Aston Law

Fraud, Bribery and

Corruption 2019/20
Week 2 – lecture 2 – starting to think about
corruption

4 October 2019
Robert Goddard South Wing 709
r.j.goddard@aston.ac.uk Office hours: see WASS
In today’s session Next
What is corruption?
Wednesday
What are the consequences of
corruption? A focus on
bribery
What measures and perceptions including
of corruption exit? international
frameworks
What insights are provided from and the UK
economists and other disciplines? Bribery Act
2010
What international rules and
domestic legislation exists in this
field?
2
According to (the late) Kofi A.
Annan (former Secretary-
General of the UN).

https://www.unodc.org/documents/treaties/U
NCAC/Publications/Convention/08-50026_E.pdf

”
3
The study of corruption
“Corruption is an elusive
phenomenon conceptually. Its
literature is enormous, and most
disciplines in the social sciences
attempt to say something about it.
Unfortunately, there is a lack of
interdisciplinary communication
about corruption, such that
models developed by different
academic disciplines are often
isolated from each other”
(D. Jancsics, “Interdisciplinary
Perspectives on Corruption”, 2014
Sociology Compass 358).
“The study of corruption
cannot be neatly pigeon-
holed in terms of a
particular academic
discipline”.
Any serious attempt to
understand corruption has
to be holistic. People are
corrupt for numerous
reasons, and even where
there is an identifiable
primary motivation, this
differs from one person or
group to the next”
L. Holmes, Corruption, Oxford:
OUP, 2015.
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The study of corruption

“Corruption was, and is, a capacious term with many

dimensions. Awareness that there has never been a
single, fixed, universal definition of corruption helps us
appreciate that our modern notion of corruption is the
product of a certain historical process”.

(M. Knights, “Old Corruption”, 2016, available here:

https://www.transparency.org.uk/publications/old-corruption-what-
british-history-can-tell-us-about-corruption-today
/)

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Discussion questions [some we will answer
today, others later in the module]…

What is corruption? [Can we agree?]

Why does corruption emerge and is it found in all

societies and communities?

Is there a relationship between corruption (bribery)

and the extent of regulation?

What international frameworks exist to prevent and

deter corruption?

Does anyone support corruption?

6
Discussion questions [some we will answer
today, others later in the module]…

Do we act in our own self-interest – in other words,

where it is in our economic interests to do so, do we
always bribe?

Is corruption more prevalent in richer or poorer

countries?

Why isn’t corruption more widespread?

Who is more likely to pay a bribe – a rich person or a

poor person?
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 8
https://www.transparency.org/cpi2018
Bribe Payers Index 2011
https://www.transparency.org/bpi20
11/results

9
The emergence of corruption

“… corruption seems to be a phenomenon

manifesting itself in all societies that pass
a certain degree of complexity … and
dates back to the very first instances of
organised human life. The problem of
corruption seems to be linked to the
institutional conditions of humans living
together”

From: J. Lambsdorff et al (eds), The New

Institutional Economics of Corruption, (London:
Routledge, 2005).

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But what is corruption?

“A significant “…. discussion of the definition of

problem in corruption has progressed little
attempts to since Heidenheimer’s (1970)
combat groundbreaking distinction
corruption is between definitions centred on
that analysts public opinion, public office and
cannot fully public interest. All these definitions
agree on what have been severely criticised”
it is”
(O. Kurer, “Corruption: An Alternative
(L. Holmes, Approach to Its Definition and
Corruption, Measurement”, 2005 (53) Political
Oxford, 2015). Studies 222).

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Activity: building a corruption continuum

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 What is

corruption is
provided in the
UN Convention?
corruption?

What definition of

https://www.unodc.org/documents/treaties/UNCA
C/Publications/Convention/08-50026_E.pdf
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What is
corruption?
Transparency International has,
for a long time, used this
definition:
What might
explain the
“The abuse of public office
increasing
for private gain”.
popularity of
the second
But now also uses this definition:
definition?
“The abuse of entrusted
power for private gain”.

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Heidenheimer (1970) identified three
categories, centred on:

1. Public office.

2. Markets.

3. Public interest.

Heidenheimer, A., Political Corruption: Readings in Comparative Analysis

(New York, 1970).
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Reviewing the literature: what many
definitions of corruption have in common

[Analysis from Jancsics (2014)].

1. An informal/illegal and secret exchange of
formally allocated resources.

2. At least one corrupt party has to have formal

membership/affiliation or at least a contractual
relation with the organization from which the
resources are extracted

3. Corruption happens between two or more corrupt

parties – one buys; another sells.

4. A corrupt act is always a deviation from social

rules or expectations of some kind.
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Holmes’ five criteria for identifying
corruption
L. Holmes, Corruption (Oxford: OUP, 2015)

1. The action or omission must involve an individual or a

group occupying public office, whether elected or
appointed

2. The public office must involve a degree of authority

relating to decision-making powers, law enforcement or
defence of the state.

3. The officials must commit an act, or omit to do what they

should, at least partly because of personal interests or
the interests of an organisation to which they belong or
both, and these interests must ultimately run counter to
those of the state and society.
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Holmes’ five criteria for identifying
corruption
L. Holmes, Corruption (Oxford: OUP, 2015)

4. The officials act or omit to act partly or wholly in a

clandestine manner, and are aware that their behaviour
is or might be considered illegal or illicit. If uncertain
about the level impropriety, the officials opt not to check
this – not to subject their actions to the so-called
sunlight test (i.e., permitting open scrutiny of their
actions) – because they wish to maximise their own
interests.

5. The action or omission must be perceived by a

significant proportion of the population and/or the state
as corrupt. This final criterion helps to overcome the
problem of cultural difference in interpreting corruption.

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Insights from economics
“… empirical research demonstrates that corruption is
associated with lower levels of investment, productivity, and
growth and that corruption discourages both capital inflows
and foreign direct investment … Corruption reduces the
effectiveness of industrial policies and encourages business
to operate in the unofficial sector in violation of tax and
regulatory laws … Overall, corruption reduces the perceived
legitimacy of democratic governments … Of course, one can
question the quality of the corruption data as well as the
direction of the causal arrow. Does corruption cause these
outcomes, or is corruption the result of these underlying
conditions? It seems likely that the causation goes both
ways”.

From: S. Rose-Ackerman, “The Law and Economics of Bribery and Extortion”, John
M. Olin Center for Studies in Law, Economics, and Public Policy Research Paper
Number 408. Available to download free at SSRN (id=1646975).
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Insights from economics
“For most economists, the root causes of
corruption lie in the delegation of power. It
is the discretionary use of that power and
the often monopolistic position public
agents enjoy when dealing with contracts
which make corruption possible. The
incentives and opportunities for corruption
depend on the size of the rents, or the
personal profit, which public agents can Implications
derive from allocating those contracts”. for
prevention?
From:
http://oecdobserver.org/news/archivestory.php/
aid/239/Economics_of_corruption.html
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Insights from economics

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Insights from economics

Have any economists made

arguments justifying corruption?

See further (if a little dated): A. Ades and R. Di Tella, “The new
economics of corruption” (1997) Political Studies 496 and available here:
http://www.people.hbs.edu/rditella/papers/pscorrsurvey.pdf
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What is wrong with bribery?
“It is, in principle, possible for some bribes to be
beneficial, on balance, if they overcome unfair,
inhumane, or inefficient practices … bribery might
permit someone to escape an oppressive regime,
or it might allocate import quotas to the most
efficient firms. However, bribery is always a
second best outcome. If bribery overcomes
inefficient rules, the best policy is either to repeal
the rule or to legalize payments to the state.
Official tolerance of bribery leaves in place the
transaction costs of corruption, favors those who
disrespect the law, encourages officials to create
even more red tape and delay to increase
incentives for payoffs, and undermines state
legitimacy”.
From: S. Rose-Ackerman, “The Law and Economics of Bribery and
Extortion”, John M. Olin Center for Studies in Law, Economics, and
Public Policy Research Paper Number 408. Available to download
free at SSRN (id=1646975).
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Understanding corruption: psycho-
social explanations
These focus on the individual and his/her
interactions with others in society.

•Are we born with an innate moral sense of ‘right’

and ‘wrong’?
•Thymos – the need for recognition.
•Ambition.
•On being an ‘outsider’.
•The thrill of rule-breaking.
•Control theory – the strength of ties to one’s group.

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Understanding corruption: cultural
explanations
Cultural explanations focus on the dominant values,
attitudes and behaviours in society. Academics have
explored the significance of the following within
individual countries:

•Religion and philosophical traditions.

•Attitudes towards family and the State.
•The impact of the past on present behaviours and
attitudes.
•The presence of a ‘rule of law’ culture.
•Common law versus civil law traditions.
•Authoritarian or democratic.
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Understanding corruption: system-
related explanations
Economic factors:

•The extent of State involvement in the economy.

•Protectionist or open to trade.
•Klitgaard’s equation: C = M + D – A.
•Generally: the poorer the country, the higher the level
of corruption.

Political factors:

•The larger the State, the higher the corruption?

•Does more democracy = less corruption?
•A rule of law culture.
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Corruption: bribery – insights from the
literature: language
“ When people speak, they often insinuate You were
their intent indirectly rather than stating it as a speeding – I
bald proposition. Examples include … veiled will fine you
threats, polite requests, and concealed bribes.
We propose a three-part theory of indirect
speech, based on the idea that human
communication involves a mixture of
cooperation and conflict. First, indirect
requests allow for plausible deniability, in I am sure we
which a cooperative listener can accept the can sort this
request, but an uncooperative one cannot
out officer
react adversarially to it ”

S. Pinker et al., “The logic of indirect speech”, (2008)

105 Proceedings of the National Academy of Sciences
of the United States of America 833-8, available here:
http://www.pnas.org/content/105/3/833.full.pdf
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Corruption: bribery – insights from
the literature – language

Question:

You are a corrupt company director and you want to

influence the decision of a public official (the official is
responsible for awarding Government contracts). You
give the public official a gold watch.

What language would you use when giving the watch to

the public official – how would you describe the watch?

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Corruption: bribery – insights from
the literature - language
“Overall, we observe two different approaches to bribing
public servants. While transferring a ‘‘gift” is preferred
because it appears less offensive and demanding, a bribe is
chosen precisely for the opposite reason: it is more
demanding. A bribe makes it clearer that reciprocity is
expected, including the threat to retaliate in case of
opportunistic behavior. Participants were willing to live up to
this threat and devote resources to retaliation after naming
their payment a bribe. This suggests that the wording of a
bribe is intended to help enforce a corrupt agreement.
This disproves the notion that corrupt actors strictly
prefer to camouflage a bribe as a gift.” [emphasis added]

Johann Graf Lambsdorff and Björn Frank, “Bribing versus gift-giving – an

experiment”, (2010) 31(3) Journal of Economic Psychology 347-357.
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Corruption: experiments exploring
cultural differences
“ Based on experiments run in Australia (Melbourne), India (Delhi),
Indonesia (Jakarta) and Singapore, we find that there is a greater
variation in the propensities to punish corrupt behavior than in the
propensities to engage in corrupt behavior across cultures. Consistent
with the existing corruption indices, the subjects in India exhibit a higher
tolerance of corruption than the subjects in Australia. However, the
subjects in Singapore have a higher tolerance and the subjects in
Indonesia have much lower tolerance of corruption than expected. We
conjecture that this is due to the nature of the recent institutional
changes in these two countries. We also vary our experimental design
to examine the impact of the perceived cost of bribery and find that the
results are culture-specific.”

L. Cameron et al., “Propensities to engage in and punish corrupt behavior:

Experimental evidence from Australia, India, Indonesia and Singapore”
(2009) 93 Journal of Public Economics 843-85.
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Corruption: bribery – experiments
exploring gender differences
“Some evidence has already been found revealing that female
participants in experiments are less likely to engage in corruption …
Also non-experimental evidence … points at a lower inclination of
women to engage in corruption … But why are women more resistant
towards corruption? Are they more likely to report or are they less likely
to reciprocate a favor and thus less trustworthy to bribers? This is the
key question that we address … by investigating the gender
differences in a parsimonious bribery game. Our findings allow us to
conjecture that male participants exhibit a sense of reciprocity, but less
so for fairness. To the contrary, reciprocity is less of a concern for
women, who might have a stronger concern for fairness. This finding
suggests that men are more trustworthy as partners in a corrupt
transaction. Women should thus be preferred for public offices due to
their failure to evoke trust among bribers”.
J. Graf Lambsdorf and B. Frank, “Corrupt reciprocity – Experimental evidence on a men's game”
(2011) 31 International Review of Law and Economics 116-125. 31
Corruption: why is it committed?
“ Although some people plan to behave unethically to attain
opportunistic gains … many individuals start with good intentions but
ultimately engage in unethical behavior. An emerging literature has
begun to identify important psychological factors that influence,
consciously and unconsciously, decisions to behave unethically ...
Across four experimental studies, individuals who were depleted of
their self-regulatory resources by an initial act of self-control were
more likely to “impulsively cheat” than individuals whose self-
regulatory resources were intact. Our results demonstrate that
individuals depleted of self-control resources were more likely to
behave dishonestly … Our results also show that resisting unethical
behavior both requires and depletes self-control resources (Study 4).
Taken together, our findings help to explain how otherwise ethical
individuals predictably engage in unethical behaviour”.

F. Gino et al., “Unable to resist temptation: How self-control depletion

promotes unethical behaviour” (2011) 115 Organisaitonal Behavior and
Human Decision Processes 191-203.
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Corruption: prevention and anti-
corruption measures
“Theoretical and empirical research on corruption has flourished in the

http://ipaidabribe.com/
last three decades; however, identifying successful anti-corruption
policies remains a challenge. … we ask whether bottom-up institutions
that rely on voluntary and anonymous reports of bribe demands, such
as the I paid a bribe website first launched in India in 2010, could act as
effective anti-corruption tools, … Our results show that the presence of
a reporting platform like the I paid a bribe website may be insufficient to
systematically lower bribery. A more effective platform is one where
posts disclose specific information about the size of the bribes and the
location of their requestors, i.e., a platform that could serve as a search
engine for the least corrupt officials … Our results also show that while
citizens rarely post false information, lying by officials, when allowed to
post on the platform, is widespread”.

D. Ryvkin et al., “I paid a bribe: An experiment on information sharing and extortionary

corruption” (2017) 94 European Economic Review 1-22. The I paid a bribe website is also
discussed here: http://blogs.lse.ac.uk/southasia/2016/05/16/i-paid-a-bribe-using-
technology-to-fight-corruption-in-india/

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 for

corruption
preventing

and bribery
frameworks
International

https://www.unodc.org/documents/treaties/UN
CAC/Publications/Convention/08-50026_E.pdf
34
 http://www.oecd.org/daf/anti-bribery/ConvCombatBribery_ENG.pdf

frameworks
International

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36
UK legislation

The Act contains a

consolidated scheme of
bribery offences to cover
bribery in the UK and abroad,
including offering and
receiving.

The Act also creates a discrete

offence of bribery of a foreign
public official and a new
offence where a commercial
organisation fails to prevent
bribery.

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Thank you
for listening

Any
questions?