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ESC168 ESCTD 16 E rev.1 finOriginal: English

NATO Parliamentary Assembly

ECONOMICS AND SECURITY COMMITTEE

THE CORRUPTION-SECURITY NEXUS

REPORT

Richard BENYON (United Kingdom)Rapporteur

Sub-Committee on Transition and Development

www.nato-pa.int 19 November 2016

168 ESCTD 16 E rev.1 fin

TABLE OF CONTENTS

I. INTRODUCTION: A CONSIDERATION OF THE SECURITY AND ECONOMIC COSTS OF CORRUPTION.......................................................................................................1

II. CORRUPTION AND DEVELOPMENT.....................................................................................3

III. THE IMPACT ON HUMAN CAPITAL AND INNOVATION........................................................4

IV. CORRUPTION AS A TOOL OF FOREIGN AND SECURITY POLICY....................................5

V. THE CASE OF UKRAINE.........................................................................................................7

VI. CORRUPTION AND INSTABILITY IN THE MENA REGION...................................................9

VII. INTERNATIONAL EFFORTS TO COUNTER CORRUPTION...............................................10A. THE WORLD BANK......................................................................................................10B. NATO.............................................................................................................................12C. THE UNITED NATIONS................................................................................................14D. THE ORGANISATION FOR ECONOMIC CO-OPERATION AND

DEVELOPMENT (OECD)..............................................................................................15E. TRANSPARENCY INTERNATIONAL, NGO’s AND GLOBAL INDEXES......................16F. THE GLOBAL ORGANISATION OF PARLIAMENTARIANS AGAINST

CORRUPTION (GOPAC)..............................................................................................16

VIII. CONCLUSION........................................................................................................................17

BIBLIOGRAPHY.....................................................................................................................20


I. INTRODUCTION: A CONSIDERATION OF THE SECURITY AND ECONOMIC COSTS OF CORRUPTION

1. Corruption, insecurity and conflict are inextricably linked. Corruption undermines state authority and institutions while creating social and political vacuums that unaccountable forces can and often do fill. The G8 has warned that “corruption threatens our shared agenda on global security and stability, open markets and free trade, economic prosperity, and the rule of law” (G8), while UN Secretary General Ban Ki-moon has noted that “neither peace and development, nor human rights, can flourish in an atmosphere of corruption”. Developing economies bear a disproportionate share of the costs of corruption, but it is also a serious challenge in wealthy developed countries and is among those phenomena that might be labelled the dark side of globalisation (Boniface; Sadika). On the other hand, the Panama Papers revealed that the information age also offers new ways to expose corruption and the systems that allow its ill-gotten proceeds to be laundered.

2. Experts generally distinguish between every day and elite corruption (Chatham House). The first is often called petty corruption and may not have an immediately discernible influence on the macroeconomic situation of a given country; yet, it can be disproportionately burdensome for the poor while breeding public cynicism towards the political process and those associated with it. The second form, a more systemic higher-level corruption, can prove even more burdensome for marginalised groups because it tends to exacerbate unequitable distributions of scarce public resources, with effects that spill over into the private economy (Madsen). Both of these generate collective costs on the society at large. In economic terms these could be termed negative externalities linked to a corrupted exchange in which actors exploit 1) the privileged position of the state apparatus, 2) their own asymmetric access to information and the levers of decision making, 3) their capacity to erect barriers to entry, and 4) their position to exercise discretionary control over some part of the state for private rather than collective advantage (Lafay). This not only distorts the very purpose of the state, but also leads to broader rent seeking behaviour which imposes a innumerable cost on society as a whole.

3. Corruption also raises barriers among civil society, the business community and those who govern and administer (or have captured) the state. Pervasive corruption engenders societal brittleness and undermines public loyalty to the institutions of the state, which, in turn, weakens those institutions. That brittleness has important security implications as well. In countries like Afghanistan and Iraq, pervasive corruption has driven some into the arms of extremists who leverage public disgust with public venality as a recruiting tool. Loyalty to the state becomes very problematic, for example, when the police, oftentimes the most visible representatives of that state, are constantly engaged in shaking down rather than protecting the citizenry. If the military is corrupted, then national security itself is directly compromised as the capacity of that military to carry out its basic functions is eroded. Corrupt authorities only make matters worse when they exploit the public’s sense of insecurity both to consolidate and abuse power. Conflict itself can thus foster conditions that worsen corruption, which, in turn, only further provokes the sense of insecurity pervading a particular society.

4. Violent conflict and war in the current international order are more likely to be domestic rather than interstate phenomena, and corruption has become one of the core catalysts for this kind of violence. Indeed, it is both a cause and a manifestation of state failure. Failed states, in turn, are universally recognised as posing a grave risk to international comity and security. There is certainly a chicken and egg question regarding the relationship between corruption and state failure, and it is not easy to determine if corruption is primarily a cause or an effect. More often than not, it is some combination of the two and, of course, there are other factors that lead state authority and legitimacy to collapse. In any case, there is little question that escalating corruption accompanies the relegation of weak states into the category of failed states with all the adverse security consequences that this entails.

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5. Strong cohesive states not only exercise control over their territory and borders, they also ensure the rule of law, political and economic freedom and domestic comity, while reliably furnishing their citizens basic public goods and building a climate conducive to the construction of prosperity generating private markets. Weak states, by contrast, are more likely to be characterised by social and intercommunal tension, deep and enduring poverty, high domestic crime, poor state and social services, low levels of development and very high levels of corruption that make addressing these problems extraordinarily difficult. Failed states are more prone to conflicts and are frequently torn apart by open insurgencies. Insofar as there is a kind of domestic order, it is one in which corruption is king and has evolved into a kind of open unapologetic looting. In the words of Robert Rotberg, “escalating levels of venal corruption mark failed states: kickbacks on anything that can be put out to fake tender (medical supplies, textbooks, bridges, roads and tourism concessions); unnecessarily wasteful construction projects arranged so as to maximise the rents that they generate, licenses for existing and non-existing activities […] and persistent and generalised extortion […]. In such situations, corrupt ruling elites mostly invest their gains overseas not at home, making the economic failure of their states that much more acute” (Rotberg). In this sense, corruption becomes a critical threat multiplier that deepens existing security problems while creating new ones.

6. Corruption also undermines the process of political, social and security rehabilitation in the wake of conflict. It engenders particularly acute challenges in post-conflict societies because it imposes costs on reconstruction, alienates international donors and undermines the investment climate precisely when a modicum of investment is essential to restoring basic services and some semblance of an economic life. It also drives a wedge between those dispossessed by war and those whose job it is to rebuild national political and economic life. One critical problem is that war often empowers the most corrupt and that power and leverage can persist even when war and violence have gone into remission. Remission, in fact, is the operative word here because when pervasive and deep corruption survives a particular conflict, these forces are very likely to factor into future conflict. Indeed, deep-seated corruption increases the likelihood of renewed violence and conflict.

7. As suggested above, widespread corruption distorts market competition, discourages foreign and domestic investment, and wantonly raises the cost of public services and vital infrastructure projects. It also undermines faith in the legal and judicial order and trust in government more generally (Luna). Economically, deep corruption can have a similar impact as a very high rate of taxation and will thereby discourage essential economic activity simply because these added costs undermine profit potential while raising entry prices for entrepreneurs. But deep corruption has a significantly more nefarious impact than high taxation, firstly as tax income in low corruption countries should theoretically, at least, be partly recycled into the economy in the form of public investment. Corruption is a dead weight loss in economic terms. Secondly, corruption, unlike taxation, is a source of uncertainty, which is the greatest enemy of investment. It thus tends to discourage economic activity more generally. Even in its milder forms, corruption can hinder innovation, discourage investment and trigger both capital flight and a brain drain to the kinds of places where entrepreneurial activity is prized rather than seen as a profit centre for public extortionists.

8. Corruption’s blow to state authority and legitimacy only compounds its costs as markets require transparent rules and regulations to function properly. Trust in public institutions and in markets is mutually reinforcing. The erosion of trust in one invariably impacts the functioning of the other. When corruption extends deeply into the political process and, for example, distorts election results, the very notion of democracy is tarnished, and, as a result, the state and political processes that should be forging links to the general public simply lose credibility and legitimacy (OECD, 2014). Once corruption has eviscerated public loyalty, of course, the state becomes vulnerable to a broad rejection of the rule of law and even insurrectionist attacks, and those attacks themselves can even obtain a degree of legitimacy, at least from some sectors of the general public.

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9. There have been many analytical efforts to demonstrate the costs of corruption, but no figure can actually account for an activity that is conducted beyond public scrutiny. Given that limitation, some estimates put the cost of corruption globally at USD1 trillion annually with private sector corruption in developing countries alone costing USD500 billion, or more than three times all foreign assistance given in 2012 (Sadika).

10. Corruption thus exacts a high toll by distorting market mechanisms, undermining fair and open competition and deterring domestic and foreign investment. It stifles growth and future business opportunities. Investment in corrupt countries is almost 5% less than in comparable countries that have lower levels of corruption. Public venality can increase the cost of doing business by as much as 10% on average and can significantly undermine capital productivity.

11. At the level of the state, corruption undermines the system of effective budgeting and lowers public revenues by diverting tax revenue and encouraging the shadow or untaxed economy. Corrupt procurement, the awarding of unjustified subsidies, and outright theft put public budgets at risk, weaken economic resilience and alienate taxpayers (World Bank, 2000). When corrupt public officials exercise discretionary spending powers in a venal manner, investments are not allocated to programmes which offer the best value for money or where needs are greatest, but rather to those which offer the best prospects for personal enrichment of corrupt politicians (OECD, 2014). When public tenders are assigned to the highest bribe payers, the quality of public spending projects ineluctably declines. Corruption also slows down bureaucratic processes and procedures, while ever mounting red tape actually helps public officials to exact illegal rents. In other words, red tape and unclear procedures accord officials discretionary powers which put them in a position to charge those seeking government services to have their issues shepherded through the system. Those who refuse or cannot pay are simply denied adequate government services. When such practices become commonplace, social tensions mount, public infrastructure and programmes are undermined and the state’s authority erodes.

12. The level of corruption is obviously difficult to measure but the scale and global nature of the problem was well encapsulated by the publication of the so-called Panama Papers which unveiled how politicians and officials from around the world and from many kinds of political systems have been able to withhold assets from public scrutiny. While some of these holding were legitimate, most were hidden for a reason. Close associates of Vladimir Putin, for example, moved USD2 billion through off shore firms including a cellist with no reason to have acquired such tremendous wealth. But the problem goes well beyond Russia and perusing through the list of those hiding assets illustrates very well the capacity of powerful people to exempt themselves from the rules to which their own people are subject (The Economist).

II. CORRUPTION AND DEVELOPMENT

13. Given the kinds of costs outlined above, it should hardly be surprising that there is a strong correlation between corruption, poverty and income inequality. When government services are compromised as a result of corruption, the poor are disproportionately victimised. The reasons are self-evident. The poor invariably lack privileged access to decision makers and do not enjoy the economic or political clout to counter corruption induced distortions (World Bank, 2000). Not surprisingly, empirical studies suggest that income inequality mounts in most countries experiencing high levels of corruption (Corruption Watch). The United Nations has estimated that the developing world loses USD10 for every USD1 it receives in development assistance (Maharaj).

14. Firms from developed countries have also been part of the problem, but they now engage in bribery in developing countries at their own peril. Bribery can result in prosecution, penalties, and reputational damage while adding to business uncertainty (OECD, 2014). Yet, firms that willingly engage in bribery in corrupted systems can reap substantial financial rewards. One World Bank

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study suggested that such firms can enjoy significantly higher growth rates in those economies than firms refusing to engage in corrupt acts (World Bank, 2000). But again, the overall economic damage is substantial as such companies spend resources and energy cultivating political friends that might otherwise be used to develop their competitive edge. They thus squander the competitive edge needed to succeed in the dynamic global economy. Like monopolies, firms that maintain their position through bribery have little incentive to innovate. If this becomes the central feature of a national economy, it is likely to perform very poorly in international markets which today are critical to economic development.

15. Good governance constitutes yet another victim of pervasive corruption. In countries where corruption is endemic, law enforcement, legal reform and the fair administration of justice are undermined (OHCHR). Nepotism rather than merit drives public hiring practices. Government competence as well as public confidence suffers as a result. The impacts are wide reaching and even extend into public health. Child mortality rates in countries with high levels of corruption, for example, are about one third higher than in countries with low corruption, while student dropout rates are five times as high (OECD, 2014). The World Bank has found that corruption is also correlated with higher street crime rates and the prevalence of organised crime (World Bank, 2000).

16. Interestingly some studies of countries experiencing high levels of corruption have demonstrated that the public often does not perceive corruption as the overarching problem and is more focused on its consequences including unemployment and economic well-being. This reflects a kind of political complacency that can set in to corruptly governed societies. When leaders are able to frame the fight against corruption as part of an effort to improve economic and social conditions, however, overcoming such complacency becomes more likely (Dix et al.).

III. THE IMPACT ON HUMAN CAPITAL AND INNOVATION

17. It should not be surprising that talented individuals often respond to deteriorating socio-economic and politico-institutional conditions by migrating to countries where corruption is less rampant and their talents are more likely to be rewarded (Dimant). This relationship between corruption and migration is perhaps most relevant for skilled workers who might be more aware of their real market value internationally and have the means to migrate in order to exploit such opportunities. By extension, pervasive corruption can break the essential link between educational investment and economic reward. In other words, if young people have the strong impression that the economic game is rigged and their own economic prospects are diminished as a result, they will have proportionately less incentive to invest time and resources into their studies. As a result, the educated seek to migrate, the young lose their incentive to study as it fails to afford them adequate opportunities to improve their lot, and society suffers more generally as human capital is not upgraded in an optimal manner and the most talented and ambitious simply leave in droves.

18. Corruption is also a barrier to innovation which, in turn, is a critical engine of development. One recent study of the European Union (EU) found that the private sector's capacity for innovation strongly correlates with low levels corruption (a correlation of 0.84), the quality of national scientific research institutions (0.85), and gross domestic expenditure on research and development (0.9). Corruption distorts public investments in research, training and education and has a terribly adverse impact on the development and utilisation of human capital. Societies with high levels of corruption, for example, tend to spend a higher percentage of their budgets on infrastructure projects that do not so much bolster national efficiency rather to facilitate rent seeking (Mungiu-Pippidi). Societies caught in this logic are far more likely to miss the train of technological and commercial innovation.

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IV. CORRUPTION AS A TOOL OF FOREIGN AND SECURITY POLICY

19. Given the adverse impact of deep rooted corruption on state cohesion and legitimacy, it should hardly be surprising, if nonetheless disappointing, that corruption has also become a tool of statecraft. Seeking to subvert the authority and legitimacy of rival states through indirect means is an old game in power politics, and corruption can be a powerful tool. It is not surprising that one of the world’s more corrupt regimes is also using corruption as a source of international leverage and subterfuge.

20. Russia ranks 119th on Transparency International’s 2015 Corruption Perceptions Index out of 168 countries territories and countries. This actually marks an improved from 2014 when it ranked 136 on that list. Although corruption in that country had once been understood as essentially a domestic problem with ambiguous implications for the West (particularly as so much money was being recycled into Western banks and property), the war in Crimea and Eastern Ukraine has revealed the more dangerous international implications of Russia’s problem. It is now difficult for Allied governments to discount and ignore the matter, particularly as it has helped upset the European security order and spilled over into the West.

21. One problem is that corruption is now so deeply ingrained in Russian public and private life, so central to the manner in which power is obtained and exercised, and so costly to the national economy that it constantly threatens to become a source of public alienation. This, in turn, compels the government to find ways to distract attention from internal politics. Poor governance and overt corruption have distorted Russia’s economy and caused the economy in that country to underperform. In Russia, capital export has long been a financially smarter option than domestic investment, and for years wealthy Russians have been moving cash, ill-gotten or otherwise, to the safety of foreign shores. The oligarchs may feel that they have no choice given the government’s record of poor contract enforcement, arbitrary and political judgements against business leaders who have suddenly discovered that they are no longer in the Kremlin’s good graces, under-performing investments given the rents extracted by corrupt officials and the obscene level of bribery needed to allow projects to proceed. Economic underperformance was a natural consequence both of this ingrained corruption and resulting capital flight. These patterns of national economic life and their deleterious economic and political impacts have only increased Russia’s unhealthy dependence on energy exports, which has been a lifeline for the national budget and a kind of elixir for public corruption - the very grease that allowed the machinery of the Russian state to work (Guriev).

22. The collapse of global energy prices has now exposed the fragility of the Russian economy and the governance system that has structured it. Although some have speculated that these price falls would impart a sense of imperial limitations on Russia’s leaders, this does not at all seem to be the case. Repression and agitprop driven nationalism have only escalated tensions in Russia, while both fuelling and justifying Russia’s far more aggressive foreign policy. The Russian state is currently not living within its means, but has continued to aggressively challenge and undermine the states along its borders. One possible explanation for this more aggressive posture is that it has helped the government distract attention from these governance failures.

23. Interestingly it has also deployed corruption as an instrument of its foreign policy. Russia’s corruption problem has thus become a challenge to the European security order and to the democratic and market values that the Western community of nations has embodied. Nearly all of Russia’s external activities need to be seen through the prism of endemic corruption and cronyism within the Russian state and in its commercial sector. One of the primary reasons why Russia does not seem to behave like a “normal” state is that so much of its decision making is conditioned by what some might call a kleptocratic impulse among many of its key decision makers - a manner of informal governance in Russia that the Russian sociologist Alena Ledeneva has labelled “Sistema”, which she says is a shorthand term for a system of governance that operates more in the shadows than openly (Radio Free Europe).

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24. Russia’s energy sector both generates revenue for corruption and suffers from it. Leading state officials sit on the boards of the key energy companies, and many have become very rich as a result. The Kremlin has tolerated this or even actively encouraged this cross-pollination, as it has helped it purchase loyalty and accorded it leverage over those who could be prosecuted for their transgressions should their political support ever become questionable. The system is evident across a broad range of Russia and penetrates deeply into what is in effect, a very weak and under-developed civil society.

25. Needless to say, the economic consequences of this type of governance are very burdensome to the Russian people. Some have estimated that Gazprom loses almost as much money to corruption and inefficiency as it generates in profits. Pipeline construction costs for that company double when foreign firms are not engaged directly in a given project - and exercising scrutiny over them (Cohen). Auditing is a lost art in Russia. The demands of corrupted officials, the very poor protection of property rights and the constant risk of expropriation give energy companies very short time horizons and have led to chronic underinvestment in this critical sector - a problem that falling oil and gas prices are now exacerbating. Because the state plays an outsized role in the energy business and depends on it for its funding, corruption in the energy business has direct implications on the policies of the central state.

26. Energy, however, has also become a critical source of regional leverage for Russia. It has politicised energy sales for foreign policy ends and has employed a range of corrupt practices using the revenues this industry generates. It has overtly used energy to maintain its sphere of influence along its borders, fund separatist movements and entice support for them, and underwrite the election of political figures sympathetic to Russian ambitions and policies. It has also created a vast layer of intermediaries who have constructed obscure vehicles by which this energy largess is shared out to friends and denied to enemies. Russia has also overtly used the dependence of other states on its energy as a source of political and diplomatic leverage (Orttung and Overland). It is no wonder that Russia’s energy clients are increasingly looking to hedge their position and diversify their energy supplies so as not to rely too heavily on a state that uses energy so politically. Russia thus faces the paradox that the more it seeks to exercise energy leverage, the more it encourages other governments to reduce their reliance on Russian energy in order to reduce that leverage.

27. The Kremlin has established an array of networks to influence foreign governments and their policies, condition the international media, undercut civil society and in some very clear cases, to weaken states it regards as rivals while keeping bordering states within its orbit. Certainly, some of this activity is legitimate and legal. Some of this activity, however, is unseemly and transgresses international norms on corrupt practices.

28. Russia has deployed an array of financial means to influence Western policy and this has included extending donations and providing fees for services or loans to politicians – a practice which has been very difficult to monitor (Conley). Not surprisingly the favoured targets of this money are politicians opposed to NATO and the European Union, two institutions defending the values of a certain European and trans-Atlantic order that the Kremlin sees as opposed to its interests. Some of these loans have been channelled through western-based but Russian-affiliated banks. Recipients of these loans have also been welcomed in Russia to give paid talks where they defend security policies more in line with Russia’s than with their own government’s. The line-up of parties working with Russia and directly or indirectly receiving money from it is heterogeneous and includes far right, far left and regional separatist movements. The common denominator here is not ideological as such, but rather opposition to Europe’s current foreign and security policies, particularly on matters pertaining to NATO, the European Union, Russia and Ukraine. In their zero sum world view, anything that weakens NATO or the European Union or governments that support these institutions provides an advantage to Russia.

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29. Russia has set up a network of organisations to indirectly exercise financial and political influence abroad. Several of these organisations form the backbone of the network and collectively control funds approaching EUR100 million a year. They have official representations in more than 100 countries. It is impossible to say how much of the Russia-related organisations’ income is from Russian government funds, because many recipients do not declare it in their annual reports. Many of these funds promote Russian culture and Russia’s image abroad, but some are clearly seeking to find weak links in Western state structures and civil society. Here the line between legitimate activity and corrupt practices can be quite hazy. Russia’s state-sponsored media strongly reinforces these efforts (Ioffe).

V. THE CASE OF UKRAINE

30. Ukraine poses another set of challenges for the international community and for itself. Transparency International ranks it 130th out of 169 countries in its 2015 Global Corruption Perceptions Index. Since it achieved independence, elements of its political and business elite created a complex set of schemes designed to plunder public budgets and extort private markets. Years of entrenched corruption rendered Ukraine weak and impoverished, and it has suffered enormous political instability as a result. The country underwent two revolutions, in 2004 and in 2014, and in both instances corruption was a factor driving public protest. Ukraine’s General Prosecutor’s office recently estimated that between 2010 and 2014, government officials stole one fifth of national output (Bullough). Public anger in the face of theft on this scale should hardly be surprising. GOPAC estimates that 25% of Ukraine’s military budget was stolen in 2014 (Maharaj).

31. Corruption is not only a destabilising force, it also leaves countries vulnerable to external manipulation. As suggested above, Russia blatantly encouraged corruption in Ukraine’s energy sector as it afforded Russia leverage over many Ukrainian officials. It also aligned Ukraine with Russia’s way of doing business rather than the governance practices more typical of the West. In so doing, it drove a wedge between those who would reform the state and those who actually ran it for their own personal gain. All of this played into Russia’s hands as it weakened Ukraine from the inside and provided new sources of leverage. One could argue that chronic weakness exacerbated by corruption facilitated both the invasion of Crimea and the aggression in Eastern Ukraine. It is also true that Ukraine’s endemic corruption has discouraged foreign supporters of democratic Ukraine. Corruption is cited as a major hurdle every time the matter of international financial support for Ukraine is discussed. As has been the case in Afghanistan, it becomes very difficult for Western governments to justify support for weak states when there is a perception among Western voters and parliaments that much of the aid provided will be funnelled to the accounts of unscrupulous officials and politicians.

32. Over the previous decade, Russia has developed, expanded and leveraged a network of firms and financial institutions to influence the Ukrainian economy and politics (Censor; Segodnya). Many of Ukraine’s oligarchs have long standing ties to Russia, and some have represented Russian interest within Ukraine (Reuters). These figures controlled key sectors of the Ukrainian economy – energy, metallurgy, mining, construction, and the chemical industry (Aslund). In addition to sponsoring various political parties to support their own interests, some have gone further and acted as Russian proxies. This has been particularly evident in the eastern part of the country where large firms have enjoyed privileged access to Russian markets (Wilson).

33. The gas market has represented a particularly important source of corruption and corrupt influence peddling in Ukraine. Reselling gas through subsidiaries at inflated prices helped a number of Russian officials and Ukrainian businessmen to make large fortunes, but it also compromised public policy and a number of officials conducting it (Aslund). Again, these practices played into Russia’s strategic ambition of weakening Ukraine from within and exploiting corrupted leaders who were prepared to sacrifice the national interest for personal gain. Worse still, many simply conflated the two notions. A tour of former President Yanukovych’s former home, the

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Mezhyhirya Residence, which is now a museum of corruption, provides a perfect if sad illustration of how these leaders inextricably linked state policy to private gain and saw no contradiction in doing so. It is a burdensome legacy for this important but weak country.

34. In term of financing political parties, Ukraine’s election campaigns are among the world’s most expensive relative to GDP. Political parties in that country have regularly relied on secret funds – obshaks- administered by party officials with strong ties to donors (Aslund). Highly opaque party financing practices have been a serious and damaging source of corruption – a problem which continues to plague Ukraine today.

35. Even today, some in Ukraine’s parliament are not at all happy with public scrutiny and have worked to reduce the budget of investigative bodies designed to counter corruption. Parliament has also resisted the use of wiretapping for reasons which may have more to do with protecting powerful friends than any inherent concerns about privacy. Ukraine’s people, however, are sick of footing the bill for elite rent seeking and corruption. They aspire to live in a modern law state, the institutions of which are no longer expressly structured only to serve a tiny group of insiders who generate personal wealth at the expense of the nation. The challenge here is considerable. It is critical that Ukrainian civil society assume a greater role in demanding accountability. This is critical to the battle against corruption and, not coincidentally, it is also a foundation for building a more democratic order.

36. To tackle the corruption challenge and to limit Russian influence on political parties, the Ukrainian Parliament has passed a law guaranteeing state financial support to political parties which cross the 5% threshold (2% for newly established parties). Other income sources will have to be reported and theoretically at least be closely monitored (Rzhetuskaia). According to experts, however, Russia continues to secretly fund some parties in Ukraine (Chernovnenko) and obviously sees this as an effective means to exercise influence in that country.

37. Ukraine’s corruption crisis continues and issues related to good governance, transparency and accountability remains a major concern for its international supporters. Transparency International has suggested that journalists and civil society organisations remain the key players in fighting corruption in Ukraine while the state apparatus continues to resist fundamental change. A culture of impunity essentially persists, and, once again, this is stoking public anger in Ukraine, undermining national cohesion in the face of a major security challenge from Russia and alienating those in the West who would otherwise strongly support Ukraine (Ukraine Today).

38. Many of these issues were discussed frankly at a 2016 NATO Parliamentary Assembly Rose-Roth Seminar held at the Ukrainian Rada. During those discussions, senior Ukrainian officials stressed their government’s firm commitment to implementing fundamental institutional reforms despite the constraints imposed by the ongoing war in the East and the occupation of Crimea. The country, however, has made progress on many fronts – including reorienting its trade toward western markets – but much remains to be done, and resistance to change remains strong. Mustafa-Masi Nayyem, Chairman of the Committee on EU integration of the Verkhovna Rada, suggested that the country is caught between those lacking the will to reform the system and those bereft of the experience and leverage to do so.

39. The fight against deeply entrenched corruption lies at the center of the effort to overhaul the institutional life of the country. Some progress has been made. The government, for example, has created an autonomous investigative bureau to take on state corruption and has adopted a number of measures to ensure that it can operate without political interference. Defenders of the old ways of conducting business, however, are fighting back. The slow pace of reform should hardly be surprising. Ukraine has undergone the Maidan revolution, the trauma of Russian revanchisme, a war in the East with thousands of casualties and refugees, a macro-economic shock, the collapse of a highly-industrialised region of the country, as well as the loss of control of these regions. Reform under these conditions is bound to be a slow and difficult process. The level of social

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mistrust remains disconcertingly high and of course, building trust is critical to fostering higher levels of government integrity.

40. In Ukraine, pockets of oligarchic power remain deeply opposed to fundamental institutional reform. They are represented in the Rada and are working diligently to slow down institutional change to the chagrin both of Ukrainian reformers and the international community. These oligarchs still control much of the media and have managed to undermine some of the most prominent proposed reforms. Political populism is rife and tends to undermine the kind of patient policy making the country requires. Many politicians make promises to the public which they are in no position to ever deliver, and this only strengthens the hands of those seeking to thwart fundamental change.

41. The Ukrainian government has established a National Anti-Corruption Bureau which is authorised to explore the origins of ill-gained income. It has the right to investigate the income of government officials as well as property registers to see if it squares with their claimed earning. These registers are also open to journalistic scrutiny. The establishment of such a bureau was one of the preconditions for a visa free arrangement recently negotiated with the EU. The government has endeavoured to ensure this bureau’s autonomy and to provide its agents with protection from those who might seek retribution. That bureau has already made its first investigations and these have resulted in the arrests of people who previously might have been considered untouchable. It has also helped prosecute six judges accused of corrupting the judicial process.

42. But progress here is often akin to taking two steps forward and one backwards. One problem is that very few judges want to take cases against their colleagues, and it is precisely this kind of omerta that makes the struggle against corruption so difficult in countries where the judicial system is compromised. Similarly, it becomes difficult for the press to play its proper function when it is strongly controlled by many of those engaged in or at least shielding those engaged in corruption. There is often a discrepancy between the formal powers of the state to combat corruption and the more limited powers it has in practice. This can create a crisis of expectations, which has been a key part of the problem in Ukraine (NATO PA Seminar Report).

VI. CORRUPTION AND INSTABILITY IN THE MENA REGION

43. The Arab uprisings that began in 2011 unsettled governments across the Middle East and North Africa (MENA) and the after-effects have roiled regional security. Any analysis of this instability should factor in pervasive and deep corruption and its economic, social and political consequences. Uprooting corruption was a central demand of protestors across the region, and doubtless their anger was justified. Leaders in a number of the countries in the region had developed nepotistic networks that essentially constituted a parallel state. These networks, in turn, facilitated massive public asset theft and provoked very poor governance.

44. To take but one of many examples of the kind of practices that fed public resentment, in Tunisia firms owned by then President Ben Ali and his family evaded import tariffs of an estimated USD1.2 billion a year. Tax evasion on this scale, carried out by well-connected business leaders and their partners in government, was systematic across the region and not only starved public budgets of needed revenues, but also unfairly skewed national markets. Mr Ben Ali and his family had amassed billions of dollars and sent much of it to banks in the West. Libyan leader Muammar Gaddafi held assets of over USD100 billion. Egypt’s Former Acting President, Adly Mansour was found to have stolen USD2 billion while in office, Yemen’s President Abdullah had illegally allocated USD60 billion for himself over three decades of rule, and during the tenure of Nouri Al Maliki in Iraq, more than USD100 billion vanished from state coffers at a time when the government confronted grave challenges in paying state workers (Miladi). When leaders are stealing on this scale, they signal to society that this is the way in which business is conducted.

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The problem thus becomes all pervasive and seamlessly moves from the high level to the level of every day petty corruption.

45. Theft on this scale naturally led to gravely sub-optimal economic performances and budget crises in a region also characterised by youth unemployment, low economic growth, rapidly rising populations and mounting public alienation (Rijkers). Perhaps most disheartening is that little has changed since 2011. Tunisia, Egypt, Libya, Iraq, Syria and Yemen are among the worst performers on Transparency International’s Corruption Perceptions Index. In these countries, there has been a lack of adequate control systems to monitor public spending, tax evasion and bribery are again rising, and there has been a genuine reluctance to hold corrupt politicians accountable for their actions. International support for those fighting corruption in these countries has been inadequate. The risk is that a central source of regional instability is being allowed to fester and to erode state authority, autonomy and legitimacy.

46. Corruption, of course, flourishes best where the shadows are darkest. Unfortunately, strict media restrictions and the pattern of media ownership in many of these countries prevent journalists from playing the critical role of exposing the problem. At the level of diplomacy, other issues like the fight against terrorism and the refugee crisis tend to predominate, and corruption problems have once again been relegated to the back burner.

47. The importance of the oil and gas sectors in many MENA countries has only increased the potential for corruption. This reinforces the view of many economists that if improperly administered, an energy bonanza can actually become a national economic and political curse. This has been very evident in Venezuela, but it is a phenomenon that also plays out in many MENA countries. A Transparency International Report on Corruption Trends in the Middle East and North Africa Region, described the problem this way: Oil revenues have ‘’encouraged patronage, fuelled corruption and undermined state institutions’’. Specifically, a prevailing consensus exists that oil wealth promotes authoritarianism, with governments centralising power to maintain control of the revenues. Considerable literature has promoted the perspective that oil wealth in rentier MENA region countries often correlates with lack of freedom, polarised inequality and lower levels of domestic accountability as they rely on government revenues paid externally (such the royalties paid by multinational companies) rather than domestically (such as through tax collection) (Transparency International).

VII. INTERNATIONAL EFFORTS TO COUNTER CORRUPTION

48. Recognising the serious challenge corruption poses to economic development and international security, a number of international organisations are now seeking to address the problem in a more comprehensive and effective manner. Several examples are highlighted below, although this is only a partial list and does not include, for example, the efforts of individual NATO member countries to work with international partners to reduce the incidence of corruption.

A. THE WORLD BANK

49. The World Bank Group (WBG) has supported governance and anti-corruption efforts for two decades in most countries in which it operates. Conceptually, the WBG views corruption as a technical matter, akin to a macroeconomic or trade problem, rather than an issue of public morality per se. It treats the fight against corruption along the lines of other efforts to improve governance (Madsen). Accordingly, its programmes aim to make government more open, accountable, efficient, and participatory - all of which help reduce the kind of obscurity that facilitates corruption. The Bank has made corruption risk assessment, disclosure, oversight, and monitoring a central priority in its lending programmes to help ensure that development funds are used for their intended purpose. The pillar of the Bank’s anti-corruption efforts has been the 2007 Governance and anti-Corruption strategy (GAC) (The World Bank, 2014). The Bank issued an updated GAC in

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2012 aiming to help countries develop governance capacities through six key mechanisms (The World Bank, 2012):

1) Scaling up and systematising governance in country and sector programmes: education, health, infrastructure, mining, and natural resources lending programmes all now include governance and anti-corruption components which are seen as key to overall programme effectiveness. The activities are financed through a dedicated multi-donor fund, the Governance Partnership Facility, with contributions from the United Kingdom, the Netherlands, and Norway.

2) Strengthening country institutions: the World Bank provides key support to core public sector institutions – such as ministries of finance, procurement agencies, and the civil service more broadly. These programmes seek to ensure that recipient countries improve capacity, efficiency, transparency, and accountability in key functions like budget formulation, implementation, monitoring and oversight, procurement, and performance management. The Bank is also increasingly supporting sector-level institutions to improve accountability.

3) Measuring results from interventions including so-called Actionable Governance Indicators (AGIs) on matters such as public expenditure, financial accountability, and procurement assessments. The Bank has developed a portal to aggregate existing knowledge in these areas.

4) Managing risks: The Bank incorporates governance and anti-corruption measures directly into project designs in order to manage corruption risks in virtually all of its lending programmes. The Integrity Vice-Presidency (INT) detects, investigates, and sanctions corruption charges and can debar firms from participating in future Bank financed projects.

5) Supporting governance in global initiatives: The WBG seeks to exercise influence globally through instruments such as the Extractive Industries Transparency Initiative, the Construction Sector Transparency Initiative, and through partnerships with other development agencies, civil society groups, and governments. The Governance Partnership Facility and other financing instruments underwrite efforts to combat corruption in resource rich economies and encourage greater transparency and accountability in the oil, gas, and mining industries - sectors which are particularly susceptible to corrupt management and venal state oversight. The Stolen Asset Recovery initiative, launched in partnership with the United Nations Office on Drugs and Crime, represents yet another WB global endeavour in this important arena.

6) Organising the WBG’s internal resources for work on governance: the WBG focuses much effort on improving its internal mechanisms to address governance issues through intensive programmes of learning and knowledge sharing for staff in both headquarters and field offices. It typically assesses projects after their completion to derive lessons learned. This has helped generate a deeper understanding of corruption challenges in the development field.

50. Incorporating good governance goals and anti-corruption into the World Bank’s work across countries, sectors, and regions has made progress in these two related areas a key focus of its development work. The Bank has strengthened its corporate investigations and sanction regimes in order to reduce the risk of fraud and corruption in Bank-financed projects. In December 2010, the Bank launched the International Corruption Hunters Alliance, a network of 286 anti-corruption officials from 134 countries that aim to strengthen global anti-corruption efforts through parallel investigations, facilitating access to investigative information and enforcement jurisdictions that can advance national-level prosecutions of wrongdoers. The Bank has also identified both achievements and short-comings in its anti-corruption efforts and has sought to learn from these post-facto assessments.

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51. Despite this panoply of initiatives, the Bank has expressed a degree of frustration with the progress it has made in helping governments role out public financial management reforms. Nevertheless, standardisation of assessments and operational support for public financial management systems have improved in many developing countries. The Bank has identified low civil service pay in many developing countries as a pervasive problem which only increases the temptation to engage in corrupt practices. This has given it another line to target support, particularly for at risk countries such as those emerging from war. World Bank anti-corruption efforts have set out to address community-driven and local governance initiatives, and the Bank has also worked with supreme audit institutions and anti-corruption bodies. Direct financing of non-state actors has been rare and, in some cases, stretched the limits of the WBG’s role as a multilateral development agency. But doing so implicitly recognises that autonomous actors are critical to anti-corruption efforts. At the end of the day, the sustained engagement of civil society in governance and oversight matters is a prerequisite for fighting corruption.

52. Finally, public sector bottlenecks tend to constrain the investment climate in many developing countries, and this not only undermines economic dynamism but also provides an easy vehicle for corrupt officials who use their power as gate keepers to enrich themselves. The Bank strongly supports information disclosure about market rules to reduce the risk of state capture and the erosion of market efficiency. Problems pertaining to excessive red tape, however, remain ubiquitous in many countries.

B. NATO

53. NATO recognises that corruption can undermine operational preparedness and military performance on the ground, weaken the morale of armed forces and undercut the democratic values that undergird the Alliance. Corrupt procurement practices, for example, result in armed forces operating with sub-standard and/or overpriced equipment that poses a danger to personnel and the missions on which they are deployed (Maclachlan). It also undercuts much needed public trust in the national security apparatus, including the military, and this can be particularly corrosive to good democratic governance and national security. To better cope with the problem, NATO’s Euro-Atlantic Partnership Council established the landmark Building Integrity Programme (BI) in November 2007. The aim was to develop effective and efficient defence institutions under civilian and democratic control. The BI aims at building capacity within security forces both to counter corruption and to promote good governance while developing tools for armed forces to engage with civil society in a more open and transparent manner while respecting the ultimate decision making authority of elected officials. Belgium, Bulgaria, Norway, Poland, Switzerland and the United Kingdom have made voluntary contributions to a Trust Fund to support the initiative. The BI is demand-driven and participation is voluntary. The BI programme is open to all NATO Allies and partners. A notable effort has been made to reach out to Afghanistan and its military as part of the broader effort to improve governance in that besieged country. Afghanistan, of course, confronts grave challenges in this particular area with very apparent security implications (Transparency International, 2014).

54. This initiative relies on four toolkits:

1) The BI Self-Assessment Questionnaire and Peer Review Process address business practices in the defence and security sector, including democratic control and engagement, national anti-corruption laws and policy, codes of conduct, training planning and budgeting, operations, procurement, and engagement with defence companies and suppliers. Peer reviews are employed with contributions from parliamentarians and civil society, including NGOs, media and academics. The resulting report identifies good practices as well as recommendations for improvement. Countries can request BI support without ever being obliged to implement the next phase. Countries are able to participate in the process either on a one-off basis or as part of a repeated cycle.

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2) Tailored programmes offer a more comprehensive approach to addressing corruption in the defence and security sectors. Previously, two tailored programmes were developed by BI: the Tailored BI Programme on South Eastern Europe under the auspices of the South Eastern Europe Defence Ministerial process; and the Tailored BI Programme for Building Integrity and Reducing the Risk of Corruption in the Afghan National Security Forces (NATO).

3) Education and training activities cover NATO’s operations and missions and the defence and security sectors. Working in cooperation with Allied Command Transformation, the NATO International Staff calls for capabilities and performance competencies to be developed through education and training activities. The Centre for Integrity in the Defence Sector (CIDS) in Norway is responsible for translating operational requirements into education tools (NATO). The CIDS was established in 2012 to promote good governance and professional integrity in the defence sector by bringing together members of several networks of scholars, experts and others working in the field of integrity-building and anti-corruption.

4) The programme regularly produces publications that NATO and implementing partners distribute to support the process. The most recent example is “Building Integrity in Defence Establishments: a Ukrainian Case Study,” which includes practical steps the Ukrainian government might undertake to decrease the risk of corruption in a defence sector which is under serious stress because of budgetary restrictions, fighting in Eastern Ukraine and years of corrupt management (NATO Website).

55. At NATO’s Warsaw Summit in July 2016, NATO heads of state and government acknowledged the problem of corruption as posing a serious security challenge. The Final Communique was explicit in this regard:

‘’Corruption and poor governance are security challenges which undermine democracy, the rule of law and economic development. The importance of implementing measures to improve integrity building, anti-corruption and good governance applies to NATO, Allies, and partners alike. To further our work in this area, today we endorsed a new NATO Building Integrity Policy which reaffirms our conviction that transparent and accountable defence institutions under democratic control are fundamental to stability in the Euro-Atlantic area and essential for international security cooperation.’’

56. NATO leaders also specifically addressed the problem of corruption in the case of Ukraine, acknowledging both the progress Ukraine has made in this particular struggle and the ongoing problems that continue to undermine good governance there.

‘’Despite these challenging circumstances, Ukraine’s government is making progress in implementing wide-ranging reforms towards European and Euro-Atlantic standards, based on democratic values, respect for human rights, minorities and the rule of law, which will be essential in promoting prosperity and long-term stability. We welcome the steps Ukraine has taken to fight corruption, maintain International Monetary Fund conditionality, reform the judiciary, and move towards decentralisation, but substantial challenges remain and continued efforts are required. We strongly encourage Ukraine to remain committed to the full implementation of these and other necessary reforms and to ensuring their sustainability. Recalling our previous Summit decisions, NATO will continue to support Ukraine in carrying out its reform agenda, including through the Annual National Programme in the framework of our Distinctive Partnership”.

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C. THE UNITED NATIONS

57. The United Nations Convention Against Corruption (UNCAC) provides a comprehensive set of measures and recommendations to fight and prevent corruption both at national and international levels. The Convention takes a broad view of corruption and calls on states to adopt legislation covering not only financial corruption, but also trading in influence and abuse of position. It establishes preventive measures designed to strengthen legal and regulatory regimes, improve public procurement mechanisms, establish strong accounting and auditing standards, and facilitate asset recovery (Madsen).

58. International cooperation lies at the very heart of the UNCAC. It encourages countries to develop legal and operational frameworks to cooperate in the extradition of accused persons, to exchange information and collaborate in the provision of mutual legal assistance (Articles 44, 45, 46). Information sharing has proven a particularly sensitive matter. The UNCAC calls for close international law enforcement cooperation on corruption cases, including joint investigations, and has communicated that permanent cooperative agreements are preferable to ad hoc collaboration (Articles 48, 49). The UNCAC has also pushed for the establishment of an international financial intelligence unit “responsible for receiving, analysing and disseminating to the competent authorities reports of suspicious financial transactions” (Article 58). This is work that has also been taken up by the Financial Action Task Force (FATF) which is largely, although not entirely focused on the challenge of terrorist financing.

59. Asset recovery is a fundamental principle of this Convention, which calls on states to cooperate on this front (Article 51). To this end, international mechanisms to prevent and detect illicit transfers still need to be elaborated. The Convention also sets ground rules for international anti-corruption training programmes and sharing best practices (Article 60). It criminalises the bribery of national public officials as well as foreign public officials and officials of public international organisations (Articles 15 and 16).

60. The UNCAC, however, adopts a relatively mild tone when it comes to prosecuting public officials for corruption-related crimes. “Each State Party, to the extent consistent with the fundamental principles of its legal system, shall consider establishing procedures through which a public official accused of an offence established in accordance with this Convention may, where appropriate, be removed, suspended or reassigned by the appropriate authority” (Article 30). Moreover, “nothing contained in this Convention shall affect the principle that the description of the offences established in accordance with this Convention and of the applicable legal defences or other legal principles controlling the lawfulness of conduct is reserved to the domestic law of a State Party” (Article 31). This cautious approach succinctly demonstrates the limitations of international efforts to fight corruption at national levels and doubtless no international convention alone will manage to do so. The struggle is far too complex, too local, and too bound up with the traditions and mores that structure states and, of course, these all lie in the realm of sovereign national power. The international community is thus bound to work at the margins of the challenge rather than at its core.

61. But this should not deflect the international efforts to focus on long-term positive change. The UN accordingly runs a set of programmes and initiatives to help countries address corruption problems.

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1) The UN Global Compact partners with governments and businesses to tackle corruption. It engages diverse civil society groups in this effort including Transparency International, the International Chamber of Commerce, and the World Economic Forum’s Partnering against Corruption Initiative.

2) The UN has produced a range of technical tools and manuals to assist member states in implementing the UNCAC goals.

3) The TRACK Portal and Anti-Corruption Legal Library provides an electronic database of legislation and jurisprudence relevant to UNCAC from over 175 countries. TRACK seeks to create a platform where a community of partner institutions, anti-corruption practitioners and experts communicate, exchange information and schedule events dedicated to anti-corruption efforts.

4) The UN Office on Drugs and Crime, the European Anti-Fraud Office, the Republic of Austria, and other stakeholders have also founded the International Anti-Corruption Academy (IACA) which is the first global institution of its kind and provides a holistic approach to anti-corruption education, research, and technical support for a range of stakeholders.

D. THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)

62. The OECD, a clearing house of best governance practices, has made the problem of corruption and bribery a key priority. It does so because corrupt practices undermine public services and confidence in public institutions, while increasing the cost of public and private transactions. The OECD has developed a slate of programmes to address illicit practices in lobbying, public procurement, and the funding of political parties. It has also sought to establish recognised standards to ensure the protection of whistle-blowers. The OECD’s anti-corruption activities are centred around the 1997 OECD Convention on Combating Bribery (CCB). The CCB establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions. It is the first and only major international anti-corruption instrument focused on the supply side of bribery transactions. The CCB has become a critical instrument for member governments and is now routinely evoked to demand that national companies not engage in the bribery of foreign officials. Implementation of the CCB is regularly evaluated through country reports. The OECD Working Group on Bribery carries out an open-ended, peer-driven monitoring mechanism that seeks to ensure implementation of these provisions. The OECD’s Secretariat publishes recommendations to update specific provisions of the CCB and to help countries address particular challenges they face.

63. The Financial Action Task Force (FATF) established in 1989 sets standards and promotes the implementation of legal measures to fight money laundering, terrorist financing and other threats to the international financial system. It has developed recommendations which have become the standard for fighting money laundering, terrorist financing and the proliferation of weapons of mass destruction, all of which have been linked to corruption and corrupt practices. The organisation monitors the progress of its members in implementing these measures, monitors money laundering and identifies systemic vulnerabilities that criminal groups can exploit. The G-20 has specifically called on the FATF to address the problem of corruption in the framework of combatting money laundering and terrorist finance by:

- safeguarding the integrity of the public sector;- protecting designated private sector institutions from abuse;- increasing transparency of the financial system; and;- facilitating the detection, investigation and prosecution of corruption and money laundering,

and the recovery of stolen assets.

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E. TRANSPARENCY INTERNATIONAL, NGO’s AND GLOBAL INDEXES

64. Civil society groups are necessarily playing a critical role in the fight against corruption. Transparency International’s Corruption Perceptions Index (CPI), for example, has become a critical reference point for officials and activists fighting corruption globally, although some scholars have questioned its underlying methodology (Cobham). Transparency International’s CPI, for instance, spotlights domestic bribery but downplays the transnational financial links that might abet large-scale corruption (Cooley & Snyder). That said, the value of the Index is that it conveys the nature of the challenge in specific countries and offers rough yardsticks to measure improvements. Regardless of the index’s shortcomings, various governance ratings have proliferated in the last decade. Columbia University’s Alexander Cooley and Jack Snyder counted 95 such indexes on governance that generate global media attention. The Global Corruption Barometer, for example, measures citizens’ perceptions and experiences with corruption, while the Bribe Payers Index ranks exporting countries according to the perceived likelihood that their firms will employ bribery in their international dealings (Provost).

65. Fighting corruption has also become a critical priority for a range of NGO’s, many of which are positioned to work both with central governments and key civil service actors. The Swiss NGO DCAF, for example, has worked with the Ukrainian government to help it develop legislation to counter corruption. It hopes to develop a training center in that contry to develop integrity in public administration and counter-corruption strategies. The operative assumption in this case is that Ukraine cannot deepen its integration with the West without first making progress on this front (NATO PA, Seminar Report).

F. THE GLOBAL ORGANISATION OF PARLIAMENTARIANS AGAINST CORRUPTION (GOPAC)

66. GOPAC was founded in 2002 to provide a vehicle for parliamentarians across the world to work together to take on the challenge of corruption and to improve governance both domestically and internationally. The organisation recognises that parliamentarians have a central role to play in building more transparent and accountable government and that an international network would both encourage these efforts and provide additional buttresses to those engaged in the struggle. Its members represent 50 countries from across the globe. The programme engages parliamentarians in a set of Global Task Forces to develop and advance reform agenda on issues like anti-money laundering, the UN Convention against Corruption, Parliamentary Oversight, Parliamentary Ethics and Conduct, and Participation of Society in the fight against corruption. GOPAC actively supports national oversight so that parliaments can play a more effective role in the fight against corruption and advancement of good governance and best practices, while holding the executive accountable. It has established regional chapters, including, for example, the African Parliamentarians Network Against Corruption, which facilitates regional approaches to these serious challenges.

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VIII. CONCLUSION

67. Given the corrosive impact corruption plays in undermining government legitimacy and destabilising entire regions, fighting corruption should be accorded a far higher priority in the foreign policy of Western governments. Among other things, combatting corruption is one way to get at the root causes of terrorism and at underdevelopment and instability more generally—all of which undermine international security. Indeed, corruption is a threat multiplier that exacerbates already serious problems related to governance; poverty; the environment; education, employment; and illegal trade in drugs, people, artefacts and natural resources.

68. Engaging in corruption needs to become a more high-risk endeavour. The international community is in a position to do significantly more on this front. Greater efforts are needed to ensure that Western financial institutions and commercial concerns are not facilitating the laundering of revenues generated through corrupt practices. There is always a tendency to look the other way, particularly if money is not self-evidently a product of expressly illicit activities like drug trafficking. But public corruption is theft often on a massive scale, and needs to be treated as such. Tightening up legislation and ensuring that the spirit of the law is fully implemented in this regard is essential.

69. Whistle blowing should be encouraged. Some of the most startling revelations of corrupt practices in recent years are the consequence of brave efforts to expose systematic corruption. The Panama Papers are a case in point. Coordinated international initiatives are clearly required to prevent corporate anonymity from becoming a gateway to massive looting. The penalties for tax evasion and registering firms explicitly structured to hide ill-gotten gains should be made far stricter across the globe.

70. Western development assistance should continue to make anti-corruption a priority and there is much to be done on this front. There are, for example, empirically demonstrated negative correlations between civil sector pay and corruption. Helping to bolster salaries for the police and public administrators will generally help build esprit de corps in the ranks of public administration and lower the temptation to engage in corruption. This can be money well spent.

71. Continued support is needed to build public institutions that encourage transparency and financial accountability. Providing strong support for building solid public accounting and auditing agencies can be extraordinarily helpful in this regard. When such institutions are up and running, they can lower the opportunities for abuse and help instil much needed confidence in public institutions.

72. Most of the hard work, however, rests with the country in question and its people. Anticorruption strategies must be extraordinarily broad and are very much linked to building a democratic culture and a stronger and engaged civil society. Strengthening anti-corruption laws and institutions is essential, but so is encouraging civil society participation in fighting corruption and strengthening the autonomy of the judicial system. Press freedom, access to information, and whistle-blower protection are all critical in this regard.

73. It is also important to help countries reduce bureaucratic red tape that complicates the lives of the citizenry, discourages commercial activity, and provides myriad opportunities for corruption. In Ukraine, for example, commercial markets are warped by complex and unnecessary permit requirements that simply add cost to doing business in that country. To take one of many examples, one company that recently sought to purchase a vinyard, was required to secure 130 permits - an unacceptably high number that clearly discourages commercial activity and simply invites corruption because of the multiplicity of veto points controlled by public officials. Likewise, when a very significant share of a national economy is publically owned, the scope for corruption inevitably grows.

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74. Deregulation can represent an effective weapon against corruption, and there are a number of Western and developing countries which have successfully opened up their national economies by dramatically reducing red tape. These countries have much to teach and should be encouraged to do so.

75. Eliminating consumer subsidies and replacing them with cash transfers to the most needy can save countries billions of dollars and clear away opportunities for corruption. Energy subsidies in Ukraine and in much of the Middle East, for example, gravely facilitated corruption, were often regressive in their impact and led to waste and environmental degradation. Ukraine has made important progress on this front and the decision to reduce energy subsidies in that country will save taxpayers a great deal by eliminating these subsidies and striking at one of the primary sources of graft in that country.

76. For many people throughout the world, the police fundamentally embody the presence of the central state in the lives of ordinary citizens. When police and other security forces are corrupt, they become predators and their primary victims are those whom they are sworn to protect. Police reform is thus essential both to fighting corruption and imbuing the state with legitimacy in the public’s eyes. Georgia provides perhaps the best model for comprehensive and rapid police reform that ought to be recreated in other countries. Ukraine has begun to move on this front as well and this could eventually constitute a very important step in that country. Western police forces with strong anti-corruption credentials should partner up with police organisations in countries seeking to reform their police forces and to set up anti-corruption units that monitor police activities.

77. The situation in Ukraine poses a particularly compelling set of challenges. The EU, the United States and several International Financial Institutions have worked together to help Ukraine cope with its serious economic problems at a moment when there is also a bottom-up movement for change. Reformers are now represented in Ukrainian government, in parliament and in civil society and this is essential to advancing the cause of open democratic government. But reformers also confront strong resistance. Far more transparency is needed in the key institutions charged with basic governance functions. The gas sector has already undergone substantial reform, and this begins to address one of the pillars of the old corrupt order. An ombudsman now exists to expose bribery, corruption and tax fraud and there is a national assets recovery office to restore stolen assets to the public. Judicial reform is underway, but there is much to do on this front. The international community, including the members of the transatlantic community, should not to lose patience with Ukraine’s reform process. International support is now needed to help strengthen the Verkhovna Rada, build public confidence by helping it recover stolen assets, and reform key government institutions. But our governments also need to urge their Ukrainian counterparts to push ahead with an ambitious reform agenda in the face of strong resistance. Success on this front is the key to a higher level of integration with both the West and the world economy. Those countries that are providing financial support to Ukraine should insist not only that those funds are being put to their intended uses but that the government itself remains fully committed to the reform agenda.

78. It is important to build on the body of international law and conventions dedicated to the fight against corruption. The OECD’s anti-bribery convention has been a model and has triggered an important change in culture in OECD member countries. Bribery is no longer tolerated, and there are now legal foundations for prosecuting those who engage in these deleterious practices. The UN’s Convention against Corruption has established a global framework for developed and developing countries. It defines a broad set of corrupt activities including money laundering and establishes parameters for conflict of interest laws, stolen asset recovery and preventive measures. Both of these conventions provide frameworks for fighting corruption, but the key lies in the implementation and the willingness of governments to take the fight seriously. This is easier said than done and requires those dedicated to carrying out this struggle to keep the issue on the front burner.

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79. Support for civil society organisations and media dedicated to holding public officials accountable is also essential. Exposing corruption can be a dangerous game. Journalists and those in civil society do their countries a great service by exposing graft and corruption, particularly in countries where public prosecutors, police and judges are reluctant to take on these forces. International support for those dedicated to transparency and accountability is essential and should remain a priority for Western democracies concerned that corruption is destabilising many parts of the world.

80. The technologies that have facilitated the global information revolution can also be put to use to fight corruption. Exposure is a critical tool in this battle and can raise public awareness of the problem. These technologies can strengthen the hand of civil society in taking on systemic corruption by offering new sources of transparency and new vehicles for social and political mobilisation. These technologies are also helping states track funds in ways that make fiscal evasion and money laundering increasingly difficult. Democracy itself, however, remains perhaps the strongest tool for fighting corruption as it offers a way to penalise leaders who engage in the practice. Replacing long-entrenched parties with those dedicated to good governance creates opportunities to abandon corrosive habits of corruption.

81. Party financing is a sensitive topic for politicians, but it is crucial that this issue be explored in depth. There are indications that Russia has been indirectly financing some political parties in Europe and meddling in US politics. This not only creates a problem of perception; it actually poses a security challenge. Governments should close loopholes that make foreign financing of parties legal, or, at the very least, they should subject such support to full public disclosure.

82. The NATO Parliamentary Assembly has long worked with countries in the midst of democratic and market transition and has provided a critical forum for sharing experience across a range of policy issues that broadly shape the security landscape. It needs to do more work on the fight against corruption with partner countries both to the east and to the south. Sharing lessons on fighting corruption in the defence sector and in public administration more generally should remain a priority area, for example, in the Rose-Roth programme and other Assembly parliamentary training programmes. Parliamentarians dedicated to the fight against corruption should also consider working with GOPAC, the leading global forum for parliamentarians committed to tackling this critical problem.

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