By 2030 eThekwini will be Africa’s most caring and liveable city

Corruption and its far reaching Effects

Mbuso Ngcobo

Head of CIIU: Ethekwini Municipality

Olufela Olufemi Anikulapo Kuti, aka Femi Kuti

Femi Kuti

• From his album ‘’One People One World’’, Femi Kuti sings:

• Africa will be great again if corruption could stop.

• Equal Opportunity: Kuti sings there should be equalopportunity for all.

• Evil people : Femi Kuti says corrupt leaders are evil people.

• Through his song, Femi Kuti asks ‘’How many times should wesing until people realise that corruption and poverty killinnocent people ?’’

• Femi Kuti says people who get rich through corruption shouldnot celebrate that money, because that money belongs to thepoor.

• Corruption Na Stealing.

Overview

No. Topic

1. Definition of Corruption

2. The Power of the People

3. The Power of the Justice System

4. Corruption related deaths

5. Motivation for corruption

6. Lessons from Singapore

7. Transparency International Corruption Perception Index

8. Global Morality and the Anti-Corruption Initiatives

9. Civil Society, Youth and Societal Mobilisation

10. Challenges faced by Investigators and Corruption Busters

11. How can Investigators be effective and make an impact

12. The Importance of performing investigations with integrity

13. Corruption Watchdogs

14. CIIU

15. Playing Your Part in the fight against Corruption

Definition of corruption

• Corruption is the use of public office for private gain,where a public official entrusted with carrying out thetask by the public, engages in unethical conduct forprivate enrichment.

• An act may not necessarily be illegal for it to beregarded as corrupt.

• Responsibility should be placed with both those whoexert undue influence, and those who are undulyinfluenced.

Forms of corruption

The following are some forms of corruption:

• Political corruption

• Collusion

• Prize Fixing

• State Capture

Political Corruption

• Samuel Issacharoff (New York University) suggests that instead ofselling their political ideologies, politicians nowadays use moneyto direct and/or influence political outcomes. ‘’If money be theroot of all evil, reducing the amount of money in the systemshould be the only natural solution’’.

• Forms of political corruption include vote rigging and vote buying.

• Vote buying has become central to the metaphor of ‘’politicaldisease’’ seen to afflict not only elections, but also society itself.

• In some countries the political system is so corrupt that at timesthe opponents are eliminated, through political killings.

• Consequently the corrupt political system results in corruptand/or incompetent leaders being elected to critical positions ofpower, thereby destroying governance in the state.

Collusion

• Collusion occurs between two or more bidders if they haveoverlapping interests on several licenses and if these biddersagree to allocate these interests such that each bidder wins alicense for a price substantially below what the other bidder iswilling to pay.

Massive Collusion scandal involving Big 4 Construction companies in preparation for 2010 World Cup in South Africa

Price Fixing

• In a price fixing scheme bidders raise their prices above thecompetitive level, but the cost data necessary to estimate thecompetitive price level are rare.

• Section 45 of the Competition Act prohibits price-fixing andother forms of horizontal agreements among rivals by imposingcriminal sanctions on parties to arrangements which undulylessen competition.

Bread Price-Fixing: The case of Tiger Brands

27

State Capture

• State Capture is defined as the undue influence bypowerful private firms to shape state policies and lawsfor their own benefit.

• State capture is the efforts of firms to shape theinstitutional environment in which they operate, andthis is done by influencing the formation of the basicrules of the game through private payments to publicofficials.

State Capture

Allegations of the involvement of KPMG and McKinsey Internationalin State Capture Scandal, South Africa.

Rajat Gupta, former Managing Director at McKinsey International (USA), was sentenced to two years in prison, given an additional year on supervised release, and ordered to repay $5

million for insider trading, on 24 Oct 2012.

Anil Kumar, former Director at McKinsey International, was sentenced to two years for insider trading, on 19 October 2012.

Scott London collecting $50 000 bribe from Bryan Shaw (Jewellery store owner) on 13 April 2013, not being aware that FBI had set up a sting operation.

A German Software Giant, SAP admitted to having paid R130 Million for State Contracts in South Africa - 08/03/2018

Money Laundering

• Money Laundering is the use of money derived from illegal activity byconcealing the identity of the individuals who obtained the money andconverting it to assets that appear to have come from a legitimate source.

• In simple terms money laundering is a process to make dirty money appearto be clean.

• Money also washed through casinos, car wash businesses, buying cattle forcash, etc

Over $9 Million, weapons, jewels and other objects found hidden in church buildings by Jose Lopez, the former Minister of Public Works in Argentina,

14/06/2016.

More money, weapons, jewellery and other objects were found in offices and home of Jose Lopez, the former Minister of Public Works in Argentina,

14/06/2016.

Cash found in the boot of the car for former Minister of Public Works in Argentina, Jose Lopez, 15/06/2016.

Jose Lopez, former Argentinian Public Works Minister (centre), being arrested by the Police for money laundering.

Money Laundering cont.

• Offshore investments also known as Front companiesare businesses established with an objective ofmoving and making money overseas, but paying lowtaxes, also known as Tax Havens.

Money Laundering - Panama Papers Expose’

Founders of Mossack & Fonseca Law FirmJȕrgen Rolf Dieter Mossack (left), and Ramon Fonseca Mora (right)

Panama Corruption Investigation exposed offshore holdings of over 140 politicians and officials from around the world

Report to RSA Parliament

25 May 2016

• According to the report to the Joint Sitting of threeParliamentary Portfolio Committees, SARS indicatedthat it has identified roughly 1700 local citizens whosenames appeared in the offshore records contained inthe Panama Papers.

• According to the report to Parliament the roles playedby the South Africans mentioned in the PanamaPapers, varied from Shareholder to Beneficiary, toDirector.

• The report also said that 56 South Africans served asIntermediaries in setting up off-shore holdings.

Motivation for corruption

Prof Eugene Soltes (Harvard Business School), states thatthere are no convincing reasons why people commitcorruption, and further says that there are a bewilderingnumber of theories about why white-collar criminals‘’did it’’, some arguing that white criminality stemmedfrom psychological aberration and others postulatingthat it might be due to overconfidence or stress.

Still others argue that it is simply as a result of excessivegreed or ambition and many different reasons havebeen suggested by prosecutors, scholars, and the media,but often with little concrete evidence or support.

Corruption associated

with incompetence

Motivation for corruption cont.

• Studies have also revealed that certain people engagein fraudulent or corrupt activities because they believethey deserve more.

• They say ‘’I deserve, therefore I take’’.

The story of Elizabeth Holmes, former CEO of Theranos Health Technology

Group, California, USA. • When Elizabeth Holmes was asked by a family friend what

she wanted to be. She responded, ‘’A Billionaire’’.

• When the family friend further asked her, ‘’Don’t you wantto be the President ?’’, she replied ‘’ No, the President willwant to marry me because I will have so much money’’.

• Later Elizabeth Holmes occupied the position of CEO ofTheranos Health Technology Group.

• On 15th June 2018, Elizabeth Holmes was charged fordefrauding the company over $724 million. She had tostep down as the CEO.

• She never admitted wrongdoing, nor apologised to thestakeholders. She believed she deserved, and thereforetook $ 724 million.

Elizabeth Holmes, former CEO of Theranos Health Technology Group, California, USA.

Consequences of corruption on Development

• Corruption has much the same effect on thedevelopment of a nation, that cancer has on the life ofa human being (Carvajal).

Consequences of corruption on poverty

• ‘’The burden of corruption falls on poorpeople………………..for those without money andpolitical connections, corruption in the public sectorcan have debilitating consequences. Corruption affectsthe lives of poor people through many other channelsas well’’. (The World Bank)

• Corruption increases poverty and income inequality,and always tends to act as a regressive tax on thepoor.

Corruption has left a stain on humanity - Cost of Corruption on health, human rights and Poverty Development,17 August 2015.

UN reported that Haiti ill-equipped to fight corruption (Transparency International Report, 11 November 2016).

South African women warm themselves in the early morning sun outside their shack in Masiphumelele Settlement, Cape Town- Impact of Corruption, Report by Greg

Nicolson.

Impact of corruption on South African women –Sunday Times 24 February 2017

Consequences of corruption on

economic development and socio-political instability

• Corruption has negative effects on investments,economic growth and development.

• Corruption induces social, political, and economic

instability.

Abahlali baseMjondolo protesting against corruption at EthekwiniMunicipality.

Masses marched against corruption in Durban 27 September 2017

Corruption protests South Africa-12 July 2017

South Africans march against corruption 30 September 2015

The Power of the People

• It has become a trend for people all over the world to take tothe streets to show their dissatisfaction about the levels ofcorruption.

• Corruption protests have resulted to the burning ofgovernment buildings and vehicles , and even loss of lives.

• A number of countries have experienced anti-corruptionprotests resulting in corrupt leaders being ousted in favour ofhope for clean governance.

Nacaragua corruption protests April 2018.

Reports revealed that more than 300 people were killed in Nacaraguadue to corruption protests.

Nacaragua declared National Catastrophe, as a result of corruption protests April 2018.

People of Iceland demand the resignation of Prime Minister, Sigmundur Davio Gunnlaugsson, following the allegations of his

involvement in corruption scandals –April 2016

People of Iceland show a united force demanding the resignation of Prime Minister, Sigmundur Davio Gunnlaugsson– April 2016

On 4 April 2016 a record number of Icelanders protested against Prime Minister Sigmundur Davio Gunnlaugsson.

On 4 April 2016 a record number of Icelanders protested against Prime Minister Sigmundur Davio Gunnlaugsson.

On 5 April 2016, people of Iceland attempted to burn Parliament in protest against Prime Minister. The Prime Minister subsequently stepped down amid mounting

public pressure – The Power of the People.

Pakistani people protesting against Prime Minister Nawaz Sharif for his alleged involvement in Corruption - 3/11/2016.

Prime Minister got life ban from politics -16/04/2018- Power of the People.

People of Armenia protesting against corruption 24 April 2018

Corruption protest Leader of Armenia, Nikol Pashinyan, a former Journalist who had been exposing corruption, was elected Prime

Minister, 08 May 2018 – The Power of the People

Power of the Justice System

• A number of public representatives including politiciansand public officials, and powerful business people havebeen convicted for corruption all over the world.

• Trends indicate that Law Enforcement Agencies and theCourts are paying special attention to the behaviour ofpublic representatives, who use their public offices forself enrichments at the expense of the poor.

• We are also observing the same developments in SouthAfrica.

Former President Arnoldo ‘’El Gordo’’ Aleman of Nicaragua, was convicted for corruption involving over $100 million of State Funds and

sentenced to 20 years imprisonment, in 2002.

Schabir Shaik, SA Businessman convicted for corruption and sentenced to two terms of 15 years and one term of 3 years, in 2005.

Former Prime Minister of Ukraine, Pavlo Lazarenko, was convicted for corruption involving over $200 million of State’s Funds. In 2009, he was sentenced to 9 years in prison and ordered to repay close to $32 million.

Bernard Madoff, American former Businessman and Stockbroker, on 29 June 2009, aged 71 years, was convicted for fraud, and sentenced 150

years in prison.

Alberto Fujimori, former President of Peru (1990 to 2000) was convicted for corruption involving over $600 million of State’s funds. In July 2009 he was

sentenced to 7, 5 years imprisonment.

Zine Al-Abidine Ben Ali, former President of Tunisia, was together with his wife Leila Trabelsi, convicted for corruption involving an estimated

$2.6 Billion. He was sentenced to 35 years in prison in 2011.

Former Fidentia Chief Executive J. Arthur Brown was sentenced to effective 15 years in prison for fraud and asset misappropriation -

01/12/2014.

Christo Scholtz, CEO of Trifecta Holdings (Pty) Ltd (left) and John Block, former MEC for Economic Development and Finance in the Northern Cape (right), were each sentenced to 15 years imprisonment for corruption on 6

December 2016.

Nelson Mandela Bay Councillor Bongo Nombiba was sentenced to 5 years for Fraud and Money Laundering-

26/04/2018

A Multi billionaire Businessman Francisco Correa (left) and Luis Barcenas (right), Treasurer of a Spanish governing party and a powerful politician, were given 51

years and 33 years, respectively, in prison by Spain’s High Court for their involvement in massive corruption scandal – 24 May 2018.

Nawaz Sharif , Former Prime Minister of Pakistan was convicted for corruption and sentenced to 10 years in prison, and fined $10.6 million

on 6 June 2018.

Former President of South Korea, Park Geun-hye was convicted for corruption and sentenced to 24 years in prison. On 20 July 2018, she was

further sentenced to 8 more years for additional corruption charges, which translated to effective 32 years in prison.

Former Vice President of Argentina Amado Boudou was sentenced to 5 years and 10 months in prison for corruption on 07/08/2018.

Corruption related deaths

• Studies have revealed that a number of people,especially political leaders have died of heart attackduring court hearings of their corruption cases orimmediately after they have been convicted forcorruption.

Slobodan Milosevic, former President of Serbia/Yugoslavia was charged for corruption involving over $1 Billion of State’s Funds. He died of heart attack in March 2006 before the conclusion of his trail.

Mohamed Suharto, former President of Indonesia, was charged for corruption involving close to $35 Billion of State’s Funds.

He died of heart attack in 2007 before his case could be finalised.

Former National Police Commissioner, Jackie Selebi, was convicted for bribery and corruption in 2010 and sentenced to effective 15 years in prison.

Jean-Claude Duvalier, former President of Haiti, was charged for corruption involving over $800 million.

He died of heart attack in 2014 before he was sentenced.

Former Russian Anti-doping Chief, Nikita Kamayev died of heart attack on 15/02/2016, following Russian doping scandal, which was a state-

sponsored cheating and corruption.

Lessons from Singapore’s approach

Quah (2001) states that all countries have laws aimed at fightingcorruption, but very few governments apply such laws strictly andconsistently as Singapore. Corrupt officials, particularly high rankingones, are dealt with in Singapore with a severity rarely seenelsewhere.

As the Singapore government could not afford to raise the salariesof the civil servants, it focused on strengthening the existinglegislation to reduce the opportunities for corruption and increasethe penalty for corrupt behaviour. The Prevention of Corruption Act(POCA), gave the Corrupt Practices Investigation Bureau (CPIB) morepowers to fight corruption.

1

2

New Zealand 89

Denmark 88

3

3

Finland 85

Norway 85

3 Switzerland 85

6

6

Singapore 84

Sweden 84

8

8

Canada 82

Luxembourg 82

8

8

Netherlands 82

United Kingdom 82

12 Germany 81

13

13

Australia 77

Hong Kong 77

13

16

Iceland 77

Austria 75

16

16

Belgium 75

United States 75

19 Ireland 74

20

21

Japan 73

Estonia 71

21 United Arab

Emirates 71

23 France 70

23 Uruguay 70

25 Barbados 68

26

26

Bhutan 67

Chile 67

28

29

Bahamas 65

Portugal 63

29 Qatar 63

29

32

Taiwan 63

Brunei Darussalam

62

32 Israel 62

34

34

Botswana 61

Slovenia 61

36 Poland 60

36 Seychelles 60

38 Costa Rica 59

38

40

Lithuania 59

Latvia 58

40 Saint Vincent and

the Grenadines 58

42

42

Cyprus 57

Czech Republic 57

42 Dominica 57

42 Spain 57

46 Georgia 56

46

48

Malta 56

Cabo Verde 55

48 Rwanda 55

48

51

Saint Lucia 55

Korea (South) 54

52

53

Grenada 52

Namibia 51

54

54

Italy 50

Mauritius 50

54 Slovakia 50

57

57

Croatia 49

Saudi Arabia 49

59

59

Greece 48

Jordan 48

59 Romania 48

62

62

Cuba 47

Malaysia 47

64

64

Montenegro 46

Sao Tome

and Principe 46

66 Hungary 45

66 Senegal 45

68

68

Belarus 44

Jamaica 44

68 Oman 44

71

71

Bulgaria 43

South Africa 43

71

74

Vanuatu 43

Burkina Faso 42

74 Lesotho 42

74 Tunisia 42

77 China 41

77

77

Serbia 41

Suriname 41

77 Trinidad and Tobago

41

81

81

Ghana 40

India 40

81

81

Morocco 40

Turkey 40

85 Argentina 39

85

85

Benin 39

Kosovo 39

85

85

Kuwait 39

Solomon Islands 39

85 Swaziland 39

91 Albania 38

Transparency International Corruption Perception Index (CPI) 2017

South Africa = 64th

Ethical Leadership and

increasing morality

• There is a serious need for ethical leadership and increasingmorality, and simply doing the right thing in human affairs(Simpson: 2003).

• Leadership has to be at the forefront of driving anti-corruptionprogrammes in organisations.

• There is a need for adherence to: Good Governance, Oversight,Accountability, Transparency or what Mary Robinson termedEthical Globalisation.

‘’Those who fight corruption must be clean themselves’’ -Vladimir Putin, President of Russia.

Youth and societal

mobilization

• Youth have played an important role in mobilizing support fordemocratic revolutions (Kuzio, 2006). Youth therefore have animportant role to play in the fight against corruption.

• Youth challenge and influence leadership decisions without fearor favour.

‘’Corruption is the enemy of development, and of good governance. It must be gotten rid off. Both the Government and the people at large must come together to achieve this national objective’’- Pratibha Rao

Patil, former President of India.

Coming, Keeping and Working Together – Klaas de Jonge, Dutch Anthropologist and Anti-Apartheid Activist.

‘’When you don’t take a stand against corruption, you tacitly support it’’- Kamal Haasan, Indian Politician, Actor and Film

Director.

‘’When you see corruption, you speak up. You don’t just shut up and say its none of my business’’- Manal al- Sharif,

Saudi Arabian women’s rights activist.

Challenges faced by

Forensic Investigators

• Threats and intimidations, even to family members

• Character assassination

• Safety compromised

• Stress for your family and relatives

The story of Laura Codruta Kovesi

(Head of National Anti-Corruption Directorate

in Romania)

• Laura Kovesi investigated a number of high profile corruption cases involvingtop ranking officials, including the Prime Minister of Romania and more than40 Politicians and other wealthy business people in Romania.

• Not surprisingly as the Head of the National Anti-Corruption Directorate,Kovesi, who is under heavy security, is always under attack.

• The Leader of the Social Democratic Party, a ruling party in Romania (LiviuNicolae Dragnea), who is facing a string of corruption charges, at some point,consulted with the Justice Ministry with the plan of removing Kovesi as theHead of the National Anti-Corruption Directorate,

a move which the people of Romania, suggested will backfire.

• ‘’The desire is to intimidate not only me or the Anti-Corruption Directorate,but the entire justice system. The intensity of these attacks shows us that weare on the right path and pressing the right buttons’’, said Laura CodrutaKovesi, (Transparency International Report, 7 May 2018).

Laura Codruta Kovesi, Head of National Anti-Corruption Directorate in Romania

Ana Garrido Ramos, former employee of a Madrid Metropolitan Municipality exposed corruption which led to the downfall of the Mariano Rajoy government in June 2018.

Due to her fight against corruption, Ana Garrido Ramos has suffered various character assassinations, continuous campaigns of harassment and attacks.

Daphne Caruana Galizia, Maltese Anti-Corruption Activist, exposed corruption scandals involving influential politicians, officials and

business people in Malta and abroad. She was murdered in a car bomb on 16 October 2017.

How can Forensic Investigators be effective

and make an impact?

• Focus on your job and do it without fear or favour.

• Be Bold

• Never allow yourselves to be compromised, corrupted or captured.

• Maintain independence of your investigations unit.

• Listen to your conscience.

• Do not trust everyone ( or better trust no one).

• Stick to the following ACFE’s values:

Integrity

Objectivity, and

Professionalism

Importance of performing

investigations with Integrity

As Forensic Investigators, if you do not do your job of investigatingan allegation brought to your attention or you have become awareof, you may be prosecuted for defeating the ends of justice.

Duty to report suspicious transactions for the value of R100 000 andabove to SAPS in terms of Section 34 of PRECCA. Failure to report isa criminal offense.

Be the Watchdog of your organisation !To strengthen its governance processes, your organisation needsyou.

THE WATCHDOG OF ETHEKWINI MUNICIPALITY

CITY INTEGRITY AND

INVESTIGATIONS UNIT

CIIU‘’Proudly investigating without fear or favour’’

SUCCESSES OF CIIU

• The Auditor General reported that CIIU saved the Municipality overR32 million of possible irregular and wasteful expenditure during the2017/2018 financial year.

• CIIU investigations have resulted in suspensions and dismissals of a number ofofficials including Senior Executives in the Municipality.

• The Comments and the volume of matters we receive, indicate that CIIU hasgained public confidence.

• The Unit has also gained respect and support of various stakeholders includingOversight Committees, esp. Audit Committee, and other spheres ofGovernment.

• We have received commendations from SAPS with respect to the quality ofour Forensic Investigations reports.

• We have received a number of requests from various stakeholders wanting topartner with us in the fight against fraud and corruption.

• We have been approached by a number of Municipalities including Metroswanting to benchmark with us. Some have already visited us for theirbenchmark exercises.

Play your Part in the Fight against

Corruption

‘’The only thing necessary for the Triumph of evil, isfor good men to do nothing’’

‘’Bad things happen when good people donothing’’ (Edmund Burke).

STAY AWAY FROM CORRUPTION‘CAUSE IF YOU DON’T, YOU MAY SOON DIE OF HEART ATTACK !

QUESTIONS ????????????????