Corruption all over the world: Where Bangladesh stands

Corruption interferes with corporate governance in at least four ways. First, it creates a shadowy environment in which corporate executives can more easily hide acts of wrongdoing. One of the startling revelations of the now infamous Watergate crisis of the 1970 was the frequency with which executives of large corporations bribed officials and how rarely these activities were reported to shareholders.

Second, governmental corruption allows executives to buy their way around the rules. Amid the current scrutiny of the Yukos procession, the largest oil company in Russia, few recall that its chairman Mikhali Kodorkovsky gained reputation for riding roughshod over the rights of minority shareholders -- a practice facilitated, it is alleged, by the instances of bribery by Yukos.

Third, companies corrode employees' sense of responsibility and accountability when they acquiesce in a corrupt external environment. The decision making process at Enron, for example, was often accountable and undisciplined and decisions were made in the tandem with bribes alleged to have been paid around the world.

Fourth, in its rawest form, private sector corruption consists of theft from the company. In the 1990s Tyco's chief executive Denis Kozlowski in USA, for example, started with by taking a questionable loan from his company and now is charged with receiving millions of dollars in a series of progressively more egregious and undisclosed actions.

Even a corruption on a smaller scale such as when a manager makes various purchasing decisions on buying various stationary articles and other supplies, on the basis of kickback rather than on the strength of the product itself, robs the company of a potential discount.

As has been stated above, very few countries, industries, banks and financial institutions are now immune from corruption. Scandinavian countries tend to have low level of corruption. Even their investors have been rocked by fraud allegations against Scandia executives. The system of kickbacks revealed in Swedish Government alcohol monopoly, Systembolaget and allegations of foreign bribes paid by Norway's Statoil. The story of BOFOR, a Swedish arms manufacturing group allegedly giving bribes to high officials and top ruling politicians in India, is well known all over the world.

Corruption seems to thrive more readily in certain sectors than others. The oil and construction industries, for instance, have long borne a reputation for unaccountable behaviour. The defence industry has a history of illicit activities and the scale and secrecy of defence contracts create an atmosphere in which executives can act with impunity. Recent controversy at Boeing, for example, revealed as extensive network of undisclosed contracts between the company and the US defence establishment.

In some countries corruption is so endemic that any form of corporate governance is difficult to imagine. Most are developing countries or emerging economies that could benefit from large foreign investment. Yet those who invest in authoritarian, newly emerging or worn torn countries such a Myanmar, Azerbijan, Kenya and Sierra Leone or so called democratic countries such as Pakistan, Bangladesh, Nigeria, the Philippines, Indonesia etc. most deal with systems predicted or personal relationships, under-funded prosecutors, weak or non-existent regulators and courts, corrupt police authorities that are easily bought.

In Bangladesh, despite existence of Anti-corruption Department, many tiers of judiciary including the Supreme Court, a hierarchical bureaucracy, an elected parliament, thriving banking system with all their laws, regulations and rules, mostly inherited from British Raj, corruption is not only rampant but exists in virulent form. Not only that, it has now reached at all levels including higher echelons of the society. Transparency International in its latest report has included Bangladesh among the three most corrupt countries in the world. The corruption is so virulent in the country that no business today can be done without offering bribes. Bribes are now to be given to get a contract from the government, take a loan from the bank, to seek information from any agency, to get a job, to get a promotion, to get a posting in the so-called "wet" positions (meaning lots of opportunities to get bribes. Dry place means such opportunities are less) to get medical attention and care which are otherwise legally free in government hospital.

Bribes are also necessary in most cases to get loans from banks, to expeditiously receive the proceeds of remittances sent by wage earners abroad. Even to buy airline or train tickets bribes are sometimes necessary. In fact to get an access to anything -- service or public goods -- which is scarce, bribe is a must. In certain institutions and agencies scales at which bribes have to be given has been institutionalised by fixing different rates for various types of favours. In fact, such widespread corruption has created a serious sense of cynicism among general public and given rise to a popular joke. This runs as follows: In Bangladesh, a person is honest who takes bribes and does the job as promised and a person is dishonest who takes money but does not do the job as promised. It is no wonder our rulers, most of whose hands are not clean are the vehement critics of Transparency International.

How this situation can be remedied? I have no clear-cut answer to this question. I am just narrating some measures taken in other countries for combating corruption. They are:

1) Sarben-Oxley Act recently passed by US Congress makes it obligatory for public companies on pain of penalty to come out with fuller disclosure of their financial position to enable the public, shareholders and others concerned to judge their net-worth. Security and Exchange Commission has been mandated to be more vigilant in their supervision and bring to book persons and institutions violating rules and regulations. Additionally, this Act also requires the chief executive and chief financial officers to certify the adequacy of their internal controls and the outside auditors to attest to that opinion (Section 404).

2) Certain voluntary steps have been taken to increase the powers of minority shareholders by introducing more directors in the Board from outside, regulate the remuneration of chief executive officers, separating the function of the chairman and banning the chief executive officer becoming chairman.

3) Steps are being taken so that each business concern prepares mission statement and makes it widely known to its employees and to the public. MCI, a giant telecommunication company, coming out of temporary liquidation has already formulated certain guiding principles as follows:

Build trust and credibility

Develop respect for the individual

Create a culture of open and honest communication

Set the tone at the top

Uphold the law

Avoid conflicts of interest

Set metrics and report results accurately

Promote substance over form

Be loyal

Do the right thing

In addition the company has appointed an executive vice president for ethics and business conduct. It has also started training its employees in ethics. Some 55,000 staff and contractors have watched a vides tape and completed a one hour ethics course online. The financial staff have been through a daylong course. MCI authorities also recognize that the key is the tone at the top. People look to see what type of behaviour is rewarded.

4) Efforts are afoot to draw up a "governance consultation" for business concerns which may only be changed with shareholder's consent.

5) Some business concerns have included women in their board of directors and discovered to their surprise that this step alone have kept the directors away from backstage intrigues in the close door board room and brought more transparency in the discussion.

6) In UK corporate governance is administered through voluntary code of conduct. There is no penalty provision if some provision of the code of conduct is not practiced by a particular company. In such case the company is merely required to explain publicly why this is not followed. In the light of recent financial market scandals these voluntary codes have been revised on the lines of recommendation of a committee chaired by Sir Drek Higgs. Among the changes in the Code are the recommendation that at least half the board should comprise of non-executive directors and that a chief executive should not go to become chairman of the same company. Fraud in accounting and audit process has also been covered in the revised Combined code of corporate governance.

7) A new Basel II Accord under the aegis of Bank for International Settlements aimed at curbing the excesses of the 1990s and promoting better governance and accountability is being formulated. The new accounting standards called International Accounting Standards are likely to come into force by 2006. Those that do not implement the standards will be considered to be poor at risk management and this will determine their credit ratings and access to capital markets.

Some of the various measures briefly discussed above may be applied in Bangladesh in varying degrees to suit the local needs after carefully examining the details. This should be the primary task of Bangladesh Bank -- the central bank of the country.

In 1996, with the co-operation of Mr Luthfur Rahman Sarker, the then Governor of Bangladesh Bank, I had initiated a campaign to improve ethical standards in banking profession and arouse a sense of ethics amongst bankers in order to enhance their images in public eyes. To this end, a fund was set up named as Nurul Matin Fund in Bangladesh Institute of Bank Management with an initial donation of Taka 2.5 lacs by my family members and myself. Subsequently, Bangladesh Bank contributed Taka five lacs, Chartered Bank Taka two lacs, family members of late Mr Nurul Matin Taka one lac and many bankers who worked with him contributed generously to this fund Mr M Syeduzzaman, former Finance Minister, also contributed Taka 10,000.00 to the Fund. Separately I had contributed Taka one lac to Institute of Bankers in Bangladesh for introducing a paper on "Ethics in Banking" and awarding a gold medal annually to a candidate scoring highest marks in this paper.

Nurul Matin Memorial Fund was set up in BIBM to mount a programme of campaign of ethics in the banking sector and was supposed to include amongst others the following elements:

1) To arrange lecture every year by a distinguished person in Bangladesh or abroad on "Ethics in Banking" and widely circulate copies of lectures amongst bank employees.

2) To arrange seminars/workshops on "Ethics in Banking" in collaboration with main newspapers and other interested organisations.

3) To formulate codes of conduct for bankers in consultation with banks and thereafter enforce them strictly under the guidance of Bangladesh Bank.

4) To help each bank to frame mission statement and display them in all branches of the bank for knowledge of customers and the public.

5) To appoint an Ethics Officer in each bank directly responsible to the Chief Executive for handling all complaints of customers and employees and arrange lectures/discussion on ethics in the bank.

6) To appoint an Ombudsman in Bangladesh Bank for its own employees and customers and to co-ordinate the activities of Ethics Officers of other various banks.

7) To formulate some simple slogans on "Ethics in Banking" and flashing them through radio and television and promoting them on the official envelopes of banks.

8) To introduce a short talk on ethics in the beginning of each of the training courses of Training Institutes of various banks as well as BIBM.

9) To set up a system in Bangladesh Bank to keep record of all bank employees who have been charged or punished for serious misconduct like defalcation of bank's money, accepting bribes, tampering bank accounts, deceiving customers with nefarious intentions, withholding or delaying various services in order to squeeze money from customers, divulging secrets of the bank without proper authorisation.

10) Introducing a paper on "Ethics in Banking" in the Masters Course in BIBM.

The campaign started with a bang and great enthusiasm. The first Nurul Matin Memorial lecture was delivered by Justice Shahabuddin, the then President of Bangladesh; the second lecture was delivered by Justice Habibur Rahman, former Chief Advisor of caretaker government of Bangladesh. The third and fourth lectures were delivered by Professor Rehman Sobhan and Mr Syeduzzaman, former Finance Minister. But during the last few years the momentum of the campaign seems to have ebbed and lost its steam. Not only Nurul Matin lectures were not delivered for two years during the period of last four years, but also other elements of the programme have not made much headway. Neither the Institute of Bankers nor BIBM has yet been able to introduce a paper on "Ethics in Banking" so far even though considerable time has elapsed.

A lack of intent and enthusiasm seem to have set in, creating an impression among the people watching the progress of the campaign that top bankers in our country, barring a few exceptions, are not prepared to put their shoulders to the wheel, either because they do not have much faith in the efficacy or utility of the programme or they are preoccupied with other things.

If this is the case then it is very unfortunate, not only for our bankers but for our country as a whole. I would only expect that our new generation of bankers will willingly come forward to help this campaign in their collective interest and prove to the public that they are equally concerned to cleanse banking profession of corruption and malpractices in order to improve their personal and collective image. Some people have to do this. We should not merely ask, "Who will bell the cat?" and try to close the debate. All of us, individually and or collectively have the option to act or not to act. But none has the option to escape from the consequences of his/her actions. In my long life I have learnt that no goal is achieved in life unless we clinch the first two letters of the word and say, "Go."

AKN Ahmed is a former governor of Bangladesh Bank.