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Jem Bendell
Adjunct Associate Professor,
Griffith Business School, Australia

Founder, Lifeworth, Switzerland

Jonathan Cohen |
Principal, Stakeholder Consulting;
Author, Business Watch*

Tipping Frames: The Lifeworth Review of 2006
[ PDF: 2585kb | 54 pages ]

Appendices available in all PDF versions.

Not banking on corruption


In what may be a hoped-for multilateral race to the top, the World Bank declared a new, comprehensive, 'long-term' anti-corruption strategy in April 2006 to leverage loans and technical assistance to developing countries and through partnerships with stakeholders.30 The Bank has identified corruption as among the greatest obstacles to economic and social development by limiting opportunities, creating inefficiencies and impeding the delivery of services, for example; and World Bank president Paul Wolfowitz reportedly sees corruption as his signature issue.31 Previously, individual loans were suspended in response to allegations of corruption in countries such as India, Bangladesh and Uzbekistan; however, Wolfowitz has acknowledged such a case-by-case approach 'by itself doesn't deliver effective results for the poor'.32 To do so, 'the Bank will continue to work closely with Civil Society to provide checks and balances and promote accountability in their governments'.33

The extractive industry presents the greatest challenge to the World Bank in carrying out the new long-term anti-corruption strategy. In an effort to determine existing patterns in order to inform the design of governance instruments, the UN SRSG's Interim Report surveyed 65 instances of alleged corporate human rights abuses recently reported by NGOs, which were seen as 'unlikely to be a representative sample of all situations, but of the worst'. Unsurprisingly, the extractive sector-oil, gas, and mining-constituted two-thirds of the sample of reported abuses, and 'account for most allegations of the worst abuses, including complicity in crimes against humanity; large-scale corruption; violations of labor rights; and a broad array of abuses in relation to local communities, especially indigenous people'.34

Moving from what had been 'an ad hoc, low visibility approach towards instances of fraud and corruption in member countries, Bank-financed projects, and among staff', the Bank now seeks to assume 'a clear leadership role among multilateral institutions'.35 In addition to a slew of other organisations, the Bank and its private-sector financing arm, the International Finance Corporation, have supported industry-wide efforts to address the serious challenge of corruption in extractive industry practices, such as the Extractive Industries Transparency Initiative (EITI), which works toward 'improved governance in resource-rich countries through the full publication and verification of company payments and government revenues from oil, gas and mining'.36

The Bank's most direct impact in this area will be in its own loan portfolio. 'The proportion of new projects with accountability/anti-corruption components jumped from 0.4% in the 1995-96 fiscal years to an average of 5% in the 2004-05 fiscal years', and all Bank Country Assistance Strategies are now required to address governance issues, according to the World Bank Institute.37 The Chad-Cameroon Oil Pipeline Project demonstrates the challenges the World Bank and its Department of Institutional Integrity face in fighting corruption in its existing projects. In what was touted as the largest private investment in Africa, the $3.7 billion dollar Chad-Cameroon oil project, which is managed by a consortium of Exxon, Chevron and Petronas, stands as a litmus test for World Bank anti-corruption success to start at home.38

A 'deciding factor' in the World Bank's support for the Chad-Cameroon Oil Pipeline Project was Chad's 1999 Petroleum Revenue Management Law which required the bulk of direct revenue to be used for poverty reduction in agreed-to 'priority sectors', such as health, education and rural development, as well as a Future Generations Fund, to ensure financial savings once oil reserves are exhausted. In December 2005, the National Assembly of Chad amended the Petroleum Revenue Management Law and broadened the definition of priority sectors to include, among other areas, territorial administration and security, increased from 13.5% to 30% the share of revenue that can be allocated to non-priority sectors that are not subject to oversight and control, eliminated the Future Generations Fund and transferred its $36 million into the general budget. The World Bank, in turn, viewed the changes as a breach of contract, and on 6 January 2006 suspended new loans and grants to Chad.39

The Chadian government was reported to have used the first $4.5 million of the signing bonus that it received from the oil companies to purchase arms.40 NGOs warned the World Bank against financing the project beforehand and said that its assessment of the situation in Chad, 'notorious for its corruption and human rights abuses', was based on unrealistic assumptions.41 The World Bank's stakeholder engagement with civil society needs to take into greater account such concerns in future projects.

Subsequently, the World Bank and the Government of Chad 'signed a memorandum of understanding under which Chad committed 70 percent of its budget spending to poverty reduction programs, provided for a stabilization fund' for after the oil runs out, and made a new pledge of support for the independent oil revenue oversight authority.42 The Bank won the round and will resume loan disbursements in education, health, community development, HIV/AIDS, agriculture, electricity, water and infrastructure.43 Bank president Wolfowitz touted the MOU as a victory, saying 'The Chadian authorities have committed to ensuring that all oil revenues, not just the royalties, are spent on health and education and other basic needs of the poor'.44 The corporate consortium has stayed largely out of view during the ongoing saga; however, it is unlikely that Exxon, Chevron and Petronas will successfully be able to maintain an ostrich stance through the life of the high-priced project.

Another important example of high-level collaboration to combat corruption involving corporations is the formation of a new coalition involving the World Economic Forum, the United Nations Global Compact, the International Chamber of Commerce and Transparency International,45 the latter of which established the Business Principles for Countering Bribery.46

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30 World Bank, 'World Bank Announces Strategy to Combat Corruption', Press Release No. 2006/358/EXC, 11 April 2006; web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20884956~menuPK:34463~pagePK:34370~piPK:34424~theSitePK:4607,00.html.

31 World Bank, 'Anticorruption'; web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPUBLICSECTORANDGOVERNANCE/EXTANTICORRUPTION/0,,menuPK:384461~pagePK:149018~piPK:149093~theSitePK:384455,00.html.

32 Paul Blustein, 'World Bank Strategy Targets Corruption: Plan Aims to Clean Up Bribe-Taking Countries', Washington Post, 12 April 2006; www.washingtonpost.com/wp-dyn/content/article/2006/04/11/AR2006041101403.html.

33 World Bank, 'World Bank Announces Strategy ...'.

34 Ruggie, op. cit.

35 F. Leautier, D. Petkoski and M. Jarvis, 'Development Outreach', Editorial ,World Bank Institute, Embargoed Copy, 17 September 2006.

36 www.eitransparency.org/section/abouteiti

37 F. Leautier et al., op. cit.

38 CEE Bankwatch Network, Friends of the Earth International, Center for Environment and Development and Environmental Defense, 'Banks and Exxon Celebrate Chad-Cameroon Pipeline: International Organisations Support Chadian Day of Mourning', press release, 9 October 2003; www.foei.org/media/2003/1009.html.

39 World Bank,'Questions and Answers', web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/EXTREGINI/EXTCHADCAMPIPELINE/0,,contentMDK:20531903~menuPK:1104029~pagePK:64168445~piPK:64168309~theSitePK:843238,00.html.

40 Ibid.

41 CEE Bankwatch Network et al., op. cit.

42 World Bank, 'World Bank, Govt of Chad Sign Memorandum of Understanding on Poverty Reduction', News Release No. 2007/19/EXC, 14 July 2006; web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/CHADEXTN/0,,contentMDK:20994138~menuPK:349881~pagePK:141137~piPK:141127~theSitePK:349862,00.html.

43 World Bank, 'World Bank, Chad Reach Interim Agreement on Funding, Oil Revenue Management', Press Release No. 2006/383/AFR, 26 April 2006; web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20903775~pagePK:34370~piPK:34424~theSitePK:4607,00.html.

44 World Bank, 'World Bank, Govt of Chad Sign Memorandum ...'.

45 World Economic Forum, 'Key Coalition Formed to Fight Private Sector Corruption on Anti-corruption Day', 9 December 2005; www.weforum.org/en/media/Latest%20Press%20Releases/PRESSRELEASES88.

46 Transparency International, 'Business Principles for Countering Bribery'; www.transparency.org/global_priorities/private_sector/business_principles.



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