Accountability denotes a relationship between a bearer of a right and the agents or agencies responsible for fulfilling or respecting that right. One basic type of accountability relationship is that between a person entrusted with a particular task or certain powers or resources, on the one hand, and the ‘principal’ on whose behalf the task is undertaken, on the other. A duty to be accountable can be discharged in different ways, but all accountability mechanisms operate according to three principles:
“Transparency” requires that decisions and actions are taken openly and that sufficient information is available so that other agencies and the general public can assess whether the relevant procedures are followed, consonant with the given mandate;
“Answerability” means an obligation on the part of the decision-makers to justify their decisions publicly so as to substantiate that they are reasonable, rational and within their mandate;
“Controllability” refers to mechanisms in place to sanction actions and decisions that run counter to given mandates and procedures – often referred to as a system of checks and balances or enforcement mechanisms. The checks may take many forms, including shaming and praise. Impunity is the antonym of accountability and apportioning blame for harm done is an important component of accountability.
Democratic accountability, therefore, refers to the idea that people entrusted with political power have a duty of accountability to their electorate – both directly through elections and indirectly through institutional controls.
Active and passive bribery
Active bribery refers to the offence committed by the person who promises or gives the bribe; as contrasted to ‘passive bribery’, which is the offence committed by the official who receives the bribe. Active bribery occurs on the supply side, passive bribery on the demand side.
In legal lingo (according to the Council of Europe’s Criminal Law Convention on Corruption, for instance), active bribery of public officials is defined as the ” the promising, offering or giving by any person, directly or indirectly, of any undue advantage … for himself or herself or for anyone else, for him or her to act or refrain from acting in the exercise of his or her functions”. Similarly, passive bribery is “the request or receipt…, directly or indirectly, of any undue advantage, for himself or herself or for anyone else, or the acceptance of an offer or a promise of such an advantage, to act or refrain from acting in the exercise of his or her functions”.
It is important to note that “active bribery” does not always mean that the briber has taken the initiative. In fact, often the reverse is true. The individual who receives the bribe often demanded it in the first place. In a sense, then, he or she is the more “active” party in the transaction.
Involves the seizure and confiscation of assets tainted because of their connection with a crime (they were used in committing the crime or were derived from it).
Asset recovery is a term used to describe efforts by governments to repatriate to the country of origin the proceeds of corruption hidden in foreign jurisdictions.
Auditing refers to an official examination of an organisation or institution’s accounts, to make sure money has been spent correctly, i.e. according to rules, regulations and norms. Audit institutions like national and regional Auditor Generals, Audit Offices, State Comptrollers, Ombudsmen, Tribunals de Cuentas, Cours de Comptes etc. make a vital contribution to good governance by detecting poor management and inappropriate use of public money. Auditing institutions can be considered the taxpayers’ independent and professional watchdogs.
Baksheesh [backsheesh, bakshis] is an Arabic term for a relatively small amount of money given to a beggar or for services rendered (as to a waiter): alms, tips, gratuity, pourboire. Where the amount of baksheesh is inflated or demands for it are illegitimate, baksheesh is synonymous with bribe or grease money.
Bribery is the act of offering someone money, services or other valuables, in order to persuade him or her to do something in return. Bribery is corruption by definition. Bribes are also called kickbacks, baksheesh, payola, hush money, sweetener, protection money, boodle, gratuity etc. Bribery is widely criminalized through international and national laws. In particular, the bribing of foreign officials is outlawed by the OECD Convention on Combating Bribery of Foreign Public Officials.
(see petty corruption)
Bureaucratic, administrative or “petty” corruption takes place at the implementation end of politics, where the public meets public officials. Bureaucratic corruption is usually distinguished from “grand” and political corruption (to the extent it is possible to distinguish administration from politics). Bureacratic corruption usually involves smaller amounts of money, but the damage may be significant, in monetary and political terms, if it is happening in a systemic manner.
Money that shifts out of a country. Can be legal or illegal. Illegal capital flight is intended to disappear from any record in the country of origin. Earnings on the stock of illegal flight capital outside of a country do not normally return to the country of origin. Illegal flight capital can be generated through a number of means, including trade mispricing, bulk cash movements, hawala transactions, smuggling, among others.
Checks and balances
Checks and balances usually refer to the institutional mechanisms for preventing power abuse. Often, they are constitutional controls whereby the three branches of government (executive, legislative and judiciary) and other state institutions have powers over each other so that no single branch will dominate.
Clientelism is an informal relationship between people of different social and economic status: a ‘patron’ (boss, big man) and his ‘clients’ (dependents, followers, protégés). The relationship includes a mutual but unequal exchange of favours, which can be corrupt. Patrimonial and clientelist practices can institutionalise hegemonic elites and political corruption, often reaching the highest ranks of state power.
Competitive bidding is a selection process based on the principle of open and transparent advertisement of an item or service, which ensures that the best bidder wins according to qualifications, value and other objective criteria (and consequently not according to family or friendship ties, bribery or threats). Competitive bidding processes are often required by law on public contracts and purchases above a certain value.
Conflict of interest
Conflict of interest arises when an individual with a formal responsibility to serve the public participates in an activity that jeopardizes his or her professional judgment, objectivity and independence. Often this activity (such as a private business venture) primarily serves personal interests and can potentially influence the objective exercise of the individual’s official duties.
Controlled vs. uncontrolled corruption
Centralised, co-ordinated and disciplined corruption exists in some countries (controlled), while decentralised, disordered and irregular corruption exists in others (uncontrolled). These are ideal types (analytical categories); most countries can be characterised as somewhere in-between. In cases of controlled corruption, the ruling elite have a relatively strict control of the processes and proceeds of corruption. Examples include the former Soviet Union and the ‘economic tigers’ like South Korea and Taiwan which experienced economic expansion in tandem with high levels of (controlled) corruption. In cases of controlled corruption, businesses will also be able to forecast and estimate the level of corruption, and include it as a measurable expense. Therefore, controlled corruption will not be a major impediment to investments and trade. In countries with uncontrolled corruption, corruption tends to be more common and unpredictable. The rulers are not in command of who will gain how much, or from what. Uncontrolled corruption is generally considered more harmful for a country’s economy, although controlled corruption also can have harmful economic effects in the long-term.
Following a criminal conviction, criminal forfeiture refers to the confiscation by the state of proceeds of a crime for which a conviction has been recorded.
(see clientelism and patronage)
Cronyism refers to the favourable treatment of friends and associates in the distribution of resources and positions, regardless of their objective qualifications.
Customer due diligence
Obligation for financial institutions to implement processes for the identification of those customers on whose behalf they maintain or operate accounts or conduct transactions.
A company is debarred by a government or multilateral agency when it is formally prohibited from tendering for projects that the government or agency is funding (or supporting the funding for). This happens if, after enquiry and examination, that company is adjudged to have been involved in the use of corruption to secure past or current projects with either the agency/government or other agencies who operate similar policies recognised by the debarring agency/government.
Double tax agreements
(Double Taxation Treaties)
Conventions between two countries aiming to eliminate the double taxation of income or gains arising in one territory and paid to residents of another territory. Double taxation occurs when a taxpayer is taxed twice for the same asset or income. This happens when taxing jurisdictions overlap and a transaction, asset, or income amount is subject to taxation in both jurisdictions. (See TIEA)
EU Third Directive on Money Laundering
A legislative act of the European Union that translated the 40 recomendations into a directive that needs to be transposed into law in the EU member states. The latest directive, the third, is from 2005 and includes the financing of terrorism in the definition of money laundering.
Embezzlement is the misappropriation of property or funds legally entrusted to someone in their formal position as an agent or guardian.
Enhanced due diligence
Politically exposed persons are considered to be higher risk clients for financial institutions, therefore, for such clients’ banks are expected to follow some additional identification measures, according to the Financial Action Task Force’s 40 Recomendations.
Extortion is the unlawful demand or receipt of property or money through the use of force or threat. A typical example of extortion would be when armed police or military men exact money for passage through a roadblock. Synonyms include blackmail, bloodsucking and extraction.
Favouritism refers to the normal human inclination to prefer acquaintances, friends and family over strangers. When public (and private sector) officials demonstrate favouritism to unfairly distribute positions and resources, they are guilty of cronyism or nepotism, depending on their relationship with the person who benefits.
Corruption is one type of fiduciary risk, which in the development aid context is the risk that aid funds are not used for the intended purposes, do not achieve value for money, and/or are not properly accounted for. Fiduciary risk is of particular concern when donors provide direct budget support, as partner governments’ public financial management systems are often relatively weak.
Financial Action Task Force
An inter-governmental body whose purpose is to develop and promote national and international policies to combat money laundering and terrorist financing. There are several FATF-style regional bodies that have anti-money laundering (AML) and combating financing of terrorism (CFT) as their objectives. These are voluntary organizations:
The Asia/Pacific Group on Money Laundering
Caribbean Financial Action Task Force (CFATF)
Council of Europe – Moneyval
Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)
Financial Action Task Force on Money Laundering in South America (GAFISUD)
Middle East and North Africa Financial Action Task Force (MENAFATF)
Intergovernmental action group against money laundering in West Africa (GIABA)
Eurasian group on combating money laundering and financing terrorism (EAG)
Financial Intelligence Unit (FIU)
An FIU is a central, national agency responsible for receiving (and, as permitted, requesting), analysing and disseminating to the competent authorities, disclosures of financial information: (i) concerning suspected proceeds of crime and potential financing of terrorism, or (ii) required by national legislation or regulation, in order to counter money laundering and terrorism financing.
(Plus 9 Special Recommendations)
The 40 recommendations were developed by FATF and provide a complete set of counter-measures against money laundering covering the criminal justice system and law enforcement, the financial system and its regulation, and international co-operation. They have been recognised, endorsed, or adopted by many international bodies.
Fraud is economic crime involving deceit, trickery or false pretences, by which someone gains unlawfully. An actual fraud is motivated by the desire to cause harm by deceiving someone else, while a constructive fraud is a profit made from a relation of trust. Synonyms: Swindle, deceit, double-dealing, cheat, and bluff.
Gift giving is a cultural practice in many societies, by which people offer presents and favours in various circumstances according to local customs. Problems arise when gift giving to and by public officials contradict the principles of impartiality, professionalism, and meritocracy. In exchange for a gift, the official is expected to show preferential treatment to the giver. In those cases, gift-giving can be regarded as bribery.
Graft (verb) is to obtain money dishonestly by exploiting one’s position of power, especially political power. Graft is understood as political corruption with an element of greediness. Graft (noun) refers to the rewards of corruption: the loot, booty, payoffs, or spoils.
High level or “grand” corruption takes place at the policy formulation end of politics. It refers not so much to the amount of money involved as to the level at which it occurs – where policies and rules may be unjustly influenced. The kinds of transactions that attract grand corruption are usually large in scale – and therefore involve more money than bureaucratic or “petty” corruption. Grand corruption is sometimes used synonymously with political corruption, referring to corruption involved in financing political parties and political campaigns.
Bribes, seen from the angle of the briber and alluding to the “drop of oil given to a squeaky wheel” of excessive bureaucracy to make the things move smoothly again. Also called a softener, sweetener, gift.
To address corruption effectively, conventional wisdom holds that a ‘holistic approach’ is needed. Such an approach examines all institutions and practices within a given country that are relevant to maintaining honest government and private sector institutions. These include the executive, legislature and judiciary, businesses, the media, civil society organisations, etc.
Illicit financial flows
Cross-border movements of money illegally earned, transferred, or utilized. Illicit financial flows generally involve the transfer of money earned through illegal activities such as corruption, contraband, criminal activities, and efforts to shelter wealth from a country’s tax authorities.
An incentive is an inducement or stimulus (the carrot or the stick), that encourages someone to do something. Incentive theory provides a conceptual framework for analysing the role and potential of recruitment and promotion mechanisms, detection and penalties, and different wage systems in improving the efficiency of public agencies. It challenges, for instance, the simplistic view that pay increases will always reduce fraud in public administration. Note that an incentive might also be a bribe, persuading officials to return undue favours to the briber.
Integrity means adherence to a set of moral or ethical principles. An integrity system, therefore, is a political and administrative arrangement that encourages integrity. A country’s National Integrity System (NIS) comprises the whole of government and non-governmental institutions, laws and practices that can, if functioning properly, minimise levels of corruption and mismanagement. The concept of NIS has been developed and promoted by Transparency International as a framework with which to analyse corruption in a given national context, as well as the adequacy and effectiveness of national anti-corruption efforts.
The Integrity Pact is an agreement intended to prevent corruption in public contracting. One of the parties represents a central, local or municipal government, a government’s subdivision or even a state-owned enterprise (the Authority). The other party is usually a private company interested in obtaining the contract, or in charge of implementing it. In the processes related to the public project, such as bidding, contracting and implementing, both the administration and the company pledge not to bribe or take bribes, and agree to punishment should they break this pledge.
Interest peddling occurs when a professional solicits benefits in exchange for using his influence to unfairly advance the interests of a particular person or party. Interest peddling is addressed through transparency and disclosure laws, which aim to expose suspect agreements.
A kickback is a bribe, the ‘return’ of an undue favour or service rendered, an illegal secret payment made as a return for a favour. The word describes a bribe as seen from the angle of the bribed. For example, A gives B a favour and B gives A a kickback in return. The term is used to describe in an ‘innocent’ way the returns of a corrupt or illegal transaction or the gains from rendering a special service. Also called a percentage, share, cut, commission, payoff, etc.
(From klepto – to steal, and – kratos – rule: rule by looter). A kleptocracy is a political system dominated by those who steal from the state coffers and practice extortion as their modus operandi. Among the more well-known former kleptocrats we can list Duvalier (‘papa Doc’) of Haiti, Mobutu of Zaïre, Bokassa of the Central African Republic, and Suharto of Indonesia.
Money laundering is any act or attempted act to disguise the source of money or assets derived from criminal activity. Money laundering includes concealing the origins and the use of the illegal assets. It is often used to disguise the proceeds of corruption, and is widely practiced by drug traffickers, human traffickers, kleptocrats and white-collar criminals. Bank secrecy makes laundered money particularly hard to trace.
For international legal efforts to control money laundering see:
The United Nations Convention Against Corruption and The United Nations Convention Against Transnational Organized Crime and its Protocols.
Nepotism is usually used to indicate a form of favouritism that involves family relationships. It describes situations in which a person exploits his or her power and authority to procure jobs or other favours for relatives. Nepotism can take place at all levels of the state, from low-level bureaucratic offices to national ministries. Many unrestricted presidents have tried to secure their positions by nominating family members to key political, economic and military/security posts in the state apparatus.
Non-cooperative countries and territories
Countries that do not comply with anti-money laundering requirements or do not cooperate sufficiently, according to the FATF. Between 2000 and 2006, the FATF conducted the process of generating a list on non-co-operative countries and territories (NCCTs).The last country was removed from the list in October 2006 and the list was not issued again after that.
Off-shore financial centre
A jurisdiction that provides tax and regulatory privileges, generally to companies, trusts and bank account holders on condition that they do not conduct active business within that jurisdiction. OFCs host a functional financial services centre, which is the commercial response to the provision offered by tax haven locations.
Patronage refers to the support or sponsorship of a patron (wealthy or influential guardian). Patronage is used, for instance, to make appointments to government jobs, promotions, contracts for work, etc. However, most patrons are motivated by the desire to gain power, wealth and status through their behaviour. Patronage transgresses the boundaries of legitimate political influence, and violates the principles of merit and competition.
(see bureacratic corruption)
Petty corruption (also called administrative or bureaucratic corruption) is the everyday corruption that takes place where bureaucrats meet the public directly. Petty corruption is also described as “survival” corruption (“corruption of need”): a form of corruption which is pursued by junior or mid-level agents who may be grossly underpaid and who depend on relatively small but illegal rents to feed and house their families and pay for their children’s education. Although petty corruption usually involves much smaller sums than those that change hands in acts of “grand” or political corruption, the amounts are not “petty” for the individuals adversely affected. Petty corruption disproportionately hurts the poorest members of society, who may experience requests for bribes regularly in their encounters with public administration and services like hospitals, schools, local licensing authorities, police, taxing authorities and so on.
The term “political corruption” is conceptualised in various ways through the literature on corruption. In some instances, it is used synonymously with “grand” or high-level corruption and refers to the misuse of entrusted power by political leaders. In others, it refers specifically to corruption within the political and electoral processes. In both cases, political corruption not only leads to the misallocation of resources, but it also perverts the manner in which decisions are made.
Politically Exposed Persons
Individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves.
In historic religious contexts, prebends referred to the revenues of a cathedral estate shared by members of the clergy. Today, prebends refer to any non-productive revenues, for example the proceeds of bribes and other forms of corruption, collected by public officers with access to state resources.
The criminal activity from which the proceeds of a crime are derived. Money laundering is a derivative crime. Its status as a crime depends on the origin of the funds involved.
Most public and private organisations are organised hierarchically. The key relationship in a hierarchy is the one between a subordinate employee (agent) and his or her superior (principal). Incentive or principal-agent theory highlights the importance of divergent objectives, asymmetric information, incentives and penalties, recruitment and salaries etc. A lack of information, for example, makes it difficult for the principal to monitor the agent’s actions and hold the agent accountable. The theory has been used to construct micro-economic explanations of corruption and relevant institutional reforms.
A protected disclosure is a statement or report about serious wrongdoing, like corrupt conduct, maladministration or a substantial waste of public money. It is an admission or revelation that – when fulfilling certain requirements – entitles the person who made the disclosure to support and protection from reprisals, victimisation or even prosecution. Protected disclosures are made internally in the organisation, or to an Ombudsman or someone with the power to prevent retaliation against the discloser.
Public Financial Management
Public Financial Management refers to the legal and organisational framework for supervising all phases of the budget cycle, including the preparation of the budget, internal control and audit, procurement, monitoring and reporting arrangements, and external audit. The broad objectives of public financial management are to achieve overall fiscal discipline, allocation of resources to priority needs, and efficient and effective allocation of public services.
(Reducing Emissions from Deforestation and Forest Degradation)
REDD, or Reducing Emissions from Deforestation and Forest Degradation: Mechanisms or schemes negotiated under the UN Framework Convention on Climate Change that aim to reduce carbon emissions from deforestation and forest degradation in developing countries. REDD schemes commonly involve public aid financing.
REDD+: In addition to reducing carbon emissions from deforestation and forest degradation (see REDD), REDD+ schemes aim to enhance forest carbon stocks in developing countries.
Rent-seeking is a term from economics where actors attempt to derive economic rents by manipulating the social and political environment in which economic activities occur, rather than by adding value. Not all rent-seeking behavior can be equated with corruption. However, rent-seeking may involve corruption where officials solicit or extract bribes for applying their discretionary authority for awarding legitimate or illegitimate benefits to clients.
Secrecy jurisdictions are legislative, judicial, fiscal and regulatory spaces provided by jurisdictions that encourage the relocation of economic transactions to that domain. Low or minimal tax rates to non-residents might apply and they may or may not host a range of financial service providers. These jurisdiction are defined by the secrecy that ensures that those making use of its regulation cannot be identified to be doing so.
A shell company is usually incorporated in a jurisdiction in which it has no physical presence and which is unaffiliated with a regulated group. It may be used for illicit purposes such as hiding the ownership of stolen wealth, embezzled funds or to evade taxes.
In legal terms, spoilation is the intentional destruction or alteration of a document required for evidence; more broadly it refers to the destruction or plunder of something valuable. Spoilation occurs when high-ranking officials loot the wealth of their states (see kleptocracy). The spoils are the benefits reaped, the booty, rewards, profits etc. from corrupt acts.
Sporadic corruption is the opposite of systemic corruption. Sporadic corruption occurs irregularly and therefore it does not threaten the mechanisms of control nor the economy as such. It is not crippling, but it can seriously undermine morale and sap the economy of resources.
State capture is the phenomenon in which outside interests (often the private sector, mafia networks, etc.) are able to bend state laws, policies and regulations to their (mainly financial) benefit through corrupt transactions with public officers and politicans. The notion of state capture deviates from traditional concepts of corruption, in which a bureaucrat might extort bribes from powerless individuals or companies or politicians themselves steal state assets (see kleptocracy). State capture is recognised as a most destructive and intractable corruption problem, above all in transition economies with incomplete or distorted processes of democratic consolidation and insecure property rights.
Suspicious Activity Reports
Reports required to be filed by financial institutions for any activity suspected to be fraudulent.
As opposed to exploiting occasional opportunities, endemic or systemic corruption occurs when corruption is an integrated and essential aspect of the economic, social and political system. Systemic corruption is not a special category of corrupt practice, but rather a situation in which the major institutions and processes of the state are routinely dominated and used by corrupt individuals and groups, and in which most people have no alternatives to dealing with corrupt officials.
Tax Information Exchange Agreements
Mechanisms designed for the exchange of information between those states and jurisdictions denied full Double Tax Agreements, usually because they are considered tax havens.
(see secrecy jurisdictions)
Tax havens is an expression used simultaneously with secrecy jurisdiction. These are legislative, judicial, fiscal and regulatory spaces provided by jurisdictions that encourage the relocation of economic transactions to that domain. Low or minimal tax rates to non-residents might apply and they may or may not host a range of financial service providers. These jurisdiction are defined by the tax benefits they offer and, in the case of corrupt individuals wanting to hide their funds, the secrecy that ensures that those making use of its regulation.
Trading of influence
Trading of influence refers to the exchange of undue advantages between a public official and a member of the public. For example, a public official may promise to use his or her real or supposed influence to the benefit of another person in exchange for money or other favors.
Manipulation of import and export prices utilized by companies with subsidiaries in different countries, for the purpose of evading taxes.
Transparency is the quality of being clear, honest and open. As a principle, transparency implies that civil servants, managers and trustees have a duty to act visibly, predictably and understandably. Sufficient information must be available so that other agencies and the general public can assess whether the relevant procedures are followed, consonant with the given mandate. Transparency is therefore considered an essential element of accountable governance, leading to improved resource allocation, enhanced efficiency, and better prospects for economic growth in general.
Term used to describe any informal banking arrangements which run in parallel and independently of the formal banking system. It involves the transfer of currency around the world without necessarily physically relocating it. Hawalla and hundi systems are considered to be among its examples. This term is used simultaneously with alternative remittance systems.
(see protected disclosure)
Successful law enforcement and anti-corruption strategies are largely dependent upon the willingness of individuals to provide information and/or to give evidence. Whistle-blowers are people who inform the public or the authorities about corrupt transactions they have witnessed or uncovered. These individuals often require protection from those they expose. Whistle-blower protection refers to the measures (administrative or legislative) taken to shield the informer from physical, social and economic retaliation.