resulting debts can saddle

future governments, and the people of the country,

with the burden of paying interest on the loans as

well as repaying the principal borrowed. In effect,

nancial markets may enable corrupt governments to

steal from the future. Another way nancial marketsfacilitate this kind of corruption is to provide loans

against secured assets. Valuable assets can be

converted into cash today without ever being publicly

sold. Future governments and tax payers are left with

repayment.

Governments of developed countries have largely

refused to recognise the concept of ‘odious debt’

being applied to the debts of developing countries.

Odious debt is applied when:

loans are made to illegitimate authorities, such as

undemocratic governments;

the loans are not used for the benet of the

people under that authority; and

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the lender should have reasonably known of the

rst two conditions.

In such cases the concept of ‘odious debt’ is

applied and the loans are deemed to be illegitimate

and unenforceable. The Australian Government

has refused to accept that odious debts should be

cancelled.

Loans made for corrupt purposes increase a country’sdebt level while doing nothing to increase a country’s

capacity to make repayments.

Beneting from products obtained through

corruption

One of the ways that wealthy countries benet

from corruption in the developing world is through

the receipt of goods obtained through corruption.

Products obtained through corruption are often

cheaper than if the products had been producedthrough legal or legitimate means. Developing

countries are then cheated out of revenues they

would have otherwise received if the products had

been produced and sold legitimately.

Timber and wood products obtained from illegal

logging are an example of the types of products

that developed countries receive cheaply as a result

of corruption in the developing world. The World

Bank estimates that the global annual market value

of losses from illegal logging at over US$10 billion,which is more than eight times the foreign aid

provided for sustainable management of forests.

Multilateral Development Banks dealing with

corruption

The World Bank has investigated 2000 cases of

corruption since 999, and sanctioned over 300 rms

and individuals. However, the World Bank has not

always assisted developing countries in their attempts

to combat corruption.

Meanwhile the Asian Development Bank (ADB) has

not published the list of companies blacklisted for

corruption in ADB funded projects.

The lack of transparency of the ADB in dealing with

corruption needs to be of signicant concern to

Australians given that the Australian Government

White Paper Australian Aid: Promoting Growth and

Stability indicates that the Australian Government will

work with the ADB in areas of mutual interest.

3.



What attempts are being madeinternationally to deal with theseproblems?

There are a number of concrete initiatives being taken

internationally to shift cultures of corruption to those

of good governance.

These include:


OECD Anti-bribery Convention (1997);

Asian Development Bank – OECD Action Plan

for Asia-Pacic;


for Countering Bribery (PACI Principles), an

initiative of the World Economic Forum in



Extractive Industries Transparency Initiative(EITI) (2002);



Lend; and


In addition, the OECD issued a report in 1998 on

Harmful Tax Competition, which identied harmful

tax practices, many of which are associated with tax

havens. The OECD approach has been to eliminate

harmful practices by obtaining mutual undertakings

between all parties. The OECD has only been partially

successful in its efforts largely because of conicts

between the tax havens it targeted, and the inability of

the OECD to stop countries within the OECD pursuing

the very practices the report identied as harmful.

There are bodies that assist government agencies in

combating money laundering. The Financial Action

Task Force, the Egmont Group and the Asia Pacic

Group on Money Laundering are three that Australia is

a member of.

In September 2007, the World Bank and the UN

Ofce of Drugs and Crime launched a new effort to

assist developing countries in recovering billions of

dollars of looted funds, known as the Stolen Asset

Recovery Initiative.

How does Australia perform indealing with corruption?

Financial Action Task Force Assessment of Australia (FATF)

The FATF is an intergovernmental body which sets

standards and develops policies to combat money

laundering and terrorist nancing. Its Third Mutual

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Evaluation Report on Anti-Money Laundering and

Combating the Financing of Terrorism, released in

October 2005, assessed Australia’s performance.

The report found:

That while Australia’s legal regime for dealing

with money laundering appeared to be

comprehensive, dissuasive and proportional,

it was not being effectively applied. In caseswhere it has been applied, sentences appear

low.

There were no legislative or other enforceable

obligations regarding the identication and

verication of foreign government ofcials

who deposit money with Australian nancial

institutions and who have the greatest ability

to engage in large scale corruption.

There are no specic obligations for nancial

institutions to monitor complex, unusuallylarge transactions or transactions with no

visible economic purposes, or to further

examine these situations and set out the

ndings in writing.

That, although the Financial Transactions

Reports Act 1988 extends to overseas

branches of nancial institutions, Australian

banks indicated that they would rst apply

the local laws. In several cases, local laws

prohibited full implementation of the Australian

standards due to local secrecy provisions.

The International Monetary Fund also conducted an

assessment of Australia’s nancial sector, releasing

their report in October 2006. The assessment

examined Australia’s implementation of the Basel

Core Principles for Effective Banking Supervision. The

assessment found that Australia was “Materially non-

compliant” with Principle 15 dealing with prevention

of use of the banks by criminal elements.

In response to the FATF ndings, the AustralianGovernment stated that it had enhanced the ability

of the Australian Federal Police to investigate and

pursue money laundering. The Government has

also introduced comprehensive new anti-money

laundering and counter-terrorism nancing legislation.

The legislation includes the following measures:

Financial institutions are prohibited from

entering into correspondent banking

relationships with shell banks or other nancial

institutions that allow shell banks to holdaccounts with them.

All foreign and overseas branches and

subsidiaries have to comply with the

principles of Australian anti-money laundering

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requirements.

Financial institutions are required to assess

the risk they are exposed to, the threat of

money laundering and terrorism nancing and

then must take steps they deem appropriate

to address the risks.

Penalties for non-compliance with the regulatory

obligations by a company are as high as $11

million (100,000 penalty units, where a penalty unit

is currently $110) and $2.2 million for individuals.

Individuals that commit criminal offences under the

legislation will face up to 10 years imprisonment.

OECD assessment of Australia

According to an OECD report released in January

2006, Australian authorities demonstrated a strong

commitment to combating foreign bribery. However,

the report concluded that Australia needs to toughen

its stand on companies paying bribes or ‘facilitation

payments’ to foreign governments.

The report stated that the Australian Tax Ofce (ATO)

should implement better systems for detecting foreign

bribery transactions when conducting tax audits. The

OECD’s bribery group urged that corporate nes for

bribery be increased from the current maximum of

$330,000, and that sanctions such as disqualifying for

government contracts, be brought against companies

found to have bribed foreign ofcials. It recommended

that the Australian government change whistleblower

legislation to protect public servants who, “report

suspicions of foreign bribery” and that it consider

introducing “stronger whistleblower protections for

private sector employees”.

The Australian Government is due to respond to the

OECD report in early 2008.

In December 2006 the Australian Taxation Ofce

issued guidelines for its auditors to detect bribes in

payments companies make in developing countries.The guidelines are based on OECD standards and will

require companies to record information such as the

amount paid, the identity of the foreign public ofcial

who was paid, and details of what they were paying

for.

On 3 May 2007, the then Attorney General announced

that the government will tighten up the rules for being

able to claim facilitation payments to foreign ofcials

as tax deductions and reduce the defences that can

be mounted against a charge of foreign bribery underthe Criminal Code.

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Recovery of funds stolen through corruption

The Proceeds of Crime Act 2002 was introduced

by the Australian Government to be able to trace,

restrain and conscate the proceeds of crime against

Australian law. In combination with the Mutual

Assistance in Criminal Matters Act 1987 it allows the

Australian Government to register and enforce legal

efforts by foreign countries to recover money stolen

through corruption.

Australian efforts to deal with Tax Havens and Tax

Avoidance and Evasion

The Australian Taxation Ofce (ATO) has expanded

its relationships with tax authorities in other countries

to address the misuse of tax havens. Australia is

a member of the OECD’s Forum on Harmful Tax

Practices which aims to eliminate harmful tax

practices from both OECD member countries and

non-member jurisdictions, including tax havens.

In 2005-2006, the ATO provided over 1.5 million

income records under the automatic exchange of

information program (regarding dividends, interest

and unit trust distributions) to 42 treaty partners

aiding in efforts to prevent international tax avoidance

and evasion.

Australia is also a member of the OECD’s Committee

on Fiscal Affairs, which was established to bring

together senior tax ofcials from all OECD membergovernments. Australia is part of a working party

established by the committee to monitor all matters

covering tax avoidance and evasion.

Corruption in Iraq

The Australian Government appears to have done

little to address signicant levels of corruption under

the US-led administration of Iraq after the 2003

invasion of Iraq that overthrew the brutal regime of

Saddam Hussein. Billions of dollars went missingafter the US-led Coalition Provisional Authority was

installed, after the overthrow of Saddam Hussein’s

regime. Favourable contracts were then awarded to

companies close to the Bush Administration. The

result was that the Iraqi people were cheated of oil

revenue that was theirs and have subsequently been

deprived of vital services, such as healthcare clinics.

As of April 2006, the US Special Inspector General

for Iraq Reconstruction was investigating 72 cases of

alleged fraud, theft, bribery and corruption in Iraq.

There are no allegations of any corruption relating to

Australia’s direct aid program to Iraq.



Operation Wickenby

The Australian Government has been conducting

Operation Wickenby to investigate internationally

promoted tax evasion and large scale money

laundering. The Operation has resulted in charges

against three Gold Coast businessmen and $17.9

million in extra tax being paid. The Australian Crime

Commission and the Australian Taxation Ofce

have conrmed more than 500 people are being

investigated for participation in illegal arrangements

such as offshore tax havens. The investigation initially

focussed on Swiss accountant Philip Egglishaw, but

has since widened to cover more than 100 promoters

of international tax-evasion schemes.

Leading by example

If Australia wishes to urge developing countries to

address corruption, then it needs to lead by example

domestically. The new Federal Rudd Government

has promised to establish a Freedom of Information

Commissioner, to end the ability of Ministers to

be able to refuse freedom of information requests

through the use of unchallengeable conclusive

certicates, improve whistleblower protection for

government employees, and not seeking to prosecute

journalists who publish material that is merely

embarrassing to government.

At the same time, the South Australian and

Victorian Governments are the only mainland state

governments that have refused to set up independent

anti-corruption commissions.

Tackling Corruption for Growth and Development

Policy

The Australian Government has developed a ‘Anti-

Corruption for Development’ policy to guide the

development and implementation of all Australian aid

program activities aimed at countering corruption in

the region.

Launched on 30 March 2007 under the title ‘Tackling

corruption for growth and development. A Policy

for Australian Development Assistance on Anti-

Corruption’ it outlines three elements to combat

corruption in the region: building constituencies

for anti-corruption reform; reducing opportunities

for corruption and changing incentives for corrupt

behaviour. Positively, the Australian Government

recognises that due to the complexity and political

sensitivity of corruption, the strategy will have a long-term focus and will include some exploratory and

experimental elements as well as ongoing research.

The policy commits Australia to supporting efforts

to develop anti-corruption policies and plans in

countries that do not have them.

In terms of building constituencies for anti-corruption

reform, the policy recognises the need for large-scale

and sustained commitment to formal and informal

education of young men and women who will be

society’s future politicians, judges, prosecutors, police

ofcers, civil servants, regulators, entrepreneurs, and

labour and community leaders. The policy also states

that supporting gender equity in leadership positions

will contribute to a more just society and lower

tolerance for corruption.

AusAID will report on progress in implementing its

anti-corruption initiatives through the Annual Review

of Development Effectiveness, to be prepared by the

Ofce of Development Effectiveness.

In the 2006-2007 nancial year, the Australian

Government spent approximately $645 million from

the aid budget on anti-corruption and governancemeasures in the Asia-Pacic region.

Building demand for better governance program

The Australian Government has recognised in its

White Paper on Australia’s overseas aid program

that “insufcient demand for better performance or

reform is one of the most important obstacles to

institutional development in poor countries.” The

Building Demand for Better Governance program

will support strategic partnerships to help augmentdomestic demand for reform and accountability in

the Asia-Pacic region. Australian aid has supported

the PNG Church Partnership Program and ‘War

Against Corruption’ campaigns, support for national

human rights institutions, and partnerships with

Transparency International. Such support is planned

to be expanded with a particular focus on supporting

women’s groups and building capacity in developing

countries for independent analysis of government

policy.

Summary of Australia’sperformance

The table below summaries Australia’s performance

in tackling and deterring corruption in developing

countries and preventing Australians and Australian

companies from engaging in corruption in developing

countries and beneting from it.



Table 1. Summary of Australia’s performance on combating corruption and promoting good governance globally

Corruption or Good

Governance Issue

Australia’s Performance What more could Australia be

doing?

Assisting in building

demand for good

governance

Australia has assisted with free and fair

elections in the region. The White Paper

on Australia’s Overseas Aid includes

a program to build demand for bettergovernance through the aid program.

The Government has issued ‘Tackling

corruption for growth and development.

A Policy for Australian Development

Assistance on Anti-Corruption’

Australia needs to implement the

program in the White Paper and

through the ‘Tackling corruption

for growth and development. A Policy for Australian Development

Assistance on Anti-Corruption’,

making sure both are adequately

funded.

Promotion and defence of

human rights

Mixed performance. Strong action in

countries like the Philippines and Sri

Lanka. Lack of willingness to tackle some

human rights abuses in countries like Iraq

and Indonesia.

Need for a consistent approach

to supporting a global culture for

the protection and promotion of

human rights.

Bribery The Criminal Code Amendment (Bribery of

Foreign Public Ofcials) Act 1999 makes it

a criminal offence to bribe a foreign public

ofcial, whether the offence occurs inside

or outside Australia. However, adequate

penalties have been lacking. Attempts

are being made to increase detection of

foreign bribery. Ability to claim facilitation

payments as tax deductions has beenreduced.

Need to ensure that penalties for

foreign bribery are adequate to

deter bribery.

Need to ensure adequate

protection for whistleblowers that

expose bribery.

Tax competition The Australian Government appears to see

competition between countries over tax

rates as legitimate, but at the same time

is part of international bodies examining

unfair tax competition.

Need to work for an international

approach to curb tax competition

that undermines the development

needs of nancially impoverished

countries and assist developing

countries stem tax evasion.

Tax havens The Australian Tax Ofce (ATO) has shared

information on best practice in dealing with

tax havens through the Seven CountryForum on Tax Havens. The ATO is also

working with the OECD, the Global Forum

on Taxation and the Joint International Tax

Shelter Information Centre to deal with tax

havens. Operation Wickenby has sought

to tackle Australians using offshore tax

havens.

Need to support greater global

efforts to shut down tax havens,

which facilitate tax evasion, capitalight and money laundering.

Money Laundering Introduction of comprehensive anti-money

laundering legislation and rules, closing up

many areas where there were previouslyrisks of money laundering.



Corruption or Good

Governance Issue


doing?

Recovery of stolen funds The Australian Federal Police and the

Attorney General’s Department are working

with governments in the Asia-Pacic

region to strengthen local laws dealing

with money laundering and to recover the

proceeds of crime. The Proceeds of Crime

Act 2002 and the Mutual Assistance in

Criminal Matters Act 1987 can allow for the

recovery of funds stolen through corruption

and transferred to Australia.

Corruption in lending Australian aid has almost exclusively been

in the form of grants, not loans. Australia

has not supported the cancellation

of odious debts owed by developing

countries.

Discourage lending from Australia

towards projects of dubious

development benet. Accept

the need for odious debts owed

by developing countries to be

cancelled.

Multilateral Banks Australia is in dialogue with multilateral

banks about corruption issues.

Ensure that multilateral banks are

transparent in the way they punish

corruption and that penalties are

adequate and applied in a fair

manner.

International Standards to

address corruption

Australia is party to the UN Convention

against Corruption and the OECD

Convention on Combating Bribery of

Foreign Ofcials in International Business

Transactions. Australia supports and

promotes the Extractive IndustriesTransparency Initiative. The Treasury

and the Department of Finance and

Administration are helping to strengthen

nancial management systems in countries

in the Asia-Pacic region. The Australian

Government states that it is already

actively encouraging countries to sign

up to international treaties to deal with

corruption and properly implement their

measures.

Increase efforts to encourage other

countries and corporations to sign

up to international standards to

deal with corruption and properly

implement their measures.

Receipt of goods

produced with the

involvement of corruption

The Australian Government has no

systemic measures to identify the

importation of goods that are produced

with the involvement of corruption. The

Government has promised to take steps to

identify illegally logged timber and restrict

its import into Australia.

The Australian Government should

identify types of imported products

that are likely to have been

produced with the involvement

of corruption and put in place

measures that apply pressure

for the corruption to be stopped

and those responsible brought to

justice.



Conclusion

While lecturing developing countries about






countries. In fact withholding aid is likely to increasecorruption. Instead, aid needs to targeted in ways

that does not assist corruption and supports parts of

society that are seeking to tackle corruption.


Building a global culture to respect basic

human rights;



Wealthy countries being willing to return fundslooted from developing countries;



operate from their country;

Governments of wealthy countries introducing

measures to prevent the importation of goods

produced through corruption, such as illegally

logged timber; and


discourage those that would make corruptloans.

The Australian Government has made signicant

efforts to assist in addressing corruption in developing

countries, including tackling the role that companies

from developed countries can play in fostering and

beneting from corruption in these countries. The



laundering and nancing of terrorism.

However, it remains to be seen in practice if thesteps taken are sufcient to prevent Australians from

participating in and beneting from corruption in

developing countries and then being able to keep

their ill-gotten gains in Australia.

Australia’s aid program also contains a number of

positive and well-thought through elements to combat

corruption and promote good governance in countries

that receive aid from Australia.

Regrettably, there are black marks on Australia’s


being the most prominent recent example. The

Australian Government appears to have largely looked

the other way with regard to many cases of alleged


•

•

•

•

•

•

forces. It also failed to take much action as Iraqis

were cheated out of billions of dollars of oil revenue

by mismanagement and corruption within the US-led

Coalition Provisional Authority.





governance.



The Australian Government has a moral and ethical

obligation to do as much as it can to combat

domestic and global corruption.

The Australia Government can do more to combat

corruption and promote good governance by:

Continuing to fund anti-corruption and good

governance projects within developing countries

in the Asia-Pacic region, including support for

anti-corruption campaigners.

Make sure that aid assists in the payment

of adequate salaries, as insufcient income

increases the risk of corrupt behaviour.

When Australia provides aid in the form of

‘services in kind’ the Australian Auditor-General

and/or the Commonwealth Joint Committee

of Public Accounts and Audit should audit the

effectiveness of the aid.

International Anti-Corruption Standards

Encouraging more countries and corporations to

sign up to appropriate multilateral agreements to

combat corruption such as:

The UN Convention against Corruption (2003);

The OECD Anti-Bribery Convention (1997);

The Asian Development Bank – OECD Action

Plan for Asia-Pacic;

The Partnering Against Corruption Principlesfor Countering Bribery (PACI Principles), an




The Extractive Industries Transparency

Initiative (EITI) (2002); and

The Equator Principles.

The Australian Government should encourage

those that have signed up to these agreements to

fully comply with their provisions.

Taxation reform

Supporting an international approach to taxation,

corruption and nancial stability. For taxation

1.

2.

3.

4.

•

•

•

•

•

•

5.

6.

this means a framework that balances the need

to curb tax competition with a respect for the

ability of democratic governments to set generally

applicable tax rates and which empower poorer

countries to stem tax evasion.

Supporting an international agreement to share

information on tax administration and income

paid to citizens of one country who reside in

another to help poorer countries to stem taxevasion1.

Providing assistance to developing countries to

ensure they can establish:

sound taxation systems;

rigorous procedures that require international

companies to account for what they do;

international enforcement procedures that

ensure international corporations pay what

they owe; andsound career paths for key tax administration

personnel so that they stay in their jobs for

longer and are not lured away.

Whistleblower protection

Supporting programs which enhance the

protection of journalists and whistleblowers in

developing countries.

Strengthening whistleblower legislation to protect

public servants who report suspicions of briberyin relation to foreign contracts and introduce

stronger whistleblower protections for private

sector employees that reveal corruption.

Dealing with bribery

Increasing penalties 30-fold for Australian

companies and individuals found guilty of bribing

foreign governments and ofcials and ensure that

those found guilty are denied access to public

contracting opportunities (particularly through Australia’s aid program).

Oxfam UK, ‘Tax Havens: Releasing the Hidden Billions forPoverty Eradication’, 2000, http://www.attac.org/fra/toil/doc/ oxfam2.htm and Richard Murphy, John Christensen and JennyKimmis, ‘Tax us if you can’, Tax Justice Network, September 2005,p. 48.

7.

8.

•

•

•

•

9.

10.

11.

Recommendations on what Australia could do to

combat corruption globally



Ensuring that all cases of foreign bribery be

referred to the Australian Federal Police by

Commonwealth agencies.

Changing processes to ensure that politically

sensitive cases of foreign bribery are not

potentially delayed in being referred to the

Australian Federal Police by the notication to the

Minister of Justice and Customs.

Requiring an external auditor who discovers

indications of a possible illegal act of bribery

to report the discovery to management and, as

appropriate, to corporate monitoring bodies, and

the competent authorities2.

Ensuring that members of the Australian Public

Service, including AusAID ofcials, who come into

contact with companies involved in international

business understand that the Australian Public

Service Code of Conduct requires them to reportto the Australian Federal Police credible evidence

of foreign bribery offences that they uncover in

the course of performing their duties3.

Introducing formal rules on the imposing of

civil or administrative penalties upon bodies

and individuals convicted of foreign bribery,

so that public subsidies, licences, government

procurement contracts and export credits can be

denied or terminated as penalty for foreign bribery

in appropriate cases4.

Establishing a policy for denying access to

contracting opportunities with public agencies,

such as the Export Finance and Insurance

Corporation (EFIC) and AusAID, as well as

provisions for the termination of such contracts

in appropriate cases where contractors are

convicted of foreign bribery after entering the

contract5.2 Based on the recommendation under the section numbered179 in OECD, Directorate for Financial and Enterprise Affairs,‘Australia: Phase 2. Report on the Application of the Conventionon Combating Bribery of Foreign Public Ofcials in InternationalBusiness Transactions and the 1997 Recommendation onCombating Bribery in International Business Transactions’, 4January 2006.3 Based on the recommendation under the section numbered179 in OECD, Directorate for Financial and Enterprise Affairs,‘Australia: Phase 2. Report on the Application of the Conventionon Combating Bribery of Foreign Public Ofcials in InternationalBusiness Transactions and the 1997 Recommendation onCombating Bribery in International Business Transactions’, 4January 2006.4 Based on the recommendation under the section numbered181 in OECD, Directorate for Financial and Enterprise Affairs,‘Australia: Phase 2. Report on the Application of the Convention

on Combating Bribery of Foreign Public Ofcials in InternationalBusiness Transactions and the 1997 Recommendation onCombating Bribery in International Business Transactions’, 4January 2006.5 Based on the recommendation under the section numbered181 in OECD, Directorate for Financial and Enterprise Affairs,‘Australia: Phase 2. Report on the Application of the Conventionon Combating Bribery of Foreign Public Ofcials in International

12.

13.

14.

15.

16.

17.

Fully implementing the Action Statement on

Bribery and Ofcially Supported Export Credits

agreed by the OECD.

Dealing with lending as corruption

Australia should accept the principle that those

debts that meet the criteria of being ‘odious’

should be cancelled.

Australia should commit to the principle of

creditor co-responsibility and ensure the

responsibility of any future bilateral and

multilateral lending involving Australia by:

Introducing guidelines that discourage lending

(or insurance of lending by EFIC, Australia’s

Export Credit Agency) towards projects

where there is dubious development benet,

where there is an unacceptable risk of non-

repayment or where there are not adequatehuman rights or environmental safeguards.

Advocating for the adoption of similar

guidelines at by the multilateral development

banks at which Australia is represented,

particular the Asian Development Bank.

Supporting local initiatives

Supporting the promotion of a global culture of

respect for basic human rights, so that those

seeking to tackle corruption are not subjected to

human rights abuses.

Providing assistance to communities to tackle

corruption and build good governance that build

a strong sense of local ownership and genuine

partnership.

Multilateral Development Bank Reform

Advocating for reforms of the World Bank and

International Monetary Fund (IMF) that enhance

democratic representation and transparency,including elections by Board of Governors to all

board seats, publication of meeting transcripts

and a democratic, transparent and merit-based

process for selecting the World Bank President

and IMF Managing Director

Pressuring the World Bank, IMF and the Asian

Development Bank to deal promptly with

companies found to have engaged in corruption,

and with sufcient penalties to deter other

companies from engaging in corruption.

Business Transactions and the 1997 Recommendation onCombating Bribery in International Business Transactions’, 4January 2006.

18.

19.

20.

•

•

21.

22.

23.

24.



0

1The following paper has been prepared by the Justice

and International Mission Unit of the Uniting Church

in Australia, Synod of Victoria and Tasmania as a

contribution to the current debate about increasing

overseas aid.

Corruption hurts local communities and individuals.

Corruption is a threat to the economic stability and


stolen or diverted.

When a country’s health budget is stolen, clinics are

left without the medications they need, hospitals are

left without equipment, doctors are left unpaid and

babies are not immunised. In the words of Australia’s

former Minister for Foreign Affairs, The Hon.

Alexander Downer, “It is the poor who suffer if funds

are diverted through corruption.”1

Those opposed to increasing nancial assistance to

developing countries in reducing poverty often rely

on the argument that the governments of developing

countries are corrupt and that aid placed into those

developing countries will be wasted.

The Unit acknowledges that corruption is a

signicant problem in some developing countries,

but certainly not all. Further, there is a cycle in which

poverty encourages corruption and corruption then

undermines attempts to reduce the poverty. This

cycle is not broken by withholding nancial support

to impoverished communities, but requires a more

sophisticated approach to shift a culture of corruption

to one of good governance.

Further, wealthy countries can foster corruption

and reward it as they benet from the corruption

themselves. Countries with lax banking laws may in

effect allow money stolen through corruption to be

laundered through their banking system. They may

also fail to assist developing countries in the recovery

of funds stolen through corruption. A number of

wealthy countries do not have adequate laws to

prevent companies based in their country from paying

bribes to ofcials in developing countries where

the company may also be operating. Tax havens,

AusAID, ‘Tackling corruption for growth and development. A Policy for Australian Development Assistance on Anti-Corruption’,Canberra, March 2007, p. iii.

often in wealthy countries, have a whole industry

of accountants, lawyers and bankers dedicated

to assisting rich companies and individuals in the

corrupt avoidance of paying their fair share of tax.

The Royal African Society in London has stated that

Africa loses as much as US$148 billion a year in

corruption, a gure that is accepted by the UN and

the World Bank, and which represents 25% of the

Gross Domestic Product of African countries. Theyclaim this money is rarely invested in Africa, but nds

its way into the international banking system and

often into western banks.

Australia needs to ensure that the Australian banking

system is not a recipient of money taken in corruption

and that any such money must be repatriated to the

country of origin. The Australian Government also

has a role to play in encouraging other developed

countries to reform their banking sectors not to

accept money taken in corruption and to return stolenassets.

Developed countries put staff and resources into

investigating funds related to drugs and terrorism

because these activities are seen to have adverse

effects on people. However, the same effort does

not appear to have been made with regard to money

connected to corruption. Yet, corruption may actually

kill or adversely effect more people than both drugs

and terrorism.

Transparency International has concluded that

corruption is undermining progress towards the UN

Millennium Development Goals, in particular the three

related directly to health: reduced child mortality;

improved maternal health; and the ght against

HIV/AIDS, malaria and other diseases. In their view,

“With the target date for achieving the goals just nine

years away, the global community is already off target

to meet them – and corruption is one of the primary

causes.”2

Curbing corruption is part of the means to creating a

more accountable, efcient and effective government.

It also allows for development that assists those in

2 Transparency International, ‘Theft, bribery and extortion robmillions of proper healthcare, says Global Corruption Report 2006’Media Release, 1 February 2006.

Introduction



poverty. Anti-corruption measures should focus on

a fairer distribution of resources for all in society. A

long term approach is needed where donors cannot

expect signicant change in the short term.

In Section 2 of the report, denitions around good

governance and corruption are explored. Section

3 provides a brief theological consideration of

Christianity’s support for anti-corruption activities

and supporting good governance. Section 4 dealswith what general lessons exist about what is needed

to change a society from one where corruption

ourishes to one in which good governance exists

and the opportunities for corruption are minimised.

This section also provides some examples of

where corruption has been dealt with successfully

and good governance systems installed. Section

5 deals with the ways that wealthy countries can

foster, reward and benet from corruption. Section

6 deals with international measures being pursued

to address corruption as a global problem, looking

at the development of international treaties,

agreements and programs to address corruption

and promote good governance. Section 6 does

not consider the multitude of local initiatives that

exist around the world to address corruption and

develop good governance, with a number of these

having already been addressed in Section 4. Finally,

Section 7 examines how Australia rates in dealing

with corruption. In what ways does Australia seek

to address corruption globally, but also whatinadequacies exist and where is further improvement

needed?

Most of the examples in the report are from the Asia

– Pacic region, but other global examples are used,

especially from Africa.



2Good governance and corruptionworking defnitions

The concept of governance is widely understood as

‘the process of decision-making and the process

by which decisions are implemented (or not

implemented).’ The World Bank and International

Monetary Fund (IMF) dene governance as “the

manner in which public ofcials and institutions

acquire and exercise authority to shape public policy

and provide public goods and services1.”

‘Good governance’ is dened by the United NationsEconomic and Social Commission for Asia and the

Pacic as:

participatory, consensus oriented, accountable,

transparent, responsive, effective and efcient,

equitable and inclusive and follows the rule of

law. It assures that corruption is minimized,

the views of minorities are taken into account

and that the voices of the most vulnerable in

society are heard in decision-making. It is also responsive to the present and future needs of

society 2.

2.1 Participation, equality andinclusion

Participation in civil society includes the decision-

making processes of both men and women, across

race, religion, ethnicity and disability allowing the

concerns of the most vulnerable in society to be

heard and addressed. This would mean ensuring thedevelopment of an organised civil society, as well as

freedom of association and expression.

2.2. Rule of law

Rule of law refers to the impartial enforcement of a

law by an independent judiciary and an incorruptible

and unbiased police force, both upholding the

protection of the human rights of all members of

society.

Development Committee, ‘Strengthening Bank GroupEngagement on Governance and Anticorruption’, World Bank andInternational Monetary Fund, 8 September 2006, p. i.2 United Nations Economic and Social Commission for Asia andthe Pacic http://www.unescap.org/huset/gg/governance.htm

2.3. Transparency andaccountability

Transparency and accountability are inextricably

linked with each other and the rule of law.

Transparency and accountability are achieved when

rules and regulations are followed in an open and

traceable manner. In general, decision-makers and

implementers are accountable to those who are

affected by their decisions and actions.

The international non-government organisation

Transparency International (TI), founded in 1993

to campaign against corruption, has dened

transparency as, “a principle that allows those

affected by administrative decisions, business

transactions or charitable work to know not only the

basic facts and gures, but also the mechanisms

and processes. It is the duty of civil servants,

managers and trustees to act visibly, predictably and

understandably.”

2.4. Efciency and effectiveness

Good governance must involve meeting the needs

of society through making best use of the resources

available, including development assistance as

a substantial resource for some countries. This

includes attention to the sustainable use of resources

and the protection of the environment.

One Christian perspective on ethical governanceargues that:

The needs of the poor are more important

than the wants of the rich; the freedom of the

dominated is more important than the liberty of

the powerful, and; enabling marginalised groups

to participate is more important than retaining a

system which excludes them.

2.5. Dening corruptionTransparency International (TI) initially dened

corruption as, ‘the use of public ofce for private

3 Australian Catholic Bishops’ Conference, Common Wealth forthe Common Good: A Statement on the Distribution of Wealth in

Australia, Melbourne, Collins Dove, 1992.



gain’. Its founders were motivated by what they saw

as a silence on the part of the World Bank over the

problem of corruption. TI later expanded its denition

to, ‘the misuse of entrusted power for private benet’.

This was seen as necessary in light of the privatisation

of public services such as water and electricity

where private companies were subsequently able to

monopolise the supply of these essential services4.

The German Federal Ministry of EconomicCooperation and Development has dened corruption

as the “behaviour of people who are entrusted with

public or private tasks and who, by failing to respect

their obligations, acquire unjustied advantages.”5

The Tax Justice Network has pointed out that the

TI denition is too narrow and has the possibility of

failing to capture tax evasion and falsifying of pricing

in imports and exports by private individuals and

companies. It has suggested that a possible broader

denition for corruption would be “an activity whichundermines public condence in the integrity of the

rules, systems and institutions that govern society is

corrupt.”

4 Hindess and Larmour, ‘Transparency International and theProblem of Corruption’, http://apseg.anu.edu.au/pdf/plarmour/

ARC_project_plarmour.pdf, 2003.5 GTZ UNCAC Project, “Combating Corruption throughDevelopment Cooperation”, GTZ, Eschborn, Germany, February2007.



3Theology of Corruption and Good GovernanceThe Christian faith and tradition has a long history

of condemning corruption and calling for those

in authority to act justly and fairly. However, at

the same time, both churches and those calling

themselves Christian have participated in and

facilitated corruption throughout history, both within

the churches themselves and in the wider community.

Even today, the Christian community continues to

be plagued by corruption scandals, especially in the

area of those in leadership positions in the church

misusing their entrusted power to pursue their own

sexual gratication. Where churches and individual

Christians have acted corruptly, facilitated corruption

or looked the other way it has been in rejection of

the teaching and life of the founder of the Christian

movement.

When facing questions of governance, the theological

confession in Jewish and Christian scripture afrms

that God is sovereign. All life, including human society

and politics, springs from that sovereign God.

The prime purpose of the prophetic tradition of the

Older Testament, which arose in times of Israel’s

monarchy, was to remind the political leaders and the

populace of God’s prior and sovereign claim.

The prophets in the Older Testament condemned the

corruption they saw in their societies, especially that

committed by rulers, the priesthood, the judiciary

and the wealthy. The pre-exilic prophets condemned

corruption amongst the priests, who, amongst otherforms of corruption, failed in their duties to the society

in not upholding the law of God1.

Israel was condemned by the pre-exilic prophets

for trampling the poor (Amos 2:7, 5:11, 8:4, Isa

3:15, Ezek 22:29). They took usury and excessive

interest and made unjust gain from their neighbours

by extortion (Ezek 22:12-13, 22:29). The poor were

forced to hand over grain (Amos 5:11). The people

of Israel were accused of cheating economically in a

range of ways; skimping on the measure, boosting theprice, cheating with dishonest scales, defrauding and

selling even the sweepings with the wheat (Amos 8:4,

Hos 12:7).

1 Hos 4:6, 4:8, Ezek 22:26, Zeph 3:4, Mic 3:11, Jer 5:31, 6:13,8:10, Isa 28:7.

The powerful were accused of coveting elds and

houses and seizing them (Mic 2:2). The exploitation

of the poor was contrasted with the wealth of those

carrying out the exploitation (Amos 5:11-12, Jer 5:27-

28).

Rulers are also directly accused of economic

exploitation. For example, King Jehoiakim is

condemned by Jeremiah for forcing men to build

a palace and not paying them for their labour (Jer22:13-14). Excavations have shown that at this

time a splendid palace was built mid-way between

Bethlehem and Jerusalem, at a time when economic

conditions for the people of Judah were poor2.

The prophets called on those in positions of power

and authority to behave in accordance with God’s law

and not to oppress the poor and defenceless3.

In the books of the pre-exilic prophets Israel was

to be punished for denying justice (Amos 2:7). The

leaders of the house of Jacob and Israel were

accused of despising justice and distorting what is

right (Mic 3:9). Justice was corrupted (Amos 5:7,

6:12, Hab 1:4) and God’s courts were trampled (Isa

1:12). Bribes were taken and the poor, orphans,

widow, alien and oppressed are denied justice in the

courts (Amos 5:12, Mic 3:11, Isa 5:23, 10:2, Jer 5:28,

Ezek 22:29). Perjury was committed (Jer 7:9) and

false testimony was used to deprive the innocent of

justice and to falsely make people out to be guilty (Isa

29:21).

The book of Ecclesiastes also warns against

corruption, stating “Extortion turns a wise man into a

fool, and a bribe corrupts the heart” (Ecc 7:7).

The church sees in Jesus Christ a conuence of

the sovereign claim of God and the loyal human

response. By his life and ministry Jesus announced

the reign (political claim) of God. In his life committed

completely to that God, he demonstrates a human

politics that depends entirely upon the governance of

God. The New Testament recalls that such undivided

loyalty cost Jesus his life. Paradoxically, the Church

2 H. Jagersma, A History of Israel in the Old Testament Period

(London: SCM Press Ltd, 1982), p. 177.3 Léon Epzstein, Social Justice in the Ancient Near East and the

People of the Bible (London: SCM Press Ltd, 1986), p. 69.



understands that the complete self-giving of his death

is a full expression of God’s claim, expressed as a

sovereign love. That is to say, Jesus’ life and death

demonstrate a sovereignty and a governance which

consists of sheer, unlimited and unconditional love.

Jesus condemned corruption in the society around

him, especially of religious leaders. Probably the most

well known account in this regard is the over-turning

of the tables of the money changers and people whosold things in the Temple in Jerusalem, where Jesus

condemns their making prot off people who come

to worship God (Mt 21:12-13; Mark 11:15-17; Luke

19:45-46; John 2:13-16).

Jesus warns his followers that they cannot be faithful

to God if they place store in nancial gain, as “You

cannot serve both God and money” (Mt 6:24). He

states that whoever is dishonest with a little with be

dishonest with much and if you cannot be trusted in

handling worldly wealth, then you will not be trustedwith the true riches of the kingdom of God (Luke

16:10-13).

Jesus lists theft, greed and deceit, all aspects of

corruption, which make a person ‘unclean’ (Mark

7:20-23).

He criticises the teachers of the law in his society for

using their positions to exploit widows, “devouring”

their houses (Mark 12:40, Luke 20:46-47).

Jesus states that those faithful to God seek to begood servants to others and lord it over others (Mt

20:25-27, Mark 10:42-44, Luke 22:25-30).

He tells Zacchaeus, a tax collector, that salvation has

come to his home when Zacchaeus promises to give

half his possessions to the poor and to repay anybody

that he corruptly cheated back four times the amount

they were cheated (Luke 19:8-10).

John the Baptist tells tax collectors to collect only

what they are required to, as they often corruptlyenriched themselves by taking more than they were

entitled to, and he told soldiers not to extort money

(Luke 3:12-14).

In Paul’s letter to Titus, he rebukes the members

of the Christian community on Crete that are being

corrupt through teaching for dishonest gain (Tit 1:10-

16).

In the books of James the rich are condemned for

their corrupt dealings with the labourers working

for them “Behold, the wages of the labourers who

mowed your elds, which you kept back by fraud, cry

out; and the cries of the harvesters have reached the

ears of the Lord of hosts” (James 5:4).



4Models of transition from corruption to

good governanceWhat are the suggested models of success for

countries being able to turn around a culture of poor

governance and corruption to a situation of good

governance with appropriate checks and balances?

The building of state capacity to openly and efciently

respond and provide for its citizens has become more

complex in an increasingly globalised world.

There is no one complete model which ts all

situations. An understanding of the specic cultural

and social context is paramount in the development

of reform within a society that will create and sustain

a political culture of good governance. Even the

World Bank has acknowledged this point, stating

“Governance challenges are far from uniform across

countries, so strategies must be differentiated and

strongly based on local knowledge, innovation on

the ground, and extensive collaboration with local

communities.”1

However, stable societies with strong social

infrastructures, respected institutions, functioning

systems of accountability and transparency, and

relatively narrow equality gap are better protected

against corruption2.

4.1 Fighting corruption needsfunding

Without adequate funding, developing countries may

be undermined in their efforts to combat corruption.

As long as government ofcials, police, the judiciary,

health workers, soldiers and anyone else dependent

on the government for their income are not paid a

sufcient income to live, the risk of them engaging

in corruption is increased. Thus, anti-corruption

programs must be linked to ensuring adequate

salaries are paid, which has implications for the level

of aid that may be needed.

Development Committee, ‘Strengthening Bank GroupEngagement on Governance and Anticorruption’, World Bank andInternational Monetary Fund, 8 September 2006, p. ii.2 Vanessa Baird, ‘Can the rot be stopped?’, New Internationalist ,December 2006, p. 4.

4.2 Need to build demand forgood governance

Donor funds for good governance programs are

largely directed to strengthening law and order

institutions, building national security, reforming




In 2001, the OECD Development Assistance

Committee reported that approximately 70% of the

Australian Government’s good governance programs

were directed at activities that focused on personnel

at a senior government or industry level. Very little

was provided for ‘civil society and human rights’ and

programs that work towards building participation and

demand for good governance from the community3.

However, the anti-corruption policy of AusAID,

released in March 2007, indicates that the AustralianGovernment has recognised that “systematic anti-

corruption reform requires local ‘champions for

change’ and should be driven from within. High-

quality political leadership, encouraged by a strong

local reform movement, is critical to success.”4

It is hoped that this policy will lead to a greater

commitment of Australia’s efforts in anti-corruption

and good governance measures being directed to the

need to build greater demand to good governance at

the local level.

Good governance fosters participation by the whole

community in decision making processes, especially

the disenfranchised and marginalised and not simply

the dominant voices.

The UN Development Programme in the Philippines

has stated that in order to foster democratic

governance it is necessary to empower citizens,

especially women and disadvantaged sectors,

and provide them with opportunities to engage in

governance processes by:

3 Australian Council for International Development, Responding

to the Community’s Voice. Good governance and Development ,Harambee, March 2006, p. 10.4 AusAID, ‘Tackling corruption for growth and development. A Policy for Australian Development Assistance on Anti-Corruption’,Canberra, March 2007, p. 7.



Enhancing their awareness and

understanding, knowledge and analytical skills

on policies, programs and mechanisms;

Increasing their access to public information;

Providing venues for policy dialogues;

Creating and expanding opportunities for

networking and linkage-building;

Strengthening their capacities to monitor

government and non-government’sperformance and practices; and

Building their capacities to engage and

represent their constituents in governance

structures and processes5.

While the World Bank has recognised there is a role

for local “bottom-up participatory reform, such as

community-driven development”, it seems to believe

that such demand led governance should only be

pursued when opportunities for governance reform

at the national level are limited.6

However, the Bankacknowledges that civil society, non-government

organisations, the media and local communities have

a role to in holding governments and institutions

accountable. It states that it will work to support

participatory and transparency initiatives, enabling

citizens to access information and participate in

development of policies, spending priorities and

service provision; promote community participation

to improve local governance; and “build media

capacity”7.

As pointed out by Dennis de Tray, vice president

of the Centre for Global Development, and former

World Bank resident representative in Indonesia, aid

donors simply ensuring their projects are free from the

effects of corruption is not a way to build meaningful

good governance. In his words “ring fencing donor

projects is a cop-out when it comes to ghting the

corruption that matters. It may make donors feel

good, it may be important to keep taxpayers happy,

but it does not lead to sustainable reductions in

5 UNDP Philippines, ‘Country Programme Action Plan betweenthe Government of the Philippines and United Nations DevelopmentProgramme, 2005 -2009’, p. 9.6 Development Committee, ‘Strengthening Bank GroupEngagement on Governance and Anticorruption’, World Bank andInternational Monetary Fund, 8 September 2006, p. ii.7 Ibid., pp. v, 6.

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corruption.”8 The Australian Government appears

to have realised this point and in the White Paper

Australian Aid: Promoting Growth and Stability it is

stated that each major aid activity will “as a matter of

course, set out what it is doing not only to reduce the

risks of corruption to the activity, but also to reduce

corruption in the sector to which it applies.”9

Australia’s programs in both Papua New Guinea

and Solomon Islands have been criticised as‘capacity building ending in capacity destruction’.

The argument has been made that AusAID’s funding

of services under the concept of capacity building,

end up delivering it, thereby undermining the local

government and people’s ability to continue the

service once those providing it leave. The bulk of the

$247 million Australia spent in the Solomon Islands

in 2004 in aid was paid to Australians working there.

Australian salaries in the Solomons are much higher

than the locals, their ofces are vastly superior, much

of their food and water is own in from Australia, at

a great expense, ‘and on average the most senior of

them are costing the Australian aid budget $600,000

a year’10.

As Stewart Firth points out, ‘The reason is that local

government never come to think of service provision

as theirs, but stand on the sidelines dealing with

the foreigner, coordinating aid projects and working

on the next submission for funds. There is a great

danger that something of this kind might happen

in Solomon Islands’.11 This does not enable thelocal people to learn the skills necessary to run

a sustainable system of governance including

developing their own institutions specic to their local

context.

8 Dennis de Tray, ‘Corruption and Development: An Impolitic

View’, 1818 Society Fall Luncheon, 16 November 2006.9 AusAID, ‘Australian Aid: Promoting Growth and Stability.

A White Paper on the Australian Government’s Overseas AidProgram’, 2006, p. 60.10 Stewart Firth, Towards Justice and Human Development in

the South Pacic: how Australia can do better , The Don DunstanLecture, The University of Melbourne, 2005.11 Ibid.



4.3 Integrating traditionalgovernance with liberal democraticmethods of governance

The Solomon Islands provides a key example of

state failure due in large part to the lack of t of the

institutional design with the local political culture12.

The primary lesson to be learned here is that

introduced institutions and systems of governancelack social foundations. Indigenous societies

throughout Melanesia had systems of governance

to uphold transparency and accountability, before

the arrival of Europeans. These cannot be ignored,

for as Hegarty et al writes, ‘Local social systems and

structures of traditional governance have proved

resilient and adaptable, and continue to provide the

primary reference for most Solomon Islanders’13.

At the same time it needs to be recognised that

these traditional Melanesian social systems will not

be effective at a national level without signicantmodication.

Throughout Melanesia, indigenous understandings of

‘good governance’ clearly involve notions of equity.

Bernard Narokobi, a Papua New Guinean writer says,

‘good governance’ means:

taking good care of our land, our resources

and our relationships with one another and of

course with people who we regard as allies,

or friends in the working out of our common

lives. Good governance, good administration,

good management, a key to it is wisdom in

our societies. You have to be wise, you have

to be sensitive, you have to be cautious,

careful in what you say, what you do, and most

signicantly in your distribution of food and pigs

you must be fair to everyone.

Liberal democracy, the governance model promoted

and implemented through development assistance

programs in Samoa and throughout the Pacic, is

publicly adhered to by the Samoan Government.

This model attempts to deal with problems through

legislative and institutional reform, focusing on

improving instruments of government and on

enhancing the role of the private sector particularly

in service provision. It does so with little attempt to

integrate the traditional models of governance into a

national scale.

Samoa’s experience gives insight into the friction

that can arise between traditional governance and

2 D. Hegarty et al., ‘State, Society and Governance inMelanesia’, Discussion, Research School of Pacic and AsianStudies, The Australian National University, 2004, p. 5.13 ibid, 5.

Western forms of governance. Fa’asãmoa (Samoan

way) and fa’amatai (way of chiefs) are the most

inuential factors in determining the leadership in the

local village structure of governance14.

This system today has its aws, and has not

prevented governance problems. Hyffer and Asofou

So’o see these as a result of:

‘a lack of correspondence between fa’asãmoa and liberal democracy;

a lack of general understanding and critical

assessment of the principles of liberal

democracy in Sämoa;

a combination of misuse, abuse, or

misunderstanding of fa’asãmoa; and

a lack of publicity and critical assessment of

the principles of fa’asãmoa.

Huffer and Asofou So’o advocate for the use of

traditional and commonly understood concepts to be

employed in institutions of governance, rather than

the language of liberal democracy and rule of law15.

Development can be an imposition of western

values and concepts onto local, indigenous cultural

systems. This explains why the local people have not

internalised the new concepts into their daily lives.

While Samoan systems of accountability are founded

in people being able to see their leaders daily in the

village, the western systems of governance introduce

a level of division that needs to be addressed with

reference to local, indigenous understandings of

accountable governance.

With the events of recent conict in mind, Solomon

Islanders have little faith in their current governance

structure. In order to rebuild a democratic governance

system in which Solomon Islanders invest their

support, an integration of local indigenous concepts

of what governance and good governance entails

may be necessary16.

In recognition of the importance of understanding

traditional governance, AusAID is providing

research funding to the Australian Centre for Peace

and Conict Studies, based at the University of

Queensland, for a research project—Towards Effective

and Legitimate Governance: States emerging from

hybrid political orders. This research seeks to identify

aspects of modern state institutions, customary local

institutions and civil society institutions that have

the potential to form a hybrid political order in fragile

4 Elise Huffer and Asofou So’o, ‘Beyond Governance in Samoa:Understanding Samoan Political Thought’, The Contemporary

Pacic, 17 (2), p. 311.15 ibid6 Tarcisius Tara Kabutaulaka, ‘Australian Foreign Policy and theRAMSI Intervention in Solomon Islands’, The Contemporary Pacic,17 (2), pp. 283-308.

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states. This approach will be tested through a series

of case studies in Vanuatu, Papua New Guinea,

Bougainville (as an autonomous region of PNG),

Solomon Islands, Tonga and East Timor. AusAID

expects the work to challenge some of the usual

underlying assumptions about fragile states. It also

has the potential to contribute to international thinking

on state building in fragile states.

4.4 Good governance and respectfor human rights

Promotion of ‘good governance’ requires the

promotion of respect for basic human rights.

Corruption often ourishes in an environment where

basic human rights are violated. ‘Demand led

governance’ appears open to failure if an environment

exists where those who demand good governance

face severe human rights abuses such as murder,

extrajudicial execution or ‘disappearance’ at thehands of the security forces or those involved in

corruption. ‘Demand led governance’ refers to when

the ordinary members of a society demand good

governance from those in government and the public

service.

Australia’s actions in the Philippines provide a

positive example of promoting human rights. The

Justice and International Mission Unit has a close

relationship with the United Church of Christ in the

Philippines (UCCP). The UCCP reports that moves tocombat corruption at all levels of government in the

Philippines are being undermined by the failure of the

security forces to protect human rights or even, as the

available evidence

seems to suggest,

being involved

in the murder of

community leaders,

church workers,

journalists, lawyers,

those involvedwith opposition

political parties,

trade unionists and

Indigenous leaders.

The UN Development Program in the Philippines

has recognized the need to build an environment in

which basic human rights are respected if democratic

government is to be fostered. The Justice and

International Mission Unit’s experience is that those

working in AusAID and the Department of Foreign Affairs and Trade recognize the need for the:

active promotion of human rights; and

challenging of human rights abuses with local

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authorities in the Philippines to assist in the

creation of an environment where overseas

assistance may have the opportunity to really

reduce poverty and combat corruption.

However, in contrast, the Unit has also raised issues

of human rights violations in Iraq. For example,

Uniting Church members have raised the case of

Akram Hanush al Rawi. In December 2003, Akram

Hanush al-Rawi, 49, was arrested by US forces. Twoweeks later his family were told to collect his body

from a nearby hospital. It is alleged that there were

bruises all over his face and body, his knees were

broken and his right arm was so badly ripped from

his body that it was attached by only a small piece of

muscle. The US authorities argued that he died from a

heart attack.

Replies from the Department of Foreign Affairs and

Trade to Uniting Church members stated:

“We note your request to raise the case of

Mr Akram Hamush al-Rawi with relevant US

authorities. It is the Government’s policy not to

comment on the actions of other countries in

relation to matters in which Australia has had no

involvement.”

Such a policy seems at odds with promoting an

environment for respect for human rights and good

governance, in this case setting a very poor example

to the Iraqi authorities and the Iraqi people. Further,

it is likely to undermine the commendable programs

the Australian Government has run to promote human

rights and good governance in Iraq.

4.5 One size does not t all

Combating corruption while providing aid means

breaking out of ideologically driven parameters, such

as a belief that competitive tendering will always

deliver the best outcome.

An example of the problems that can arise has beendemonstrated in a report on landmine clearance

in Bosnia by Landmine Action17. The report found

that while mine action tasks are contracted out to

7 M. Bolton and H. Grifths, ‘Bosnia’s political landmines’,Landmine Action, London, 2006.

Companies from wealthy countries can also assist in creating an environment where

human rights abuses undermine anti-corruption efforts. In early 2007, US based

banana company Chiquita Brands International pleaded guilty to having made

payments of US$1.7 million to paramilitary groups, the AUC, in Colombia between

2001 and 2004. The payments had continued after the US-Government declared

the AUC groups to be terrorist organisations1. Amnesty International reported that

AUC groups were responsible for over 3,000 murders a year in Colombia, including

lawyers, journalists and human rights defenders.

1 Company paid terrorists’, The Age, 21 March 2007.



0

introduce competition and save costs, this occurs

usually in the context of a weak state, which may

be unable to enforce discipline and the rule of law

on contractors. This means there may be strong

incentives for contractors to cut corners and

carry out risky practices to maintain a competitive

price. The report found that for every 100 mines or

pieces of unexploded ordnance found, commercial

demining companies operating in Bosnia had nearlythree times the number of accidents compared

with non-commercial non-governmental demining

organisations or government conducted demining.

It was stated that in some countries such problems

have been solved by constructing effective systems

of regulation that hold poor performing contractors

to account. However, in weak states in post-conict

situations, effective systems of governance are rarely

established and rules can be bypassed through extra-

legal mechanisms such as bribery and favouritism.Once one company cuts corners and is able to bid for

contracts at lower cost, it can force other companies

to ruthlessly cut costs also. This creates a strong

incentive for companies to break safety rules for their

employees.

The report also found that the context of a weak

state means that money for landmine clearance, in

the case being considered, is open to being captured

by nationalist or criminal interests, which often

have positions of primacy in a conicted society. Itstated that advocates of privatisation have argued

that contracting out services will reduce corruption

and increase the rule of law by forcing efciency

and minimising politically motivated distribution

of resources. However, it is unclear in such an

analysis why a corrupt government should handle a

privatisation process more cleanly than it would run

the program itself.

In the case of Bosnia, the Serbian demining company

UNIPAK was owned by Radomir Kojic, who wasaccused of organising the ethnic cleansing of non-

Serbs from Pale, supervising torture centres and

commanding a unit shelling Sarajevo. Between

1999 and 2003, UNIPAK received US$1.8 million for

demining, US$1.3 million being provided by the US

Administration. Radomir Kojic was arrested on 23

August 2006 in Pale by the State Investigation and

Protection Agency on suspicion of money-laundering,

tax evasion and abuse of ofce relating to UNIPAK.

Banking documentation showed that within a single

day, Radomir Kojic channelled more than one millioneuros in demining funds from his account in Slovenia

via Privredna Banka Sarajevo, a bank described by

the US as a money-laundering operation for Radovan

Karadzic’s protection network.

The report recommended that in response to such

challenges a conict sensitive and politically aware

approach to mine action is needed that:

pays attention to whom resources are

allocated, and their role in the political

context;

assumes the resource ows of mine action

funding will attract the attention of manyundesirable individuals and parties who wish

to prot from it;

understands that policies conventionally

considered wise may be hijacked and abused

by special interests; and

takes a principled and ‘arm’s-length’ stand

from corruption and the illiberal political

economy of conict.

4.6 Examples of successful goodgovernance projects and actions

4.6.1 Micronance project in Bougainville

The Bougainville Micronance project that was set up

in the late 1990s under the Bougainville Transitional

Government and funded by AusAID has the support

of the local community as a successful, transparent

and accountable model. The scheme is designed

to address the nancial needs of the people at the

community level. As such, it utilises local traditional

ways in terms of accountability and transparency.

As Agnes Titus from the Leitana Nehan Women’s

Development Agency said:

It is a project that is just falling nicely on our

own way of life except for the fact that the

women are heavily involved…The Micronance

institution is the way they can address their

personal issues too, their family issues or their

community issues. And I’m very condent that

that is the way Bougainville will go at a time

when we’re talking about being an autonomous

state. Because I mean that is one of the best

ways people can really feel and articulate that

independence which we are always talking

about.18

4.6.2 Partners in advocacy: HEED Bangladesh

Under HEED Bangladesh’s Participatory DevelopmentProgram (PDP), groups are formed in order to

mobilise poor and marginalized people into forums

that generate cohesiveness and social and economic

18 www.abc.net.au/timetotalk/english/radio/stories/ TimeToTalkTranscript_418400.htm

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power. These groups function as savings and

credit groups, providing poor families, particularly

women, with access to credit and income-earning

opportunities that would otherwise be denied to them.

They also provide education, awareness-raising and

empowerment around issues of critical importance to

the communities. HEED assists almost 3,500 of these

groups with over 57,000 members.

Group solidarity is enormously strong among the

members. The groups begin by making a roll-call and

noting who is absent. However, far from being the

least important members of the group because they

have no say in what the group discusses, absentees

become the most important members of the group.

The group discusses why they are absent and what

the group, can do to assist the absent member

through any nancial, health or family difculties they

are facing.

PDP groups meet to discuss legal and human rights

issues, particularly issues such as women’s rights,

voting and democracy, divorce, dowry and family

law, along with health issues such as HIV/AIDS and

the problem of arsenic-contaminated water. A crucial

part of the work of these groups is to provide the

members with the information, skills and condence

to understand and defend their own rights and

entitlements. To combat the violent and discriminatory

practices targeted against women that have risen out

of traditional approaches to child marriage, dowryand divorce, women are informed of their rights under

state law and the support and redress mechanisms

available to them.

Local groups elect members to Ward Committees

(a ward is the local government area) and Union

Committees, where elected councillors meet as

joint members in these groups. These groups are

a powerful force for positive social change in their

communities by:

contributing to local dispute resolution;

raising awareness about issues and

encouraging observance of signicant

international days, such as Women’s Day and

AIDS day;

engaging with local government to ensure

the equitable distribution of important social

services, such as emergency relief, health

programs and girls education scholarships;

and

providing education and community

advocacy.

At these higher level forums (Ward and Union

Committees), the groups also organize community

leaders’ forums so that local social, political and legal

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issues can be raised. In these forums the traditional

elite leadership is made more accountable to their

communities. There are many examples of this new

accountability ourishing; many local government

ofcials have made commitments not to permit child

marriage and to provide greater levels of nancial

accountability to the local community.

HEED also ran three workshops for journalists in

the different PDP areas in 2003-04, with about 99

journalists attending. These workshops offered

training and information about reporting on human

rights violations, the provision of public services and

issues of corruption and governance. The role of an

informed and courageous media is ever more critical

in Bangladesh at a time when violent attacks against

civilians, politicians, and journalists are on the rise.

HEED works to empower grassroots communities,

forge links between communities and government,

and enhance accountability by working with

community leaders and the media. By working at

all of these levels and empowering communities

to advocate for good governance and the

defence of basic rights, the seeds of sustainable

good governance and the development of poor

communities are being sown19.

4.6.3 Communities addressing corruption in

Uganda

During the early 1990s, a World Bank survey found

that only 2% of the grants made to schools by the

Ugandan Government for each attending student

were actually received by the schools. The survey

found the blockage was occurring at the district

government level. Schools however continued to

send the fees they charged to district government.

While the district government received money from

both the central government and the community,

schools were massively under-funded.

Once the discrepancy in allocated funds wasrevealed, both the central government and local

communities used the power of public information to

hold district governments accountable. The central

government used newspapers and radio broadcasts

to publish the amounts they had transferred to

the district governments. At a local level, schools

maintained public notice-boards, announcing the

amounts of money they were receiving. Communities

also successfully called for schools, rather than the

district government, to hold authority for managingthe funds.

By 1999, the grants received by the schools had

almost reached 100%, although delays in transfers

19 Provided by Ben Thurley, TEAR Australia



persisted. The methods used to assist the community

to hold their district government responsible and

accountable were modest and simple. However, when

access to public information was made possible, the

community had the tools to ght against corruption

and achieve a pro-poor outcome20.

4.7 Conclusion

Australia and other donor countries in delivering

aid programs should seek to involve affected

communities in planning, implementing and

monitoring projects as citizens, to hold governments

accountable – especially for the delivery of basic and

essential services21. There is a need to empower

those people who have the greatest needs and make

sure that they have the ability to hold authorities to

account.

Strategies to combat corruption and promote good

governance need to vary across countries and

communities and such strategies must be based on

local knowledge, innovation on the ground and strong

collaboration with local people. This approach has

been accepted in World Bank policy and within the

AusAID anti-corruption policy22.

In the words of Minister Downer “Our approach must

be tailored to the individual circumstances of each

country. In this way, we can work together with our

partners to identify the local drivers of corruption, and

the best responses, to ensure that our assistance has

lasting impact.”23 The AusAID anti-corruption policy

recognises that donor priorities and responses must

be informed by local needs24.

The Institute of Development Studies at the University

of Sussex has argued that much more realism is

needed about the likely pace of change towards good

governance. It argued that incremental approaches

that respect local social and political constraints

have the potential to work better than attempts at

comprehensive reform. They were of the view that

the single most important message for policymakers

in the area of governance is to think less normatively

about what ought to be happening and much more

politically about what is actually happening and why

– and to build on that25.

20 Australian Council for International Development, Responding

to the Community’s Voice. Good governance and Development ,Harambee, March 2006, p. 14.2 Garth Luke, ‘Can Aid be Effective when Corruption isPresent?’, Make Poverty History and Micah Challenge Australia,2006, pp. 20-21.

22 Development Committee, ‘Strengthening Bank GroupEngagement on Governance and Anticorruption’, World Bank andInternational Monetary Fund, 8 September 2006, p. 5.23 AusAID, ‘Tackling corruption for growth and development. A Policy for Australian Development Assistance on Anti-Corruption’,Canberra, March 2007, p. iii.24 Ibid., p. 7.25 IDS Policy Brieng, ‘Getting Real About Governance’, Institute

of Development Studies, University of Sussex, Issue 26, March2006.



5Aspects of the global nancial system that

encourage corruption in developing countriesGovernments, corporations, and individuals in

wealthy countries sometimes facilitate and benet

from corruption in developing countries. In the words

of the World Bank and the UN Ofce on Drugs and

Crime1:

“While the traditional focus of the international

development community has been on

addressing corruption and weak governance

within the developing countries themselves,

this approach ignores the “other side of the

equation”: stolen assets are often hidden in the

nancial centres of developed countries; bribes

to public ofcials from developing countries

often originate from multinational corporations;

and the intermediary services provided by

lawyers, accountants, and company formation

agents, which could be used to launder or

hide the proceeds of asset theft by developing

country rulers, are often located in developed

country nancial centres.”

5.1 Wealthy country bodies payingbribes

The World Bank estimates that US$1 trillion is

paid in bribes each year globally2. Transparency

International has been concerned that corruption in

developing countries was sustained by bribes paid by

Western countries. A 1997 estimate of bribes paid by

international companies to do business in developing

countries put the gure at US$80 billion per year paid

in bribes, more than the total overseas aid to these

countries3. The World Bank and UN estimate that

corrupt money associated with bribes received by

public ofcials of developing and transition countries

is conservatively put at US$20 – US$40 billion a year.

UN Ofce on Drugs and Crime and the World Bank, ‘Stolen

Asset Recovery (StAR) Initiative: Challenges, Opportunities and Action Plan’, The World Bank, June 2007, p. 1.2 Penny Jackson, ‘The Other Side of the Coin. The UK andCorruption in Africa’, Africa All Party Parliamentary Group, March2006, p. 12.3 Rose-Ackerman, S., ‘The Political Economy of Corruption’ inK. Elliott (ed.), Corruption and the Global Economy , Institute forInternational Economics, Washington, 1997.

An insidious example of companies that originate in

wealthy country paying bribes to further their interests

at the cost of the lives of people in the developing

world is the continuing practice of infant formula

companies paying bribes to health professionals

in the developing world in order to promote their

products.

The World Health Organisation and UNICEF

recommend exclusive breastfeeding for babies up tosix months of age. The UNICEF Innocenti Research

Centre has estimated that the lives of up to two

million babies could be saved each year if all babies

were exclusively breastfed for six months4. The World

Bank has stated that exclusive breastfeeding for six

months is the single most effective measure that

could be implemented to reduce child mortality rates

globally5. Yet, the International Code Documentation

Centre of the International Baby Food Action Network

(IBFAN) continues to document infant formula

and baby food companies giving ‘gifts’ to health

professionals as thinly veiled bribes to get health

professionals to get mothers to feed their babies the

company’s products6.

These companies put their prots ahead of the lives

of babies in the developing world. There was a media

report of a company in the Philippines paying $13 to

health professionals for every ten babies they signed

up to their products. Undersecretary of the Philippines

Ministry of Health, Alex Padilla, was reported in the

media as saying that new mothers have often beengiven infant formula by doctors and midwives in

the hospitals, on commission from the milk formula

companies7.

The World Health Organisation International Code of

Marketing of Breastmilk Substitutes requires under

Article 7.3 that “No nancial or material inducements

to promote products within the scope of this Code

4 UNICEF Innocenti Research Centre, ‘990-2005 Celebrating theInnocenti Declaration on the Protection, Promotion and Support of

Breastfeeding’, November 2005, p. xvi.5 The World Bank, ‘Directions in Development. RepositioningNutrition as Central to Development’, 2006.6 See for example Yeong Joo Kean and Annelies Allain, ‘Breakingthe Rules, Stretching the Rules 2004’, International Baby Food

Action Network, May 2004.7 Connie Levett, ‘Baby formula battle goes to Manila court’, The

Age, 3 February 2007, p. 20.



should be offered by manufacturers or distributors

to health workers or members of their families, nor

should these be accepted by health workers or

members of their families.” An estimated 16,000

babies lives are lost each year in the Philippines

because they are not adequately breastfed. Infant

formula sales in the Philippines are over $1 billion a

year8.

In some cases, wealthy

countries have been slow

or reluctant to act on issues

of bribery in developing

countries. For example, the

OECD has criticised the UK Government for taking

into consideration the possible impact on the UK

economy, or its relations with other states, before

being willing to take forward a bribery case9. In fact,

there has not been a single prosecution of a UK

company in the UK for bribery of a public ofcial adeveloping country.

There are some good news stories though. In the

US, the Foreign Corrupt Practices Act 1977 makes

it illegal for any US-based or US-listed company

to engage in foreign bribery. It extends to foreign

companies that issue their stock in the US. The

US Department of Justice and the Securities and

Exchange Commission are reported to have doubled

the number of investigations they are conducting into

overseas bribery in the last year. From 1995 to 2000,the US Department of Justice averaged less than one

completed investigation a year. Early in 2007, three

subsidiaries of Vetco, a UK oil and gas provider, paid

US$26 million in penalties for having paid US$21

million in bribes to Nigerian ofcials10.

5.2 Tax havens and taxcompetition

Over the last two decades tax competition has led to

a ‘race to the bottom’ in corporate tax rates in manydeveloping countries that now have signicantly lower

tax rates than OECD countries. In trying to attract

foreign investors there has been a dramatic decrease

in tax rates for foreign owned subsidiaries and

afliates of trans-national companies.

Between 1983 and 1996 corporate tax rates for US

afliates operating in developing countries dropped

from 54% to 28%11. Poorer countries nd it harder

8 World Health Organisation, Philippines.

9 Penny Jackson, ‘The Other Side of the Coin. The UK andCorruption in Africa’, Africa All Party Parliamentary Group, March2006, p. 31.0 Patti Waldmeir, ‘US cracks down on global bribery’, The

Australian, 11 April 2007. Oxfam UK, ‘Tax Havens: Releasing the Hidden Billions forPoverty Eradication’, 2000 http://www.attac.org/fra/toil/doc/ oxfam2.htm

than wealthy countries to counter the effects of

tax competition. For example, between 1992 and

2004, the copper industry’s total contribution to the

Zambian treasury fell from over $200 million to just

$8 million – even though copper prices had climbed

by more than 25% and copper production remained

relatively stable12.

There is little evidence that

state and local tax cuts

– when paid for by reducing

public services – stimulate

economic activity or create

jobs. To the contrary, there

is evidence that increases in taxes, when used to

expand the quantity and quality of public services,

can promote economic development and employment

growth13. The economic impact of taxes depends

on the initial tax level, how the revenue is raised, and

how productively the money is spent14

.

Oxfam estimates that developing countries could

be losing annual tax revenues of at least US$50

billion as a result of tax competition and the use of

tax havens. The recovery of some of this revenue, if

used effectively, could have an enormous impact on

alleviating extreme poverty in developing countries.

Oxfam has stated that: “Northern governments

justiably press southern governments to adopt more

accountable and transparent budget systems, but

then create incentives for corruption by failing to dealeffectively with tax havens and other tax loopholes”15.

Alex Cobham at the Oxford Council on Good

Governance has shown that poorer countries

forego US$385 billion in revenues annually due to

tax avoidance and tax evasion. This is nearly four

times greater than the total OECD countries’ foreign

development aid to poorer countries16.

The push by multilateral institutions such as the World

Trade Organisation and the International Monetary

Fund to liberalise trade regimes has led to a decrease

in revenue to developing countries through taxes

on imports and exports. Unable to increase the

relatively low tax revenue from direct taxes, such as

income tax, due to capital ight and tax avoidance,

2 Tax Justice Network website, ‘International Tax-Co-operationand Competition’, http://weave.nine.ch/domains/taxjustice.net/ cms/front_content.php?idcat=1023 Richard Murphy, John Christensen and Jenny Kimmis, ‘Tax usif you can’, Tax Justice Network, September 2005, p. 5.4 Fred Argy, ‘Australia’s Fiscal Straightjacket: Eight myths abouttax and public debt which are holding us back’, Centre for Policy

Development, Occasional Paper Number 4, Sydney, November2007, pp. 3, 5-6.5 Oxfam UK, ‘Tax Havens: Releasing the Hidden Billions forPoverty Eradication’, 2000 http://www.attac.org/fra/toil/doc/ oxfam2.htm6 Tax Justice Network, ‘Dirty Money and Offshore: Magnitudesand Measurements’, http://weave.nine.ch/domains/taxjustice.net/cms/front_contents.php?idcat=103

Oxfam estimates that developing countriescould be losing annual tax revenues of

at least US$50 billion as a result of tax

competition and the use of tax havens.



poorer countries have switched the tax burden on to

consumers through sales taxes. This is a shift of the

tax base to more regressive taxation as lower income

households spend a higher proportion of their income

on consumption17.

The Tax Justice Network estimated in March 2005

that there was US$11,500 billion held by individuals

in approximately 73 tax havens around the world. The

worldwide tax revenue lost as a result was estimated

at US$255 billion per year18. This is more than three

times what OECD countries provide to developing

countries as overseas aid. With so much tax revenue

lost due to international evasion and avoidance

by large companies and wealthy individuals,

governments are forced to either reduce public

spending and/or increase taxation on less mobile

small companies or poorer individuals19.

The OECD identies three factors that characterise a

country as a tax haven20:

The country has no or very low taxes and offer

themselves, or are perceived to offer themselves,

as a place to be used by non-residents to escape

tax in the country where the non-resident lives.

There is a lack of effective exchange of

information to foreign tax authorities.

There is a lack of transparency in the legal and

administrative arrangements that apply. ‘Secretrulings’, negotiated tax rates or other practices

that fail to apply the law openly and consistently

are examples of a lack of transparency.

Many havens are small islands states such as Jersey,

Liechtenstein, Cyprus and Malta in Europe; Labuan

and Singapore in Asia, the Seychelles and Mauritius

that serve India and Southern Africa, and Cayman

Island and Bermuda in the Caribbean. Additional

tax havens in our region include the Cook Islands,

Marshall Islands, Nauru, Samoa, Tonga and Vanuatu

21

.

However, there are also a signicant number of

onshore havens that serve particular aspects of the

global market. The City of London hosts the offshore

Eurobond market, Belgium is a haven for corporate

headquarters, whilst Switzerland, Austria and

Luxembourg have insisted on their right to provide

secret banking facilities. The Netherlands is home

to almost 20,000 ‘mailbox companies, corporate

7 Richard Murphy, John Christensen and Jenny Kimmis, ‘Tax us

if you can’, Tax Justice Network, September 2005, p. 6.18 http://www.taxjustice.net9 Richard Murphy, John Christensen and Jenny Kimmis, ‘ Tax usif you can’, Tax Justice Network, September 2005, p. 1.20 Australian Taxation Ofce, ‘Tax havens and tax administration’,2004, p. 2.2 Richard Murphy, John Christensen and Jenny Kimmis, ‘Tax usif you can’, Tax Justice Network, September 2005, pp. 32-33.

1.

2.

3.

shells set up by foreign companies and wealthy

individuals who use them to reduce taxes on royalties,

dividends and interest payments. Globally some

1,165 companies use Dutch tax shelters to reduce or

eliminate taxes on royalties and patents.

Whilst OECD efforts to improve standards of

regulation and supervision in nancial havens need

to be acknowledged, this focus neglects the issue

of tax avoidance, and well-regulated havens can be

attractive to money launderers as they ‘provide the

cover of respectability’22.

The 1998 OECD report Harmful Tax Competition: an

Emerging Global Issue notes that tax havens are a

harmful form of tax competition as they ‘poach’ the

tax base of other countries, and also encourage the

race to the bottom by offering foreign capital a low or

no-tax alternative23.

An analysis by the World Bank and the UN Ofceon Drugs and Crime of looting by corrupt leaders in

developing countries found that the main techniques

used to launder the proceeds of corruption include

wire transfers, the use of shell corporations in bank

secrecy jurisdictions and direct deposits in the form of

cash or bearer instruments24.

John Christensen, formerly an adviser to the

government of the Channel Island of Jersey and now

director of the Tax Justice Network, was reported

in the media as stating that the failure of developedcountries like the UK, USA and Switzerland to clamp

down on offshore tax havens is responsible for more

hardship than any corrupt acts by developing world

leaders. “I would place the United Kingdom high on

the list of most corrupt countries”, he said, citing its

role as a tax haven and a defender of the tax haven

role of its overseas territories and dependencies,

as well as its “dismal role in undermining the

effectiveness” of the European Union’s attempts to

close tax loopholes. He argued that there had been

too much emphasis on corruption in the developing

world and not enough on the abuse of offshore tax

havens by the wealthiest countries25.

In the view of the Tax Justice Network:

“..banking secrecy and trust services provided

by global nancial institutions operating

22 Oxfam UK, ‘Tax Havens: Releasing the Hidden Billions forPoverty Eradication’, 2000 http://www.attac.org/fra/toil/doc/ oxfam2.htm and Lynnley Browning, ‘Dutch tax laws give starsshelter and satisfaction’, The Age, 5 February 2007, Business p. 5.

23 Oxfam UK, ‘Tax Havens: Releasing the Hidden Billions forPoverty Eradication’, 2000 http://www.attac.org/fra/toil/doc/ oxfam2.htm24 The World Bank, ‘Stolen Asset Recovery (StAR) Initiative:Challenges, Opportunities and Action Plan’, June 2007, p.23.25 Duncan Campbell, ‘Western tax havens slated as corrupt’,http://www.smh.com.au/world/western-tax-havens-slated-as-corrupt.htm, Sydney Morning Herald , 5 September 2006.



offshore provide a secure cover for laundering

the proceeds of political corruption, fraud,

embezzlement, illicit arms trading and the

global drug trade. The lack of transparency

in international nancial markets contributes

to the spread of globalised crime, terrorism,

bribery of under-paid ofcials by western

businesses, and the plunder of resources by business and political elites. Corruption clearly

threatens development, and it is tax havens that

facilitate the money laundering of the proceeds

of corruption and all types of illicit commercial

transactions.” 26

“Much of the work undertaken on tax havens,

and a large part of the tax planning industry,

involves exploiting legal loopholes for tax

planning purposes, which ultimately involves

tens, and maybe hundreds, of thousands of

trained accountants, lawyers and bankers in an

activity that is wholly unproductive and anti-

social.” 27

Offshore nancial centres are used as conduits

for rapid transfers of portfolio capital in to and out

of national economies which can have a highly

destabilising effect on nancial market operations.

Many developing countries are then required tohold large hard currency reserves to protect their

economies from nancial instability. These reserve

holdings are an expense that few developing

countries can afford, but they have little choice in the

absence of internationally agreed measures to reduce

market volatility28.

Tax havens create an illusion. A company might

be registered in a tax haven territory, but almost

no information about it needs to be recorded with

the government of the tax haven. The names andaddresses of directors and shareholders are almost

never required to be on the public record and

nominee names are allowed. A nominee name is

a person who is paid a small fee to say they are a

director of a tax haven company when in fact they

have no real involvement in its operation29.

To add to the illusion, many tax haven companies

are owned by trusts and these trusts in turn are

set up offshore. The trusts are often in a different

territory from that in which the company they own isregistered. The trustees (who will, almost certainly

26 Richard Murphy, John Christensen and Jenny Kimmis, ‘Tax usif you can’, Tax Justice Network, September 2005, p. 4.27 Ibid., p. 25.28 Ibid., p. 5.29 Ibid., pp. 26-27.

also be nominees) will typically be located in a third

tax haven territory.

Within the tax planning industry it is generally

thought that involving three tax haven territories in

such a structure will make it very difcult for outside

authorities to investigate what is really happening,

and who is beneting from it. This can achieve the

outcome that the tax haven activity appears to take

place nowhere, which means it is accountable to

no government, pays no tax to anyone and has no

duty to report anything because it can deny it is

anywhere30.

In the words of the Tax Justice Network: “In the

secretive, parallel universe of tax havens, structures

can be set up to carry out real functions in the real

world but without any requirement for a transparent

legal presence that conrms their existence or the

nature of their activities. This creates the opportunity

for all sorts of illicit activities by:

allowing tax evasion to take place largely

undetected31;

facilitating capital ight; and

allowing other crimes such as money

laundering, drug trafcking, people trafcking

and so on to take place largely undetected.”

The Tax Justice Network concludes “In combination,

tax competition, aggressive tax avoidance, tax

evasion and the associated illicit capital ight tooffshore nance centres imposes a massive cost on

developing countries. This cost exceeds aid ows by

a considerable order of magnitude and also distorts

investment patterns to the extent that it undermines

growth in developing countries whilst also stimulating

asset market bubbles in developed and developing

countries.”32

The use of tax havens is not restricted to companies,

but extends to wealthy individuals, even those who

have publicly campaigned for action to overcomeglobal poverty. Bono and the band U2 have been

criticised for hypocrisy for shifting their music

publishing company to the Netherlands from Ireland

in June 2006, a move which minimises their taxes.

During the 1990s, U2 used non-executive directors

who were resident in an offshore tax haven to limit

the tax paid by the four band members. U2 is also

criticised for keeping their nancial affairs out of

public view through companies that publish shortened

accounts and trusts that do not publish accounts at

all33.

30 Ibid., p. 27.31 Ibid., p. 27.32 Ibid., p. 21.33 Richard Tomlinson and Fergal O’Brien, ‘For all the talk, doesBono put his money where his mouth is?’, The Sunday Age, 4February 2007, p. 20 and Lynnley Browning, ‘Dutch tax laws give

•

•

•



stars shelter and satisfaction’, The Age, 5 February 2007, Businessp. 5.

5.3Recoveringlooted fundsfrom westernnation bankaccounts

Developing country

governments oftenhave difculties

recovering funds stolen through corruption by past

regimes, when such stolen funds have been placed

in the banks of wealthy developed countries. World

Bank President Robert B Zoellick has stated that

“Developing countries need to improve governance

and accountability, but developed countries should

also stop providing a safe haven for stolen proceeds.

There should be no safe haven for those who steal

from the poor. Helping developing countries recover

the stolen money will be key to fund social programsand put corrupt leaders on notice that they will not

escape the law.”34

For example, an estimated $3 - $5 billion was looted

from public funds and deposited in Western banks

by the Nigerian dictator Sani Abacha and his cronies

during the 1990s and laundered through banks in

the UK, Switzerland, Luxembourg, Liechtenstein,

Jersey and the Bahamas35. The subsequent Nigerian

government sought the help of the governments of

the UK, the US and the EU in recovering an estimatedUS$2.2 billion of these funds. This recoup was seen

as vital in a country that has an external debt of

US$31 billion and where 30% of the population lives

on less that US$1 a day36. The government has had a

limited degree of success, with the recent recovery of

US$ 149 million from accounts in Jersey and the 2005

recovery of US$618 million from Switzerland37.

A report by the Paris-based Comité Catholique

contre le Faim et pour le Développement (CCFD)

in March 2007 estimated that the value of wealthembezzled just by the most prominent dictators over

recent decades amounts to US$100 – 180 billion38.

The report found that only US$4 billion had been

repatriated from wealthy countries and a further

US$2.7 billion has been frozen. Switzerland has

returned US$658 million stolen by Ferdinand Marcos

from the Philippines and US$80.7 million stolen by34 World Bank Media Release, ‘Bank, UN Join in Stepped-UpDrive to Help Countries Recover Looted Assets’, 17 September2007.35 The World Bank, ‘Stolen Asset Recovery (StAR) Initiative:

Challenges, Opportunities and Action Plan’, June 2007, p.18.36 Oxfam UK, ‘Tax Havens: Releasing the Hidden Billions forPoverty Eradication’, 2000 http://www.attac.org/fra/toil/doc/ oxfam2.htm37 Afrol News, ‘Nigeria recovers US $50 million looted funds’,http://www.afrol.com/articles/10641, 28 November 2005.38 Antoine Dulin and Jean Merckaert, ‘Tax Havens and Ill-GottenWealth’, Tax Justice Focus, Vol. 3, No. 3, 2007, p.6.

It is alleged that the Commonwealth Bank is running a multi-billion dollar business

in the tax haven of Malta, which has helped it wipe off millions of dollars of taxes. In

2005-2006 the Commonwealth bank operation in Malta, CommBank Europe, made a

pre-tax prot of $3.4 million and paid tax in Malta of $2.3 million – equivalent to a tax

rate of 7.3%. The Commonwealth Bank said that Australian tax was also paid under

foreign company rules, which meant the Maltese accounts did not reect the full

amount of tax paid1.

Richard Gluyas, ‘Which bank is big in Malta?’, The Weekend Australian, 1-2 September 2007.



Peruvian dictator Fujimori. The US has returned to

Chile some of the money stolen by military dictator

Augusto Pinochet. France has so far not returned any

money stolen by dictators and deposited in France.

The World Bank reports that between August 2001

and 2004, Peru was able to recover US$185 million

stolen by Vladimiro Montesinos (the intelligence

police chief under President Alberto Fujimori) from

Switzerland, Cayman Islands and the USA. In July2006, British authorities returned US$1.9 million of

allegedly illicit gains of Diepreye Alamieyeseigha,

governor of the oil-rich Bayelsa state in Nigeria.

In 2007, the Indonesian Government has pursued $59

million in a Guernsey bank account held by Tommy

Suharto, real name Hutomo Mandala Putra, the

son of the former Indonesian dictator Suharto. The

Indonesian Government has alleged the money was

stolen national funds that were laundered through

share transactions in Italian car-maker Lamborghiniand Tommy Suharto’s own motorcycle group. The

account is through the French based bank Banque

Nationale de Paris. This looted money, deposited into

in developed country bank, in part, is alleged to have

come at the expense of Indonesia’s clove farmers

who were forced to sell their crops at a xed low price

to Tommy Suharto’s national clove distribution board,

which sold the cloves on to cigarette manufacturers.

The Indonesian Government estimates the clove

farmers were cheated out of around $180 million39.

39 Stephen Fitzpatrick, ‘Court to rule on Suharto Jr’s loot’, The

Australian, 23 May 2007, p. 2; and Stephen Fitzpatrick, ‘Freeze on$59m in Suharto account’, The Australian, 25 May 2007, p. 10.

Table 2: Estimates of funds stolen by dictators and amounts recovered from wealthy countries 40 .

Country Dictator Period of

Rule

Esti

stol

Philippines Marcos 1965 - 1986 5 - 1

Mali Traore 1968 - 1991 1 - 2

Nigeria Abacha 1993 - 1998 2 - 6

Angola Dos Santos 1979

Peru Fujimori 1990 - 2000 0.6 -

Haiti Duvalier 1971 - 1986 0.5 -

RDC - Zaire Mobbutu 1965 - 1997 5 - 6

Kazakhstan Nazarbaev 1991 - 1

Kenya Moi 1978 - 2002 3

Indonesia Suharto 1967 - 1998 115

Iran Pahlavi 1941 - 1979 35

The UN and World Bank have identied that several

countries on the receiving end of looted funds have

no legal framework for returning them. Many countries

can freeze assets but not return them.

The proposal for an International Convention to

facilitate the recovery and repatriation of fundsillegally appropriated from national treasuries was

adopted in 999 by the African, Caribbean and Pacic

heads of state and government as part of the Santo

Domingo declaration. However, the UN Convention

Against Corruption contains detailed asset recovery

provisions, which have now come into force.

5.4 Corruption in lending

Leaders of developing countries may take out loans

for corrupt purposes. The resulting debts can saddlefuture governments, and their people, with the burden

of paying interest on the loans as well as repaying the

principal borrowed. In effect, nancial markets enable

corrupt governments to steal from the future.

Another way nancial markets facilitate this kind

of corruption is to provide loans against secured

assets. Thus, valuable assets can be converted into

cash today without ever being publicly sold. Future

governments and tax payers are left with repayment.

In government owned extractive industries, a relatedpractice is to forward-sell future output. In effect,

these sales represent borrowing against future

production, and they also provide a means by which

40 Antoine Dulin and Jean Merckaert, ‘Tax Havens and Ill-GottenWealth’, Tax Justice Focus, Vol. 3, No. 3, 2007, p.8.



ed amount

US$ billions)

Amount repatriated from

abroad (US$ millions)

658 from Switzerland in 2004

2.4 from Switzerland in 1997

149 million from Jersey in

2004, and618 million from Switzerland

between 2002 - 2005

21 from Switzerland in 2005

80.7 from Switzerland between

2002- 2004

20 from the USA in 2006

governments can be stripped of future revenues41.

Developed country governments have largely refused

to recognise the concept of ‘odious debt’.

Odious debt refers to loans:

made to illegitimate authorities, such asundemocratic governments;

the loans are not used for the benet of the

people under that authority; and

that the lender should have reasonably known

of the rst two conditions.

In such cases the concept of ‘odious debt’ is applied

and the loans are deemed to be illegitimate and

unenforceable. The concept would help combat

corruption as lenders would have an incentive to

conduct proper due diligence, write strict loancovenants, and then monitor loans to ensure that the

covenants are abided by42.

Loans made for corrupt purposes increase a county’s

debt level while doing nothing to increase a country’s

capacity to make repayments. In effect, corrupt loans

dilute asset protection available to other creditors,

and they protect themselves by raising their required

interest rate. By holding creditors responsible for

corrupt loans in cases where lenders failed to do due

diligence, corrupt loans can be diminished and honestlenders can lower their required interest rate43.

4 Thomas I. Palley, ‘Lifting the Natural Resource Curse’ Foreign

Service Journal , December 2003.42 Ibid.43 Ibid.

•

•

•

5.5 Beneting from productsobtained with the involvement ofcorruption

One of the ways that wealthy countries benet from

corruption in the developing world is through the

receipt of goods obtained with the involvement of

corruption. Products obtained with the involvement

of corruption are often cheaper than if the productshad been produced through legal or legitimate

means. Developing countries are thus cheated out of

revenues they would have otherwise received if the

products had been produced and sold legitimately.

An example of this type of beneting from corruption

is from illegal logging. Illegal logging is thought to

be widespread in many major timber-producing

countries. By some estimates, in ve of the top ten

most forested countries on the planet, at least half of

the trees cut are felled illegally44

.

Illegal logging is dened here as having taken place

when timber is harvested, transported, bought or

sold in violation of national laws. Illegalities can occur

throughout the chain of production from source to

consumer in activities such as, timber extraction,

illegal transport and processing through to illegal

export and sale, where timber is often laundered

before entering the legal market45.

The World Bank estimates the (global) annual market

value of losses from illegal cutting of forests at over

US$10 billion. This is more than eight times the total

ofcial developmental assistance (ODA) ows to the

sustainable management of forests”46. The Australian

Government quotes the OECD as stating that the loss

of assets and revenue in developing countries from

illegally harvested forests of up to US$23 billion a

year47.

As an example, ramin (Gonystylus spp.) is a species

of hardwood grown in Indonesia and Malaysia and is

used in expensive furniture, wooden blinds, ooring

and picture frames. There is little demand for it in the

countries where it grows. In Indonesia, 90% of the

ramin produced is exported to countries such as the

USA, Italy, Japan and the UK. Singapore, Hong Kong,

Taiwan and mainland China, are also prominent as

consumers or transit countries48.44 D. Brack, “Illegal Logging”, Brieng paper, Energy,Environment And Development Programme EEDP/LOG BP 07/01,The Royal Institute of International Affairs, July 2007.45 Royal Institute of International Affairs, Intergovernmental

Actions on Illegal Logging, 200, cited in Timber Trafcking:

Illegal Logging in Indonesia, South East Asia and InternationalConsumption of Illegally Sourced Timber – EIA, Telepak Indonesia,2001.46 Ibid.47 Kevin Rudd and Sid Sidebottom, ‘Securing the Future ofTasmania’s Forestry Industry’, ALP Media Statement, 23 July 2007.48 EIA Internal Report, “Ramin trade from Indonesia andMalaysia” cited in Timber Trafcking: Illegal Logging in Indonesia,



0

The Environment Investigation Agency (EIA) and

Telepak Inodonesia have been monitoring the illegal

logging of ramin in Central Kalimantan, where some

of the last remaining stands exist in protected and

conservation areas such as Tanjung Putting National

Park and around the Sebangau River. Their analysis

of the production data of recent years, reveals a large

discrepancy between the legal production of ramin in

Indonesia and the amount processed and exportedby the timber industry and brokers49. They further

assert that timber factories have been established

based on a continuous supply of logs from Tanjung

Putting National Park50. Whilst the politicians and

military prot from direct involvement, or from

monthly ‘stipends’, the loggers often work in appalling

conditions, living in the swamp with mosquitoes and

leeches as part of the daily hazards, sometimes for

weeks on end. The loggers earn a payment of around

25,000 rupiah ($3.20) for each cubic meter of ramin

felled51. By contrast, abuyer of moulded ramin

in the US can pay up to

US$1,000 a cubic meter.

Consumer countries

could exert a great deal

of pressure by moves to

exclude illegal products

from their markets. However, for real lasting

effectiveness, reform of legal and regulatory systems

as well as reform of laws outside the forestry sectoris an essential element of the mix, including those

dealing with land ownership52.

The Convention on International Trade in Endangered

species (CITES) regulates trade in ora and fauna and

is currently one of the only international mechanisms

available to control trade in threatened tree species.

The Indonesian Government has sought to have

ramin listed under CITES as a measure to combat

illegal logging. Whilst the effectiveness of this

measure is debateable53, it remains a potentiallyimportant mechanism if used in conjunction with

other measures to tackle illegal logging54.

South East Asia and International Consumption of Illegally SourcedTimber – EIA, Telepak Indonesia, 2001.49 EIA Telepak Indonesia, The Final Cut 1999, cited in in TimberTrafcking: Illegal Logging in Indonesia, South East Asia andInternational Consumption of Illegally Sourced Timber – EIA,Telepak Indonesia, 2001.50 Timber Trafcking: Illegal Logging in Indonesia, South East

Asia and International Consumption of Illegally Sourced Timber– EIA, Telepak Indonesia, 2001.51 Ibid.

52 D. Brack, “Illegal Logging”, Brieng paper, Energy,Environment And Development Programme EEDP/LOG BP 07/01,The Royal Institute of International Affairs, July 2007.53 EIA and Telepak have documented ramin being smuggled intoMalaysia since the listing became effective.54 Timber Trafcking: Illegal Logging in Indonesia, South East

Asia and International Consumption of Illegally Sourced Timber– EIA, Telepak Indonesia, 2001.

Accreditation schemes can also be effective in

combating illegal logging. For timber certication

schemes to be effective they must be transparent and

open to independent scrutiny55. At present, the Forest

Stewardship Council (FSC) is the only body with a

certication scheme which provides a credible chain-

of-custody to track the ow of certied timber from

the forest to the shelf – something which is essential

to avoid the laundering of illegal timber into the supplychain.

5.6 Corruption and multilateraldevelopment bank loans

In 2004-2005, the US Senate Foreign Relations

Committee under Chairman Richard Lugar, heard

testimony that over the past 50 years, borrowing-

country bureaucracies and contractors have stolen

more than $100 billion from the World Bank. In fact,

the amount of ‘leakage’or theft from lending from

the World Bank, Asian

Development Bank (ADB)

and other multilateral

development banks (MDBs)

could total between 20

- 30%56.

By the World Bank’s own admission “Within the Bank

Group there has been an inconsistent application

of governance and anti-corruption concerns acrosscountry programs, sectors and member institutions….

Generally, Bank work does not yet have the required

stafng, skills, and incentives in governance and

anti-corruption to effect results-oriented changes at

the front lines of Bank Group operations, especially in

country ofces”57.

The World Bank has stated that when corruption

is detected in projects that it funds, it will publicly

punish corrupt rms and promote accountability by

government58

. However, its history of acting in thisway has not always been consistent.

The World Bank has investigated 2,000 cases of

corruption since 999, and sanctioned 90 rms

and 148 individuals59. Referrals of corruption cases

by the World Bank to governments has resulted in

26 criminal convictions. The World Bank is the only55 Ibid.56 Bruce Rich, ‘Bank Heist’, The Environment Law Institute,Washington DC, Reprinted by permission from The Environment

Forum, September/October 2005.57 Development Committee, ‘Strengthening Bank Group

Engagement on Governance and Anticorruption’, World Bank andInternational Monetary Fund, 8 September 2006, p. 6.58 Ibid., p. vi.59 Bruce Rich, ‘Bank Heist’, The Environment Law Institute,Washington DC, Reprinted by permission from The Environment

Forum, September/October 2005; and Steven Welsman, ‘NewWorld Bank boss must nd cure for corruption cancer’, The Age, 27June, 2007, Business Day p.6.

The World Bank has stated that when

corruption is detected in projects that it

funds, it will publicly punish corrupt rms

and promote accountability by government.

However, its history of acting in this way has

not always been consistent.



multilateral development bank (MDB) that published

a list of debarred rms. It debarred a company for the

rst time on 6 March 999. As of July 2007, over half

of the companies that have been sanctioned by the

World Bank are permanently ineligible to be awarded

World-Bank nanced contracts.

However, the World Bank has not dealt appropriately

with corruption in all cases.

An example of how the World Bank has failed to deal

appropriately with a case of corruption comes from

Lesotho, where investigations that began in the mid-

1990s found that the chief executive of the Lesotho

Highlands Water Project had received $2 million in

payoffs from companies in G8 countries.

This project which dates back to 1991, has involved

the construction of large dams to supply water

to South Africa. Funded by the World Bank, the

African Development Bank and the EuropeanUnion, the project has resulted in loss of land and

resources for rural poor people. A 1999 World Bank

study concluded that upon completion, the project

will result in Lesotho’s rivers losing 90% of their

water, and becoming like ‘wastewater drains’, thus

endangering the health of an estimated 150,000

people living downstream. The government of

Lesotho would be paid $40 million annually for the

water sold to South Africa60.

The Lesotho investigations resulted in a briberyconviction for the project head with a sentence of 15

years imprisonment. In 2002, the Lesotho High Court

convicted the Canadian rm Acres International and

the German rm Lahmeyer International of bribery,

and they were sentenced to pay nes of $2 million

each. Both companies had been given World Bank

procurement contracts. Acres was banned from World

Bank contracts for three years in March 2004, but this

came over 30 months after an internal World Bank

probe concluded that Acres had paid for inuence,

reportedly allowing the company to commence big-

ticket Bank funded projects in Uganda, Palestine

and Sri Lanka in the interim61. Lahmeyer has only

had its contracts with the World Bank suspended in

November 2006 after Lesotho defeated Lahmeyer’s

appeal against its bribery conviction in 2004. The

suspension from World Bank contracts will last

seven years, but can be reduced to three years if

the company introduced a “satisfactory corporate

compliance and ethics program” and discloses any

other past misconduct62

. Lahmeyer was awarded 1860 Bruce Rich, ‘Bank Heist’, The Environment Law Institute,Washington DC, Reprinted by permission from The Environment

Forum, September/October 2005.6 Heenie Van Vuuren, ‘Time to listen to Lesotho! – The WorldBank and its new anti-corruption agenda’, Institute for SecurityStudies in Cape Town, South Africa, 11 September 2006.62 Odious Debts Online, ‘German rm barred by World Bank

World Bank contracts worth a total of nearly US$15

million after the Lesotho court found Lahmeyer

guilty of corruption. Four of these contracts, worth

a combined US$1.4 million, were granted since the

World Bank reopened its own corruption investigation

of Lahmeyer in August 200563.

In 2004, the French company Schneider Electric SA

that had worked on the World Bank funded part of the

project, pleaded guilty to bribery64.

Despite promises made at a closed door meeting

as far back as 999 that it would provide nancial

support to the Lesotho prosecutors in these cases,

the World Bank has left the impoverished state to pick

up the legal costs of these bribery cases65.

US Senator Richard Lugar proposed in 2005 a

Development Bank Reform and Authorisation Bill

(S.1129) that calls for reforms that bring greater

transparency and accountability at the MDBs.Witnesses from environmental and poverty groups

have said that the anti-corruption measures

would also improve project quality with regard to

environmental and social impacts. The draft bill

was unanimously approved by the Senate Foreign

Relations Committee on 26 July 200566. The bill

requires the US Treasury to establish a trust fund at

the World Bank specically to nance the prosecution

of corruption related to development bank loans or

projects.

In November 2005, the Foreign Operations

Appropriations Act was signed into law by US

President Bush. The reforms it contains draw

upon the recommendations made by Senator

Richard Lugar, who led a two year investigation

into allegations of corruption in projects funded by

development banks. These reforms include measures

to seek nancial disclosure by development bank

employees; to improve the quality and supervision

of bank loans; to strengthen whistle blower policies;

and to support the efciency of audit functions.

Development banks will be required to ban funding for

extractive industries unless the borrowing government

is able to provide the relevant public audits of

for bribery in Lesotho project’, http://www.odious debts.org, 7November 2006.63 International Rivers Network, ‘Corrupt Lahmeyer DebarmentWelcome but Late – NGOs’, Press Release 7 November 2006,http://www.irn.org.64 Bruce Rich, ‘Bank Heist’, The Environment Law Institute,Washington DC, Reprinted by permission from The Environment

Forum, September/October 2005.65 Heenie Van Vuuren, ‘Time to listen to Lesotho! – The World

Bank and its new anti-corruption agenda’, Institute for SecurityStudies in Cape Town, South Africa, 11 September 2006.66 V. Bhargava, ‘Combating Corruption in MultilateralDevelopment Banks: Executive Summary of Key Issuesand Recommendations Raised during the US ForeignRelations Committee Hearings Over the May 2004 to April2005 Period’, www.worldbank.org/publicsector/anticorrupt/ CombatinginMDBsummary.doc, 2005.



revenues and expenditures67.

Whilst this law requires US executive directors on the

banks’ governing boards to raise these reforms and

seek their adoption, it does not have any legal impact

on the banks as such, given that they are multilateral

institutions. According to Patricia Adams of Odious

Debts Online: “Too many executive directors from

other rich countries would rather turn a blind eye to

the governance aws that cripple MDB development

efforts, but win MDB contracts for their country’s

rms.”68

The former Australian Treasurer, The Hon Peter

Costello, had indicated his support for some reform

of the World Bank to improve its governance. On 27

May 2007, he reiterated Australia’s strong support for

the G20 position that the heads of the international

nancial institutions, including the World Bank, should

be appointed using an open, transparent selection

process with candidates not restricted by nationality.

Mr Costello proposed that a truly merit based

process, allowing the consideration of candidates

from any World Bank member country, should be

followed for current and future selections of the World

Bank President.

5.7 Asian Development Bank:accountability and transparency?

At the Asian Development Bank (ADB) annual

general meeting in 2005, a coalition of civil society

groups from the Asia Pacic region including Oxfam

Australia, discussed a variety of issues with ADB

representatives including anti-corruption, safeguards

and development effectiveness. In discussion with

non-government organisation (NGO) representatives,

ADB President Kuroda expressed his commitment to

working with NGOs.

ADB’s transparency and accountability was

questioned by NGO groups in relation to the bank’s

new public communication policy. They claim that

project affected people are prevented from accessing

information. They also note that ADB staff often

show little interest and respect when project affected

communities wish to discuss their concerns. For

example, with the Melamchi Water Supply Project

in Nepal, project staff refused to explain how local

people’s water rights would be guaranteed, what

mitigation plan would be carried out, and why they

said that available alternatives were not appropriate69.

The NGO Forum concluded that despite ample

67 CIOB International News, ‘U.S Congress demands greatertransparency from multilateral development banks’, 25 November2005, www.odiousdebts.org68 ibid69 NGO Press Release, 38th ADB Annual General Meeting 2005– Istanbul, Turkey, May 2005.

evidence of adverse impacts of projects on people

and the environment, the ADB continues to nance

large infrastructure projects, fossil fuel power and

extractive industries ‘without serious commitment

towards developing appropriate alternatives’70.

Unlike the World Bank, despite pressure from donors,

the ADB has not published the list of companies

blacklisted for corruption in ADB funded projects71.

The ADB produces an annual report which states the

number of investigations that have been carried out

into alleged corruption around ADB funded projects

and the number of rms and individuals against which

sanctions have been imposed, without naming the

companies or individuals.

The ADB approved the Second Governance and

Anti-corruption Actions Plan in July 2006, which is

intended to improve the ADB’s performance in the

implementation of the governance and anti-corruption

policies in the areas where the ADB is active.

The lack of transparency of the ADB in dealing with

corruption needs to be of signicant concern to

Australians given that the Australian Government

White Paper Australian Aid: Promoting Growth and

Stability indicates that the Australian Government will

work with the ADB in areas of mutual interest72.

70 ibid7 Reuters, ‘ADB says won’t publish list of corrupt rms’, 9October 2005, www.odiousdebts.org72 AusAID, ‘Australian Aid: Promoting Growth and Stability.

A White Paper on the Australian Government’s Overseas AidProgram’, 2006, p.67.



6What attempts are being made to deal with

corruption?There are a number of concrete initiatives being

taken internationally in attempts to shift cultures of

corruption to those of good governance.

These include:


UN Convention Against Transnational

Organised Crime (2000);

OECD Anti-bribery Convention (1997); Asian Development Bank – OECD Action Plan

for Asia-Pacic (2000);


for Countering Bribery (PACI Principles), an




Extractive Industries Transparency Initiative

(EITI) (2002);



Lend; and


In addition to those measures above, it has been

reported that the Bank of England wants London-

based hedge funds to agree to a voluntary code

of conduct to encourage greater transparency and

provide better governance. Germany attempted

to use its position as chairman of the Group of

Eight leading economies in 2007 to push for aninternational register of hedge funds’ positions along

with compulsory rating of their investment strategies

by independent agencies. It was supported by the

European Central Bank.

Hedge funds are estimated to have $1,600 billion

under management1. A group of 13 of the largest

hedge funds recruited Sir Andrew Large, former

Bank of England deputy governor, to lead a study

into voluntary standards for the industry. The US

Administration has stated that it would prefer thatthe hedge fund industry be left to develop its own

Ashley Seager, ‘Central bank wants hedge conduct code’,The Australian Financial Review, 11 January 2007; and WolfgangMunchau, ‘G7 waits and watches hedge fund ‘locusts’’, The

Australian, 13 February 2007, p. 21.

•

•

••

•

•

•

•

•

voluntary Code of Conduct2.

The World Bank has promised to work with developed

countries, the OECD and the businesses to assist

developing countries to recover assets stolen through

corruption3.

In the USA, US Administration advocacy for its export

companies is dependent on US companies making

a no bribery undertaking in writing, or ‘no bribery

warranty’, which applies to it and its afliates4.

In France, President Nicolas Sarkozy promised in his

election campaign to put an end to the complicity

between the French Government and corruption

by French aligned leaders in Africa. In June 2007,

it was announced that police were investigating

allegations that two African heads of state, Omar

Bongo of Gabon and Denis Sassou N’Guesso of the

Democratic Republic of Congo, had used millions of

dollars to purchase lavish properties for themselves

and their families in France. Both leaders were cited

during French criminal investigations into hundreds

of millions of dollars of illicit payments by Elf, the

former French state-owned oil company. The current

investigation is based on a French High Court ruling

that failure to justify the funding of possessions and

a wealthy way of life constitutes possible evidence of

crime5.

6.1 UN Convention Against

CorruptionIn its resolution of 4 December 2000, the UN General

Assembly recognised that an effective international

legal instrument against corruption, independent of

the UN Convention against Transnational Organised

Crime was desirable. It established an ad hoc

committee for the negotiation of such a convention.

The resulting Convention was adopted by the UN

General Assembly on 31 October 2003.2 Ralph Atkins and Hugh Williamson, ‘Germany asks for code ofconduct’, The Australian, 22 May 2007, p. 21.

3 Development Committee, ‘Strengthening Bank GroupEngagement on Governance and Anticorruption’, World Bank andInternational Monetary Fund, 8 September 2006, p. vi.4 Penny Jackson, ‘The Other Side of the Coin. The UK andCorruption in Africa’, Africa All Party Parliamentary Group, March2006, p. 28.5 ‘France to confront African embezzlers’, The Australian, 22 June2007.



The UN Convention against Corruption contains

measures to prevent corruption in both the public

and private sectors. These measures include

enhanced transparency in the nancing of election

campaigns and political parties. States that are party

to the Convention must endeavour to ensure that

their public services are subject to safeguards that

promote efciency, transparency and recruitment

based on merit. The Convention calls on countriesto actively promote the involvement of non-

governmental and community-based organisations,

as well as other elements of civil society and to raise

public awareness of corruption and what can be done

about it.

The Convention requires countries to establish

criminal and other offences to cover a wide range

of acts of corruption, if these are not already crimes

under domestic law. The Convention goes beyond

previous instruments of this kind, criminalising notonly basic forms of corruption such as bribery and

the embezzlement of public funds, but also trading

in inuence and the concealment and laundering of

the proceeds of corruption. Offences committed in

support of corruption, including money-laundering

and obstructing justice, are also dealt with.

Countries party to the Convention agreed to

cooperate with one another in the ght against

corruption, including prevention, investigation and the

prosecution of offenders. Countries are bound by theConvention to render specic forms of mutual legal

assistance in gathering and transferring evidence for

use in court, to extradite offenders. Countries are also

required to undertake measures which will support

the tracing, freezing, seizure and conscation of the

proceeds of corruption.

The countries that are party to the Convention agree

to asset recovery, which is stated explicitly as a

fundamental principle of the Convention. This is a

particularly important issue for many developingcountries where high-level corruption has plundered

the national wealth, and where resources are badly

needed for reconstruction and the rehabilitation

of societies under new governments. In the case

of embezzlement of public funds, the conscated

property is required to be returned to the state it was

stolen from. In the case of proceeds of any other

offence covered by the Convention, the property is

required to be returned to the country it was stolen

from, provided that proof of ownership or recognition

of the damage caused can be established.

However, there are some weak areas with regard to

the Convention. For example, there is no obligation

to make bribery and embezzlement in the private

sector a criminal offence. The Convention also

fails to forcefully tackle political corruption. At the

insistence of some negotiators, notably the United

States, transparency in political party nancing was

downgraded to a mere recommendation.

Australia signed the UN Convention against

Corruption on 9 December 2003 and ratied the

Convention on 7 December 2005.

The Convention entered into force on 14 December

2005 and as of November 2006 there were 140

countries that had signed the Convention, but only 92

of these had ratied the Convention to be full parties

to the Convention. By June 2007, only half the OECD

and G8 countries had ratied the Convention. As of

September 2007 only 3 of the 54 countries classied

by the IMF as offshore nancial centres have ratied

the Convention.

The Australian Attorney-General’s Department hasstated that they seek to promote the UN Convention

Against Corruption to other countries whenever

they can. AusAID states that it supports the

implementation of the Convention6.

At the international level there is discussion taking

place to consider appropriate mechanisms or bodies

for reviewing implementation of the Convention7.

6.2 OECD Anti-bribery Convention

On 21 November 1997, the member countries

of the Organisation for Economic Co-operation

and Development (OECD) and ve non-member

countries (Argentina, Brazil, Bulgaria, Chile and the

Slovak Republic) adopted the OECD Convention

on Combating Bribery of Foreign Public Ofcials in

International Business Transactions. The Convention

requires that parties to it criminalise bribery of

foreign public ofcials, apply anti-money laundering

legislation to cases of bribery of foreign public

ofcials, and assist other countries in the investigationand prosecution of those involved in bribery of foreign

public ofcials.

As a member of the OECD, Australia is a party

to the Convention. Australia has contributed

to approximately 15 OECD Outreach Technical

Assistance Workshops dealing with corruption.

6 ‘Australia’s Overseas Aid Program 2007-08’, Statement by The

Honourable Alexander Downer MP, Minister for Foreign Affairs, 8May 2007, p. 32.7 UN Conference of the State Parties to the UN Conventionagainst Corruption, ‘Report on the meeting of the Open-endedIntergovernmental Working Group on Review of the Implementationof the United Nations Convention against Corruption held in Viennafrom 29 to 31 August 2007’, CAC/COSP/2008/3, 12 September2007.



6.3 Partnering Against CorruptionPrinciples for Countering Bribery (PACI) Principles

The PACI Principles are intended for companies.

Those companies that sign on to them are committing

to the adoption of a ‘zero tolerance’ policy on

bribery and the development of a practical and

effective program of internal systems and controlsfor implementing that policy. In practical terms, this

means either implementing anti-bribery practices

based on the PACI Principles or, for companies with

established programs, using the PACI Principles to

benchmark existing practice.

The PACI Principles derived from general industry

anti-bribery principles developed in 2002 by

Transparency International, and a coalition of private

sector interests, non-government organisations and

trade unions, known as “Business Principles forCountering Bribery” (2002).

The PACI Principles are designed to provide

companies of all sizes with practical guidance rather

than specic prescriptions for developing their own

policy statements and programs for combating

bribery and other forms of corruption in international

business.

6.4 Extractive Industries

Transparency InitiativeThe Extractive Industries Transparency Initiative8

(EITI) supports improved governance in resource-rich

countries through the full publication and verication

of company payments and government revenues from

oil, gas and mining. Many countries are rich in oil, gas

and minerals. When governance is good, these can

generate large revenues to foster economic growth

and reduce poverty. However, when governance is

weak, they may instead cause poverty, corruption,

and conict – the so called “resource curse”. The EITIaims to defeat this “curse” by improving transparency

and accountability.

Some 20 countries have either endorsed or are

actively implementing the EITI, including Peru,

Trinidad and Tobago, Azerbaijan, Nigeria and Timor

Leste. Eighteen companies have signed up to the

EITI including BP, ExxonMobil, Newmont, Rio Tinto,

Shell, TOTAL and Woodside and NGOs supporting

the EITI include the Catholic Agency for Overseas

Development (CAFOD), the Publish What You Paycoalition and Transparency International. The G8

committed to supporting the EITI in 2005. The

weakness of the EITI is that it is voluntary.

8 For more information visit http://www.eitransparency.org/

The Australian Government has stated that it will

support developing countries to implement the EITI,

and will also help developing countries extend similar

principles to the natural resources sectors, such

as forestry and sheries9. However, the Australian

Government appears to be less willing to pressure

Australian companies to sign up to the EITI. For

example, the Australian Government has rejected

requests by the Justice and International Mission Unitthat it require Australian mining companies seeking

to operate in the Philippines commit to the EITI as

a condition for Australian Government support.

Currently, the Australian Government advocates to

the Government of Philippines on behalf of Australian

mining companies to gain access to conduct

operations in the Philippines.

6.5 The Equator Principles

Is a set of principles that are open to be adoptedby nancial institutions to ensure that the projects

they invest in are developed in a manner that is

socially responsible and reect sound environmental

management practice. Current nancial institutions

that have adopted the ‘Equator Principles’ include

Barclays plc, HSBC Group, ING Group, ANZ and

the Westpac Banking Corporation. All up, the

current signatories provide more than 90% of global

project nance. Details of the Equator Principles can

be found at http://www.equator-principles.com/

principles.shtml

6.6 Publish What You Pay andPublish What You Lend

Resource rich developing countries often suffer from

high levels of corruption. The Publish What You Pay

campaign aims to help citizens of resource-rich

developing countries to hold their governments to

account for the management of revenues from oil,

gas and mining industries. The campaign involving

over 280 non-government organisations calls for themandatory disclosure of the payments made by oil,

gas and mining companies to all governments for the

extraction of natural resources10. Such disclosure

would include tax payments, royalty and license fees,

revenue sharing and payments in-kind, forward sales

of future revenues and commercial transactions with

government and public sector entities and would

be a condition of stock exchange listing. The US

oil companies have resisted Publish What You Pay,

claiming that corruption is a problem for governmentsto deal with11.9 AusAID, ‘Australian Aid: Promoting Growth and Stability.

A White Paper on the Australian Government’s Overseas AidProgram’, 2006, p. 61.0 Garth Luke, ‘Can aid be effective when corruption is present?’,Make Poverty History and Micah Challenge, April 2006, p. 26. Thomas I. Palley, ‘Lifting the Natural Resource Curse’ Foreign



In a similar initiative, Publish What You Lend wants

governments to require by law that all banks,

nancial intermediaries and business enterprises,

that make loans to or engage in forward purchases

with governments and state owned enterprises,

publish details of these transactions and report them

to the International Monetary Fund (IMF). The IMF,

the World Bank, multilateral development banks and

governments would also be required to report theirlending12.

6.7 The APEC Code of Conductfor Business

At the Sydney APEC (Asia-Pacic Economic

Cooperation) meeting on 6 September 2007 a Code

of Conduct for Business was launched, which is

a voluntary Code. The APEC Anti-Corruption and

transparency Expert Task Force plans to assist small

and medium enterprises to adopt and implement theCode.

Companies that sign up to the Code commit not

to pay bribes and develop programs to prevent

bribery from occurring in all activities under effective

control. The Code forbids the payment of facilitation

payments. It requires that companies put in place

channels to allow employees to report suspicious

activities without fear of reprisal.

6.8 Actions against tax injusticeThe OECD issued a report in 1998 on Harmful Tax

Competition, which dened the factors to be used in

identifying these harmful tax practices, many of which

it associated with tax havens. The OECD approach

has been to seek to eliminate harmful practices. It

has largely sought to do this by obtaining mutual

undertakings to do so, conditional upon agreement

between all the participating jurisdictions by 2005.

The OECD has only been partially successful in its

efforts, largely because of conicts between the taxhavens that it had targeted and its inability to stop

some of its principal member states from pursuing the

very practices the OECD has described as harmful13.

A total of 33 ‘non-OECD participating partners’ have

committed to a program of eliminating harmful tax

practices. Some have entered into tax information

exchange agreements with OECD member countries.

These agreements will allow the countries party to

the agreement to request information on such things

as bank account details, benecial ownership andshareholder information. Three of the non-OECD

countries suspended their commitment to theService Journal, December 200.

12 Ibid.3 Richard Murphy, John Christensen and Jenny Kimmis, ‘Tax usif you can’, Tax Justice Network, September 2005, p. 39.

program, Andorra, Liechtenstein and Monaco14.

The UN hosts a little known committee called the

Committee of Experts on International Cooperation in

Tax Matters. This committee has met in several forms

since 967. To date it has had very limited inuence,

but it is the only global committee that considers

international taxation matters15.

6.9 Stolen Asset Recovery (StAR)Initiative

On 17 September 2007, the World Bank and the UN

Ofce of Drugs and Crime (UNODC) launched a new

effort to assist developing countries in recovering

billion of dollars of looted funds, known as the Stolen

Asset Recovery (StAR) Initiative.

The StAR Initiative recommends that developed

countries fund programs or directly provide

developing countries with technical assistance thatwould enhance the capacity of the criminal justice

system to effectively prevent asset looting and

recover the proceeds of corruption in accordance with

internationally accepted legal standards.

The StAR Initiative aims to:

develop capacity to respond to and le

international requests for assistance in

recovery of looted assets;

adopt and implement effective conscationmeasures for looted assets, including in cases

where a conviction is yet to be secured;

enhance transparency and accountability of

public nancial management systems;

create and strengthen national anti-corruption

agencies; and

help monitor the recovered funds if requested

by countries so that repatriated funds are

used for development purposes, such as

social programs, better education anddeveloping countries.

6.10 International collaboration todeal with money laundering

There are bodies that facilitate international co-

operation to deal with money-laundering. The Egmont

Group of Financial Intelligence Units was established

in 1995 to facilitate cooperation in the exchange

of nancial intelligence by its members, which are

government agencies charged with detecting money

laundering and the nancing of terrorism. It currently

4 Australian Taxation Ofce, ‘Tax havens and tax administration’,2004, p. 8; and Jean Merckaert, ‘Objective Doha: Tackling the

Havens’, Tax Justice Focus, Vol. 3, No. 3, 2007, p. 3.5 Richard Murphy, John Christensen and Jenny Kimmis, ‘Tax usif you can’, Tax Justice Network, September 2005, p. 41.

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has government agency members in 106 countries.

Australia is a member of the Egmont Group. The

Egmont Group was developing a Secretariat in late

2007.

The Asia Pacic Group on Money Laundering (APG)

is a regional body with 34 countries being members,

8 countries being observers and 18 observer

organisations. It was founded in 1997. The APG

works to ensure the adoption, implementation and

enforcement of internationally accepted anti-money

laundering standards within the Asia-Pacic region.

This includes assisting countries in the region to enact

laws criminalising the laundering of the proceeds

of crime and corruption and dealing with getting

countries to assist each other in the conscation of

laundered funds and extradition of those involved in

money laundering. It also provides guidance in setting

up systems for reporting and investigating suspicious

transactions and helping in the establishmentof government agencies to investigate money

laundering. Australia has been a member of the APG

since its foundation and the Secretariat of the APG is

hosted in Sydney.



7How does Australia perform in dealing with

corruption?7.1 The Financial Action TaskForce’s assessment of Australia

Australia’s performance on dealing with money

laundering and combating the nancing of terrorism

was thoroughly assessed by the Financial Action Task

Force (FATF) which released its report, Third Mutual

Evaluation Report on Anti-Money Laundering and

Combating the Financing of Terrorism, on 14 October

2005.

The FATF is an intergovernmental body which sets

standards and develops policies to combat money

laundering and terrorist nancing. It was established

in 1989 by the G7 and Australia was a founding

member. At the time of writing it has 33 members;

31 countries and governments and two international

organisations; and more than 20 observer bodies. A

list of all members and observers can be found on the

FATF website at http://www.fatf-ga.org/Members_

en.htm

Money laundering is basically that funds generated

from illegal activities are introduced into the legal

nancial system to disguise or obscure that the funds

have been generated from illegal activities. Usually,

the person doing the money laundering introduces the

illegally obtained funds into the nancial system by

depositing them into a bank or by purchasing things

like cheques and money orders and then depositing

them into accounts in another location. The money

launderer then moves the funds around through aseries of transactions to try to hide their source.

This might be done by purchasing investments or by

transferring the money through a series of accounts

located in various banks across the globe, especially

to banks in countries that do not co-operate in

anti-money laundering investigations. The money

launderer then seeks to have the funds integrated

into the legitimate economy by doing something like

the purchase of real estate, luxury assets or business

ventures1.

The FATF assessed Australia’s performance on

countering money laundering and combating the

nancing of terrorism against the FATF’s Forty

FATF – GAFI, ‘Money Laundering FAQ’, http://www.fatf-ga.org.

Recommendations of 2003 and the Eight Special

Recommendations of Terrorist Financing 2001.

Overall, the FATF found signicant levels of

compliance with its Recommendations, but there

were a number of areas of signicant deciency2:

That while Australia’s legal regime for dealing

with money laundering appeared to be

comprehensive, dissuasive and proportional, it

was not being effectively applied, and in cases

where it has been applied, sentences appear

low.

There were inadequacies in the system of

identifying customers of nancial services.

There were no legislative or other enforceable

obligations regarding the identication

and verication of “politically exposed

persons”. “Politically exposed persons” are

individuals who are or have been entrusted

with prominent public functions in a foreign

country, for example, Heads of State or

of government, senior politicians, senior

government, judicial or military ofcials, senior

executives of state owned corporations,

important political party ofcials. These

people are important to identify as they have

the greatest ability to engage in large scale

corruption.

There were no specic obligations for nancial

institutions to monitor all complex, unusuallarge transactions, transactions with no visible

economic purposes, to further examine these

situations and to set out these ndings in

writing.

The provisions for suspicious transaction

reporting were generally adequate, but there

is a limitation of “cash dealer” denition which

does not apply to all nancial institutions.

Designated non-nancial businesses and

professions

3

were not legally required to report2 FATF – GAFI, ‘Third Mutual Evaluation Report on Anti-MoneyLaundering and Combating the Financing of Terrorism’, 14 October2005, pp. 145-147.3 ‘Designated non-nancial businesses and professions’ aredened as casinos, real estate agents, dealers in precious metals,deals in precious stones, lawyers, notaries, accountants and Trustand Company Service Providers.

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suspicious transactions to the Australian

Transaction Reports and Analysis Centre

(AUSTRAC). Further, there were inadequate

enforceable measures for nancial institutions

and designated non-nancial businesses

and professions to pay special attention to

transactions involving certain countries.

The only sanctions for AUSTRAC were

criminal sanctions and an injunction power.

The lack of intermediate sanctions, such as

administrative sanctions, means in practice

that formal sanctions were generally not

applied. AUSTRAC did not have the powers

to revoke the licence of cash dealers or to

disqualify persons from being a manager,

director or employee.

AUSTRAC had made limited use of its power

to designate countries as high risk.

That, although the Financial Transactions

Reports Act 1988 extended to overseas

branches of nancial institutions, Australian

banks indicated that they would rst apply the

local laws, and that in several cases local laws

prohibited full implementation of the Australian

standards due to local secrecy provisions.

Most designated non-nancial businesses

and professions were not covered under the

Financial Transactions Reports Act 1988 and

lacked effective regulatory and supervisory

systems for monitoring to ensure compliancewith anti-money laundering and counter

nancing of terrorism requirements.

The lack of administrative sanctions coupled

with an absence of criminal prosecutions

of designated non-nancial businesses and

professions suggested that sanctions are

generally not applied for breaches of anti-

money laundering and counter terrorism

nancing requirements.

AUSTRAC had only conducted twocompliance inspection audits of banks in the

last four years.

AUSTRAC needs additional resources

to effectively full its role as anti-money

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laundering and counter terrorism nancing

regulator under the revised FATF standards.

Amongst the recommendations by the FATF were:

That the denition of “cash dealer” for the

purposes of having to identify who their

customers are be extended to the full range of

nancial institutions.

The scope of “account” should be extended

to capture a wider range of products, services

or business activity so that customer due

diligence applies to all cases of establishing

business relations4.

That Australia should amend its legislation to

remove the possibility of accounts operating

below the threshold of $1,000/ $2,000 without

any verication requirements.

The regulation under the Financial

Transactions Reports Act not requiring existing

clients over 36 months to be re-examined foridentity and verication purposes should be

repealed.

Oblige nancial institution to determine

whether the customer is acting on behalf of

another person, and if so, take reasonable

steps to verify the identity of that other

person.

For “politically exposed persons” have

appropriate systems to determine whether

the customer is a politically exposed person.If so, obtain senior management approval for

establishing business relationship with such

4 Customer due diligence means:1. Identifying the customer and verifying that customer’sidentity using reliable, independent source documents, data orinformation.2. Identifying who really owns the money, and taking reasonablemeasures to verify the identity of the real owner of the moneysuch that the nancial institution is satised that it knows whoreally owns the money. For bodies such as trusts, this shouldinclude nancial institutions taking reasonable measures tounderstand the ownership and control structure of the customer.3. Obtaining information on the purpose and intended nature of

the business relationship.4. Conducting on-going monitoring on the business relationshipand scrutiny of transactions undertaken throughout the courseof that relationship to ensure that the transactions beingconducted are consistent with the institution’s knowledge ofthe customer, their business and risk prole, including, wherenecessary, the source of funds.

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0

customers and take reasonable measures to

establish the sources of wealth and sources of

funds for such persons. Further, the nancial

institution should conduct enhanced on-going

monitoring of the business relationship.

Amend the Financial Transactions Reports Act

to apply to all nancial institutions.

In the event where a foreign branch or

subsidiary is unable to observe appropriate

anti-money laundering measures because this

is prohibited by local laws or regulations of

the host country, those nancial institutions

should be required to inform Australian

authorities.

Put in place an administrative penalty regime

for those who are materially non-compliant

with respect to their obligations under the

Financial Transactions Reports Act .

There should be provisions clarifyingthat offences by a cash dealer in specic

contravention of Australia’s anti-money

laundering legislation can result in the

cancellation of a licence.

Designated non-nancial businesses and

professions should be compelled to pay

special attention to transactions involving

certain countries, make their ndings available

in writing, and apply appropriate counter-

measures. Australia should introduce administrative

sanctions for breaches of anti-money

laundering requirements by all designated

non-nancial businesses and professions.

The International Monetary Fund also conducted an

assessment of Australia’s nancial sector, releasing

their report in October 2006. The assessment

examined Australia’s implementation of the Basel

Core Principles for Effective Banking Supervision.

The assessment found that Australia was “Materially

non-compliant” with Principle 15 dealing with

prevention of use of the banks by criminal elements.

The Principle states: “Banking supervisors must

determine that banks have adequate policies,

practices and procedures in place, including strict

“know-your-customer” rules that promote high ethical

and professional standards in the nancial sector

and prevent the bank being used, intentionally or

unintentionally, by criminal elements.”5

In response to the FATF ndings the Australian

Government stated that it had enhanced the ability

5 International Monetary Fund, Monetary and Financial SystemsDepartment, ‘Financial Sector Assessment Program, Australia.Detailed Assessment of Observance of Standards and Codes’,International Monetary Fund, Washington DC, October 2006, pp.28-30.

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of the Australian Federal Police to investigate and

pursue money laundering. The Government has also

introduced new anti-money laundering and counter-

terrorism nancing legislation and rules. which

included the following measures:

Before entering into a correspondent banking

relationship with an overseas nancial

institution, a nancial institution would

be required to carry out a due diligence

assessment of the overseas nancial

institution. The due diligence assessment

needs to be carried out periodically.

Financial institutions are prohibited from

entering into correspondent banking

relationships with shell banks or other nancial

institutions that allow shell banks to hold

accounts with them.

All foreign and overseas branches and

subsidiaries have to comply with the principles

of Australian AML/CTF requirements.

A reporting nancial institution is required to

block payment of incoming funds transfer

instructions from an overseas counterpart

that do not include appropriate originator

information.

Financial institutions are required to assess

the risk that they are exposed to regarding

the threat of money laundering and terrorism

nancing . They must then take steps theydeem appropriate to address the risks.

That AUSTRAC can enter into “enforceable

undertakings” with companies, under which

companies agree to take certain actions or

face “remedial directions” and face penalties.

Penalties for non-compliance with the regulatory

obligations by a company are as high as $11

million (100,000 penalty units, where a penalty unit

is currently $110) and $2.2 million for individuals.

Individuals that commit criminal offences under thelegislation, such as providing false or misleading

information or documents and forgery, will face up to

10 years imprisonment.

In addition all international transactions of any amount

must be reported to AUSTRAC.

As part of their risk management strategies and

policies that nancial institutions are required to put in

place under the new legislation, they will need to deal

with the identication of politically exposed persons

(PEPs) who seek to do business with the nancial

institution. There are commercial bodies that provide

lists of PEPs globally that nancial institutions can

purchase.

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At the time of writing, the Australian Government

continues in its efforts to address the issued raised

by the FATF. There is still work being undertaken

on addressing the issues raised around designated

non-nancial businesses and professions and public

consultation has commenced.

A report by KPMG indicated that 70% of banks in

Australia had increased the number of suspicious

activity reports they make to the regulator, AUSTRAC,

since 2004 and 42% of banks say the number of

reports have increased substantially6.

AUSTRAC has also established 49 agreements

with international counterparts for the exchange

of nancial intelligence7. For example, AUSTRAC

established a Memorandum of Understanding with

its equivalent in Indonesia, PPATK, in February 2004

and continues to provide technical assistance to

the PPATK8. The Australian Government committed

$10 million to be spent between 2004 and 2008 on

the South East Asian Counterterrorism Technical

Assistance and Training Program with Brunei,

Cambodia, Indonesia, Laos, Malaysia, Burma, the

Philippines, Singapore, Thailand and Vietnam. Part

of the program consists of AUSTRAC providing

mentoring, IT advice and training programs to

the countries involved in the program with regard

to countering money laundering and nancing of

terrorism.

7.2 OECD assessment of Australia

According to an OECD report released in January

2006, Australian authorities demonstrated a strong

commitment to combating foreign bribery. However,

the report concluded that Australia needs to toughen

its stand on companies paying bribes or “facilitation

payments” to foreign governments.

The report stated that the Australian Tax Ofce (ATO)

should implement better systems for detecting foreign

bribery transactions when conducting tax audits.

The OECD’s bribery group urged that corporate

nes for bribery be increased from the current

maximum of A$330,0009, and that sanctions such as

6 KPMG Australia Media Release, ‘Bank staff are best defenceagainst $1 trillion money laundering threat’, http://www.kpmg.com.au, 9 July 2007.7 AUSTRAC media release, ‘Australia’s nancial intelligencenetwork expanded following agreements with the Cayman Islands,Sweden and Japan’, http://www.austrac.gov.au/13jun07.html,13 June 2007 and Australian Government Attorney-General’sDepartment, ‘A better mutual assistance system. A review of

Australia’s mutual assistance law and practice’, http://www.ag.gov.

au/extraditionandma, 2006, p. 37.8 AUSTRAC media release, ‘AUSTRAC works with Indonesia tocombat money laundering and the nancing of terrorism’, 7 April2007.9 OECD, Directorate for Financial and Enterprise Affairs,‘Australia: Phase 2. Report on the Application of the Conventionon Combating Bribery of Foreign Public Ofcials in InternationalBusiness Transactions and the 1997 Recommendation on

disqualifying for government contracts, be brought

against companies found to have bribed foreign

ofcials. The report recommended that the Australian

government change whistleblower legislation in order

to protect public servants who “report suspicions

of foreign bribery” and that it consider introducing

“stronger whistleblower protections for private sector

employees”10. The OECD report also said that

AusAID should ban bribery in the contracts and sub-contracts it uses to supply aid11.

The Australian Government has not yet responded to

the OECD report and its formal response is scheduled

for early 2008.

It should be noted that the Criminal Code Amendment

(Bribery of Foreign Public Ofcials) Act 1999 makes

it a criminal offence to bribe a foreign public ofcial,

whether the offence occurs inside or outside of

Australia. Organisations and individuals can be

charged under Australian law on foreign bribery if they

have done the following:

Intentionally, knowingly or recklessly

committed the offence;

Expressly, tacitly or implicitly authorised or

permitted the payment of a bribe;

Existed with a corporate culture that directed,

encouraged, tolerated or led to non-

compliance with the law; and

Failed to create and maintain a corporateculture that required compliance with the law.

Under Australia’s foreign bribery law, individuals can

be held criminally responsible for failing to create and

maintain a culture that requires compliance with the

law. It signicantly extends the scope of corporate

criminal responsibility beyond the position of common

law. Likewise, an offence can be committed without

a bribe being actually paid – offering or promising

a corrupt benet (including non-monetary and

intangible inducements) in contravention of the law issufcient. This law also covers bribes paid or offered

through intermediaries12.

7.3 Australian Wheat Boardbribery scandal

The AWB scandal meant that Australia slipped to

third place in the 2006 Transparency International

Bribe Payers Index, which ranks countries whose

businesses are perceived to be least likely to pay

Combating Bribery in International Business Transactions’, 4January 2006.http://www.oecd.org/dataoecd/57/42/35937659.pdf

0 Cited in Jennifer Sexton, ‘Foreign bribes claimed off tax’, The

Australian, 17 January 2006 AAP, ‘Bribes claimed back on tax’, The Age, 7 January 20062 Gerrie Lenting and Peter Kim, ‘Taking corruption seriously’,KPMG Forensic Insight, Issue 10, May 2007, pp. 13-14.

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bribes in their export markets. Previously, Australia

had ranked as the country whose businesses were

the least likely in the world to pay bribes.

At the start of May 2006, in the wake of the AWB

scandal, the Australian Taxation Ofce announced

that it would scrutinise Australian businesses for

“facilitation payments” made on international deals.

It has been alleged that AWB made $300 million in

facilitation payments to the Alia trucking company,

which were later transferred to Saddam Hussein’s

regime. It is further alleged that AWB claimed income

tax deductions for the $300 million in company

“expenses”.

In December 2006, the Australian Taxation Ofce

issued guidelines for its auditors to detect bribes

in payments that companies make in developing

countries. The guidelines are based on OECD

standards and will require companies to record

information such as the amount paid, the identity of

the foreign public ofcial who was paid and details of

what they were paying for13.

On 3 May 2007, the then Attorney General announced

the Australian Government’s response to Report

of the Inquiry into Certain Australian Companies

in relation to the UN Oil-for-Food programme by

Commissioner Terence Cole QC. As part of its

response the Attorney General announced that the

Australian Government will:

amend the Income Tax Assessment Act 1997

to align the denition of facilitation payments

to the denition in the Criminal Code to

allow deductibility only for minor facilitation

payments; and

amend Division 70 (Foreign Bribery) of the

Criminal Code to clarify that the defence in

section 70.3 against the charge of foreign

bribery applies only where the law of the

foreign country states that the advantage inquestion is permitted or required, and that the

offence can be made out regardless of the

results of payment or the alleged necessity

of the payment. The Australian Government

would therefore amend the corresponding

provision of the Income Tax Assessment Act

1997 .

The then Attorney General also tasked the Australian

Law Reform Commission (ALRC) on 30 November

2006 to investigate legal professional privilege

as it relates to the activities of Commonwealthinvestigatory agencies. The relevance to corruption

in developing countries is the issue of Australian

companies that may attempt to misuse legal3 Elizabeth Kazi, ‘Bribes code sets rms on paper chase’, The

Australian Financial Review, 14 December 2006.

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professional privilege to hide corrupt activities from

Australian government bodies such as the Australian

Federal Police, Australian Securities and Investments

Commission and the Australian Taxation Ofce. The

ALRC was due to report back to the government on 3

December 2007.

7.4 Recovery of funds stolen

through corruptionThe Proceeds of Crime Act 2002 was introduced

by the Australian Government to be able to trace,

restrain and conscate the proceeds of crime against

Australian law. In combination with the Mutual

Assistance in Criminal Matters Act 1987 it allows the

Australian Government to14:

register and enforce foreign proceeds of crime

orders, including foreign forfeiture orders and

foreign restraining orders;

locate, restrain and seize the proceeds of

crime; and

allow funds recovered to be shared with a

foreign country, which means the funds stolen

through corruption can be returned in full to

the country they have come from.

These measures assist foreign countries in the

recovery of funds stolen through corruption and

transferred to Australia.

7.5 Australian efforts to deal withtax havens and tax avoidance andevasion

The Australian Taxation Ofce (ATO) has expanded its

relationships with tax authorities in other countries to

address the misuse of tax havens by15:

sharing information and best practice with

Canada, France, Germany, Japan, the United

Kingdom and the US through the Seven

Country Forum on Tax Havens;

developing international solutions through the

OECD, the Global Forum on Taxation, and

the Joint International Tax Shelter Information

Centre; and

negotiating tax information exchange

agreements with key jurisdictions, in

cooperation with the Australian Treasury

department.

Australia is a member of the OECD’s Forum on

Harmful Tax Practices which aims to eliminate harmful

14 Australian Government Attorney-General’s Department,‘A better mutual assistance system. A review of Australia’smutual assistance law and practice’, http://www.ag.gov.au/ extraditionandma, 2006, p. 19.5 Australian Taxation Ofce, ‘2006-2007 Compliance Report’,

August 2006, p. 57.

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tax practices from both OECD member countries and

non-member jurisdictions, including tax havens16.

The ATO signed a tax information exchange

agreement with Bermuda in November 2005. It also

provided technical assistance for major whole-of-

government projects in Papua New Guinea and

Indonesia. It contributed to 15 OECD outreach

technical assistance workshops in China, India,

Malaysia and South Korea17.

In 2005-2006, the ATO provided over 1.5 million

income records under the automatic exchange of

information program (regarding dividends, interest

and unit trust distributions) to 42 treaty partners

aiding in efforts to prevent international tax avoidance

and evasion18.

Australia is also a member of the OECD’s Committee

on Fiscal Affairs, which was established to bring

together senior tax ofcials from all OECD membergovernments. Australia is part of a working party

established by the committee to monitor all matters

covering tax avoidance and evasion. The working

party looks at legal, policy and administrative

aspects of tax evasion and avoidance, particularly

exchange of information, unfair tax competition, new

technologies and compliance programs.

7.6 Corruption under theoccupation forces in Iraq

The Australian Government had been an active

participant in the 2003 war in Iraq which toppled the

brutal regime of Saddam Hussein, but at signicant

cost to civilian lives and the on-going instability of the

country. However, the reconstruction of infrastructure

in Iraq under occupation of US-led forces, and

subsequently under the new Iraqi Government, has

been plagued by corruption, much of which has

involved the foreign companies awarded contracts by

the US-led forces.

The International Advisory Board for Iraq (IAMB), the

independent oversight body that ‘holds the proceeds

of oil export sales from Iraq, surplus funds from

the Oil–for–Food Program, and Iraqi assets frozen

abroad19 found several indicators for misuse of

funds over oil extraction by the Coalition Provisional

Authority (CPA) that initially took over running Iraq

after the US-led invasion. The CPA was responsible

for the absence of oil-metering, inadequate6 Australian Taxation Ofce, ‘Tax havens and tax administration’,

2004, p. 18.7 Australian Taxation Ofce, ‘2006-2007 Compliance Report’,

August 2006, p.59.18 Ibid., p. 59.19 International Advisory and Monitoring Board of theDevelopment Fund for Iraq, ‘Report of the International Advisoryand Monitoring Board of the Development Fund for Iraq (http:// www.iamb.info/pdf/IAMBreport.pdf), p. 2.

record keeping, uneven application of contracting

procedures, insufcient payroll records, deviation

from tendering procedures, and inadequate contract

monitoring20.

In thirteen months, the Coalition Provisional Authority

disbursed or obligated US$19.6 billion in contracts,

more than 90% of the Development Fund for Iraq

resources then available21. This money belonged to

the Iraqi people as it was money derived from the

sales of Iraqi oil.

One audit determined that the coalition government

could not account for almost US$9 billion from the

Development Fund for Iraq22. However, hearings

of the US Congress House Government Oversight

Committee formed the view that US$12 billion went

missing and no paper trial exists to explain what

happened to it, a view the former head of the CPA,

Paul Bremer, did not dispute. The US$12 billion

represents about a third of the Iraq reconstruction

budget for 200323.

At least US$1 billion of money from the Development

Fund for Iraq (DFI) disappeared in dubious military

contracts24. Ali Allawi, Iraq’s Finance Minister,

complained that these contracts were awarded

without bidding and the money was paid up front with

great speed out of the ministry’s account.

There were other occasions in which companies

entered favourable, protable contracts either withor without a bidding procedure. Halliburton, Vice

President Dick Cheney’s former company, had a no-

bid contract with the US Army Corps of Engineers25.

After raising her voice over this contract, Pentagon

contracting ofcer Bunny Greenhouse was demoted.

Halliburton was found to have poor book keeping and

to have overcharged the army26. Before a report by

US military auditors about the millions of dollars spent

in Iraq could reach the United Nations, the Pentagon

ensured that Halliburton could edit the report before

releasing it27. Halliburton received over US$900 million

in contracts without having to compete for them.

20 International Advisory and Monitoring Board of theDevelopment Fund for Iraq, p. 3.2 Global Policy Forum, ‘War and Occupation in Iraq’, June 2007,p. 86.22 Los Angeles Times, ‘Bribes paid for $0 m deals’, The Age, 20

April 2006, p. 10.23 Tim Reid, ‘Millions wasted in Iraq cash orgy’, The Australian,27 January 2006, p. 8; Michael Gawenda, ‘ Democrats lead witch-hunt over Iraq’s missing millions’, The Age, 8 February 2007; andGlobal Policy Forum, ‘War and Occupation in Iraq’, June 2007, p.90.24 Patrick Cockburn, ‘What has happened to Iraq’s missing

$1bn?’, The Independent , 19 September 2005.25 Philip Giraldi, ‘Money for Nothing’, The American Conservative,24 October 2005.26 Dan Robinson, ‘Congress Wants Pentagon Documents onIraq Development Funds’, Voice of America, 21 June 2005. (www.voanews.com)27 David Wood, ‘Iraq reconstruction riddled with waste, auditsnd’, The Seattle Times, 4 July 2005.



A UN audit board asked that the US repay Iraq for

US$208.5 million for work claimed to have been done

by Halliburton subsidiary Kellogg Brown and Root,

on the basis the work either done at inated prices or

done poorly28.

Other key beneciaries from the lack of a bidding

procedure or biased bidding procedures were

Bechtel, Flour, Parsons and a handful of other large

US-based engineering companies with longstanding

Pentagon ties and strong networks of friends within

the administration29.

Custer Battles, a private company with connections

to the US-Administration, received a multi-million

dollar contract to secure the airport in Baghdad,

without having any experience in this eld. A bidding

procedure was not employed for this contract, nor for

a contract about providing security for the exchange

of Iraqi currency30. One of the company’s principals,

Michael Battles, was a Republican candidate for

Congress in 2002.To handle its cash ow Custer

Battles set up a number of shell companies in

offshore tax havens in Lebanon, Cyprus, and

the Cayman Islands31. Company representatives

accidentally left at a meeting with US government

representatives a copy of a spreadsheet showing that

the company was vastly inating costs, overcharging

the US Government by at least US$6.5 million32. In

March 2006, Custer Battles was found guilty of 37

counts of fraud.

North Star Consultants, a company in charge of

reviewing the expenditures of CPA, did not perform

any of its tasks at all. Thus, the use of at least US $8.8

billion of Iraqi money is largely unknown. While it is

estimated that oil worth US$0 billion was ofcially

extracted, an additional US$4 billion of extracted oil

was unaccounted for33.

In one case the US Special Inspector-General

for Iraq Reconstruction found that a US military

ofcial gambled away more than US$40,000 of

reconstruction funds while accompanying the Iraqi

Olympic boxing team to the Philippines34.

The destination of unaccounted DFI money is largely

seen as Iraqi and US ofcials and the contractors

28 Richard Baker, ‘Australia challenged US over squandering$20bn war spoils’, The Age, 10 December 2005, p. 9.29 Global Policy Forum, ‘War and Occupation in Iraq’, June 2007,p. 91.30 Philip Giraldi, ‘Money for Nothing’, The American Conservative,

24 October 2005.31 Ibid.32 Global Policy Forum, ‘War and Occupation in Iraq’, June 2007,p. 92.33 Guardian, ‘So, Mr Bremer, where did all the money go?’, 7July, 2005.34 Tim Reid, ‘Millions wasted in Iraq cash orgy’, The Australian,27 January 2006, p. 8

ofcially involved in Iraq’s reconstruction process35.

As Congressman Cliff Stearns put it “[As] we dig

deeper and deeper into this scandal we nd it fraught

with fraud and abuse and it is much more widespread

than we thought”36.

Media reports indicated that Neil Mules, former

Australian ambassador in Iraq, protested against

and questioned many projects that US ofcials from

the CPA proposed in the weeks before control was

handed over to the new Iraqi interim government. Mr

Mules was a member of the CPA’s Program Review

Board, which was made up of seven US, one British

and two Iraqi members37.

The internal advisory ofce of the CPA, the CPAIG,

itself investigated 69 cases of criminal actions

including alleged theft, fraud, waste and assault.

Besides these “a number of other cases that, because

of their sensitivity, cannot be included in this report”38.

The US Special Inspector General for Iraq

Reconstruction has warned repeatedly of the

“reconstruction gap” between what the US promised

after the 2003 invasion and what it has delivered.

For instance, a contract to deliver 150 health centres

through Parsons Global produced only six after

spending US$186 million (which was 75% of the

allocated funding). Only 14 more will be completed

within the contract39. The US Special Inspector

General has warned “there exists a gap between US

project outputs and the delivery of essential services

to Iraqis”40.

In April 2006, the US Special Inspector General for

Iraq Reconstruction was investigating 72 cases of

alleged fraud, theft, bribery and corruption in Iraq41.

As of 1 May 2007, he had referred 28 cases to the

US Department of Justice for prosecution from which

there had been 0 arrests and ve convictions42.

A US contractor, Philip Bloom, was sentenced to 46

35 Guardian, ‘So, Mr Bremer, where did all the money go?’, 7July, 2005, p. 3; and Patrick Cockburn, ‘What has happened toIraq’s missing $1bn?’, The Independent , 19 September 2005.36 Dan Robinson, ‘Congress Wants Pentagon Documents onIraq Development Funds’, Voice of America, 21 June 2005. (www.voanews.com).37 Richard Baker, ‘Australia challenged US over squandering$20bn war spoils’, The Age, 10 December 2005, p. 1.38 CPAIG, as quoted in Guardian, ‘So, Mr Bremer, where did allthe money go?’, 7 July, 2005.39 Griff White, ‘Halliburton loses US Army deal’, The Age, 13July 2006, p. 2; Ewen MacAskill, ‘Huge fraud exposed in Iraqcontracts’, The Age, 2 May 2006, p. 9 and Stuart W. Bowen Jr,‘Ninth Quarterly report from the Special Inspector General for IraqReconstruction’, Special Inspector General for Iraq Reconstruction,

30 April 2006, pp. 9, 33.40 Ewen MacAskill, ‘Huge fraud exposed in Iraq contracts’, The

Age, 2 May 2006, p. 9.4 Stuart W. Bowen Jr, ‘Ninth Quarterly report from the SpecialInspector General for Iraq Reconstruction’, Special InspectorGeneral for Iraq Reconstruction, 30 April 2006, p. 9.42 Global Policy Forum, ‘War and Occupation in Iraq’, June 2007,pp. 94-95.



months in prison for paying more than US$2 million

in bribes to US ofcials with the Coalition Provisional

Authority in Iraq43. He admitted providing money, sex

and designer watches to US ofcials in exchange

for more than US$8.6 million in reconstruction

contracts. He must pay US$3.6 million in restitution

and forfeit US$3.6 million in assets. Bloom paid

bribes to Robert Stein, a civilian contractor who

controlled US$82 millionin reconstruction funds as

the comptroller44 for the

coalition’s headquarters

in Hilla. Stein pleaded

guilty to accepting bribes

in February 2006 and was

sentenced to nine years in

prison. US Army Reserve

ofcers, Lieutenant-

Colonel Michael Wheeler

and Lieutenant-ColonelDebra Harrison were also arrested in the case45.

Lieutenant-Colonel Bruce Hopfengardner pleaded

guilty to fraud and money laundering on 25 August

2006, having admitted to a conspiracy to steal from

reconstruction funds. He had received US$175,000

from Philip Bloom, as well as gifts including a car46.

The US Special Inspector General stated on 30 April

2006 that “Corruption in the oil and gas sector is

a continuing problem that could have devastating

effects on both the progress of sector reconstructionand on the overall status of the reconstruction and

democracy-building effort in Iraq.”47

However, US Presidential Executive Order 13003

(2003) gives oil companies virtually total exemption

from legal claims concerning their operations in Iraq48.

Iraq’s Commission on Public Integrity, a government

anti-corruption agency, has investigated

approximately 3,000 cases of corruption of which 780

have been registered with Iraqi courts and around adozen have reached a verdict49.

Anti-corruption activities in Iraq are also carried out

by the Board of Supreme Audit and the 29 inspectors

general in the Iraqi ministries50.43 Ibid., p. 92.44 A nancial controller45 Los Angeles Times, ‘Bribes paid for $0 m deals’, The Age, 20

April 2006, p. 0 and Stuart W. Bowen Jr, ‘Ninth Quarterly reportfrom the Special Inspector General for Iraq Reconstruction’, SpecialInspector General for Iraq Reconstruction, 30 April 2006, p. 9.46 Global Policy Forum, ‘War and Occupation in Iraq’, June 2007,pp. 92-93.

47 Stuart W. Bowen Jr, ‘Ninth Quarterly report from the SpecialInspector General for Iraq Reconstruction’, Special InspectorGeneral for Iraq Reconstruction, 30 April 2006, p. 65.48 Global Policy Forum, ‘War and Occupation in Iraq’, June 2007,p. 95.49 Solomon Moore, ‘Corruption costly byproduct of war’, The

Age, 25 May 2006.50 Stuart W. Bowen Jr, ‘Ninth Quarterly report from the Special

The Justice and International Mission Unit takes the

view that the Australian Government needs to be

taking more signicant action in ensuring a curbing

of corruption by both those associated with the

US-led foreign forces in Iraq and by Iraqi authorities

and companies themselves and needs to be active

in urging the pursuit of the money that has been

stolen through corruption. The money stolen through

corruption under the US-led CPA in effect cheated

the Iraqi people out of

vital reconstruction and

development funding, as

the money was derived

from Iraqi oil revenue.

There are no allegations

of any corruption relating

to Australia’s direct aid

program to Iraq.

7.7 Allegations of Australianbodies beneting from corruption

Allegations have been raised that former Kenyan

leader Daniel Arap Moi and his family looted more

than $2.5 billion during his 24 year rule. It is also

claimed he funnelled this stolen money to nearly

30 countries, including Australia where a 10,000

hectare ranch was purchased. Properties were also

purchased in London and New York. None of Mr Moi’srelatives or close friends has ever been prosecuted

for corruption and none of the stolen money has been

recovered51.

7.8 Operation Wickenby

The Australian Government has been conducting

Operation Wickenby to investigate internationally

promoted tax evasion and large scale money

laundering. The Operation has resulted in charges

against three Gold Coast businessmen and $17.9million in extra tax being paid.

Revised tax assessments to the value of $65

million have been issued to people believed to have

underpaid their taxes, but these assessments could

still be disputed. The Australian Crime Commission

and Australian Taxation Ofce have conrmed that

more than 500 people are being investigated for

participation in illegal arrangements such as offshore

tax havens. The investigation initially focussed on

Swiss accountant Philip Egglishaw, but has sincewidened to cover more than 100 promoters of

Inspector General for Iraq Reconstruction’, Special InspectorGeneral for Iraq Reconstruction, 30 April 2006, p. 7.5 ‘Kenyan leader ‘looted billions’, The Australian, 1 September2007.

“Corruption in the oil and gas sector is

a continuing problem that could have

devastating effects on both the progress

of sector reconstruction and on the overall

status of the reconstruction and democracy-

building effort in Iraq.”

US Inspector General



international tax-evasion schemes52.

In January 2007 there were media reports that an

agreement, backed by new federal legislation, will

allow the Australian Tax Ofce to share information

with the Australian Securities and Investment

Commission (ASIC) to allow for more effective

investigation of tax evasion and money laundering.

It is expected that the revamp will allow ASIC to use

tax information as evidence in criminal investigations

such as non-tax fraud on the commonwealth, identity

crime and terrorist nancing53.

7.9 Australia leading by example

If Australia wishes to urge developing countries to

address corruption then it needs to lead by example

domestically.

The new Labor Federal Government has promised

to establish a Freedom of Information (FOI)Commissioner, which it is hoped will increase

government transparency a key measure to combat

corruption and promote good governance.54 They

have promised that they will end the ability of

Ministers to issue conclusive certicates in response

to FOI applications55. The effect of issuing that

certicate is to state that it is not in the public interest

to release a document. A decision by the High Court

placed conclusive certicates beyond administrative

review.

With regard to whistleblower protection within

Australia, the new Federal Government has

promised “A Rudd Labor Government will work with

Department heads, the Public Service Commissioner

and the Commonwealth Ombudsman to promote

a pro-disclosure culture within Departments and

agencies so that proper reporting and investigation

systems are put in place to deal with allegations of

corruption and misconduct.”56

Whistleblowers will gain legal protection “wherethe whistleblower has gone through the available

ofcial channels, but has not had success within

a reasonable timeframe and, secondly, where

the whistleblower is clearly vindicated by their

disclosure.”57

52 Fiona Bufni, ‘ATO plans joint attack on tax cheats’, The

Australian Financial Review, 9 January 2007, p. 6; and SusannahMoran, ‘Poor results turn Wickenby into an embarrassment’, The

Australian, 22 September 2007.53 Fiona Bufni, ‘ATO plans joint attack on tax cheats’, The

Australian Financial Review, 9 January 2007, p.1.

54 Kevin Rudd and Joe Ludwig, ‘Federal Labor – New Lawson Freedom of Information, Whistleblower Protection – OpenGovernment after 11 Years’ Media Release, 26 October 2007.55 Kevin Rudd and Joe Ludwig, ‘Government Information.Restoring trust and integrity’, Australian Labor Party, Election 2007Policy Document, October 2007, p. 7.56 Ibid., p. 9.57 Ibid., p. 10.

On protecting journalists from prosecution for

exposing government errors and corruption, the

new Federal Government has promised “Working

with the Australian Government Solicitor and the

Director of Public Prosecutions, a Rudd Labor

Government will also ensure a protocol is in place

so that a responsible journalist presenting the news

in the public interest is not prosecuted by Federal

agencies where the information presented is merelyembarrassing to the government. This will not

cover reportage that jeopardises law enforcement,

national intelligence or security, military operations or

intelligence or diplomatic relations.”58

The last point is of concern as exposing corruption

by Australian government ofcials or Australian

companies (in the latter case, the AWB scandal is an

example) can damage ‘diplomatic relations’ with other

countries who are effected by the corrupt behaviour.

However, the threat of public exposure is a necessarysafeguard against corruption.

Prime Minister, the Hon. Kevin Rudd released new

‘Standards of Ministerial Ethics’ in late 2007 outlining

the level of ethical accountability that he expects of

Ministers in the Federal Government. Key elements of

the guidelines include:

that lobbyists will be required to register their

details publicly on a Register of Lobbyists

to be established by the Department of the

Prime Minister and Cabinet before seeking

access to ministers or their ofces;

ministers will be required to undertake that,

when they leave ofce, they will not seek

to have business dealings with members of

the Government, the Public Service or the

Defence Force on any matters that they dealt

with in an ofcial capacity in the proceeding

18 months;

ministers will be required to divest themselves

of all shareholdings, other than throughinvestment vehicles such as broadly

diversied superannuation funds or publicly

listed managed or trust arrangements;

ministers are required to declare and register

their personal interests; and

except with the express approval of the

Prime Minister, Ministers will resign or decline

directorships of public or private companies

and businesses on taking up ofce as a

minister.

58 Ibid., p. 9.

•

•

•

•

•



7.10 Dealing with imports producedwith the involvement of corruption

Australia has no comprehensive system to

identify imports that have been produced with

the involvement of corruption. Clearly, it would be

impossible to do so for every item that is imported

into Australia. However, it should be possible to take

action with regard to areas where it is well known thatcorruption is involved in the production of goods. For

example, it is well documented that many factories in

China are able to commit gross violations of Chinese

labour laws with the collusion of Chinese Government

ofcials to produce goods for export.

The Australian Government should implement

measures that will pressure the Chinese Government

to enforce its own labour laws, to try to ensure that

imported goods from China are not produced with the

involvement of corruption.

The new Labor Government has indicated that it is

willing to take some action on timber imports that

have been illegally logged. It has promised to commit

$1 million to work with regional governments andindustry to59:

build capacity within regional governments to

prevent illegal harvesting;

develop and support certication schemes for

timber and timber products sold in Australia;

require disclosure at point of sale of species,

country of origin and any certication;

identify illegally logged timber and restrict its

import into Australia; andargue for incentives within the emerging global

carbon markets for avoided deforestation and

better management of tropical forests.

59 Kevin Rudd and Sid Sidebottom, ‘Securing the Future ofTasmania’s Forestry Industry’, ALP Media Statement, 23 July 2007.

•

•

•

•

•

7.11 AusAID’s approach to goodgovernance

The Australian Government’s objective for their

overseas aid program is “To assist developing

countries to reduce poverty and achieve sustainable

development, in line with Australia’s national

interest”60.

Supporting the growth and maintenance of good

governance is pivotal to this objective. AusAID has

identied four key areas where aid can enhance

good governance in developing countries. These

are: improving economic and nancial management,

strengthening law and justice, increasing public

sector effectiveness,

and developing civil

society.

In the 2006-2007

nancial year an

estimated $645

million was spent

in the aid budget

on anti-corruption

and governance

measures in the

Asia-Pacic region 61.

A positive aspect

of the centrality of

good governance

to Australia’s approach to aid policy is the

acknowledgment that the state has to be a central

actor in alleviating poverty. This can be achieved by

sustainable development through building institutions,

effective and unbiased law and order systems, and a

participatory civil society.

A key positive involvement Australia has in our

region is supporting the development of democracy

through assisting the process of free and fair

elections in countries such as Cambodia, Indonesia

and East Timor. Such involvement has ensured that

the electoral procedure is followed with minimal

corruption in these countries. AusAID has supported

voter education programs, associated with electoral

assistance. These programs have been carried out in

Cambodia, Indonesia, East Timor, PNG, the Solomon

Islands and Vanuatu.

AusAID also provides support to the Centre for

Democratic Institutions, focusing on strengthening

political parties and parliamentary governance

through intensive training courses and workshops,60 ‘Australia’s Overseas Aid Program 2007-08’, Statement by TheHonourable Alexander Downer MP, Minister for Foreign Affairs, 8May 2007, p. 2.6 AusAID Media Release, ‘Australia Expands Efforts to CombatCorruption’, 30 March 2007.

As a specic example, in late November 2007 the US National Labor Committee

(NLC) released a report, Today Workers Bear the Cross, exposing the Association

for Christian Retail (ACR) for selling crosses in the US manufactured in a Chinese

sweatshop. The NLC report found that crucixes are being made at the Junxingye

Factory in Dongguan, China, by 300 – 400 women as young as 15 forced to workregular 14 to 15.5 hour shifts a day, seven days a week. When an order is due a shift

can be extended up to 25 hours. All overtime in the factory is mandatory and anyone

who does not carry out the required overtime loses a full day’s wages. It is common

for workers in the factory to work over 100 hours a week, which includes 51 hours of

overtime. Workers in the factory are paid as little as 30 cents an hour, just over half the

legal minimum wage in China. After fees deducted for room and board, the workers

pay can drop to just 11 cents an hour. Anyone who gets sick and misses work in the

factory loses two-and-a-half days pay for each day they miss. The workers get no

paid sick leave, no paid maternity leave, no paid holidays and no health insurance, all

of which are required under Chinese labour laws.



underpinned by research, advocacy and regional

networking, with a main focus on Melanesia,

Indonesia and East Timor62.

AusAID has an existing policy that a contract will

be immediately terminated if it is established the

organisation the contract is with has engaged

in corrupt practices. AusAID also commissions

compliance audits that include provisions to “identify

risk areas where fraudulent use of Commonwealth

funds could have or has occurred.”63

AusAID has also provided support for a number of

Transparency International national integrity studies

and has supported the Asian Development Bank/

OECD Anti-Corruption Initiative for the Asia-Pacic64.

In the 2007-2008 nancial year, AusAID’s anti-

corruption work was focussed on Indonesia, the

Philippines, East Timor, Papua New Guinea, Vanuatu

and the Solomon Islands65.

However, a media report indicated that an internal

assessment of the Government’s Pacic Governance

Support Program indicated aws in the program.

There had been underspending on the program of up

to 20% below the budgeted amount, that the program

failed to encourage longer term activities, has been in

conict with AusAID’s in-country programs and “the

procedures, documentation and monitoring of the

program have proved unwieldy”. The assessment is

reported to have stated that “Few activities currentlyseek to build truly regional capacities outside of

sustaining a shared policy dialogue”66.

7.12 Tackling corruption for growthand development policy

More recently the Australian Government has

developed an ‘Anti-Corruption for Development’

policy to guide the development and implementation

of all Australian aid program activities aimed at

countering corruption in the region. Launched on30 March 2007 under the title ‘Tackling corruption

for growth and development. A Policy for Australian

Development Assistance on Anti-Corruption’ 67,

it was developed by a core group of agencies:

62 ‘Australia’s Overseas Aid Program 2007-08’, Statement by TheHonourable Alexander Downer MP, Minister for Foreign Affairs, 8May 2007, p. 16.63 AusAID, ‘Tackling corruption for growth and development. A Policy for Australian Development Assistance on Anti-Corruption’,Canberra, March 2007, p. 13.64 Luke, Garth, ‘Can Aid be Effective when Corruption isPresent?’, Make Poverty History and Micah Challenge Australia,

2006, p. 27.65 ‘Australia’s Overseas Aid Program 2007-08’, Statement by TheHonourable Alexander Downer MP, Minister for Foreign Affairs, 8May 2007, p. 31.66 Sean Parnell, ‘ Governance plan ‘lacks coherence’’, The

Australian, 17 August 2007, p. 7.67 The policy can be downloaded from the AusAID website athttp://www.ausaid.gov.au

AusAID, Department of Foreign Affairs and Trade,

the Attorney-General’s Department, the Treasury,

Department of Finance and Administration and the

Australian Federal Police.

The anti-corruption policy outlines three elements

to combat corruption in the region: building

constituencies for anti-corruption reform; reducing

opportunities for corruption; and changing incentives

for corrupt behaviour.

Positively, the Australian Government recognises

that due to the complexity and political sensitivity of

corruption, the strategy will have a long-term focus

and will include some exploratory and experimental

elements as well as ongoing research68.

The policy commits the Australian Government to

support initiatives that bolster transparency and

accountability. The Australian aid program will

help to improve budget processes, public nancialmanagement and purchasing systems in countries

receiving assistance from Australia in order to make

corruption activities more difcult to undertake

and easier to identify and prosecute. Australia will

continue to place Australian ofcials in public sector

positions or senior advisory roles in governments

that receive Australian aid as part of a long-term

institutional partnership.

The policy commits Australia to supporting efforts

to develop anti-corruption policies and plans incountries that do not have them. The Australian

Government will match Australian skills and resources

to the needs and priorities identied for tackling

corruption in countries that receive aid from Australia,

taking account of local anti-corruption efforts, the

work of other donors, and ways to build on current

effective Australian interventions69.

The Australian Government recognises the

importance of providing assistance tailored to

countries’ specic needs and capacities and thatimplementation of effective means to ght corruption

entails considerably more than merely pursuing wide

ratication of conventions (though the Government

recognises that this is clearly important).

In terms of building constituencies for anti-corruption

reform the policy recognises the need for large-scale

and sustained commitment to formal and informal

education of young men and women who will be

society’s future politicians, judges, prosecutors, police

68 AusAID, ‘Australian Aid: Promoting Growth and Stability. A White Paper on the Australian Government’s Overseas AidProgram’, 2006, p. 6; and AusAID, ‘Tackling corruption for growthand development. A Policy for Australian Development Assistanceon Anti-Corruption’, Canberra, March 2007, pp. 7, 9, 12.69 AusAID, ‘Tackling corruption for growth and development. A Policy for Australian Development Assistance on Anti-Corruption’,Canberra, March 2007, p. 16.



ofcers, civil servants, regulators, entrepreneurs, and

labour and community leaders. The policy also states

that supporting gender equity in leadership positions

will contribute to a more just society and lower

tolerance for corruption70.

The policy states that Australia and other

governments in the region have committed to ghting

corruption through regional and global reform efforts

such as the ADB-OECD Anti-Corruption Initiative for

the Asia-Pacic and the OECD Working Group on

Bribery in International Business Transactions71.

AusAID will report on progress in implementing its

anti-corruption initiatives through the Annual Review

of Development Effectiveness, to be prepared by the

Ofce of Development Effectiveness.

The policy states that the Australian Government will

strengthen its dialogue with international nancial

institutions (particularly the World Bank and the AsianDevelopment Bank), international agencies (such

as the UN Development Programme) and global

organisations dedicated to promoting accountability

and anti-corruption measures72. However, the policy

does not commit the Australian Government to any

particular specic outcomes from the strengthened

dialogue.

The Australian Government will continue to work

with international bodies, such as the World Bank, to

develop better measures of corruption and ways ofmonitoring progress in combating corruption73.

7.13 Building Demand for BetterGovernance program

The Australian Government has recognised in its

White Paper on Australia’s overseas aid program that

“insufcient demand for better performance or reform

is one of the most important obstacles to institutional

development in poor countries.”74

The Building Demand for Better Governance program

will support strategic partnerships to help augment

domestic demand for reform and accountability in

the Asia-Pacic region. Australian aid has supported

the PNG Church Partnership Program and ‘War

Against Corruption’ campaigns, support for national

human rights institutions, and partnerships with

Transparency International. Such support is planned

to be expanded through direct support to the relevant

organisations in partner countries and through

70 Ibid., p. 9.71 Ibid., p. 14.72 Ibid., p. 14.73 Ibid., p. 16.74 AusAID, ‘Australian Aid: Promoting Growth and Stability.

A White Paper on the Australian Government’s Overseas AidProgram’, 2006, p. 43.

partner Australian organisations, from development

non-government organisations, through to business

councils and universities. A particular focus will be

on supporting women’s groups and building capacity

in developing countries for independent analysis of

government policy75.

A key aspect of the AusAID’s Building Demand

for Better Governance Program is engagement

with leaders and work on leadership. This work on

leadership is part of promoting good governance and

fostering effective and function states, and includes

support for:

the Pacic Leadership Program, which will

work with a wide variety of current and

emerging leaders in the region to develop

their leadership potential and engage them

in improving standards of leadership and

governance;

a new regional scholarship for the Asia-

Pacic region focused on developing future

leaders – the Australian Leadership Awards

Scholarships and Fellowships; and the Global

Integrity Alliance, a new initiative with the

World Bank that brings together leaders

committed to integrity and systemic change,

at all stages of their professional careers.

75 Ibid., p. 43.

•

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0

8ConclusionWhile lecturing developing countries about






countries. In fact withholding aid is likely to increase

corruption. Rather aid needs to targeted in ways that

does not assist corruption and supports parts of

society that are seeking to tackle corruption.


Building a global culture to respect basic

human rights;



Wealthy countries being willing to return funds

looted from developing countries;



operate from their country; and


discourage those that would make corrupt

loans

Compared to many other wealthy countries, Australia

has taken welcome steps against corruption. The



laundering and nancing of terrorism. However, it

remains to be seen in practice if the steps taken are

sufcient to prevent Australians from participating in

and beneting from corruption in developing countries

and then being able to keep their ill-gotten gains in

Australia. Australia’s aid program also contains a

number of positive and well-thought through elements

to combat corruption and promote good governance

in countries that receive aid from Australia.

However, there are black marks on Australia’s


being the most prominent recent example. The Australian Government has been willing to look the

other way with regard to many cases of alleged


forces and as Iraqis were cheated out of billions

•

•

•

•

•

of dollars of oil revenue by mismanagement and

corruption within the US-led Coalition Provisional

Authority.





governance.

The table below summaries Australia’s performance

in tackling and deterring corruption in developing

countries and preventing Australians and Australian

companies from engaging in corruption in developing

countries and beneting from it.



Table 3: Australia’s performance in tackling corruption

Corruption or Good

Governance Issue


doing?

Assisting in building

demand for good

governance

Australia has assisted with free and fair

elections in the region. The White Paper

on Australia’s Overseas Aid includes

a program to build demand for better

governance through the aid program.

The Government has issued ‘Tackling

corruption for growth and development.

A Policy for Australian Development

Assistance on Anti-Corruption’

Australia needs to implement the

program in the White Paper and

through the ‘Tackling corruption

for growth and development. A

Policy for Australian Development

Assistance on Anti-Corruption’,

making sure both are adequately

funded.

Promotion and defence of

human rights

Mixed performance. Strong action in

countries like the Philippines and Sri

Lanka. Lack of willingness to tackle some

human rights abuses in countries like Iraq

and Indonesia.

Need for a consistent approach

to supporting a global culture for

the protection and promotion of

human rights.

Bribery The Criminal Code Amendment (Bribery of

Foreign Public Ofcials) Act 1999 makes it

a criminal offence to bribe a foreign public

ofcial, whether the offence occurs inside

or outside Australia. However, adequate

penalties have been lacking. Attempts

are being made to increase detection of

foreign bribery. Ability to claim facilitation

payments as tax deductions has been

reduced.

Need to ensure that penalties for

foreign bribery are adequate to

deter bribery.

Need to ensure adequate

protection for those that expose

bribery.

Tax competition The Australian Government appears to see

competition between countries over taxrates as legitimate, but at the same time

is part of international bodies examining

unfair tax competition.

Need to work for an international

approach to curb tax competitionthat undermines the development

needs of nancially impoverished

countries and assist developing

countries stem tax evasion.

Tax havens The Australian Tax Ofce (ATO) has shared

information on best practice in dealing with

tax havens through the Seven Country

Forum on Tax Havens. The ATO is also

working with the OECD, the Global Forum

on Taxation and the Joint International Tax

Shelter Information Centre to deal with tax

havens. Operation Wickenby has sought

to tackle Australians using offshore tax

havens.

Need to support greater global

efforts to shut down tax havens,

which facilitate tax evasion, capital

ight and money laundering.

Money Laundering Introduction of comprehensive anti-money

laundering legislation and rules, closing up

many areas where there were previously

risks of money laundering.



Corruption or Good

Governance Issue


doing?

Recovery of stolen funds The Australian Federal Police and the

Attorney General’s Department are working

with governments in the Asia-Pacic

region to strengthen local laws dealing

with money laundering and to recover the

proceeds of crime. The Proceeds of Crime

Act 2002 and the Mutual Assistance in

Criminal Matters Act 1987 can allow for the

recovery of funds stolen through corruption

and transferred to Australia.

Corruption in lending Australian aid has almost exclusively been

in the form of grants, not loans. Australia

has not supported the cancellation

of odious debts owed by developing

countries.

Discourage lending from Australia

towards projects of dubious

development benet. Accept

the need for odious debts owed

by developing countries to be

cancelled.

Multilateral Banks Australia is in dialogue with multilateral

banks about corruption issues.

Ensure that multilateral banks are

transparent in the way they punish

corruption and that penalties are

adequate and applied in a fair

manner.

International Standards to

address corruption

Australia is party to the UN Convention

against Corruption and the OECD

Convention on Combating Bribery of

Foreign Ofcials in International Business

Transactions. Australia supports and

promotes the Extractive IndustriesTransparency Initiative. The Treasury

and the Department of Finance and

Administration are helping to strengthen

nancial management systems in countries

in the Asia-Pacic region. The Australian

Government states that it is already

actively encouraging countries to sign

up to international treaties to deal with

corruption and properly implement their

measures.

Increase efforts to encourage other

countries and corporations to sign

up to international standards to

deal with corruption and properly

implement their measures.

Receipt of goods

produced with the

involvement of corruption

The Australian Government has no

systemic measures to identify the

importation of goods that are produced

with the involvement of corruption. The

Government has promised to take steps to

identify illegally logged timber and restrict

its import into Australia.

The Australian Government should

identify types of imported products

that are likely to have been

produced with the involvement

of corruption and put in place

measures that apply pressure

for the corruption to be stopped

and those responsible brought to

justice.



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Afrol News, ‘Nigeria recovers US $50 million looted funds’, 28 November 2005, http://www.afrol.com/

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Argy, Fred, ‘Australia’s Fiscal Straightjacket: Eight myths about tax and public debt which are holding us back’,

Centre for Policy Development, Occasional Paper Number 4, Sydney, November 2007.

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AusAID, ‘Australian Aid: Promoting Growth and Stability. A White Paper on the Australian Government’s

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Anti-Corruption’, Canberra, March 2007.

AusAID Media Release, ‘Australia Expands Efforts to Combat Corruption’, 30 March 2007.

AUSTRAC media release, ‘AUSTRAC works with Indonesia to combat money laundering and the nancing of

terrorism’, 17 April 2007.

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Justice and International Mission UnitSynod of Victoria and Tasmania

Uniting Church in Australia2008

The Uniting Church CentreLittl C lli St t