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113TH INTERNATIONAL TRAINING COURSEVISITING EXPERTS’ PAPERS

* Director, Corruption Prevention, IndependentCommission Against Corruption, Hong Kong.

CORRUPTION PREVENTION - THE HONG KONGEXPERIENCE

Thomas Chan*

I. INTRODUCTION

This paper describes the Hong Kongexperience in fighting corruption. It brieflyoutlines a number of factors that areconducive to corruption and fraud and thendetails some of the activities of the HongKong Independent Commission AgainstCorruption, better known simply as theICAC. While the corruption preventionpractices have been developed to suit theHong Kong environment, it is believed thatmany corruption problems stem fromcommon causes and may respond to similarapproaches.

II. CORRUPTION IN SOCIETY

Corruption can be found in all walks oflife ranging from matters involving pettyand relatively insubstantial issues to thoseo f great s ign i f i cance and va lue .Nonetheless, corruption has commonlybeen associated with major developmentactivities such as:

• infrastructure projects includingdams, harbour works, bridges,highways, airports, railways, andmass transit systems;

• licenses and/or leases for extractiveindustries and other concessions (e.glogging, mining and oil leases, fishingconcessions);

• large scale industrial, commercial orresidential developments (e.g masshousing programmes, resorts, newtowns, theme parks, science parks);

• the design, specification and supply

o f t r a n s p o r t a t i o n a n dtelecommunications equipment(railway rolling stock, bulk handling);

• bulk purchases of supplies, such aspetroleum, fertilisers, cement,chemicals and pharmaceuticals;

• service and consultancy activities(feasibility, land tenure studies, etc).

A more detailed examination of causeand effect indicates that there are anumber of common factors that generatecorruption risk. These generally compriseof:

• any level of decis ion-makinginvolving the exercise of discretionarypower;

• arrangements involving patronage orconflict of role;

• approval, licence or permit systemswhich involve granting of a benefitor generating a financial gain;

• situations involving security orc o n f i d e n t i a l i t y t h a t c a n b ecompromised; and

• situations where the standardoperating rules and procedures arenot clearly defined.

These factors bear no relationship to thevalue of a purchase or transaction. Thus,cases of bribery and corruption may arisefrom routine licensing arrangements andapprovals as well as from immigration andcustoms breaches, electoral malpractices,and a l l types o f cash co l l e c t i onarrangements. Corruption may involve theleakage of confidential information inpolice operations or in procurement; inadministrative decisions on welfare benefit

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entitlements and housing allocation; or inthe distribution and location of hawkers’stands and market stalls.

Public attention is drawn to the moreobvious cases where the incentives forcorruption are greater and which entailmajor decisions involving large sums ofmoney. However, the risk of corruption isjust as real for everyday transactions wheremore elaborate protective mechanismscannot be economically employed. Giventhe number and scope of such pursuits, thecumulative exposure to risk may wellexceed that of the larger contracts, whilethe moral impact is equally damaging.

Nonetheless, both motivation andopportunity must come together in orderfor corruption to occur. Unless theopportunity presents itself to individuals,corruption will remain just a theoreticalpossibi l i ty. This intermingling ofmotivation and opportunity must alwaysbe considered when structuring an effectiveanti-corruption strategy.

III. THE IMPACT OF CORRUPTION

What damage is caused by corruption?The most obvious effect is to directlyincrease the cost of a transaction. If a bribeof 5% or 10% is paid, it seldom comes outof the seller’s pocket. They will merely buildit into the price to be met by the purchaser.Indeed, the fact that a bribe is being paidoften makes it possible for the seller toinflate the price by considerably more thanthe bribe amount.

It is not easy to find definitive statisticson the likely economic cost of corruption.A 1996 Hong Kong fraud study, publishedby consultants KPMG, estimated a totalcost (to local respondents) of HKD $230M.The consultants highlighted that thisf igure was probably signif icantlyunderstated. KPMG also reported that the

most prevalent areas were purchase fraud,which accounted for 26% of reported cases.Twenty percent of the frauds could becategorised as corruption related offencessuch as kickbacks. Similar figures werereported in another KPMG InternationalFraud Report, which highlighted kickbacksand procurement fraud as particularproblems but also identified employeefraud as being the most prevalent sourceof malpractice. The amount of internalemployee involvement provides anindication of where one needs to start withcorruption prevention measures.

KPMG’s 1995 Australian Fraud Surveyestimated corporate fraud at A$16B toA$20B per year. Another survey by Ernst& Young in 1996 reported that 95% ofAustralia’s top 500 companies experiencedfraud over the preceding five years, and for68 % of those cases it was over A$1M. TheAustralian Commonwealth Auditor-G e n e r a l e s t i m a t e s t h e l e v e l o forganisational fraud to be 2-5% of privatesector turnover.

These figures, together with otheranecdotal evidence, indicates thatcorruption can add between 2% to 15% tothe cost of business, depending on thecountry and local environment. Despitesuch obvious losses, it is disconcerting tonote that until recently, firms based insome developed nations have beenprepared to fund corruption in manydeveloping nations.

The direct increase in cost is by no meansthe only effect. Once the possibility ofpersonal gain becomes a factor, it rapidlybecomes dominant - pushing aside qualityand other legitimate considerations in theawarding and performance of contracts orin the provision of services. The result isthat economic decisions are skewed; thewrong suppliers and/or contractors areselected; and materials, quality standards

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1 In “Corruption: The Facts”, article by DanielKaufmann, p. 114 of “Foreign Policy” - Summer1997.

2 In “Model Law on Corruption”.

and safety are compromised. Supplies orprojects that are not needed may be givenpriority over more important projects forno better reason than the fact that theyenable decision-makers to obtain largebribes.

The moral damage is perhaps moreserious. Bribery involves a breach of trustor a violation of a relationship. The damageto confidence, reputation and imageinflicted on a corporation or on public sectoradministration is debilitating, while theloss of faith in the integrity of decision-makers can even destroy the social fabricof a nation. While seemingly benign on thesurface, corruption breeds distrust andmay contribute to more violent crimes asthe social injustices accumulate andbecome more obvious.

IV. THE HONG KONG ICAC MODEL

The ICAC was established in 1974 inresponse to rampant corruption within thepolice force and other sections of the publicsector. It has adopted an integrated three-pronged attack on corruption based on thestrategic components of investigation,prevention and education. These threeanti-corruption offensives are reflected inits structure, which comprises threefunctional departments - the OperationsDepartment, Corruption PreventionDepartment and Community RelationsDepartment.

The Operations Department receivesreports and investigates complaints. Thisinvestigative and enforcement role iswithout doubt the most visible activity ofthe Commission, attracting intense publicand media interest in major cases. Thecorruption cases are identified fromcomplaints received from a number ofsources including a 24-hour hot-line reportcentre.

The Community Relations Departmentis responsible for the education, publicityand moral leadership roles of theCommission. Its role is directed towardsmobilising public support in the fightagainst corruption. In addition to broadcommunity-based programmes using themass media, specific programmes havebeen developed for various sections of thecommunity. These activities explain anti-bribery laws in layman’s language, educatethe young at schools and universities, andencourage business organisations to adoptappropriate corporate codes and corruptionprevention measures. The generalconf idence-bui lding and outreachprogrammes are designed to raise the levelof public awareness and willingness toreport promptly any suspicion of corruptionoffences. They also include the operationof a number of regional community officesthat are readily accessible to the public.The end result is that the ICAC maintainsa high public profile and ‘mind-share’within the community.

T h e C o r r u p t i o n P r e v e n t i o nDepartment’s mandate is to preventcorruption within organisations byexamining their internal operations andp r o p o s i n g c o r r u p t i o n - r e s i s t a n tmanagement and administration systems.This objective has been successfullyimplemented within the public sector bythe establishment of effective andtransparent systems, thus providing anexample of the principle that prevention ismuch better than cure.

V. CORRUPTION PREVENTIONROLE

F r o m t h e t i m e t h e I C A C w a sestablished, maintenance of the integrity

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of public institutions was considered to bea priority. Given our primary role to advisegovernment departments and public bodieson reducing corruption opportunities, thelegislation therefore empowers us to actwith considerable authority when dealingwith corruption prevention in the publicsector.

The legislation also provides that wemust give advice on request to any personand any private sector organisation. Forthe private sector, the acceptance of ourprevention advice is not mandatory. Tostrengthen the scope of our scrutiny we canapply to have organisations designated as‘public bodies’ where they enjoy particularmonopolies or have significant communityroles e.g the Hong Kong Jockey Club, MassTransit Railway Corporation, AirportAuthority, Utility Companies, Universities,Hospital Authority and so forth. In totalthere are currently 85 declared publicbodies.

The Department is relatively small withonly 59 staff members and is split intofunctional groups that specialise inparticular areas of work or client groups.A high proport ion of the staf f isprofessionally qualified. Staff members areappointed at a relatively senior level sincethey must be sufficiently experienced andknowledgeable to liaise closely with seniorcompany management and governmentofficials on corruption prevention mattersthat can substantially affect operatingpractices.

VI. CORRUPTION PREVENTIONMETHODOLOGY

Our prevention strategy is based on asystems approach, with a methodologyfounded on operational audit principles.Our major workload comes in the form ofassignment studies where priorityassignment areas are identified and then

examined in detail, culminating in acomprehensive report containing a seriesof recommendations. To generatemaximum input and commitment to theprocess, client (i.e the organisation whosep r o c e d u r e s a r e b e i n g r e v i e w e d )involvement is encouraged at all stages.Draft recommendations are normallydiscussed with the client prior to releaseof the report to take account of any practicalfactors in implementation and therebyfacilitate their adoption.

Str ict conf ident ial i ty has beenmaintained on the report contents to instilconfidence in the process. Accordingly,there has been little publication of therecommendations except in general articlescovering anti-corruption issues or as sourcematerial for the development of “BestPractice” approaches. To date we havecompleted more than 2300 assignmentreports covering a wide range of publicsector activities.

The sources of work are OperationsDepartment investigations; areasidentified by our own staff or by joint ICAC/client liaison groups; and requests from theclients themselves. As a liaison strategy wemeet regularly with the directorate officersof major government departments and thesenior management of public bodies. TheseCorruption Prevention Group meetingsdiscuss priorities, explore problem areasand review the implementation of previousstudies. They have proved very productive.

A considerable number of private sectorreferrals come through the services of theCommunity Relations Department andtheir network of regional of f ices.Previously, much of this work was directedtowards specific problem areas such asstock control, purchasing, and rules forstaff on accepting advantages, but thescope of work has been expanding with agreater focus on system risk analysis,

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managerial accountability and corporategovernance. Ethics development work istypically conducted in association with ourCommunity Relations colleagues as part ofa co-ordinated programme of enhancedethical and corruption awareness traininglinked with the promotion of CorporateCodes of Conduct.

An increasing proportion of staff time isinvolved in consultative work. Governmentd e p a r t m e n t s c o m m o n l y a s k t h eDepartment to study the implementationof new policies and procedures and we arerepresented on both ad-hoc and standingw o r k i n g g r o u p s o r c o m m i t t e e s .Involvement in the policy developmentprocess enables us to have effective inputat an early stage, where accountability andeffective controls are best identified.Ty p i c a l e x a m p l e s i n c l u d e o u rrepresentation on a treasury review ofgovernment tendering and procurementprocedures and membership of theConstruction Advisory Board, whichprovides advice to government on issuesrelated to the construction industry. Otherexamples of our procedural developmentwork are the analysis of tenderingarrangements for major extensions of theKowloon and Canton Railway Corporationand Mass Transit Railway Corporation;examination of Housing Authority policies;and involvement in al l stages ofconstruction of the new Hong Kong Airportand related infrastructure projects.

VII. CORRUPTION RISK FACTORS

Our reviews of corruption r iskconcentrates on areas identified as beingprone to fraud and corruption. Assignmentr e c o m m e n d a t i o n s t h e n f o c u s o nmechanisms for reducing or minimisingcorruption opportunities while optimisingadministrative performance, systemcontrols, transparency and accountability.This strategy of promoting system change

is based on the belief, that whilstcorruption may be investigated andof fenders prosecuted , unless theunderlying management deficiencies arecorrected, the same or similar corrupt actscould easily re-occur.

Fact-finding involves identification andassessment of a range of possible risks,along with current controls and possiblecontrol improvements. These observationsdo not imply that corruption is occurring,but highlight areas where internal controlsare absent or deficient and the system ispotentially at risk. Our reviews thereforeextend beyond the scope of financial auditsto examine management issues whichmight allow misconduct such as:

• misuse of power and discretionaryauthority;

• neglect of duty or omission;• favouritism;• administrative deviations and

breaches of regulations;• inappropriate legislation;• information and confidentiality

breaches; and• conflicts of interest.

Various techniques and risk indicatorsare used in analysing the existing systemfor weak-points and loopholes that mightexpose the unit or operation to potentialcorruption. These include:

• internal control weaknesses reportedthrough internal audit reviews orprevious corruption cases;

• discrepancies or deficiencies in theimplementation of previous remedialaction(s);

• weaknesses in the system chain ofcontrols;

• r e p o r t e d d e v i a t i o n s f r o mmanagement controls;

• role playing and “what if?” scenarios;• identification of system control

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features able to be bypassed by higherauthorities or alternative procedures;and

• inconsistencies in the matrix ofmanagement authorit ies andaccountabilities.

The report recommendations can bewide-ranging and may include proposalsfor revamping administrative systems;review of asset management policies andprocedures; introduction of enhancedt r a n s p a r e n c y a n d p r o c e d u r a larrangements for purchasing andtendering; better documentation andreview standards; new or revisedmanagement and quality assurancem a n u a l s ; a n d t h e a d o p t i o n a n dpromulgation of performance pledges,ethical guidelines and Codes of Conduct.

While some organisations may initiallyfeel some trepidation in agreeing to anassignment study, the use of competent andexperienced staff and close attention todetail in formulating the recommendationshas resulted in a high level of clientsatisfaction. Conducting the study in aspirit of close co-operation with the clientno doubt helps to achieve this outcome. Thework is conducted at no cost for privatec l i e n t s a n d t h e a c c e p t a n c e a n dimplementation of the recommendationsremains at the company’s discretion.

VIII. A CASE STUDY INCONSTRUCTION

Engineering construct ion is animportant element in Hong Kong’seconomy and today contributes about 9%of Hong Kong’s gross domestic product. Ofthis, public sector construction contributesabout 45% and the private sector 55%.Public sector projects are handledtransparently with advance publication ofconstruction programs, pre-qualificationand open competitive tendering exercises

and increasingly stringent quality andsafety requirements, subject to on-sitesupervision and third party testing andcertification. Contractors performing publicsector construction work are subject tofinancial and technical assessment and arechosen from approved lists maintained bythe central policy Works Bureau.

The newly completed Hong Kong AirportProject constituted one of the most massiveinfrastructure undertakings in the world.The core projects were completed undervery stringent time and cost constraintsand contained all of the elements thatmight be prone to corruption such as:

• sensitive planning and land useapprovals;

• selection and appointment of widelydivergent consultant teams;

• complex contracts (hundreds) withhighly technical specifications;

• negotiated contracts and valueselection of contractors;

• use of international and joint venturecontractors;

• fast-tracking of planning, design andconstruction;

• large sums of money;• numerous variations and claims

arising from design changes;• a multiplicity of sites and numerous

interface issues with contractors andconsultants; and,

• the involvement of diverse skills,nationalities and languages.

Given the immense size and tight timescale for the undertaking, the standardform of government contract was modified,and revised contractual, administrativeand claims procedures were adopted. Fromt h e b e g i n n i n g , t h e p r o c e d u r a larrangements and tendering processeswere developed in close consultation withthe Corruption Prevention Department.Particular attention was paid to include

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m e c h a n i s m s t h a t w o u l d e n s u r etransparency and equity in consultant andcontractor selection, effective contractexecution and close monitoring of allperformance aspects, including claims andvariations. The evidence so far is that thisliaison was very successful, with fewallegations of corruption.

IX. A PROCUREMENT EXAMPLE

Procurement is one of the areas mostprone to corruption. In analysingprocurement systems, our objectives are toensure:

• the best possible value-for-moneyoutcomes;

• minimal risk of fraudulent or corruptactivity in the selection of firms andfinal contract awards throughstructured processes; and,

• r e i n f o r c e m e n t o f a l l l e g a lrequirements and ethical standardsby incorporating guidelines andcontractual conditions relating toBest Practice, Prevention of BriberyOrdinance, corporate conduct,conflict of interest etc.

We require that the procurement processdemonstrates the necessary elements offairness and impartiality to survive fulldisclosure and critical public scrutiny. Theresulting level of transparency needed toavoid any potential claims of favouritismor conflict of interest may involve verydetailed procedures and extensivedocumentation depending upon theproduct, service or project.

For many procurement cases the qualityof performance is a significant factor, andwe recognise that selection may not bebased purely on price competition. In fact,uneconomic contract prices can provide afurther incentive for corruption duringcontract execution, as the participantsattempt to recover costs and achieve

greater profitability by any means possible.Value assessment and supplier selection isaccomplished by nomination of suitableassessment criteria that are weighted inproportion to their importance to thecontract performance or specification. Weprovide extensive advice on thesetechniques and the attendant procedures.

Government and public bodies arerequired to adopt open competitive biddingm e t h o d s , e x c e p t u n d e r d e f i n e dcircumstances requiring full justificationand documentation. Notwithstanding acompetitive award policy, negotiation canbe employed but is normally restricted tohigh value contracts because of theextensive documentation required andtime constraints, contractual difficulties,perceived corruption opportunities andoverall costs of the process.

Other anti-corruption techniques are torestrict the discretionary role of theprocurement officers, to codify theprocedures, and to apply separation offunctions so as to require greater (andtherefore less likely) collusion if corruptionis to occur. Open advertising, pre-qualification exercises, formalised lists ofsuppliers and contractors, adoption ofobjective selection criteria with advancenotice to bidders, detailed tendering andevaluation procedures, balanced selectionpanels, full documentation, monitoring ofpurchas ing pat terns and vendorrelationships, random checking by seniormanagement and e f fec t ive audi tprogrammes, are all strongly encouraged.

X. THE KEY TO PREVENTION -TRANSPARENCY AND PUBLICITY

We believe the best ally in corruptionprevention is the public. When dealing withthe public sector, if people know andunderstand their entitlements and rights,they will be aware of any shortfalls inservice quality. Therefore we consider it

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essential to ensure that the public is keptwell informed as to the expected time toissue licenses; when, how and where toapply for services; the costs of services; andthe necessary documentation to besubmitted. The provision of clear self-explanatory forms and supportingdocumentation forms part of the necessarypublicity and education programme.

All government offices now routinelypublicise the key aspects of theiroperations, with prominently displayedapplication forms and other public notices.We also support the implementation ofperformance pledges that give greatertransparency and clear guidance as to thereasonable expectations of minimumservice standards. This principle oftransparency extends to everyday eventsand activities. Studies relating to utilityworks and roadworks have resulted inrecommendations leading to notices onstreet excavations showing the expecteddate of completion and other detailsenabling identification of the contractorand contact persons.

Another area requiring good andcomplete public information is where morethen one government department isinvolved in a process. For example, inlicensing a restaurant, the hygiene, firesafety, structural safety and ventilationrequirements all involve differentdepartments in the Hong Kong licensingsystem. Satisfying these differentrequirements can be baffling for a licenceapplicant and good publicity to guide theapplicant through the maze of the variouslicensing processes is essential. To besuccessful, this type of guidance needs tobe easily available at low or zero cost andwritten in plain and non-technicallanguage. The Department routinely givesadvice on the structure and developmentof such information packages.

XI. OVERCOMING RESISTANCE TOCHANGE

Notwithstanding our progress inintroducing init iat ives to combatcorruption, there is sometimes a degree ofentrenched organisational resistance tochange. Key decision makers may refuseto accept that the most effective way toreduce corruption and other workplacecrime is to establish revised practices orprocedures within the organisation thathave an anti-corruption goal. Powerfulindividuals may also resist change becauseof habit or inertia, or fear of the unknown,or because they are afraid they do not havethe necessary skills if the changes areimplemented and they fear losing some oftheir power.

Organisations, like individuals, alsosometimes resist change because of fear ofthe cost, or a perception that they do nothave the necessary resources. Sometimeskey decision-makers fail to understand thealternative. Subtle resistance is oftenembedded in the resource allocationprocedures, with reluctance to adopt newpolicies or refusal to change an establishedpolicy.

Resistance typically involves affectedgroups such as middle managers,supervisors, units or groups who areopposed to a given corruption preventionstrategy. In the worst case scenario theremay be active opposition represented by :

• denial of the need for an anti-corruption strategy;

• refusal to recognise responsibilityand accountability;

• refusal to implement an anti-corruption strategy initiative thathas been adopted by the organisation;and

• sabotage or dismantling of an anti-c o r r u p t i o n s t r a t e g y a f t e rimplementation has begun.

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Such potential resistance must be bothrecognised and managed. At the workinglevel, our response is firstly to involve theclient as deeply as possible in theassignment study so that they arecommitted to a successful outcome.Secondly, we attempt always to setstandards, objectives or time lines againstwhich progress may be assessed so thatthere is an effective means of monitoringimplementation. In addition to formalmonitoring studies, we also have standardfollow-up procedures to track the level ofacceptance of report recommendations andtheir implementation. This process hasproved very successful and often gives riseto continuing liaison with the client andmore extensive work.

XII. FACTORS FOR SUCCESS

The success we have achieved in fightingcorruption and fostering change has beenbased on a number of factors, of which Ishall nominate a few:

• support from the highest levels ofgovernment providing the politicalwill, legislative framework andfunding necessary to ensure ourindependence and focus on the job athand;

• recruitment of staff with the skillsand experience to deal with practicalreal l i fe s i tuat ions , such asaccountants, engineers, quantitysurveyors , ex -po l i cemen andexperienced public servants;

• involvement of the client in all phaseso f o u r s t u d i e s - f r o m t h edetermination of the work to be donethrough to the development ofprevention measures and how theyare to be implemented;

• concentrating on more structuredways to exercise discretion such asinspection check lists, objectivemarking schemes for performance

monitoring and marking systems fortender assessment;

• adopting a more global approach topreventing corruption by examiningnot just the symptoms but theunderlying causes such as poormanagement structures, poor morale,lack of information, unenforceablerules and inadequate legislation; and

• adherence to the principle oftransparency.

XIII. NEW CHALLENGES

New challenges are emerging as a resultof economic, social , pol i t ical andtechnological changes. Hong Kong’s rapidtransition from a light manufacturingeconomy to a predominantly service-basedeconomy has made anti-corruption workmore complex and difficult, while the publicexpectation of effectiveness, transparencyand accountability is rising.

New business structures are beingcreated as the practices of outsourcing andprivatisation or corporatisation havebecome more prevalent. Both public sectorand private sector organisations nowcontract out a wider range of servicesranging from data preparation andprocessing, management consulting andhuman resource functions, to research anddevelopment services, professional adviceand the operation of independent businessentities.

The outsourcing business modeltypically involves a small number ofmanagement professionals responsible forcontracting, supervising and monitoringservices provided by external firms suchas contractors, manufacturers, third-partysales and distribution networks, andsuppliers of corporate and administrativeservices. It represents a desire to focus oncore business fundamentals in a drive toachieve world competitive practices and

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realise benefits from improved access tospecialist expertise.

Outsourcing brings with it greaterdemands for overall co-ordination andcloser relationships between the variousparties to the contract with a consequentshift towards new forms of performancemonitoring and control, and different legaland contractual frameworks. Much of thistrend is being driven and supportedt h r o u g h d e v e l o p m e n t s i ntelecommunications and informationtechnology.

Developments in outsourcing mayintroduce management issues havingcorruption implications. Close examinationof the overall client and supplier alliancemay reveal new areas where corruption canenter the process and affect the outcome.Since many operational activities are nolonger performed solely “in-house”, greateremphasis needs to be placed on thedevelopment of “self-regulatory” systems,with the adoption of appropriate Codes ofConduct.

The computer in its various guises nowpervades every walk of life. Millions ofdollars are handled daily over national andinternational networks, and personalinformation is captured for a myriad oftransactions. Vast databases are beingdeveloped containing extremely detailedi n f o r m a t i o n o n i n d i v i d u a l s a n dorganisations. Information technology hasprovided new opportunities for datacollection and management, facilitatingdemographic segmentation (data mining)and new and more extensive forms ofmanagement information analysis. Withthese developments have come associatedconcerns for the privacy and security of thefinancial and personal data and attendantcorruption opportunities in the potentialmisuse of this data.

Some systems are undoubtedly wellprotected and properly resistant to securitybreaches, but the relaxed attitude of manyorganisations to information securitystands in stark contrast to the proceduresfound necessary by banks and otherfinancial institutions. An ever-presentdanger is that some computer systems,designed many years ago, still remain inoperation and may be potentially subjectto new forms of attack as companies moveto embrace e-commerce.

One of the disturbing features is that toofew organisations have undertaken anyrisk analysis of their own corporateinformation systems and may be unable totell when or whether or not a crime hasbeen committed. An essential task of thefuture will be to ensure that the integrityof these systems is not compromised bycorruption. Appropriate physical barriers,software barriers, system administrationcontrols, functional separation of keyactivities and the monitoring of criticaltransactions will be essential.

Procurement practices are alsoundergoing signif icant change aspurchasers and suppliers grapple with bestpractice developments in supply sourcingand the complexities of international law,fair trade requirements and the impact ofnew technology. Some of the emergingtechnological developments includeelectronic commerce and electronic fundst r a n s f e r a n d p a y m e n t s y s t e m s ;interconnected materials procurementmanagement and manufacturing systems;corporate card purchasing; and electronictendering. The growth of the Internet andelectronic commerce introduces theprospect of a new generation of informationand monetary transfers that are moredifficult to track and could make briberypayments less traceable.

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Each of these developments brings a newperspective to the maintenance of systemintegrity. They introduce problemsassociated with security and confidentialitythat commonly form key elements in thetypical chain of corruption. Managementsystems, which once seemed secure, maybe prone to attack as organisations adaptto these changes.

XIV. OUR RESPONSES

As technology advances and political andeconomic boundaries begin to blur,corruption has taken on a globalperspective and the need to developregional and international liaison willcontinue to grow. To this end we haveactively pursued a policy of greaterinvolvement with our colleagues in otherjurisdictions such as the Royal CanadianPolice, the Australian Federal Police andthe US Federal Bureau of Investigation.The ICAC now acts as the RegionalInformation Co-ordination Centre in theAsia-Pacific region and publishes a regularnewsletter. This l iaison with ourcounterparts will continue and expand.

The proven effectiveness of ourcorruption prevention work will ensure itscontinuation, albeit somewhat modified totake account of emerging trends. Moreexpertise will be needed in systems andrisk analysis and we have had a policy forsome time of recruiting staff for preventionwork with strong and up-to date computerand information technology skills.

Greater emphasis will be placed onmanagerial accountability in a more self-regulatory environment. The adoption ofperformance pledges, Best Practiceapproaches and quality management andquality assurance programmes alreadyform part of our armoury. The introductionof specific probity-related clauses intender ing requirements and the

widespread introduction of appropriateCodes of Conduct is being strongly pursued.

We have expanded our capacity to assistboth the public and private sectors byintroducing a quick-response consultancysupport system offering advisory services.Together with this more responsiveapproach, we have introduced a corruptionprevention telephone hot-line.

In conjunction with the CommunityRelations Department’s drive for expandedmoral and ethical education programmes,we have taken a pro-active approach toenlisting greater support from the privatesector with extensive mailings, visitationprogrammes and speaking engagements.In addition, we have embarked upon aseries of targeted training and developmentseminars directed towards particularindustry areas.

We have formulated no fewer than 15Best Practice modules covering keyindustries and their operations which arenow being widely distributed as part of ouradvisory services. These modules aredes igned to prov ide guidance toorganisations developing or reviewing theirown internal systems. In time, thesemodules should cover the majority of thekey operational areas found to be prone tocorruption.

Finally, in the midst of this change wehave also grasped the benefits of newtechnology with revamped internaloperational procedures and improvedinformation technology capabilities. Thiswill enable us to better analyse trends,perform better research and improve ouroverall productivity. These changes includeexpansion of our Internet Web presence toprovide greater public access and enableus to reach a wider audience.

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XV. CONCLUSION

The enforcement of a strong anti-corruption law based on a zero toleranceapproach, backed by effective preventionand educational programmes, has had amarked impact in Hong Kong. Thepopulace is sensitive to corruption issuesand acutely aware of the ICAC role andmechanisms for reporting corruption. Thecommunity culture has changed from oneof tolerance of corruption to rejection.

The nature of much corruption meansthat staff already working within anorganisation are responsible for mostfailures. Internal access to administrative,operational and information networkstherefore may present a far greater riskthan the spectre of physical entry orexternal access. Software and systemaccess controls subject to internal attackcan easily become ineffective due to laxity,complacency, under-estimation of risk andundue reliance on trust.

C o r r u p t i o n p r e v e n t i o n i s a norganisational, as well as individual,ethical responsibility. While corruptiondepends on individuals, it may beunwittingly encouraged or protected bycertain features of an organisation’sactivities or structural deficiencies. Manyproblems can be traced back to poor controlexercised by senior management.

An organisation can lift some of theburden from individuals, not only byplacing greater emphasis on teams andshared decision-making, but also byadopting effective corruption preventionpractices. The detection of corrupt practicesis also a management responsibility,achieved partly by setting up effectivesupervisory and control systems, and alsoby managers being alerted to indicators ofcorruption.

Effective prevention programs willprovide incentives for managers to educatethemselves regarding the attitudes andvalues held by their subordinates, to locatethe areas in which corruption is likely tooccur, to exert positive leadership and morequickly curtail abusive and corruptactivities. Increasing awareness ofcorporate governance principles may seegreater use of senior managementperformance indicators that includeevidence of the implementation of effectivefraud/corruption prevention plans and riskmanagement strategies.

While the lessons to apply must takeaccount of individual social and workethics, there are a number of commonfeatures worth noting. Firstly, complex,unnecessary and unenforceable rulesincrease the risk of fraud or error withconsequential increase in the likelihood ofcorruption. The solution may be to simplifythe system.

Secondly, many licence, approval andbenefit arrangements incorporate perverseactions and seek excessive detail unrelatedto corruption or fraud preventive measures.The answer is to set minimum standardsfor efficient and effective administrationand redirect resources to preventionstrategies.

T h i r d l y, p o o r c o - o r d i n a t i o n ,communication and co-operation betweenvarious agencies or organisations mayfacilitate corruption. Provided the systemrequirements meet the criteria of simplicityand effectiveness, the answer is to monitorservice levels, measure performanceagainst objective standards and penalisenon-compliance through transparentmechanisms.

Prevention, however, involves more thanrisk assessment and the introduction ofmonitoring and supervisory reviews. It

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requires the development of an ethicalculture reinforced by a code of conduct todeal with specific issues faced by staff. Thecode should address a variety of internaland external issues affecting theorganisation, including the way it interactswith business associates.

With changing work patterns andincreasing globalisation, the principles ofindividual and organisational integrity andaccountability may need to be furtherreinforced. As governments and businessalike strive to achieve their objectives inthe most cost effective and efficientmanner, business plans will need to takeinto account suitable corruption preventionstrategies.

The Hong Kong experience is that withclose co-operation between business,Government and the ICAC, the adoptionof a broadly based and integratedpreventive approach can realise theobjectives of minimising corruption. Themessage we have given and will continueto send is a simple one. Corruption doesnot pay and will continue to be driven tothe very margins of our society.

corruption prevention - the hong kong …€¦ · icac. while the corruption ... investigative and...

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