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Everywhere & nowhere: forensically analysing grand corruption

Kris LasslettKRISTIAN LASSLETT | The Tokaut Blog | Extract

You can link to Professor Lasslett’s complete article here

THE problem with corruption in PNG, at its most grand levels, is that it is everywhere and nowhere.

Its morbid symptoms are apparent for all to see, but the particular mechanisms through which the disease of corruption infects governments and markets, and disables the body of the nation, proves difficult to observe, owing to its secretive nature.

Yet in order to fight corruption effectively, we need to answer elementary questions relating to its core characteristics.

For example, what type of corrupt transactions are most common and damaging in PNG, who are the participants, what motivates them, how do they make their illicit gains, what do they spend it on, and which institutional structures permit these illegal activities to take place?

Despite the difficulties associated with observing corruption, we can still pull together enough credible data from the civil and criminal courts, commissions of inquiries, national audits, public account committee hearings, Ombudsman Commission reports, and independent research, to formulate hypotheses on these different dimensions of the corruption problem, for testing and refinement.

And, in this respect, there is one general thread that runs through a vast range of corrupt schemes observable in PNG, whether it be rigged tenders, land fraud or sham litigation – they employ, on the surface, a range of legitimate commercial/legal transactions, to cloak what is in fact crude theft from the public purse.

Often a real service is provided, for example a road is built, or expert advice is provided to a government department. However, the primary commercial motivation of the corrupt parties involved in these transactions is not to profit from providing the contracted good or service, at say a 10% rate of profit. The real motivation is to use the contract as a front, behind which a deal is rigged, that allow costs to be inflated well beyond market value, leading to substantial returns.

In this context the 10% rate of profit is small potatoes, when rigging the deal can allow parties to set a price 4 or 5 times higher than the market rate when providing goods and services, or at a much reduced rate when the contract involves the acquisition of a state asset.

Indeed, contracts with government can be rigged by businesses in many ways, to achieve the same end.

For example, government agencies, such as the National Housing Corporation, the Lands Department or State owned corporations, can part with their assets at an illegally discounted rate. The private beneficiary of the contract gets a block of flats, or a major piece of land, for say 1/10th of the market price, while kickbacks are paid to government officials who approve and organise the transactions (10% of the asset value is often pointed to as the approximate commission paid to corrupt officials). The private beneficiary can then flip the asset on the market for a quick profit, which can be augmented further through improvements to the illegally acquired asset.

A similar logic could be observed during the Commission of Inquiry into the Department of Finance. Here legitimate and illegitimate claims for damages against state agencies were grossly inflated by lawyers and private consultants, who then secured government settlements, with state officials receiving kick-backs from the litigants.

Here the cloak of a legitimate civil action was used to do something illegitimate, namely inflate damages, to in effect steal from the public purse.

Arguably, goods and services contracts are the most overt example of this commercial logic. Rigged contracts are awarded to construction firms and consultants, who provide often substandard deliverables – or no deliverables in the case of ghost contracts – at rates far in excess of market price.

No area is off limits. Hospital construction, drugs for patients, handling deceased estates, building schools, these have all proven fair game for corrupt schemes – unlike the Mafia, no “gentleman’s” code of conduct exists, declaring certain social sectors off limits.

The consequence of this is we have economic actors ostensibly engaged in providing goods and services, ranging from construction of infrastructure, through to legal services, whose primary motivation is not offering a great product, at a competitive price. To the contrary, its about providing a substandard product (cheaply!) as a necessary condition for obtaining the main prize, a grossly inflated contract price.

Accordingly, we often find the epicentre for these rigged transactions are Supply and Tender Boards, where tenders and subsequent awards are deliberated on (in the case of state land, it is Land Boards). Boards can fix tenders, to ensure a certain party with inflated prices wins the contract, or they can allow the improper use of certificates of inexpediencies, which permits contracts to be awarded without tender, owing to an emergency situation. Although such situations are strictly circumscribed in the Financial Instructions, certificates of inexpediency are serially abused by government departments to rig large scale public contracts.

Most often, these rigged contracts are pushed from up high, by Ministers and senior officials. This has a debilitating effect on government business.

State officials and policy makers are not motivated by an ambition, for instance, to achieve development strategy outcomes or to oversee the sound administration of public policy – both are mere tools through which to gain kick-backs, or indeed partake in illicit deals through proxies (or even without proxies, so brazen is the execution of corruption in notable instances).

In other words, the provision of health services or the construction of infrastructure are not tools for achieving policy outcomes – they are the setting for netting kick-backs and rigging inflated contracts. Accordingly, these services are not based on need or quality, they are inspired by the private commercial and political interests of conspiring parties.

So looked at concretely in PNG, corruption inspires substandard markets activity and failed public policy. Meanwhile, the revenues earned by the state through taxation – often through exploiting non-renewable resources – and receipts on state assets, are stolen through an edifice of legitimate commercial deals that conceal a rotten core.


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True! The processes & procedures are there but so much abused.

Carlos Sangul

Such a very intriguing read but thorough indeed.

Prof. Lasslett is on point here, he spells out the true pandemic disease deteriorating the public service. However, these also sounds very much like how Boomarang aid worked previously - weren't the public service exposed to crude theft long before, and now using the same techniques to their advantage on their own....

Philip Fitzpatrick

So the solution is fairly simple - fix the public service.

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