First written records of corruption

Corruption can come in many forms. It is described by Investopedia as “dishonest behavior by those in positions of power, such as managers or government officials. Corruption can include giving or accepting bribes or inappropriate gifts, double-dealing, under-the-table transactions, manipulating elections, diverting funds, laundering money, and defrauding investors.”

First and foremost, however, it needs to be said that corruption is not a new problem. It has been around for as long as people have been keeping records. Where some are willing to work for their gains, other are less prone to do so, preferring to jump the queue in order to reap the rewards. It has always been the case since the first recorded case of corruption was captured on a (stone) tablet around 2800 BC, while there are records of corruption seeping into the judiciary in Egypt from as early as 3100 BC. The first anti-corruption law, which criminalised electoral bribery, was written as early as 2000 BC.

Fast-forward to modern society and corruption is as rampant as ever, with both private and public enterprises crippled by activities such as bribery and embezzlement. Political corruption, meanwhile, is a common form of publicly reported corruption and is defined as when an officeholder or other governmental employee acts in an official capacity for personal gain. Sound familiar?

An Evil Scourge

By 2003, corruption had become so rife, so embedded in governments around the world, that the United Nations was moved to call it an ‘evil scourge’. It highlighted the disproportionate impacts corruption has on the poor in developing countries, such as in Africa, where funds were and are diverted away from development. In a bid to stem the tide, the United Nations Convention Against Corruption was launched in October 2003. This gave member countries a new instrument, containing standards, measures, and rules to fight corruption. It required member states to return the money from corrupt gains to the countries from which it was stolen.

On the face of it, the private sector is also well policed. Arguably the most well-known, and feared, anti-corruption legislation in the world is the US Foreign Corrupt Practices Act (FCPA), which was enabled in 1977. It has developed and maintained a phenomenal reputation for identifying, prosecuting and reaching settlements in corrupt transactions involving US based firms and their foreign counterparties.

But despite the success of the FCPA, the costs attributed to corruption are still overwhelming, with the top 10 settlements in the US alone, amounting to $6.2-billion. Put simply, finding corruption after the fact does not stem the financial burden attached to it.

How does South Africa rank?

So, where does South Africa fare in the global scale of corruption? According to the Corruption Perception Index (CPI), not very well.

Using a scale out of 100 – with 100 considered very clean, and 0 highly corrupt – the CPI ranks 180 countries and territories by their perceived levels of public sector corruption, according to experts and business people. The lower down the list a country finds itself, the higher the perceived corruption.

In the 2019 Index, South Africa ranked 70 out of 198, with a score of 44 out of 100. Certainly not a glowing report card, but hardly surprising when you consider the high-level corruption that has taken place in the country. The Zondo Commission, for example, continues to unearth massive corruption at the highest tiers of government, while the recent PPE tender scandal during the ongoing Covid-19 Pandemic has only served to further highlight the issues the country is facing.

To put it in numbers, former Finance Minister Pravin Gordhan has said that State Capture has cost the country around 500-billion per year, with government estimating it costing the country a staggering R1.5-trillion.This is almost equivalent to the 2019 South African budget and approximately one-third of the country’s GDP.

World Bank Studies

That is an astounding figure, and has gone undetected, despite the ambitions of the UN and global watch dogs. So how could such rampant corruption take place when the world is supposedly on high alert?

A World Bank study conducted in 2006 identified several criteria to manage the scope of corruption

  • Multi-sector: corruption is both an economic and governance problem.
  • Multi-level: corruption manifests at all levels of government and companies.
  • Many ways of manifestation: administrative corruption targets everyday actions at a low level; gratuities, small bribes, or gifts necessary to gain access – jump a queue or get served in a government department quickly.
  • Dynamic evolvement: Like markets, corruption patterns change over time and are adapted to suit changing circumstances or opportunities to avoid prevention and detection.
  • Influenced by situational factors: The fish rots from the head syndrome.

In identifying ways in which corruption manifests the study identified four key steps to be undertaken: pre-implementation analysis, risk assessment and impact study, diagnosis and analysis of results and program development and implementation.

The study used these tools to categorise countries into different enabling sectors of corruption. Using data gathered over a decade to 2006, most developed countries were categorised as either elite influence markets or elite cartels and leading African economies were categorised as being oligarchs and clans, with weak transitional states.

The influence of the Elite

Elite influence markets used wealth and power not for direct personal gain but to influence decisions or the implementation of policies. Transitional states or Provisional governments are moving from one form to another, defined as transfer of power from undemocratic to democratic are defined as economies that are developing and where institutions and their capacity are weak. High value stakes are up for grabs in transitional state countries, with very few rules moderating the high stakes games.

South Africa, of course, falls into the latter category, and it is abundantly clear that retro-active actions against corruption are not enough and do little to curb it. Forensic investigations, investigative lifestyle analysis, and crisis management, all deal with cases of corruption AFTER the fact. The reality is that the current tools were designed and defined in the 60’s and 70’s and they have not kept pace with changing times and technology. Because of this, they often fail to detect and prevent corruption and fraud, while they are also relatively expensive and disruptive to organisations. What is needed is a *proactive system that identifies corruption red flags and enables you to take action ahead of time. What is needed is a framework that provides a 360-degree view to detect and prevent corruption before it happens.

Corruption is nothing new, it has run rampant through government and private companies for thousands of years, despite the actions taken against it. To truly stamp it out, it needs to be detected before it can happen, not merely punished once its already done the damage.

Additional Resources

Corporate Insights has published an E-Book aimed at detailing the damage done by undetected corruption. Detailing global cases, the scourge of State Capture in South Africa, and other high-profile cases, it presents you with all the information at hand to better detect and fight corruption within your business.

*Corporate Insights has developed a one-of-a-kind modular system that combines TransUnion’s big data universe with our own artificial intelligence and smart logic algorithms. It enables you to continually monitor, detect, act on, and prevent critical risks, both internally and externally.

The Corporate Insights system will allow you to protect your business from succumbing to the typical pitfalls that lead to corruption. It also comes with a host of additional benefits to ensure your company continues to operate optimally, free of the threat of corruption.

Click here to book a demonstration or call us today to find out how you can transform your business.