Does Corruption in Procurement have a Cure? University of Sharjah 1 February, 2018 Lisa Campbell, FCIPS - Chartered Procurement and Supply Professional

Presentation Content Slide 3: Definition of Corruption Slide 4: One View of Corruption Slide 5: Forms of Corruption in Procurement Slide 6: Effects of Corruption in Procurement Slide 7: Cost of Corruption in Procurement Slide 8: Proven Corruption Slide 9: The United Nations Convention against Corruption Slide 10: Possible Indicators of Corruption – Specification and Bid Related Slide 11: Possible Indicators of Corruption – Collusion Slide 12: Possible Indicators of Corruption – Conflict of Interest Slide 13: Mechanisms to Prevent Corruption in Procurement Slide 14: Fighting Corruption Slide 15: Acknowledgements, References and Further Reading

Definition of Corruption “Corruption is the abuse of entrusted power for private gain. It can be classified as grand, petty and political, depending on the amounts of money lost and the sector where it occurs.” Transparency International

One View of Corruption AfricLaw

Forms of Corruption in Procurement Bribes and Kick-backs Bid Rigging Conflict of Interest Deliberate Ignorance / Front Companies / Brokers / Fraud

Effects of Corruption in Procurement What does corruption do? Depletes national wealth Perpetuates inequality and poverty Interferes with the development of fair market structures Distorts competition and deters investment Lack of enforcement of regulations can affect precious natural resources Undermines trust in political systems, their institutions and leadership Public Procurement as a % of GDP: GCC: 15-20% (World Bank) OECD: 12% EU: 20% A hurdle to challenging corruption can be the very populations that become distrusting and apathetic

Cost of Corruption in Procurement

Proven Corruption May 2013 US Department of Justice Investigation into Total Between 1995 and 2004, Total SA paid $60 Million in bribes to an Iranian official with oil sector influence to win contracts Total SA agreed to pay US government $398.2 Million Criminal case to be dropped if comply with independent monitor Case settled in US but faced additional charges in France May 2017 US Navy Investigation into Glenn Defense Marine Asia Between 2006 and 2014, tens of millions of dollars in bribes included luxury travel, hotel stays, elaborate dinners, cash and parties Submitted low ball bids to win Created false invoices for services not provided Overcharged invoices 13 pleaded guilty, 14 cases pending Admiral Robert Gilbeau 18 months in prison, 3 years of probation, 300 hours of community service and $150,00 restitution Alex Wisidagama, GDMA exe, 5 years in prison and $34.8 M in restitution Captain Daniel Dusek, 46 months in prison

The United Nations Convention against Corruption The only legally binding universal anti-corruption instrument Preventative measures Criminalization and law enforcement International co-operation Asset Recovery Technical assistance and information exchange

Specification & Bid Related Possible Indicators of Corruption Use of brand names over generics and the winning bidder’s goods are uniquely similar to specification Unjustifiably unusual or unreasonable specifications Significant changes to specification from previous market approaches Low number of bidders or interested parties Bid manipulation – changes after submission, voided for errors, unreasonable disqualification Bidders complaining Specification & Bid Related

Collusion Possible Indicators of Corruption Prices drop with new entrants Abnormal bids – just under budget, at budget, etc. All bidders consistently submit high prices Winning bid too high compared to cost estimates/published pricing Losing bidders subsequently hired as sub-contractors Collusion

Conflict of Interest Possible Indicators of Corruption Employee not completing company Conflict of Interest documentation Employee turns down promotion Employee’s unexplained wealth Acceptance of high prices and low quality Increasing value of Contract through undocumented or frequent changes Unexplained favoritism for a specific contractor Conflict of Interest

Directors of Procurement Mechanisms to Prevent Corruption in Procurement Directors of Procurement Whistleblower protections Transparent Procurement processes Adequate systems Adequate and independent audit Vetting of Contractors and Sub-contractors Anti-corrupt organizational culture Specific training to tackle corruption Procurement Staff Follow Procurement processes Procurement qualifications Remain up to date with ethics certification Anti-corrupt personal behavior Guard and protect your integrity Speak up

Remain Non-confrontational Fighting Corruption Build Partnerships Step by Step Remain Non-confrontational

Acknowledgements, References and Further Reading https://www.transparency.org/ http://www.oecd.org/ http://ec.europa.eu/anti-fraud/home_en http://www.worldbank.org/?cid=ECR_GA_HPlaunch_searchad_EN_EXTP&gclid=COfy8YbyhtQCFQgW0wodSokKcg https://africlaw.com/2015/04/13/call-for-a-corruption-free-africa-a-rights-based-approach/ Burguet, R. and Che, Y-K. “Competitive procurement with corruption” RAND Journal of Economics, Vol. 35 (2004), pp.50-68 Burguet, R. and Che, Y-K. “Corruption and competition in procurement auctions” RAND Journal of Economics, Vol. 36 (2005), pp.1-15 Laffont, J-J. and Tirole, J. “A Theory of Incentives in Procurement and Regulation” Massachusetts Institute of Technology, Cambridge, London, 1993, Lecture Notes Text 14 Celentani, M. “Corruption and competition in procurement” European Economic Review, Vol. 46, n. 7, (2002) pp.1273-1303