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Financial Corruption is the World's Biggest Problem

In interviewed Huguette Labelle, former head of the Canadian International Development Agency in Davos last week about her thoughts on the world's number one issue: "Corruption kills," she says. "The World Bank estimates that the cost is $1.3 trillion a year. This is in the form of bribes, tax evasion, money laundering."

Huguette Labelle has had a distinguished career as a civil servant in Canada, as a federal deputy minister then as head of the Canadian International Development Agency (CIDA) for six years. Since 2005, she has been Chair of Transparency International in Berlin, a non-governmental organization that monitors and publicizes corporate and political corruption. She spoke with Diane Francis at the World Economic Forum in Davos last week about the organization and the issue of corruption which has risen to the top of the geopolitical agenda, sparking the Arab Spring, Indian Summer, Chinese protests, Occupy Wall Street, and Russia's anti-Putin movement.

Q. Why is corruption such a big issue?

A. Corruption kills. The World Bank estimates that the cost is $1.3 trillion a year, but who knows. This is in the form of bribes, tax evasion, money laundering. Its lethal economically to nations and harms people such as diluting antibiotics or vaccines aimed at poor people so that the distributors can make more money on the side. There's also shoddy construction as a result of bribes by contractors to building inspectors or the use of bad materials or supervision that has caused gigantic buildings, schools, hospitals, and other structures to collapse, killing many.

Q. Corruption has always existed why the backlash today?

A. What happens with corruption is that people know it exists. They live with it and look at the opulence of a minority in their country. They have no jobs, cannot get ahead, and cannot get their governments to listen or help them. The issue simmers then it comes to a boil and the spark is information technology that delivers news in seconds facilitating the creation of a massive movement. These movements also happen when people have nothing to lose anymore.

Q. Will things change?

A. Governments who ignore the pain and desperation lose the trust of their people and are left with anarchy. It's better to prevent this by doing the right things. Governments, elected or not, are there to manage the peoples' resources and money for the common good.

Q. What's bribery and what's not?

A. Sometimes it's obvious: A company or government employee asks or accepts a payment or favour that his employer would not allow. This can be in the form of a request to pay for a child's education in return for a contract. That happens a fair amount and that's a bribe.

Q. Transparency International has done a great job of "naming and shaming" so what are your methods?

A. We do four things. First we do a number of surveys to keep the issue of corruption and transparency at the national and international levels. Second, we work very hard to create conventions -- the Organisation for Economic Co-operation and Developmen (OECD) which covers bribery and the UN Convention against Corruption that 159 countries have signed and includes a list of requirements they must meet.

We also conduct peer reviews among businesses and civil society. Countries that are not corrupt are more sustainable in the long run and we provide them with instruments and systems. If peer reviews are negative, they try and change because otherwise they will become a pariah and be avoided by legitimate businesses.

Q. What are your other tools?

A. We have developed ways to collaborate with the private sector and the public sector which is what I call the solutions part. For instance, we worked with business leaders on integrity and formulated a definition that many organizations have adopted. We've also created the Water Integrity Network (WIN). Water is where a lot of corruption takes place because people are often forced to pay bribes to get access to clean water. They cannot.

We also work with humanitarian organizations such as Care or Red Cross who deliver aid which is often stolen or resold by criminals or government officials. We have developed a source book and materials to train them how to avoid becoming complicit in such fraud.

Finally, we also get directly with citizens to get people to realize they don't have to put up with corruption, what they can do about complaining and what they should demand. There is massive corruption at the local level so transparency and peer reviews are very useful. In Brazil, for instance, the national government publishes where every penny goes, what individuals, companies and other suppliers. This is very important.

Q. What measures can governments take?

A. Countries need to add to their economic crime capacity. If a nation's judges, attorneys, and police are not sophisticated a country won't get to where it should be. Canada has started to do this with the RCMP. In Norway, they spent a great deal of money boosting their economic crime expertise and made a profit doing so. The apprehension and conviction of economic criminals leads to the seizure of assets and proceeds which can be sizable.

Q. Should companies avoid dirty countries?

A. If a company's leadership wants to be clean they can operate in any country. They must simply go ahead and not ask permission to publish everyone they pay. They must be fully transparent and publish all their expenditures and to whom, their royalties and revenues and owners. This can help change the situation in a country.

The article previously appeared in the Financial Post.

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