Types of Corruption

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II. TYPES OF CORRUPTION  

A. Introduction

Before one can successfully identify viable anti-corruption strategies, the environment in which they will be applied needs to be assessed. Identification of what is corruption and what should be considered corruption is key for any successful integrity program. A debate concerning definitions of corruption has been conducted extensively. Part of the difficulty in finding universal definitions is that such labeling will vary from country to country and from culture to culture. Sometimes, substantial variations exist within the same country. In this regard, a 1997 opinion survey conducted by the New South Wales Independent Commission Against Corruption found sharp disagreements even among public sector employees within that part of Australia¹¹.

For this reason, many turn to the law for a definition. Academicians consider popular or sociological definitions as being imprecise or arbitrary. Only the legal realm, they argue, could offer a solid definition. Yet, because legal traditions also change over time and are highly interrelated with the socio-political and cultural context, they tend to differ quite significantly too. Rather than attempt to resolve this problem, an alternative approach is to ignore (at least for a moment) legal references. While we may lose a degree of precision by straying from legal references, we may gain a more common understanding of the problem and succeed in bridging communication gaps across national borders.

The alternative pursued here is to seek to clarify the essence of corruption by looking straight at reality without any particular local or traditional legal lenses. By adopting this “empirical approach”, we shall try to move towards a wider consensus as to which acts are intrinsically harmful to society and should therefore be prevented and punished. Not everyone will agree that all types of questionable relationships and misconduct described here constitute corruption or should be illegal. The point is to take into account as many voices and perspectives as possible. This approach will help nations to reassess what it is that they define as corrupt acts that should be prevented and sanctioned.

In general terms, we can all agree that corruption is an abuse of (public)¹² power for private gain that hampers the public interest.¹³ This gain may be direct or indirect. Most of the time, corruption entails a confusion of the private with the public sphere or an illicit exchange between the two spheres. In essence, corrupt practices involve public officials acting in the best interest of private concerns (their own or those of others) regardless of, or against, the public interest. In this context, when public policy making, its design and implementation are compromised by corrupt practices then we classify this phenomena as grand corruption. Examples of grand corruption abound in privatizations, government procurement, and labor policies. In this case, the use of public office for private benefit can involve the compromise of government procedures or the capture of a government institution’s rulings.

¹¹ Jeremy Pope, (1997), TI Sourcebook, Berlin, 1997

¹² Using the term public power limits corruption to the public sector. Since much corruption is initiated by the private sector many scholars see the utility of defining corruption in a broader fashion thereby including the private sector.

¹³ UN’s Anti Corruption Tool Kit,(2001),

Alternatively, the use of public office for private benefit in the actual course of public service delivery usually falls under the denomination of petty corruption (e.g. grease money or speed payments and bribing or custom border officials)

The different expressions of corrupt practices explained below appear under both, grand and petty corruption. Corruption is a phenomena which preserves the status quo and inequalities of power in a socio-political sense. In this context, a system of favouritism remains in place and victimizes current and future generations. People able to perform the same tasks and get the same jobs are left unemployed because of their lack of ability or willingness to bribe officials. Corruption also contradicts the very notion of democracy by distorting the translation of social preferences into public policies.¹⁴

Abuses of public office to secure unjust advantage may include any planned, attempted, requested or successful transfer of a benefit as a result of unjust exploitation of an official position. A corrupt official may seek sexual familiarity, money, gifts, economic influence, hospitality or lucrative business opportunities in exchange for official action or forbearance. Little benefit is gained by undue focus on whether the initiative for the prohibited transfer or gratuity originates with the person seeking official action (bribery) or with the official (extortion). Indeed, the more widespread and institutionalized corruption becomes, the more impossible and irrelevant it is to determine which party took the first step in the customary exchange of favours to encourage or discourage the performance of a public duty.

It is essential, in this context, to determine the extent of the harmful effects of various behaviours and to decide whether such behaviour and all of its attendant consequences should be prevented, controlled and sanctioned. This process includes a thorough analysis of the damaging effect of the single forms of corruption, since some of them are more important and harmful than others.Public policy ought to take such differences into account when allocating resources and planning an anti-corruption strategy.

In the Developing Countries, corruption has hampered national, social, economic and political progress. Public resources are allocated inefficiently, competent and honest citizens feel frustrated, and the general population’s level of distrust rises. As a consequence, foreign aid disappears, projects are left incomplete, productivity is lower, administrative efficiency is reduced and the legitimacy of political order is undermined. As it involves the transfer of large sums of money funds from the South to the North¹⁵; corruption impairs economic development. This, in turn, leads to political instability as well as poor infrastructure, education, health and other services.

Similar effects can be found in industrialized countries. Individuals who wish to conduct their affairs honestly are demoralized and loose faith in the rule of law. Corruption breeds distrust of public institutions, undermines ethical principles by rewarding those willing and able to pay bribes and perpetuates inequality. Economic competition is distorted and public funds squandered. Wherever economic success of private enterprises relies extensively on the payment of bribes, the quality of products and services provided as well as the skills of employees tends to deteriorate.

¹⁴ Edgardo Buscaglia and William Ratliff (1997), “Judicial Reform in Developing Countries: The Neglected Priority” Annals of the American Academy of Political and Social Sciences, March.

¹⁵ International Herald Tribune of Feb 7^th 2001 quoted a US Congressional report to estimate the amount of “Dirty Money” to more than US$ 1 trillion per year

Domestic corruption also undercuts rules and regulations designed to enhance social responsibility of corporations and other businesses. Many countries have witnessed inhuman labour exploitation and serious environmental pollution. National budgets have been depleted partly due to the concession of excessive tax advantages and incentives to corporations or industries and partly due to the purchase of unnecessary equipment or services. Nowhere is such victimisation more pronounced than in instances of transnational corruption.

In order to maximise profits, legitimate and illegitimate enterprises resort to bribery and other forms of corruption to cover up crimes against the environment. Unless effective controls are in place, the environment is damaged sometimes irreparably.

Because of the very substantial amounts¹⁶ that are involved in corrupt practices every year; the international financial systems are also affected. According to a United State Senate Investigation¹⁷, more than US$ 1 Trillion¹⁸flows through the international financial system annual One consequence is “competitive deregulation” whereby jurisdictions seek to attract these illegal proceeds by a total deregulation of their financial system and the enhancing of bank and corporate secrecy. Money laundering becomes an even more lucrative business with a potential corruptive effect and with increased dependency on assets deriving from all forms of criminal acts.

The global risks are higher when links between corruption and “organized crime” become stronger. Nearly all profitable illegal markets rely on the support of public officials and controllers. Corruption is a necessary tool for organized criminal groups to operate.

Corruption materializes in different forms. It normally includes several of the elements described below.¹⁹

B. Bribery²⁰

¹⁶ According to the Financial Times of July 1999, more than US$ 100 billion had been looted from Nigeria since mid 1980s

¹⁷ International Herald Tribune Feb 7. 2001,

¹⁸ The same report estimated that 50% of this money was going through US Banks. The report did not specify whether the source of the money was from corruption, organized crime, drugs or tax evasion

¹⁹ Petter Langseth, (2000) Integrated vs Quantitative Methods, Lessons Learned; 2000 (presented at NORAD Conference, Oslo, 21 October 2000).

20 In particular, Article 8 of the U. N. Convention Against Transnational Organized Crime, and Article VI of the Inter-American Convention, require Parties to criminalize offering of or acceptance by a public official of an undue advantage in exchange for any act or omission in the performance of the official’s public functions. Article 1 of the OECD Convention and Article VIII of the OAS Convention require Parties to criminalize the offering of bribes by nationals of one state to a government official of another in conjunction with a business transaction. The European Union and Council of Europe have also elaborated binding instruments requiring Parties to criminalize both public and private sector corruption. Articles 2 and 3 of the E.U.’s Convention on the Fight Against Corruption Involving Officials of the European Communities or officials of Member States of the European Union (1997) requires Parties to criminalize the request or receipt by a public official of any advantage or benefit in exchange for the official’s action or omission in the exercise of his functions (denominated as “passive bribery”), as well as the promise or giving of any such advantage or benefit to a public official (denominated as “active bribery”). The Council of Europe’s Criminal Law Convention on Corruption (1998), goes further by criminalizing “active” and “passive” bribery of, inter alia, domestic public officials, foreign public officials, domestic and foreign public assemblies, as well as private sector bribery, trading in influence and account offences. See also, U.N. Declaration Against Corruption and Bribery in International Commercial Transactions (1996) (calling for the criminalization of corruption in international commercial transactions and the bribery of foreign public officials); and Principle 4 of the Global Forum on Fighting Corruption’s Guiding Principles for Fighting

Bribery involves the promise, offer or giving of any benefit that improperly affects the actions or decisions of a public official. It can also include those who may not be public officials per se, but may also include members of the public who serve on government committees. A bribe may consist of money, company shares, inside information sexual or other favours, gifts, entertainment, a job, promises etc. The advantages gained by corrupt officials can be direct or indirect. We can speak of indirect gains when the benefits flow to an official’s friend, family, associate, favorite charity, private business or interests, campaign funds or political parties. Bribe-receivers in the public sector are politicians, regulators, law enforcers, judges, or any other class of civil servant.

Some examples of bribery include the following:

·           Officials who work for or supervise revenue-collecting agencies, such as tax authorities, customs, public utilities may solicit bribes. In such agencies, it is possible for officials to bill for lower amounts and share the difference with the citizens. Alternatively, they may not bill at all or ‘disappear’ invoices - and share the benefits, again with the citizen. Civil servants may accept cash payments in order to alter tax files (income declarations) of individuals or organisations. Tax officials may extort money in order not to impose additional taxes on particular taxpayers (ibid.). Officials may also illegally transfer funds and park them in accounts earning interest for themselves. Also, public officials are in a position to manipulate for their benefit foreign exchange rates. This type of corruption can involve large amounts of money and is rarely picked up by auditors. Customs officials may receive bribes in order to ignore legal or illegal imports or exports that have taken place. In this way, the payment of duties and levies is avoided at the expense of the national treasury. In addition, dangerous or prohibited goods cross national borders.

·           Payroll abuses can yield substantial amounts to unscrupulous officials. A typical scenario is that personnel lists are inflated with the names of ghost workers. The salaries would go officials’ friends, relatives or fictitious names. During a civil service reform implemented in an African country, more than 30% of the people allegedly employed by the government turned out to be ghost workers.²¹

·           In some countries, local governments and enterprises bribe their way into state-funded projects. Many contractors believe that the only way to win these state-funded projects is with bribes. This not only intensifies the abnormal competition but also proves repeatedly the effectiveness of “official bribery”, resulting in an increased expenditure by the State, deteriorating quality of goods & services, decreasing competition on the market and a general lack of quality of enterprises and their employees skills.

·           It also happens that harsh competition among state enterprises for scarce bank loans has resulted into bribery and consequently increased the number of bad loans in the banking system. State enterprises and collective enterprises offer effectively public-funded bribes to officials in order to secure bank loans.

·           Bribes are often offered in order to extract privileged information about competitors. According to information developed by FBI investigations, for

²¹ Petter, Langseth (1996), Post-Conflict Uganda, Towards and Effective, Civil Service,, Fountain Publishing House, Kampala, 1996

example, “defense contractors had illegally bought secret Department of Defense information about plans, budgets, and contract bids of other corporations from government employees. The contractors bribed Department of Defense employees using cash gifts or promises of future employment. The deals were largely made through ‘defense consultants’ who acted as conduits for gathering proprietary information from the military services and then passed it on to the defense contractors. Their work resembled that of ‘agents’ who do the dirty work in the bribery of foreign officials by US corporations.

C. Embezzlement, Theft and Fraud²²

These offences involve theft of resources by persons entrusted with authority and control over government property. These can include public officials and private individuals. For example, government workers in charge of distributing food to the local village steal a portion of the food and sell it to other parties. Medical supplies being transported from the airport to a local hospital are stolen and sold to a local pharmacy instead. A government official submits false invoices for official travel. Embezzlement also includes conversion of government property and personnel for private use. In considering legal prohibitions against this type of corruption, the challenge will be to define the prohibition broadly enough to include every dishonest method of diverting public resources that criminal ingenuity can devise. Not merely physical theft should be punished, but also unauthorized use of the time and labour of public employees and of government facilities and equipment.

Officials sometimes use publicly owned cars and heavy equipment for personal purposes. World Bank-funded vehicles have been used for taking officials’ children to school. This activity consumed 25% of the working day for the use of the car for official business and duties. Equipment is diverted for use on private land or that of friends and relatives. As a result, the machinery is unavailable for its intended purpose while the maintenance, wear and tear costs are borne by the public. In other cases, officials use public facilities for the repair of private cars. In most countries, certain public institutions (such as, ministries of work, transportation, water boards, power utilities, etc.) maintain workshop and repair facilities. Worker time, spare parts, supplies, space and equipment is abused. In addition, parts are taken from official vehicles or equipment, thus rendering them useless. The diversion of supplies and materials is also a frequent problem. This ranges from a few sheets of corrugated roofing to spare parts, tires, batteries and whole tanker truck loads of fuel. In one case, the monthly loss of a public utility to employee theft was 250,000 liters. Another way

22 A number of recent international legal instruments have sought to ensure that Parties have offences addressing this type of conduct with varying degrees of specificity. These include the Organization of American States’ Inter-American Convention Against Corruption (1996) and the European Union’s Convention drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of the European Communities’ financial interests (1995). Article XI(1)(b) and (d) of the Inter-American Convention call upon Parties to consider criminalizing a government official’s improper use or diversion of government property, including money and securities, regardless of the person or entity to whom the property is diverted, while Article XI(1)(a) calls upon Parties to consider criminalizing the improper use of classified information by a government official. Article IX requires, subject to a Party’s Constitution and the fundamental principles of its legal system, criminalization of “illicit enrichment,” meaning “a significant increase in the assets of a government official that he cannot reasonably explain in relation to his lawful earnings during the performance of his functions.” Addressing the narrow area of protection of the financial interests of the European Community from fraud and corruption, Article 1 of the European Union’s Convention requires Parties to criminalize the use or presentation of false or incorrect representations or non-disclosure of information the effect of which is the misappropriation or wrongful retention of funds from the budget of the European Communities. For a more detailed analysis of these instruments, see UN document E/CN.15/2001/3 (Report of the Secretary General on Existing International Legal Instruments Addressing Corruption).”

in which public assets can be diverted by officials is the illicit use of government owned housing. For instance, officials may not vacate the government property after they leave office. A variation of such misuse involves the renting out of public housing. All of these methods drain public institutions of scarce resources and prevent them from carrying out their mandates and efficiently serving the public.

D.  Extortion

The act of extortion involves coercing a person to pay money or to provide other valuables or personal favours in exchange for acting or failing to act. This coercion can be under the threat of physical harm, violence or restraint. For example, a sick woman needs to see a doctor and at the hospital, the nurse tells her husband that he must pay something extra just to get into the doctors office. His wife dies while he is searching for the money. In many countries, the police are known to extort money by threatening arrest on false grounds. Minor incidents, such as traffic infractions, are used as the basis for threatening arrest.

So called “speed money” is paid when government agencies are slow to deliver services and process applications. This mild form of extortion is not regarded by the “victims” as being offensive. Since payers of speed money simply ask an official to do his or her job, they do not regard this practice as unethical or inappropriate. They argue that all they want in exchange for their money is the system to work exactly as it is supposed to. They are not asking for unlawful favours. Understandable as it may appear, this logic is against the spirit of democracy and cannot be seriously defended. Not everyone is willing or able to pay speed money.²³ This means that some citizens or organisations will be treated preferentially. Delays and unresponsiveness will continue to plague that society as officials have little incentive to improve its general efficiency. The crucial point is that officials receive salaries in order to do their job well. They should not be expected to perform their duties only when they are bribed.

E.   Exploiting a Conflict of Interest/Influence Peddling, Insider Trading²⁴

Engaging in transactions, “selling” influence, or acquiring a position or commercial interest that is incompatible with one’s official role and duties for the purpose of illegal enrichment. For example, with the intent to profit from secret information, a public official buys land in the area where a large development is planned to be built. This official votes in favour of granting permission to the real estate developer to build its project. Regardless of whether or not this project is in the best interest of the public, this official has exploited a conflict of interest for personal enrichment. Privatisation of government property, functions and businesses provides abundant opportunities for corrupt exploitation.

Conflicts between official duty and private self-interest should be properly dealt with,
although defining what conflicts should be made criminal is very culture-bound.

²³ Edgardo Buscaglia (1997) :Commonts on Corruption” Proceedings of the Annual Bank Conference on Development Economics (ABCDE Conference). Washington DC: The World Bank

24 Recent international legal instruments have encouraged disclosure requirements as a means of further minimizing conflicts of interest. See e.g., Art. 13-14, Council of Europe, Model Code of Conduct for Public Officials (2000); Principle 5 of the Global Forum on Fighting Corruption’s Guiding Principles for Fighting Corruption and Safeguarding Integrity Among Justice and Security Officials (1999); Art. 5, United Nations, International Code of Conduct for Public Officials (1996); Global Coalition for Africa, Principles to Combat Corruption in African Countries (1999) (Art. 5). For a more detailed analysis of these instruments, see UN document E/CN.15/2001/3 (Report of the Secretary General on Existing International Legal Instruments Addressing Corruption).”

Every society would expect a legislator to advance the interests of his or her particular constituency. It is only at the point where the self-interest of an official is so strong or expressed in a way so indicative of a wrongful purpose, in a manner to be presumed to threaten the public good, that criminalization should be considered.

Conflicts that threaten the public good are also common for officials who find themselves in a necessarily cooperative, even symbiotic relationship with the private sector. It is only natural for an authority setting the rates for public utilities, approving the sale of pharmaceuticals, or negotiating contracts between a State agency and private entrepreneurs to strive for an arms-length but not hostile relationship with the persons with whom business must be done. There is a greater risk that a conflict of interest arises when the regulated industry being dealt with has a natural monopoly of employment or business opportunities in the professional specialty of the government official. These are unavoidable occasions for temptation, creating conflicts of interest between the obligations of the often underpaid public servant and the attraction of highly lucrative private business opportunities, which become available only if the government regulator finds favour with the industry. When the well being of the citizenry is subordinated to such favour seeking, penal sanctions would seem to be appropriate.

The criteria for criminalization of conflicts of interest is not whether the public interest is served by a particular decision, or whether there is a loss of public financial advantage. There are almost always multiple financial and non-financial public interests affected by a single decision, and only a few of them are objectively and immediately measurable. Such criteria is better defined as the purity and transparency of the decision-making process. A public official should not be allowed to act in any matter affecting his or her financial or personal interest

F.      Offering or receiving of an unlawful gratuity, favour or illegal commission.

This offence is aimed at public officials who receives anything of value as extra compensation for the performance of official duties. For example, after the issuing of a passport or other document the recipient pays offers a “tip” or “gratuity money” for the good service received. In many countries this will not necessarily be considered an act of corruption. Particularly where public servants are underpaid, the culture of tipping is widely spread and generally accepted. However, this practice undermines the integrity of the public service and can lead to incidents of extortion where the citizen may not be willing or capable to provide a ‘tip’.

G.    Favouritism, nepotism and clientelism:

This is the assignment of appointments, services or resources according to family ties, party affiliation, tribe, religion, sect and other preferential groupings. For example, a public servant provides extraordinary services, commissions, jobs and favours to political allies, family and friends while members of the general public would not receive this special treatment. This type of corruption tends to reinforce existing power balances, as it confers most favours to those well connected. It also may introduce a market place for corruption as new players may afford or be willing to pay for the same favours.

Clientelism is at the heart of how corruption propagates throughout the state. The
way in which central authorities, for example, usually consolidate their regional
power is by appointing and removing public servants at the local level without any

kind of merit based standards. These mechanisms are based on clientelistic practices. In many cases, the degree of turnover in personnel is such that the institutional memory of public institutions is lost every electoral period. This use of public office for pirvate benefit clearly damages the public interest.

H.    Illegal Political Contributions

This occurs when political parties or the government in power receives money in exchange for non-interference and good-will towards the entity or group making the contribution. It is closely related to bribery. Powerful interest groups, particularly corporations make generous contributions in order to achieve less regulation of their industry or for specific favours. Politicians may extend courtesies and protection towards to legitimate or even illegitimate enterprises in exchange for contributions to a political campaign.

The expenditure of huge sums of money to influence elections by very calculating enterprises, including transnational corporations and special interest groups, cannot all be motivated by ideology or the charisma of a candidate. It is a reality of life that significant financial or personal advantages are expected by major political contributors. Most legal systems leave space to accommodate this reality in personnel appointments at policy-making levels and in other discretionary areas consistent with the traditions of the society. All, however, have limits beyond which the distribution of government benefits and advantages should be legally required to be impartial or governed by objective standards designed to secure a decision on the merits of the case. When political favouritism becomes so pervasive as to threaten professionalism in the operation of government programmes, mechanisms must be found to limit its influence. Laws covering non-partisan bases for government action as a means of encouraging integrity and professionalism in government are discussed in chapter II of the present Manual. Disclosure laws governing political financing can be useful for compelling candidates or political parties to disclose any contributions they have received, thereby permitting the voting public and the news media to react to those contributions not only when they are made before an election, but also afterwards, when the contributors receive unwarranted consideration.

I.       Money Laundering

Any comprehensive strategy against corruption must include measures aimed at preventing and controlling the laundering of corruption proceeds. The connection between corruption and the laundering of its proceeds is not new and has been highlighted on several occasions in the past. The link between money laundering and corruption is not only related to the laundering of corruption proceeds, but goes much further. Money laundering as such produces a corruptive effect on national and international financial systems. Due to the close link between corruption and money laundering, various international fora have noted that a comprehensive anti-corruption strategy must also include actions to prevent and control the laundering of corruption proceeds. The corruptive effect of money laundering is not only affecting private enterprise and its employees but also entire States. In various occasions it seems to be deliberately accepted that deregulation of the financial sector combined with enhanced bank and corporate secrecy is leading to an increasing flow of illegal assets into a countries financial system 25

²⁵ Report of the Expert Group Meeting on Corruption and its Financial Channels (Paris, 30 March to 1