Corruption

Corruption can be defined as the paying and receiving of bribes for preferential treatment. At the most basic level, the fees demanded and paid are used to subvert normal processes for the procurement and provision of public-sector goods and services. At more sophisticated levels, payments are used to secure undue access to, and influence over, policymakers whose decisions affect economic outcomes. But the line that separates undue influence and legitimate policy advocacy is often blurry. Money can buy favors as surely as it finances legitimate policy advocacy.

Where legitimate advocacy ends and bribery begins is partly a matter of definition, determined by culture, values, political systems, and institutional arrangements. Traditionally, responsibility for defining the rules has resided with national (and sometimes local) law- and rule-making bodies. Globalization changes that. Competing values now easily seep across borders, challenging traditional authority, customs, and governing institutions. Rule-making powers that were previously the exclusive province of nation-states are now partly invested in supranational bodies. Moreover, the technology infrastructure that facilitates global finance makes it easy for the fruits of corruption to travel across borders to be laundered. Money laundering and corruption go hand in hand.

An incentive for corruption is created when public officials have discretion over factors that influence private-sector costs or benefits. The magnitude of the impact, the probability of discovery, and the severity of punishment are likely determinants of the extent of actual corrupt behavior.

Beyond the traditional payment/extortion model that covers transactions between public and private actors, new variants have begun to emerge. Officials of international governmental organizations (IGOs) may dispense illegal favors to national government officials, either for private gain or to secure preferred policy outcomes. For instance, smuggling of arms, weapons of mass destruction precursors, illegal drugs, currency, and other contraband is sometimes directed by governments for strategic purposes. For policy reasons, or in return for financial incentives, officials of IGOs may turn a blind eye to cross-border illegal activity or may actively aid national government officials in circumventing treaties, covenants, regimes, and other obligations.

The demarcation between public and private responsibility is further blurred by the fact that national governments have increased reliance on private actors, including nongovernmental organizations (NGOs), to set standards and police behavior. For instance, many governments require banking officials to report suspicions of money laundering to the authorities. Chief financial officers and accounting firms sometimes have an affirmative duty to report financial wrongdoing. Consequently, private-sector actors face corruption incentives analogous to the ones traditionally faced by public officials.