Corruption, a Critical Obstacle for Social Development

Mr. Chairman, Ministers, Ambassadors, distinguished delegates, thank you for inviting me to join you in discussing the impact of corruption on social investment and development.

President Bush said in 2001, “The corruption of governmental institutions threatens the common aspirations of all honest members of the international community. It threatens our common interests in promoting political and economic stability, upholding core democratic values, ending the reign of dictators, and creating a level playing field for lawful business activities.”

Now that the nations of our hemisphere have embraced democracy and free trade, we must address the single greatest factor limiting development. The World Bank has identified corruption as “the single greatest obstacle to economic and social development.” I would like to look first at the problem of corruption and its impact on poverty. Then, I will briefly review the U.S. system for combating corruption, and last mention some of the global efforts being undertaken to fight corruption across borders.

Corruption costs a family of four as much as sixteen hundred dollars a year in this hemisphere. One third of the population of this hemisphere still lives on less than two dollars a day, despite the natural wealth of this region and its people. Eighty percent of Latin Americans, according to the 2002 Latinobarometro survey, believe corruption has increased.

Corruption directly harms the people of the Americas, most dramatically the poor. Studies by the World Bank show that increased corruption causes infant mortality rates to rise, lack of rule of law reduces literacy rates, and lack of accountability harms per capita income. If the countries of the Americas are to grow and develop in accord with their potential, corruption must be reduced.

The citizens of those nations suffering from widespread corruption will not have the chance to reap the benefits from the Free Trade Area of the Americas. We should not allow the benefits of free trade to accrue to criminals rather than the people.

World Bank studies also indicate that corruption can reduce a country’s growth rate up to one percent per year. Corruption reduces economic growth in a number of ways. It discourages investments and diverts public funds away from social expenditures. IMF data reveals that the investment rate in corrupt countries is almost five percent less than in countries that are relatively corruption-free. Other evidence indicates that higher levels of corruption are associated with less spending on education.

Small enterprises are hit particularly hard by graft and misrule. Cross-country data of twenty-two transition economies showed that small enterprises pay, on average, more than twice as much of their annual revenue in bribes than do large firms. These bribes undercut the capacity of small businesses to act as engines of growth.

Corruption undermines the institutional foundation on which economic growth depends. Corruption lowers the quality of public services and infrastructure, distorts government spending decisions, decreases tax and customs revenues, and damages confidence in the rule of law.

Corruption undermines confidence in public institutions and exacerbates budget problems. Former U.S. President Grover Cleveland had as his motto, “Public office is a public trust.” When officials abuse that trust, democracy suffers. Corruption tears at the fabric of democracy itself.

We must focus on prevention, detection, and prosecution of corrupt activities, because the battle against corruption is never over, never won. The Government of Korea called it “unending war.” The United States has, of course, had its own scandals and still fights impunity around the country. But if you look at how the United States has handled those scandals, you see what rule of law can do. Because the U.S. can lift parliamentary immunity, a congressman was tried, convicted, and expelled from Congress. Because aid programs have significant oversight, charities have identified corrupt directors and fired them. Because we have forensic auditors to take apart financial statements, Arthur Andersen was convicted of obstruction of justice. Because we have protections for whistleblowers, the FBI is investigating corruption in a state government. And because we do not allow impunity, a former state lawmaker has been given the option of surrendering the proceeds of corruption he hid overseas or going to jail.

The United States system provides a carefully coordinated and decentralized checks and balances approach, to prevent, detect, and prosecute the corruption of officials.

To successfully prevent corruption, each branch of the United States Government – Executive, Judicial, and Legislative – must dedicate resources to the education of its employees about ethics codes and standards. The offices provide training and advisory support for all employees on policies related to preventing conflicts of interest.

To successfully detect corruption, the United States Government divides investigative responsibilities among all branches of the federal government. This assures that the entire system cannot be damaged by a single official.

To successfully prosecute corruption, the United States has centralized the authority to which violations of federal criminal laws by public officials shall be reported. The Federal Bureau of Investigation and the Department of Justice are empowered with responsibility for review of the information. We also centralize the prosecution of cases under the Foreign Corrupt Practices Act, which are brought against private sector firms and individuals.

Statutes prohibiting corrupt acts are enforced through actions taken by prosecutors in cases tried in an independent judicial system, at both the state and local levels of government as well as federal.

The United States is continuously enhancing government procedures to promote transparency and ensure a fair and consistent procedure for all its activities. All citizens can access information, initiate the process to adopt or amend laws or regulations, competitively bid for government contracts, obtain a business or personal license, ensure judicial proceedings are properly conducted, and determine whether their hard-earned tax dollars were spent properly. Citizens also have the right to directly sue government officials for violations of their rights.

Although high-ranking United States officials, such as the President, judges, and state members of Congress, enjoy some immunity from suit for official activities, they are not immune when they engage in illegitimate actions or abuse of power. They are subject to civil penalties and criminal prosecution when they break the law. At the federal level, no elected or appointed officer or employee of the government is immune from prosecution. Though each state in the United States is free to determine its own immunity laws, ethics and enforcement measures exist on those levels as well.

Public corruption in the United States potentially affects every branch of government at federal, state, and local levels. Although corruption among public officials is rare, there are still individuals who abuse the system for personal gain, but the systemic corruption of certain government institutions that was once a feature of federal and local government in the United States is now extremely rare. The vast majority of corruption offenses in the United States involve small groups of individuals. In 2000, federal prosecutors indicted approximately seven hundred fifty federal, state and local public officials for public corruption-related offenses and over two hundred fifty private individuals and businesses for participating in such offenses.

The anticorruption regime in the United States mirrors a major principle of our Constitution -- a decentralized system based on checks and balances to maintain integrity. At the federal level, many institutions exist to prevent corruption from happening in the first place. These include our system of Inspectors General (who are responsible for reviewing agency actions and receiving allegations of corruption), our Office of Government Ethics (which oversees financial disclosure systems for public officials and ethics codes and standards), and our system of ethics officers within each federal agency.

We have numerous federal statutes and regulations prohibiting corrupt activities. Some federal statutes governing public corruption at the federal level include those prohibiting active and passive bribery; prohibiting any officer or employee of the executive branch of the United States or certain other individuals from engaging in conduct that would constitute a conflict of interest; prohibiting any officer or employee of the executive branch of the United States or certain other individuals from receiving, and any person from paying, a supplement to his or her official salary from anyone other than the government, subject to certain exceptions; prohibiting any person from paying another or accepting payments to use his or her influence to procure any appointive office or official position; prohibiting any candidate for public office from promising to use his influence or to appoint any person to a public or private office in exchange for their support in the election; and prohibiting any person from promising any public post or government contract or other benefit in exchange for political activity in connection with any election to any political office.

Combating corruption is a high priority for the United States. Responsible government stewardship – governmental integrity – is essential to achieving all the U.S. government’s key goals in the hemisphere. We have a unique opportunity to work with the hemisphere to defeat this problem, and we are capitalizing on this political and popular will to go after corruption.

The U.S. Government has an Action Plan – a four-pronged attack on corruption throughout the hemisphere that encompasses bilateral efforts, multilateral efforts, joint efforts, and public diplomacy. Our ongoing anticorruption programs include increasing investigatory capacity, supporting secondary education in ethics, technical assistance in extradition and mutual legal assistance, support for the Financial Action Task Forces, and increasing availability of budgets and other financial information on-line, among others. We are working to increase the engagement of the private sector through public-private partnerships and integrity pacts.

As Ms. Donovan noted, the Organization of American States’ Inter-American Convention Against Corruption includes a follow-up mechanism to institutionalize good governance, transparency, and anticorruption laws. The U.S. actively supports this effort.

When we are sure that individuals are engaging in corruption, we will take all efforts to make sure they do not benefit from U.S. law, policy, or assistance. We will deny the corrupt entry into the U.S. as appropriate under the law. We will also work closely with other nations to recover assets stolen by the corrupt and to return the individuals, and their ill-gotten gains, to the country they fled. This is a policy we call “no safe haven.” The G-8 has committed itself to advancing no safe haven. In the recent declaration of the Evian Summit, the leaders agreed, “We will each seek in accordance with national laws to deny safe haven to public officials guilty of corruption, by denying them entry when appropriate, and using extradition and mutual legal assistance laws and mechanisms more effectively.”

The United States Government also joined with one hundred twenty-two other nations in May at the Third Global Forum on Fighting Corruption and Safeguarding Integrity. Through the final declaration, those nations committed to ensuring the independence and integrity of the judiciary, strengthening countermeasures against private sector corruption, using information technology to increase transparency, and supporting the efforts of the media and civil society, among other things. We are pleased to note the Fourth Global Forum will be held in Brazil in 2005.

The United States also fully supports and is actively engaged in the efforts within the United Nations to negotiate a comprehensive and effective Convention Against Corruption, scheduled to be signed in Mexico in December of this year.

This is a broad, multifaceted agenda. It is difficult to grasp the nature, extent, and solutions to corruption, but the situation is far from hopeless. Through active and engaged civil society, a free and responsible press, and increased mutual legal assistance, the places where the corrupt can hide are becoming fewer, and the voice of intolerance stronger. I hope that we will use this forum to share the successes around the hemisphere – and there are many – to enhance the ability of every country to combat this scourge.

Attorney General Ashcroft, speaking at the Second Global Forum, said, "Corruption is no longer seen as an accepted cost of doing business; it is no longer tolerated as an unavoidable aspect of government. It is now widely recognized that the consequences of corruption can be devastating: devastating to economies, devastating to the poor, devastating to the legitimacy and stability of government, and devastating to the moral fabric of society." This change in perspective is the harbinger of a future where the corrupt and those who corrupt them will be treated simply as what they are – petty criminals, who will have to face the consequences of their actions in a court of law, just like the thieves, vandals, and grifters that they are.

Thank you.