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Mainstream, VOL XLIX, No 36, August 27, 2011

Combating Corruption — The Ethical Dimension

Friday 2 September 2011, by B P Mathur

Just as it is impossible not to taste honey or poison that one may find at the tip of one’s tongue, so it is impossible for one dealing with government funds not to taste, at least a little bit, of the King’s wealth.
Just as it is impossible to know when a fish moving in water is drinking it, so it is impossible to find out when government servants in charge of undertakings misappropriate money.
—Kautilya: Arthshastra
The only definition that can be given of morality is this: That which is selfish is immoral and that which is unselfish is moral.
—Swami Vivekananda

Corruption is recognised as the single biggest problem facing the country today. Corruption has serious adverse effects on the society and the economy and corrodes the moral fibre of the people. UN Secretary-General Kofi Annan1 observed at the time of adoption of the Convention against Corruption:
Corruption is an insidious plague that has a wide range of corrosive effects on societies. It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and allows organised crime, terrorism and other threats to human security to flourish.

Corruption is a symbol of something gone wrong in the management of the state. It undermines the legitimacy of the government as people develop cynicism against it. India is today regarded as one of the most corrupt countries of the world, where foreigners dread to do business. The Transparency International (2009) ranks India at the 85th place out of 185 countries, with a CPI (Corruption Perception Index) score of 3.4 in the company of many failed states.

The Transparency International defines corruption as “misuse of public power for private benefit”. The Santhanam Committee described corruption as “improper or selfish exercise of power and influence attached to public office or to the special position one occupies in public life”. A more comprehensive definition of corruption given by experts2 is as follows: When a public official, in violation of the trust placed on him by the public, and in a manner which harms the public interest, knowingly engages in a conduct which exploits the office for clear personal and private gain in a way which runs contrary to accepted rules and the standard of conduct of pubic office within the political culture, so as to benefit a third party by providing him with access to a good or service which he would not otherwise obtain.

Adverse Effects of Corruption

THE first is bureaucratic corruption which is due to softness of the state comprising all manner of social indiscipline that prevents effective government and obstructs national development. Nothing gets done without some form of bribery, gift, favour or other benefit. This imposes a serious cost on the society: a) there is loss of revenues from tax and duties and excessively high public expenditure due to its leakage; b) there is reduction in productive investment and growth through abuse of regulatory powers; c) there are costs to the public due to bribe extraction in delivery of services and poor quality of access to services; d) there is loss of confidence in public institutions as corruption can undermine the rule of law, tax compliance, respect for contracts, civil order and safety and ultimately the legitimacy of the state itself. The poor are the worst sufferers of corruption as it leads to deprivation of basic services like primary education for the children and elementary health care as public officials refuse to provide them without payment of illegal gratification.

The second is the growing influence of money in political life. The most disturbing is the direct buying power of money to secure the vote of the electors and elected politicians to swing elections and legislators and influence party actions through legal and illegal campaign contributions. Corruption in the media is linked to political corruption as it plays an increasingly important role in influencing elections. Politicians and political parties purchase commercial space and time in the mass media and plant paid news to hoodwink the reader.

The third aspect of corruption is generation of the black economy and laundering of money worldwide. In India today the black economy has become all-pervasive, affecting the day-to-day life of the common man. Black money is commonly understood as money on which income-tax is not paid but it is much more than that, and involves various kinds of illegal activities, such as bribery, drug money, illegal traffic in arms. The black economy as a percentage of the national income, which was around three per cent to seven per cent in the fifties and sixties, was estimated to have grown to 40 per cent towards the end of the last century, and is currently estimated to be 50 per cent of the GDP. This results in a huge loss of direct tax revenue, fiscal crisis and rise in the debt burden. Investment gets diverted to unproductive sectors and a large chunk of resources is not only wasted but is either lying idle or is siphoned out of the country. Global Financial Integrity has estimated that between 1948-2008, $ 462 billion (adjusted to current prices) has been the extent of illicit flows out of the country due to tax evasion, corruption, bribery, criminal activities etc. There is a countrywide outrage. Baba Ramdev has launched a nationwide agitation to pressurise the government to bring the money back. Due to the huge black economy, modern India does not present the image of a civilised society.

Today money laundering has become a big international racket and feeds organised transnational crime which includes terrorism, black market trade in arms and nuclear material, drug trafficking etc. The objective is to conceal the true ownership of illegally-obtained money and its placement, layering and integration in regular banking channels. Dirty money moves to weak political systems where controls are ineffective. Drug trafficking is rampant in Afghanistan, Myanmar and Laos, known as the golden triangle and feeds terrorist activities of the Taliban and other terrorists groups in Afghanistan and North-West Pakistan, and sabotages governments, banking systems and legitimate businesses, and also poses a serious security threat to India. In some South American countries such as Columbia powerful cocaine cartels manipulate political systems with drug money in what has become narco-democracies. Illegal manipulation of the world’s financial markets leaves the national economies increasingly vulnerable.

Part I Understanding Corruption — Causes and Remedies

Types of Corruption

In order to understand the nature of corruption we need to distinguish two types of corruption: coercive and collaborative.

Coercive Corruption is one where a person is forced to give bribe to get a job done to which he is otherwise entitled such as getting a ration card, a driving licence, a passport, an electric connection or sanction for constructing a building. Such corruption is endemic to the way the government carries out its routine activities such as issue of licence, permit, policing and revenue collection. Payments are generally of petty nature, to lower level inspectors, babus and clerks, and the payoff facilitates benefits to which one is otherwise legally entitled.

Collaborative Corruption is one involving high officials and Ministers that often implicate multinationals and large domestic firms, in which both parties gain substantial pecuniary benefits, though the public is the ultimate loser. They mostly relate to mega-projects, large-value contracts, concessions and other favours and difficult-to-prove nexus, as both the bribe-givers and takers are the beneficiaries.

While both the coercive and collaborative corruptions are interrelated, and it is not easy to draw a dividing line, the countries which are rated as ‘very corrupt’ have a high incidence of coercive corruption, where corruption is insti-tutionalised and citizens have to pay bribe for even basic services to which they are entitled, making day-to-day life difficult. Alexandra Wrage,3 who heads an international anti-bribery association, makes the following observations on the creativity and tenacity of government officials who demand bribe:

They ask for the cash, of course, and wire transfers to numbered accounts. They ask for sweet-heart deals on real estates. They ask for women to be sent to their rooms. They ask for jobs for their children, scholarships for favoured nephews, and medical care for ailing wives. They set up shell companies, off-shore accounts, phony charities, trusts in the name of their family members, and committees that they can manage for their own benefit… Businessmen don’t speak about these government officials—from grasping and clumsy to powerful and frightening—because they are the customer. Companies don’t speak against them for fear of losing current contract or jeopardising future business. They believe they have to ‘pay to play’. Few locals speak against them because they are complicit, cynical or terrified… Too little is being done to reduce corruption because the act is often several steps removed from the victim, making it difficult for public outrage to gain momentum.

High Cost of Small Bribes

Small and routine bribe can have a terrible cost for the society. A fishing village in Raigadh distict in Maharastra was a favourite landing ground of smugglers as the customs and police officials were reported to be on their payroll. Crates of RDX and ammunition were smuggled through this port by Dawood Ibrahim and Memon who were the mastermind behind the Bombay blast of 1993 leading to the terrible loss of over 250 lives and valuable property worth thousands of crores. The customs and police officials were most probably unaware of the content of cargo they were illegally allowing in, and its intended use.

In August 2004 two Chechnyan women boarded separate planes at Moscow carrying bombs. Neither woman held tickets on arrival at the airport after registration had closed. Both purchased tickets under the table from an airport agent for US $ 175 out of which $ 30 went to bribe the Siberian agent. Both women were cleared by the security guards at the airport with their carry-on luggage. It was not clear whether failure of security to uncover the bombs was a result of incompetence or additional bribes. Just minutes after the take-off, the women detonated the bombs they had smuggled in, blowing up both planes and killing a total of ninety passengers.4

High Level Corruption

Corruption at high places has been the hallmark of the Indian political scene during the last 30 years and has attracted a great deal of public and media attention. Rajiv Gandhi, who came to power with a thumping majority, lost the next round of elections in the wake of scandals relating to defence deals such as Bofors guns and HDW submarine. The term of the Narasimha Rao Government was marked by mega scandals such as the Harsad Mehta security scam, Jain hawala case, urea import by NFL/ Karsan and JMM MPs’ bribery case. Sukh Ram, the Communications Minister in Rao’s govern-ment, made history of sorts when suit-cases with currency notes worth several crores were recovered in a CBI raid in his house. Laloo Prasad Yadav, who was the Chief Minister of Bihar, was embroiled in an Animal Husbandry scandal. However, despite the scandal his party won the next round of elections and he/his wife became the Chief Minister. The National Democratic Alliance, led by the BJP with Atal Behari Vajpayee as the Prime Minister, which came to power in 1999 on the slogan of ‘a government that is different’, could not bring an administrative culture different from the previous Congress governments. The tehelka-tapes on defence deals exposed how some key functionaries of the government were embedded in corruption in utter disregard of national security.

The present UPA Government, headed by Manmohan Singh, is regarded as the most corrupt government in post-independence history. It is embroiled in major corruption scandals such as the 2G spectrum allocation, Commonwealth Games, cash-for-vote in the confidence-vote on the Indo-US nuclear treaty. The State governments are equally embroiled in unsavoury controversies. The Mayawati Govern-ment in UP has acquired agricultural land at throwaway prices in Greater Noida from hapless farmers and palmed it off to builders for luxury housing at fancy prices. The BJP Government of B.S. Yeddyurappa in Karnataka is alleged to have taken huge money to allow illegal mining of vast tracts of forest land depleting the ecology of the area.

The problem with high-level corruption is that it corrodes the entire administrative machine of the state. It sends a wrong message to lower level bureaucracy who are emboldened to indulge in corrupt and illegal activities secure in the fact that no punitive action will be taken against them. Robert Rotberg,5 an expert, explains:

Lesser officials and politicians steal from the state and cheat their fellow citizens because of a prevailing permissive ethos. If their immediate superiors steal and cheat, lower ranked civil servants and security personnel believe that they, too, have a license to enrich themselves corruptly. Once it becomes known that certain kinds or all kinds of corrupt behaviour are acceptable, then all the self-interested maximisers will hardly want to miss good opportunities to secure and then to employ official positions for private gain. Whatever one’s views on human nature and human fallibility, if the prevailing political culture tolerates corruption, nearly everyone will seek opportunities to be corrupt.

What Encourages Corruption and Preventive Measures

We need to analyse the reasons for corruption so that we devise methods to fight it. They are:

1. The weak laws and regulations to punish the guilty due to which corruption has become a high-reward and low-risk activity.

2. The system of fighting elections in which money power plays a decisive role.
3. The economic policies and rules and procedures of conduct of the business of government.

4. The hold of big business, corporates and multinationals on the government, largely due to the model of economic development we have adopted.

5. The societal and cultural attitude and the values of society and its moral standard.

The Weak Legal Framework for Punitive Action

It is often said that in India corruption thrives because it is a low-risk and high-profit business. There are so many safeguards and protections in the system in which a public servant operates, that it is very difficult to catch and punish an official indulging in corruption. To deal with corruption amongst public servants, a Prevention of Corruption Act (PCA) 1988 was enacted, which replaced the PCA Act of 1947. The Act widened the scope of definition of public servants and public duty and brought elected representatives, such as MPs and MLAs, within its purview. However, the judicial process in India is slow and time-consuming. Cushions of safety have been built in the legal system on the principle that everybody is innocent till proved guilty. The legal provisions are exploited by the corrupt to escape punishment. The CBI alone has hundreds of cases pending in various courts under the Prevention of Corruption Act, some of them as old as 25 years. The conviction rate of criminal cases in India is hardly six per cent. The Prevention of Corruption Act hardly serves as a deterrence. There is also a statutory bar that the CBI cannot prosecute a public servant of the rank of Joint Secretary and above without prior government permission—the government often delays or prevaricates in giving sanction, thus effectively barring the trial of the guilty official.

N. Vittal,6 a former Central Vigilance Commis-sioner (CVC), says that we cannot control corruption unless we increase the risk for the corrupt. A corrupt person can engage the best lawyer using the money he got through illegal means and defend himself in a departmental enquiry or in a court of law and exploit the loopholes in the system. There is need for an Act which will provide for the seizure of the ill-gotten property of a corrupt public servant that will cripple him financially. An Act to this effect—the Corrupt Public Servants (Forfeiture of Property) Act—was drafted by the Law Commission at the initiative of the Vigilance Commission but is pending with the government for securing legislative approval since 1999. The bulk of the ill-gotten wealth of the people who are corrupt is in the form of benami property or benami bank accounts. The Benami Transaction Prohibition Act, promulgated in 1988, stipulates that benami property can be confiscated by the government under the provisions of the rules to be framed under the Act. However, the government has not framed the rules; thus the Act is non-operational. It is apparent that the government is not serious in fighting corruption.

The Crusade against Corruption — Jan Lokpal Bill

Tired over the government’s inaction against corruption and bringing the guilty to book, a movement has been launched under the leadership of the veteran social activist, Anna Hazare; this has garnered massive support all over the country. The government finally announced that a Bill will be brought in Parliament in the monsoon session of 2011 and agreed to discuss its terms with civil society leaders. A proposal for Jan Lokpal is pending in Parliament since 1968 but for want of political will it could not be enacted. The key features of a strong Lokpal Bill, proposed by the civil society, are as follows: it should be a multi-member body completely independent of the government and its members be selected by an independent panel; it will have its own independent investigating and prosecuting agency—all anti-corruption agencies such as the CVC, CBI, ACB will function under its wing and it will complete the enquiry in a time-bound manner. There will be Special Courts for trial and punishment of persons found guilty and it will have the power to recover illegal money and assets amassed by guilty public servants. There should be a single Act which will constitute separate Lokpal and Lokayuktas at the Centre and in the States to deal with Central and State public servants and all public servants, including lower level functionaries, should be brought under its umbrella. An independent, empowered Lokpal/ Lokayukta, who can mete out swift and exemplary punishment to corrupt public servants, will be a major step forward to clean up the country’s body politic.

Political Corruption—The Electoral Process and Reform

It is widely recognised that the huge money required to fight elections is the foundation of political corruption. Due to the vast geographical area of a constituency, with more than two million voters in many cases, a candidate has to spend huge money to contest the elections. A good part of this money comes from business houses, who expect quid pro quo in the form of opportunities to make black money and other favours. There are several other problems with our electoral system such as the flaw in the electoral rolls, lack of voters’ education, booth capturing and intimidation of voters. The most serious problem relates to persons with criminal background getting elected. As many as 128 MPs facing criminal charges were elected to the 14th Lok Sabha and 162 MPs to the 15th Lok Sabha. In the Jharkhand Assembly elections held in 2009, 70 per cent MLAs had criminal cases pending against them. There is a need to ban persons facing criminal charges from seeking any electoral office (at least those against whom the Court has framed charges for serious crimes, for which the punishment of imprisonment could be five years).

The existing ‘first-past-the-post’ system, under which the person securing the highest votes gets elected, makes a mockery of representative democracy. According to a study made of the 2009 Lok Sabha elections, out of the 543 MPs elected, 78 per cent were elected with less than 50 per cent votes cast, and 98 per cent with less than 50 per cent registered votes. The Law Commission and National Commission to Review the Working of the Constitution have expressed views in favour of devising a system under which only a candidate, who has polled a minimum of 50 per cent votes, should be elected. A political science expert, Jagdeep Chohokar,7 says that this can be secured by having a provision of negative voting and inserting a column in the ballot paper ‘none-of-the-above’. In case ‘none-of-the above’ option gets maximum votes, fresh elections should be held, and the cycle be repeated till a candidate securing 50 per cent votes is found (none of the defeated candidates should be allowed to contest again). This system will reduce the sectarian effect of vote-bank and force the political parties to put up better candidates.

Several other suggestions have been made to reform the electoral process. There should be small constituencies, with one or two lakh voters, so that the voters know the candidates’ background and the role of money power is minimised. Some kind of ‘representative system’ among the candidates elected will have to be worked out to keep the numbers in Parliament/Assembly manageable. A suggestion has also been made that direct elections should be held only at the level of Panchayat and Zilla Parishad which, in turn, may elect representatives for the State Assembly and Parliament. Another suggestion is for state funding of elections to recognised political parties that will help in controlling the menace of money power.

As matters stand today, no honest person without access to huge resources and money can win elections. Unless we reform the electoral laws, we cannot have clean and honest politics and rid the country of the menace of corruption.

Economic Policy and the Controlled Economy

It is a well-known fact that countries which have open and liberal economies have achieved fast-track economic development and have low level of corruption. India adopted a socialist model of economic development with the state occupying the commanding heights, from the time the Five Year Plans were launched in the 1950s. This model of economic development led to the government doing almost everything and placing vast discretionary powers in the hands of public officials in what has been called licence-permit-raj. Various controls led to an economy of shortages. The socialist policies of the Indira Gandhi Government led to the enactment of the MRTP Act in 1970, and the FERA in 1973 and a steep hike of the income tax rates with a view to reducing income disparities. These policies required licences, permits and clearances for setting up of new industries, expanding the capacity of existing ones, import of capital equipment and spares and release of foreign exchange. Analysing their impact, S. S. Gill,8 a former civil servant, comments.

This regulatory regime gave the government extensive power of patronage, as also of delay and extortion. And they were fully exploited by the politicians on the pretext of raising party funds, the bureaucrats had their own share of the loot, and bribery became a pervasive phenomenon at all levels of the government.

The government had a rethinking about the direction of development and introduced a new liberalised economic policy in 1991, and this has made a significant impact on the economic performance of the country. The foreign exchange rate is now aligned to the market, limiting to a large extent the malpractice of export-import invoicing. The smuggling of foreign goods, including gold, is largely curbed as it is no longer a profitable venture. Under the new industrial policy the biggest change has come in the automobile and durable consumer goods sector and one can buy good quality cars, two-wheelers, refrigerators, TV, and other gadgets off-the-shelf, satisfying the pent-up demand of the middle class. With the liberalisation of the telecom and petroleum sectors, one can get a telephone and domestic cooking gas connection on demand as against interminable waiting a few years back. With the lifting of controls on distribution of cement and steel, markets are flooded and one can buy any quantity off-the-shelf and there has been a spurt in building activities.

If India has now become part of the mainstream global economic system, the credit should go to the private sector for seizing the opportunity of a liberalised economic environment.

Bureaucratic Corruption

While we have liberalised the economy, there has been practically no reform in bureaucracy and public administration to keep pace with the fast-changing economic scenario. We continue to follow archaic rules and procedures which have built-in provisions for delay and prevarication giving opportunity to officials to indulge in corruption and harass the hapless citizens. The Central Excise tariff is so complicated with a wide array of rates for different items carrying numerous exemptions, that an officer adminis-tering them can have a field day. The manual of building by-laws of the Municipal Corporation of Delhi is a confused, intricate and excessively detailed document running into 350 pages. The complicated rules gives the engineers and the architect an opportunity to harass citizens who wish to construct houses. S.S. Gill9 has given a graphic description of how in Capital city of Delhi, at the heart of the centre of power, organisations such as the DDA, MCD, Electricity and Police have systematised corruption and where officials actively abet land grabbing, unauthorised construction, theft of power and illegal plying of transport vehicles. Departments such as police, municipal corporations, land records, sales-tax, income-tax, excise and customs are known to be corrupt and even routine work cannot be done without giving bribe.

There is no accountability on public servants to deliver the public services which the citizens want. The conduct and disciplinary rules are so porous that no public servant gets punishment for dereliction of duty and harassment to people.

Big Business, Economic Liberalisation and Corruption

Mega corruption thrives because of a nexus between the big business, politician and bureaucrat. Transparency International10 observes:

Business continues to play a very exposed role as the supplier of corrupt payments to civil servants, members of government and political parties. Kickbacks are actively solicited, extorted or offered proactively. Irrespective of the coercion involved, the fact remains that bribery fosters a culture of impunity and repeat corruption, undermines the functioning of public institutions and fuels a perception that governments and bureaucracies are up for sale to the highest bidder.

Large infrastructure projects and defence deals with huge public outlays always presented an opportunity for kickbacks. But post-economic liberalisation the opportunity of corruption has increased many-fold due to the policies of privatisation, public-private partnership and globalisation. The privatisation policy of the Civil Aviation Ministry has led to the passing of lucrative routes to private airlines and this, coupled with huge orders for purchase of aircraft by Air India, has made the premier national airline bleeding and sick. The ONGC has given extraordinary concessions and favours to a Reliance consortium in a production-sharing agreement for exploration of oil and gas fields. In the name of development, innumerable mineral exploration rights have been given to mining companies in forest land belonging to tribals, uprooting them from their natural habitat. Prime agriculture land has been acquired at throwaway prices and given to big business on the pretext of establishing Special Economic Zones, on which fancy malls and luxury houses have been built. The 2G scam has exposed in graphic detail the nexus between the politician, civil servant, business and even the media,
and shows how deep the cancer of corruption has penetrated the highest policy-making institutions.

Because of ill-defined policies, weak regulatory frame-work and large discretion in the hands of Ministers and high public officials India is emerging as a basket case of crony capitalism that may derail the entire economy.

Global Financial Integrity has estimated that out of the illicit flow of $ 462 billion from the country since 1948, 68 per cent has occurred during the post-reform period of 1991-2008—the annual illicit outflow averaging $ 19 billion in the last five years 2004-08. Deregulation and trade liberalisation are the main drivers of illicit flow of money abroad. Roger Baker, Director, Global Financial Integrity,11 concludes:

What is clear is that, during the post-reform period of 1991-2008, deregulation and trade liberalisation have accelerated the outflow of illicit money from the Indian economy. Oppor-tunities for trade mispricing have grown, and expansion of the global shadow financial system accommodates hot money, particularly in island tax havens. Disguised corporations, situated in secrecy jurisdictions, enable billions of dollars shifting out of India to “round trip”, coming back into short-and long-term invest-ments, often with the intention of generating unrecorded transfers again in a self-reinforcing cycle. Illicit outflows drain hard currency reserves and reduce tax collection, harming India’s poor and widening income gaps.

Multinationals and Bribe

From the time India launched its Five Year Plans and embarked on a policy of industria-lisation, it had to depend on foreign companies for machinery, equipment and technical now-how, for its large infrastructure projects, public sector companies and defence needs. Due to intense international competition and constant need to grow and expand markets, the MNCs are known to give huge bribes. Due to the complexity of international business and secrecy in government very few cases come to notice. The countrywide uproar caused by the Bofors gun and HDW submarine deals, rocked the Rajiv Gandhi Government and led to its defeat in the elections.

Big-scale bribery and kickbacks are a fact of life in international business. Multinational corporations are the supply side of grand corruption. The need of the MNCs to enhance their profitability drives them to seek new markets and new opportunities. Competition with other international corporations means there is always a search for competitive advantage and corruption is often seen as an important and necessary method of enhancing or securing profits. Transparency International Chairman Peter Eigen12 says:

Our new survey leaves no doubt that large number of multi-national corporations from the richest nations are pursuing a criminal course to win contracts in the leading emerging markets of the world.

One of the most blatant and sensational cases of MNCs interfering in the politics of a host country was highlighted in the case of the ITT, a giant US conglomerate which, in active collabo-ration with the CIA, engineered the overthrow of the government of Salavador Allende in Chile in 1973. A duly elected Communist Government of Allende wanted to undertake large scale nationalisation, particularly copper mines and telephone, threatening US corporate interests. The ITT paid bribe to the Opposition leaders and collaborated with the CIA in destabilising the government which eventually led to a coup and the assassination of Allende.

Elf–Aquitaine,13 a state-owned French oil company, was the centre of the scandal during the 1990s for bribing the dictatorial regimes in West African oil enclaves of Gabon, Congo-Brazzaville, and Cameroon, all former French colonies, which enabled their rulers to build power bases on clan-based distribution systems and reinforce their personal hold on power. Elf expanded its business horizontally in the former USSR and East European countries, following collapse of communism and opening up of the economy. It purchased crude oil from the Russian state oil company, entered into oil exploration contracts with Kazakhstan and Uzbekistan and acquired refining and distribution network of the East German state company which was being privatised, by resorting to large scale bribery and kickbacks. When the press exposed the scandal and it became the subject of a magisterial enquiry, the chief executive of Elf stated during trial ‘he was just a cog in the institutionalised corruption machine involving the political and administrative elites of France who profited from an elaborate network of kickback and bribes well known to insiders’.

BAe Systems, the UK’s biggest arms company, was alleged to have paid bribes to win contracts from Saudi Arabia.14 The Guardian published a report by its team of investigative journalist that BAe Systems paid British £ 17 million in cash to key Saudi politicians for purchase of arms—this included luxury flats in London. Money flowed from the UK to the tax haven of the British Virgin Islands to Switzerland and onwards. The Guardian also published allegations that BAe has paid bribes to several countries for arms purchase including India. The company was allegedly providing prostitutes, sports car, yachts, first class plane tickets and other inducements. The scandal prompted SFO (Serious Fraud Office) to launch an investigation. The investigation created a diplomatic row with Saudi Arabia forcing the government of Tony Blair to step in and stop the investigation in December 2006.

Large corporates’ relentless pursuit of profit and capturing markets, even by resorting to dubious method of paying bribe, should be viewed in the larger context of their role in national and international economies. The top 200 MNCs account for over 50 per cent of the world’s industrial output. Their share of revenues and from activities outside their home countries is approaching 50 per cent. Multinational companies account for two-thirds of global trade—one-third of global trade is intra-firm. In the US the largest Fortune 500 companies account for half the country’s GDP. They therefore have great deal of influence in domestic policies and often dictate it. Celebrated economist J.K. Gailbraith, in his book, The New Industrial Estate, elucidates how powerful corporations are able to manipulate the needs and wants of people, determine the price at which a product is to be sold by creating a monopolistic or oligopolistic market situation, and maximise their profits. In Economics of Innocent Fraud, Galbraith underlines the role of corporate bureaucracy which controls it and gives itself rewards and compensation which verge on larceny. In the US even the public realm, particularly the arms industry and financial world, is controlled by the private sector. During the 2008 recession, when some large corporations were facing financial crisis, incurred losses and sacked their employees, the chief executives and top managements siphoned off huge money as bonus and compensation payment to themselves. The US economic recession, from which it has not yet been able to recover, is largely attributed to corporate greed.

Big business and corporates are the main drivers of mega corruption. Due to the inner dynamics of continuous expansion and growth and intense competition in the marketplace, they have to willy nilly take recourse to all kind of tactics to expand and secure orders for their products—including bribery, to ‘survive’ ‘grow’ and ‘prosper’. But why should public officials accept bribe, when they are paid by the state coffers? Unless public servants, particularly Ministers and high officials, are honest and men of integrity and inspired by a sense of duty to serve the public, and refuse to be tempted, it is difficult to see how bribery can be stopped.

International Convention against Bribery

The conduct of big business and large corporates in meddling with politics, trying to manipulate economic policies and influencing award of lucrative contracts, particularly in developing countries, has been a subject of great concern to the international community. A great outrage was also felt at many unscrupulous rulers and high public functionaries stealing public money and amassing it in secret accounts abroad. Abacha, who was the President of Nigeria, is reported to have stolen $ 4 billion, Marcos of the Philippines $ 5 billion and Suharto of Indonesia close to $ 35 billion. These factors were instrumental in developing a consensus by the members of the OECD and United Nations to bring a code of conduct for businesses operating abroad.

The OECD Convention, drawn in 1997, for the first time focuses on the ‘supply side’ of the bribery transaction. The 34 OECD member countries and four non-member countries—Argentina, Brazil, Bulgaria, and South Africa—have adopted this Convention. The OECD Anti-Bribery Convention establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective. The Convention establishes an open-ended, peer-driven monitoring mechanism to ensure the implementation of the international obligations that countries have taken on under the Convention.

The United Nations has adopted a Convention Against Corruption (UNCAC) which has come into force in December 2005. The purposes of this Convention are: (a) to promote and strengthen measures to prevent and combat corruption more efficiently and effectively; (b) to promote, facilitate and support international cooperation and technical assistance in the prevention of and fight against corruption, including in asset recovery;(c) to promote integrity, accountability and proper management of public affairs and public property. The provisions of the Convention are legally binding on nations which ratify it. The Convention introduces a comprehensive set of standards, measures and rules that all countries can apply in order to strengthen their legal and regulatory regimes to fight corruption. It calls for preventive measures and the criminalisation of the most prevalent forms of corruption in both public and private sectors. The Convention makes a major breakthrough by requiring Member States to return assets obtained through corruption to the country from which they were stolen. These provisions introduce a new fundamental principle, as well as a framework for stronger cooperation between States to prevent and detect corruption and to return the proceeds of corruption.

In the words of Kofi Annan,15 the former Secretary-General of the United Nations, the Convention “will send a clear message that the international community is determined to prevent and control corruption. It will warn the corrupt that betrayal of the public trust will no longer be tolerated. And it will reaffirm the importance of core values such as honesty, respect for the rule of law, accountability and transparency in promoting development and making the world a better place for all.”

Although India was an original signatory to the UNCAC, it has ratified the Convention only in May 2011, after considerable pressure was put on the government. The Convention can greatly help India fight transnational corruption, money laundering, crime and black money stacked abroad, as it has provision for asset recovery and member countries rendering mutual legal assistance towards prosecution of offenders as well in tracing, freezing and confiscating the proceeds of corruption. But the question is: has the government the will to fight corruption?.

Part II Tackling the Roots of Corruption

Societal Attitude and Political Leadership

Western countries, such as Denmark, Sweden, New Zealand, the UK, USA, have very low levels of corruption. On the other hand India has a very high level of corruption. Has corruption something to do with societal and cultural attitude to corruption? Nobel Prize winner sociologist Gunnar Myrdal,16 writing four decades ago, advanced a sociological reason for corruption. As people have a very weak sense of loyalty to organised society, anybody in a position of power is likely to exploit it in the interest of himself, his family, or other social groups to which he has a loyalty. Stronger loyalty to the family, caste, ethnic, religious and linguistic groups, is in sharp contrast to Western mores and behaviour and encourages nepotism and moral laxity and results in a ‘soft state’ with a low level of social discipline. From the time Myrdal wrote this, things have become much worse. Politicians have fully exploited the fragmented loyalties in the Indian society where family, caste and religious affiliation is unabashedly used to garner votes and win elections. The Nehru-Gandhi is no doubt the most famous dynasty ruling the country, but the entire political spectrum across the country is ‘dynastic’—be it Karunanidhi in Tamil Nadu or Prakash Singh Badal in Punjab. Patrick French, in his book, India—A Portrait, has analysed the hold of dynastic politics and found to his dismay that a majority of the so-called ‘young and progressive’ MPs in the current Lok Sabha are all sons, nephews or close relatives of well-entrenched political dynasties. Post-Mandal, caste-based politics helped Laloo Prasad Yadav to catapult to power in Bihar and Mulayam Singh Yadav and Mayawati in UP. All political parties play communal politics with consummate skill, with no consideration of its cost to the nation.

The ‘Indian variant of democracy’ is largely responsible for the mess we are presently in. Politicians are able to exploit the gullible voters, a majority of whom is illiterate or semi-literate and poor. Journalist Fareed Zakaria17 describes Indian democracy as ‘bandit democracy’, since the key features of democracy are missing here. Democracy is not simply about elections, but it is about fair elections where an honest person without the backing of money power has a chance to win, it is about the rule of law, it is about separation and delegation of powers, it is about protection of basic liberties and constitutional liberalism. Nani Palkivala, the noted jurist, had observed, in one of his reflective moments, that much of the problem of our country is due to the present election system and perhaps it was an error to have given the right to vote to everyone, without educating the voter first.

We cannot blame the Constitution-makers for our present woes—we have failed to implement the basic vision of the Constitution due to which we have a sham democracy. The Constitution had envisaged free and compulsory education for every child within ten years of its existence, so that an enlightened citizenry is created which understands its rights, duties and responsibilities. The vision of the Constitution-makers was to secure not only equality, liberty and justice but also fraternity amongst people. Dr B.R. Ambedkar18 had observed, in his concluding speech at the Constituent Assembly, that fraternity means a sense of common brotherhood of all Indians—we must overcome the evils, such as caste and become a nation in reality. “Without fraternity, equality and liberty will be no deeper than a coat of paints.” Post-independence it was the responsibility of our leadership to create bonds of friendship and harmony amongst diverse religious, ethnic, and caste groups. Instead, politicians have exploited the fragmented Indian society, going to the extent of using the legislative measures to institutionalise it, so as to catapult themselves into power.

We have to devise a system in which only men and women of character and integrity, who are inspired by a spirit of social service, are elected to Parliament, State Assemblies and Panchyati Raj institutions. This can come through a massive programme of education of the entire citizenry, not only making them literate but an education that builds character, where people understand what is right and wrong, and set for themselves exemplary conduct in all their dealings.

Economic Model and Consumerism

It is widely believed that during the last four decades there has been a continuous decline in values and character of the Indian people, which is the root cause for the all-pervading corruption in society. The general masses, who participated in the freedom movement, were men of character, lived a spartan life and were willing to make sacrifices for the larger national good. Does our economic policy have something to do with the decline in values and increase in corruption? Post-independence we have been blindly imitating the economic ideology of the West, which is materialist, and where earning money is considered the primary aim of life, and progress is judged in terms of economic growth. Economic growth basically means that a nation’s production and consumption should keep on increasing, but takes no account of its distributive effect and whether the benefits of rising income are getting equitably distributed in the society. The current economic model with implicit faith in the market forces and liberalisation of foreign trade and investment gives rise to consumerism. The culture of the Western style consumerism is fast spreading across India. The springing up of luxury villas, fancy malls, five-star hotels and the rising sale of high-end Mercedes and BMW cars and other foreign luxury goods are its most visible symbols.

The current model of economic development leads to concentration of wealth by a small section of the society, allowing them to live a life of luxury while the majority barely makes the two ends meet. According to Forbes, the number of billionaire in India doubled to 52 in 2009, their combined net worth reached $ 276 billion or a quarter of the country’s GDP. Unequal society leads to high levels of “status consciousness” amongst the people and they strive for self-esteem through a neurotic spiral of consumption. People live beyond their means as banks lure them with easy availability of credit cards, auto loans, and home mortgages. It was consumerism —the huge spending binge on consumer goods and houses, fuelled by credit and mortgages by reckless banks—that was responsible for the US and West Europe’s economic meltdown in 2008, and led to mass unemployment and suffering of the people. Status consciousness, where one wants to ‘show-off’ and keep up with Joneses, leads people to make money by hook or crook, cut corners and indulge in unfair and corrupt practices.

Possessing tonnes of money is no guarantee that people will behave honestly and stay within the ambit of the law. Ramlingam Raju, the founder of Satyam Computers, who built a very successful computer business in the country and possessed tens of crores, committed one of the biggest corporate frauds and diverted the company’s funds to enter the real estate, to make ‘yet
more money’ which ended in a fiasco, and is now cooling his heels in jail. Raj Rajaratnam, a Colombo-born highly successful hedge fund founder, whose personal fortune ran into billions, was caught in an inside trading scandal in the USA for a relatively small sum and is now facing twenty years in jail. Bernard Madoff, a multi-billionaire American stock-broker, turned his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars and has been sentenced to spend the rest of his life in jail. A perceptive commentator19 says that the most likely explanation for such deviant behaviour is that ‘in the culture of the Wall Street, where power counts for everything and wealth is the greatest measure of success, greed overwhelms risk’.

Greed is an inherent human trait. Without an ethical compass and moral standard an individual can go astray. Modern society extols wealth-making—there is nothing wrong with it, if it is earned ethically and within the ambit of the law. But the problem arises when money-making becomes an addiction for the ‘power’ it confers, and then the desire to acquire it becomes limitless. Wealth-worship in society tempts people to live beyond their means, indulge in a luxurious life-style and use the wrong methods to make it. It is time society realises that making more and more money and indulging in the ostentatious life-style cannot be the aim of life.

Indian philosophy from times immemorial has been advocating an ethico-spiritual view of life—simple living and high thinking. Mahatma Gandhi had said that ‘there is enough in the world for everyone’s needs but not for their greed’ and advanced a theory of trusteeship for business. Sri Aurobindo20 advises:
You must neither turn into an ascetic shrinking from the money power, the means it gives and the object it brings, nor cherish a basic attachment to them or a spirit of enslaving self-indulgence in their gratification…All wealth belongs to the Divine and those who hold it are trustees, not possessors.

It is time we get our values right if we have to create an honest corruption-free society.

Getting the Values Right

Values set standards and guidelines which govern our behaviour and the responses we make to life situations. Ancient India was known for high values, which helped it develop a great culture and civilisation, which was universally admired. Paying tribute to it, historian A.L. Basham21 observes that in ancient India, “people enjoyed life, passionately delighting both in the things of the senses and the things of the spirit. India was a cheerful land, whose people each finding a niche in a complex and slowly evolving social system, reached a higher level of kindliness and gentleness in their mutual relationship than any other nation of the antiquity.” The Indian civilisation was built on the foundation of truth, honesty, self-discipline and sacrifice in what is known as dharma of living. Eminent jurist N.A. Palkivala22 observes:

Our old sages judged the greatness of a State not by the extent of its empire or the size of its wealth, but by the degree of righteousness and justice which marked the public administration and the private life of the citizens. Their timeless teaching was that man’s true progress is to be judged by the moral and spiritual standards, and not by material and physical standards. Sacrifice was far more important than success; and renunciation was regarded as a crowning achievement. The citizens ranked in society, not according to wealth or power, but according to the standard of learning, virtue and character which he had attained.

India’s ancient wisdom is contained in its ancient scriptures such as the Vedas, Ramayana and Mahabharata. They continue to inspire and guide large sections of the population even today. Bhagwad Gita contains the essence of the Hindu philosophy known as Vedanta. Vedanta emphasises the development of the inner personality of the human being, primacy of spirit over body and mind, self-control, which alone enables one to lead a virtuous and truthful life. According to Indian philosophy, the human actions of artha (wealth creation) and kama (enjoyment and pleasure), though perfectly legitimate, should be within the bonds of dharma. The Upanishad says—ten tyakten bhunjitha ma gridha kasya swid dhanam, that is, enjoy wealth but in a detached manner and use it for the service of the community.

All the great religions of the world—Hinduism, Islam, Christianity, Buddhism—teach the same values. The five key values are: truth (satya), love (prem), righteousness (dharma), non-violence (ahimsa) and peace (shanti). These are eternal values and act as a beacon light to guide the behaviour of human beings and do not change with the flux of time. The goal of all the religions is the same—to live a life of peace, happiness and self-fulfilment, though different paths may be followed to reach them. A Vedic saying captures this—ekam sad viprah bahudha vadanti, that is, ‘the Truth is one, sages call it by various names’. Bharat Ratna Bhagwan Dass, in his classic study Essential Unity of All Religions, has portrayed in graphic detail the basic harmony of all religions. Mahatma Gandhi23 had observed:

Indeed religion should pervade every one of our actions. Here religion does not mean sectarianism. It means a belief in an ordered moral government of the universe. It is not less real because it is unseen. This religion transcends Hinduism, Islam, Christianity, etc. It does not supersede them. It harmonises them and gives them reality.

Over centuries India has assimilated various religions and cultures with which it came in contact. Sufism has enriched the mystical dimension of Hinduism. Indians celebrate Christmas and admire the Christian spirit of service to society. Buddha is considered an Indian deity and worshipped. Indian music, art, poetry and literature is a rich amalgam of diverse cultures. India has thus developed a composite culture where various religious and cultural groups can live in peace, harmony and brother-hood. Great leaders, such as Raja Rammohan Roy, Swami Dayananda Saraswati, Swami Vivekananda, Sri Aurbindo, Rabindranath Tagore and Mahatma Gandhi, launched the Indian renaissance on the basic foundation of Indian culture and religion.

Unfortunately today there is an all-round decline in values and character of the people. Money has become the new God and people use all kinds of illegitimate means to earn it, and even commit heinous crimes. Fake drugs are sold and these, instead of curing, harm and even poison the patient. Milk and food are adulterated causing grievous injury to the health of the people. Education has become a commodity available to the highest bidder. Poor in standard, capitation fee-based medical colleges have sprung up, without medical teachers and equipment, producing half-baked doctors, incapable of treating any ailment. Well-paid college teachers deliberately neglect classes, so that students are forced to join coaching classes run by them. These evils, which have permeated every section of society, cannot be eradicated without changing the values of society and people imbibing a moral code.

It is only through a well-designed education system that we can build a value-based society. The first step is to catch the young boys and girls in schools and colleges and impart to them value education and familiarise them about India’s glorious past and its ancient wisdom and culture. Blaming the education system for our youngsters not developing the patriotic feeling and working for the upliftment of the country, Swami Chinmyananda24 says: “Unless you know the glory of the past, how can you work in the present and make sacrifices for building a future of the country”. Unfortunately the Indian policy-makers feel that teaching ‘Values’ tantamount to religious education. This is based on a misunder-standing of true meaning of ‘secularism’. Teaching of different religious traditions and India’s composite culture does not militate against secularism. It is important that we give an intensive course of moral and civic education to our students, particularly at the primary and secondary levels, and lay a solid foundation of their character. Veteran freedom fighter C. Rajgopalachari25 had observed:

National character is the key stone on which rests the fate and future of our public affairs… It is the improvement of individual character that goes to make the uplift of national character which in turn becomes the keystone in the arch of national prosperity.

For national development, we have to do solid work towards inculcation of values in the entire society. Swami Bhoomananda Tirth has founded a society called the Movement for Restoration of National Values (MRNV) with E. Sreedharan as its Chairman. The aim26 is ‘to restore our time-tested national values, so that people, individually and collectively, find an inner persuasion to be truthful, ethical, patriotic and societal in their aspirations and goals’. We are fortunate in this country, to have many institutions such as Shri Ramakrishna Mission, Sri Aurobindo Society, Chinmayananda Mission, Satya Sai Baba Trust who are not only doing wonderful work in promoting values but also social work and have set up schools, colleges and hospitals. Many Christian missions and other religious organisations are doing similar social service and have set up schools, colleges, hospitals and homes for the poor and destitute. There exists a great reservoir of social capital in the country, which can be tapped to create a society based on high ideals and moral principles.

The recent campaign against corruption led by Anna Hazare has received massive support all over the country. A large number of highly committed organisations such as Common Cause, Parivartan and Lok Satta Party are active participants of this movement, as also spiritual organisations such as the Art of Living of Sri Sri Ravi Shankar and Patanjali Yogpith of Baba Ramdev. The movement has forced the government to make a promise of bringing an empowered Jan Lokpal Act to deal effectively with cases of corruption.

What the country needs today is a national movement in which our spiritual organisations, civil society and enlightened citizens all work together to change the current social, economic and political milieu of the country. Our educational system should be overhauled to inculcate values and build the character of our young boys and girls. We should construct a new society, taking inspiration from our spiritual and cultural heritage. That would be truly launching the second battle of freedom.

Towards a Corruption-Free India

Is it possible to have a corruption-free India? Dr A.P.J. Abdul Kalam,27 the former President of India exhorts: “Dream, Dream, Dream; dreams transform into thoughts; And thoughts result in action.” We must first have a vision of corruption free India, and then work tirelessly to achieve it, howsoever insurmountable the task. The battle against corruption has to be multi-pronged and long drawn. It has to be a combination of good laws, effective enforcement and, above all, adoption of high moral standards by the political masters, civil servants as well as citizenry.
1. First, we should have a strong independent anti-corruption institution—Jan Lokpal, which should have powers to investigate, prosecute and award stiff punishment, with all public servants under its jurisdiction, including the highest in the land. This would act as an effective deterrent.

2. Second, the election laws should be modified so that only men of integrity, who have a spirit of social service, are elected to Parliament, Legislative Assemblies and other electoral offices. One of the main reasons for corruption is the role of money and muscle-power in our political system, and this needs to be eliminated.
3 The core values of integrity, honesty, objectivity and impartiality, essential for the functioning of the Civil Services, should be prescribed through an Ethics Code, violation of which should invite censure and disciplinary action. The UK Civil Services Ethics could act as a model. The existing disciplinary rules are porous with numerous loopholes. These should be modified so that quick punishment is given to public servants committing malfeasance and violation of norms of behaviour and conduct.

4 A large number of laws, rules and procedures of administrative business is outdated, delays decision-making and is regulatory in nature bearing the imprint of the colonial legacy. They give opportunity to the corrupt to harass the public. These need to be modified and made citizen-friendly.

While wideranging political, administrative and legal reforms are required to tackle corruption, we must understand the foundation on which it rests. The problem is with our economic model, where money has become the measure of all values and the ‘New God’. We are blindly imitating the materialist philosophy of the West, without assimilating its good features such as social discipline, the rule of law and a rational scientific outlook. According to historian Arnold Toynbee,28 while mankind has made phenomenal economic progress due to advances of technology which have vastly increased Man’s wealth and power, “the ‘morality gap’ between Man’s physical power of doing evil and his spiritual capacity for coping with this power has yawned wide open as the mythical jaws of Hell. During the last 5000 years, the ‘widening gap’ has caused mankind to inflict on itself grievous disaster.” The leaders of the Indian renaissance understood this and called for transformation of the society based on our ancient wisdom and values.

Swami Vivekananda29 reminded us that “the national ideals of India are tyag (renunciation) and sewa (service). Intensify her in those channels and the rest will take care of itself.” Mahatma Gandhi had preached, avoid Seven Deadly Sins: Wealth without work; Pleasure without conscience; Science without humanity; Knowledge without character; Politics without principle; Commerce without morality; Worship without sacrifice. It is time we travel the path shown by our gurus to create a corruption-free, healthy and happy society.


1. United Nations Office of Drugs and Crime: UN Convention Against Corruption, UN, New York, 2004, p. iii.

2. Robert I. Rothberg (ed.): Corruption, Global Security and World Order, Pentagon Press, New Delhi, 2010; see Laura S. Underkuffer: Defining Corruption, pp. 27-46.

3. Alexandra Addison Wrage: Bribery and Extortion, Praeger Security International, USA, 2007, p. 6.

4. Ibid., p. 18.

5. Robert Rotberg, op. cit., p. 341.

6. N. Vittal: Corruption in India, Academic Foundation New Delhi, 2003.

7. Jagdeep Chhokar: ‘Do our elected representatives really represent us?’, Governance Now, July 16-31, 2011.

8. S.S. Gill: The Pathology of Corruption, Harper Collins, India, p. 64.

9. Ibid., pp. 206-225.

10. Transparency International: Global Corruption Report 2009, p. xxv.

11. Global Financial Integrity: The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008, p. iii.

12. TI CPI Survey 2002, cited by N. Vittal, op. cit., p. 36.

13. Douglas Andrews Yates: ‘France’s Elf Scandal’ in Gerald E. Caiden et al. (eds.): Where Corruption Lives, Kumerian Press, Connecticut, USA, 2001, pp. 69-78.

14. See for details, Transparency International: Global Corruption Report 2009, pp. 154-156.

15. Foreword to UN Convention Against Corruption.

16. Gunnar Myrdal: Asian Drama, Volume II, Penguin Books, Middlesex, England 1968, pp. 940-958.

17. Fareed Zakaria: The Future of Democracy, Viking, Penguin Books, New Delhi, 2003, p. 109.

18. B.R. Ambedkar: Closing Speech in the Constituent Assembley, November 1949, in Rudrangshu Mukherjee: Great Speeches of Modern India, Random House, India, 2007, pp. 219-220.

19. Subrata N. Chakravarty: “A Hot Tip For Icarus”, Outlook, May 23, 2011.

20. Sri Aurobindo: The Mother, Sri Aurobindo Ashram, Pondicherry, 1984, p. 12.

21. A.L. Basham: The Wonder That Was India, Rupa, New Delhi, 2003, p. 9.

22. N.A. Palkivala: India’s Priceless Heritage, Bhartiya Vidya Bhavan, 1994, p. 38.

23. M.S. Deshpande: Message of Mahatma; www.mkgandhi. org/religonmk.htm

24. Swami Chinmayananda: Future of the country, Chinmaya Mission, Goa, December 1999, pp. 10-13.

25. C. Rajgopalachri: ‘Rescue Democracy from Money Power’, cited in N Vittal, op. cit., pp. 52-53.

26. Swami Bhoomananda: Movement for Restoration of National Values, Foundation for Restoration of National Values, New Delhi, 2008, p. 64.

27. A.P.J. Abdul Kalam: Ignited Minds, Penguin Books, New Delhi, 2002, p. 1.

28. Arnold Toynbee: Mankind and Mother Earth, Book Club Associates, London, 1976, p. 591-2.

29. Vivekananda—His Call to Nation, Advaita Ashram, Calcutta, 1969, p. 79; Collected Works, Vol. V, pp. 227-8.

Dr B.P. Mathur is a former Deputy Comptroller and Auditor General and Director, National Institute of Financial Management. He has authored a number of books, which includes Governance Reform for Vision India. His e-mail is: drbpmathur@

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