Having spent over a year of my four-year term as Central Vigilance Commissioner, I am aware of the challenge which the forces of corruption in our country pose to individuals and organisations who want to fight it. Everyone in India pays lip service to the principle of honesty. We belong to the land of Gandhiji for whom truth and non-violence were the fundamental principles of existence. Going back in time 2000 years, I quote the Vedic dictum, ‘satyam vadhadharmam charah’. Our nation’s motto is Satyameva Jayate. Therefore, at the level of lip service, we are all for truth and honesty. Our government believes that truth will prevail and all our religions advocate that we should tell the truth. But, the reality is that India is one of the most corrupt countries in the world.
Corruption has been defined by the World Bank as the ‘use of public office for private profit.’ In our country, there are five major players on the corruption scene, interdependent, strengthening and supportive of the vicious cycle. They are the neta, the corrupt politician; the babu, the corrupt bureaucrat; the lala, the corrupting businessman; the jhola, the corrupt NGO; and the dada, the criminal of the underworld.
Recently, the World Bank cited the DDA (Delhi Development Authority) as the most corrupt organisation in India. We have seen the reaction of the DDA employees to that description. K.J. Alphons, an IAS officer on whose statement the World Bank relied and who had actually first-hand experience of having worked in the organization, was hauled over the coals by the DDA Engineers Association for besmirching the fair name of the organisation.
We understand the importance of a good reputation, both for individuals and organisations. There is a law of defamation. But even though many at an individual level confess to corruption in numerous departments, it requires collective action by associations and unions for somebody to make a general statement. Last year, I recall, someone made the statement that customs officials at the Delhi airport were corrupt. The customs staff promptly went on strike and work came to a halt for many days. When specific organisations and services are painted as corrupt, even if confirmed through individual conversation, it becomes a matter of amour propre for the organisation. Since every department has some stranglehold on the governance of this country we see collective action being initiated. Ultimately, every department can blackmail the powers that be and get their way.
The first challenge in fighting corruption is to establish an objective pecking order of the level of corruption as perceived by the public. Like Transparency International, NGOs and professional bodies in India must be encouraged to grade all organizations, under the purview of the CVC, according to levels of corruption. This will have the following advantages: (a) If the study is objective, it will pre-empt the kind of drama enacted by DDA employees this year and Delhi customs last year; and (b) this will enable the CVC to draw an action plan with the right priorities in the tackling of corruption.
Corruption is a two-way street. For every bribe taker, there is a bribe giver. While the debate on corruption in our country has focused on the demand side of corruption, i.e., on public servants and politicians who demand bribes, there has been a thundering silence on the supply side of corruption, i.e., around the business community which bribes the public servants and politicians. It is therefore interesting to note the business community’s focus on the issue of ethics in business. Recently the CII organised a session on ethics and corporate integrity.
As CVC, I have a direct responsibility to ensure that corruption is at least eliminated so far as public servants are concerned in the Government of India. Ministries, departments, organisations like the public sector undertakings and banks, and so on should be freed of corruption.
This is possible if only we have a clear idea about the dynamics of corruption, why corruption flourishes and how it can be tackled. Corruption flourishes in our system because of five basic reasons. These are: (i) scarcity of goods and services; (ii) red tape and complicated rules and procedures; (iii) lack of transparency in decision-making; (iv) legal cushions of safety for the corrupt under the ‘healthy’ principle that everyone is innocent till proved guilty; and (v) tribalism or biradari among the corrupt who protect each other. The popular phrase is ‘thick as thieves’ not ‘thick as honest people’.
As CVC, I have adopted a three-point plan to check corruption. The first is simplification of rules and procedures. Corruption is like malaria, handled by either giving medicine to those affected or by preventing the breeding of mosquitoes. Many of our rules and procedures breed corruption. Orders have therefore been issued to check and simplify procedures. One example is a ban on post-tender negotiations in government purchases, except with the lowest bidder. Such negotiations are a flexible source of corruption.
The second step is empowering the public and bringing in greater transparency. The orders of the CVC with regard to checking corruption are in the public domain. They can be easily accessed through the website of CVC at http://www.cvc.nic.in. One such order has been referred to earlier. Another is that every office should have a board stating, ‘Don’t pay bribes. If anybody asks for a bribe, you can complain to the CVO, CVC.’ This way we can educate the public who come to every small office of the GOI and other organisations like banks and public sector undertakings that there is a way out if they do not want to pay bribes.
The third is effective punishment. It is here that we have miles to go. Punishing the guilty is possible under two circumstances: through departmental inquiry and through prosecution. On the former, I am forcing all government organizations to employ honest retired people to conduct departmental inquiries to be completed within six months. On prosecution, we are constrained because our courts are extremely slow. As of now, nearly 3000 cases under the Prevention of Corruption Act have been pending from two to ten years. If punishment is so slow then elimination of corruption in India will always remain a chimera.
Corruption flourishes because it is a low-risk, high-profit activity. One suggestion to the government is that the ill-gotten property of the corrupt be confiscated. Justice Jeevan Reddy, Chairman, Law Commission agrees and has drafted the Corrupt Public Servants (Forfeiture of Property) Act. If enacted, the CVC will at least have the powers to ensure that the corrupt do not enjoy the benefits of their ill-gotten gains. There is also the Benami Transaction Prohibition Act which can be effectively used. Even though the Act was passed in 1988 and provides for the benami property to be confiscated, there is no prescribed procedure. The government was asked to empower the CVC and prescribe the procedure. Twelve years later we are still waiting for the government to act.
By adopting these strategies, it is possible to tackle corruption by public servants, but what about political corruption? In the JMM case, the Supreme Court decreed that MPs and MLAs are public servants. We must, therefore, insist that they, as public servants, must provide their annual property returns to the Speaker or the Chairman of the Rajya Sabha, as the case may be. If they have benami property, then it should be equally liable for confiscation.
The very process by which political leaders are able to realise large amounts of money should be checked. This relates to various decisions of government – transfers, contracts, clearance of projects and so on. Normally in this process, political leaders would not be able to rake in financial benefits unless they are in collusion with corrupt public servants. There are, of course, exceptions where political leaders could still make money. Thanks to globalisation, the salting of money and ill-gotten wealth in foreign bank accounts and countries abroad has become easier.
A healthy development is that the OECD countries have come up with an anti-bribery convention. The U.S. Vice President, Al Gore, called a meeting in February 1999 of 89 countries to talk about fighting corruption globally. While global public opinion may be turning against corruption, what we have to tackle is corruption within the country.
The CBI, with the revised position of the CVC, is today in a position to take independent action. A corrupt politician, whether in power or not, is as liable for criminal suit under the Prevention of Corruption Act as any other citizen. It should, therefore, be possible for the CBI to bring corrupt politicians to book. For this we first need to beef up the CBI’s strength. Second, to speed up investigation procedures, and third, to improve and speed up the prosecution processes. The main point is that if public opinion is in favour of bringing corrupt politicians to book, there is today a method available to achieve this objective.
What about the jhola, the dada and the lala? If we are able to check at least the babu and the neta, perhaps there might be a salutary effect and these sectors too can be brought under control. In other words, we can eliminate corruption in the country. It is a question of mindset. In our country because corruption is accepted cynically and with a defeatist attitude, the people have become apathetic.
Is eliminating corruption a myth or reality? If we believe corruption can be eliminated, it can be; if not, it will remain a reality. When Vivekananda went to meet Ramakrishna Paramhansa, he asked directly, ‘Does God exist? Do you believe in Him?’ Ramakrishna Paramhansa supposedly replied, ‘Yes, not only do I believe in Him, but I can also make you see Him?’ Vivekananda has also described the experience where as Ramakrishna touched him, he felt the presence of God.
In 1974 Hong Kong tackled this problem by setting up an Independent Commission Against Corruption. Apparently, the ICAC brought down corruption by systematically taking all the stakeholders into confidence and by discussing with them the processes to check corruption. Despite a strike by the Hong Kong Police against the ICAC, a series of measures were taken to bring down corruption. Lee Kwan Yew worked single-mindedly to make Singapore one of the cleanest governments in the world. In Italy, magistrates were empowered to take on the mafia and check corruption though some magistrates had to pay the ultimate price. In France too, the Italian experience was replicated. But the fact is that these countries made an effort to bring down corruption. Similarly Rudi Giuliani, the Mayor of New York came up with the concept of zero tolerance and substantially brought down the level of crime. The point to note is that corruption can be fought and eliminated. What we need first is a determined mindset.
Can corruption be fought by civil society? Perhaps if we can bring three elements together. The first is the CVC in its new avatar, which thanks to the Supreme Court judgement in the Vineet Narain case, enjoys statutory powers and also exercises superintendence over the CBI, and to an extent over the Enforcement Directorate. The second is to look at the supply side of corruption. The third, of course, is mobilising the youth to fight the menace of corruption.
Ultimately, levels of corruption depends upon three factors. One relates to the values of the person in an organisation. The second is the social standards of acceptance of corruption. The third is the systems. As for systems, we have tried to provide an analysis of what could be done by the CVC as well as by organised industry. As for individual values, and thereby the shaping of social values, we need to focus on the youth. Rabindra Nath Tagore once observed, every time a child is born it shows that God has not lost faith in humanity. The youth still carry a spark of idealism. It may be worthwhile to start anti-corruption clubs in all colleges and educational institutions. These could be patronised by the CVC so that they have a right to expose corrupt practices in various public organisations. They should also be able to participate and help in conducting raids against corrupt public servants. This would give them a sense of involvement in cleansing the rot in our society.
Let me now turn my attention towards business perceptions about how corruption in the country has a direct bearing on global business today. The experience of Southeast Asian countries like Indonesia, Thailand and South Korea shows that if there is no corporate governance and the financial sector is not properly regulated and is subjected to crony capitalism, investments could result in disaster. Incidentally, the expression ‘corporate governance’ has become a fashionable buzzword because globalisation implies that in addition to traditional economic factors like physical capital in terms of plant and machinery, technology and labour, financial capital has become more mobile.
Given the integration of global markets and the increasing application of information technology, billions of dollars can be transmitted from one market to another at the click of a computer mouse. When foreign financial institutions invest in an emerging market, they want to be sure that not only will the management functions be performed effectively, but that decisions will also be taken in a transparent manner and principles of corporate ethics observed. Attempts at codification of corporate governance have been made through many committees in the U.K., South Asia and elsewhere, like the Cadbury, Greenbury and King Committees. The CII, in India has come up with the Bajaj Committee report on corporate governance.
When the chips are down, integrity and corporate ethics do count in global trade today. According to a World Bank estimate, if a country is perceived to be very corrupt, the FDI goes down by about 35%; if perceived as generally corrupt, it goes down by 25%. From a purely financial point of view, companies which have a reputation for integrity and good corporate behaviour stand to gain in this context.
Business is increasingly based on perceptions which are reflected in market sentiments. One advantage of globalisation is that the world has become a global village and competition is intense. In a highly competitive business environment, the trust of both investor and consumer becomes a valuable commodity. This is why there is so much talk about brand equity today. What ultimately lies behind brand equity is the reputation of the organisation which gives to the customer a sense of reassurance in terms of quality, transparent behaviour and value for money. Reputation and brand equity have become increasingly important with competition. We can, therefore, see that the issue of corporate ethics is directly linked to the competitive edge of an enterprise, apart from other aspects like good corporate management, productivity, quality, customer orientation and so on.
Competitive organisations, today, are marked by an increasingly closed technology, finance and people loop. In discussing ethics and corporate integrity, we have focused on the people aspect of this loop. But the other two links of technology and finance have a bearing on this aspect as well. There are two aspects with which people are concerned. The first is that if an enterprise is perceived as honest, straightforward, transparent and practising the highest values, it helps to improve the company’s morale greatly. This translates into building a sense of loyalty and trust towards the organisation among employees. In this, the responsibility of the top management and particularly the CEO is important. There is no point in talking about values, or the needs for corporate ethics, if the top management do not practice it.
The human resource is the most important factor in ensuring that a company survives in a highly competitive environment. It is said that nothing succeeds like success. If in today’s global market, success is going to depend upon brand equity or company reputation, apart from other non-human parameters like productivity, quality and so on, the role of corporate ethics becomes central and critical.
The second aspect about the impact of people on technology and finance in the context of corporate integrity is using technology to ensure, particularly in relation to financial matters, that there is better check on people’s behaviour. The use of information technology has immense value in this context. Take banks for example. They deal with money, and trust is fundamental for their business. Trust includes not only a sense of security but also physical security. Information technology can be used to check corruption and to detect fraud and ensure that the scope for temptation and erosion of corporate ethics is reduced to a minimum.
Computerisation can be of immense value especially in preventing frauds and corruption in the banking sector. After becoming the CVC, I issued an order, insisting that public sector banks computerise at least 70% of their business before January 2001. Also that information regarding wilful defaulters be circulated among the banks. The wide area networks (WAN) of the RBI can be used for this purpose.
Prevention, after all, is better than cure. In mechanical engineering we talk about preventive, predictive and breakdown maintenance. When it comes to business frauds, it is always better to adopt preventive and predictive maintenance principles rather than the breakdown maintenance principle, which is like locking the stable doors after the horse has bolted. A classic example is the Harshad Mehta scam where because of lack of computerisation in the Public Debt Office of the Reserve Bank of India, a Rs l8,000 crore scam was perpetrated. It was only after the fraud was unearthed that the RBI computerised the Public Debt Office.
We must understand that the nature of frauds is constantly changing. The increasing application of information technology and computers has brought about benefits in terms of speed and efficiency of business operations. It has also provided opportunities for a new generation of crimes – cyber crimes. In our country the degree of computerisation is very low. Having, however, become a part of the WTO and other agreements like the Information Technology Agreement, Global Agreement on Telecommunication and so on, it is necessary that our systems meet global standards. But what we lack today is a basic legal framework for the electronic business. Though the government has been urged to issue an ordinance for cyber laws and, for the last two years, it has before it a draft legislation for cyber laws, the bill has yet to be introduced.
Does computerisation help banks in prevention and early detection of frauds? Broadly speaking there are (a) frauds in non-credit areas and (b) frauds in credit areas. In non-credit areas, frauds relate mainly to fraudulent encashment of cheques, withdrawal slips, refund orders, demand drafts, bankers cheques, misappropriation, as also fraudulent transactions entered by the bank’s staff in the branch books. Computerised systems will help in prevention, as also early detection, of frauds which will save banks precious funds.
There are those who want to observe secrecy regarding wilful defaulters. In my view it is better that such people are exposed so that the public knows who they are and their role in the growth of the non performing assets in our banking sector to the tune of Rs 45,000 crore. This might also help the public understand the paradox of sick industries but healthy industrialists. They fall sick only when the CBI raids them. A greater transparency in transactions can help reduce the scope for fraud.
A fraud essentially involves either individual initiative or collusion among many people. On this, I am reminded of what a banker once said. He was more afraid of the loyal worker than the sincere one. The sincere worker puts in long hours and goes home. But the loyal worker not only puts in long hours, he never takes leave, so he is able to run parallel accounts and play with the system. As such, he can wreak havoc.
One method of minimising frauds is to put in place effective punishment systems. Our legal systems are so dilatory that the guilty often escape and even if punishment is meted out, it takes a long time. Often, the fraudster has so many resources at his command that he can engage the best legal brains to buy his way to freedom. We should rework the punishment regimen and our legal system to ensure speedy punishment to the corrupt and the guilty.
The need for training in computerisation and using information technology for enhancing the level of security in the financial institutions becomes especially important because ultimately, as Oscar Wilde said, the thief is the artist and the policeman only a critic. What computerisation does is provide a means of processing a vast amount of data, which inter alia also give an idea about the modus operandi of fraudsters. Intelligent application of these concepts can help in preventing corruption and fraud.
How can corporate ethics and integrity be nurtured in an organisation. This depends on the people in the organisation. When it comes to individuals, their commitment to ethics depends upon three factors: the individual’s sense of values, what the society accepts as a norm, and the systems which will ensure that the best practices are adopted. In the context of corporate governance, the setting up of external committees such as the ethics committees and the finance committees ensures that the stake-holders’ interests are taken care of. For corporate integrity, at the management level, we can also look at the system. However, when it comes to the social and individual levels, there is not much that can be done. Some corporations can look upon themselves as models which play a role in upholding healthy values. While this is good in itself, at the corporate level, the management challenge is to evolve a system which will inculcate a sense of ethics and corporate integrity. Ultimately, every system is only as good or as bad as the people who implement it.
In the ultimate analysis, the best solution to combat corruption is to practice what the Taitreya Upanishad preaches. Let us come together, let us enjoy together, let our strengths of knowledge come together, let there be light, let there be no poison of misunderstanding or hatred. Then we will achieve success and peace. That way lies progress.
Sahanavavatu sahanaubhaunaktu sahaviryam kara va vahai
Tejasvinam aditamastu ma vid visha vahai, om shanti shanti shanti