Minister Tuomioja's keynote speech on social and economic consequences of corruption and bribery

Minister Tuomioja's keynote speech on social and economic consequences of corruption and bribery

Hanken School of Economics, Course on Corporate Social Responsibility, Panel Discussion on Bribery, 2 December 2014.

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Students of Corporate Social Responsibility, Members of expert panel,

First of all, I want to express my satisfaction that corruption and bribery has been chosen as central theme of this panel discussion and that it attracts such a big audience of our future entrepreneurs and decision makers.

Finland has a good reputation as one of the least corrupted countries. Responsible and fair business behavior can be recognized as a distinctive feature of Finnish corporate culture and business environment. This can be used as a competitive advantage in both attracting investments to Finland and in finding investment opportunities for our companies abroad. But in order to use low corruption level as an advantage, we have to work consciously to ensure that we have even more efficient measures in place to fight against corruption and to progress from the current low level to zero corruption.

Corruption and bribery are among the key issues when we talk about Corporate Social Responsibility. For quite long time corruption was considered a problem concerning mainly the public sector. The most commonly known definition of the concept of corruption used by the World Bank, "abuse of public office for private gain" has nowadays been quite widely replaced by Transparency International´s definition: "abuse of entrusted power for private gain". This is one sign of the change in thinking that corruption is not a monopoly of the public sector, but involves private sector managers and employees as well.

When people think about corruption they often relate it to bribery. There are many other forms of corruption as well, such as conflicts of interest, embezzlement, influence peddling, favoritism, and so on. Bribery, however, is probably the most concrete form.  It is the act of offering someone money, services or other valuables, in order to persuade him or her to do something in return. There are always at least two sides involved. Bribery is corruption by definition and widely criminalized through international and national laws.

What consequences does corruption have to the society and economy?

Corruption can be also categorized according to the level in which it happens. The most common categories used are political or grand corruption, administrative corruption and so-called petty or every day corruption, which means for example fines to be paid directly to police officer or payments for services that should be free. In Finland, I dare to say, we are free of petty corruption. Our corruption cases, that are luckily few, relate more to administrative or grand corruption. In small countries, with limited markets, private cartels are typical forms of corruption. And this has been a problem in Finland too. In many developing countries, on the other side, petty corruption is part of everyday life and causes important human rights violations especially for the poor people. It is hard, and not even relevant, to define which of these types of corruption has the most serious social or economic consequences. For example grand corruption can divert great sums of funds from public use to private pockets, while petty corruption is likely to affect most the poor people.

In principle, corruption distorts the decision-making processes and functioning of free markets. This can happen in different levels, from bribery related to procurement to favoritism in design of policies. Bribery in public procurement processes reduces the benefits of competitive market and can lead to increased costs paid for products or services and thus diverts public funds to private gain. United Nations Global Compact has estimated that corruption adds worldwide 25 % to the cost of public procurement. This is impossible to measure exactly, but in any case we are dealing with significant numbers. On the other side, corruption in procurement can lead to sub-standard products or constructions that can risk the public health, environmental or personal security. There are many examples in the world of violations of building regulations and faulty inspections of constructions that have resulted in disasters: fires, building collapses, and so on.

Equally in the health sector – which is in our focus today – there are many examples of corruption in procurement leading to over-payments for drugs, sub-quality or counterfeit drugs, or sub-standard equipment purchased. Conflict of interest on the part of doctors – the issue that will be discussed in more detail here – has been reported a common worldwide problem: doctors may have inappropriate links to pharmaceutical firms or own their own pharmacies or clinics. Also education and accreditation of medical professionals can be compromised by a combination of bribes, political considerations and conflicts of interest. This is a more common problem in developing countries where education system is not so systematically regularized but we have seen at least one case of fake doctor also in Finland. In the developing world a common human rights issue is that the poor don´t have access to even basic services because they can´t afford to pay the illegal facilitation payments asked by the doctors. 

According to BDO LLP, a British accountancy and business advocacy firm, globally almost 400 billion euros are lost annually to fraud and error in healthcare industry, representing around 7 % of global health expenditure. Recently there has been positive development and losses have been reduced at global level but the numbers are very concerning and represent significant human rights violations.

In addition to these one-time, however disastrous effects, continuing and extending corrupt behavior can lead to structural or systemic corruption that has longer-term consequences of institutional and cultural character that are very hard to remedy. It creates an institutional culture of corruption and decreases the trust that citizens have of the public institutions. This kind of systemic corruption can lead to wider undermining of basic human rights, as inequality increases, services are withheld, and sometimes people die. The poor, and disproportionately poor women who use more the basic services, suffer most of these effects. Systemic corruption and favoring of certain groups is also one of the root causes for many conflicts.

And of course, corruption damages the investment climate. Corruption has often been cited as number one cause for poor business environment and investment climate. The reason is that corruption creates too many uncertainties for companies and investors. It puts an extra price tag, often difficult to pre-estimate, for companies´ trade and investments and distorts normal market processes at the cost of honest entrepreneurs. The investing companies can be more confident of the validity of the contracts and of the value of their investments, when there are clear rules and regulations in place and their implementation is systematic and transparent. Rule of Law is therefore essential for a healthy investment climate, and corruption hinders the functioning of it.

So, when we talk about the morality of bribery, we should always bear in mind also these wider consequences of corruption to the society. Even individual corrupt behavior can have disastrous effects. Individual behavior also contributes to structural or systemic practices and, eventually, erodes public morality in general and weakens democracy and trust.

Of a bit different note, I would also like to remind that the awareness of corruption in the world has increased quite a lot in the last two or three decades. Corruption is in news almost every day.  Since the beginning of the current financial crisis we have heard frequently about new corruption stories even in European countries. Every now and then there are new revelations about contacts between politicians or public sector institutions with organized crime, for example in Latin America, undermining the public trust in authorities and the Security System.

Corruption has been pointed as one of the root causes of conflicts, for example in Ukraine. Finland is of course not free of corruption either, as we have seen this year in news around drug police or construction business. The point is that corruption stories, especially in cases of political or grand corruption, are always in the public interest. This means that both public and private sector organisations need to pay serious attention also to the reputation risks involved in bribery and corruption – of course in addition to the fact that corruption is morally wrong and a crime.

Finland has enjoyed for a long time of reputation of being among the least corrupt countries in the world. In the latest Transparency International´s Corruption Perception Index, which is based on views of analysts, business people and anti-corruption experts, Finland is in the 3rd place. This is only one exercise trying to measure this secretive and complex phenomenon that is impossible to measure exactly. However it provides a broad picture about the seriousness of corruption in a given country. In Finland only a few suspected bribery offences are reported to the authorities each year. On the other hand, Finland has received criticism because many of the reported cases have not led to sanctions.

There are many factors behind the low level of corruption in Finland and these range from the high levels of social confidence and respect for legal system to transparency and publicity of the performance of official duties, independent and efficient judicial system, and to social factors, such as high level of education, free and active press, high standard of living and relatively small differences in income.

But maintaining our low levels of corruption, and lowering them further, in increasingly globalized world, requires some actions as well. We can´t just rely that our good position in global indices is enough. Different Corporate social responsibility initiatives are a good example of how anti-corruption efforts, together with human rights and environmental and other social impacts, are receiving increasing attention in private sector. There are important international conventions that Finland is party to. The United Nations Convention Against Corruption, which has now 173 States Parties, is a worldwide commitment, including measures for private sector as well. OECD´s anti-bribery convention requires the signatory countries to implement efficient measures to prevent bribery of foreign public officials in international business relations.

In Finland these measures have been included in the Penal Code, in its Chapter 30, which addresses bribery in business. In Finland a person who offers or accepts a bribe can be sentenced to fine or imprisonment.  Also a legal person may be criminally liable and sentenced to corporate fine. The scope of corporate liability covers also bribery offences committed abroad and targeted at public officials of other countries. For example, the situations when a Finnish company directly or through an intermediary bribes a foreign public official. A Finnish court can deal with bribery offences committed abroad by a Finnish citizen or company, even if the act is not criminalized in the country in question. 

Corruption is fought against through development cooperation as well. In the development cooperation partner countries, as well as globally, Finland promotes strengthening of transparent, accountable and participatory institutions and processes and the role of civil society. In the field of Corporate Social Responsibility Finland supports the United Nations Global Compact which aims to strengthen the UN and private sector partnerships for social responsibility. The ten principles of the Global Compact include respect for Human Rights, environmental impacts and work against corruption. 

We have seen that corporate responsibility has already been mainstreamed in big companies, and the phenomenon is rapidly growing in emerging economies and in development agenda, providing healthy peer pressure. Companies cannot afford any more to risk their businesses involving in corrupt practices. Investments in transparency, accountability and social responsibility are needed, and they will come with greater confidence among consumers paying soon for themselves as business advantage. This gives some good basis for expectations that even if the challenges in the globalized world are more complex, corruption will be even more actively tackled than before.