Anti-Corruption Module 5 Key Issues: Causes of Private Sector Corruption (2023)

This module is a resource for lecturers

Sector- or industry-related causes

While corruption in a business context affects companies of all sizes, some sectors or industries are more vulnerable to corruption than others. For example, given the secrecy and large orders involved, military procurement is particularly vulnerable to malfeasance and the defence industry is therefore exposed to high corruption risks (for a more detailed discussion of this issue, see Module 11 of the E4J University Module Series on Anti-Corruption). A report from Risk Advisory (2019) suggests that, on a global level, the industries most plagued by corruption are oil and gas, construction and development, and infrastructure. There are some variations on the regional level, also reflected in this report. In general, contract-dependent sectors are more vulnerable to corruption; they also have a lower quality of management and lower levels of performance. For example, high-tech industries, which acquire components of their products through a large number of contracts with suppliers, are more vulnerable to corruption and institutional inefficiencies compared to the food industry, where fewer contracts are required and components are available in the retail market (Athanasouli and Goujard, 2015).

Economic causes

While personal gain is often the most frequent cause of public sector corruption, it is only one of the causes of private sector corruption. Where they have occurred, liberalization and deregulation have fostered a market driven by intense competition, leading companies to engage in corruption to maximize operational efficiency, safeguard development and conquer new markets (Pakstaitis, 2019). As companies use corrupt practices to gain a competitive advantage, they create a snowball effect throughout their industries, prompting other companies to engage in similar practices to remain competitive in the market. As noted earlier, corruption undermines competition, because companies that refuse to pay bribes can be excluded from the market. Reduced competition leads to higher prices and poorer quality of goods and services, ultimately harming the consumers (Lee-Jones, 2018).

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Unfortunately, corruption can appear to be a workable and effective business practice for survival and growth. If maximizing profit by any means is seen as the sole company objective, then evaluating the potential costs versus benefits of corruption can seem like a legitimate exercise - which may justify corruption. Corrupt practices can become institutionalized to achieve strategic objectives, particularly in periods of economic hardship.

However, evidence shows that corruption can lead to such benefits only in the short term, if at all, and only for a limited number of companies (Hanousek and Kochanova, 2015). Over the long term, corruption is rather a constraint on development and a restricting force on market entry and growth for all firms (Bai and others, 2019; Forgues-Puccio, 2013). A company with a culture of corruption is unlikely to be sustainable as it will be unattractive to principled employees, investors, clients, and other stakeholders. The U4 Anti-Corruption Resource Centre goes even further by stressing "that higher corruption at firm level is strongly correlated with lower firm growth, even in the short term" (U4, 2017 referring to findings of Fisman and Svensson, 2007).

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Individual causes and rationalizations

In the private sector, as elsewhere, individuals engage in a series of rationalization strategies to justify their unethical behaviour. According to behavioural science, some people will cheat to gain an advantage if they are able to rationalize their behaviour and still feel good about themselves (Ariely, 2013). Johannsen and others (2016) found that national context, company size, the nature of the company as domestic or foreign, workplace diversity, individuals' gender identity, age, and length of tenure are the key factors that influence rationalizations of individuals in the private sector.

Rationalizations for unethical behaviour are discussed at length in Module 6 and Module 7 of the E4J University Module Series on Integrity and Ethics. For present purposes, the following three common rationalizations and their relevance to the private sector are elaborated upon: "Everyone else is doing it", "It's not my responsibility" and "The end justifies the means".

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"Everyone else is doing it."

This rationalization can manifest itself in different situations. First, when unethical behaviour is normalized across a group within a company or in the entire company (or industry), there is no sanction for engaging in the behaviour. Second, the rationale that everyone else (i.e. competitors) is doing it justifies the corrupt conduct. The Alliance for Integrity (2016), a business-driven, multi-stakeholder initiative aiming to promote transparency and integrity in the private sector, points out that among the top ten reasons or justifications that employees give for engaging in corrupt behaviour are: "You don't understand how business is done here" or "If we don't do it, someone else will". When individuals perceive that their competitors are engaging in corrupt practices, they can justify undertaking comparable actions with the rationale of securing the company's well-being as well as their personal well-being, while still feeling that they are a "good" person (Johannsen and others, 2016). This rationalization is also referred to as a "collective action problem" (Persson, Rothstein and Teorell, 2013). The understanding of corruption as a collective action problem is explained in Module 4 of the E4J University Module Series on Anti-Corruption.

"It's not my responsibility."

This statement reflects a denial of responsibility. Individuals rationalize engagement in corruption as being beyond their control. Typically cited reasons for employees trying to deny responsibility are: "I didn't know that was corruption"; "I didn't do it for me; I did it for my organization"; "I don't know how to respond to corruption" (Alliance for Integrity, 2016).

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"The end justifies the means."

Corruption can be perceived as generating positive collective effects, because it - however incorrectly - appears to be in the company's best interests. Corruption can also be rationalized because it has positive effects for individuals, such as enabling them to keep their jobs. Business people on occasion also justify corruption as a win-win situation where no one gets hurt (Alliance for Integrity, 2016). This is a particularly prevalent rationalization in smaller businesses (Johannsen and others, 2016).

Corporate culture

Economic and individual causes of corruption can lead to the development of (and be supported by) a corporate culture of corruption. Thus, a culture of corruption is both an outcome and a further cause of corruption. Taylor (2016) explains that a culture normalizes corruption through three processes:

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  • Institutionalization: the embedding of corrupt practices in company structures and processes;
  • Rationalization: self-serving ideologies that justify corrupt practices; and
  • Socialization: new employees being socialized into systems and norms that tolerate or permit corruption. Peer pressure can socialize employees into corrupt practices. In the context of private sector corruption, peer pressure refers to actions undertaken by way of an executive or management order (Johannsen and others, 2016).

A corporate culture of corruption is brought about by a multiplicity of factors such as competition and growth orientation, complicated leadership structures, and high levels of autonomy and discretion, with a lack of transparency, accountability and ethics. In such an environment, even "rules and processes put in place to promote integrity may be selectively enforced and easily evaded, as shown in many recent cases under anti-bribery statutes" (Taylor, 2016). For a related discussion on the ways in which psychology, environment and behaviour can influence "moral blindness" and unintended unethicality, see Module 6, Module 7 and Module 8 of the E4J University Module Series on Integrity and Ethics.

To combat and replace cultures that support corruption, increased attention in practice and scholarship has been devoted to the need to foster a corporate culture of integrity. As explained in further detail in Module 11 of the E4J University Module Series on Integrity and Ethics, when a corporation acts ethically, it fosters a culture of integrity that motivates employees individually to act ethically. This contributes to meaningful and purposeful lives for the employees and ultimately to a better society. To achieve such a culture, the business can make use of modelling, mentoring and other activities that promote integrity, as well as the application of values, ethical codes, rules and regulations. In particular, to enable a culture of integrity and demonstrate to employees that the business is willing to "walk the talk", the business should ensure that its performance management and reward systems do not contradict or undermine its positive core values. While there is no one-size-fits-all model, every business should implement an approach that goes beyond a tick-the-box exercise, i.e. beyond compliance with rules and regulations, and towards fostering a positive culture of integrity. Strong ethical values must be at the core of such a programme, and those values must be identified and developed carefully (ideally co-created with various stakeholders). Ethical behaviour should be embedded in all day-to-day operations and communicated in interactions with stakeholders (Hodges and Steinholtz, 2017).

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What are the 5 main causes of corruption? ›

  • Greed of money, desires.
  • Higher levels of market and political monopolization.
  • Low levels of democracy, weak civil participation and low political transparency.
  • Higher levels of bureaucracy and inefficient administrative structures.
  • Low press freedom.
  • Low economic freedom.

What are the 5 types of corruption? ›

Corruption can be defined and categorized in different ways. The most common types or categories of corruption are supply versus demand corruption, grand versus petty corruption, conventional versus unconventional corruption and public versus private corruption.

How does corruption occur in the private sector? ›

The most common practice is private agents paying bribes to public officials to take actions in favour of their businesses or themselves. A good example is the bid-rigging that takes place in the procurement process, to get public contracts.

How can corruption be resolved in the private sector? ›

Legal compliance approaches that merely rely on rules to be enforced by the company itself, with threats of criminal or civil punishment to back them, have historically been the primary mechanism to address corruption in the private sector.

What are major examples of corruption? ›

  • ABSCAM. On February 2, 1980, the world learned of our high-level investigation into public corruption and organized crime, infamously code-named ABSCAM. ...
  • Operation Greylord. ...
  • Operation Greylord. ...
  • Operation Illwind. ...
  • Tennessee Waltz. ...
  • Watergate. ...
  • William Jefferson.

What is private corruption? ›

Any company, household and institution that is not controlled by the public sector and which is run for private profit. Private sector corruption is characterised by groups from this sector influencing decisions and actions that lead to abuses of entrusted power.

What are the four elements of corruption? ›

The offender gave or received gratification (e.g. money, loan, employment, sexual services); The gratification was an inducement or reward for any act/favour/disfavour; There was an objectively corrupt/dishonest element in the transaction; and. The offender gave or accepted the gratification with guilty knowledge.

What is an example of anti corruption? ›

One example for such strategy of combating corruption by exposing corrupt individuals is the Albanian television show Fiks Fare that repeatedly reported on corruption by airing segments filmed with hidden cameras, in which officials are accepting bribes.

What is corruption in private and public sector? ›

We define corruption as the abuse of entrusted power for private gain. Corruption erodes trust, weakens democracy, hampers economic development and further exacerbates inequality, poverty, social division and the environmental crisis.

Why are private sectors bad for the economy? ›

A pure private-sector economy leaves governments with little room to provide for public education, health care, food assistance and financial assistance during economic recessions. Governments exist for the benefit of people. Thus, public welfare should be their primary concern.

What sectors are most affected by corruption? ›

Mining, oil, and gas—broadly known as the extractive industries—inevitably end up with a corruption problem due to the nature of the business. Extraction companies search all over the world for valuable resource deposits to dig up and sell.

How to fight against corruption? ›

Combating Corruption and Promoting Good Governance
  1. Strengthen Regimes to Prevent Corruption and Bring Corrupt Actors to Justice. ...
  2. Enhance International Cooperation and Partnerships. ...
  3. Denying Safe Haven. ...
  4. Recognize Reform. ...
  5. Leverage Coordination and Learning to Combat Corruption.

How can a company prevent corruption? ›

8 ways to prevent corruption in your business
  1. Understand the law and other regulations. ...
  2. Conduct a risk assessment. ...
  3. Set the tone top-down. ...
  4. Always conduct due diligence. ...
  5. Keep reviewing your policy. ...
  6. Communicate and train. ...
  7. Always protect whistleblowers. ...
  8. Monitor and review.

How can we prevent system corruption? ›

5 Ways to Prevent Data Corruption in Windows
  1. Relocate Your Files Neatly. ...
  2. Keep Your PC Safe From Malware. ...
  3. Unmount External Storage Devices Properly. ...
  4. Avoid Opening Files in Unsupported Apps. ...
  5. Prevent Your Hard Drive Sectors From Going Bad.
Jul 19, 2022

Why do we need to stop corruption? ›

wasting public resources and money. causing injustice through advantaging some at the expense of others. inefficiencies in operations. reputational damage which makes it difficult to recruit and retain quality staff or obtain best value in tender processes.

What are the ethical issues in corruption? ›

What is the ethical issue? Some may view bribery and corruption as financial crimes, with no apparent victims. But corruption means that public money may be diverted from helping the most vulnerable in society, power is abused and infrastructure suffers. Business relationships rely on trust.

What is the impact of corruption? ›

In a nutshell, corruption increases inequality, decreases popular accountability and political responsiveness, and thus produces rising frustration and hardship among citizens, who are then more likely to accept (or even demand) hard-handed and illiberal tactics.

What is the most corrupt company in history? ›

Enron has become synonymous with willful corporate fraud and corruption. The scandal also brought into question the accounting practices and activities of many corporations in the United States and was a factor in the enactment of the Sarbanes–Oxley Act of 2002.

What is the largest corruption case in the world? ›

The 1MDB scandal has been described as "one of the world's greatest financial scandals" and declared by the United States Department of Justice as the "largest kleptocracy case to date" in 2016.

What are three examples of public corruption? ›

Among the most serious types of public corruption are bribery and kickbacks, extortion, blackmail, bid-rigging, influence-peddling, illegal lobbying, collusion, graft, conflict of interest, gratuities, product diversion, and cyber extortion. Public corruption violates public trust for personal gain.

What is active corruption? ›

Active corruption or “active bribery” is defined as paying or promising to pay a bribe. Domain: Industry. Source: OECD Glossary.

What is the legal definition of corruption? ›

Corruption is a dishonest, fraudulent, or even criminal act of an individual or organization, using entrusted authority or power to make a personal gain or other unethical or illegal benefits.

What are the four motivators of corruption? ›

Corrupt motivations are classified into four categories: positive, classical, structural, and ethical. Empirical examples from interviews and court cases are used to show how the identified causes and correlates of corruption can be grouped and use to develop more effective anti-corruption prevention strategies.

What are the three elements of corruption? ›

Corruption has three main components that are controllable and one that is not. The three controllable ones are opportunity, incentive, and risk; the uncontrollable one is personal honesty.

What are the core values to fight corruption? ›

  • Transparency.
  • Accountability.
  • Integrity.
  • Solidarity.
  • Courage.
  • Justice.
  • Democracy.

What is risk of anti-corruption? ›

Anti-corruption risk assessment, broadly defined, encompasses the variety of mecha- nisms that enterprises use to estimate the likelihood of particular forms of corrup- tion within the enterprise and in external interactions, and the effect such corruption might have.

What is anti-corruption principle? ›

The Tenth Principle of the UN Global Compact states that “Businesses should work against corruption in all its forms, including extortion and bribery.” We call on companies to develop policies and programmes to address all forms of corruption.

What is anti-corruption pattern? ›

The anti-corruption layer contains all of the logic necessary to translate between the two systems. The layer can be implemented as a component within the application or as an independent service.

What are the different types of corruption in local government? ›

  • Bribery is the offering of something which is most often money but can also be goods or services in order to gain an unfair advantage. ...
  • Extortion is threatening or inflicting harm to a person, their reputation, or their property in order to unjustly obtain money, actions, services, or other goods from that person.

How do you start a corruption speech? ›

I welcome you all present here. I am here to present a speech on Corruption. By corruption, we mean that any dishonest or immoral behavior or activities that result in the gain of some powerful organization or people. Thus, corruption often results in loss to the weaker section of the society or organization.

What are the consequences of corruption in the private sector? ›

Private corruption affects the entire supply chain, as it distorts markets, undermines competition, and increases costs to firms. It prevents a fair and efficient private sector, reduces the quality of products and services, and leads to missed business opportunities (UNODC, 2013b).

What is the private sector responsible for? ›

What is the role of the private sector? The private sector plays a vital role in the economy by creating jobs, providing goods and services, and stimulating economic growth. It is an important source of tax revenue for governments.

What does the private sector do better than the government? ›

Private sector workers tend to have more pay increases, more career choices, greater opportunities for promotions, less job security, and less comprehensive benefit plans than public sector workers.

Does corruption hurt the economy? ›

Corrupted economies are not able to function properly because corruption prevents the natural laws of the economy from functioning freely. As a result, corruption in a nation's political and economic operations causes its entire society to suffer.

What is silent data Corruption? ›

An SDC occurs when an impacted CPU inadvertently causes errors in the data it processes. For example, an impacted CPU might miscalculate data (i.e., 1+1=3). There may be no indication of these computational errors unless the software systematically checks for errors.

How do you detect corruption? ›

Bribery and corruption can be detected via:
  1. Forensic audits.
  2. Anti-corruption programs, which are policies and procedures that (among other things) help assess and deal with bribery and corruption.
  3. Looking out for red flags, such as one contractor constantly winning a bid.

How do you fight corruption? ›

Combating Corruption and Promoting Good Governance
  1. Strengthen Regimes to Prevent Corruption and Bring Corrupt Actors to Justice. ...
  2. Enhance International Cooperation and Partnerships. ...
  3. Denying Safe Haven. ...
  4. Recognize Reform. ...
  5. Leverage Coordination and Learning to Combat Corruption.

Why do people indulge in corruption? ›

Corruption usually occurs because some individuals are willing to use illicit means to maximise personal or corporate gain.


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