Fighting Corruption in on the Transnistrian
Border: Lessons from Failed
Anti-Corruption Programmes and New
Successful Programmes
Bryane Michael,
Mariya Polner (EUBAM)
Preprint version of Review of Eastern and Central European Law 34(1).
Overview of the Transnistrian Region
Estimating the Level of Corruption
Problems
of Anti-Corruption Legislation and Action Planning
Absolute Integrity and Risk Management
The Optimal Location of Anti-Corruption Authority in an Executive
Conclusions and Unresolved Questions
Abstract
In 2007, both Moldovan and Ukrainian authorities took firm steps to
reduce corruption along the Transnistrian border. This paper – aimed mainly at
anti-corruption practitioners and scholars in public administration – discusses
the background and underlying principles guiding the anti-corruption work being
adopted by both governments in order to facilitate discussion about optimal
anti-corruption programme design. This paper presents a set of tools used
during the planning phase of the anti-corruption programme -- outlining the
methodology used to assess the extent of corruption on the Transnistrian
border, the problems of legislative transplants, a “contract test” for defining
corruption offenses, a method of risk analysis, and a model of optimal
anti-corruption programme organizational design.
THIS PAPER IS A DRAFT AND DOES NOT REFLECT THE VIEWS OF THE PARTIES
MENTIONED IN THIS PAPER.
Fighting Corruption in on the Transnistrian
Border: Lessons from Failed
Anti-Corruption Programmes and New
Successful Programmes
Bryane Michael,
Introduction
Government
services in both
 |
 |
This
article attempts to provide an academic background on practitioner work in
designing an anti-corruption programme at the Transnistrian border – allowing
the reader to “look under the hood” of an anti-corruption programme and see
some the academic considerations in anti-corruption programme design.[3]
The first part of this article will provide an estimate of the scale of
corruption along the Transnistrian border – showing an economic methodology
used to estimate corruption in two particular services – border guard and
customs -- in
This paper
discusses the fight against corruption focusing on two specific government
services – the border guard service and customs service – in
Overview of the Transnistrian Region
The Transnistrian area is situated along a significant
proportion of the Moldovan-Ukrainian border. In 2006, more people and goods
flowed from
 |
 |
The red area in Figure 5 represents
the area disputed between the Moldovan government and the authorities of the
Trannistria based in
Irregardless of Transnistria’s diplomatic position, the existence
of this semi-regulated territory wedged between
Estimating the Level of Corruption
Corruption,
particularly the payment of bribes, occurs when a private individual interacts
with a government official.[8] Such
interaction with government officials in the Transnistrian region primarly
occurs as border crossers interact with customs officers or border guards.[9]
Customs services in
From the reports and survey information available, corruption affecting the particularly affecting the Ukrainian/Moldovan border is relatively modest by national standards (though excessive by European Union standards). While direct measurement of corruption is difficult, indirect measurements are often used to point out obvious problems with customs and border guard service delivery – as corruption is often either a symptom of poor service delivery, or concomitant with poor service delivery. Slow and unhelpful administration often results in corruption. As shown in Figure 5, roughly 30% of Moldovan respondents in a business survey reported by Carasciuc (2005) noted that they had to give a bribe every time they crossed the border (with roughly the same amount of respondents noting that they never need to pay bribes). In exchange for those payments, as shown in Figure 6, the majority of border crossers received faster processing times, and one-third received a “better” classification of goods. More worryingly, in 14% of the cases, business representatives faced coercion – having “no other choice” but to pay bribes.
 |
 |
Survey data covering trade-related corruption among Ukrainian business people are much more difficult to obtain.[10] Figure 8 shows popular perceptions of corruption in a number of government services.[11] As shown in the Figure, 64% of respondents think that corruption represents a “serious” problem (as stated in the survey) whereas almost 80% of respondents thought corruption in hospitals represented a serious problem.[12]
Corruption
has a negative impact on both public revenue and economic development.
According to the Carasciuc (2005) study, in
Indirectly,
the level of corruption can be estimated from the level of trade between Moldova
and Ukraine as well as estimates from businesses about their “bribe tax” (or
the proportion of the value of their trade and/or sales) which is collected in
the form of bribes – 20% of firms estimate that 2% of the value of their trade
is subject to a “bribery tax.”[13] Given
a base of $480 million in exports from
These
estimates, however, underestimate the extent of corruption along the
Ukrainian-Moldovan border, because they do not take into account unreported
activities (either persons crossing the border to the value of goods not
reported in the official statistics). In order to estimate corruption involving
these unreported activities, corruption “risk” needs to be calculated as the
probability of each unreported event occurring multiplied by the number of
times it occurs.[15] Taking
Carasciuc’s (2005) estimates of the average bribe level for customs and border
guard officials, and other estimates related to the proportion of
under-valuation of goods at least $30
million in trade taxes is not collected by Ukrainian officials for goods
from
Some
corruption is most likely tied to illegal activity.[17]
Figure 10 provides a brief rough estimate of the scale of corruption tied to
black market activities related to the traffic in illegal narcotics, weapons,
and the humans. According to publicly available sources, the total estimated
amount of heroine flowing through Ukraine in destination to Western European
markets is 23.1 metric tonnes at a market price of $78 per gram results (with
roughly 1 million grams per ton) in a market value transited through Ukraine of
$1.8 billion.[18] If the
bribery tax previously referred to covers illegal transit of narcotics, then
the value of these bribes equals $18
million. With regard to arms, estimated that, in the 1990s, roughly $5.3
billion in arms leaves the
Figure 10: Contraband and Estimated
Corruption Value
Sources
where cited. Estimated bribe revenue derives from World Bank estimates of the
“bribe tax” previously mentioned in the text. Data are unavailable for
The economic logic underpinning these specific
calculations is described in Figure 11. However, the economic impacts are much
larger in a number ways. First, the reader having taken a course in
international economics will immediately recognize that the bribe serves as a
trade tax – decreasing wages in
Figure 9: An Economic Calculation of Corruption
along the Transniestran Border
Estimates involving the value of corruption in international trade are always difficult to obtain because parties to corruption have little incentive to disclose their activities to third parties. However, approximations can be made.[20] For example, as previously noted, survey data (from World Bank (2003), can reasonably reliably estimate the value of traders’ goods paid in bribes. A “bribe tax” (denoted by b) may affect a value of normal consumer goods flowing across a border in any particular year (Xt).[21] While the payment of bribes is an obvious economic harm to traders (though from an economist’s point of view, bribes often represent a simple redistribution of national income). Bribes are often paid, following economic incentives, to provide traders with an economic advantage – such as lower taxes which result from under-valuing or mis-categorising goods. If Xt represents the true value of goods and Xr represents the reported value of goods, then the State budget clearly loses the tax (t as expressed as a percentage) of the difference between the reported value and the true value.[22]
However, the real harm to corruption at the border occurs for two reasons. First, the value of production may be affected as traders divert a fraction of their overall production into other activities (d) – as businessmen substitute out of activities where bribes are sought and into other economic activities. Offsetting this loss are the gains from faster trade and lower taxes which encourages producers to increase by a fraction their production (c). Second, corruption in legal goods (like potatoes) often encourages – or at least occurs in parallel with -- trade in illegal goods (like contraband). If q represents fraction of contraband goods which are traded in relation to normal consumer goods, then the total loss to budget (as these goods as are not taxes) is qXt.[23]
Combing these terms results in an overall estimate for the loss due to corruption at:
Corruption Loss = bXt + t(Xt – Xr) + (d-c)(X*-Xt)
+ qXt
Of course, this estimate does not incorporate the
social and other harms often referred to by academics and policymakers.
Problems of
Anti-Corruption Legislation and Action Planning
In Central
and
A large amount of donor assistance has been committed by foreign donors – particularly USAID and the OECD – aimed at improving the quality of anti-corruption legislation in both countries.[26] Judging the quality of legislation is difficult – particularly in the area of anti-corruption where no set of practices has been shown definitely to be more effective than other practices.[27] However, an obvious metric by which to assess the quality of legislation and/or implementing regulation must depend on its purely technical aspects. Following Michael (2004), one way of assessing the quality of anti-corruption legislation and regulations depends on its specificity and relevance. Specificity refers to the extent to which legislation refers to concrete practices instead of abstract principles and answers the 5 journalist questions (who is affected, what is involved, when are actions to be carried out, and how are these activities to be undertaken). Second, in both the practitioner and academic literature, a very wide array of factors have been linked to the level of corruption in an administration (from the motivation of staff to national culture). Yet, some factors relate more directly to fighting corruption – as opposed to other areas of activity such as civil service reform – and thus are classified by their relevance to the anti-corruption programme.
Figure 11
provides an assessment of the national anti-corruption action plans. As shown,
the quality of the actual legislation seeking to prevent corruption is
relatively immaterial because the plans aiming to implement the law are highly
non-specific and irrelevant. In the case of
Figure 11: Assessing the Quality of Anti-Corruption Action Plans
| Region | Specificity |
| Ukraine | 2.3 |
| Moldova | 3.9 |
| Kosovo | 1.8 |
| Romania | 2.6 |
| ADB-OECD | 1.9 |
| OECD/Istanbul | 1.4 |
Source: author. (one is lowest score
and five is highest). See Michael for a detailed
computation of these scores and a
further discussion of the methodology.
An obvious – though wrong – implication of this discussion is that anti-corruption legislation and implementing regulations need to be strengthened. However, the adoption of anti-corruption conventions and work on national anti-corruption programmes do not correlate to more effective action against corruption. Stevens and Rousso (2003) – using econometric analysis – investigate whether the adoption of anti-corruption legislation affects the level of corruption in country (as proxied by individual’s perceptions of the level of corruption). They specifically define three variables aimed at measuring the legislative environment surrounding the fight against corruption. First, they measure the adoption of “omnibus” activities (the adoption of a national anti-corruption which involved NGOs and multiple branches of the executive), the development of a national anti-corruption action plan, and the creation of an anti-corruption agency. Second, they measure the ratification of legal frameworks, specifically a civil service law, a financial disclosure law for civil servants and/or politicians, a freedom of information law, a law on political party finance, and an anti money laundering law. Third, they measure membership to international conventions including the Stability Pact, the OECD Convention and the Council of Europe’s four conventions against corruption. Figure 12 shows some of the many variables in their analysis – pointing to the fact that legal adoption has a statistically significant correlation with reductions in perceived corruption—though the adoption of national action plans or work in international consultative committees does not.
Figure 12: Selected Regression Coefficients
from Stevens and Rousso (2003)
Such results are worrying because the adoption of
national anti-corruption laws, especially those which criminalize corruption
offenses as recommended by conventions promulgated by the OECD and the Council
of Europe are often used as a measure of the strength of anti-corruption
legislation. These conventions call for the establishment of criminal rather
than simply administrative or civil liability for corruption offenses by civil
servants. Ostensibly, the more severe criminal remedies -- proposed by model
laws such as the OECD Convention -- provide greater deterrence for engaging in
corruption. While implementation of the criminal responsibility foreseen in the
OECD Anti-Corruption Convention (and thus the acquis communautaire) is laudable, criminal responsibility for
corruption may reduce the incentive to investigate and prosecute cases of
corruption in
However,
the adoption of the OECD Anti-Bribery Convention by
In both
Figure 13: The
Definition of Corruption and the “Contract Test”
The definition of
corruption has been debated.[33]
While in the 1990s, the standard definition of corruption was “the (mis)use of
public power for private gain”, more recent definitions – particularly
promulgated by the international non-governmental organization Transparency
International -- have encapsulated “the misuse of entrusted power” either in
the public or private sector. Such a definition has gained a large amount of
credibility in policy circles given Transparency International’s large PR
activity and close relationship with a number of international organizations
and national governments.
Such a definition of corruption should be avoided for three reasons.
First, such a wide definition of corruption subsumes every possible form of
deceit, deception, or conflict between persons – thus providing no definition
at all! Second, the nature of the principal-agent relationship is completely
different in the public as opposed to private sector. A civil servant is
delegated authority by the entire society, through a political process – making
infractions crimes against the body
politik. A private individual enters into a formal or informal contract in
a company or NGO, whereas the agent serves one or more principals – making
infractions torts against private persons. Third, a definition of corruption should
serve a specific legal function. Adequate legal definitions exist for the
misuse of entrusted power in the private sector – as defined under fraud,
theft, and other tort and/or criminal offenses. Until the mid-200s, the field
of anti-corruption treated matters relating to the use of public power for
private gain and the field of corporate governance treated matters relating to the
misuse of entrusted resources in a private setting.
If corruption is defined as the use of public power for private gain,
the obvious question is whether gift-giving does (or should) constitute a
corruption offense. In developing countries, gift-giving is an entrenched part
of many types of interactions between civil servants and private individuals.
Such gift-giving can help augment low civil servant salaries and provide
incentives for more efficient service delivery (in a highly regulated civil
service environment where civil servants often have few high-powered incentives
to work hard). In order to help civil servants move away from a dogmatic
definition of corruption, a simple test may help civil servants – and the
members of an Internal Security Department or Ombundsman institution– define
the difference between a gift and a bribe. The test consists of two parts:
1. Has an extra payment been made for the quantity, quality, speed,
friendliness and informativeness of a service which the service user has an
administratively defined right to?
2. Was the ex-post delivery
of the public good or service made on the ex-ante
expectation of an extra-payment?
If the answer to both questions is affirmative, then the transaction
involves corruption and if the answer to both questions is negative, then the
transaction involves a legitimate gift.
Absolute Integrity and Risk Management
The
response to fighting corruption in many countries has been to increase the
amount of anti-corruption regulations. These regulations increase the amount of
reporting which civil servants do – creating an “audit culture” which serves to
demonstrate probity instead of supply public goods and services.[34]
Both Moldovan and Ukrainian border guard and customs services have adopted a
wide range of measures to fight corruption including the dissemination of rules
against taking bribes, psychometric testing of staff to test for psychological
pre-dispositions toward corruption, bans on pocket money and the use of a
personal mobile phone during working hours, and increased oversight of all
staff by newly formed departments for Internal Security. With anti-corruption
aid to both countries from the
Yet, the pursuit of “absolute integrity” in Ardy's words, may harm the public administrations of both countries more than it helps them. First, each regulation increasingly distorts the action of civil servants and creates incentives to contravene these regulations. Second, these regulations costs money to create and to enforce – resulting in an often repeated case where grants of equipment and regulations (“developed through consensus with key stakeholders in order to promote participation and build political will”) lie unused after the donor team returns to headquarters. Third, regulations of this kind of deincentivise staff – resulting in work effort losses which are greater than the harms from petty bribery. Simply put, an anti-corruption regulation should be put in place when:
marginal marginal marginal marginal
loss from corruption > creation
of rents + cost of enforcement + reduced work
effort . [35]
Instead of seeking to establish rigid rules, a system of guiding principles (such as the “contract test” previously referred to) and a system of random audit should be conducted for four reasons. First, controlling all goods goes against the basic tenants of economics (particularly those involving the gains from trade) as well as the principles enshrined in the European treaties. Second, a properly designed random audit will detect the same proportion of offenses as 100% inspection. Third, random audit frees up resources to be used for investigation. Indeed, an inverse relationship normally exists between inspection breadth and quality – namely the higher the percent of people or goods inspected, the lower the quality of the inspection.[36] Fourth, (as previously mentioned), regulations potentially result in the creation of rents – thus reductions in regulations often result in decreases in incentive to seek bribes.
Such a
stratified random sampling procedure divides people or goods into similar
groups representing similar risk levels -- for example all consignments from
In order to detect cases of corruption, service staff can also undergo stratified random sampling and audit. As shown in Figure 15, the border guard or customs service staff may randomly audit differing strata of border crossers. Similarly, the Internal Security department may randomly audit service staff – based on the expected probability that they might be involved in corruption offenses. Naturally, the risk of service staff being corrupt is tied in some way to the probability that the people they are controlling are involving in legal infractions. Thus, the two tiered system described in Figure 15 addressed both regulatory risk as well as corruption risk.[39]
Such a risk management approach is increasingly common practice in the European Union. However, as government efficiency is higher in other countries, Ukraine and Moldovan Internal Security services need to play a developmental as well as supervisory function – by auditing for better performance as well as the possibility of corruption…as an Internal Security Department which seeks only to control corruption will have difficulties generating enough public value to continue.[40] Such activities could include Ombundsman’s functions, the regular conduct of service delivery surveys and training.
The Optimal Location of Anti-Corruption Authority
in an Executive
Since the late 1990s, the international donors have
financed work on the establishment of anti-corruption co-ordinating councils or
agencies in a number of countries including
Yet, the large variation we observe around the world in centering anti-corruption activity suggests that the optimal organizational structure for fighting corruption remains an open question. Figure 17 shows the various possible organizational forms for fighting corruption – and stylized facts do not point to the efficiency of one form over another.
Figure 17: Various Anti-Corruption
Organisational Arrangements
|
Lead Ministry |
Work as Lead |
Pros |
Cons |
|
Ministry of Interior |
In
many countries, investigators are responsible for ensuring successful
prosecutions of corruption. |
Strong
competencies in enforcement, can ensure case management |
Excessive
law enforcement |
|
Ministry of Justice |
Inspired
by Italian experience, the courts and judges as main bulwark against
corruption |
Can
change laws and prosecute cases as own-competence. |
Excessively
legalistic perspective |
|
Ministry of Economy/Development |
Responsible
for overall framework and incentives |
Ensures
root economic incentives for corruption removed |
No
competencies in investigation or prosecution |
|
Office of Prez/VP |
In
corruption ridden administrations, president’s office takes AC as political
promise and ensure clean government. |
Ensures
co-ordination and senior level political will |
Work
is politicized and changes with each administration |
|
Army |
Army
upholds the interests of the State even when Government weak |
Strong
power potentially independent of the government |
History
of human rights violations. |
|
Each service responsible for self |
Each
service, often with Internal Security department, ensures own integrity. |
Each
service responsible for self Knows
own problems best and can tackle at lowest level |
Significant
duplication of resources and overlap |
|
ACA |
These
bodies centralize work on AC and look only at public servants. |
Ensures
centralization of AC knowledge and competencies |
Shifts
responsibility to “someone else” |
|
Co-ordinating structure |
Consists
of representatives of several agencies meeting together reguularly |
Balances
specialization with integration |
Everyone
(thus noone) responsible |
|
Private company or NGO |
Works
as “island of integrity” completely outside of a corrupt government. |
Can
ensure integrity when whole public service corrupt |
Authority
delegated by government…no legitimacy |
However, theory provides a guide for thinking about the optimal organization structure for anti-corruption work.[41] Transaction cost economics argues that integration should occur between organizations – or organizational units – as the cost of writing, performing on and enforcing contracts between organizational units increases.[42] Such an effect militates for organizational integration because marginal benefits increase (to a point) as the centralization of anti-corruption activity occurs – cases do not need to cross departments or ministries and information can be shared more easily. Such an effect is shown as an upward sloping line in Figure 18a and labeled as a transactions cost effect.[43] On the other hand, several salient results from organizational theory point to the benefits from specialisaton of labour and tasks. Authors such as Kogut and Zander (1992) representing this tradition argue that integration serves only to combine competencies – and the development of these competencies in themselves should be left to specialized organizational units. In this view, as anti-corruption work becomes more integrated, the specific learning from each ministry decreases and the marginal benefits of such integration decrease as integration occurs. As shown in Figure 17a, such a capabilities effect is traced as a downward sloping line. The degree of integration of anti-corruption work should be at the point at which the marginal benefits from integration equal the marginal benefits from decentralization results in the optimal organizational structure for anti-corruption work.
Naturally the factors underlying these transaction cost and competencies effects may change over time – or vary from country to country. Looking at the resulting changes to the marginal benefits of integrating anti-corruption work as underlying factors change results in changes to the optimal degree of centralization of anti-corruption activity. Figure 17b shows the results when underlying conditions change/differ. For example, if transactions costs change (political factionalism increases or a data protection act is passed which hinders the sharing of data across departments), then anti-corruption work should become more centralized. If competencies effects change – such that each department becomes better at developing and using anti-corruption knowledge), then the optimal amount of anti-corruption activity integration decreases.
While Figures 17 and 17b are purely illustrative, they
provide intuitions needed to solve the problem of organisatonal structure in
Conclusions and Unresolved Questions
In some ways the experience over the last 20 years in
Central and Eastern Europe provided useful cases of what not to do in
Yet, the Transnistrian situation poses a particularly new
situation for anti-corruption programme design for two reasons. First, the
literature lacks models of public administrations in which one or two services
can achieve dramatic decreases in corruption when the entire public sector
management environment is corruption-ridden. Thus, work on the Transnistiran
border will provide a useful case study for further work looking at
department-specific dynamics of corruption. Second, the literature lacks
convincing models of corruption which spills over from foreign territories – as
corruption appears to do from the Transnistrian region into both
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