Enhancing-Government-Effectiveness-and-Transparency-The-Fight-Against-Corruption (2)

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY The Slovak Spectator (2017). Medical supplier fined for Cypriot go-betweens. https://spectator.sme.sk/c/20471528/medical- supplier-fined-for-cypriot-go-betweens.html. Transparency International UK (2017). Hiding in Plain Sight: How UK Companies are Used to Launder Corrupt Wealth. https:// www.transparency.org.uk/publications/hiding-in-plain-sight/. Wessing (2017). World-Wide Rarity: Anti-Letterbox Companies Act in Slovakia. https://ceelegalmatters.com/slovakia/6605-world- wide-rarity-anti-letterbox-companies-act-in-slovakia. Willebois, Halter, Harrison, Park & Sharman (2011). The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It. https:// star.worldbank.org/sites/star/files/puppetmastersv1.pdf. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 265

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 Exchange and Collaboration with Tax Administrations

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS Corruption is intrinsically linked to tax crimes, as (FIUs), financial institutions, anti-corruption authorities, corrupt persons do not report their income from and other enforcement agencies can strengthen efforts corrupt activities for tax purposes. The Financial to uncover cases of corruption through the sharing of Action Task Force (FATF) includes tax crimes in the set information. The variety of expertise, skills, knowledge of designated predicate offenses for money laundering and experience offered by cooperation, not only purposes, explicitly recognizing the linkages between provides joint teams with significant resources, but it tax crimes and money laundering. Moreover, the also ensures that all offenses are properly identified, extensive level of corruption related to tax has serious investigated and prosecuted. As the OECD has noted, implications for government revenues and thus many countries are looking at ways to enhance inter- economic development, as indicated in Box 10.1. agency cooperation so that they are working toward a common goal.2 Inter-agency collaboration strengthens the efforts of tax administrations to combat corruption. In There are multiple benefits that can be gained its 20101 recommendations, the OECD advocated from a joint effort to prosecute tax evasion and greater cooperation and better information sharing other financial crimes including: between different government agencies active in the fight against financial crimes both domestically • Ensuring evidentiary standards are met for all and internationally. Agencies, including financial charges through cooperation with the prosecuting intelligence units (FIUs), anti-corruption units, police, authority; customs authorities, and the public prosecutor’s office are also involved in countering corruption. While most • Access to mutual legal assistance from foreign law of the administration for prosecuting tax crimes related enforcement agencies; to corruption can be undertaken by tax authorities, they often require support in the form of information • Access to specialized tribunals, including tax sourcing or expertise from other agencies who are tribunals and anti-corruption tribunals, giving rise also combating corruption. Entering into inter-agency to a greater likelihood of success where the judicial collaboration may substantially enhance the efforts process may take more time; and of a tax administration and other agencies combating corruption. Guidance on how this can be achieved is • Prevention of any duplication of effort and any given in Case Study 20, along with references from likelihood of compromising the actions of one Africa and other regions of the world. agency. Investigating and prosecuting alleged corruption Case Study 21 explores the basic requirements for requires robust evidence, which is often scattered effective prosecutions of financial crimes, the role of across agencies that are accustomed to working the tax administrations, and the limitations that must independently. Data sharing is an initial gateway for be overcome for them to happen. Experiences are collaboration. In general, inter-agency cooperation highlighted from South Africa and Brazil. between tax administration, financial intelligence units BOX 10.1 The Extent of Corruption “...in countries perceived to be less corrupt; the least corrupt governments collect 4 percent of GDP more in taxes than those at the same level of economic development with the highest levels of corruption.....and if all countries were to reduce corruption in a similar way, they could gain $1 trillion in lost tax revenues, or 1.25 percent of global GDP ” - IMF Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 267

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS CASE STUDY 20 CASE STUDY 20 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS Inter-agency Collaboration to Detect Corruption Introduction These include issues such as: »» lack of interoperability among different IT The ability of a tax administration to share systems, lack of secure email systems resulting relevant information is often a key indicator of its in inability to send high-security material and effectiveness to proactively identify risks pertinent widely differing software capabilities resulting to its mandate. This requires mechanisms to ensure in information transfer capacity limitations; that law enforcement and other tax authorities have »» each agenc y seeking to preser ve it s full access to accurate and up-to-date information. If independence and autonomy; adequately planned, inter-agency collaboration is one »» difficulty in synchronizing and coordinating of the ways to combat corruption. From the perspective organizational procedures and working of developing countries, the limited capacity of approach; tax administrations could be in part overcome in »» different organizational objectives among cooperation with other law enforcement agencies. collaborating agencies; »» constituents bringing different expectations Challenges encountered and pressures to bear on each agency; by tax administrations, »» questions of who claims success for successful customs, FIUs and other prosecutions; and agencies »» the time period for pursuing cases. Challenges to effective cooperation between • Legal challenges: these include specific restrictions tax administration and other law enforcement and prohibitions, which may prevent an agency agencies responsible for combating corruption and from obtaining access to relevant information from other financial crimes include the following: counterparty agencies. • Administrative challenges: traditionally, the • Operational barriers: these include time - obstacles to coordination between government consuming or complicated procedures for agencies stem from fundamental cultural obtaining information from another agency, a lack differences and motivations of different agencies. of awareness of the availability of information or other mechanisms for cooperation. • Political challenges: these include a lack of support for agencies to adopt the changes required to remove or reduce legal and operational barriers. 268 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS Models for sharing 3. Spontaneous sharing of information information An agency may have the ability to provide specific categories of information spontaneously but can A study by OECD on inter-agency cooperation exercise its discretion in deciding whether to do identifies the following four types of cooperation so. Where this operates well, it can be at least as among different agencies:3 effective as the previous method. Information is shared spontaneously, but officials in the agency 1. Direct access to records and databases holding the data can exercise their judgement Tax authorities or other law enforcement agencies as to what to share. This model is particularly involved in investigating and prosecuting financial useful when it is backed by close cooperative crimes may grant direct access to their records working arrangements and a good understanding and information stored on their databases to by officials in each agency of the information designated individuals within other agencies requirements of the other agencies. Models for or tax authorities. This access may be for a wide information sharing that allow discretion to be range of purposes or restricted to specific cases exercised require clear rules for how this is to be or circumstances. Direct access has the advantage done. For example, decisions as to whether or that an agency requiring information can search not relevant information is to be shared may be for the information directly and, in many cases, limited to individuals in certain positions or levels can obtain it in real time. For example, in Iceland, of management. At the same time, guidelines may tax crime investigators within the Directorate of set out the factors that can be taken into account Tax Investigations have direct access to databases in making a decision. The effectiveness of this held by the tax administration. However, allowing type of legal gateway is also based on the ability direct access carries the risk of access to data for of officials to identify relevant information and purposes other than those for which it was initially their willingness to exercise discretion to provide contemplated. Countries may, therefore, seek to information. However, where there is no previous introduce safeguards to protect the confidentiality experience of inter-agency cooperation, the of sensitive information, by taking measures such as benefits to both agencies of sharing information restricting access to databases to a few nominated must be made clear, or there may be a danger that individuals and maintaining access logs. officials exercise their discretion and choose not to share valuable intelligence. 2. Mandatory sharing of information An agency may be required to provide specific 4. Sharing information on request categories of information spontaneously, without An agency may provide information only when requiring a request to be made. It has the specifically requested. This may be seen as advantage that officials within the agency holding the simplest of the four methods for sharing the information identify what is to be shared, and information, as there is less need for rules or they are likely to have a greater understanding of mechanisms to identify information for sharing the information in their records. However, for this or provide access to records. It also has the to be effective, an agency must have clear rules advantage of allowing officials to specify precisely and procedures in place to identify the information the information they require. In the context of an that must be shared. Spontaneous sharing may ongoing transaction where investigators have be straightforward where an obligation exists to identified specific necessary information, this provide all information of a particular class, but it is can be a valuable mechanism. However, in many more complicated where the exercise of judgement cases, an agency may hold information that an must be made to identify information that would investigator is not aware of. This may mean that the be relevant to an investigation. Further, by itself, investigator is unable to request information or is this method does not allow officials investigating only able to do so at a later stage when the value of to specify the information required. However, it the information may be reduced. may facilitate the detection of previously unknown criminal activity. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 269

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS Successful practices the tax administration and other law enforcement agencies. Different agencies share information under all Several countries have introduced different models types of cooperation. It is, however, critical to protect or operational mechanisms to allow agencies the confidentiality associated with the information in to work together in lieu of “legal gateways.” addition to the integrity of work carried out by other All countries assessed by the OECD4 have legal agencies. Sweden has enacted a new Data Disclosure gateways in place to allow tax administrations to share Act, which provides for greater cooperation in tackling information collected for the purpose of a civil tax audit organized crime.10 The law aims to facilitate the exchange or assessment with agencies conducting tax crime of information between authorities that cooperate to investigations and with the customs administration.5 prevent or detect certain forms of crime. The information However, in many countries, FIUs, the police or the sharing and data disclosure is limited to cases where public prosecutor are not obliged to report information the need for an effective exchange of information is to the tax administration to evaluate taxes, and vice particularly strong and grounds for the protection of versa. Belgium and Korea explicitly prohibit the tax privacy do not prevail over the benefits of disclosing administration from sharing information related to non- information. Also, the information shared between tax crimes.6 Fourteen countries assessed by the OECD agencies through legal gateways is at all times required prohibit the FIUs from obtaining tax information from to comply with the provisions of the Secrecy Act. the tax authority.7 Thus, despite the legal gateways to enable information sharing amongst agencies, Each country must design its own tailor-made some countries have introduced different models or model for inter-agency cooperation. The international operational mechanisms to facilitate collaboration community has recognized the value of inter-agency between agencies. cooperation. Many developed countries have initiated special programs based on inter-agency cooperation as A whole-of-government approach can be an effective and efficient way of preventing, detecting, particularly effective. Different government tracking and prosecuting corruption. A country agencies collect and hold information on individuals, should take into account its specific needs, the legal corporations and transactions, which can be directly and organizational structure it has adopted and the related to the activities of other agencies in combating particular risks that it faces in designing an appropriate financial crime and tax evasion, including money model for inter-agency cooperation. generated from corruption. To be effective, a tax administration should establish cooperation with Finland has adopted a centralized approach for these law enforcement agencies, building a “whole combating the grey economy.11 It has established the of government approach” to improve the prevention Grey Economy Information Unit (GEIU) to promote the and detection of financial offenses, leading to faster fight against the shadow economy by producing and and more successful prosecutions, and increasing disseminating reports about grey economy activities the probability of the recovery of the proceeds of and how they may be controlled. The GEIU is a division corruption.8 For example, Canada has established a of the Finland tax administration specifically established whole-of-government working group, which includes to work closely with other government agencies. the Canada Revenue Agency, the Public Prosecution It collects information from different government Service of Canada, the Department of Justice, the agencies regardless of existing confidentiality Canada Border Services Agency, FINTRAC, the Royal provisions. In preparing reports about grey economic Canadian Mounted Police and Public Safety Canada.9 activities, the GEIU has the right to receive, on request, In the working group, Canada’s response to financial necessary information held by other authorities, even crime at large is discussed and opportunities to increase where that information would not normally be available effectiveness are raised and studied, often resulting in to the tax administration due to secrecy provisions. recommendations for policy or legislative changes. The Netherlands has opted for a cooperative Information sharing has to be balanced with approach for tackling money laundering.12 It has confidentiality and the right to privacy. Right to established the Financial Expertise Centre (FEC), privacy, coupled with confidentiality requirements can which is a joint project between the National Tax and also have an impact on the information sharing between Customs Administration (NTCA), the Fiscal Intelligence and Investigation Service (which is structurally part of 270 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS the NTCA), the National Police, the General Intelligence • Serbia:16 All state authorities and organizations, and Security Service, the Public Prosecution Service, bodies of territorial autonomy and local the Netherlands Financial Markets Authority, De government are required to report spontaneously Nederlandsche Bank, and the Ministry of Finance to the tax administration all facts and information and Ministry of Security and Justice (who are involved detected in the performance of their duties that in regulating and monitoring activity in the financial are relevant to the assessment of tax liability. sector). The mission of the FEC is to monitor and strengthen the integrity of the financial sector, and Inter-agency cooperation is tackle issues of financial integrity through inter-agency increasing across the globe cooperation. This entails sharing information. The concept of inter-agency cooperation is Giving tax administrations access to suspicious widespread among EU countries. One such initiative transaction reports (STRs) would be beneficial is the establishment of the Croatian State Prosecutor’s in the fight against corruption. In many countries, Office for the Suppression of Organized Crime and there is no obligation on the police, public prosecutor Corruption. This is a Croatian Agency, supervised by the or FIU to report information to the tax administration. state attorney’s office but which also cooperates with In addition, many countries do not have legislation to the tax administration.17 Similarly, the Czech Republic allow the tax administration access to STRs. Allowing has established Tax Cobra, a cooperation of police, such access will have several benefits, including an customs, and finance administration.18 Using smart improvement in the detection of money laundering technology to triangulate data shared by agencies offenses and proceeds from corruption, greater success would make dissemination even more effective. in tax crime investigations and prosecutions, and an increase in the actual quantity of tax assessed and In Southeast Asia, Malaysia has established the recovery of the proceeds of crime. Further, access by National Revenue Recovery Enforcement Team FIU to other information held by the tax administration, (NRRET) to improve cooperation between law such as declared income, tax payments, real estate enforcement agencies.19 The NRRET, which is headed as well as other property, cross-border financial by the Attorney General, is an inter-agency initiative transactions, and the results of tax audits, will help to aimed at fighting tax crimes and other financial crimes. detect corruption, though this has not yet been widely Its members include the tax administration, Company implemented. Commission Malaysia, Central Bank of Malaysia, Malaysian Anti-Corruption Commission and Royal In Italy, the FIU has direct access to the Account and Customs Department. Its role is to improve cooperation Deposit Register (Anagrafe dei Conti) maintained by between law enforcement agencies to ensure a holistic the tax administration.13 The Account and Deposit approach to development, good governance, and Register includes information on accounts and financial combating corruption, as well as to assist agencies in transactions carried out by financial intermediaries, fighting financial crimes. The NRRET also monitors the including banks, trust companies, brokerage companies sharing of information and planning of joint operations and post offices. Legislation has also been passed, among law enforcement agencies in high profile cases. which allows the FIU direct access to the Tax Register (Anagrafe Tributaria). Further, tax officials must report In South Asia, India has set up the Economic to the FIU any suspicious transactions they encounter in Intelligence Council (EIC), which acts as the the course of their work. main body to ensure coordination among various agencies.20 The EIC meets twice a year and holds Other examples of information sharing include: extraordinary meetings as and when considered necessary. The EIC is mandated to discuss multiple • Estonia:14 The police and the Tax and Customs aspects of intelligence relating to economic security Board share information through a common and to develop a strategy for the effective collection intelligence database. and collation of intelligence and its dissemination to various law enforcement agencies. It reviews crucial • Iceland:15 Directorate of tax investigations conducting tax crime investigations has direct access to information contained in police databases. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 271

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS cases involving inter-agency coordination and approves while sharing information with different agencies mechanisms for improving such coordination. As far tackling corruption. Blockchain technology may as sharing of information among multiple agencies is be an appropriate platform for developing a concerned, the EIC generally performs this through common database system accessible to the the meetings of its Regional Economic Intelligence agencies concerned. The Blockchain system may Councils (REICs). also facilitate the consolidation of information received by more easily identifying transactions Recommendations undertaken by the same entity but reported by different companies/individuals.21 The United • Establish a bilateral agreement or memorandum of States Air Force is currently planning to test understanding (MOU) to share information between a Blockchain based database that will allow it to the tax administration and agencies involved in share documents internally as well as throughout detecting and preventing corruption. This ensures the various branches of the Department of Defense a clear legal framework for any information sharing and allied governments.22 with the agencies concerned. MOUs typically contain details of the types of information that • Review limitations in tax treaties on the sharing of will be shared, the circumstances in which sharing information with non-tax departments. This can will take place, and any restrictions on sharing help in removing barriers to information sharing. information (e.g., the information may only be used for specified purposes). It may also include other • Conduct capacity building exercises to develop terms agreed by the agencies, such as the format a culture of cooperation with different agencies of any request for information, details of competent working together. For example, setting up joint officials authorized to deal with requests, agreed task forces or seconding personnel to different notice periods and time limits, and a requirement agencies to work together is an effective way of for the agency receiving information to provide enabling skills to be transferred while allowing feedback on the results of investigations in personnel to build contacts with their counterparts which the information was used. For example, in in another agency. New Zealand, based on an information sharing agreement between the Inland Revenue and the • Establish a system that balances the sharing of New Zealand Police, the tax administration can information with confidentiality. A suitable system share information with the police for the prevention, is one where the information can be shared only in detection or investigation of a serious crime, or cases where the need for an effective exchange of for use as evidence of a serious crime. The Inland information is particularly strong and grounds for Revenue of New Zealand can also share taxpayer the protection of privacy do not prevail over the information with the police or other agencies in benefits of disclosing information. This helps to cases related to the administration of taxation, overcome the intense concerns about privacy and investigation of tax crimes, and the facilitation of potential lack of trust among agencies. asset recovery. Example 1: Kenya’s • Establish a national task force. The task force success with inter-agency should be responsible for the timely collection and cooperation to obtain and dissemination of relevant information to concerned use data agencies and for developing a framework that enables it to examine specific cases. This will help to Despite the myriad of laws in place to combat identify a number of areas for further investigation corruption, Kenya ranked 145th (out of 176 countries) across the full range of tax and economic crimes. on Transparency International’s Corruption Perceptions Index in 2016. To deal with the corruption, Uhuru • Ensure connectivity between agency databases. Kenyatta, the President of Kenya in 2016, directed the Lack of interconnectivity of databases of different government agencies is the biggest issue faced 272 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS Office of the Attorney General and the Department property. One of the celebrated convictions involved of Justice to undertake a thorough review of the a former member of parliament who was found guilty legal, policy, and institutional framework for fighting of 9 corruption counts relating to the loss of KSh4.5 corruption in Kenya. A taskforce23 was formed to million; the member of parliament, her husband, and oversee the whole process, drawing its membership 4 others were convicted and sentenced to payment of from all ministries, departments, and agencies charged KSh24.95 million (about USD2.495 million) and 18 years with fighting corruption in Kenya. One notable issue imprisonment.26 In respect to asset recovery, Kenya has identified by the taskforce was the lack of proper so far traced and recovered assets worth KSh9.8 billion coordination among agencies, resulting in duplication between 2005 and 2016. In March 2017, the President of effort. Combating corruption was an uphill task due reported that approximately KSh3 billion had been to the lack of a coordinated framework for reporting recovered or preserved. As of November 16, 2016, there corruption, information gathering, intelligence sharing, were 174 civil cases pending in court for recovery of and cooperation in investigation, among other areas. illegally acquired assets worth KSh3 billion.27 Further, in one interview, the EACC CEO Twalib Mbarak28 revealed The birth of the multi-agency team that “there are numerous governors, MPs, and county officials and top government officials on its radar.” To tackle corruption and other economic crimes, Kenya established a multi-agency team (MAT)24 to Challenges identified ensure cooperation and synergies among a number of agencies involved in combating corruption. The MAT Despite some great successes, MAT has faced a number was composed of the Kenya Revenue Authority; Ethics of challenges: and Anti-corruption Commission (EACC); Office of the Director of Public Prosecutions; Directorate of Criminal • The biggest challenge is the lack of legality of some Investigations; National Intelligence Service; Financial of MAT’s operations, which have been challenged Reporting Centre; Asset Recovery Agency; and Office in the courts. of the President. • Archaic cour t procedures with respec t to Terms of reference of the MAT acceptance of documentary evidence, which required the originator of the evidence to appear The MAT’s terms of reference were:25 before the court, and at times injunctions that • To enhance cooperation, coordination and derailed the prosecution, have made the work of collaboration among the agencies; MAT difficult.29 • To engage other relevant agencies in order to enhance the effectiveness of the graft war; • Politicization of the cases against high-ranked • To identify resource needs for each agency and politicians has led to claims that MAT is lobby for the same; and discriminating against or favoring someone in the • To develop effective communication strategies for war on corruption.30 awareness creation on the gains and achievements made in the fight against corruption. • Public awareness about the need for transparency is poor. Successes of the MAT Lessons learned MAT has been successful in enhancing cooperation and collaboration amongst the agencies and in providing MAT has been largely successful in prosecuting real-time information gathering and intelligence sharing. corruption and recovering assets. Some of the lessons As of October 2016, Kenya had 406 corruption and learned are: economic crime cases pending in court. Out of these, 98 involved high-profile personalities such as cabinet • Individual institutions face capacity constraints and secretaries, members of parliament, and chief executive combining the collective expertise and information officers of parastatals and state agencies. Kenya secured pool certainly helps in combating corruption. several convictions with various penalties, including imprisonment, mandatory fines, and restitution of • A central depository for data is needed, not only on asset recovery but also for economic crimes and corruption-related cases. • The capacity of of ficers needs to be built continuously through training and cooperation with other similar bodies. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 273

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS Example 2: Nigeria’s The situation may be the result of not only the challenges in achieving inter- inadequate capacities of existing institutions but also agency cooperation to obtain the lack of a coordinated approach and undue rivalry and use data among the anti-corruption agencies, including the tax authorities. Some government departments were Nigeria is an interesting example of an African country unwilling to share information and some responsibilities where lack of effective inter-agency cooperation between agencies were duplicated.33 Also, most is responsible for inefficiency in detecting and government systems are manual and therefore, retrieval prosecuting corruption. Until 1999, Nigeria was under of information becomes difficult. This situation has military rule. In 1999, the former military head of proved to be counter-productive, resulting in a string of state, Olusegun Obasanjo, was elected as a civilian losses of cases brought against high-profile suspects. president on the platform of addressing corruption. In what counted as a major setback to the government, In 2015, Muhammadu Buhari (current President re- cases against Mike Ozekhome, a Senior Advocate elected in 2019), from the All Progressive Congress, of Nigeria (SAN)34; Joe Agi, also a SAN; and Adeniyi won the election on a platform where the fight against Ademola, a Justice of the Federal High Court; and his corruption featured prominently. Upon assuming office, wife, Olubowale, were all dismissed within a few days. he established the Presidential Advisory Committee on In most of the cases, the judges cited lack of convincing Anti-Corruption. Over the years, Nigeria established a prosecution.35 range of anti-corruption institutions to address various aspects of the fight against corruption. These include Lessons learned the following key agencies:31 A number of lessons can be drawn for countries moving in a similar direction: • Institutions addressing corruption in public • Recognize the need for a clear policy and legal procurement: Bureau of Public Procurement; Code framework for cooperation; of Conduct Bureau; and Code of Conduct Tribunal; • Develop a common technology platform to • Institutions dealing with law enforcement: collect information and ensure interconnectivity of Economic and Financial Crimes Commission; databases; Nigerian Financial Intelligence Unit; Independent Corrupt Practices (and other Related Offenses) • Undertake capacity building exercises to train Commission; Special Control Unit on Money personnel on sharing information and building a Laundering; and culture of cooperation; and • Institutions dealing with public complaints, public • Establish a national agency responsible for information and government policy coordination: overseeing the sharing of information between Presidential Advisory Committee against different agencies. Corruption; Public Complaints Commission; Technical Unit on Governance and Anti-Corruption Reform/Inter-Agency Task Team, Bureau of Public Service Reform. The government also established a National Anti- Corruption Strategy and Action Plan for the period 2017–2021. Despite having multiple regulator y agencies, including the tax authority, the nation still ranked 144th (out of 180 countries) on Transparency International’s Corruption Perceptions Index32 and continues to grapple with corruption scandals amid calls for fiscal transparency and accountability in governance. 274 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS CASE STUDY 21 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS CASE STUDY 21 Sharing Evidence with Joint Prosecution Teams Introduction Tax administrations have a key role to play in addressing serious crime. They are granted access The basic requirements for effective to and are highly trained in examining the financial prosecutions affairs, transactions, and records of millions of individuals and entities.41 Alongside examining the Investigating and prosecuting suspected affairs of taxpayers, tax authorities are enabled by perpetrators of corruption is very time-consuming law to issue demand notices requesting the payment and requires collaboration, expertise and knowledge of outstanding taxes and pursue payment through of the law. The process of detecting and proving specialized tax tribunals or through mediation efforts corruption, fraud, tax evasion and other financial crimes with the taxpayer. However, tax administrators are not requires many hours of work, specialized expertise always aware, especially in developing countries, either and sometimes expensive software or surveillance of the typical indicators of possible bribery, corruption, equipment.36 Inter-agency cooperation between and other financial crimes not related to tax, or of their revenue authorities, financial intelligence units (FIUs) role in referring their suspicions to the appropriate law and other law enforcement agencies can be a force enforcement authority or public prosecutor.42 For this multiplier, offering additional resources, expertise, and reason, as well as the way that key data is spread across legal tools.37 Effective cooperation can provide “critical various agencies, inter-agency cooperation to share cover in politically sensitive cases”, that can support information, investigate alleged financial crimes and, law enforcement agencies to counteract any political ultimately, prosecute is imperative. risks.38 In order to successfully meet the objective of prosecuting a suspect, Joint Investigation Teams must The different agencies need to be able to share operate within the confines of the law, set a strong information effectively while abiding by data terms of reference determining the scope and role of protection rules. Some of the agencies involved each agency, and ensure timely action. may include the police, judiciary, public prosecutors, corruption investigation agencies, and financial The successful prosecution of corruption and intelligence units (FIUs). Each of these agencies/ other financial crimes entails cooperation among institutions will already have some appreciation of the agencies with varying institutional cultures links between their functions and mandates in tackling and differing scopes and objectives. The level of financial crime.43 In the course of their activities, the cooperation between tax administrations and other different agencies will collect and hold information domestic law enforcement agencies is critical in on individuals, corporations, and transactions, which countering tax and financial crimes.39 Whilst there may be directly relevant to the activities of other are several limitations on the scope of cooperation, agencies. However, legal gateways will need to be opportunities exist in the form of existing cooperation established to enable the sharing of information.44 This models, the use of task forces and joint centers, and in will often be defined by domestic law and limited by applying international best practices.40 regulatory restrictions governing the collection and use of information (e.g. General Data Protection Rules Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 275

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS in the EU).45 This requires balancing data protection effective prosecution. The ability to share information rights with inter-agency sharing of information. It is for purposes of inter-agency cooperation in prosecuting important to protect the confidentiality of information a financial crime is often dependent on the enabling and the integrity of the mandate being fulfilled by each framework in a country. In general, for purposes of agency.46 prosecution it is imperative that the agreement to cooperate is implemented in accordance with the Tax tribunals with less strict rules of evidence are an enabling provisions of the law. Countries can and have alternative to legal action. The decision to prosecute modified their laws to enable them to get better access will generally be anchored on access to lawfully to information. Some of the methods of cooperation obtained information (particularly regarding the rules include direct access to information contained in of evidence), which is collected and shared between agency records or databases; an obligation or ability to agencies through a mandated process. The collection provide information spontaneously; and an obligation and sharing of information for purposes of prosecution or ability to provide information only on request.49 can only be successful if relevant agencies utilize their technical capacities to identify a financial crime, the Based on a review of 51 countries, the OECD appropriate avenue for scrutinizing that crime and the found that some countries had barriers to the agency entitled to initiate action. Selecting the correct ability of tax administrations to share information agency is especially important for tax administrators with the police or public prosecutors in non-tax since tax evasion cases may be prosecuted by tax investigations. In 15 countries, there was no legal authorities in specialized tax tribunals. From time to obligation to report suspicions of serious non-tax time, the tax authority may negotiate with the taxpayer offenses to the relevant authorities. In two countries, to recover revenues, especially where the chances of a the tax administration was specifically prohibited from successful legal action are low. Specialized tax tribunals doing so.50 Mixed abilities to share tax information with often have less stringent rules of evidence and may be the FIU were found, together with the prohibition in two preferred where evidence has not been handled in line countries from sharing with the authority responsible with strict rules of evidence. In addition, where a legal for conducting corruption investigations.51 In contrast, action has little chance of success, the tax authority customs administrations, due to their role in countering may, at least, recover some revenue from the income illicit trade, were mostly allowed to share information generated by that asset. with the police or public prosecutors investigating non- tax offenses, and seven countries52 even permitted The capacity to investigate may not always direct access to customs information.53 Notably, translate into a capacity to prosecute. Investigation in almost all countries, legal gateways permit (not involves analyzing significant volumes of financial, obligate) the police or public prosecutor to provide banking, and accounting documents, including tax or information to the tax administration for purposes of customs records in order to identify illegal schemes, administering taxes and, generally, enable sharing with follow the money and gather financial intelligence.47 the FIU.54 Overall, while all other agencies that tend Prosecution will require similar expertise, but will to be involved in the prosecution of a financial crime also require gathering and presenting evidence were permitted to share information with the police or for confiscation, seeking judicial authorization for public prosecutor, the limitation on tax administrations specialized investigation tools and presenting the case and the lack of an obligation for the police and public to the court.48 prosecutors to share relevant information are likely to impede an effective prosecution. The role of tax administration and limitations to joint Tax administrations hold a wealth of personal and prosecution company information that is a valuable source of intelligence for other agencies tasked with In many countries, the limitations imposed on the identifying financial crimes.55 Such information tax authority’s ability to obtain information from relates to income, assets, financial transactions and other agencies pose a significant challenge to an banking information, among others. Tax agencies are enabled to engage in exchange of information on request (EOIR), spontaneous exchange of information or automatic exchange of information (AEOI) for tax 276 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS purposes on the basis of either tax treaties, or Tax money laundering, tax evasion and hidden assets and Information Exchange Agreements (TIEA). AEOI and the investigation has, so far, resulted in criminal fines, EOIR provide tax authorities with a framework to tax penalties and recovered assets amounting to USD15 request and obtain specific information relating to a billion and 1,400 years in prison sentences.65 Brazil’s taxpayer in a foreign jurisdiction; this information can National Strategy to Combat Corruption and Money be used to carry out a risk assessment and/or trigger Laundering (ENCCLA) was set up as an inter-agency a tax investigation.56 This may be beneficial to other organization to fight money laundering and corruption law enforcement agencies investigating a financial through coordination and joint policy making among crime. However, there are limitations on the sharing of public officials.66 information. For instance, tax authorities should refrain from engaging in fishing expeditions or requesting Criminal investigations can be affected by a information that is not likely to be relevant to the tax country’s limitation on the tax authority’s sharing affairs of a taxpayer.57 In addition, the information of information. Where criminal prosecutions are received must be treated with proper confidence and concerned, the tax administration is often able to can only be shared with authorities involved in the ensure that individuals and companies are required assessment, collection, enforcement or prosecution of to pay tax on all of their income. This includes income a tax related offense.58 Information can be exchanged derived from criminal activities, on which the tax with other law enforcement agencies where money administration can deny a deduction for expenses.67 laundering, corruption and terrorism financing may However, in the event that information valuable to a be concerned, but the supplying jurisdiction must be criminal investigation is uncovered in a country that informed and authorize this.59 can limit the ability of tax administrations to share information, there is a likelihood that some elements of Since the proceeds or tools of corruption will often a financial crime may go undetected. In addition, where involve the use of other jurisdictions, exchange the tax administration may be limited from taxing the of information between tax authorities can prove direct proceeds of a crime, cooperation with other law advantageous to an inter-agency initiative to enforcement agencies could provide an avenue for prosecute. Where gathering evidence will require alternative charges to be brought against a suspect. the cooperation of foreign authorities, mutual legal assistance can be key, particularly where prosecution is A joint prosecution must be carried out within concerned, in executing proceedings or extradition.60 the confines and structures of the law, which can Mutual legal assistance can be provided via agreements make prosecutions more difficult. For instance, if the between countries, the UN Convention against law provides that information obtained from the tax Corruption (UNCAC), or on the basis of reciprocity administration may be used for investigative purposes where no agreement exists. In Asia and the Pacific, but not as evidence in proceedings, this would present some of the barriers to effective international legal a barrier to successful prosecution.68 Some laws may assistance include the lack of legal basis for cooperation, require that a formal criminal procedure is initiated differences in legal and procedural frameworks, under the authority of a public prosecutor or a court language barriers, resource limitations and evidentiary order obtained before an anti-corruption authority issues.61 In addition, a relationship of trust combined may receive tax information.69 Although this ensures with a strong and clear request for assistance was an important balancing with protecting personal or found to be key in enhancing mutual legal assistance.62 confidential information, it may delay and increase the Other agencies can provide tax administrations with costs of the process. Countries should introduce laws to important information about ongoing or completed streamline this process and adapt the legal framework investigations that could influence the reopening of a to enable sharing of information for purposes of tax assessment or initiate a tax crime investigation.63 providing evidence in a formal case. In the Brazilian Petrobras investigation, tax Globally, jurisdictions apply different frameworks auditors supported the transnational corruption for prosecution of tax and financial crimes. Some investigation by analyzing suspects’ tax and countries, such as Burkina Faso and Mexico, have a customs data and sharing this with the police and central prosecution authority that is also responsible public prosecutor as permitted by law.64 With that for criminal investigations, whilst others do not involve information, officials were able to uncover evidence of public prosecutors in the investigations that will be Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 277

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS carried out by the police or specialized agencies.70 In enforcement agencies; several countries, including New Zealand and Nigeria, law enforcement agencies, including the police, tax • The agency’s need to preserve autonomy and administrations or anti-corruption authorities, may independence throughout the process to protect prosecute cases directly.71 In a number of jurisdictions, the integrity of its mandate; for example Ghana, Rwanda, and Malaysia, public prosecutors responsible for the prosecution of a • Organizational routines and procedures that may financial crime may either have the authority to delegate be difficult to synchronize and coordinate; performance of significant elements of an investigation to a number of the agencies identified above, or they • Obser ving the rules of evidence to ensure may not participate at all in the investigation process.72 admissibility in court; Tax administrations generally carry out a separate • Differing organizational objectives between the process of prosecuting tax-related cases through collaborating agencies, which need to be balanced; specialized tax courts or tribunals, which are found in most developed and developing countries. • Differing expectations and levels of pressure from In most jurisdictions, the enforcement of taxes and and for each agency to deliver some element of the prevention of tax crime is the tax administration’s the work; and responsibility.73 The process of investigation for tax purposes will involve specialized audit teams accessing • Differing and incompatible technical platforms. the financial and other information of a person; this process and the powers to access the information of The importance of enabling a taxpayer are provided for by law. Taxpayers are law often required to exhaust the tax procedural process before the courts are approached. The coordination The mandate of a joint prosecution effort must of this process with the overall joint prosecution is key, be clear and each agency must act within its since a failure in the specialized tribunal or inability to empowering provisions. However, even where prosecute may weaken an overall case, particularly with empowering provisions exist, political interests may regard to money laundering. Where a taxpayer agrees often undermine the legitimacy of a joint investigation to comply with the orders of the tax administration team. In addition, the support of policy makers to and pay the outstanding taxes, this is likely to affirm introduce an enabling legal framework will be key. the allegation of a tax crime having been committed and efforts to determine whether money laundering Where extensive empowering provisions are occurred will be further justified. If joint teams opt to not available, a Memorandum of Understanding initiate prosecution in specialized tax tribunals, they (MOU)75 can affirm and evidence the objectives will need to ensure that the tax investigation is distinct of inter-agency cooperation to prosecute. Under from the overall investigation. Pursuing an action in Project Wickenby, the Australian Tax Office has direct the specialized tax tribunal should be considered access to information collected by the Australian FIU where a criminal prosecution might not be possible or (AUSTRAC) and an MOU with AUSTRAC.76 Such an MOU is unlikely to succeed. This may remove at least part should be compliant with the law and provide details of the proceeds of crime from the criminals by taxing on existing regulations, provide modalities of exchange the income generated from that asset and would entail of information, and facilitate shared objectives. It less stringent requirements for evidence. Where tax should not create legally binding obligations on the authorities are involved in a joint prosecution process, agencies, but it should foster a common understanding they may make strategic decisions about whether or of objectives, procedures, and roles, and build trust not to combine charges for tax crimes, corruption, and between agencies. other financial crimes into a single prosecution.74 Recognizing tax crimes as predicate Obstacles to coordination between government offenses agencies may arise from systemic and practical differences: The ability of tax administrations to be involved in prosecuting financial crimes is often made easier • Lack of political will and distrust amongst law 278 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS when tax crimes are recognized as predicate Alongside laws defining the mandate of government offenses to money laundering. The Financial Action agencies to cooperate, countries should introduce a Task Force (FATF) recognized this in 2012, when they wide definition of tax crimes as a predicate offense revised the Recommendations to include tax crimes to money laundering. This could enable cooperation as a predicate offense. Predicate offenses are types of in investigations that involve a broad range of tax criminal activity that give rise to funds or assets that crimes. Although there is no recommended definition can be laundered to obscure the illegal source.77 Where of a tax crime, countries seeking to introduce them a tax crime is designated as a predicate offense, it as a predicate offense should amend their AML laws means that a person may be charged with the offense to define the offense and the elements that make it of money laundering and the predicate offense, in this a serious offense.83 Countries should also ensure that case tax evasion. This is important because it gives joint tax crimes committed in a foreign jurisdiction are prosecution teams greater scope to secure a conviction considered tax crimes. The legal provisions should or impose greater penalties, pursue cases of tax crimes provide a broad set of tax-related offenses that involving other jurisdictions and recover the proceeds of constitute predicate offenses to money laundering. In crime through mutual legal assistance.78 The definition particular, fiscal offenses relating to indirect and direct of a tax crime should be broad enough to cover the taxes should be included.84 This could ultimately entail violation of all direct and indirect tax obligations. straightforward non-payment of direct and indirect A narrow definition could limit the role of the tax taxes being considered as a predicate offense to money administration. It also requires financial institutions and laundering, or, potentially, certain cases of aggressive Designated Non-Financial Businesses and Professions tax avoidance. In addition, countries will need to:85 to report suspicions of any predicate offenses relating to the proceeds of tax crimes; this will generally require • Establish, either through legislation or case some awareness of the risks and indicators amongst precedent, that the predicate offense need not be reporting entities and greater cooperation with tax proven in order to convict for money laundering, as administrations. established in the FATF recommendations; According to an OECD survey of 31 jurisdictions, • Prepare internal guidelines, handbooks and in- the inclusion of tax crimes as a predicate offense person training for investigators; and had practical and positive impacts on their work.79 The most reported impact was better inter-agency • Introduce policies or directives that establish the cooperation, including an increased ability to work with mandatory requirement of opening a parallel other agencies on particular cases and on strategic financial investigation in every investigation of a and policy matters.80 Greater awareness amongst predicate offense. other law enforcement agencies, intelligence agencies and the private sector of the possibility of tax crimes The introduction of tax crimes as a predicate occurring and better avenues for communication with offense needs to be effective. This will generally entail other agencies were also reported.81 Notably, some countries ensuring that law enforcement agencies, other jurisdictions reported an increase in prosecutions and agencies required to provide information in accordance that prosecutions were easier to undertake.82 with the AML requirements, and Designated Non- Financial Businesses and Professions undergo thorough The EU 4th Anti-Money Laundering (AML) Directive training and awareness raising. introduced a requirement for member states to introduce tax crimes as a predicate offense. While Showing regard for the right to privacy no definition was specified, countries were expected to have effected this amendment by 26 June 2017, Particular care is required to ensure that and by 1 January 2018 tax authorities were to gain cooperation between agencies does not lead to access to data collected under AML laws. Ultimately, any curtailing of the right to privacy. Enabling the European Commission had to open infringement legislation is an important feature in framing the procedures for non-communication of transposition scope of each agency in the process of prosecuting measures against 20 member states. Of the 20, three financial crimes. However, an MOU can also provide an countries, including Ireland, were referred to the Court enabling framework for the authorities to cooperate. of Justice. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 279

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS The role of the tax administration can only extend as necessary to the investigation to be undertaken.89 far as a tax crime may be concerned and the process will entail a simultaneous prosecution in alignment Joint teams should set the criteria for information with tax procedures as mentioned above. Clearly sharing. These should be based on the indicators of setting out the roles of each authority throughout the suspicious features that fall within the prevention of tax prosecution process and ensuring strict adherence abuses and money laundering initiatives to ensure that to the law ensures that the case cannot be dismissed the process of prosecution does not infringe upon the based on procedural matters. Alongside respecting right to privacy. The criteria should include: the rule of law, the right to privacy entitles persons to protection from arbitrary interference or intrusion from • Transactions with no real business purpose the state. Although the right is not absolute, limitations (substance over form); regarding banking secrecy and money laundering in general are often clear. The tax administration must • The use of offshore accounts, trusts or companies evaluate whether sharing of information is in line with which do not support any economic substance; the requirements of the Constitution or Bill of Rights of their jurisdiction. Any limitations to the right to privacy • Tax schemes that involve high-risk jurisdictions should be balanced by some determination of whether (particularly jurisdictions with high levels of secrecy it would be reasonably necessary for the attainment of and low or no taxes); the objectives underlying the joint investigation. • Highly complex tax structures; In making this assessment, the obligation of sharing taxpayer information with other agencies • Unexplained wealth;90 for purposes of investigating a financial crime must be balanced against the potential impact • Short-term businesses involved in importing or on the integrity of the tax system.86 A tax exporting; and administration’s information sharing to address serious crime is acceptable as long as it is fit for purpose. In • Use of cash transactions instead of appropriate addition, balancing the right to privacy and the benefits financial instruments. to society must be evaluated based on the following:87 Conclusion • The nature of the serious crime in question and the scope of the information required; The obstacles to effective prosecutions go beyond the limitations imposed by legislation. The attention • The authority to access the information and the drawn to legal challenges is warranted by the potential ability of the tax administration to provide it; consequences of a failure to operate within the confines of the law. These failures include the inadmissibility • The intended and potential use of the information; of evidence, the consequence of which will result in and rendering the entire process redundant. Joint teams may be limited by distrust amongst the enforcement • The risk of misuse. agencies, differing expectations on the delivery of outcomes, and a lack of harmonized institutional Investigating agencies will need to determine to procedures particularly regarding the use of technology what extent the information is available and will to collect, hold, and share data. be shared. The 4th AML Directive provides that the processing of personal data should be limited to what Joint prosecution teams must have a clear is necessary for the purposes of complying with the mandate based on the law, clearly defining the role requirements of the Directive. Financial investigations of each agency and determining clear procedures are, by nature, intrusive and will result in obtaining the for cooperation. They must remain aware of their private information of an individual.88 Law enforcement limitations as any breach may result in a failed process, agencies must remain aware of their country’s human and be prepared to receive any additional support rights legislation, which protects the right to privacy to ensure they meet the procedural requirements. and associated considerations. They should therefore Tax administrations will need to operate within the be able to justify such investigations as proportionate, specialized courts and ensure that sharing of any non-discriminator y, legitimate, accountable, and 280 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS information is enabled by the legal framework or any line with the Prevention of Organized Crime Act.92 The reasonable exceptions. In order to do so, countries order froze an estimated R44 million held in two bank should consider introducing tax crimes as a predicate accounts belonging to Tannenbaum and his associate. offense in order to facilitate: Cooperation and legal mandate of SARS • Increased sharing of information and awareness about the nature of tax crimes. SARS’s five-year priority initiative proposed to adopt a whole-of-government approach in managing • Mutual legal assistance. the customs border environment. This included continuing to strengthen risk management capabilities • Prosecution of money laundering based on tax as well as international agreements and links with crimes involving foreign jurisdictions. other jurisdictions. Further, SARS’s strategic plan emphasized a whole-of-government approach through • Expanding the tools, skills, and resources available, collaboration with other government agencies to including for asset recovery. improve the government’s overall value chain. • Extending the statute of limitations through linking to money laundering. Example: South Africa SARS is mandated to conduct criminal investigations (Tannenbaum case)91 into all criminal offenses created under the Tax Administration Act. This applies to all tax acts whether Brief facts of the case indirect or direct taxes, excluding offenses under the Customs and Excise Act.93 SARS is also the only The following South African agencies cooperated in a authority assigned the legal mandate to officially lay four-year investigation of Barry Tannenbaum that led to a criminal complaint with SAPS in respect of a Serious prosecution in 2009: Tax Offense.94 In general, South Africa recognizes tax crimes as a predicate offense to money laundering. • South African Reserve Bank (SARB); • Section 73 of the AML/CFT Act provides that • South African Revenue Services (SARS): responsible any investigation instituted in line with the Act, for the collection of revenue and enforcement of including those on the property, financial activities, compliance with tax and customs legislation (semi- affairs or business of any person, must be reported autonomous); to the Commissioner of SARS or any officials with a view to mutual cooperation and sharing of • South African Police Ser vice (SAPS) Serious information. Economic Offences Unit: tasked with preventing, combating and investigating economic crime; • Section 70(3) (c) of the Tax Administration Act 2011, provides for the disclosure of information to • The Financial Intelligence Centre (FIC): assists the FIC where such information is required for the in the identification of the proceeds of unlawful purpose of carrying out their duties and functions. activities and combating of money laundering activities, amongst others; and In general, South Africa’s system provides an enabling environment for SARS to cooperate in a joint prosecution • National Prosecuting Authority (NPA). and review information obtained by other agencies with regard to the alleged tax crime. Tannenbaum was accused of setting up a Ponzi scheme Process of cooperation that involved at least 800 investors in South Africa, Germany, US, and Australia. The scheme promised The five agencies coordinated their efforts, ensuring investors returns of 200% per year in investments that clear terms of reference identified each agency’s related to fraudulent pharmaceutical imports. On 30 scope and mandate. The joint team determined a plan July 2009, the North Gauteng High Court granted the of action for the high-level investigation into serious Asset Forfeiture Unit in the NPA a preservation order in allegations of fraud, money laundering, tax evasion and Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 281

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS foreign exchange control violations. The responsibilities mandate that permits the sharing of information were set out as follows: between agencies where reasonable and the recognition of tax crimes as a predicate offense; • NPA: freezing or forfeiture of assets of the main suspect and associates and determining whether • Ensure cost effectiveness; to prosecute any of the persons or entities involved in the scheme; • The possibility of extradition where suspects may be based in foreign jurisdictions may arise • SARS: raising tax assessments and generating and teams must remain aware of the potential attachment orders; implications for the case and the need for a speedy process; • SAPS: supporting with seizure and arrest where possible; • Determine clearly whether illegal schemes are taxable; • FIC: tracing the movement of finances; and • Ensure clear frameworks for any information • SARB: accessing banking information, which sharing with foreign institutions; revealed the use of Tannenbaum’s personal accounts to channel money out of the country. • Consider the role of victims or investors not only as witnesses, but also in pressing charges; and SARS reviewed Tannenbaum’s tax filings in the period 2004–2009 and alleged that he had under-declared • Information management—ensure that a member his income, resulting in tax, penalties and interest.95 of the directorate of public prosecution is part Through investigations into Tannenbaum’s accounts, of the team to enable the quick turnaround of ex they discovered that he received about USD415 million parte applications. and about USD324 million was paid to investors and agents in the scheme.96 With regard to asset tracing and recovery: The issuance of arrest warrants could not be enforced • Evaluate the appropriate time to implement since Tannenbaum had fled to Australia and one of preventative measures, including the freezing his associates was based in Switzerland. Although of assets; this should be done in the interest of extradition proceedings were pursued, the process has ensuring that the person of interest is not alerted taken many years and prosecutors were not optimistic too early or too late; that Australia would agree to the extradition request.97 Tannenbaum has also managed to evade authorities • Understand the constraints existing in the in Australia. The prosecution of Tannenbaum and his requested country; associates tied up state resources for several years with little progress made. In addition, investors and • Since cooperation with foreign jurisdictions will overall victims of the scheme have pursued litigation in be imperative to the tracing and identification of efforts to recover their assets. Several of the businesses assets for recovery and taxation purposes, ensure registered as part of the scheme are attached to that there is a legal basis for assistance, no barriers different associates, whilst others are insolvent. This has will prevent cooperation and the appropriate legal had implications for recovery of assets by SARS. instrument is chosen; Recommendations • Freezing of assets at the domestic level: determine how fast the judiciary can respond, what kind For purposes of joint prosecution efforts, inter-agency of coordination will be required, the asset teams should evaluate the following and encourage management framework available and the costs governments to strengthen any areas of weakness: associated with holding certain assets whilst proceedings are taking place; and • Introduce enabling laws, including a broader legal • Freezing of assets in foreign jurisdictions: since this will require mutual legal assistance, with foreign authorities and comply with the differing rules of procedure. 282 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS Whilst the ultimate outcome may not have been a successful prosecution of the alleged offenders, the South African joint team was able to effectively coordinate efforts and engage in a process that should lead to more effective future investigations of financial crimes. The outcome does not take away from the commendable efforts made by the prosecution team and the recommendations made above represent the main lessons drawn by the involved agencies for future joint efforts. Example 2: Brazil Some additional lessons may be drawn from Brazil’s experience with Operation Car Wash, which involved 44 other countries where investigations were being carried out. This required the negotiation of new agreements with several states, including the United States and Switzerland.98 Using information obtained by the tax authority on the purchase of a luxury car by the daughter of a former director of Petrobras, the invoice revealed a connection with an operator of the corruption scheme whom the director had denied knowing.99 Further analysis of the director found that he was the beneficial owner of an offshore company owning a luxurious apartment where the operator once lived.100 Although the investigation is still ongoing, the authorities were able to engage in international legal cooperation that proved essential to obtaining relevant evidence of major crimes and in recovering illicit assets in foreign jurisdictions.101 Brazil had an array of regulations dealing with cooperation, including international treaties and agreements, direct assistance, extradition, and enforcement of foreign court decisions. To facilitate successful prosecution, enabling legislation must go beyond obligations for domestic institutions and establish cooperation across jurisdictions. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 283

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS Notes 1. OECD (2010). OECD Council Recommendation to Facilitate 22. Mearian (2020). U.S. Air Force to pilot blockchain-based Co-operation between Tax Authorities as well as other Law database for data sharing. https://www.computerworld. Enforcement Authorities to Combat Serious Crimes, 14 2010, com/article/3519917/us-air- force-to-pilot-blockchain-based- C(2010)119 October. https://www.oecd.org/tax/crime/2010- database-for-data-sharing.html. recommendation.pdf. 23. Task Force on the Review of the Legal, Policy and Institutional 2. OECD (2017a). Effective Inter-Agency Cooperation in Fighting Framework for Fighting Corruption in Kenya (2015), see Tax Crime and Other Financial Crimes, 3rd Ed. 2017, pg. Gazette Notice No. 2118 of 30th March 2015. 131. Available online at: https://www.oecd.org/tax/crime/ ef fe c t i ve - inte r- ag e nc y - co - o p e r at io n - in -fig ht ing -t a x- c r im e s - 24. Oyugi (2016). Country Statement by Ambassador Michael AO and-other-financial-crimes-third-edition.pdf. Oyugi, Ambassador/Permanent Representative of the Republic of Kenya to the UN and the International Organisations 3. OECD (2017b). Effective Inter-Agency Co-operation for in Vienna, Austria and Leader of Delegation. 15 November sharing the information in Fighting Tax Crimes as well as other 2016, 7th session of the Meeting of the Implementation Financial Crimes (Third Edition) – Part 1 – 2017. Review Group of the UN Convention Against Corruption, Vienna, Austria. https://www.unodc.org/documents/treaties/ 4. OECD (n 2 above), page 14 U N C AC / Wo r k i ng Gro u p s /I m p l e m e nt at io nRev iew Gro u p/14 - 16November2016/Statements/Kenya.pdf. 5. Australia, Austria, Azerbaijan, Belgium, Brazil, Burkina Faso, Canada, Chile, Colombia, Costa Rica, the Czech Republic, 25. Kenya Law (2015). The Kenya Gazette (Special Issue), 31st Denmark, Ecuador, El Salvador, Estonia, Finland, France, March,2015. http://kenyalaw.org/kenya_gazette/gazette/ Georgia, Germany, Ghana, Greece, Hungar y, Iceland, volume/MTE1NQ-- /Vol.CXVII-No.33/. India, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Mexico, the Netherlands, New 26. Kenya Law, 2015. Zealand, Norway, Peru, Portugal, Serbia, Singapore, the Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, 27. Ibid Turkey, Uganda, the United Kingdom and the United States. 28. Obala (2020). EACC Boss: We Have Recovered SH22 6. OECD, 2017, page 69. Billion of Stolen Assets. https://www.standardmedia.co.ke/ article/2001356289/eacc-boss- interview-a-year-in-office. 7. OECD (n 2 above), page 15 29. Kihiu (2018). Govt Agencies Say Injunctions Frustrating Graft 8. AU/UNECA. (n.d.). Report of the High-Level Panel on Illicit Fight. ht tps://w w w.capitalfm.co.ke/news/2018/08/gov t- Financial Flows from Africa commissioned by the AU/ECA agencies-say-injunctions- frustrating-graft-fight/. Conference of Ministers of Finance, Planning and Economic Development. https://www.uneca.org/sites/default/files/ 30. Ibid. PublicationFiles/iff_main_report_26feb_en.pdf. 31. Ibid. 9. OECD (2017a). Effective Inter-Agency Cooperation in Fighting Tax Crime and Other Financial Crimes, 3rd Ed. 2017, pg. 32. Transparency International, 2018. 131. Available online at: https://www.oecd.org/tax/crime/ ef fe c t i ve - inte r- ag e nc y - co - o p e r at io n - in -fig ht ing -t a x- c r im e s - 33. AU/UNECA. (n.d.). and-other-financial-crimes-third-edition.pdf, page 26. 34. This is a title conferred on legal practitioners in Nigeria who 10. OECD, 2017a, page 21. have distinguished themselves in the legal profession 11. OECD, 2017a, page 27. 35. Punch (2017). Inter-agency rivalry hurting anti-corruption war. https://punchng.com/inter-agency-rivalry-hurting-anti- 12. OECD, 2017a, page 27. corruption-war/. 13. OECD, 2017a, page 22. 36. CAPI (2016). Center for Advancement of Public Integrity (CAPI) at Columbia Law School“, September 2016, pg. 2, https:// 14. OECD, 2017a, page 92. w w w.law.columbia.e d u /site s /d ef ault /file s /mic rosite s /p ublic- integrity/files/leveraging_resources_and_relationships_- _ 15. OECD, 2017a. capi_community_contribution_-_september_2016_0.pdf. 16. OECD, 2017a, page 22. 37. Ibid. 17. S Hodzic, 2016, ‘National report: Croatia’ paper presented 38. Ibid. at the conference ‘Improving tax compliance in a globalised world’, Rust, Austria, 30 June-2 July 2016. 39. Bernd Schlenther (2017), “Tax administrations, financial intelligence units, law enforcement agencies: How to work 18. D Nerudova & J Tepperova, 2016, ‘National report: Czech together”, in Jeffrey Owens et. al., Inter-Agency Cooperation Republic paper presented at the conference ‘Improving tax and Good Tax Governance in Africa, 2017 Pretoria University compliance in a globalised World Rust, Austria, 30 June-2 July Law Press, pg.85 2016. 40. Ibid. 19. OECD, 2017a, page 24. 41. OECD (2013), ‘The role of tax examiners and tax auditors’, 20. OECD, 2017a, page 25. OECD, 2013, pg. 15. Available online at: https://www. oecd-ilibrar y.org/docser ver/9789264205376 -5-en. 21. Julia de Jong, Alexander Meyer, and Jeffrey Owens (2017). pdf?expires=1583685923&id=id&accname=guest&checksum Exploring How Blockchain Technology Could Enhance =E3DC053922746958894C2 0B18F5AA90B Financial Transparency through Registers of Beneficial Ownership. https://www.eventleaf.com/Attendee/Attendee/ 42. Ibid. V ie w E x hi b i to r D o c u m e nt?e I d =3Pia J f T L i w O Iv r B o R X L D Rg %3D%3D&edId=bzzywXcAnmHwF7rqxGz ovg%3D%3D. 43. Ibid 284 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS 44. OECD (2017), Effective Inter-Agency Cooperation in Fighting 68. OECD & World Bank (2018), pg.46 Tax Crime and Other Financial Crimes, 3rd Ed. 2017, pg. 13. Available online at: https://www.oecd.org/tax/crime/ 69. OECD & World Bank (2018), pg.46 ef fe c t i ve - inte r- ag e nc y - co - o p e r at io n - in -fig ht ing -t a x- c r im e s - and-other-financial-crimes-third-edition.pdf 70. OECD & World Bank (2018), pg.27 45. Bernd Schlenther, 2017, pg. 86 71. OECD & World Bank (2018), pg.27 46. OECD (2017), n.11, pg. 13 72. OECD (2017), pg.49 47. Jean-Pierre Brun, Larissa Gray, Clive Scott & Kevin Stephenson, 73. OECD & World Bank (2018), pg.30 (2011), Asset Recovery Handbook: A Guide for Practitioners, World Bank, pg. 23 74. OECD & World Bank, (2018), pg.35 48. Ibid 75. See Note on Inter-Agency Collaboration to Obtain and Use Data to Detect Potential Corruption for model MOU. 49. OECD (2017). n.11, pg. 13 76. Bernd Schlenther, (2017), pg.95 50. OECD (2017), n.11, pg.14 77. OECD (2017), “Fighting tax crime: The ten global principles”, 51. OECD (2017), n.11, pg. 14 2017, pg. 53-54, http://www.oecd.org/tax/crime/fighting-tax- crime-the-ten- global-principles.pdf 52. Costa Rica, Czech Republic, Estonia, Finland, Iceland, Luxembourg and Sweden 78. Ibid 53. OECD (2017), n.11, pg.14 79. Ibid 54. OECD (2017), n.11, pg. 13-14 80. OECD (2017), pg. 55 55. OECD & World Bank (2018), Improving Co-operation between 81. OECD (2017), pg. 55 Tax Authorities and Anti-Corruption Authorities in Combating Tax Crime and Corruption, OECD & World Bank, 2018, 82. OECD (2017), pg. 55 pg.13. Available online at: http://documents.worldbank.org/ c u r a t e d /e n /4 611815 4 0 2 0 9894 4 62 /p d f/131110 -2 018 -10 -19 - 83. OECD (2017), pg.55 OECD-World-Bank-Improving-Co-operation- between-Tax- Authorities-and-Anti-Corurption-Authorities-in-Combating- 84. IMF Legal Department (2012), ‘Revisions to the FATF Standard Tax-Crime-and-Corruption.pdf – Information Note to the Executive Board’, IMF, 2012, pg. 7-10. Available online at: https://www.imf.org/external/np/pp/ 56. Global Forum (2019), ‘The 2019 AEOI Implementation Report’, eng/2012/071712a.pdf OECD, 2019, pg.2. Available online at: https://www.oecd.org/ tax/transparency/AEOI-implementation-report-2019.pdf 85. FATF (2018), Annual Report 2017-2018, FATF, 2018. Available online at: https://www.fatf- gafi.org/publications/fatfgeneral/ 57. Commentary to Article 26 (Paragraph 1) of the OECD Model documents/annual-report-2017-2018.html Tax Convention 2017 86. Bernd Schlenther (2017), pg.99 58. Commentary to Article 26 (Paragraph 2) of the OECD Model Tax Convention 2017, para. 12 87. Bernd Schlenther (2017), pg.99 59. Ibid 88. FATF (2012), ‘Operational issues: Financial investigations guidance’, FATF, June 2012, pg.7. Available online at: 60. OECD (2013), ‘Mutual Legal A s sis t ance and other https://www.fatf- gafi.org/media/fatf/documents/reports/ forms of Cooperation Between Law Enforcement Operational%20Issues_Financial%20investigations%20 Agencies’ OECD, 2013, pg.6. Available online at: Guidance.pdf ht tps://w w w.oecd.org/corruption/acn/lawenforcement / MLAandOtherFormsCooperationLawEnforcementAgencies_ 89. Ibid ENG.pdf 90. For more see Rita Julien (2019), “Unexplained wealth orders 61. Asian Development Bank & OECD (2017), Mutual Legal (UWOs) under the UK’s Criminal Finances Act 2017: The role of Assistance in Asia and the Pacific – Experiences in 31 tax laws and tax authorities in its successful implementation”, Jurisdictions‘, ADB & OECD, 2017. Available online at: WU International Taxation Research Paper Series No. 2019 https://www.oecd.org/corruption/ADB-OECD-Mutual-Legal- – 02, https://papers.ssrn.com/sol3/papers.cfm?abstract_ Assistance-Corruption-2017.pdf id=3465485 62. Ibid 91. See Annex I 63. Ibid 92. South African Government (2009), “R43 million Ponzi scheme money frozen”, ht tps://w w w.gov.za/r43-million-ponzi- 64. Ibid scheme-money-frozen 65. Ibid 93. OECD (2017), pg.77 66. Shruti Sudarsan (2018), ‘Operation car wash: As Brazil faces 94. OECD (2017), pg. 77 challenges ahead, a silver lining appears’, Cornell SC Johnson College of Business, September 2018. Available online at: 95. Larr y Schlesinger (2013), “The runaway Ponzi scheme https://business.cornell.edu/hub/2018/09/14/operation-car- ‘mastermind’ holed up on the Gold Coast”, 25 June 2013, Smart wash-brazil-challenges/ Company, https://www.smar tcompany.com.au/business- advice/legal/the-runaway-ponzi-scheme-mastermind-holed- 67. OECD (2017), pg. 23 up-on-the-gold-coast/ 96. Ibid Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 285

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS 97. Rob Rose (2013), The Grand Scam: How Barry Tannenbaum OECD (2017a). Effective Inter-Agency Cooperation in Fighting Conned South Africa’s Business Elite, 2013, Penguin Random Tax Crime and Other Financial Crimes, 3rd Ed. 2017, pg. 131. House South Africa. Available online at: https://www.oecd.org/tax/crime/effective- inter-agency-co-operation-in-fighting-tax-crimes-and-other- 98. Marcos Tourinho (2017), ‘Brazil in the global anti- financial-crimes-third-edition.pdf. corruption regime’, RBPI, October 2017, pg.1. Available online at: http://www.scielo.br/pdf/rbpi/v61n1/1983-3121- OECD (2017b). Effective Inter-Agency Co-operation for sharing rbpi-0034-7329201800104.pdf the information in Fighting Tax Crimes as well as other Financial Crimes (Third Edition) – Part 1 – 2017. 99. OECD & World Bank (2018), pg.64 Oyugi (2016). Country Statement by Ambassador Michael AO 100. OECD & World Bank (2018), pg.64 Oyugi, Ambassador/Permanent Representative of the Republic of Kenya to the UN and the International Organisations in 101. Leaders League (2020). ‘International cooperation and its Vienna, Austria and Leader of Delegation. 15 November relevance in Brazil’s legal system’. https://www.leadersleague. 2016, 7th session of the Meeting of the Implementation com/en/news/international-cooperation-and-its-relevance- Review Group of the UN Convention Against Corruption, in-brazil-s-legal-system Vienna, Austria. https://www.unodc.org/documents/treaties/ UNCAC/ WorkingGroups/ImplementationReviewGroup/14- References 16November2016/Statements/Kenya.pdf. OECD (2010). OECD Council Recommendation to Facilitate Punch (2017). Inter-agency rivalry hurting anti-corruption war. Co-operation between Tax Authorities as well as other Law ht tps://punchng.com/inter-agency-rivalr y-hur ting-anti- Enforcement Authorities to Combat Serious Crimes, 14 2010, corruption-war/. C(2010)119 October. https://www.oecd.org/tax/crime/2010- recommendation.pdf. S Hodzic, (2016), ‘National report: Croatia’ paper presented at the conference ‘Improving tax compliance in a globalised world’, OECD (2017). Effective Inter-Agency Cooperation in Fighting Rust, Austria, 30 June-2 July 2016. Tax Crime and Other Financial Crimes, 3rd Ed. 2017, pg. 131. Available online at: https://www.oecd.org/tax/crime/effective- Case Study 21: Sharing Evidence with Joint inter-agency-co-operation-in-fighting-tax-crimes-and-other- Prosecution Teams financial-crimes-third-edition.pdf. Asian Development Bank & OECD (2017), Mutual Legal Assistance Case Study 20: Inter-agency Collaboration to Detect in Asia and the Pacific – Experiences in 31 Jurisdictions‘, Corruption ADB & OECD, 2017. Available online at: https://www.oecd. o r g /c o r r u p t i o n /A D B - O EC D - M u t u a l - L e g a l - A s s i s t a n c e - AU/UNECA. (n.d.). Report of the High-Level Panel on Illicit Financial Corruption-2017.pdf Flows from Africa commissioned by the AU/ECA Conference of Ministers of Finance, Planning and Economic Development. Bernd Schlenther (2017), “Tax administrations, financial intelligence ht t p s://w w w.une c a.org /sites /d ef ault /files /Public atio nFiles / if f _ units, law enforcement agencies: How to work together”, in main_report_26feb_en.pdf. Jeffrey Owens et. al., Inter-Agency Cooperation and Good Tax Governance in Africa, 2017 Pretoria University Law Press, pg.85 D Nerudova & J Tepperova, (2016), ‘National report: Czech Republic paper presented at the conference ‘Improving tax CAPI (2016). Center for Advancement of Public Integrity (CAPI) compliance in a globalised World Rust, Austria, 30 June-2 July at Columbia Law School“, September 2016, pg. 2, https:// 2016. w w w.l aw.c o l u m b ia.e d u /s i te s /d e f a ul t / f il e s /mi c r o s i te s /p u b li c - integrity/files/leveraging_resources_and_relationships_-_capi_ Julia de Jong, Alexander Meyer, and Jeffrey Owens (2017). community_contribution_-_september_2016_0.pdf. Exploring How Blockchain Technology Could Enhance Financial Transparency through Registers of Beneficial FATF (2012), ‘Operational issues: Financial investigations guidance’, Ownership. https://www.eventleaf.com/Attendee/Attendee/ FATF, June 2012, pg.7. Available online at: https://www.fatf-gafi. V ie w E x hi b i to r D o c u m e nt?e I d =3Pia J f T L i w O I v r B o R X L D o r g /m e d ia /f at f/d o c u m e nt s /r e p o r t s /O p e r at io nal% 20 I s s u e s _ Rg%3D%3D&edId=bzzywXcAnmHwF7rqxGzovg%3D%3D. Financial%20investigations%20Guidance.pdf Kenya Law (2015). The Kenya Gazette (Special Issue), 31st March, FATF (2018), Annual Report 2017-2018, FATF, 2018. https://www. 2015. http://kenyalaw.org/kenya_gazette/gazette/volume/ f a t f - g a f i.o r g /p u b l i c a t i o n s / f a t f g e n e r a l /d o c u m e n t s /a n n u a l - MTE1NQ--/Vol.CXVII-No.33/. report-2017-2018.html. Kihiu (2018). Govt Agencies Say Injunctions Frustrating Graft Fight. Global Forum (2019), ‘The 2019 AEOI Implementation Report’, https://www.capitalfm.co.ke/news/2018/08/govt-agencies-say- OECD, 2019, pg.2. https://www.oecd.org/tax/transparency/ injunctions-frustrating-graft-fight/. AEOI-implementation-report-2019.pdf Mearian (2020). U.S. Air Force to pilot blockchain-based IMF Legal Department (2012), ‘Revisions to the FATF Standard – database for data sharing. https://www.computer world. Information Note to the Executive Board’, IMF, 2012, pg. 7-10. co m /ar t ic le /3519 917/u s - air-fo rce -to - p ilot- b lo c kc hai n - b as e d - https://www.imf.org/external/np/pp/eng/2012/071712a.pdf database-for-data-sharing.html. Jean-Pierre Brun, Larissa Gray, Clive Scott & Kevin Stephenson, Obala (2020). EACC Boss: We Have Recovered SH22 Billion of Stolen (2011), Asset Recovery Handbook: A Guide for Practitioners, Assets. https://www.standardmedia.co.ke/article/2001356289/ World Bank, pg. 23. eacc-boss-interview-a-year-in-office. Larry Schlesinger (2013), “The runaway Ponzi scheme ‘mastermind’ holed up on the Gold Coast”, 25 June 2013, Smart Company, https://www.smartcompany.com.au/business-advice/legal/the- runaway-ponzi-scheme-mastermind-holed-up-on-the-gold- coast/. 286 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 10 EXCHANGE AND COLLABORATION WITH TAX ADMINISTRATIONS Leaders League (2020). ‘International cooperation and its relevance in Brazil’s legal system’. https://www.leadersleague. com/en/news/international-cooperation-and-its-relevance-in- brazil-s-legal-system. Marcos Tourinho (2017), ‘Brazil in the global anticorruption regime’, RBPI, October 2017, pg.1. Available online at: http://www.scielo. br/pdf/rbpi/v61n1/1983-3121-rbpi-0034-7329201800104.pdf. OECD (2013), ‘The role of tax examiners and tax auditors’, OECD, 2013, pg. 15. Available online at: https://w w w. oecd-ilibrar y.org/docser ver/9789264205376 -5-en. pdf?ex pires=1583685923&id=id&accname=gues t& checksum=E3DC053922746958894C20B18F5AA90B. OECD (2017), Effective Inter-Agency Cooperation in Fighting Tax Crime and Other Financial Crimes, 3rd Ed. 2017, pg. 13. https:// w w w.oecd.org /t a x /cr ime/ef fec tive -inter-agenc y- co - oper ation - in-fighting-tax-crimes-and-other-financial-crimes-third-edition. pdf. OECD & World Bank (2018), Improving Co-operation between Tax Authorities and Anti-Corruption Authorities in Combating Tax Crime and Corruption, OECD & World Bank, 2018, pg.13. http:// documents.worldbank.org/curated/en/461181540209894462/ pdf/131110 -2018-10 -19-OECD-World-Bank-Improving-Co- operation-bet ween-Tax-Authorities-and-Anti-Corurption- Authorities-in-Combating-Tax-Crime-and-Corruption.pdf. OECD (2013), ‘Mutual Legal Assistance and other forms of Cooperation Between Law Enforcement Agencies’ OECD, 2013, pg.6. https://www.oecd.org/corruption/acn/lawenforcement/ MLAandOtherFormsCooperationLawEnforcementAgencies_ ENG.pdf. OECD (2017), “Fighting tax crime: The ten global principles”, 2017, pg. 53-54, http://www.oecd.org/tax/crime/fighting-tax-crime- the-ten-global-principles.pdf. Rita Julien (2019), “Unexplained wealth orders (UWOs) under the UK’s Criminal Finances Act 2017: The role of tax laws and tax authorities in its successful implementation”, WU International Taxation Research Paper Series No. 2019 – 02, https://papers. ssrn.com/sol3/papers.cfm?abstract_id=3465485. Rob Rose (2013), The Grand Scam: How Barry Tannenbaum Conned South Africa’s Business Elite, 2013, Penguin Random House South Africa. Shruti Sudarsan (2018), ‘Operation car wash: As Brazil faces challenges ahead, a silver lining appears’, Cornell SC Johnson College of Business, September 2018. https://business.cornell. edu/hub/2018/09/14/operation-car-wash-brazil-challenges/. South African Government (2009), “R43 million Ponzi scheme money frozen”, https://www.gov.za/r43-million-ponzi-scheme- money-frozen. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 287



PART III Role of Institutions in Fighting Corruption Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 289

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 Anti-Corruption Agencies Can Anti-Corruption Agencies be Successful in Combating Corruption?

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES Introduction Anti-Corruption Agencies (ACAs) have, over the project funding, have supported these efforts as past 2 decades, received a great deal of attention evidence of a country’s anti-corruption commitment. and criticism because of the high visibility of However, in a misreading of UNCAC, the focus on their work and their seemingly limited impact combining both Article 6 and 36 responsibilities has compared to the resources devoted to them. meant that these new agencies are often expected to Although they are a new institutional response to take on a disparate range of roles, which may include corruption (as suggested by de Sousa, 2010), ACAs national anti-corruption strategies, covert intelligence are often misunderstood and insufficiently analyzed. and money laundering investigations, asset disclosure A few authors have tried to systematically evaluate and registration, and awareness programs for civil the ef fectiveness of ACAs.1 This chapter builds servants and citizens. on this literature and focuses on three less known experiences (UK, Lithuania, and Bhutan) to emphasize Despite the increase in the number of ACAs, their the importance of having a political commitment to success has been mixed and limited. Experiences tackling the problem of corruption, developing a from countries show that most of these agencies have deep understanding of the nature of the corruption fallen short of achieving the organizational standards problem, and mapping the existing institutional set by UNCAC. The independence of the institutions landscape before establishing a new anti-corruption (functional, budgetary and appointments), strategic agency if it is to be effective. focus, human and financial resources, and mechanisms for collaboration and coordination fall short of what Is a stand-alone agency the best would enable them to be effective. They have therefore model? not been successful in delivering according to their mandates and in line with citizens’ expectations, and A structured response to corruption often in many cases have not had any significant impact draws heavily on the United Nations Convention on the trends, types and levels of corruption in their Against Corruption (UNCAC) as a comprehensive jurisdictions. practitioner framework. UNCAC Article 6 requires States Parties to establish (or ensure the existence The pervasive institutional limitations raise of) anti-corruption body/bodies to take ownership questions as to whether the model of a stand- of the corruption prevention policies, practices and alone multi-functional ACA is the right one, or procedures required by Article 5. Article 36 requires whether the need can be addressed through States Parties to ensure the existence of a body or bodies existing institutions. Focusing attention on or persons specialized in combating corruption through organizational inadequacies essentially ignores basic law enforcement. Both Articles propose standards questions such as: Have ACAs been able to address for such institutions, including that they should be the corruption ‘problem’, which is what they were set independent, specialized, staffed, and have sufficient up to do? More importantly, is a dedicated agency resources to meet their roles and responsibilities. the effective response, as part of a country risk-based anti-corruption strategy? These questions direct the Many governments, multilateral and bilateral focus onto a few relevant issues that give rise to further donors have suggested or opted for the questions: (i) Was the ‘problem’ sufficiently defined establishment of a single agency—an anti- to justify the need for a dedicated and often new corruption agency (ACA)—to undertake both agency? (ii) Does such a definition provide the basis Articles’ functions. This approach has been reinforced from which to design a fit-for-purpose body and ensure by the perceived success of the Hong Kong experience. its effective functioning? and (iii) Were wider issues, This route has resolved the reluctance of many donors such as the agency’s organizational development and to engage with existing inadequate and compromised maturity, and its fit within its external institutional and public sector and law enforcement institutions. Many operating environment taken into account? These three donors have therefore welcomed the establishment of relevant issues will be returned to later in this chapter. a single agency to focus on ‘corruption’ and, through To provide the context, it is necessary to look at two aspects of these basic questions. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 291

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES Corruption and the environment Corruption has all too often been regarded as a of democratization, economic development, human stand-alone issue that can be addressed though the rights, and the rule of law. establishment of a stand-alone agency. Corruption is considered a core inhibitor of issues related to In most cases, countries do not develop a national democratization, economic development, human rights anti-corruption strategy in advance of establishing and the rule of law. While UNCAC provides an adequate an ACA and so do not tailor the design of such an summation of the types of offenses and unacceptable agency to the problem.2 In the absence of such a conduct that it considers corruption (and by implication strategy, there is often no pre-agency assessment of indicates a range of institutions that should be involved exactly what type of corruption is to be addressed and in combating it), it silos corruption as a stand-alone whether a dedicated ACA is an appropriate response. issue. Accordingly, an ACA is a stand-alone response, There is also limited understanding of the roles and from both the causes of the problem and from other responsibilities of the ACA and of its mandate with areas of financial crime, as well as from other inhibitors respect to other law enforcement and public sector 292 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES institutions. Knowing the problem and clarifying responsibility more properly taken on by other bodies. how it is to be addressed ensures that an ACA can This is partly a consequence of the antecedents of be designed to be focused and fit-for-purpose, and UNCAC, partly its use of mandatory and optional avoid getting involved in areas that do not fall within classifications, and partly its presentation as a legal the normal understanding of corruption or becoming document suitable for treaty purposes. Hence, it is a essentially the institutional repository of anything that prescriptive document (rather than a working document has a ‘corruption’ dimension.3 At the same time, there is amenable for updating, revision and adaptation) and often a lack of clarity over the roles and responsibilities a continuing driver for addressing corruption at the of other key institutions which also play a role in multilateral or bilateral level to the point where not combating corruption, as well as the mechanisms and having such an ACA becomes the exception to the incentives to ensure the inter-connectedness and inter- norm. The prescriptive nature of UNCAC, reinforced dependence of the institutional landscape. by its current review process, lacks an approach that recognizes corruption’s developmental and country- UNCAC itself does not recognize the dynamics specific trajectories as the starting point to assess the of corruption as an operating environment. This most effective strategic and institutional response to includes not only where corruption causes the most a dynamic phenomenon. Further, continuing to see harm, promoting exclusion and inequality, or how far it corruption as a stand-alone issue has implications may be rooted in legacy and cultural issues. It does not when it becomes less an end in itself than as a necessarily identify addressing corruption as a means facilitator of issues being addressed by other agendas to other developmental ends, such as fixing countries’ and agencies (for example, that of money laundering tax bases. Nor does it allow for the need to adjust as a cornerstone of the fight against international illicit or adapt the work of ACAs, or—by not specifying money flow, people trafficking, terrorist finance, and the roles of organizations—ensure the allocation of organized and serious crime). Agency and the environment Answering the ‘problem’ and ‘need’ and the relationship with the agency’s external questions institutional and operating environment. This results in an expectation of high-level performance and quick Establishment of a dedicated ACA based on results. Such outcomes, however, are predicated on an a successful model from another country is a ‘ideal type’ organizational platform, without too much commitment to address corruption without thought about what is required in organizational terms considering the country-specific institutional to deliver the expectations. At the same time, the point environment which is long recognized as playing when an ACA is established is often the point at which it a significant role in determining the likely is loaded with most, if not all, the roles and expectations effectiveness of an ACA.4 Although the success of to address corruption without giving due consideration the Hong Kong model (i.e., the establishment of the to parallel roles in the institutional landscape and Independent Commission against Corruption) can be complementary reforms in the wider environment. explained by the specific institutional circumstance, It has implications for the longer-term organizational it is frequently seen as an explicit and immediate capacity, capabilities, maturity, and credibility of the commitment to anti-corruption. It has also been ACA, its perceptions among citizens, and its impact on assumed that the fully-formed replica, as the distillation the ‘corruption’ problem. of good operational practice and appropriate organizational arrangements, can become active Rather than seeing the establishment of an “ideal and effective immediately, irrespective of both the ACA” as a panacea to address corruption, one necessity of the UNCAC standards for such agencies’ could explore other options. One solution is to use organizational development and maturity in practice, the country’s vision as articulated in the National Anti- Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 293

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES Corruption Strategy (NACS) to determine whether an looks to support organizational maturation issues ACA is needed or whether an alternative response may until such point as the ACA is consistently able to do be found among the existing institutional arrangements. something achievable well within its existing resources Another solution, if an independent and new agency and capabilities. Further, and perhaps more importantly, is considered necessary, may lie in supporting its it is seen to do something well. This means working establishment and evolution over time. This in turn toward the ‘good enough’5 (or best possible) ACA and requires defining ‘success’ in organizational terms and beyond until it is robust, credible and fit for the purpose ensuring the necessary competences and approaches for which it was intended (so long as that purpose has that support the evolution of the organization within its been identified). The next pages offer three examples external environment to achieve the desired outcomes. of such alternative solutions and their effectiveness in Such a consideration may require an approach which addressing corruption at the country level. Model I: Building an anti-corruption response from the existing institutional landscape The United Kingdom (UK) was increasingly seen as other agencies is framed by strategies or plans a safe haven for illicit financial capital. The label (such as the police fraud strategy, the 2014 Anti- ‘Londongrad’6 exemplified the longstanding preference corruption Plan [now the UK anti-corruption strategy of politicians and other Politically Exposed Persons 2017-2022], the serious organized crime strategy, the (PEPs) for London as a safe investment and relatively cybercrime strategy, and so on). There are high-level relaxed regulatory regime for a high-end net worth boards and inter-agency arrangements to facilitate resident lifestyle. As the media often commented, intelligence, case-sharing or inter-agency work. law enforcement or other dissuasive actions had Within such a patchwork institutional landscape, been limited. The scale of the laundering of criminal all of whom have been the subject of year-on-year proceeds, as the UK’s National Crime Agency warned financial cuts and of competing policy agendas, the in its 2015 threat assessment, was ‘a strategic threat to cost associated with investigating bribery allegations the UK’s economy and reputation’. The government’s in foreign jurisdictions, and the cost of identifying, Anti-Corruption Plan (2014) aimed to more effectively tracking and recovering the proceeds of corruption, tackle ‘those who engage in corruption or launder their severely limited the response options. Certainly, a corrupt funds in the UK’ as well as return the proceeds new dedicated agency was never on the table but a of corruption (a core tenet of UNCAC in Article 3 but possible reconfiguration of existing expertise within imperfectly applied thereafter by most developed existing institutional arrangements was. countries).7 This commitment was reinforced by Prime Minister David Cameron at the ‘International Anti- The UK established the International Corruption corruption Summit’ in London in 2016. Unit through a reconfiguration of expertise within existing institutional arrangements. The The UK’s plethora of agencies with different and Department for International Development (DFID) competing mandates and administrative costs took the lead through a senior official who operated limited any coordinated response to investigating as the institutional ‘boundary-spanner’8 in negotiating international corruption and the proceeds of between agencies and adapting responses to changing international corruption. There are nearly 50 police circumstances. The official was authorized to commit, forces in the United Kingdom and a smaller number of ring-fence and oversee dedicated resources and agencies with a national remit, notably the National influence the selection of likeminded officials to lead Crime Agency (NCA), the Serious Fraud Office (SFO) the initiative operationally.9 This enabled the allocation and the Crown Prosecution Service (CPS). Much of of dedicated investigation and intelligence units within the effort to develop agencies’ relationships with existing law enforcement agencies, who were able to 294 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES draw upon their agencies’ in-country liaison officers UK) to facilitate information-sharing. Staff expertise and other technical support, with access to dedicated is enhanced by NCA financial investigator training, as CPS prosecutors. Practice demonstrated the need for well as bribery investigations training run by the City of greater flexibility as well as removing demarcation London Police. Specialist support is accessible through issues between the various units and agencies for more NCA intelligence collection techniques, which the NCA effective coordination and cooperation, as well as can deploy in pursuit of its crime reduction mandate intelligence-gathering and information-sharing. Thus, as well as the international liaison network of NCA further reconfiguration within existing law enforcement officers attached to embassies overseas. In terms of arrangements was achieved in terms of amalgamating organizational impact, the ICU currently has a caseload intelligence- and investigation-based work. The of 23 cases, and with current resourcing, they can outcome was the establishment of the International handle in the region of 23-25 cases. By 2018, the value Corruption Unit (ICU) within the NCA, which also of assets restrained in the UK and overseas exceeded houses the UK Financial Intelligence Unit. The NCA also £683 million, while the cumulative amount of assets managed the ICU’s administrative, human resources, confiscated exceeds £55 million. training, and other functions, with salaries, expenses and travel still largely funded by DFID. The key role played by the ‘boundary-spanner’ cannot be over-emphasized. The ICU’s achievement The ICU was given dedicated staff and budget, very much reflects the intentions of UNCAC Article 36 and its capacity was enhanced, including support and has relied on the flexibility of existing institutions from the NCA, which yielded positive results. The and the availability of the ‘boundary-spanner’—a senior ICU has had an annual budget of some £4 million official with a clear focus and a degree of executive and a staff of 45 persons, of whom 30 were frontline and financial authority as well as trust from relevant investigators. It also has seconded officials from the institutions to deliver the necessary institutional SFO and the Financial Conduct Authority (the regulator reconfigurations and maintain, to date, its organizational for financial services firms and financial markets in the development and consolidation. Model II: A ‘best possible’ agency A deep understanding of the institutional and located as a unit within the Ministry of Interior and was operating environment is crucial for the design of able to handpick experienced staff on enhanced terms. a dedicated agency. Lithuania’s post-Soviet transition The STT also drew on Ministry resources and technical to democracy was impacted, not surprisingly, by expertise internally, as well as US expertise and resources former Soviet-led institutions and bureaucracy. As part and then EU consultancy programs externally.10 While of accession to the European Union, the European the model may (to some11) seem like the three-function Commission insisted that Lithuania address corruption, Hong Kong model, the Lithuanians saw the model as which, given the legacy issues, meant that the solution ‘the FBI model which was the most viable, economically would be a political issue. The government recognized feasible, and efficient’.12 The FBI provided the STT with the necessity to secure external support to address early advice and support. The model in practice was very corruption with an aim to secure membership of much a law enforcement-defined agency that focused relevant western liberal democratic groupings, such as on embedding its functions and competences. It did the European Union and NATO, and later OECD. not over-extend itself within an evolving democratic context with pre-existing patterns of corruption and new Following its establishment, the new agency ones emerging. In this context and against widespread benefited from internal and external guidance and citizen perceptions of corruption, the STT reflected followed a shrewd path. After due deliberations by what might be termed as an evolution towards a ‘good commissions and with cross-party support, the Special enough’ agency that was able to maintain organizational Investigation Service (STT) was established. It was competence, resilience, and shape. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 295

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES In the early years of democratization, Lithuania year). The recent years indicate a gradual reduction benefited from a number of international programs of staff turnover (to 3%), which ensures continuity to improve its law enforcement areas and help as well as retention of expertise and institutional it to assume the obligations of EU membership. memory. The primary focus was on strengthening the STT’s investigative, intelligence and analytic functions. 3. STT benefited from a continuous practitioner and From the establishment of STT within the Ministry of technical training program. Although the initial Interior in 1997 to its establishment as an independent focus on the criminal investigation of corruption agency by law in 2002, it reported to the President appeared to commit significant resources to minor and Parliament, which helped it to avoid isolation. This offenses, the accumulation of competence and also addressed all the organizational issues that a new, experience has been reflected in more recent years independent agency was perceived to have suffered in an increasingly higher level of offender, primarily from in other countries. The STT was able to access senior public sector and criminal justice officials. in-house technical services and practitioner training and guidance that reinforced its own perceptions of its 4. STT’s effectiveness resulted from the combination roles and requirements. STT’s successful progression of a strategic approach taken on the basis of from an agency under a ministry to an independent fit- informed intelligence and specific technical for-purpose agency can be attributed to a number of approaches. Both covert and ‘open source’ factors: intelligence informed strategic thinking as well as investigations. This, coupled with technical 1. From the outset, the STT was seen as a quasi-law approaches and analysis, helped in corruption enforcement agency focusing on corruption (which case management and in mapping the corruption in turn is largely limited to bribery and abuse problem by type and function, thus providing a of office offenses). Its functions also included better understanding of the drivers and location of corruption prevention and corruption awareness, the risk (some of which informed its prevention and but these were seen as subordinate to its core awareness work). function. It had strong leadership committed to its core function, who had direct involvement in 5. STT established early in its development the need directing the early shape and ethos of the agency; for a 5-year strategy supplemented by an annual in 2006, about 83 percent of the STT budget was business plan and a performance management allocated for criminal prosecution and by 2014 regime. The budget was maintained, rising nearly two-thirds of staff continued to work in this moderately in recent years, allowing it to maintain area (just over 10% work in the areas of prevention and recruit staff. This in turn enabled it to function and awareness). effectively without significantly overloading the organization in terms of caseloads or cases that 2. STT had the right human resources. Its original stretched the capacity and competency of the employees, a number of whom moved later organization especially in the early years. into management roles within the agency, had experience of work in other law enforcement 6. STT succeeded in developing links with domestic institutions and were usually university graduates. and overseas organizations that were able to The pattern (and method) of recruitment (by type, provide valuable guidance to the newly established background and educational level) has largely been agency. It managed to negotiate the difficult maintained. Despite losing staff when the original formative years and survived countervailing enhanced-salary scheme was ended and when influences and agendas as a consequence of both private sector posts had greater attraction, the STT its strong but politically-connected leadership and managed to maintain both its staff complement its equally strong esprit de corps among its staff. at around an average of 250, as well as the type This was facilitated by methods of recruitment of staff it wanted to appoint. This contributed to and internal promotions, as well as its focus on maintaining a continuing organizational culture. a law enforcement approach to its investigative It also has taken a robust approach to those functions. considered unsuitable for the organization (at times moving out up to 10% of staff in a particular 296 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES Model III: A specialized agency: The importance of assessing the institutional landscape and operating environment Moving towards a democratic society that has a detailed Operations Manual, began public opinion a strong traditional culture has both benefits as surveys in 2007 and rolled out a National Integrity well as unintended consequences for addressing Assessment model in 2009, developed together with corruption. This is demonstrated by Bhutan, a country the South Korean Anti-Corruption Agency. This later that began the process of democratization from an incorporated the corruption perception surveys. It environment where the society and state were largely also began to conduct system studies, based on based on personal connections and kinship. The investigations and complaints from both citizens and consequence, according to a 2007 external review, was the media. strong concentration of powers; weak or non-existent checks and balances; poor transparency; undefined Furthermore, despite the very challenging discretionary powers; unclear rules and procedures; environment, the ACC was set up without an and patronage. institutional and corruption risk assessment, which could have helped identify institutional gaps The Bhutan Anti-Corruption Commission (ACC) and weaknesses that the ACC could have begun to was established as part of the 2005 constitutional address in its work. This lack of strategic planning had arrangements, with the aim of rooting out consequences for the agency’s impact. Efforts of the corruption right from the beginning. It was very much ACC were not complemented by a wider set of reforms a pre-emptive move announced by the Royal Decrees that needed to focus on developing a public service to anticipate the consequences of social, economic, ethics culture, as well as on mitigating some of the and political change and curb ‘self-interest leading to effects of particularism in practice through more robust corrupt practices’. The corruption ‘problem’ appeared internal controls. This led to the uneven development to relate more to the risks posed by the emerging of the wider institutional landscape and operating democratization process than to what may be described environment, with the following consequences: as traditional cultural behavior. Little attention was given to the potential consequences of criminalizing 1. Many reforms did not address past cultural heritage such practices or to the effect of democratic notions issues. Such issues included the presence of of public accountability and merit-based decision- personal connections, kinship and hierarchy, which making on the existing currency of social and political fostered a clientelist sub-climate that favored relationships within the state. the political and business elites. This underlines the wider failure of educational and information The ACC as a single agency had an extensive processes, which should have derived from a portfolio of responsibilities and its staff and national anti-corruption strategy. Not all awareness activities were quickly ramped up. It was expected and educational responsibilities should be located to address criminal behavior and had powers to prevent within a single institution. Further it presents the and investigate corruption. The ACC began work in ACC with continuing challenges because it has to 2006, with 3 commissioners and 8 staff. Within 5 years focus on what it interprets as a corruption problem, it had 3 commissioners, 16 staff in investigations, 5 in but which is more rooted in the traditional cultural prevention, as well as 18 management and support norms and values. This is confirmed both by the staff. By 2018, there were over 50 staff in investigations recent ACC Integrity Assessment reviews and its (including technical staff), 14 in prevention and 45 latest (2018) Annual Report: management and support staff, making a total of around 120 staff. Within 5 years it drafted the first National Corruption in the form of favoritism and Anti-Corruption Strategy (2008–13) (NACS) as part of nepotism are prevalent in public service delivery. its duty under the Act to operationalize the government This corroborates with the significant number policy of ‘Zero Tolerance to Corruption’. It developed of complaints received by the ACC on abuse Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 297

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES of functions,…Abuse of function is the highest 4. The civil service, as a whole, is uneven in its approach type of alleged corruption offenses constituting to the establishment of a basic ethical framework more than 50 percent and over the last five years built on public ethics, accountability and merit. the trend in the percentage has been increasing This is generally reflective of the slow progress on annually. Further, majority of the complaints that embedding the expectations of the NACS. The civil qualified for investigation pertained to abuse of service also appears reluctant to integrate into their function (48.6%)…the decentralization process work plans the increasing amount of information in the country is expected to aggravate the produced by the ACC on areas of vulnerability corruption vulnerabilities with more authority and risk. The roles of parliamentary oversight and resources for the LG functionaries.13 and accountability have not been developed as per the revised NACS. The efforts of ministries to 2. The ACC’s ‘ownership’ of the NACS did not include promote ethical environments are still a learning means to ensure parallel engagement by other process. There is also a lack of clarity as to the public organizations. The first NACS—and thus the exact relationship between the legislature and the one that sets the stage—was a broad statement of civil service, and where the general responsibility intent that did not require the ACC’s substantive for governance should lie. In terms of the strategy, engagement with all the relevant ministries and shifting primary responsibility for prevention to agencies. Of the 21 objectives, only 7 involved ministries has not yet been achieved. the ACC in conjunction with other institutions, while implementation was the responsibility of The first national anti-corruption strategy did not the Committee of Secretaries. Furthermore, there have the intended impact. As explained above, the were no measurable actions, activities or outputs, lack of an environmental and corruption risk assessment although this was rectified in the revised strategy. had consequences for the NACS’s impact. Several The ACC itself noted in 2009 that ‘fighting additional reasons were identified in a 2013 review:15 corruption is perceived as an ACC battle…without the concerted and conscious effort of all actors, the • Only a few depar tments and agencies have cadre’s lone battle against corruption will continue conducted strategic reviews of institutional to remain an action of sorts at best and a mockery capacity to prevent and combat corruption, or at worst’.14 implement plans to strengthen this capacity, despite the availability of practical tools to do so 3. The ACC’s efforts were not complemented by developed by the ACC and external partners; increases in the capacity of other institutions, as envisioned in the National Internal Control • Implementation of the NACS was perceived to Framework. The State Audit Institution (RAA) be the sole responsibility and accountability of in 2017 pointed to the continuing levels of the ACC; this is likely to be one of the key reasons inappropriate or inadmissible payments for why the NACS is little known and governance- contracts, services and expenses. It also noted that related reforms are not seen in connection with the these were primarily due to the lack of effective NACS. There is limited awareness that measures accountability mechanisms, weaknesses in internal to strengthen good governance, focusing on controls and the tolerance of unethical conduct. transparency and accountability, have a direct and Some 270 staff in the RAA were insufficient to audit highly important impact on reducing corruption some 930 agencies with nearly 1,300 accounts; only risks; and 50% could be reviewed annually. With less than 50 internal auditors in the internal audit service • Communication around implementation of the (IAS), internal control risks are not addressed. The NACS was inadequate. In addition, the absence National Internal Control Framework, which was of clarity about leadership and implementation set up in 2013, had envisaged that the IAS would roles in relation to the NACS resulted in a lack of not only fulfil its responsibilities to assess risks and systematic monitoring, oversight and evaluation of strengthen internal control mechanisms at various implementation. This can partly be attributed to levels of management, but would also supplement the aspirational and voluntary nature of the NACS. the mandates of the RAA and ACC. 298 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES Some external reviews have noted the ACC as a the heart of our relatively young democracy. It may well-organized agency, reflecting good practice create a pervasive culture of corruption that could approaches to management and delivery of its result in a governance which systematically favors functions. For example: “the ACC has made important the rich over the poor and the well-connected over contributions to citizens’ awareness and understanding the disconnected. Corruption may seep into the of the meaning and consequences of corruption. It has fabric of our government, making policy decisions to managed to acquire a strong reputation very quickly favor the privileged few rather than the public good and has built institutional capacity to carry out an thereby creating a legacy of patronage.17 extensive mandate and detailed functions. The ACC is a consolidated institution with a clear mandate, a clear This emphasizes how the ACC’s position in vision, well-established capacities and a strong esprit the institutional landscape should have been de corps.”16 determined at the time of its establishment. A more coherent and coordinated approach to the wider On the other hand, the consequences described anti-corruption environment and the responsibilities of above indicate the size of the challenges still the wider institutional landscape was never developed. facing the ACC. They not only identify the weaknesses As a result, the ACC does not fit entirely into this associated with the wider reform process but also an environment and the environment does not fully ACC chasing a continuing corruption problem rooted facilitate its purpose. This could and should have been in both the culture and the democratization process: anticipated at the time the ACC was established. The question should have been: what should come first – This is a serious cause for concern because money the NACS or the ACC? in politics will fundamentally erode and eat away at Comparing the three models and their possible impact Impact as organizations arrangements, it is a ‘fit-for-purpose’ agency with a managed portfolio of roles and functions, adequate The operational impact on the ground of the UK’s resourcing, and strong professional leadership. This ICU has been substantial, though this is not always was recognized by OECD’s review, which reported that recognized by the media. Its impact is primarily ‘all representatives at the on-site visit were unanimous reflected in the increase in the number of corruption in their praise for the STT’s professionalism and cases under investigation. The ICU has also diversified efficiency’ as Lithuania sought (and achieved in 2018) to the countries to which its cases relate and built membership of the OECD. Lithuania has demonstrated strong relationships with overseas law enforcement its willingness to cooperate with other countries and to authorities. While the work of the NCA18 is often set up networks for its law enforcement practitioners.19 reported in the media, that of specialist units is only In terms of external domestic impact, therefore, public sporadically mentioned. This is often a consequence of perceptions may now consider it a ‘good enough’ the complexity of the institutional landscape and the agency. Many of the continuing corruption issues may tendency of the UK media not to spend too much time be more of a consequence of delays in embedding explaining specialist functions to a general readership. wider reforms. On the other hand, in terms of the types of corruption that face a consolidating democracy, the STT is seen as a credible agency addressing more agency may be considered as a ‘best possible’ agency significant corruption issues, such as its criminal and fit-for-purpose for the increasingly complex and justice corruption investigations, international significant corruption problems facing the country. corporate bribery, and the financing of political parties. In terms of the organizational and institutional The Bhutan ACC is seen as a well-organized Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 299

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES agency, reflecting good practice approaches to engagement with citizens lies primarily with surveys management and delivery of its functions. The of perceptions and attitudes, and its awareness and ACC is highly visible in Bhutan and recognized as a prevention efforts are largely targeted at risk sectors, champion of good governance. Due to a significant promotional material, and (probably decreasing) joint amount of outreach, the ACC is gradually gaining trust work with voluntary and civil society bodies to promote within Bhutanese society, which was initially sceptical of education and values. an additional law enforcement type agency,20 and has been a notable force in promoting the anti-corruption This may reflect not only the agency’s prioritization message and in investigating and prosecuting corrupt of resources, but also weaknesses in partner officials.21 It has determined its roles and responsibilities organizations. In the case of STT, the Ministry of and established a strategy that integrates the Education failed to give full support to Lithuania’s anti- three areas of activity: education, prevention and corruption education programs, thus hampering their investigations. It has managed to improve the quality of effectiveness. Indeed, one of the issues of longer-term complaints through education, investigate substantive impact is how far a specific agency is responsible for complaints, and use the evidence from investigated cultural and social change, and how far that must lie cases to inform its review of system weaknesses through with governments, ministries, and so on, to find the its system studies. It is developing its preventative appropriate means to change social mores. responsibilities through the Integrity Assessments and system reviews. Organizationally, it has developed In Bhutan, the key issue concerned the balance an accessible and open management approach, with between democratization and traditional cultural detailed and documented procedures. It has also built values. The impetus for reform was predicated on awareness, through its change management program, an understanding that an absolutist monarchy was of the need to self-assess and review what it does and not sustainable and that Bhutan’s delicate relations how it does it, with enough time to allow organizational with neighboring countries would not be shored up consolidation and a level of organizational stability by not engaging with the international community. and focus. Its main issue, however, is its position in the While the commitment to democratization has institutional landscape and a continuing balancing act been genuine, it has also been partly tempered between how much it influences, or is influenced by, its with ‘defensive democratization’. This means a operating environment. move toward universalism adapted to maintain elite privilege, hierarchical management and many of the Impact on corruption societal facilitators of traditional cultural norms and values.22 Thus, development along the particularistic- The ICU has achieved a coherent set of responses universalism continuum would appear to be predicated that reflect both UNCAC and the UK government on preserving the country’s cultural traditions. Not rhetoric, and is therefore well placed to implement all of these are amenable to (and may even seek to new initiatives to address the investigation of influence) democratization and the development international corruption and the proceeds of of public accountability and merit-based decision- international corruption. The identified corruption making in the public sector. This has consequences problem led to a specific need that did not require a for the demands on, and the effectiveness of the work dedicated agency response. The response that was of, the ACC. As its own integrity assessment noted devised was carried out within existing institutional in 2016, there continued to be a need ‘to reinforce arrangements and, in terms of this particular corruption coordinated efforts towards improving service delivery, issue, is being addressed in a law enforcement context. strengthening accountability mechanisms, ethical leadership and corruption prevention measures in the The Lithuanian STT and Bhutan ACC have had less agencies to improve the level of integrity’.23 success in terms of their impact on the general presence, prevalence and perceptions of corruption. Indeed, the collateral damage from the existing and emerging corruption types and trends is that the STT is not necessarily seen as environmentally – as opposed to organizationally – effective. The STT’s approach to 300 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES Conclusion so decided, designed to be focused and fit-for- purpose. This also entails determining the roles The alternative models discussed in this chapter and responsibilities of other institutions, as well highlight three issues relating to the need for, or as the mechanisms and incentives to ensure the design of, an ACA. connectedness of the institutional landscape and a collective approach to addressing corruption from 1. The essential first step in any proposal for the a range of perspectives. establishment of an ACA is a risk or threat-based review of the existing institutional and operating environment. Such review ideally can help identify the corruption problem and provide an understanding of the political landscape and the space for reform. It helps to answer the following questions: (i) What is the corruption problem that such a body/bodies would address? (ii) Is the problem sufficiently defined to justify the need for a dedicated entity or agency? (iii) Does such a definition provide the basis for the design of a fit- for-purpose body and ensure that the standards noted above will support its organizational development and maturity? 2. Practitioners and government officials must pay attention to wider issues, such as the agency’s organizational development and maturity, and its fit within the existing institutional landscape and operating environment. Simply supporting an ACA is not enough; it must be designed to address— and adapt to—its institutional and operating environment. The environment in turn should be encouraged to develop in ways that complement and facilitate not only the work of the ACA but also the roles and responsibilities of other institutions. A lesson from the experiences of the UK, Lithuania and Bhutan is the centrality of the ownership, implementation and monitoring of national anti- corruption strategies in determining the need for an ACC and, if there is, ensuring complementary reforms in the external environment. 3. The design of an ACA should involve an understanding of the corruption problem and a recognition of the importance of the inter-connectedness and inter- dependency of the institutional landscape. While the donor tendency has been to allow an over-focus on one agency, national anti-corruption strategies have generally under-achieved in improving the institutional landscape and operating environment. Understanding the corruption problem and clarifying modalities to address it ensures that the need for an ACA can be established, and if Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 301

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES Notes 1. Recanatini, F. 2011. Anti-Corruption Authorities: An Effective 9. The same official led the extensive discussions between Tool to Curb Corruption? in International Handbook on DFID, the SFO and other agencies to agree a set of general the Economics of Corruption, Susan Rose-Akerman and principles (issued by the SFO and CPS in June 2017) intended Tina Soreide, eds., 2011; Doig, A., & Norris, D. (2012). to ensure that overseas victims – affected states, organizations Improving anti‐corruption agencies as organisations. and individuals – of bribery, corruption and economic crime, Journal of Financial Crime, 19(3), 255-273. https://doi. are able to benefit from asset recovery proceedings and org/10.1108/13590791211243101. compensation orders made in the UK. 2. For a review and discussion of country-level AC strategies, 10. A subjective observation was that most of the ‘consultants’ please see Norton Rose Fulbright. 2016. Countries Curbing from the US and the UK in the early years were serving law Corruption: An Examination of 41 National AC Strategies. enforcement and public sector officials whose level of practitioner expertise and technical competence offered 3. Such as the powers of the Thai NACC in relation to malfeasance a peer-to-peer experience that was compatible with STT in office – which may include intentional exercise of power expectations and aspirations, facilitating knowledge transfer. contrary to the provisions of the Constitutions or any law - or the multiple remits (such as bribery, fraud, money laundering, 11. In 2013 an UNCAC review team managed to misinterpret asset disclosure, ethical standards, inspections and the STT as ‘one of the most successful “copies” of the Hong whistleblowing) of the Ugandan Inspectorate of Government. Kong’s Independent Commission against Corruption model’. 4. Huther, J. and Shah, A. 2000. Anti-corruption Policies and 12. Kuris, G. (2012). Balancing Responsibilities: Evolution of Programs: A Framework for Evaluation. World Bank Policy Lithuania’s Anti-Corruption Agency, 1997-2007. Princeton Research Working Paper No. 2501. Washington: World University: Innovations for Successful Societies. p5. Bank; Shah, A. 2007. ‘Tailoring the Fight Against Corruption to Country Circumstances’. In Shah, A. (ed). Performance 13. Bhutan Anti-Corruption Commission. 2018. Annual Report Accountability and Combating Corruption. World Bank: 2018. Thimphu: Bhutan Anti-Corruption Commission: 81. Washington. 14. Quoted in: UNDP/UNODC. 2010. Bhutan: Capacity 5. Drawn from Bruno Bettelheim (1988). A Good Enough Assessment of the Anti-Corruption Commission. Bangkok: Parent. Vintage Books; 1st Vintage Books Ed edition). UNDP/UNODC: 22. Expanded in Doig, A., Watt, D. and Williams, R. 2007. ‘Why Developing Countr y Anti-corruption Agencies Fail To 15. Basel Institute on Governance. 2013. National Anti-Corruption Develop: Understanding The Dilemmas Of Organisational Strategy (NACS) of Bhutan 2008-13: Evaluation Report. Basel: Development, Performance Expectation, And Donor And Basel Institute on Governance. Government Cycles In African Anti-corruption Agencies’. Public Administration and Development. 27. pp1-9; 2006 16. Transparency International. 2015. Anti-corruption Agency ‘Hands-On or Hands-Off? Anti-Corruption Agencies in Action, Strengthening Initiative: Assessment of the Bhutan Anti- Donor Expectations, and a Good Enough Reality’. Public corruption Commission. Transparency International: Berlin. Administration and Development. 26. pp163-172. These articles were in turn based on an empirical study: Doig, A., 17. Bhutan Anti-Corruption Commission, 2018. Watt, D. and Williams, R. 2004. ‘Measuring ‘success’ in five African Anti-Corruption Commissions - the cases of Ghana, 18. For example, in relation to the use of Unexplained Wealth Malawi, Tanzania, Uganda & Zambia. U4 (www.u4.no). Here Orders or the establishment of the National Economic Crime it is argued that, like good enough parenting, sponsoring Centre. bodies should not try to create the agency they would like to have at the outset, but should instead recognize that the 19. OECD. 2017. Phase 2 Report on Implementing the OECD Anti- best they can do is to help the agency toward a successful Bribery Convention In Lithuania. Paris: OECD: 42, 43. future by providing the means and mentoring to give it the organizational confidence and competence to do so until – 20. Swiss Agency for Development and Cooperation. 2016. and when – it reaches organizational maturity. Bhutan: We Can Win the Fight Against Corruption. Asia Brief. SDC: Bern. 6. ‘Londongrad’ is shorthand for the concerns summarized in 2016 by Roberto Saviano, the Italian investigative journalist, 21. Ber tels mann Stif tung. 2018. Transformation Index. who said: ‘If I asked you what is the most corrupt place on Bertelsmann Stiftung: Brussels. Earth you might tell me it’s Afghanistan, maybe Greece, Nigeria, the South of Italy, and I will tell you it’s the UK. It’s 22. See, for example, G. E. Robinson. 1998. ‘Defensive not the bureaucracy, it’s not the police, it’s not the politics but Democratisation in Jordan’. International Journal of Middle what is corrupt is the financial capital.’ East Studies. 30. 7. See World Bank /St AR. 2009. Stolen Asset Recovery. 23. Anti-Corruption Commission. 2016. National Integrity Management of Returned Assets: Policy Considerations. Assessment 2016. Thimphu: Bhutan. Washington: World Bank and Proceeds of Corruption: Frameworks for the Management of Returned Assets. Draft Concept Note. World Bank and UNODC/StAR. 2014. Left out of the Bargain. Settlements in Foreign Bribery Cases and Implications for Asset Recovery. Washington: StAR. 8. A person able to facilitate mutually-beneficial inter-agency arrangements through: building sustainable relationships; managing through influencing and negotiation; managing complexity and interdependencies; and managing roles, accountabilities and motivations. 302 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 11 ANTI-CORRUPTION AGENCIES References Anti-Corruption Commission. (2016). National Integrity Assessment World Bank/StAR. (2009). Stolen Asset Recovery. Management of Report 2016. Thimphu: Bhutan. Returned Assets: Policy Considerations. Washington: World Bank and Proceeds of Corruption: Frameworks For the Management Basel Institute on Governance. (2013). National AntiCorruption of Returned Assets. Draft Concept Note. Washington: World Strategy (NACS) of Bhutan 2008-13: Evaluation Report. Basel: Bank; World Bank. Basel Institute on Governance. Bertelsmann Stiftung. (2018). Transformation Index. Bertelsmann Stiftung: Brussels. Bhutan Anti-Corruption Commission. (2018). Annual Report 2018. Thimphu: Bhutan Anti-Corruption Commission: 81. Bruno Bettelheim (1988). A Good Enough Parent. Vintage Books; 1st Vintage Books Ed edition). Doig, A., & Norris, D. (2012). Improving anti‐corruption agencies as organisations. Journal of Financial Crime, 19(3), 255-273. https://doi.org/10.1108/13590791211243101. Doig, A., Watt, D. and Williams, R. (2004). ‘Measuring ‘success’ in five African Anti-Corruption Commissions - the cases of Ghana, Malawi, Tanzania, Uganda & Zambia. U4 (www.u4.no). Doig, A., Watt, D. and Williams, R. (2006) ‘Hands-On or Hands-Off? Anti-Corruption Agencies in Action, Donor Expectations, and a Good Enough Reality’. Public Administration and Development. 26. P. 163-172. Doig, A., Watt, D. and Williams, R. (2007). ‘Why Developing Countr y Anticorruption Agencies Fail To Develop: Understanding The Dilemmas Of Organisational Development, Performance Expectation, And Donor And Government Cycles In African Anticorruption Agencies’. Public Administration and Development, p.1-9. G. E. Robinson. (1998). ‘Defensive Democratisation in Jordan’. International Journal of Middle East Studies, p. 30. Huther, J. and Shah, A. (2000). Anti-corruption Policies and Programs: A Framework for Evaluation. World Bank Policy Research Working Paper No. 2501. Washington: World Bank; Shah, A. 2007. ‘Tailoring the Fight Against Corruption to Country Circumstances’. In Shah, A. (ed). Performance Accountability and Combating Corruption. World Bank: Washington. Kuris, G. (2012). Balancing Responsibilities: Evolution of Lithuania’s Anti-Corruption Agency, 1997-2007. Princeton University: Innovations for Successful Societies, p.5. Norton Rose Fulbright. (2016). Countries Curbing Corruption: An Examination of 41 National AC Strategies. OECD. (2017). Phase 2 Report on Implementing the OECD Anti- Bribery Convention In Lithuania. Paris: OECD: 42, 43. Recanatini, F. (2011). Anti-Corruption Authorities: An Effective Tool to Curb Corruption?, in International Handbook on the Economics of Corruption, Susan Rose-Akerman and Tina Soreide, eds., 2011. Swiss Agency for Development and Cooperation. (2016). Bhutan: We Can Win the Fight Against Corruption. Asia Brief. SDC: Bern. Transparency International. (2015). Anti-corruption Agency Strengthening Initiative: Assessment of the Bhutan Anti- corruption Commission. Transparency International: Berlin. UNDP/UNODC. (2010). Bhutan: Capacity Assessment of the Anti- Corruption Commission. Bangkok: UNDP/UNODC: 22. UNODC/StAR. (2014). Left out of the Bargain. Settlements in Foreign Bribery Cases and. Implications for Asset Recovery. Washington: StAR. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 303

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 Supreme Audit Institutions

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS Introduction Why are SAIs so important? open up the audit process for active citizen engagement as a part of their anti-corruption mechanisms such as Supreme Audit Institutions (SAIs) are the chief hotline and fraud net. auditors of the government and play a pivotal role in ensuring transparency and accountability. The The central role of SAIs in combating corruption is independence and operating capacity of SAIs are that of prevention through the promotion of sound important foundations for providing fiscal oversight financial management and robust internal control through presenting credible and timely audit results to mechanisms in public entities. Sound financial legislatures, government, civil society, and the general management, with effective financial reporting and public. The primary purpose of an SAI is to report on disclosure of any deviations, is an effective deterrent the management of public funds and the quality and to fraudulent and corrupt activities. SAIs can help credibility of governments’ reported financial data. Its public bodies strengthen their corruption prevention recommendations can help strengthen institutions. framework (or build a more comprehensive framework) With adequate independence and capacity, SAIs can by assessing the efficiency and effectiveness of the contribute to combating corruption both through framework and recommending the relevant authority directly reporting on transactions and internal controls, to address the shortcomings identified during the and by assessing ways to improve the accountability audit.2 SAIs contribute to building public awareness and performance of government agencies and anti- of corruption and financial impropriety through timely corruption bodies. They can also contribute through and periodic public disclosure of audit findings. SAIs undertaking “performance audits” of government may strengthen other pillars of the national integrity or quasi-government entities. The International system through close collaboration and coordination Organization of Supreme Audit Institutions (INTOSAI) with other institutions in the public sector. has issued ISSAIs, the international standards of SAIs for the delivery of effective audit reports. SAIs are not SAIs are expected to raise red flags that would primarily responsible for tackling corruption and fraud. deter and detect fraud and corruption and assist However, given the nature of the work performed law enforcement agencies to bring perpetrators to by SAIs, including checking government accounts, justice. Prevention, detection and response activities reviewing regulatory compliance, and assessing the are interdependent and mutually reinforcing to some performance of government institutions, SAIs are extent. Early detection is a powerful prevention capable of contributing to the anti-corruption agenda. method that sends a clear message to the potential perpetrators. Detection is also useful to assess the SAIs play a unique role in detecting and preventing appropriateness of preventive measures. SAIs may corruption, when they have the mandate, tools and use detected fraud or corruption cases for publicity, trust of the government to take on the fight against to attract the attention of parliament, citizens and corruption.1 SAIs’ audit mandate generally is broad media, and put additional pressure on government to enough to cover the entire public sector and flexible fix the problems effectively. Surprise audits that may enough to examine government activities at any level. be conducted for detection, act as a good deterrent. This could range from individual financial transactions, Some SAIs have institutionalized the detection function specific business practices, such as procurement, to by setting up a designated unit and developing forensic a comprehensive corruption prevention system of an and investigative audit guidelines and manuals. In entity or whole-of-government. SAIs at the minimum order to vitalize the forensic audit function, SAIs may have financial, compliance, and performance audits also require a firm statutory position, strong leadership, in their tool list, which enables them to evaluate the an integrity-first organizational culture, audit staff with legality, integrity, efficiency, and effectiveness of relevant capacity, access to data and information, and government operations. Last but not least, SAIs are one collaboration with key stakeholders. of the most trustworthy institutions, which helps them Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 305

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS How can SAIs strengthen their effectiveness? Detecting fraud and corruption requires proper In an environment where corruption is widespread, guidance and training for auditors.3 Detecting establishing the integrity of SAIs can be a corruption is neither easy nor straightforward, since challenge.5 As SAIs move closer to the frontline of it is fundamentally a crime of deception and deceit. fighting corruption, the temptations and risks to the Fraudsters use all sorts of deception techniques auditors will grow, as will stakeholders’ expectations to conceal illegal acts. Auditors may also interfere on the SAI’s integrity. Top management of the SAI inadvertently with potential future legal proceedings or must lead by example in maintaining high integrity and investigations. Training on forensic or fraud audits helps establishing zero tolerance regarding staff violations, auditors to be better prepared to detect irregularities failing which they will not be able to administer or and collaborate with the law enforcement agencies. propagate an organizational culture of integrity. Another The more auditors know about what perpetrators are potential challenge that SAIs face is the modality likely to do, the better are their chances of finding to reconcile the individual case-based approach of the red flags associated with potential fraud and detection (i.e., forensic audits) and the system-based corruption. With good understanding on fraud and approach of prevention (i.e., traditional audits).6 corruption schemes and professional skepticism, auditors can distinguish anomalies or potential red Different external audit systems, Westminster7, flags from regularity. Judicial or Board model, have their strengths and weaknesses that may have implications for their To be more effective, SAIs need to strengthen their effectiveness in combating corruption. These three relationship with parliaments and anti-corruption models can be distinguished, at least theoretically, in agencies. Strong external relations and partnerships is terms of centralization or decentralization of authority, one of the key indicators to evaluate the effectiveness susceptibility to political influence, openness and of an SAI. In fragile situations where state building or transparency, and ability to enforce audit findings.8 The rebuilding is in progress, SAIs are confronted with many distinguishing aspects—leadership, independence, difficult challenges in building such partnerships.4 In accountability, and effectiveness—are all recognized the context of weak parliamentary oversight and lack as the fundamental principles of public auditing. Rapid of a proper feedback mechanism of audit results into convergence among the different types of SAI models has the budget-setting process, parliamentarians do not taken place since the introduction of ‘The International take the audit findings or budget settlement process Standards of Supreme Audit Institutions’ (ISSAIs). seriously. In such an environment, it is important to raise awareness on the role of SAIs and the value of While the effectiveness of an SAI largely depends audit findings through briefings for new and relevant on its operational and financial independence, it is members of parliament. This can be enhanced by also influenced by the external audit model they ensuring that audit reports are user friendly and follow, the country context, and the associated easily understood. SAIs can help build the capacity norms of behavior. The two case studies discussed of members of parliament and their staff through, for below demonstrate the effectiveness of the SAIs in two example, joint study visits and exposure to advanced different contexts. The case study of SAI Ghana is an countries where SAIs and parliaments work together interesting example of an overlapping or hybrid model effectively. Similarly, when the rule of law is weak, of a Westminster type SAI equipped with sanction suspected fraud or corruption cases transmitted by powers. Other Westminster type SAIs have established the SAI are not pursued by law enforcement agencies. forensic audit functions, though the Westminster SAIs could establish formal collaboration agreements model is known to focus more on the supporting role with law enforcement agencies, where the scope of of SAIs, targeting prevention of corruption rather than collaboration extends to information sharing, joint detection or sanction. The second case study on India, conferences and workshops to share knowledge and also a Westminster model, demonstrates the key role experiences, referred case follow-up, staff exchanges played by the Comptroller and Auditor General (CAG) and joint agenda setting. in unearthing major inappropriate financial transactions costing the government huge sums of money. 306 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS Case study 1: Role played by Ghana’s Supreme Audit Institution Corruption perception has been a long-standing the Economic and Organized Crime Office (EOCO), concern in Ghana. For instance, the Governance and and the Financial Intelligence Centre (FIC). However, Corruption Survey conducted by the Ghana Centre for many of these bodies struggle with issues that limit Democracy and Development (CDD Ghana) in 2000 their ability to effectively perform their duties, such as found that 75% of the Ghanaian households surveyed a severe lack of resources.9 For example, the CHRAJ, regarded corruption as a serious national problem; 59% despite being the leading anti-corruption institution of households saw corruption as a major problem in the in Ghana, does not have the power to prosecute, nor private sector; and 86% saw it as a major problem in the required budget autonomy. Both the CHRAJ and the public sector. A later survey in 2005 conducted by EOCO have been reported to face interference from the the Ghana Integrity Initiative (GII) also indicated that executive, due to the structure of their boards and the Ghanaians perceived corruption as equally serious, with appointment of directors and commissioners. Similarly, 92.5% of urban households in Southern Ghana citing in his various writings and a public lecture given at the corruption as prevalent in the country while 90% of University of New York in January 2019, Mr Whittal, a those surveyed considered it a serious problem. Commissioner at CHRAJ, has consistently proposed the need to remove the appointment procedures from Whilst some efforts have been made to address the executive: “the time has come to amend the laws on corruption, independent assessors find that the the appointment of the heads of state anti-corruption country has made little progress, as measured by institutions—EOCO,CHRAJ and including the Financial global rankings in recent years. Amidst a growing Intelligence Centre (FIC)—to wean them off excess perception of corruption amongst public officials, control by the executive.” As a result, perceived public the public has become increasingly cynical about the confidence in the mandated constitutional bodies government’s commitment and ability to effectively against anti-corruption has been fast eroding. tackle corruption. In 2015, Ghana ranked 56th in the world on Transparency International’s Corruption The National Anti-Corruption Action Plan (NACAP) Perception Index (TI-CPI) but slipped quickly over the reflected an awareness by the government of the years to 80th place in 2019. Ghana’s position in the main drivers of corruption. In 2014, the Government World Governance Indicator’s Control of Corruption launched the 10-year NACAP, which acknowledged measure has improved from 53rd place in 2015 to and listed the various drivers of corruption in Ghana, 49th place in 2017, before regressing to 53rd place in including institutional weaknesses, low salaries, 2018. Corruption is perceived to exist in all branches a skewed incentive structure, and insufficient of the Ghanaian Government and has been a highly enforcement of laws within the patrimonial social and politicized issue since the country’s transition to a multi- political context. In addition, the document described party democracy in 1992. In 2017, the new government the reasons for the failure of past efforts to curb the undertook several measures, introducing electronic drivers of corruption and specified new measures to services and digitization to reduce the human interface tackle the issues in a more holistic and coordinated in the delivery of several public services, including the manner. The accompanying foreword to the Ghana issuance of electronic passports. National Anti-Corruption Action Plan (NACAP) (2012- 2021) acknowledges that the absence of the Ghana Ghana has several institutions to fight corruption, Audit Service (GAS) in developing the plan was a but they are fragmented and face persistent missed opportunity that the country could have implementation challenges. Besides the traditional pursued to better understand some of the core drivers law enforcement agencies such as the Ghana Police of corruption in the country. Service (GPS), the Bureau of National Investigations (BNI) and the courts, the other institutions established Similar to other SAIs globally, GAS has a mandate to curb corruption in Ghana are the Commission on to promote and uphold financial integrity, but Human Rights and Administrative Justice (CHRAJ), its impact had been limited.  The GAS derives its Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 307

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS mandate from Ghana’s Constitution. Articles 184, 187 all previous Audit Reports to reveal instances where and 286 of the 1992 Constitution established a broad the powers of disallowance and surcharge may mandate covering the activities for the Auditor General be applied to recover lost public funds. Between (AG), including to (i) audit the public accounts of Ghana June 2017 and November 2018, the GAS issued and any other public office, (ii) take into custody the 112 surcharge certificates and returned a total asset declarations of persons who hold public offices, amount of GHS67.3 million (USD12.2 million) back (iii) determine and approve the form or manner in which to government coffers. This achievement inspired public accounts are kept, (iv) submit audit reports, other African SAIs to pass similar legislation on draw attention to irregularities, and make appropriate disallowances and surcharges. In 2019, the GAS recommendations on the Ghanaian public accounts stopped publishing special reports on disallowance and the Central Bank’s statement of foreign exchange and surcharge activity, and instead incorporated it receipts and payments, and lastly (v) the AG may in their usual audit reports to Parliament as a step disallow any item of expenditure contrary to the law and towards establishing it as a fixed and regular part impose a surcharge on the person responsible. While of the audit process. this entailed powerful and far-reaching authority for the AG, it was a common view that implementation of these • Audit of persistent arrears powers was weak, and that audit reports produced by the GAS were reduced to mere “journalistic reports of Ghana’s persistent fiscal slippages were mainly events”10 with little real impact. driven by weaknesses in the public financial management (PFM) commitment control systems. Since the appointment of a new AG in December In 2017, the AG worked closely with the World Bank 2016, GAS’s core financial oversight role has gained and the IMF to undertake an audit of government renewed prominence, which has in turn enhanced payment arrears that had accumulated over the its contribution to anti-corruption efforts. Several period 2013–2016. The audit was to: (1) verify the key undertakings have contributed to GAS’s impact on types and amounts of arrears accumulated; (2) financial integrity: identify the root causes for the arrears; (3) limit the future accumulation of arrears; and (4) develop a • Judicious use of disallowance and coherent strategy for managing and clearing the surcharge powers existing stock of arrears. As part of the audit, all MDAs were required to submit their outstanding In 2017, the Supreme Court ruled that the AG be liabilities to GAS for validation, which was tediously required to exercise its powers of disallowance undertaken by examining and cross-checking the and surcharge to commence the recovery of supporting warrants, contract documents, invoices, public funds that have been found to be illegally procurement records, and other documentation. spent or lost through negligence or misconduct.11 Bank statements of the respective MDAs were These powers enable the AG to disallow any also checked to ensure that the liabilities were not unlawful expenditure and impose a surcharge already settled. In prior years, such arrears were on the person(s) responsible. Anyone aggrieved commonly settled and paid for without verification. by a disallowance or a surcharge can appeal to the High Court as provided for by Article 187(9) The outcome of the audit revealed several corrupt of the Constitution within 14 working days of the practices and led to the recovery of substantial surcharge. To facilitate the process, particular sums of money, strengthening of commitment courts were identified and assigned by the Chief controls and prosecution of offenders. The total Justice to hear these appeals. outstanding commitments submitted by the MDAs for verification of arrears amounted to GHS11.3 The refusal of previous AGs to exercise the billion (USD2 billion), 51% of which were rejected disallowance and surcharge powers had resulted in by GAS as invalid arrears due to fraudulent a loss of almost GHS2.5 billion worth of public funds reasons, such as double or triple payments to through ministries, departments, and agencies contractors for the same services rendered. The (MDAs) alone from 2003 to 2014, and GHS5 billion audit also revealed weak control mechanisms and through public boards, corporations, and other poor record-keeping practices by the MDAs that statutory institutions between 2009 and 2014. The facilitated corrupt activity. Internal auditors at new AG established a special task force to review the MDAs reported abuse and silencing through 308 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS threats, transfers, or invitations to participate in selected state institutions in 2018. One such corrupt schemes. The findings of the report were example was an investigation of the Ghana subsequently shared with Parliament and civil Broadcasting Corporation (GBC), where it was service organizations (CSOs). Any payment of revealed that the corporation had under-stated invalid arrears thereafter would lead to a surcharge revenue realized for the 2014 World Cup by against the person who authorized, made, or GHS3.5 million (USD626,273). The management received the payment. was advised to update the financial statements accordingly to account for the disparity, a failure • Audit of ghost workers in the public to do so would result in the officers responsible sector bearing a surcharge of the amount in question. In the past two decades, Ghana’s macro-economic The leadership of the AG himself has also been instability has persistently been driven by two main an important contributor to GAS’s impact, as he drivers: the level of debt and the size of the wage bill. championed initiatives beyond the usual activity of With the support of the World Bank-financed Public GAS. The AG’s firm and untiring anti-corruption stance Financial Management Reform project, the AG has led GAS to undertake interests that spill over into partnered with the Special Prosecutor, the Ghana what a robust anti-corruption agency might pursue in Police, CSOs, other anti-corruption bodies and other countries: heads of MDAs to undertake a government-wide verification of genuine government employees. • Being a voice of reason in safeguarding The aim of this was to eliminate ghost workers the public purse who artificially inflated the payroll and allowed corrupt officials to steal the surplus. Employees in As a result of his public crusade and determined all the institutions were asked to produce authentic actions against corrupt officials, the AG has emerged individual employment documents, following which as a strong figure in Ghana’s anti-corruption war. In the list of genuine government employees was various speeches, and through joint platforms with matched against the payroll list kept by the Controller CSOs, he has been instrumental in sensitizing the and Accountant General. In January 2020, GAS public on the dangers of corruption and urging reported that the audit found 10,689 ghost workers the media and the public to expose corrupt public on the public sector payroll. A final invitation was officials, prompt investigations, reinforce the works issued to these employees to verify themselves, and of anti-corruption bodies and put pressure on the a failure to do so within the stipulated timeframe government to change laws and legislation that would result in their being disallowed from remaining create enabling platforms for corruption in the on the payroll, and a surcharge on the salaries paid country. He has also consistently advocated for to these ghost workers would be imposed on the effective collaboration between GAS, the public, heads of the MDAs involved. the private sector, and CSOs in fighting corruption. The public has been responsive to his call, and over • Certification of Public Financial time they have become instrumental in providing Management Systems important pieces of information that have assisted in GAS’s audits and investigations. In 2019, the AG was In Ghana, the AG is responsible for certifying the voted Integrity Personality of the year at the Ghana PFM systems that are used by the government. Integrity Awards, owing to his strong stance against Once a system is developed and its objectives are corruption. articulated, it is subject to review by GAS to ensure that the internal control arrangements in place • Partnering with CSOs are strong and that the system will not allow the enabling of corruptive breaches. One of the key The AG has often partnered with CSOs to name aspects that is reviewed by the AG is the extent to and shame corrupt officials and institutions based which there is an appropriate segregation of duties on the findings of his annual and special audits, to prevent collusive practices, which have been and lobby for changes in laws and legislation that known to underpin corruption in Ghana. facilitate corruption. This has generated deterrent mechanisms that were not present before he took • Undertaking of special audits office. The AG embarked on several special audits on Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 309

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS • Using the Right to Information Law in Ghana are subject to the supervision of the Ministry of Finance, GAS maintains its operational In May 2019, Ghana’s President signed the Right control, with minimal external interference in to Information (RTI) Act into law, implementing decision making or the appointment or removal the public’s constitutional right to information held of staff. In addition, the Parliament is accustomed by any public institution and fostering a culture of to providing GAS with the financial resources it transparency and accountability in government. requires yearly, as stipulated in the annual budget Even though the RTI is provided for in the 1992 GAS submits. Constitution, the country struggled for years to pass the relevant law. The AG partnered with CSOs to 2. Personal conviction and knowledge of the AG: lobby for the passing of the law and has been vocal Besides a strong mandate, the AG’s personal in supporting the use of it for CSOs, the public and convictions and deep-rooted knowledge of the media in providing GAS with crucial and relevant legal and constitutional authority of the office have information to investigate and prosecute corrupt enabled GAS to be effective in the fight against officials. corruption. • Pushing for transparent asset 3. Provision of quality reports that are accessible to disclosure the public: Audit reports are made publicly available to increase the transparency and accountability of The AG has been critical of the weak enforcement public institutions. and flaws of the asset disclosure system in Ghana. As per the current laws, asset declarations by 4. A direct reporting relationship to Parliament: public officials are sealed in an envelope and GAS reports directly to Parliament, although it marked secret, only to be opened in the event of a has a Board whose role is merely advisory on key corruption investigation or if ordered by the court. policy matters. The Audit Service Board according The AG has deemed this to be ineffective and to article 189 is responsible for employing staff urged public officials to declare their assets publicly. (except AG) for the audit service and determining Working with the Special Prosecutor, he has also their conditions of service. The Public Accounts demanded that the provisions of Article 286 of the Committee has at certain times exerted pressure Constitution and Public Office Holders (Declaration on audited bodies to comply with GAS’s of Assets and Disqualification) Act 1998 (Act 550) recommendations. be observed. This requires all qualifying public officers to submit written declarations of all assets 5. An effective arrangement with the Internal Audit owned within three months after taking office and Agency: GAS works very closely with the Internal at the end of four years. Unlike in previous years, the Audit Agency using ISSAI 9150 and has established AG has partnered with CSOs to name and shame a memorandum of understanding to ensure there officials that have not yet met this requirement. is an appropriate exchange of information on One such example was the refusal to confirm the corruptive practices. appointment of the new Chief Justice in 2019 until she had shown evidence of having declared her 6. Continued capacity building: For example, GAS assets over the previous four years. has undergone the World Bank Integrity Vice Presidency’s preventive and forensic training Factors behind GAS’s impact on matters of evidence and follow-through on corruption leads. SAIs are not always able to play an effective role in promoting financial integrity. In Ghana, its impact GAS’s achievements in recent years owe partly has been aided by several factors: to the strong leadership and conviction of the current AG, posing a risk for the sustainability 1. Financial and administrative autonomy: GAS’s of GAS’s momentum and impact on the anti- financial and administrative independence has corruption war in the future. A change in AG may been instrumental in allowing it to maintain jeopardize the current traction that the GAS has in impartiality, counter corruption effectively, and curbing corrupt practices and bringing offenders to fulfil its mandate. While most public bodies 310 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS justice. Nonetheless, the progress achieved and public for future AGs and GAS to continue the fight against support garnered in recent years are likely to create the corruption. necessary pressure, as well as enabling environment, Case study 2: The role of the Supreme Audit Institution in India In India, the Office of the Comptroller & Auditor of the audit in strengthening accountability, General (CAG) is the SAI responsible for ensuring transparency and governance across the public accountability and oversight of government sector. Some of these performance audits caught the functionaries and programs. The CAG is mandated public and media’s attention because they exposed by the Constitution to audit the accounts of the Union misallocations of public assets at undervalued prices. Government and of all the State Governments of The public discourse and investigations triggered India, including institutions substantially financed by by these findings resulted in policy reforms and the the Government of India. The CAG is also mandated removal of several government officials that were to prescribe the accounting format and standards that involved in the alleged corruption. While critical audit public institutions must adhere to. Employing more than findings have not always led to prosecution of the 45,000 employees across 141 field offices,12 the CAG accused individuals, they have contributed to a higher mainly undertakes three types of audits: (i) Financial risk of detection for those contemplating corrupt acts. audits that ascertain if financial statements are properly The investigations undertaken by the CAG gained prepared and present financial information fairly; (ii) traction with the public and made a significant impact Compliance audits that examine if the applicable in the fight against corruption in India as a result. laws, rules or regulations are complied with; and (iii) Performance audits that are independent assessments Performance audits by CAG of the extent to which a public institution operates economically, efficiently and effectively, and fulfills the Telecom licenses. In 2008, the CAG undertook a objectives that it set for itself. All of the CAG’s audit performance audit of the issuance of telecom licenses reports are laid before the Parliament and Legislatures and award of spectrum. The performance audit report of the States.13 revealed gaps in policy implementation, and an estimated loss of public funds based on deviation from Over the years, the CAG has strengthened its prescribed rules. CAG’s report tabled in the Parliament audit capacities and shifted its emphasis to risk- exposed corruption amounting to several billion dollars based performance audits. The CAG’s staff has to the public exchequer, something that attracted the undergone continuous training to better conduct and attention of the media and civil society. In 2012, the report audits, as well as conform to national auditing Supreme Court of India ruled that the 2G spectrum standards and international best practices. This allocation in 2008 was “unconstitutional and arbitrary” capacity building was partly supported by the World and cancelled 122 licenses and spectrum allocated to Bank. In 2007, the CAG’s office also shifted its focus eight companies. to conduct more performance audits that promote economical, effective and efficient governance. As Coal blocks. In 2012-13, the CAG published a practiced in more advanced SAIs globally, the CAG also performance audit report that revealed the inefficient started undertaking more risk-based audits, detecting allocation of coal blocks to private and public sector and prioritizing high-risk and high-value areas where enterprises between 2004 and 2009. The report14 efforts can be concentrated to draw maximum impact. highlighted the delay in the introduction of competitive bidding for the allocation of coal blocks for captive Beginning in 2008, the CAG undertook several mining, despite making the decision to operationalize high-profile performance audits that generated competitive bidding since 2006. In the final report public awareness and helped transform the role Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 311

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS submitted to Parliament, the CAG reported “an absence of a single point of authority and accountability estimated USD26 billion in financial gains made and the lack of a clear governance structure, a multiplicity by private coal block allottees, part of which could of co-ordination committees were created, disbanded, have accrued to the exchequer if the competitive and reconstituted at different points of time. This bidding process had been implemented.”15 The CAG approach was not methodical, consistent and effective, report notes ‘’this allocation lacks transparency and and also led to complete diffusion of accountability. objectivity.”16 The CAG’s findings led to investigations The argument of urgency was used to obviate the surrounding the issues of nepotism and collusion in the regular process of tendering for award of contracts. We allocation of national resources. The issue, popularly found numerous instances of single tendering, award referred to as “Coalgate” by the media, eventually led on “nomination basis”, award of contracts to ineligible to investigations by the Central Bureau of Investigation vendors, inconsistent use of restrictive Pre-Qualification against the public officials involved as well as the (PQ) conditions to limit competition to favour particular firms allotted the coal blocks. The CAG report also vendors, inadequate time for bidding, cancellation, and resulted in the formation of an Inter-Ministerial Group re-tendering of contracts, and inexplicable delays in to deliberate the forfeiture of coal blocks that were contract finalization, all of which seriously compromised not developed on time. The Inter-Ministerial Group transparency and economy.”22 eventually recommended the deallocation of 13 blocks and the forfeiture of bank guarantees for 14 allottees.17 All of the above examples of performance audits The Parliamentary Standing Committee also reported raised the profile and relevance of the CAG and the allocation of all coal blocks between 1993 and created awareness amongst the public on the role of 2008 as unlawful, and the Supreme court eventually the SAI as a primary catalyst for improved governance, cancelled a total of 214 coal blocks that were awarded accountability and public service delivery in India. improperly during this time.18 Dismissing a public The audits by the CAG thus became an important interest litigation that challenged the CAG’s power to instrument to expose alleged corruption, nepotism, conduct performance audits, the Supreme Court of and abuse of power in the public sector. India further ruled that “the CAG’s work to investigate into austerity, efficiency, and effectiveness by which In addition to the disclosure of audit findings, the government has used its resources is embedded several other factors have aided the CAG’s in the 1971 Act. Performance Audit Reports prepared effectiveness in fighting corruption in the past under the Regulations should be viewed accordingly. decade. Since 2008 it has undertaken a number of The Court did not see any unconstitutionality in the actions that have improved the scope and usefulness regulations.”19 of its outputs, enhanced its credibility and renewed public confidence in the CAG to expose and combat Commonwealth Games. The CAG also undertook two corruption. These were: performance audits20 pertaining to the Commonwealth Games XIX (CWG), held in New Delhi, India in October • Continuous institutional capacity building. The 2010. In 2003, the right to host the CWG-2010 was CAG has worked continuously to strengthen its awarded to Delhi on the guarantee of the Government audit capabilities, thereby improving the visibility of India, in conjunction with the Government of and credibility of its audit reports. In addition to the National Capital Territory of Delhi, to bear the staff training, the CAG modernized and upgraded expenditures of hosting the games. The Indian audit software and infrastructure for both the CAG’s government laid out substantive plans to upgrade office and its state branches. In 2008, the CAG froze infrastructural facilities within the city in preparation for new recruitments in the clerical cadre and focused the games. The objective of the CAG’s performance hiring at the assistant audit officer level, ensuring audits post-completion of the games in 2011 was to that recruits had the required qualifications such assess the (i) adequacy and effectiveness of budgeting as a commerce or accounting background, to and financial management, and (ii) effectiveness and undertake more complex risk-based audits. As a efficiency of agencies in planning and executing the result of these efforts, the CAG’s reports came to be infrastructure projects for the event.21 The performance perceived as credible and reliable source materials audit found incidences of improper planning, for use not only by the public and media, but also procurement, and contract management that drove up by legislative committees, courts, investigative the cost of the games. The CAG report states: “In the agencies and international organizations. On the 312 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS international front, the CAG became a member the conference, the CAG’s office sought feedback United Nations Board of Auditors in 2014, serves from the public on the water pollution problems in the Committee of the International Organization they faced through various means, including an of Supreme Audit Institutions (INTOSAI), and also advertisement in the newspapers. The office assists in the capacity building of SAIs in other received more than 700 letters and e-mails, which countries in the region.23 it used to frame the objectives and questionnaires for the audit. The CAG also started teaming up with • Production of more user-friendly, timely and social action groups, tapping into their knowledge impactful audit reports. Prior to this, the CAG’s and expertise on issues of public concern. audit reports left little impact on Parliament, the media or the general public, as each report typically The CAG serves as an example of how SAIs can took 2 to 3 years to publish and was usually long become more effective and successful in exposing and difficult to read. However, the CAG worked to and preventing corruption, by prioritizing high- produce shorter and punchier 10- to 20-page audit impact audits, continually strengthening capacity reports, and significantly shortened the time taken and improving citizen engagement. The efficacy to publish a report to 8 to 9 months. The previous of the CAG’s office in stirring public interest and in time lag made it difficult to hold public attention, initiating corrective measures through its audits was thus lessening the impact of the audits undertaken. enhanced following a range of reforms made within The quicker publication not only mitigated this, but the office since 2008. Strong leadership of the CAG also ensured accountability as concerned public had also facilitated these reforms and pushed through officials still held their posts within the shorter time the release of impartial, but often uncomfortable audit frame, and faults in government programs could findings to the public and media. A combination of be quickly resolved. these factors has enabled the CAG’s office to properly conduct independent and critical evaluations of the • Maintained independence and integrity. CAG’s performance of high-value government projects, as independent position as a constitutional authority well as provide critical insights for further investigations continues to provide grounds for the criminal by other law enforcement and anti-corruption agencies, investigations and court cases from its reports. The and for the implementation of corrective and preventive CAG’s office can disseminate reports to the media measures to avoid reoccurrence of any wrongdoing regularly and is a powerful force for accountability or inefficiency. Like many public sector institutions, and transparency in India. the CAG’s office also needs to continuously invest in improving its capacity, both human resources and • Strong leadership and determination of the CAG. systems. Through these ongoing improvements, this Besides having an adequate legal mandate, CAG’s office continues to command the respect of the public leadership has enabled the office of the CAG to and is a huge deterrence against corruption and rent be very effective in the fight against corruption seeking behaviors. It has a number of international and rejuvenated the public image of the office affiliations and memberships, and the CAG of India and its work. All three of the audits described has been elected as Chair of the UN Panel of external above, alongside several other audits that gained auditors for the year 2020. prominence, were undertaken underpinned by strong leadership. • Increased engagement with the public. The CAG’s office increased its outreach to the public and other stakeholders to seek inputs and determine the scope of audits. For example, prior to conducting a social audit on water pollution, a two-day conference involving civil society experts, government agencies, and international and regulatory bodies, was organized by the CAG in March 2010 to exchange knowledge and share concerns regarding the issue. Following the Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 313

PART III ROLE OF INSTITUTIONS IN FIGHTING CORRUPTION CHAPTER 12 SUPREME AUDIT INSTITUTIONS Notes 1. The Congress of the International Organization of Supreme 15. Para 4.3 of the above report and Executive Summary of the Audit Institutions (INTOSAI), held in 1998 in Montevideo, Report Page V, (equivalent of Rs 1.86 lakh crores or USD 26 Uruguay, discussed and delivered concrete recommendations billion as per the report). for SAIs to make an effective contribution to the fight against corruption. See also U4. 2018. “The Role of Supreme Audit 16. CAG, 2013. Institutions in Fighting Corruption” for a more detailed overview. 17. Press Trust of India. 2012. Govt decides to deallocate two more coal blocks. https://www.news18.com/news/india/govt- 2. ISSAI 5700 “Guideline for the Audit of Corruption Prevention”. decides-to-deallocate- two-more-coal-blocks-524663.html. https://www.issai.org/pronouncements/guid-5270-guideline- for-the-audit-of- corruption-prevention/. 18. Rajagopal, Krishnadas. 2014. Supreme Cour t quashes allocation of 214 coal blocks. The Hindu. https://www.thehindu. 3. According to the survey conducted in 2010 by INTOSAI com/news/national/supreme-court-quashes-allocation-of-all- Working Group on Fight Against Corruption and Money but-four-of-218-coal-blocks/article6441855.ece; and Ministry Laundering (WGFACML), only one-third of SAIs (18 out of of Law and Justice. 2014. The Coal Mines (Special Provisions) 54) responded positively on the questions of availability of Second Ordinance, 2014. No.7 of 2014. https://coal.nic.in/ audit staff and training program specialized in audits related sites/upload_files/coal/files/curentnotices/291214_2_0.pdf. to corruption or money laundering. See http://wgfacml.asa. gov.eg/. 19. CAG. (n.d.) Important Judgements. https://cag.gov.in/hi/ content/important-judgements#chapter1. 4. INTOSAI. CBC Workstream in support of Auditing in Complex and Challenging Contexts (ACCC). https://www.intosaicbc. 20. Two audits were conducted, facts are represented from both org/accc/. reports, one was tabled in August 2011 and one in 2012. 5. INTOSAI provides IntoSAINT, a tool to assess the vulnerabilities 21. CAG. 2011b. Report No. 6 of 2011 – Performance Audit of and the maturity of the integrity controls of SAIs and to XIXth Commonwealth Games. https://cag.gov.in/content/ strengthen integrity in SAIs. See https://www.intosaicbc.org/ report-no-6-2011- %E2%80%93-performance-audit-xixth- intosaint/ commonwealth-games. 6. INTOSAI Working Group on Values and Benefits of SAI 22. CAG, 2011. (WGVBS) plans to develop a guide on potential risks and challenges by incorporating the investigative powers among 23. CAG, 2016. their functions. See http://www.wgvbs.org.mx/wp-content/ uploads/2018/10/01-SAIs-investigative-powers-14mar19.pdf. 7. A model where the work of the SAI is intrinsically linked to the system of parliamentary accountability. 8. DFID. 2004. Characteristics of Different External Audit Systems. Briefing. http://gsdrc.org/docs/open/pf31.pdf. 9. Poor funding, coupled with inordinate delays in releasing budgeted funds, has often delayed investigations and implementation of planned programs, in addition to increasing the cost of operations (CHRAJ -SEVENTEENTH ANNUAL REPORT 2010) 10. News Ghana. (2017, Jan 20). Auditor General Agrees with Occupy Ghana On Disallowance and Surcharge Powers. Retrieved from https://www.newsghana.com.gh/auditor- general-agrees-with-occupy-ghana-on-dis-allowance-and- surcharge-powers/ 11. The decision materialized as a result of an action filed against the government by Occupy Ghana on claims that the powers have never been exercised by the AG. The court ruled that the AG must act on its annual reports, take steps to retrieve any public funds found to have been misappropriated and ensure enforcement of the orders including criminal prosecution where necessary. 12. CAG. 2016. CAG Performance Report 2014 -2015. https://cag. gov.in/sites /def ault /files /per for mance _ ac tivit y_ repor t /C AG _ Performance_Report_2014-15.pdf. 13. See https://cag.gov.in/hi/content/audit-report. 14. CAG. 2013. Report No.7 of 2012-13, August 2012- Performance Audit of Allocation of Coal Blocks and Augmentation of Coal Production, Ministry of Coal. Retrieved from https://cag.gov. in /co nte nt /re p or t- no -7-2012-13 -%E 2% 8 0 %93 - p er for mance - audit-allocation-coal-blocks-and- augmentation-coal. 314 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption