Lessons from Operation Car Wash

Abstract

This paper examines the question of how a nation can combat corruption and collusion and prevent these practices from plaguing and undermining public procurement processes. This matter is especially important to Brazil where Operation Car Wash (Operação Lava Jato) exposed widespread corruption and collusion affecting public procurement.

Although focusing on Brazil, this paper reflects an academic and policy debate as to how a nation can escape from a “high-corruption” equilibrium, especially one strengthened by its interaction with supplier collusion. In particular, whether endemic corruption can be combatted through an invigorated law enforcement push accompanied by strategies of incremental change, or whether some “big bang” approach, with complete institutional overhaul, is required to establish a new equilibrium.

The paper notes that the Brazilian experience provides support for the hypothesis that where corruption is endemic, better laws, and law enforcement, may be insufficient on their own to break a cycle and to remove the incentives and opportunities for corruption and collusion that exist. It also recognises, however, that, for many jurisdictions, wholesale big bang reform is unlikely to be feasible. It thus proposes a multipronged, and self-reinforcing, set of reforms to trigger change, concentrated on weaknesses diagnosed in the system. In particular, it suggests that where corruption affects public procurement, beyond specific adjustments to procurement, competition and anti-corruption laws, procurers, anti-corruption and competition enforcement agencies need to work closely together to coordinate policies and achieve synergies, and to combat incentives and opportunities for corruption and collusion within procurement processes. Such reforms must be combined with measures to tackle broader factors contributing to systemic corruption. Although inspired by the Brazilian case study, the diagnosis and proposed reform strategy provides a workable model for use in other jurisdictions.

Keywords: Corruption, Collusion, Public Procurement, Collective Action Problem, Optimal Deterrence, Policy Coordination