Corruption in Commercial Enterprise

Law, Theory and Practice

Liz Campbell, Nicholas Lord, Liz Campbell, Nicholas Lord

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138063341
• eBook ISBN: 9781351602211
• Edition: 1
• Topic: Law
• Subtopic: Criminal Law
• Index: Law

This edited collection analyses, from multiple disciplinary perspectives, the issue of corruption in commercial enterprise across different sectors and jurisdictions. Corruption is commonly recognised as a major 'social bad', and is seriously harmful to society, in terms of the functioning and legitimacy of political-economic systems, and the day-to-day lives of individuals.

There is nothing novel about bribes in brown envelopes and dubious backroom deals, ostensibly to grease the wheels of business. Corrupt practices like these go to the very heart of illicit transacting in both legal markets – such as kickbacks to facilitate contracts in international commerce – and illegal markets – such as payoffs to public officials to turn a blind eye to cross-border smuggling. Aside from the apparent pervasiveness and longevity of corruption in commercial enterprise, there is now renewed policy and operational attention on the phenomenon, prompting and meriting deeper analysis.

Corruption in commercial enterprise, encompassing behaviours often associated with corporate and white-collar crime, and corruption in criminal commercial enterprise, where we see corruption central to organised crime activities, are major public policy issues. This collection gives us insight into their nature, organisation and governance, and how to respond most appropriately and effectively.

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Part I

The organisation of corruption in commercial enterprise

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1 Corruption as business across market contexts

Mark Findlay

Commencing from the position that corruption is best understood as a business relationship, this chapter explores the nexus between corruption and enterprise by broadly examining corruption and transitional market cultures. It addresses the transparency ‘paradigm’ in corruption control and posits the market model (rather than one based on morality or governance) as a more effective control foundation. Particularly in transitional cultures with markets effected by complex relationships of obligation and dependency (which are mirrored in many illegitimate market arrangements), the chapter proposes transparency in the form of reflexive accountability in specific market relationships and transactions of market power, as being crucial for control. The analytic purpose of the chapter is to postulate a business taxonomy of corruption which exposes its reliance on power imbalance, and thereby suggest that corruption is a force for market dis-embedding¹ (with all its negative impacts on social good).

Corruption: a moral or market issue?

For the analysis to follow, corruption is delineated either as a breach of trust or as enrichment through some market advantage based on power imbalance.² In so constructing corruption, there is a conscious avoidance of moral paradigms when appreciating corruption as a market relationship. While adopting a business/market perspective, the analysis will flag important moral issues underpinning corrupt relationships, transactions and outcomes as abuses of power, particularly when more just and fair wealth or resource distribution is diverted through corrupt market arrangements, as in transitional economies.³

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Looking at corruption in market terms is not meant to either highlight or diminish the private/public divide. Viewing corruption as a relationship of power wherein advantage is transacted as any other market variable does not exclude breaches of trust in public administration simply because the authority and discretion being bartered rests in the public sector. The advantage offered by a corrupt public official is still a market advantage. By focusing on corruption as a relationship, as a market dynamic rather than as some criminal category like bribery or embezzlement, there is no reason not to recognise generic offences such as the misappropriation of funds or misrepresentation. These are market practices which produce unfair and unjust enrichment. The market is the frame in which corruption relationships become profitable business for some, and loss for others.

However conceived, corruption is about power and its distribution. Relationships which may be determined as corrupt rarely involve stakeholders with equal or balanced market standing. In the understanding of corruption as business, there need always be a market frame within which advantage is transacted, no matter how simple that frame might be. Not every transaction of advantage which expresses power imbalances in the market will be corrupt, neither is it realistic to brand all relationships of obligation and dependency potentially corrupt, particularly in clan cultures. The distinguishing feature of a corrupt relationship, transaction or outcome in my thinking is the nature and intention of the advantage, better understood in market terms than as questions of institutional and individual probity. Corruption is usually all about easy money and the commodification of trust.

Corrupt business, simply commercially conceived, may take the form of profitable enterprise decisions for those who benefit. Understood in these terms, it is not difficult to see how the classification of legitimate/illegitimate advantage,⁴ appropriate or inappropriate inducements, or Guanxi can be relative and difficult to objectify due to their cultural and market embedding. Corruption is a market force, and because of its exclusionist and anti-competitive directions, I will later argue, influences market dis-embedding, with all the negative consequences this process entails for social good.⁵

Corruption is in essence a market arrangement, not quarantined to illegitimate markets or to criminal enterprise. The failure to understand the market momentums behind corruption and its prevalence in particular market settings, I argue, constitutes a major impediment to successful corruption control. The latter part of the chapter will specifically challenge the contention that transparency facilitates corruption. This view is conditional on the essential qualification of transparency as a precondition for accountability. Transparency, rather than highlighting opportunities for corrupt arrangements and relationships particularly in transitional market economies, if focused on the giving and receiving of advantage, and the purposes behind these market connections, and their intended outcomes, will enable more effective market-based control strategies (Findlay, 2014: 236). In this transactional sense, transparency is seen as a tool for reflexive accountability where other market players can be informed of the nature and consequences of corrupt market relationships and be empowered to engage in control through market self-regulation. For this to happen, market stakeholders outside a corrupt relationship must see it for what it is, and the damage it can cause to more organic market power arrangements.

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The search for what makes corruption uniquely deleterious (morally, socially and in governance terms) is not an easy analytical venture, and is fraught with normative prescriptions. Adding to this difficulty is the reality that many of the market consequences of corruption can also be found in legitimate market forms. For instance, in a ‘free market’ economic paradigm (confined as this is to economic modelling and neo-liberal abstraction), corruption is anti-competitive. As such, this negative impact of corruption on market competition is hardly a distinguishing feature of corrupt market arrangements. The oligopolistic consolidations which have fuelled multinational commerce in the current age of neoliberal economic globalisation are designed as anti-competitive, and despite their tendency to limit market access and sometimes to ‘rig’ freer market forces, they have become an inescapable institutional feature of global mega-capitalism (Findlay, 2013: 170).

In order to more convincingly determine corrupt from other commercial market constellations, it is useful first to examine more popular representations of the phenomenon which do not necessarily work out from market origins. For instance, Rose-Ackerman (1999) defines corruption as the abuse of public office for ‘private economic gain’ (Rose-Ackerman, 1999: 75). Kofi Annan in a message to the First Conference of the States Parties to the UN Convention against Corruption (UNCAC) articulated that:

In ways large and small, corruption hurts us all. It impedes social and economic development. It erodes the public’s trust, hurts investment and undermines democracy and the rule of law. It facilitates terrorism, conflict and organized crime.

Central to the critical contribution of this chapter is the proposition that interpretations of corruption which focus on compromising public trust, distorting market balance or fostering crime and violence, fail to appreciate corruption as a business choice. As such, they distract control initiatives towards concerns for institutional governance, public morality or criminal motivations, and away from the more problematic but more fertile fields of market arrangements, relationships and outcomes. Some might say that this preference is a natural consequence of the connections promoted by major anti-corruption NGOs between corrupt conduct, failed governance, suspect public probity and questionable cultural feudalism (De Sousa et al., 2009). A more critical, perhaps cynical, interpretation would focus on a conscious avoidance of interrogating market transactions at the margins, which would highlight just how fragile an absolutist, objectivised approach to corrupt/non-corrupt business dualities might be (Boubaker and Nguyen, 2014).

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In terms of ‘business choice’, I am not proposing some process of preferencing divorced from other commercial rationalities (such as competitive advantage or tender facilitation), neither is this a consideration of amoral calculation. Rather, the idea of choice recognises that as with any other business calculation, entering into corrupt relationships is primarily motivated by financial profit (individual more than operational) weighed against market risk. Reputational disadvantage, supply chain exclusion, regulatory penalty and individual criminalisation are all factored in as the impediments to corrupt preferencing. Only when profit maximisation, market share, personal gain and operational expedience trump an anti-corruption consciousness in business practice will corrupt relationships and transactions get treated as any other market variable.

The analysis to follow prefers to recognise the compelling evidence that corruption fuels poverty by subverting the fair and just distribution of economic gains and impacting negatively on public spending programmes that benefit the poor, such as health and education (Brown, 2007: ix–xi, at x). In so doing it looks at the market motivations for corrupt relationships and the cultural determinants⁶ which may enable these to flourish. I would challenge the prevalent implication that corruption is more likely in developing economies, more tolerated in clan societies and a feature of governance frames where liberal democracy and rule of law are less robust (Boubaker and Nguyen, 2014; Findlay, 1999: chap. 6).

Putting the argument at its definitional base, corruption is a market dynamic, a relationship of power and dependency, with clear and quantifiable economic consequences. Corruption means business, and corrupt business arrangements make money for some at the expense of others. The market frame enables corruption because of the fundamental failing of more competitive advantage, in situations where exchange arrangements are less transparent and socially embedded.⁷ Were this not so then bribing public officials and greasing contractual advantage through facilitation payments would not make good business sense.

I appreciate but challenge the Machiavellian assertion that corruption is a natural, indeed inevitable, consequence of empowering individual human greed in a political sense:

We are generally reluctant to cultivate the qualities that enable us to serve the common good. Rather we tend to be ‘corrupt’, a term of art the republican theorists habitually use to denote our natural tendency to ignore the claims of our community as soon as they seem to conflict with the pursuit of our own immediate advantage . . . how can naturally self-interested citizens be persuaded to act virtuously, such that they can hope to maximise a freedom which, left to themselves, they will infallibly throw away?

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(Skinner, 1999: 170)

Rather, the argument moves to the recognition that corruption as a mechanism for market advantage is often difficult to distinguish from ruthless but resilient business practice. In this vein, it is too naive to deride corruption as a major obstacle to economic development, good governance and social-wellbeing. Neither is it, I argue, realistic to blame corruption in isolation as a reason for poor economic performance (World Bank, 2000).

Building on a more market-oriented analysis of corrupt business relationships and arrangements, it is possible to explore the social contexts in which corruption is fostered. Particularly, it is useful to understand why in some social situations, an anti-corruption consciousness is less likely to emerge as a strong counter-narrative in business affairs and market practices. Aligned with considerations of why, or why not corrupt relationships are specifically socially located sits perceptions of corruption and the manner in which these tend to be ‘negotiated’ in market contexts. Such negotiation is possible because of the ambiguity surrounding considerations of fair competitive advantage. In a social sense, for instance, it might seem an overly-nice distinction to justify facilitation payments to an official in order to expedite the exercise of her duties, and not to focus on the value of such payments, or to allow their legitimacy to be cloaked in sometimes-questionable local laws. In any case, I argue, essential market characteristics, power hierarchies and the degree to which markets are socially located will influence corruption perception, ambiguous facilitation, dominant competitive advantage preferences and the failure of control counter-narratives.

Corruption and social bonding

Polanyi employs social embeddedness as a technique for appreciating market economies (Dale, 2010). His argument is that the further markets move from their essential or organic s...

Table of contents

• Cover Page
• Corruption in Commercial Enterprise
• Title
• Copright
• Contents
• Notes on Contributors
• Acknowledgements
• Corruption in Commercial Enterprise: An Introduction
• Part I the Organisation of Corruption in Commercial Enterprise
• Part II Vulnerabilities to Corruption in Commercial Enterprise
• Part III Responding to Corruption in Commercial Enterprise
• Index