Corruption as a word is derived from the Latin word ‘corruptus’ meaning to break up. The use of the word emphasizes the destructive effect of corruption on the fabric of society and the situations where agents and public officers break the confidence entrusted in them Nicholls, Daniel, Polaine, & Hatchard, (2006). Johnston, (2005) quoting the works of Nye, (1967); Heidenheinmer, (1970); Scott, (1972); Thompson, (1993); Thompson, (1995); Johnston, (1996); Philip, (1997); and Philip, (2002), stated that definitional issues of corruption is a matter of long-running debate and therefore it is always difficult to settle for any specific definition. He states that the decisive role of the state is reflected in most definitions of corruption, and therefore agrees that corruption is conventionally understood, and referred to, as the private wealth seeking behaviour of someone who represents the state and the public authority. It is the misuse of public resources by public officials, for private gains. The working definition used by the World Bank, Transparency International and others is that corruption is the abuse of public power for private benefit (or profit). Another widely used description is that corruption is a transaction between private and public sector actors through which collective goods are illegitimately converted into private-regarding payoffs (Heidenheimer et al. 1989:6). This point is also emphasized by Rose-Ackerman, who says corruption exists at the interface of the public and private sectors (Rose-Ackerman 1978). In Colin Nye’s classical definition, corruption is “behaviour that deviates from the formal duties of a public role (elective or appointive) because of private-regarding (personal, close family, private clique) wealth or status gains”(Nye 1967:416). Samuel Huntington noted that where political opportunities are scarce, corruption occurs as people use wealth to buy power, and where economic opportunities are few, corruption occurs when political power is used to pursue wealth (Huntington 1968).
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Huntington (1968), Myrdal (1968) and Scott (1969), believes that ”corruption is most prevalent during the most intense phase of modernization of a country and tends to decline with institutionalization of advanced democracy” (see also Pavarala, 1996). It is however argued that this view cannot explain the prevalence of corruption in advanced industrial democracies because there is now increasing evidence of political corruption and systematic influence peddling in the US and UK (Amick, 1976; Drewry, 1977; Pinto-Duschinsky, 1977; Benson, 1978; Ashworth, 1981; Johnston, 1982; Doig, 1984; Etzioni, 1984).
For the purpose of this dissertation, corruption will be defined as the use of public office for private gain provided by Rose-Ackerman (1975, 1978), Becker and Stigler (1974), Klitgaard (1988, 1991), Shleifer and Vishny (1993), Myint, U, 2000; Johnson D.T & Zimring F.E, 2005) and Transparency International. This in other words, involves the use of official position, rank or status by an office bearer for his personal benefit.
2.3. Forms of Corruption:
There are different forms of corruption, Pedersen and Johannsen (2008); classification by typology, Roebuck and Barker (1974); Heidenheimer, (1989); Alemann (1995); Punch (200); Tserndoodov (2001); and Miller (2003). According to Shah, (2008) corruption is not manifested in one single form. Some scholars group corruption as grand corruption, petty corruption, sporadic corruption, systemic corruption or active and passive corruption base on the stages and magnitude of the malaise, while some like Robinson (2004 p.3) categorized corruption into three main forms: incidental (individual), institutional (for example, the police service) and systemic (societal). However, irrespective of the classification or level of the phenomenon, Vargas-Hernandez (2009), like many other scholars, believe that corruption can be in form of any of the following: bribery, collusion, embezzlement of public funds and theft, fraud, extortion, abuse of discretion, favouritism, clientelism, nepotism, and others. This can be presented in a pictorial form as shown in figure (1) below.
Forms of Corruption
Conflict of Interest
Figure 1. Forms of Corruption
In various forms listed in figure (1) above, corrupt activities such as fraud and embezzlement can be undertaken by an official alone and without involvement of a second party. While others such as bribery, extortion and influence peddling involve two parties. There must be a giver and taker in a corrupt deal. The two party type of corruption can arise under a variety of circumstances either in public or private official function.
2.3.1 Bribery: Bribery is defined as the payment for a corrupt act (Zimring & Johnson, 2005). A bribery corrupt act is always perpetuated by two or more individuals. Bribery requires collusion between a private citizen and a public employee (Morris, 1991). Albrecht, Albrecht, Albrecht & Zimbelman (2009) says ”bribery involves the offering, giving, receiving, or soliciting of anything of value to influence and official act.” According to Myint, (2000), bribes as one of several two party corrupt act offence, involves amongst others, government contracts to determine who gets what contract and the terms of the contract; government benefits like subsidies for importation, permits for explorations and purchase of privatized government corporations; reduction in taxable fees like import duties, custom duties, utility fees, electricity fees and income taxes for both business and private individuals, thus reducing government revenue (See also Rose-Ackerman 2005). It is also argued that bribery can speed up the wheels of bureaucracy more smoothly and speedily (Myint, 2000); as well as influence the outcome of a legal and regulatory process. A legal definition can be found in (Nicholls, Daniel, Polaine & Hatchard, 2006 p. 18).
While some theorists like Leff (1964), Leys (1965), Huntington (1968) and Mendez & Sepulveda (2006), see bribery under the ”greasing the wheels hypothesis” as payment that is beneficial in alleviating the distortions caused by ill-functioning institutions and thus reducing cost associated with queues (Lui, 1985) (see also Rose-Ackerman 2005, pp. 15-16), it has been established that bribery constitute not only a threat to some countries, but a threat to the future of global security. Osborne (1997) argues that bribery undermines governments by reducing income from taxes, duties, and fees, while increasing the cost of service delivery. He posited that bribery destroys competition and thus companies that bribe their way to a contract or waiver for exploration, loads their prices to cover for the bribes. This creates a spiralling effect that distorts government policies as a result of the personal gain to be derived, subvert company cultures, destabilizes society due to resource diversion, low productivity and making controls ineffective and invariably constituting a threat to global security as a result of drug trafficking, organised crime and terrorism. The most widely quoted bribery statistic is the World Bank’s worldwide estimate of $1 trillion per year with the total cost of corruption estimated at more than 5% of global GDP (US $2.6 trillion), Cleveland, Favo, Frecka & Owens (2010) and the economic effects and ethicality of bribery have been discussed by literally hundreds of sources including Dalton (2006), Gray and Kaufmann (1988), Nichols (1999), and Shaw (2000).
2.3.2. Fraud: Another common corrupt practice is fraud. Fraud is an act of misrepresentation or deception by way of charging for goods or services that was never delivered, changing the specifications or timing on goods and services and their expiration dates, and concealment of funds paid as fees or custom duties. Customs fraud for instance can be the under or over valuation of the value of goods or misclassification and underpayment of taxes. Fraud is the use of misleading information to induce someone to turn over the property voluntarily. According to Albrecht et al (2009 p 7), ”fraud is a generic term, and embraces all multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representation…includes surprise, trickery, cunning and unfair ways by which another is cheated.” Fraud is mostly expressed in the form of the ”Fraud Triangle” depicting the three elements of pressure, opportunity and rationalization (Albrecht, Wernz & Williams, 1995). In the public sector therefore, bureaucrats and their private collaborators tend to defraud the public by way of contract inflation, white elephant projects, and poor quality service delivery. In the private sector, fraud is classified variously as employee fraud, vendor fraud, customer fraud, management fraud, investment scams and others (Albrecht et al, 2009). However, the focus of this research is on public sector fraud.
2.3.3. Embezzlement and Theft: These are the form of corruption that is characterized by the taking or conversion of funds, assets or other valuables for private gain. These forms of corruption involve the abuse of public trust on the asset entrusted to the individual. According to Green (2002 p. 99), ”embezzlement is a crime of specific intent in which a person fraudulently misappropriates or misapplies something that has been legally entrusted to that person but which he or she does not own, thereby usurping the legal owner’s control” For instance, an official can collide with a contractor who is engaged to perform some service and embezzle some of the fund meant for the contract and encourage the contractor to provide a substandard service to be able to recoup the original cost of the contract. Embezzlement therefore is the misappropriation of funds legally entrusted to an official in their formal position as an agent, guardian or trustee. According to Albrecht et al, (2009) embezzlement is a common type of occupational fraud in both private and public sectors. They posit that employees (or officials) can steal cash, supplies and other assets or establish dummy companies or vendors to pay for goods and services that are not actually delivered. It is however argued (Green, 2002) that determining exactly what constitute embezzlement is sometimes difficult due to legal interpretations of the difference between embezzlement and offense of criminal conversion.
2.3.4. Conflict of Interest: Conflict of interest occurs when an employee (public official) has an undisclosed economic or personal interest in a transaction that will be undertaken by his/her organization. According to Albrecht et al, (2009), conflict of interest involves the exertion of influence by the employee at the detriment of the organization for personal gain or to benefit a friend or relative even though he/she may not received a financial benefit from the act. The conundrum to the conflict of interest is a situation where a public official may have to decline engaging competent and qualified person/organization for the supply of goods or services simple because he/she has a vested economic interest in the supplying organization. However, Albrecht et al, posits that to be classified as a conflict of interest, scheme, the official’s interest in the transaction must be undisclosed, and thus the organization is not aware of his/her divided loyalty.
2.3.5. Cronyism: It refers to favorable treatment of friends and associates in the distribution of resources and positions without regard to their objective qualifications and professionalism.
2.3.6. Favoritism: Generally, favouritism, nepotism and clientelism involve abuses of discretion. Such abuses, however, are governed not by the self-interest of an official but the interests of someone linked to him or her through membership of a family, political party, tribe, religious or other group. If an individual bribes an official to hire him or her, the official acts in self-interest. If a corrupt official hires a relative, he or she acts in exchange for the less tangible benefit of advancing the interests of family or the specific relative involved (nepotism). The favouring of, or discriminating against, individuals can be based on a wide range of group characteristics: race, religion, geographical factors, political or other affiliation, as well as personal or organizational relationships, such as friendship or membership of clubs or associations. Favoritism takes place when one favors or prefers acquaintances, friends and family over strangers. It becomes corruption when public (and private sector) officials unfairly distribute positions and resources to colleagues.
2.3.7. Nepotism: Nepotism is used to indicate a form of favoritism that involves family relationships. It describes situations in which a person exploits his or her power and authority to procure jobs or other favors for relatives
2.3.8. Extortion: It is the illegal demand or receipt of property or money through the use of force or threat. According to Morris (1991), extortion in contrast to bribery, is a is a situation where the public official influences the behavior of a citizen through the use of negative sanctions as a threat further to abuse authority to induce cooperation. This is also widely referred to as graft.
2.4. Historical Context of corruption in Nigeria and Britain
A comparative perspective on corruption provides insight about the role of this peculiar form of crime in various cultures and stages of development (Johnson D.T. & Zimring F.E, 2007). The global perception of Nigeria on corruption should therefore be seen in its proper historical context by undertaking a comparative review of the historical evolution of the country and the colonial legacy (Olaleye-Oruene, 2007). Olaleye-Oruene argues that an examination of the Nigerian traditional business ethos prior to contact with Europeans, especially the British, indicates that corruption is not a cultural norm of the Nigerian people pre-colonial. In the Nigerian culture, an inducement by one party for the purpose of gaining an advantage over a competitor would be paramount to an insult and indeed an effrontery to the party awarding the contract. However, there is little documentation on African and Nigerian commercial and administrative transactions before the advent of colonialism to support this believe. It is therefore on this note that the considered base for any empirical write-up on corruption in Nigeria can only be done from the colonial era.
In the 1700 – 1800s, corruption especially political corruption (Willis 2002, p.151) was seen as a major problem in Britain only partly addressed by electoral reforms in the 19th century and thus during the Balkanization of the African continent that took place in Berlin in 1884-1885, the British which took control of the Northern and Southern Nigeria, imported its legal system, education and economic culture (Olaleye-Oruene, 2007). According to Olaleye-Oruene, European values endorses corruption in view of the commonality and political and corporate corruption found in many countries both eastern and western, with Germany, Britain, Italy, France, Belgium and the Netherlands in the West and therefore the sub-culture of corruption is seen as the acceptable face of capitalism and any form of commercial transactions with the West, notably with multinationals at the time. Foreign-sponsored bribery tends to be held by many observers in developing countries as the most significant contributing factor to corruption (Andvig & Fjeldstad, 2000). To many commentators like Bloom, (2010) Western companies constitute the main culprits of the corruption syndrome in most developing countries. Quoting Transparency International, he said that the most corrupt industries are arms, construction and oil, and many western companies are helping to line peoples’ pockets illegally by selling wrong equipment, and dams and roads are built in the wrong place for no better reason other than the politicians can get their kick backs. See also Tanzi, & Davoodi, (1997); Hunt and Laszlo, (2005); and Svensson, (2003). This is the situation Nigeria found itself when the country was amalgamated between the south and the north in 1914. In attempting to tackle the menace of the scourge as been treated in Britain in the earlier 18th century, the then British Colonial Administration promulgated the Nigerian Criminal Code in 1916, Ch. XII, with sections 98 and 116 dealing with corruption. The Code made it an offence ”corruptly to give or receive any gift or other advantage as an inducement to influence the conduct of any . . . officer or servant of any public body as defined in the code. It is punishable with a maximum of 14 years imprisonment and/or fine” (Olaleye-Oruene, T. 2007, p.232).
However, fitting as the buck shifting may be, the Nigerian perpetrators of corruption or ‘pen-robbers’ (as they are euphemistically known) have superseded the Europeans in the art of corruption by making it the lifestyle of the body politic. Corruption is no longer confined to government contracts where the perpetrators share the loot of the graft, but percolates to every nook and cranny of the civil service and local government, political hierarchy, both civil and military, and even the church. It is widely noted that the judiciary is tainted by trials settled with bribes . . . universities are tarnished by the trade in diplomas (also bribery as means of gaining entry into universities) . . . the nobility has been mocked by the sale of chieftaincy titles . . . In other words, the majority of public officials are expected to be bribed for performing the duty which constitutes the terms of contract of their employment. For instance, messengers are regarded as powerful because they control the movement of files and could bury the files if anyone fails to bribe them” (Olaleye-Oruene, 2007 p.234). According to BBC’s Caroline Duffield in Lagos, extortion of civilians and bribery of police is a fact of life in Nigeria – often taking place in public and in broad daylight (http://www.bbc.co.uk/news/world-africa-11001624) and the former Chairman of the Economic and Financial Crimes Commission, Nuhu Ribadu while speaking with the US Congress Financial Services Committee in May 2009, state that Nigeria have lost about $440 billion to corruption since independence in 1960. The question therefore is where did Nigeria get it wrong? Can the country continue to blame the British Colonialist considering that Britain has shed off its corruption tag of the 19th century?
Several reasons have been adduced for this state of affairs such as prolonged military dictatorship; lack of political will to tackle corruption; lack of national plan; and the cultural tolerance of corruption and corrupt leadership and the absence of enforcement of the law against corruption. Corruption in public life in Nigeria manifested itself in the 1950’s to 1960’s with the first penal inquiry on the African Continental Bank (ACB) and Nnamdi Azikiwe affairs with a Justice Strafford Forster-Sutton commission in 1957; the Justice G.B. Coker Commission in 1962 to look into the activities of the then Western region government led by Chief Awolowo and the National Investment and Property company. However, it is widely believed that the malaise started to become a public way of life during the military regimes of General Gown, (Ministry of Defence cement importation scandal), General Obasanjo, (Missing N2.8 Billion from the Nigerian National Petroleum Corporation) and the subsequent promulgation of Decree No.11 of 1976 (Public officers Protection Against False Accusation) seen as the ”arming of corrupt government officials with immunity and a carte blanche to be above the law” (Nwaobi, G.C. 2004). From the Military administration of Gen. Obasanjo in 1976 to President Obasanjo in 1999, there have been many looting of the Nigerian Commonwealth by its leaders and their cronies and such funds deposited in foreign bank accounts that may or may not ever be recovered again. The corruption activities of the Shagari civilian regime and the dictatorial military regimes of Buhari, Babangida, Abacha and even Abdulsalam are well documented in Nigeria (Nwaobi, 2004).
The subject of this dissertation will not permit a detail review of the corruption cases in these regimes; however, a table highlighting some of the looted funds is attached as appendix 1.
2.4.2. Great Britain.
Concern about corruption is as old as the history of government. In 350 BCE, Aristotle suggested in ‘The Politics’, “To protect the treasury from being defrauded, let all money be issued openly in front of the whole city, and let copies of the accounts be deposited in various wards.” The UK has widely been seen as the model of the non-corrupt industrial democracy (Adonis, 1997). However, a look into the UK history in the last few centuries will portray a society once rife with all forms of corruption. Willis (2002, p.151) quoting Lever 1971 and Denning 1981, stated that the court of King James I of England was once described in the following terms:
”this is a tale of extravagance, waste, corruption and vice… unprecedented sums of money were squandered… Titles and government offices were bought and sold. Through Monopolies, tax-farming and appropriation of public land for private purposes the entire national economy was fleeced by parasitic rulers and their cronies…”
Also quoting Williams (1960), Willis said that corruption was the major avenue of securing election to parliament, forming government and staying in government. Therefore buying a seat in parliament out of your own resources was almost the only mode by which parliament was accessible with honour to those who had no family connection or local patron.
The Anti-Bribery Act (Last Determination Act 1729, 2 Geo II c 24) called ” an Act for the more effectual preventing bribery and corruption in election of members to serve in Parliament; The Place Act 1742 (15 Geo II c 22); and Burke’s Place Act 1782 (22 Geo III c 45) were some of the early measures taken between the century 1729 to 1832 to curb bribery and corruption in the British political and administrative system. In Britain, the practice of corruption was so rampant in the late 19th century as to necessitate the enactment of a private member’s bill, the Public Bodies Corrupt Practices Act 1889, in order to implement the recommendation made in 1888 in an interim report by the Royal Commission which investigated various malpractices by the Metropolitan Board of Works. In the decade either side of the First World War a succession of corruption scandals seriously clouded the government of Prime Minister David Lloyd George (Adonis, 1997)
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In the last half century however, Britain invariably scores highly in indices on integrity in public life despite evidence of underlying and persistent corruption (Doig, 1984, 1995, 1996) as quoted in Doig, (2004). Evidence of bribery and the misuse of public office for partisan or personal benefit has invariably been treated as episodic and personalized. When identified, such as the Poulson scandal of the 1970s; the cash -for- question scandals in the House of Commons in the 1990s; the corruption at the local government council levels like the Lambeth borough council in 1993 and the recent Expenses scandals involving MPs in 2009, cases have been subject to investigations that have dealt with the offenders while confirming the general integrity of institutions and the robustness of the procedures involved in dealing with the offences. At the same time, British political and administrative life has pragmatically so ordered its affairs that the need for corruption has been widely minimized. Thus members of the executive and senior civil servants are unlikely even to be offered, let alone accept, bribes from government contractors while in office and from the latter half of the nineteenth, into the early twentieth century, political and administrative leaderships were able to introduce measures that precluded membership of Parliament as a means of personal profit in return for government support; required verbal disclosure of financial interests; curbed payments for honours; disengaged MPs and ministers from the spoils and patronage systems that dominated traditional politics; introduced constraints on civil servants moving to the private sector; outlawed voter bribery, and introduced anticorruption legislation for both public and private sectors (Doig, 2003). While it should be remembered that corruption and misconduct did not necessarily disappear during this period, allegations invariably provoked some form of official inquiry that was often used as a vehicle for some general statement of the principles of conduct. It is therefore not surprising that Britain is rated highly above Nigeria in the Transparency International’s corruption perception index.
2.5. Theoretical & Empirical Works on Corruption:
Corruption generally has attracted a great deal of attention in both academic and non-academic circles as reflected through an increased number of studies devoted to the topics. There is a growing body of theoretical and empirical studies within the economics literature examining the factors contributing to corruption and corruptibility within the public service. This will be looked into as below:
2.5.1. Theories on Corruption:
Existing theories fail to differentiate various forms of corruption. Morris, (1991 p. 10), states that ”most theoretical arguments posit a major causal agent as producing corruption; non really specifies what type of corruption may result or what specific factors may relate to different corrupt acts” This could be as a result of the difficult nature of defining what really constitute corruption. According to deGraaf (2007), most definitions of corruption are focused on social constructivism and thus it is based on what is considered as corruption at a certain place and at a particular time. In his studies of corruption in the Western countries, he theorized six causes of corruption which will also be considered below:
Principal – Agent Theory: One of the standard frameworks used in the theoretical analysis of corruption is the principal-agent model. A principal can be a person or an organization, in the case of this research, a government. The model holds that on behalf of the principal, the agent interacts with a client and thus may commit corruption if in his analysis, the benefits outweighs the costs. Using this model researchers like (Bardhan, 1997; Klitgaard, 1988; Rose-Ackerman, 1978) have investigated the trade-offs between the expected costs and benefits of corrupt acts. The reasons for the considered economic benefit may include such as lower wages (Becker and Stigler, 1974; Chand and Moene, 1999; Mookherjee and Png, 1995), social welfare (Becker and Stigler, 1974; Khalil and Lawarree, 1995; Mookherjee and Png, 1995) and greed (de Graaf, 2007). The Principal-Agent theory considers corruption at the micro-model and the agent makes his/her decisions based on a benefit versus costs and thus if the agent chooses not to be corrupt, they receive a payoff that is the sum of their regular pay plus the moral satisfaction of not being a corrupt. According to Klitgaard as quoted by Chan (2000), the cost depends on his/her own ethical, cultural and religious standards; influence of peers and colleagues; the size and magnitude of the bribe and responsibilities to the principal.
Economic Rent and corruption equation: All economic agents are maximizing their individual utility that is personal welfare (wealth). Therefore, selfish interests of economic agents are the basic motive for economic transactions between them. A common thread in these models is that the government is led by a benevolent dictator (the principal), who aims to motivate government officials (agents) to act with integrity in the use of public resources (see Banfield 1975; Becker 1968, 1983; Becker and Stigler 1974; Klitgaard 1988, 1997; Rose-Ackerman 1975, 1978). Resources are allocated to the activities that provide the greatest returns on investment (an allocation decision). Rent by economic definition is a factor of income above the competitive returns (opportunity costs) of the factor and thus because rent appropriations will maximize individual utility (welfare), economic agents are engaged in the rent-seeking process, the process of creation and distribution (appropriation) of rent. Theoretically speaking, rent can be created in a few distinctive ways, but in reality the most significant rent generator is government intervention through the violation of free market operations by way of regulations. In his classical ”Corruption Equation”, Kiltgaard, (1998) postulates that:
Corruption Equation C=R+D – A
Where C= Corruption,
R= Economic Rent
D= Discretionary powers
In the equation, Kiltgaard posits that Corruption (C) will exist if more opportunities for Economic Rent ( R) exist in a country and that the greater the discretionary powers (D) granted to administrators (bureaucrats, leaders, politicians etc) the more the chances of corruption. However, the equation states that the more administrators are held Accountable (A) for their actions, the less will be corruption. This is designated by the minus sign in front of A.
Stated differently, the equation tells us that a fertile ground for growth of a thoroughly corrupt system will emerge in a country if it satisfies the following three conditions:
It has a large number of laws, rules, regulations, and administrative orders to restrict business and economic activities and thereby creates huge opportunities for generating economic rent, and especially if these restrictive measures are complex and opaque and applied in a selective, secretive, inconsistent and non-transparent way;
Administrators are granted large discretionary powers with respect to interpreting rules, are given a lot of freedom to decide on how rules are to be applied, to whom and in what manner they are to be applied, are vested with powers to amend, alter, and rescind the rules, and even to supplement the rules by invoking new restrictive administrative measures and procedures; and
There are no effective mechanisms and institutional arrangements in the country to hold administrators accountable for their actions.
The Public/Rational Choice Theory: Like most white-collar crimes, corruption has been seen as a crime of rational choice where the causal chain is that of an individual making a rational decision that leads to a predetermined outcome (de Graaf, 2007). According to de Graaf, the individual corrupt official tries to maximize his utility by rationally calculating when to become corrupt if its expected advantages outweigh its expected disadvantages (a combination of possible penalty and the chance of being caught). Rose-Ackeman (1978), posits that public officials are corrupt simply because they perceive that the potential benefits of corruption exceeds that potential costs. See also Klitgaard, (1988), Gambetta, 1993). This theory is supported by works of Hirschi and Gottfredson (1987) Shover and Hochstetler (2006), and Simpson (2009) in their rational choice theories on white-collar crimes. The rational choice theory, unlike others concentrates on a specific situation of an agent who calculates the pros and cons ignoring the larger social context that breeds corruption. Its focus on the official’s calculation of the ensuing trade-off as a motivation leaves a gapping question of why some officials especially in the Western countries are not corrupt.
The Bad Apple (Anomie) Theory: This theory also looks at the level of an individual for the causal effect of corruption. Most studies on
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