Corruption: A social disease – What’s in it for me? Fraud and corruption in public procurement (Part 4)
Johan Coetzee
Corruption occurs in several forms, known as ‘manifestations’. These manifestations mutate continuously.
The author’s field of expertise is corruption and anti-corruption strategies, and he has identified more than 40 manifestations of corruption (Coetzee). All manifestations are not related to procurement and this section will focuses only on some of the most common forms.
BRIBERY
Bribery is one of the most common forms of corruption.
In a bribe one party (the first party) agrees to pay and/or incentivise another party (the second party) to do something so that the first party will benefit. Such an agreement is to the disadvantage of society at large, is generally not in writing, is illegal and cannot be used to force the other party to comply. For example, the second party abuses his or her influence so that the first party is awarded a tender which does not meet specifications.
In general, a bribe is paid in advance by the first party to the second party before the second party acts on the request by the first party. A few examples of bribery will be discussed below.
EXAMPLES
The following investigations and prosecutions by the United States of America’s (USA) Government, provide an indication of the scale of bribery in Nigerian federal procurement.
Halliburton was found to have ‘channelled’ US$182 million to several former Nigerian presidents and of?cials through an agent in a 1994 bid to build a US$2 billion natural gas plant. Although Halliburton faced stiff penalties in the USA for their role in this scandal in Nigeria, no of?cials fingered in these investigations were investigated. In January 2016, the President demanded that the ?les be re-opened (Williams-Elegbe).
In another example, the Airbel Group paid bribes of US$2.1m to Nigerian customs of?cials and other public officials in connection with oil exploration contracts.
In 2009, an executive of Willbros International admitted to having paid bribes of more than US$6 million to of?cials in Nigeria’s state-owned petroleum corporation in order to obtain pipeline construction contracts.
In 2010, Panalpina World Transport admitted to having paid bribes worth US$27 million to public of?cials in seven countries, including Nigeria.
Because ‘bribing’ is a very general and loosely-described term, it can manifest differently. Some of these manifestations will be discussed below.
PRICE FIXING
Although the following citation is mainly based on USA legislation, it illustrates the comprehensiveness of price fixing, bid rigging and market division that occur outside as well as inside Africa.
Price fixing is an agreement amongst competitors “…to raise, fix, or otherwise maintain the price at which their goods or services are sold”. Competitors do not have to charge the same price or “…every competitor in a given industry join the conspiracy”.
Price fixing can take numerous forms, because any agreement that “…restricts price competition violates the law” (DOJ Antitrust Division). Price fixing can include several forms that are not always related to procurement corruption.
BID RIGGING AND MARKET DIVISION
If government purchasers obtain goods or services by soliciticing competing bids on behalf of competitors who mutually agree (conspire) on prices to increase bids, this process is known as ‘bid rigging’.
Competitors agree in advance “…who will submit the winning bid on a contract being let through the competitive bidding process”. Similar to price fixing, not all bidders have to participate in the conspiracy to agree on who will bid at what price.
Bid rigging, also known as ‘tender fixing’, can manifest in many forms. However, bid rigging usually falls into one of several categories but these will not be explained in this article. All forms of bid rigging have an agreement among some and/or all bidders, so that the winning bidder is agreed upon before a bid; thereby limiting or eliminating competition.
In market division, competitors divide markets among themselves. For example, competitors decide themselves who will target and who will withdraw from specific customers or types of customers, products, or territories (DOJ Antitrust Division).
ARMS, COVID 19, EMERGENCIES AND EXEMPTIONS
Corruption increases in proportion to higher military spending because such spending is not subject to parliamentary questioning and scrutiny. Corruption also increases in relation to an increase in the percentage of total government spending, and in relation to the percentage of increased arms procurement.
Military spending is a monopoly of the state and contracts are often concluded in secrecy and under extensive discretionary power. In most parliaments, including in Africa, parliamentarians may not question procurement-spending on military contracts. Since no accountability is required under such blanket coverage, spending on defence and national intelligence are major areas of corruption.
It is general practice in defence not to invite tenders and to make use solely of quotations. Procurement of armaments with the protection offered by the secrecy of defence tenders and its large capital-intensive projects, is a favourite area of lucrative benefits for individuals active in organised crime.
Military projects and emergencies enable exemptions and massive corruption to occur.
During the Covid-19 pandemic and often because of poor planning and even ‘planned emergencies’, medical supplies, for example oxygen, are often exempted from regulations and bought at short notice, based on quotations, without inviting tenders. Covid vaccines are also often bought on an emergency basis. This means that there is extremely limited transparency in the procurement process.
An increasing number of corruption cases in procuring Covid-related items has been recorded. In Zimbabwe, the former Minister of Health, Obadiah Moyo, was charged with criminal abuse of office over the alleged awarding of an US$60m contract for Covid supplies at inflated prices to Drax International LLC, without having followed proper procurement procedures (The Guardian).
In Uganda, top public officials were arrested for inflating Covid relief food prices and causing government losses in excess of $ 528, 000 (Athumani).
These two cases are only a fraction of examples illustrating Covid-19-related corruption.
References:
Johan Coetzee, Good governance as a conceptual paradigm of institutional reform and transformation, 3rd SAAPAM Limpopo Chapter Annual Conference, Conference Proceedings, Corruption and Democracy in Africa, 2014.
Sope Williams-Elegbe, “Systemic corruption and public procurement in developing countries: Are there any solutions?”, Journal of Public Procurement, 18 (2), 2018.
United States Antitrust Division New Case Unit, Price Fixing, Bid Rigging, and Market Allocation Schemes: What They Are and What to Look For.
The Guardian, Zimbabwe Health Minister facing Coronavirus corruption charged sacked.
Halima Athumani, Top Ugandan officials arrested in Covid -19 purchasing scandal, VOA News.
[email protected]
Corruption occurs in several forms, known as ‘manifestations’. These manifestations mutate continuously.
The author’s field of expertise is corruption and anti-corruption strategies, and he has identified more than 40 manifestations of corruption (Coetzee). All manifestations are not related to procurement and this section will focuses only on some of the most common forms.
BRIBERY
Bribery is one of the most common forms of corruption.
In a bribe one party (the first party) agrees to pay and/or incentivise another party (the second party) to do something so that the first party will benefit. Such an agreement is to the disadvantage of society at large, is generally not in writing, is illegal and cannot be used to force the other party to comply. For example, the second party abuses his or her influence so that the first party is awarded a tender which does not meet specifications.
In general, a bribe is paid in advance by the first party to the second party before the second party acts on the request by the first party. A few examples of bribery will be discussed below.
EXAMPLES
The following investigations and prosecutions by the United States of America’s (USA) Government, provide an indication of the scale of bribery in Nigerian federal procurement.
Halliburton was found to have ‘channelled’ US$182 million to several former Nigerian presidents and of?cials through an agent in a 1994 bid to build a US$2 billion natural gas plant. Although Halliburton faced stiff penalties in the USA for their role in this scandal in Nigeria, no of?cials fingered in these investigations were investigated. In January 2016, the President demanded that the ?les be re-opened (Williams-Elegbe).
In another example, the Airbel Group paid bribes of US$2.1m to Nigerian customs of?cials and other public officials in connection with oil exploration contracts.
In 2009, an executive of Willbros International admitted to having paid bribes of more than US$6 million to of?cials in Nigeria’s state-owned petroleum corporation in order to obtain pipeline construction contracts.
In 2010, Panalpina World Transport admitted to having paid bribes worth US$27 million to public of?cials in seven countries, including Nigeria.
Because ‘bribing’ is a very general and loosely-described term, it can manifest differently. Some of these manifestations will be discussed below.
PRICE FIXING
Although the following citation is mainly based on USA legislation, it illustrates the comprehensiveness of price fixing, bid rigging and market division that occur outside as well as inside Africa.
Price fixing is an agreement amongst competitors “…to raise, fix, or otherwise maintain the price at which their goods or services are sold”. Competitors do not have to charge the same price or “…every competitor in a given industry join the conspiracy”.
Price fixing can take numerous forms, because any agreement that “…restricts price competition violates the law” (DOJ Antitrust Division). Price fixing can include several forms that are not always related to procurement corruption.
BID RIGGING AND MARKET DIVISION
If government purchasers obtain goods or services by soliciticing competing bids on behalf of competitors who mutually agree (conspire) on prices to increase bids, this process is known as ‘bid rigging’.
Competitors agree in advance “…who will submit the winning bid on a contract being let through the competitive bidding process”. Similar to price fixing, not all bidders have to participate in the conspiracy to agree on who will bid at what price.
Bid rigging, also known as ‘tender fixing’, can manifest in many forms. However, bid rigging usually falls into one of several categories but these will not be explained in this article. All forms of bid rigging have an agreement among some and/or all bidders, so that the winning bidder is agreed upon before a bid; thereby limiting or eliminating competition.
In market division, competitors divide markets among themselves. For example, competitors decide themselves who will target and who will withdraw from specific customers or types of customers, products, or territories (DOJ Antitrust Division).
ARMS, COVID 19, EMERGENCIES AND EXEMPTIONS
Corruption increases in proportion to higher military spending because such spending is not subject to parliamentary questioning and scrutiny. Corruption also increases in relation to an increase in the percentage of total government spending, and in relation to the percentage of increased arms procurement.
Military spending is a monopoly of the state and contracts are often concluded in secrecy and under extensive discretionary power. In most parliaments, including in Africa, parliamentarians may not question procurement-spending on military contracts. Since no accountability is required under such blanket coverage, spending on defence and national intelligence are major areas of corruption.
It is general practice in defence not to invite tenders and to make use solely of quotations. Procurement of armaments with the protection offered by the secrecy of defence tenders and its large capital-intensive projects, is a favourite area of lucrative benefits for individuals active in organised crime.
Military projects and emergencies enable exemptions and massive corruption to occur.
During the Covid-19 pandemic and often because of poor planning and even ‘planned emergencies’, medical supplies, for example oxygen, are often exempted from regulations and bought at short notice, based on quotations, without inviting tenders. Covid vaccines are also often bought on an emergency basis. This means that there is extremely limited transparency in the procurement process.
An increasing number of corruption cases in procuring Covid-related items has been recorded. In Zimbabwe, the former Minister of Health, Obadiah Moyo, was charged with criminal abuse of office over the alleged awarding of an US$60m contract for Covid supplies at inflated prices to Drax International LLC, without having followed proper procurement procedures (The Guardian).
In Uganda, top public officials were arrested for inflating Covid relief food prices and causing government losses in excess of $ 528, 000 (Athumani).
These two cases are only a fraction of examples illustrating Covid-19-related corruption.
References:
Johan Coetzee, Good governance as a conceptual paradigm of institutional reform and transformation, 3rd SAAPAM Limpopo Chapter Annual Conference, Conference Proceedings, Corruption and Democracy in Africa, 2014.
Sope Williams-Elegbe, “Systemic corruption and public procurement in developing countries: Are there any solutions?”, Journal of Public Procurement, 18 (2), 2018.
United States Antitrust Division New Case Unit, Price Fixing, Bid Rigging, and Market Allocation Schemes: What They Are and What to Look For.
The Guardian, Zimbabwe Health Minister facing Coronavirus corruption charged sacked.
Halima Athumani, Top Ugandan officials arrested in Covid -19 purchasing scandal, VOA News.
[email protected]
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