Corruption and CompetitionOECD, PARIS 28-29.02.2014: GLOBAL FORUM ON COMPETITION

Tina Søreide

Economist, The Faculty of Law, University of Bergen, Norway

The competition corruption dynamics

Corruption – the solution when competition control gets tough? Corruption – contracts – profits

Corruption – market power - contracts – profits

Corruption – lower costs – contracts- markets – profits

Corruption – politics – priorities – criteria - contracts- profits

Corruption vs other government failures; what’s the difference? – - The character of ‘trade in decisions’

- The more competition is reduced, the more profitable for those involved

Competition control; rarely designed to address corruption … but, countries with weak competition control are more exposed

Defining corruption

Honest and professional business conduct

Ordinary marketing

Marketing targeted at specific individuals: exclusive excursions, sports tickets, gourmet evenings, etc.

Unsolicited proposals, with all details of an unplanned project prepared

Middlemen and agents, ‘personal relationship is what counts’

Gifts to political parties – by condition of a certain benefit

Quid pro quos – a way of covering corruption?

‘Facilitation payments’ – ‘to get the procedures going’

Bargaining on opportunities for reconcessioning (profitable solutions for the firm)

Violations of rules of communication (as if they were not important)

Persuade politicans at home to put pressure on local gvms. (difficult to prosecute)

Acquire secret information about evaluation, use of ‘fronts’

Misuse of ‘facilitation payments’ (makes corruption ‘less illegal’)

Expensive gifts to people involved in the tender procedure

Buy secret information about competitors’ bids

Local partnership with relatives of people with authority

Bribes to individuals with influence on the procedure

LEGAL ILLEGALLEGAL GREYZONES

Honest and professional business conduct

Ordinary marketing

Marketing targeted at specific individuals: exclusive excursions, sports tickets, gourmet evenings, etc.

Unsolicited proposals, with all details of an unplanned project prepared

Middlemen and agents, ‘personal relationship is what counts’

Gifts to political parties – by condition of a certain benefit

Quid pro quos – a way of covering corruption?

‘Facilitation payments’ – ‘to get the procedures going’

Bargaining on opportunities for reconcessioning (profitable solutions for the firm)

Violations of rules of communication (as if they were not important)

Persuade politicans at home to put pressure on local gvms. (difficult to prosecute)

Acquire secret information about evaluation, use of ‘fronts’

Misuse of ‘facilitation payments’ (makes corruption ‘less illegal’)

Expensive gifts to people involved in the tender procedure

Buy secret information about competitors’ bids

Local partnership with relatives of people with authority

Bribes to individuals with influence on the procedure

LEGAL ILLEGALLEGAL GREYZONES

Advantages obtainable - along the whole sector value chain

PLANNING FINANCING

PROCUREMENT

DELIVERY RESULT

Implications

Corruption & competition - far more than bid rigging • Violation of competition law• Cost reductions, tax exemptions, biased interpretation of law• Politics & national champions

Consequences observed in marketsNot fought by competition control alone

…but anticorruption not enough either

Outcome control vs procedure control (ex utilities)

Governance vs sector dysfunctions (ex construction)

Legal framework - more than penal code and procurement rules - significant variation across OECD countries ; law and enforcement

UNDUE INFLUENCE/ CORRUPTION

LEGAL APPROACHES

PREVENTION DISCLOSURE

SECTOR GOVERNANCE,

REGULATION AND CONTROL

Competition law, procurement rules, criminalization of

corruption, employer liability,

Audits, leniency, whistle-blower protection,

confidentiality-rules, access to information laws

UNDUE INFLUENCE AT/FROM THE

POLITICAL LEVEL

Public lobby register, impartiality requirements, independent

sector regulation and control

Media, watchdogs, whistleblowers, auditors/NAO

Liability and sanctions + debarment in public procurement (problem solved in compliance + self-cleaning?)

Blame on individuals Protecting markets and

innocent employees, avoiding free-riders

Heavy fine on corporations

Hit profits & bonuses + owners, avoid scapegoats

Some other serious policy concerns

• The OECD convention is too asymmetrically enforced. Free & fair markets - a public good; bribery abroad is not ok for securing national commercial interests

• Financial secrecy facilitates the corruption that hampers competition; too condoned by some OECD governments

• Transparency International’s National Integrity Studies across Europe: The barriers against political corruption are too weak

• Dealing with corruption as an obstacle to competition is a political matter; it has to start at the top