Posts Tagged ‘Corruption Perception Index’

Reward for fraud: $285 billion in Pentagon contracts

February 3, 2011

The Corruption Perception Index produced annually by Transparency International becomes meaningless relative to the scale of fraud and corruption with large contracts in the developed world and which do not seem to be reflected in the CPI.

An AP report carried by reports:

Hundreds of defence companies that defrauded the U.S. military between 2007 and 2009 still received $285 billion in contracts from the Pentagon during the same period, a U.S. senator said Wednesday.

Citing a January report prepared by Pentagon acquisition officials at Sanders request, the senator said the bulk of the contracts, just over $280 billion, went to 211 companies that had civil judgments against them or settled fraud charges of more than $1 million.

During the same period, 30 defence contractors were convicted of criminal fraud, but still were awarded $682 million in new work, according to the Pentagon’s report.

Among the contractors listed in the report is AEY Inc., a Miami, Florida-based company that received a $300 million contract to supply ammunition to Afghan security forces. AEY got the work despite a record of poor performance on other government contracts.

The fraud involved shipment of millions of rounds of banned Chinese-made military ammunition that was repackaged to appear of Albanian origin. After nearly $67 million in payments, the Afghan ammunition contract was terminated in May 2008. The owner of AEY was sentenced to four years in federal prison after pleading guilty in 2009 to a fraud conspiracy charge.

In the report, defence officials listed a series of actions the military has taken to guard against contractor wrongdoing, including the formation of a working group focused on procurement fraud.

I am quite sure that many lobbyists, middlemen, bureaucrats and politicians all received their share of the largesse in these Defence Contracts. The margins available in Defence contracts far exceed those available in other large infrastructure contracts.

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Corruption in the European Union is alive and well

January 12, 2011
Constituency for the European Parliament elect...

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Transparency International’s work and its Corruption Perception Index are both important and necessary, but they are just a small contribution to trying to restore ethics and integrity into public life. It mainly addresses the public sector and takes little account of the lack of ethics in the commercial world. Another problem with the CPI is that is skewed and as a perception index tends to be overly representative of the petty but widespread corruption (the so-called “facilitation fees”) in public services and among government employees. These are more common in developing countries and newly “democratised” countries where wage levels are low and institutional processes are still under evolution. But what the CPI does not address properly is the high level of corruption and fraud among politicians and bureaucrats in the developed world (Europe, the US, Japan, Korea for example) – which are not as numerous as in developing countries  but where the monetary values involved are huge. If we distinguish between petty bribery and corruption on the one hand and “grand” fraud and corruption on the other, I have little doubt that the US, Europe and Japan continue not only to lead the “grand” fraud and corruption stakes by a long way but are also the most innovative in finding new ways of being corrupt.

Politicians in the European Parliament and bureaucrats in the European Union are particularly venal and are subject to even less scrutiny than the national parliaments of the member countries (where padding expenses, influence peddling and basic corruption are also well established). The latest example of institutionalised corruption in Europe comes from The Telegraph:

The EU’s financial watchdog has systemically “sabotaged” investigations and caved into intimidation from countries including France and Italy to cover up fraud, according to a senior official.

Maarten Engwirda, a former Dutch member of European Court of Auditors for 15 years, who retired 10 days ago, has alleged that abuse of EU funds was swept under the carpet by an auditing body that was supposed to expose wrongdoing.

“There was a practice of watering down if not completely removing criticism,” he told the Dutch Volkskrant newspaper yesterday.

Slim Kallas, the European Commission’s vice-president, who was responsible for anti-fraud measures from 2004 to 2010 and who is now the EU transport chief, is accused of putting “heavy pressure” on investigators to tone down findings of abuse.

Mr Kallas also clashed with the Court of Auditors over its use of strict accounting standards which meant that the EU’s annual accounts have embarrassingly never been given a clean bill of health. Mr Engwirda, 67, also described an endemic “cover-up culture” within the court and wider EU institutions that had prevented the true extent of fraud from being disclosed.

Marta Andreasen, a Ukip MEP and a member of the European Parliament’s budgetary control committee, that she had come under “huge pressure to conceal the truth about EU expenditure” before being sacked as the commission’s chief accountant for whistle-blowing in 2002. “I witnessed the arm twisting of the Auditors each time they attempted to reveal the failures in the EU accounting and control systems. They came under huge pressure to keep the accountancy fraud hushed up,” she said. “Sadly the auditors did not support me when I stood up in defence of European taxpayers. In my opinion the court is not an independent body.”

Pieter Cleppe, the Brussels spokesman of the Open Europe pressure group said: “This insider story should serve as a warning not to give in to EU demands for more money until the culture of financial irresponsibility is being dealt with more fundamentally.”

There is little doubt that European politicians have received their pay-offs whenever a “fraud” investigation has been “sabotaged”.


Perceived versus actual corruption: Chief Risk Officer of Bayerische Landesbank took $50 million bribes

January 7, 2011

Transparency International in its newly published Corruption Perception Index focuses understandably on the under-developed and developing countries where the endemic petty bribery and facilitation fees to augment low wage levels are the visible and easily identifiable face of corruption. Of course grand corruption is also present in these countries but perception indices are inevitably skewed and dominated by what is visible and to the number of people affected rather than reflecting the monetary value of the corruption.

My own experience suggests – but I cannot prove – that in monetary terms the levels of corruption in the developed world are orders of magnitude larger but much more sophisticated and very well camouflaged compared to cases in the developing world. But with the much higher living standards the need for highly visible petty corruption has been largely eliminated. But the greed based cases in the developed world – when they are disclosed – are usually spectacular. As has now happened in Germany.

Gerhard Gribkowsky, the former chief risk officer of German state-owned bank Bayerische Landesbank, was arrested today over allegations he accepted bribes during his tenure at the lender. Munich prosecutors are investigating him on bribery, breach of trust and tax evasion allegations, Barbara Stockinger, a spokeswoman for the prosecutors, said in an e-mailed statement today. An arrest warrant was issued and executed today, she said.

The probe is reviewing the sale of a stake in Formula One motor-sports company which Gribkowsky, 52, was responsible for overseeing. BayernLB sold the stake in 2006 without it being properly evaluated, Stockinger said. “According to the current findings, the suspect in turn received $50 million in payments disguised via two consultancy agreements,” Stockinger said.

One instance with $50 million involved to one individual!!!

My $20 facilitation bribe to speed up my visa renewal in a developing country would need to be replicated 2,500,000 times for monetary equivalence with this one case. The corruption perception index would be overwhelmed.

I have the clear impression that the monetary value of corrupt and fraudulent practices in the developed world is enormous but extremely sophisticated and rarely found out. From UK MP’s cheating on their expenses, to selling Knighthoods and other Honours , to European MP’s expense and subsidy fiddles, to billions distributed in carbon trading scams and the enormous cases of corruption/fraud whether at AIG or Lehman Brothers or by Bernie Madoff.

The monetary value of fraud and corruption in the OECD countries is probably one or two orders of magnitude greater than in the developing countries but the number of cases is probably an order of magnitude less.

The CPI is perhaps a measure of visible corruption in the public sector – but does not- and can not –  reflect the monetary value of sophisticated – and invisible – corrupt practices.

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