Bribery and Corruption in Telecommunications – Best Practice in Prevention and Remedies

29 Pages Posted: 5 Mar 2012 Last revised: 6 Jul 2017

See all articles by Ewan Sutherland

Ewan Sutherland

University of the Witwatersrand, LINK Centre

Date Written: March 2, 2012

Abstract

This paper analyses a collection of cases of corruption in telecommunications to identify failings and best practice in legislation, regulation and practice, plus measures to reduce occurrences.

The Washington Consensus as applied to telecommunications creating efficient and competitive markets that would better meet the needs of consumers and businesses, while supporting economic development and avoiding being a burden on the taxpayer. The recipe contained significant but, apparently, unanticipated risks of and opportunities for holders of public office to make private and illegal gains. No measures were put in place to contain or to detect the corruption, with the result that individual cases came to light only slowly. The current trials in India concerning the “2G spectrum scam” and the settlement by Siemens AG with prosecutors in Germany and the USA are the most conspicuous examples.

Work to bolster anti-corruption efforts in developing countries has been separate from support for reform in telecommunications, with no special attention given to the sector.

The traditional form of corruption was in procurement, with payments for contracts for network equipment. Purchasing shifted to private-sector operators, supposedly disciplined by investors and markets against corrupt practices.

The risks of corruption were raised by all three telecommunications pillars of the Washington Consensus. Liberalisation required the issuance of new licences which were assigned in whole or in part to family members, cronies and to bribe payers. Licence conditions could be varied by bribes – buying lower levels of competition or exclusivity. Privatisation has seen the sale to cronies and bribe payers. Often the price was raised and with it the bribes by sweetening the terms (e.g., adding a wireless licence). Policy and regulation have both been controlled by operators, by bribes and regulatory capture.

Action within the sector is now essential first to identify and then implement best practice in the avoidance and elimination of corruption.

Transparency in ownership requires disclosure of the beneficial owners of operators, avoiding the anonymity of holding companies in tax havens, to reduce the problems of stakes being assigned to the family and cronies of politicians. Major multi-national groups should identify their minority “business partners”, which they have avoided by terms such as “local investors”. Registers of the financial interests of heads of state, ministers, members of parliament, and senior officials are essential, with penalties for errors and criminal sanctions for unexplained accumulation of assets. Key individuals, such as heads of state, ministers of communications and regulators should be precluded from holding financial interests in the sector.

A further area where transparency is required is in payments made for privatisation and for licences. All payments should be fully declared so that records can be checked against expenditure.

Systems of governance for telecommunications must reflect the risks of corruption. Any remaining public procurement contracts need to be subject to strict rules, with a high level of transparency. Similar practices are required for development aid, to ensure that any money is identified and the terms made clear. The success of the US Foreign Corrupt Practices Act combined with the Securities Exchange Act point to the need for detailed accounting rules, with published audited reports – country by country – and strict obligations to investigate malfeasance. Provision must also be made to protect whistleblowers.

Ministries and regulators need to adopt integrity policies including explicit anti-bribery rules, with training, signed annual declarations by key individuals and robust protection for whistleblowing. They also need to ensure transparency of their own accounts, to show payments received from operators and its disbursement or retention (e.g., in universal service or rural subsidy funds), this includes remuneration and benefits paid to senior officials. A range of practices in better regulation can be adopted to reduce the risks of corruption, including annual work plans, key performance indicators, annual reports to parliament, impact assessments for proposed measures, consultations on those measures and a robust appellate system.

Keywords: telecommunications, corruption, bribery, governance, malfeasance, TPRC

JEL Classification: K10, K14, K41, L50, L96

Suggested Citation

Sutherland, Ewan, Bribery and Corruption in Telecommunications – Best Practice in Prevention and Remedies (March 2, 2012). 2012 TRPC. Available at SSRN: https://ssrn.com/abstract=2014665 or http://dx.doi.org/10.2139/ssrn.2014665

Ewan Sutherland (Contact Author)

University of the Witwatersrand, LINK Centre ( email )

1 Jan Smuts Avenue
Wits
Johannesburg, Gauteng 2000
South Africa

HOME PAGE: http://link.wits.ac.za/

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