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Speech by The Minister for Development Cooperation at International Anti-Corruption Conference in Washington 7 December 2010

Fighting Corruption in Development – A Bilateral Perspective
Mr. Søren Pind, Minister for Development Cooperation of Denmark

[Check against delivery]

Ladies and gentlemen, colleagues,
Thanks to the World Bank for convening this meeting of the International Corruption Hunters Network. It demonstrates the lead the World Bank has taken in hunting down corruption including transnational cases, and I look forward to follow your work.

I appreciate the opportunity to take part in the discussion of the Network this morning and would like to share with you some personal observations about corruption, risks and results, seen from a bilateral perspective.

In two days time, it will be the international anti-corruption day. On the day, that is on Thursday December 9, I will – by coincidence – be in Brussels with my EU-colleagues, discussing yet again the issue of anti-corruption in the form of aid transparency and aid effectiveness.

In fact, since I took up office nine months ago, there is no other single subject that I have spend so much time on, in one way or another, as corruption and the risks of fraud and misuse associated with development cooperation.

As minister for development I am faced with a double responsibility. A responsibility towards the Danish electorate, the tax payers; And a responsibility towards the poor and destitute in our developing partner countries.

I also face a paradox. Whereas a huge majority of the Danish population is in favour of development aid, almost two-thirds of them believe most of the aid will be wasted due to corruption and misuse.

This is of course far from the case, yet it underscores the question I must constantly pose to myself: Do I know enough about where our money goes? Can I guarantee our aid works? That it fosters growth and freedom?

Can I answer these questions? No. Not as definite, as I would like to. And yes, everyday, corruption and fraud is challenging development work.

Poor citizens are denied the freedom to form their own lives by corrupt officials and politicians who steal from the public purse. Private companies are missing the opportunities of the market by facing artificially high investment costs, affecting profitability and adding to reputation costs. Societies are being undermined from within, corruption eating away the trust – the social capital – that holds a community together.

But the challenge of corruption also takes another toll: It has – in a donor country like Denmark – undermined the willingness to engage with aid and business capital in high-risk societies like fragile and failing states. And it has created a kind of self-censorship in development organisations, where the risk of loss and fraud are silenced to death for fear of another public scandal.

During my nine months in office, as I have travelled to Nepal, Afghanistan, Pakistan, Kenya, and Somalia and other places; As I have constantly mired myself in trying to answer the question: Is our aid spend rightfully, Does it work? My conclusion is, we need a much more frank and open debate about that acknowledges and talks openly about risks, corruption and outcomes. In that sense, we need a shift in policy.

As a bilateral donor, my Government – and others with it – needs to recognize that security policy, foreign policy and development policy cannot be separated. We have to be engaged in highly corrupted countries, including the fragile ones. And this implies a risk; A high risk of fraud and loss. But these risks may be well worth taking. For what would be the alternative? Another Afghanistan or Somalia or a country like Kenya suddenly sliding into a post-election crisis?

Development in a globalised world demands high risk capital. Therefore, I cannot blindly defend the noble view that one Danish “krone” lost, is one too many. Sometimes it is worth the effort and the risks.

But we must not try to silence the risk of loss and fraud for fear of another public scandal. To the contrary. We must be frank and open and involve the citizens in our considerations. And work together to improve our ability to handle – political and financial - risks if we are to make a difference.

The French renaissance philosopher Montaigne has said: “No noble things can be done without risks”. The coach for the Spanish soccer team FC Barcelona Guardiola has said: “It is too dangerous to play without risks”. I agree with both of them: Results are closely related to risks. Results cannot be achieved without determined action and willingness to take calculated risks.

Against this background I have made “risk policy” – the assessment and management of risk including corruption – in Danish development aid a key priority for my time in office. And it
figures prominently in Denmark’s new strategy for development cooperation “Freedom from poverty, freedom to change”, which I launched in May.

Firstly, it takes courage to recognize and run risks in development aid. You have to stand up for it, and you have to be open and frank about the risks. Assessment is key, and we are, therefore, currently working on an improved system for assessing and measuring risks involved in concrete interventions. A kind of risk index or risk barometer. Much like to the Economists Big Mac index seeks to make exchange-rate theory more digestible, a risk barometer should seek to make risks more “readable”. Developing a tool that would be easy to communicate would be an advantage in itself.

We invite the Bank, the UN and others to work with us in devising an improved system for measuring risks. Denmark hosted a big conference on risks just two weeks ago, and I would be happy to share the outcome documents with you.

Secondly, is the principle of zero tolerance against corruption.
Accepting – and speaking loudly about – development cooperation as a risky business has stirred some controversy in Denmark. I gave an interview about aid and risks to a major Danish daily, and the headline, which made the front page, became: “Minister Pind accepts corruption”. No. Not at all. I do not accept corruption. It is not the same to accept and run risks, and then to accept and neglect misuse. If and when risks are realized, we react immediately.

We operate in risk prone environments, and are willing to run risks to achieve results. But we are not naïve and do not accept the potential outcome of risks. Zero-tolerance means accepting corruption may exist; making it clear we don’t accept it; and taking the necessary measures when and if we discover it. As we expect our partners to do as well.

Thirdly, corruption must have consequences. There can be no impunity for corruption. If an aid partner fails its commitments to strengthen integrity, it must have financial implications. We then reconsider the way aid is delivered and may choose other partners. And we insist the corrupt and their corruptors are brought to justice.

Fourthly, concrete corruption cases must be communicated openly. We make public all corruption cases we encounter, including both the size of funds retrieved and the amount of Danish tax payer’s funds lost. And we name the cooperating partner involved.

Fifthly, is aid effectiveness. Effective aid is aid owned and led by our developing partners. Denmark has moved away from traditional projects which could much easier be ring-fenced with traditional safeguards to mitigate risks. We are increasingly channeling our aid through the national systems of partner countries.

Strengthening the integrity and capacity of country systems through using them is, I believe, the right approach. But it does of course pose new challenges in terms of fighting corruption. We need to “trust, but verify”. And manage the risks rather than reverting to donor-lead approaches and implementation through parallel systems.

Finally, is measurement of outcomes and results.
We constantly work on our ability to measure and document outcomes and results. Tackling risks, including corruption, is also a question about being able to measure what works and what doesn’t. To that end, I have just launched a new international research programme looking into the effects and outcome of development cooperation. The Big question to be answered is not just, what difference does a specific programme make? It is: What moves a society forward? What creates lasting change?

The discussion today is mainly focused on enforcement. But I would like us to keep the long-term goal in mind: to prevent corruption.

There is nothing natural about corruption. People are not borne corrupt. People learn to be corrupt. Montesquieu, the French political thinker, noted 260 years ago: “It is not the young people that degenerate; they are not spoiled until those of mature age are already sunk into corruption”.

So like you cannot fix a leaking boat by just pouring out more water, we cannot – in the long term – fix the problem of corruption by only looking at enforcement.

In our own countries, this means promoting the development of standards and procedures designed to safeguard integrity and prevent corruption in the private sector. Making sure that the private sector is keenly aware of the need for corporate integrity, business ethics and corporate social responsibility. Because it is good for business. Because customers are increasingly demanding this. Because, it pays off.

Denmark was in front with the implementation of OECD’s convention in national law, making it possible to take Danish companies to court for corrupt activities made abroad.

In our developing partner countries, integrating anti-corruption in our efforts to promote good governance and integrity becomes of high priority. Because corruption is a symptom. Because it is a result of a dysfunctional governance system; an outcome of poor governance and low integrity.

Governance and anti-corruption must go hand in hand. The best check on corruption is systems based on good governance that can prevent corruption from happening - and fighting it when it does.

To the donors – Denmark, the Bank and others – it means being even more frank about governance problems in our dialogue with partner governments. Insisting on transparency in budgets and public revenue, including from natural resource exploitation.

And being ready to live up to the same transparency demands in our own aid – and area where the World Bank has recently taken a lead.

The aim is more capable governments through capacity building. Governments that are responsive to their people and clear the way for their entrepreneurship and desire for freedom. Governments that are accountable, forced to explain what they do and why.

There is a bottom-up perspective too. None of our efforts will succeed unless citizens are supporting them, are demanding them. A free and vibrant civil society, a free media, and people voting with their feet in free and fair elections must grow strong enough to elicit the desired supply-side response.

As a politician I know, how sobering a proper beating by the press is. A free an aggressive media is a strong check on political power.

A strong and transparent tax system generate a social contract between state and citizen. Just look at Denmark: We pay taxes – even too high if you ask me – but it gives us the right to demand high quality services back.

Yet, giving people the final say is the best way to hold governments accountable through multi-party systems. People need real choices when they go to the ballot box; they need to be able to form a strong opposition to bad government. This is the only long term solution to hunt down corruption.

Every day corruption and fraud is undermining development work. It is undermining the free entrepreneurship of the individual in developing countries; it is undermining the aid willingness of the tax payer in donor countries.

We are meeting today out of need. Out of sheer necessity. Yet, necessity is said to be the mother of invention. I am convinced the International Hunters Network will bring forward new ideas and measures to tackle risks of corruption. I wish you a successful meeting.

Thank you for your attention