<< Talks

Capacity Building and Fighting Corruption in Developed and Developing Countries
Peter Egens Pedersen, General Auditor, Asian Development Bank

I am pleased to be here today on behalf of the Asian Development Bank to talk about how the Asian Development Bank (ADB) is combating corruption in the Asia-Pacific Region, and how we see the role of Asian Development Bank as well as the consulting industry in the context of capacity building.

First let me thank FIDIC and CNEC for giving ADB the opportunity to address this forum on this important subject. ADB has always considered the dialog with FIDIC as extremely important. ADB has for many years been working together with FIDIC in establishing best practices when it comes to procurement and selection of consultants (red books, gold books etc.), and for ADB expanding this dialog to other issues such as integrity and capacity building is most welcome.

Since I am sure that a number of the distinguished delegates and representatives today are not familiar with ADB, allow me briefly to say a few words about the Bank. ADB is one of the regional development banks, falling in the same groups as the Inter-American Development Bank and African Development Bank. ADB was established in 1966, its HQ in Manila, and today consists of 61 member countries (of which 45 are from our developing member countries and 16 constitute the donor countries).

Our lending ratio over the past years has averaged approximately US$6 billion annually.

In the context of the consulting industry, we are involved in two ways, namely through the financing of consulting contracts through loans to borrowers and secondly through so-called technical assistance, where ADB enters into contracts with the consultants. ADB's Charter requires that only contractors and consultants from member countries of ADB are eligible for ADB-financing. I note from the program that 28 of the 48 countries present here today are member countries of ADB - for the remaining 20 countries, I can only say that the views expressed by me on behalf of ADB most likely will be of interest to you through your membership in other MDBs.
We - ADB - presently have more than 2,200 consulting firms registered with ADB and almost 5,000 individual consultants. The amounts paid/committed to the consulting industry in year 2001 amounted to US$282M. (Covering both loans and technical assistance: Loans $143M/TAs $139M).

Coming back to the subject for today's discussion, let me deal with three aspects, namely ADB's role in capacity building, its fight against corruption, and finally let me make a few comments on how we see the consulting industry be part of these efforts.

The Role of Multilateral Development Institutions in Controlling Corruption

Just four years ago, in July 1998, the Board of Directors of ADB¾adopted an Anticorruption Policy. It placed responsibility for investigating allegations of corruption and fraud with the Office of the General Auditor, which created an Anticorruption Unit. The staff of that unit helps ADB maintain its integrity and to reduce the burden that widespread, systematic corruption exacts on the governments and economies in the region.

But corruption did not start just four years ago. The problem of corruption is one of the most enduring dilemmas confronting society throughout history. The nature and scope of corruption may change, but one can find the phenomenon at all times and everywhere - in developing as well as in developed countries. As with any problem, to get to the point where the MDBs (Multilateral Development Banks) began their offensive against corruption in the past few years, it had to start with recognition of the problem. Even before its Anticorruption Policy, ADB adopted a Governance Policy (1995)¾the first MDB to do so. It recognized then that the development process is consistently more successful in environments of

• transparency in decision making,
• a culture of accountability among government officials, and
• stakeholder participation in decision-making.

• As a major multilateral development institution and one of the leading sources of development funding in the Asia and Pacific Region, ADB places considerable emphasis on anticorruption initiatives as part of its broader work on governance issues.
• ADB recognizes the importance of accountability for public officials, and transparency and predictability in governance operations, which are critical principles in the fight against corruption.
• ADB notes that experience drawn from the Asian and Pacific Region and elsewhere, demonstrates that significant progress can be made in the struggle against corruption if the proper legal, institutional and policy reforms are in place.
• At the broadest level, the ADB's anticorruption policy is intended to reduce the burden that corruption exacts upon the governments and economies of the region.

Today, MDBs have a common approach to fighting corruption that is founded on supporting and promoting the principles of good governance. But promoting good governance in their member countries is not enough. Unfortunately, corruption is endemic and systemic in many countries. It often involves public and elected officials as well as the private sector. No matter who they are, though, the corrupt will not willingly relinquish their power or influence. Eradicating corruption may involve broad political, legislative, and also cultural reforms. Yet MDBs are constrained with limits to the influence they may wield on matters of sovereignty in their member countries. Supporting legal, institutional and policy reforms does not in itself provide a mechanism to enforce the standards donor countries expect, we need to get the governments and the private sector on board.
ADB communicates a great deal of its policies and operations openly, particularly through its Internet webpage.

ADB's Anticorruption Policy.

ADB's Anticorruption Policy explicitly covers not only all firms and individuals associated with ADB-financed projects but also all ADB staff. ADB recognizes that its integrity is one of its strongest assets. It affirms a zero tolerance policy when credible evidence of corruption exists among any ADB-financed activity. It delineates ADB's guiding principles for dealing with corruption and fraud. More specifically, the policy is centered upon three objectives:

(i) supporting competitive markets, and efficient, effective, accountable and transparent public administration as part of the ADB's broader work on governance and capacity building;
(ii) supporting promising anticorruption efforts on a case-by-case basis and improving the quality of the ADB's dialogue with its developing member countries on a range of governance issues, including corruption; and
(iii) ensuring that the ADB's projects and staff adhere to the highest ethical standards.

Within the organization ADB has taken a number of steps.

ADB has always been fighting fraud and corruption, and the policy that was approved in 1998 in many aspects formalizes the initiatives that ADB has always been taking.

• Strengthen guidelines on the use of consultants.
• Revise loan documents
• Establishment of the Anticorruption Unit (September 1999)

The Anticorruption Unit's role is as a central point of contact for allegations, and to ensure the highest ethical conduct of Bank staff and in ADB-financed Projects. The Anticorruption Unit further trains internally staff on fraud awareness, and finally carries out project-procurement related audits.

We have dropped hot lines and a special anticorruption P.O. Box since neither of them was functioning, but have maintained a special fax, which ensures confidentiality and also a special Anticorruption e-mail address to which allegations can be sent. ADB considers confidentiality as being essential (for all, incl. whistleblowers)

Since the establishment of the Anticorruption Unit, we have investigated more than 250 cases resulting to 28 firms and 40 individuals having been declared ineligible for a period of time. Of the 28 firms having been sanctioned, 22 are consulting firms.

Let me briefly explain the difference between ADB and the World Bank when it comes to implementing our respective anticorruption policies. Publicizing/ not publicizing; limited sanctions; appeals; amnesty.

There are still a number of problems that need to be solved - just to mention a few: definition of fraud and corruption (presently too narrow); lack of due process (administrative process); protection of whistleblowers; interference with national/domestic investigations - to mention a few issues.

ADB's Anticorruption Unit fully supports the open exchange of experience and information with other multilateral development banks. ADB's Anticorruption Unit has worked cooperatively with World Bank investigators. It has also conducted investigative missions in several countries concurrently with World Bank and also worked with a United Nations investigation.

Although these were cooperative efforts, each international institution had its own policies and standards. Yet the Anticorruption Unit was able to work effectively to share ideas and own experience. Presently we are discussing possible standard investigation procedures - primarily with the World Bank and the United Nations. This type of cooperation will help all MDBs deal with issues of corruption.

ADB also supports regional efforts in combating corruption for example, the ADB-OECD forum on combating corruption.

Consulting Industry:

This leads me to the role of the consulting industry. We are delighted to see that FIDIC has issued Guidelines for Business Integrity Management (BIM) in the Consulting Industry, and even more delighted to note that several consulting firms have adopted such integrity rules. These initiatives are most welcome by ADB and I believe we, some day in the future, will be prepared to consider how we best can assist in further promoting integrity management in one form or the other and also what role a certification (ISO 9001-2000) should have.

I see three major roles where the consulting industry can contribute to the fight against corruption. Clean up your own shop (ref. BIM); do what you are usually expect to be paid for (consulting assignments covering anticorruption, integrity and capacity building; and finally do what you are not being paid to do - assist the MDBs in identifying corruption and fraud and help raise awareness.

Running the risk of a negative reaction from the floor, I will nonetheless suggest that most consulting firms either have been involved in corruption or have been very close to corruption, and that therefore they are, if I may use the word, experts in the field of corruption and perhaps are those in the best position to expose and combat corruption.

Increase Awareness

Confronting a problem as longstanding as corruption is a daunting challenge. Corruption undermines the development, poverty reduction and common good of countries. Corruption reduces or even reverses economic growth. It steals resources from education and health. It rewards the incompetent and the dishonest. It penalizes enterprising and honest citizens. It aggravates political and economic equalities. It deprives ordinary people of responsive and even-handed public administration. Corruption is a disproportionate tax on the poor.

ADB and other MDBs recognize that centuries old attitudes toward corruption are now changing in character. These institutions today see corruption as the most important obstacle to development in this millennium. We have come to realize that attitudes toward corruption must change - and are changing. And this change in attitude must extend to and include civil society and the private sector.

Kofi Annan, Secretary General of the United Nations, has said, "Without the private sector's active commitment and support, there is a danger that universal values will remain little more than fine words documents whose anniversaries we can celebrate and make speeches about but with limited impact on the lives of ordinary people." MDBs and FIDIC and its members can work to ensure the current commitment to controlling corruption are more than fine words by helping to raise public awareness and promote civic participation in the fight against corruption.

To make sure the fight against corruption has an effect in different countries, requires recognition by all of us that each country is unique and there are several variables to address. Each country has its own bureaucracy, and overcoming a possibly overwhelming established structure can hinder the process of establishing effective governance and controls over corruption. Cultural issues are another factor when trying to make societal changes to address corruption. Who best to know than the consulting industry?

If we wish to eliminate corruption and thereby contribute to reaching our overarching goal of poverty reduction, we will need to work together - the multilateral development banks, the private sector including the consulting industry.

The Future

MDBs cannot act autonomously to enact the changes needed to battle corruption. Countries as well as MDBs have a responsibility to achieve their own goals effectively and efficiently, and that obligates them to ensure corruption does not diminish their operations and accomplishments. For MDBs, working with their member countries and organization such as FIDIC, MDBs can however

• increase awareness of corruption and its impact on society,
• ensure that controlling corruption is relevant to its member countries, and
• set examples that effectively manages their resources while supporting necessary actions to deal with corruption.

As we the MDBs promote good governance initiatives, we must also demonstrate that we ourselves are striving to improve internal governance practices. This also applies to the consulting industry and we are, as I mentioned earlier, pleased to see the initiatives that have been taken in this respect, which of course also includes the topics for this annual conference - and I also note - next year's annual conference.

We will continue to strengthen the institutional capacities of our member countries and improve our internal governance so that our development efforts will result in maximum impact. If the consulting industry now can catch on, we may be able, with the knowledge the industry possesses, to achieve our common goal - hopefully sometime in the not too distant future.