Financial Transparency Coalition

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On a large scale, corruption undermines development and democracy, exacerbates poverty, erodes civil society, stifles social services, and worsens public health. When it involves cross-boarder flow of money, it is damaging to economies not just because of the underlying corrupt acts, but also because it deprives the country of both public and private resources—including financial capital—that might otherwise be diverted to productive activities.

Most of the corruption that we talk about on this blog and in the general dialogue about corruption and economic development—concerns this sort of large-scale corruption. But there is another kind of corruption that is often overlooked: and that’s when it occurs on a mush smaller scale.

Corruption on a small scale, sometimes called “petty corruption,” occurs in thousands of contexts daily. Every day people, usually in developing countries, make thousands of everyday payments to building inspectors, customs officials, and other bureaucrats for the services that those employees are obligated to perform, but don’t without a little extra. This type of corruption has a much different effect than its large scale counterpart. When a person pays a bribe, the venal official need not necessarily transfer it abroad. In fact, they are more than likely to just spend the cash. But, as U4 Anti-Corruption Resource Centre points out, petty corruption can still impose “a heavy financial burden on individuals, especially the poor, … facilitate illicit activities such as smuggling and trafficking and ultimately foster the development of informal activities and shadow economy.”

But this type of corruption is pervasive and deeply entrenched in the culture of many nations. It makes life difficult for citizens trying to live their lives and carry out what should be ordinary tasks. And in many countries—like India for example—where paying a bribe is illegal, the corrupt official forces everyday citizens to chose between completing your transaction and complying with the law. It is in this way that systematic corruption creates both a power imbalance and a forced cooperative between those demanding the bribe and those paying it.

With changing technologies, citizens of developing countries have been finding ways to fight back.

One relatively new website, I Paid a Bribe, asks users in India—where these types of crimes are pervasive—to anonymously report instances where they were forced to bribe officials. As Ramanathan explained to the BBC “There is so little risk to being corrupt in our country and so high a reward. The moment you change the equation and you make it riskier, the reward becomes less. You make it riskier by making it public.” According to the New York Times, “About 80 percent of the more than 400,000 reports to the site tell stories … of officials and bureaucrats seeking illicit payments to provide routine services or process paperwork and forms.”

But these private actions can only go so far because there is another piece to this puzzle: facilitating payments by foreign multinations. Thomas Fox, an expert in the Foreign Corrupt Practices Act, defines facilitating payments (also called “expediting payments” or “grease payments”) as “bribes paid to induce foreign officials to perform routine functions they are otherwise obligated to perform.” And he notes the only countries which permit their corporations to pay them are the United States, Canada, Australia, New Zealand and South Korea, although they are illegal in every country where they are paid.

As Fox points out, in particular, this represents a huge disconnect between the Foreign Corrupt Practices Act and the totality of U.S. policy on anti-corruption. As he says, “treating them as anything other than outright bribery muddies the compliance waters and adds confusion where there should be clarity.”

There are two major reasons to change this policy. First, the truth is that in order to confront endemic small-scale corruption, it must be attacked from all sides. Corruption is driven from economics and politics, but also it is also cultural. If foreign companies continue to engage in facilitating payments, it reinforces the venal officials in asking for bribes from domestic citizens, too. Second, websites and technologies and transparency are excellent things, but at the end of the day, they are closer to political carrots than sticks. Changing policy toward multinationals by developed countries’ federal governments is a much more likely driver of behavior than pressure from a website or Twitter.

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