# Sectoral Perspectives on Corruption

*November 2002*

# Corruption and the Environment

Svetlana Winbourne

The views and interpretations represented in this paper belong solely to
its author and should not be attributed to USAID or to MSI.

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### Abstract

This paper examines public sector corruption in the environment and
natural resources sector and suggests possible responses based on best
practices. Corruption in the environmental sector diverts funds
allocated for environmental programs to private pockets through
embezzlement and bribery. It facilitates trafficking in wildlife and
other natural resources and leads to depletion of natural resources and
pollution of environment through bribery in environmental inspections
and permitting system. Corruption also contributes to the development of
environmentally damaging policies and practices and to unfair allocation
of environmental resources that contributes to environmentally harmful
practices.

The causes of corruption in the environmental sector includes typical
causes attributed to any other sectors: insufficient legislation, lack
of respect for the rule of law, weak democracy, wide authority given to
public officials, minimal accountability and transparency, poor
enforcement, low levels of professionalism, and perverse incentives. In
addition, corruption in the environmental sector is also triggered by
conflicts between private interests in revenue that can be gained from
environmental resources and public interests in a healthy environment.

Corruption may occur across a number of transactions, starting from
bribery and cronyism in developing national policy and embezzlement in
implementing environmental programs to bribery in issuing permits and
licenses and collecting "rents" while enforcing environmental
regulations. It can be well organized from top to bottom and linked to
organized crime (for example, in mineral, timber and wildlife
trafficking), and it can be widely represented through a number of
governmental agencies and services. The areas most vulnerable to
corruption include environmental and natural resources policy and
regulatory development; utilization of environmental resources;
permitting and certification processes; and environmental enforcement
(inspections and policing).

Strategies to address corruption in the environmental and natural
resources sector include a combination of enforcement, prevention and
awareness elements. For sustainability, anti-corruption efforts need to
emphasize preventive reforms and public awareness components because
these ultimately reduce the opportunities for corruption. Recommended
strategies include: reforms to improve transparency and accountability,
legislation to reduce loopholes and bureaucratic discretion, reasonable
environmental standards and requirements, reduced bureaucratic red tape
by simplifying and streamlining administrative processes, citizen
participation and oversight through establishment of citizen watchdog
groups and public-private dialogues, professional and responsible
investigative reporting in the media, and comprehensive public awareness
campaigns on the causes and costs of corruption to promote citizen
intolerance to corruption.

### Introduction

This paper examines corruption in the environment and natural resources
sector. Other related papers are being written on corruption in
particular industrial sectors that *use* natural resources, such as
energy and agriculture. This study is distinctive in that we focus on
the impact of corruption on natural resources and environmental
management and preservation as well as natural resources utilization.

This paper discusses only corruption in the public sector and defines as
the ***abuse of public office for private gain***. It encompasses
misconduct by governmental officials such as embezzlement, fraud,
cronyism, influence peddling, nepotism, patronage, extortion, and
bribery.

We have organized our thoughts as follows: first, we identify the major
areas in the environmental sector that are vulnerable to corruption,
second, we provide several case studies to demonstrate how these
vulnerabilities operate in reality and what has been done to address
them, and finally, we suggest some tools and strategies that appear
appropriate in preventing or mitigating the impact of corruption in the
environmental sector.

**Corruption in the Environmental Sector**

Corruption undermines democracy and reduces economic growth. It diverts
public funds to serve the private interests of some public officials. It
breeds poverty and public mistrust of impartial justice and the
government. In the environmental and natural resources sector, public
sector corruption serves the private interests of bureaucrats and
criminals by taking away from citizens their rights to clean and
complete environment, misallocating environmental resources, and
diverting funds from conservation and preservation.

Corruption in the environmental and natural resources sectors may occur
across a number of transactions, starting from bribery and cronyism on
the level of developing national policy and embezzlement in implementing
environmental programs to bribery in issuing permits and licenses and
collecting "rents" while enforcing environmental regulations. It can be
well organized from top to bottom and link to organized crime (for
example, in mineral, timber and wildlife trafficking), and it can be
widely represented through a number of governmental agencies and
services.

The environment can be affected by corruption in other sectors, for
example, in agriculture, privatization, public procurement, customs, the
judiciary, and others. Thus, privatization conducted through corrupt
procedures may allow new owners to use privatized land or facilities in
an environmentally damaging manner; or regulations and procedures
established in customs may open opportunities for trafficking in
wildlife. Later, we will provide an example of how corruption in public
procurement resulted in environmental damage.

Corruption's impact is very difficult to measure. Box 1 provides just a
few documented measurable examples of the impact of illegal activities
in the environmental sector that can be attributed to corruption to
great extent.

+-----------------------------------------------------------------------+
| **BOX 1. ILLEGAL ACTIVITIES AND CORRUPTION IMPACT IN THE              |
| ENVIRONMENTAL SECTOR (examples)**                                     |
|                                                                       |
| Trafficking in wildlife:                                              |
|                                                                       |
| -   "The trafficking in threatened species, including cheetahs,       |
|     chimpanzees, crocodiles, elephants and other species continues,   |
|     earning smugglers profits of \$8 billion to \$12 billion          |
|     annually. Among the most coveted black market items are tigers    |
|     and other large cats, rhinos, rep-tiles, rare birds, and          |
|     botanical specimens. Most illegally traded wildlife originates in |
|     developing countries, home to most of the world's biological      |
|     diversity. Brazil alone supplies some 10 percent of the global    |
|     black market, and its nonprofit wildlife-trade monitoring body,   |
|     RENCTAS, estimates that poachers steal some 38 million animals a  |
|     year from the country's Amazon forests, Pantanal wetlands, and    |
|     other important habitats, generating annual revenues of \$1       |
|     billion. Southeast Asian wildlife has also been plundered: the    |
|     Gibbon Foundation reports that in a single recent year, traders   |
|     smuggled out some 2,000 orangutans from Indonesia--- at an        |
|     average street price of \$10,000 apiece." (Mastny, 2002)          |
|                                                                       |
| Forest sector:                                                        |
|                                                                       |
| -   Loss of revenue to governments due to illegal logging is about    |
|     US\$5 billion annually, with a further US\$10 billion lost to the |
|     economies of producing countries (Toyne, 2002).                   |
|                                                                       |
| Mineral Resources:                                                    |
|                                                                       |
| -   About 20 percent of US\$6.8 of global trade in rough diamonds is  |
|     illicit. (Renner, 2002)                                           |
+-----------------------------------------------------------------------+

The causes of corruption in the environmental sector, in broad brush,
are similar to any other sector and include, among others: insufficient
legislation, lack of respect for the rule of law, weak democracy, wide
authority given to public officials, minimal accountability and
transparency, poor enforcement, low levels of professionalism, and
perverse incentives. The weight of each component of this generic set of
corruption causes varies from country to country and changes over time.

More specifically, the basis for corruption in the environmental sector
lies in a conflict between private interests in the commercial value of
natural resources (mineral, water, land, forest, wildlife, etc.) and
reduction in production cost by using environmentally unfriendly
technologies, on one side, and, public interests in a healthy habitat,
on the other side.

What makes the environmental sector distinctive from any other is that
corruption here is triggered by large amounts of formal and informal
revenues that can be gained from the products the environment (minerals,
timber, wildlife, gems, etc.). For those countries that are rich in
environmental resources and whose economies are primarily based on them,
resource distribution, extraction and management become fertile grounds
for corruption. There are theoretical and empirical studies that
demonstrate how natural resource abundance creates opportunities for
corruption and is an important factor in determining a country's level
of corruption(see Leite, 1999; Renner, 2002). "Societies whose main
income is derived from resource royalties instead of value added seem
prone to develop a culture with widespread corruption. Resource
royalties enable political leaders to maintain their stranglehold on
power by funding a system of patronage that rewards followers and
punishes opponents. And because such regimes rely less on revenues
derived from a broad-based system of taxation, they also have less need
for popular legitimacy and feel less pressure to be accountable." Such
countries as Indonesia, Nigeria, Sierra Leone, Columbia, and some other
developing countries with high levels of corruption and economies highly
dependent upon natural resources could serve as demonstrative examples
(Renner, 2002). As was stated at the Annual General Meeting of
Transparency International related to corruption in natural resources
industries, "...with income of the order of US\$35billion/year for
Mexico; US\$30 billion for Venezuela; US\$22 billion for Nigeria, the
potential for good and the temptation for abuse are immense" (Schloss,
2000)

While abundance of natural resources can spark off corruption, resource
scarcity can also result in corruption. Limited, but lucrative natural
resources can have their value boosted in the black market and create
temptation for public officials to fill their own pockets through
illegally issued access to these resources. Thus, for example, corrupt
officials may issue false permits or overlook illicit consignments of
endangered wildlife species in return for bribes and kickbacks (Mastny,
2002).

Another reason why corruption often flourishes in the environmental
sector relates to typically poor funding and, as a result, weak
environmental institutions responsible for implementing environmental
management and conservation programs, and conducting environmental
control and policing.

Studies of corruption in the environmental sector are a relatively
recent phenomenon. There is a paucity of hard data to describe the
problem, assess its magnitude, and point out the transactions most
vulnerable to corruption in the environmental field. There are certainly
no reliable statistics on prosecutions of environmental corruption cases
or statistics on administrative sanctions for abuse of
environmental-related regulations that is easily accessible.

The multi-country surveys on corruption that have been conducted by
international organizations, such as the World Bank and Transparency
International, do not specifically address the environmental sector or
define it very narrowly, which results in information that is neither
comprehensive or reliable on corruption in the sector. However, in the
report accompanying the 2001 Environmental Sustainability Index
developed by the World Economic Forum, researchers highlight, for the
first time, the very high correlation between the level of corruption
and environmental outcomes: the higher the level of corruption in a
country, the lower level of environmental sustainability (Levy, 2001).
Some country-specific public opinion surveys conducted by these and a
number of other organizations incorporate questions about corruption and
the environment in a limited fashion; they provide some of the rare
quantitative assessments of where corruption impacts the environmental
field. Box 1 provides an overview of how corruption in the environment
is represented in these surveys.

There are a number of good reports on particular corruption-related
cases or issues, produced by WWF, WRI, Resources for Future, WorldWatch
and others, as well as reports in the media. Several particular sectors
have been studied more than others, among them forestry (see Callister,
1999, and Contreras-Hermosilla, 2001), mining (see Renner, 2002),
fishery (see Environmental Justice Foundation and Fisheries Action
Coalition Team, 2000), and trafficking in biodiversity (see Mastny,
2002), energy, and some others.

It is typical for developing countries and countries in transition that
their struggle with economic and social hardships takes higher priority
than environmental issues, which often are pushed to the very bottom of
the national policy agenda. This results in limited systematic attention
to the issue of corruption in the environment and a low priority given
to this sector in the anti-corruption agenda of both international
organizations and countries themselves. There are some good examples of
countries implementing comprehensive environmental policies that are
able to reduce opportunities for corruption and increase a wide range of
benefits for their respective populations. Among them are: Madagascar
where the government put environment at the top of its policy priorities
and as a result was able to significantly improve environmental
governance and transparency; Namibia and Botswana that introduced
effective diamond and gold resources management practices that resulted
in reduction of corrupt practices and in a wide range of benefits for
their respective populations.  

+-----------------------------------------------------------------------+
| # BOX 2 -- SURVEYS ABOUT CORRUPTION IN THE ENVIRONMENT                |
|                                                                       |
| *As shown in the following examples from national public opinion      |
| surveys, general questions about corruption in the environmental      |
| sector are included and indicate a moderate problem. However,         |
| specific questions that would allow a more detailed understanding of  |
| the particular vulnerabilities of the environmental sector to corrupt |
| practices are rarely incorporated in such surveys.*                   |
|                                                                       |
| In the Diagnostic Survey of Corruption in Romania conducted in 2000,  |
| bribery in the environmental sector takes 17^th^ place among 18       |
| listed sectors. About 3% of businesses admitted that they paid bribes |
| frequently to obtain environmental licenses.                          |
|                                                                       |
| In survey conducted in Bosnia and Herzegovina in 2000, the            |
| environmental sector is not even listed among those that are          |
| perceived as highly corrupted. However when businesses were asked     |
| where they were asked to pay bribes most frequently, they ranked the  |
| environmental sector as the highest, before 22 other sectors,         |
| including the traffic police, tax authorities, and customs.           |
|                                                                       |
| In a survey conducted in Slovakia in 1999, the environmental sector   |
| is also not included in a list of 26 sectors, though 13% of           |
| enterprises admitted that they encountered bribery in environmental   |
| agencies, thus placing this sector in the middle of a list of 21      |
| other agencies where bribes were paid frequently. The average bribe   |
| is about 3,200 SK (about US\$ 80), which is in the low-to-mid range   |
| among bribes paid to other agencies. Businesses admitted that in      |
| about 8% of their visits to environmental protection agencies, a      |
| bribe was suggested; in comparison, respondents said that they had to |
| pay bribes in 24% of all visits to get construction permits.          |
|                                                                       |
| In the Governance and Anti-Corruption survey conducted in Peru in     |
| 2001, about 8% of responding firm managers (3% - large, 10 % -        |
| medium, and 12% - small enterprises) admitted to paying bribes        |
| frequently to get environmental licenses; this amounts to about 6% of |
| the total amount paid in bribes to all public agencies. The average   |
| amount of bribe was about 445 Soles (about US\$ 125).                 |
|                                                                       |
| According to the Honduras Governance and Anti-Corruption Survey of    |
| 2002, 4% of surveyed large enterprises reported paying bribes to      |
| obtain environmental licenses, though none of the small, medium or    |
| foreign firms admitted to any unofficial payments. 2% of respondents  |
| said that they were made to feel that bribes were necessary to obtain |
| environmental licenses. The average unofficial payment made in the    |
| environmental sector was 50,000 L (about US\$ 2,980), which is the    |
| highest in comparison with other agencies.                            |
|                                                                       |
| The Bolivia Public Official Survey of 2001 calculated a Control of    |
| Corruption index for different public agencies and the Ministry of    |
| Sustainable Development is ranked at the 64^th^ level with the best   |
| being the Presidential Ministry (in 98^th^ place) and the worst being |
| the Health Department and the Police.                                 |
|                                                                       |
| The Indonesia Corruption Survey of 2002 put the Ministry of Forestry  |
| as among government agencies perceived to be the most corrupted       |
| (11^th^ place among 35 other agencies); 20% of responding businesses  |
| consider this ministry among the four where corruption is most        |
| prevalent. It was reported that 56% of public officials in the        |
| Ministry of Forestry are perceived to be receiving unofficial         |
| payments on a regular basis.                                          |
|                                                                       |
| There are number of corruption survey conducted on country and lower  |
| levels that do not mention environment neither in questions nor in    |
| responses (Cambodia, 2000; Latvia, 1998; Albania, 1998; Ghana, 2000,  |
| and others).                                                          |
+-----------------------------------------------------------------------+

Corruption is inherent in environmental sector at both "grand" and
"petty" levels, as well as at levels in between.

Table 1. Levels of Corruption and Vulnerabilities in the Environmental
Sector

+---------+------------------------------------------------------------+
| *Level  | ## Areas vulnerable to corruption                          |
| of      |                                                            |
| corr    |                                                            |
| uption* |                                                            |
+---------+------------------------------------------------------------+
| Grand   | -   Environmental and natural resources policy and         |
| cor     |     regulations development                                |
| ruption |                                                            |
+---------+------------------------------------------------------------+
| Mi      | -   Distribution and designation of environmental/natural  |
| d-level |     resources and territories for particular utilization   |
| cor     |     (including through public procurement).                |
| ruption |                                                            |
|         | -   Permitting and certifications -- issuing permits and   |
|         |     certificates for different utilization of territories  |
|         |     and natural resources, and operating of industrial     |
|         |     sites including permits for emissions, discharges, and |
|         |     solid wastes.                                          |
|         |                                                            |
|         | -   Environmental assessments (including EIA)              |
+---------+------------------------------------------------------------+
| > Petty | -   Enforcement (inspections and policing) -- (1)          |
| > cor   |     inspections by environmental protection agencies and   |
| ruption |     other related agencies to assess whether established   |
|         |     environmental standards are being met, and (2)         |
|         |     enforcement via policing violations such as, for       |
|         |     example, poaching, illegal logging, resource           |
|         |     trafficking, emissions, etc.                           |
+---------+------------------------------------------------------------+

[Grand corruption - Environmental and natural resources policy and
regulations development]{.underline}.

"Grand" corruption relates mostly to high level of public officials and
involves large illegal transactions. Corruption at this level is also
defined by the World Bank as a form of "state capture:" "State capture
refers to the actions of individuals, groups, or firms both in the
public and private sectors *to influence the formation* of laws,
regulations, decrees, and other government policies to their own
advantage as a result of the illicit and non-transparent provision of
private benefits to public officials" (The World Bank, 2000). As was
mentioned earlier, the environmental sector usually takes a low position
on national policy priorities in developing countries and countries in
transition. Leaders in developing and transitional countries would
rather sacrifice clean air and water, biodiversity and forests if they
can turn them into profitable businesses and support short-term
political agendas and medium-term economic benefits. This lack of
vigilance allows corruption to become invasive and systemic. Decisions
to adopt or reject some policies or laws can be made due to a lack of
understanding and appreciation of environmental consequences *or* with
full understanding but inability, due to circumstances, to approve
environmentally-friendly policies. We cannot exclude, however, potential
corruption here when decision makers' private interests influence public
issues.

Clark Gibson, in his book "Politicians and Poachers" (1999),
demonstrates, using evidence from Zambia, Kenya, and Zimbabwe, how
political institutions influence politicians and bureaucrats to
construct wildlife policies that further their own interests. Different
configurations of electoral laws, legislatures, party structures,
interest groups, and traditional authorities in each country shape the
choices of policymakers - many of which are not consonant with
conservation (Gibson, 1999).

In addition, due to shortages in the national or local budgets, the
governments often underfund their programs and allow governmental
agencies to supplement resources through their engagement in commercial
activities (logging, banking, construction etc.) and, in so doing, they
open their doors for financial abuses and corruption.

Among the major reasons for grand corruption in the environmental sector
are: lack of transparency and accountability in decision making process,
disproportionate influence of wealthy external interests, insufficient
laws including those on financial disclosure and lobbying, and broad
authority given to public officials that is not coupled to
accountability and oversight.

There are few documented examples that can be used to demonstrate the
effects of state capture in the environmental sector. One of them
relates to biodiversity loss on the Philippines' Negros Island that
began when large tracts of forested land in the second-half of the 19th
century were converted to sugar plantations. This situation worsened
after independence when the national political system was dominated by
sugar oligarchs, who constituted a powerful lobby known as the "sugar
bloc" and who "successfully twisted economic and foreign policy to serve
their short-term ends" (World Wildlife Fund, undated). Another example
can be found in widespread patronage in the Philippines during Joseph
Estrada's presidency when construction on the San Roque Dam in
Pangasinan commenced despite warnings coming from environmental experts
(Pabico, 2000). In Indonesia under President Suharto, licenses for
mining, logging, and use of fertilized lands were awarded to domestic
and foreign businesses that were closely linked to or broadly supportive
of the regime and with no environmental considerations; this ultimately
resulted in depletion of resources and deforestation (Renner, 2002).

[Mid-level corruption - Distribution of environmental resources, and
permitting and certification processes.]{.underline}

Corruption at the mid-level happens more often, and hence those who work
in the environment and natural resources sector can provide more
examples. This type of corruption is defined as mid-level because, like
grand corruption, large amounts of money can be at stake especially if
activity leads to significant profit, or it can involve lesser amounts
of money but can be rather widespread. At the same time, this type of
corruption usually involves mid-level officials either at the national
or local level as opposed to the top national leadership. At this level,
corruption is represented in the wide ways: from bribes, gifts,
influence peddling, favoritisms, nepotism, and speed money to kickbacks
and embezzlements.

The major stimuli for this kind of corruption include loopholes in laws
and regulations that allow for overly broad interpretations, broad
authority given to public officials with little accountability, and lack
of transparency in decision making processes.

Demonstrative examples can be found in the forestry sector where
significant amounts of money are often paid to obtain timber concessions
or such concessions are handed out as political patronage to key
supporters. (Callister, 1999). Such concessions are not constrained only
to the timber industry; other resources, such as minerals, petroleum and
water are also vulnerable. Another documented example can be drawn from
the Philippines where a congressman was quietly issued the environmental
license in 1998 for his rubber processing plant by a regional official
whom he had promoted less than two weeks before. (Severino, 1998).

Another example that demonstrates widespread corruption in the
environmental sector and that involves both grand and mid-level
corruption can be found in Mexico. In the speech at the National Accord
for Transparency and Combating Corruption on February 26, 2001 in Mexico
City, Mexican President Vicente Fox described corruption as deeply
rooted in the environmental sector in Mexico under the previous
administration. According to the President, "the nation's public
property invaded and used for private interests; beach areas and
ecological reserves illegally exploited by former and current public
servants as well as businessmen and foreigners; environmental impact
certificates and forest, fishing, and hunting permits granted on a
discretionary basis; preferential treatment given to companies
responsible for polluting; distribution of water for political purposes;
punitive actions not carried out." Interviewed by the World Press,
Mexican Environment Secretary Víctor Lichtinger described the previous
system as a system of "agreements" and privileges. "There were
semi-official companies and political leaders who could not be touched,
who were beyond the reach of the law." To illustrate this, José Ignacio
Campillo García, the head of Mexico's Environmental Protection Agency
(Profepa), referred to the situation with licenses granted to private
individuals for use of beach areas that resulted in underpayment of
about US\$88 millions in fees and taxes and construction of residential
and tourist facilities within protected natural areas on the sea coast
zone, licenses for exporting wildlife allowing an individual to export
50,000 birds, and licenses for extensive logging. The current
administration is facing a challenge to review actions taken by the
previous administration and develop new policies and practices to
prevent irregularities and corruption in the future (Mongeand Ortiz,
2002).

###### Petty corruption \-- Enforcement (inspections and policing 

Petty or "survival" corruption is practiced by public officials who may
be grossly underpaid or depend on small rents from the public to feed
their families" (TI Source Book 2002). Petty corruption in the
environmental sector occurs mostly during environmental inspections and
the policing of illegal acts such as poaching, illegal logging,
discharges, emissions, etc. In this kind of corruption, insignificant
amounts of money and low-level officials are usually involved, unless it
is part of a vertically organized corrupt scheme that can reach into
higher levels of government. The most common forms of corruption at this
level are bribery, influence peddling, and nepotism. The major reasons
for this kind of corruption include inspection regulations that are open
to overly broad interpretation, insufficient inspection procedures, lack
of accountability, low salaries for inspectors, and unattainable
environmental standards that are established without consideration of
the resources needed for businesses or technologies available to meet
these standards. The vulnerability to corruption of particular
environmental sectors can be deconstructed into detailed elements. For
example, Box 3 presents an extensive list of corrupt practices in the
forestry sector developed by Callister (1999). Such lists can help to
identify the most appropriate and efficient tools and strategies to
address corruption in particular environmental sub-sectors.

+-----------------------------------------------------------------------+
| BOX 3. EXAMPLES OF CORRUPTION IN THE FORESTRY SECTOR (taken from      |
| Callister, 1999)                                                      |
|                                                                       |
| #### 'Grand' Corruption                                               |
|                                                                       |
| -   Companies providing support to political parties, bribing         |
|     politicians, senior government officials or military officers,    |
|     to:                                                               |
|                                                                       |
|     -   obtain a timber concession;                                   |
|                                                                       |
|     -   obtain extensions to existing concessions;                    |
|                                                                       |
|     -   obtain approval for a timber processing venture;              |
|                                                                       |
|     -   avoid prosecution for transgressions;                         |
|                                                                       |
|     -   avoid payment of fines or other fees; and                     |
|                                                                       |
|     -   negotiate favorable concession/investment agreements,         |
|         including tax holidays and other investment incentives.       |
|                                                                       |
| -   Politicians, high-ranking military and government officers using  |
|     their status to effect the same outcomes as above, for their own  |
|     companies or those of relatives or political allies.              |
|                                                                       |
| -   Companies bribing communities to agree to grant them timber       |
|     harvesting rights.                                                |
|                                                                       |
| ***'Petty' Corruption***                                              |
|                                                                       |
| -   Companies bribing military personnel, junior and local government |
|     officials, to:                                                    |
|                                                                       |
|     -   falsify declarations of volume or species harvested;          |
|                                                                       |
|     -   avoid reporting harvesting of prohibited species or           |
|         diameters;                                                    |
|                                                                       |
|     -   falsify export documentation or ignore document               |
|         irregularities;                                               |
|                                                                       |
|     -   avoid reporting and prosecution for non-compliance with       |
|         forest management                                             |
|                                                                       |
|     -   regulations established in the concession contract;           |
|                                                                       |
|     -   permit illegal movement of timber;                            |
|                                                                       |
|     -   ignore logging in protected areas and outside concession      |
|         boundaries;                                                   |
|                                                                       |
|     -   allow timber processing without the necessary approvals; and  |
|                                                                       |
|     -   ignore infringements of timber processing regulations,        |
|         including pollution controls.                                 |
+-----------------------------------------------------------------------+

All three levels of corruption can coexist in a country or province with
or without explicit interlinkages. Frequently, petty corruption "is
simply a downwards projection of much more damaging forms of corruption
at higher levels" (TI Source Book 2000).

**Experience in addressing corruption in the Environmental Sector**

Solving problems of potential corruption may not be a typical focus of
environmental programs, though a number of current programs recognize
the impact that corruption has on the environmental sector. They seek to
address it by including activities to promote transparency and
accountability in environment and natural resources management and
enhance community participation in governmental decision making
processes with regards to natural resource allocation and management
(e.g. Nepal, Philippines and Indonesia).  When corruption is not taken
into account and no anti-corruption measures are incorporated, the risk
that the project can fail to achieve its objectives increases due to
possible diversion of funds through corrupt activities or obstacles
created by corrupt practices.

Several cases of corruption in environment-related activities can help
illustrate these points.

[Case 1. Russia Far East Forest]{.underline}

World Wildlife Fund (WWF) estimates that the Russian budget loses over
US\$1 billion in taxes, fees, and other payments annually due to illegal
wood harvesting, processing, and trade, while legal revenue constitutes
approximately US\$ 6 billion per year. Illegal logging flourishes in all
the primary wood-producing areas of the country; it is estimated by
different sources at 20 to 50 per cent of total harvested timber,
varying from area to area. Among 6,383 forest-related illegal action
cases investigated in Russia in 1999, 3,113 cases were brought to court
and in only 907 of these cases have any parties been found guilty and
received sentences (Kotlobay. 2002).

The Russian Far East region differs from other regions of Russia in
terms of its specific climate, distinctive landscape, and unique plants
and animals. However, the region suffers from significant loss in
biodiversity, rapid decrease of its most valuable forests, and change in
microclimate and hydrological regime due to forest mismanagement,
illegal logging, and other kinds of forest crime. WWF has been
implementing the Forest Program in Russia since 1994. It has witnessed
frequent cases of illegal logging and forest crime. To address this
problem, in 1998 WWF initiated a monitoring force, the CEDAR Mobile
Group, within the Tiger State Inspectorate of the Department of Natural
Resources of Primorskiy Krai. It has the authority to conduct
inspections of any wood processing enterprise. During inspections, the
Cedar Mobile Group revealed more than 24 cases of illegal logging, for
which 14 criminal investigations have been initiated. Penalties of over
1 million rubles (about US\$ 34,000) have been imposed, and about 3,000
cubic meters of wood, along with tractors, chainsaws, and other
equipment used by illegal loggers was confiscated. The CEDAR Mobile
Group cooperates effectively with local police in the region. To improve
the professionalism of the inspectors, WWF conducted two training
sessions with 40 forest inspectors on current legislation related to the
forestry sector and legal aspects of forest harvesting crimes. The
experience of WWF and other NGOs has attracted the interest of the
Ministry of Natural Resources of the Russian Federation, which as a
result has conducted a large-scale inspection of forest areas to
pinpoint logging infringements.

To approach the problem of illegal logging and forest crime in a more
systematic way, WWF commissioned in 2001 several studies in the
Primorskiy Krai of the Far East region to identify vulnerabilities to
crime and assess the magnitude and impact of forest crime. These studies
revealed that illegal logging in Primorskiy Krai constitutes from 30 to
50 percent of the total amount of harvested timber, that up to 80
percent of the timber in storage is of illegal origin, and that several
hundred thousand cubic meters of illegally cut and subsequently
legalized timber is exported from the Primorskiy Krai every year. The
studies showed that practically each stage and level of forest
management and utilization is vulnerable to crime and misdeeds that
involve bribery, favoritism, nepotism, embezzlement, and other kinds of
corruption. They also mapped out some particular processes to pinpoint
exactly where and how such crimes are committed. The studies concluded
that enforcement measures are not enough to fight forest crime and
called upon the design of comprehensive strategies that include both
preventive and enforcement measures (Kotlobay and Ptichnikov, 2002;
Kotlobay, 2002).

*[Lessons learned:]{.underline}* This particular case demonstrates how
within a traditional environmental program, WWF initiated several
activities targeted at corruption and other kinds of forest crime.
Starting from small but aggressive activity focused on the consequences
of illegal activity, WWF concluded that more comprehensive strategy was
needed. A lesson that can be learned from this example is that while to
secure resources and ensure effective results of the program at the
program design or implementation stage, it is necessary to look at
potential risks that can be imposed due to corruption and embed
safeguarding activities and strategies to prevent corruption. It might
require a single but strong activity to address the major threat caused
by corruption (like the CEDAR Mobile Group). It might be more effective
to look at the problem of corruption in a systematic way and develop a
multidimensional strategy that includes preventative, educational and
public awareness measures that would have long lasting effects.

### [Case 2. Lesotho Highlands Water Project]{.underline}

The estimated US\$ 8 billion Lesotho Highlands Water Project has been
designed to divert water from the Orange River to the urban and
industrial Gauteng region in South Africa through a series of dams and
tunnels blasted through the mountains. The first dam in this multi-dam
scheme, called Katse, was completed in 1995. The second, called Mohale,
is currently under way, despite the fact that critical social and
environmental problems affecting thousands of people remain unresolved.
Widespread corruption in this project is thought to be one reason that
the social fund intended to help affected communities has not reached
its recipients. (International Rivers Network, IRN\'s Lesotho Campaign).

In April 1999, a huge corruption scandal was exposed involving the Chief
Executive of the Lesotho Highlands Water Project, Mr. Masupha Sole, and
12 of the biggest dam-building companies in the world. The companies
were accused of paying bribes to win lucrative dam-building and
engineering contracts. In November 1999, Mr. Sole was convicted of 13
counts of bribery and sentenced to 18 years in prison for taking more
than \$2 million in bribes over a ten-year period from intermediaries
representing the 12 construction firms, including ABB (Swedish/Swiss),
Acres International (Canadian), Impregilo (Italian), Lahmeyer (German),
and Sogreah (French). In September 2002, Acres International was
convicted of two counts of bribery for paying over US\$ 260,000 to Mr.
Sole through an agent in order to secure contracts in the dam building
scheme. Though no Acres staff or officers will receive jail sentences,
the company is expected to be fined (Probe International Press Advisory,
October 2002).

In this particular example, the corruption revealed by Lesotho
authorities was manifested in the public procurement process of an
environment-related project. It appears that there were no effective
control mechanisms in place to prevent corrupt activities that had been
occuring for a period of 10 years and ultimately led to damaging
environmental consequences that effected thousands of people.

The environmental groups concerned with the environmental impact of the
Lesotho Highlands Water Project mobilized a strong lobbying campaign to
bring the attention of the public and decision makers to the
environmental problems associated with dam construction. However, they
did not attend to the corruption problems plaguing the project. Given
the large amounts of money involved in the project, one might speculate
that project decisions were influenced more by the profit interests of
construction firms and some public officials than by environmental
concerns. Attention to corruption issues from the start might have
improved the environmental outcomes.

*[Lessons learned]{.underline}:* This example demonstrates that in order
to advocating for their traditional interests, while environmental
groups might also serve a useful public oversight and monitoring
function to assess whether environmental projects are vulnerable to
corrupt practices -- from planning to procurement to implementation.
Throughout their life cycles, environmental projects are prone to
corruption and civil society organizations can serve as effective
watchdogs that observe and expose any potential misconduct. Also, this
example demonstrates how corruption in other sectors (in this case,
procurement) can became damaging for the environment. A lesson that can
be learned from this example is that it is necessary to assess and
address corruption risks imposed by sectors outside of environment that
in the end can be damaging for the environment.

Tools and Strategies to address corruption in the Environmental Sector

There have been several attempts to identify particular anti-corruption
strategies that relate directly to environmental sector vulnerabilities.
For example, at the Workshop on Corruption and the Environment at the
9^th^ International Anti-Corruption Conference, Mr. Steiner, the
Director General of The World Conservation Union (IUCN), in his
introductory remarks identified the following measures that need to be
taken to minimize the scope of corruption related to the environmental
sector (Steiner, 2000):

-   "Clearly articulate and define the values corruption accords to the
    environment and natural resources. This can be done through
    **legislation** (protected areas, pollution standards etc),
    **policies** (environmental management), and **conventions** (World
    Heritage Sites; Ramsar; Biodiversity; Climate Change etc).

-   Establish an effective **monitoring system** that relies on public,
    private and civil society input. Only by **pooling resources,
    information and exposing corrupt practices** through joint
    initiatives can we close the loopholes. The environment -- perhaps
    more than any other sector -- lends itself to such a collaborative
    effort as NGOs and business have extensive networks, resources and
    knowledge they can deploy in the absence of adequate public sector
    funding.

-   Develop an effective system of **incentives and sanctions** to
    reward compliance. The price of corruption must increase
    dramatically but at the same time the rewards for clean business
    transactions must also be raised. Simply banning a corporation from
    all future tenders for one case of corruption may not be as powerful
    an incentive as a one year ban after which it can regain access to a
    market if it has put in place checks and balances to avoid future
    corruption."

These strategies reflect some of the very basic measures towards
preventing corruption that can be embedded directly into most
environmental programs.

Sector-specific strategies have been developed for the forestry sector.
Both Callister (1999) and Kotlobay and Ptichnikov (2002) suggest
particular activities targeted at transactions that are prone to
corruption. Box 4 presents very specific activities suggested in the WWF
report to address illegal logging and forest crime in the Russian Far
East.

+-----------------------------------------------------------------------+
| **BOX 4. WWF suggested strategies to tackle illegal logging and other |
| forest crime (taken from Kotlobay and Ptichnikov, 2002)**             |
|                                                                       |
| **Taking urgent measures to counter illegal forest turnover and       |
| degradation**                                                         |
|                                                                       |
| -   Banning or considerably reducing the procurement of hardwoods for |
|     2-3 years.                                                        |
|                                                                       |
| -   Conducting effective forest management (forest cadastre) and      |
|     determining the remaining stocks of hardwoods and valuable        |
|     coniferous trees.                                                 |
|                                                                       |
| -   At least doubling the payment for the use of forests, especially  |
|     hardwood trees.                                                   |
|                                                                       |
| -   Creating a regional center to coordinate activities and train     |
|     personnel of all state structures that control the distribution,  |
|     procurement and sale of biological resources.                     |
|                                                                       |
| **Making accounting for forest resources more transparent and         |
| effective**                                                           |
|                                                                       |
| -   Tightening control over the accuracy of statistics provided by    |
|     lumbering enterprises in their annual reports.                    |
|                                                                       |
| -   Introducing mandatory sale of standing timber to commercial       |
|     timber procuring organizations through auctions, and reducing     |
|     considerably the non-competitive use of timber by issuing         |
|     appropriate instructions by the heads of administrations at all   |
|     levels.                                                           |
|                                                                       |
| -   Ensuring the publication of information in the mass media about   |
|     the allotment of sites, introducing open registration of          |
|     applications for use of forests, holding contests and giving      |
|     leasing rights with investment requirements for reforestation and |
|     non-commercial intermediate wood cutting.                         |
|                                                                       |
| -   Stopping short-term lease of forest sites. Promoting long-term    |
|     lease of forest sites and rejecting short-term lease.             |
|                                                                       |
| **Tightening control over logging**                                   |
|                                                                       |
| -   Separating the controlling functions of leshozes (local public    |
|     forest management agency) from economic ones.                     |
|                                                                       |
| -   Ensuring that all leshozes are financed from the budget (by       |
|     2005).                                                            |
|                                                                       |
| -   Making the work of the State Protection Services more effective   |
|     by improving its financing from the                               |
|                                                                       |
| -   budget and revising and expanding the powers of its staff,        |
|     including rewarding its employees through the use of funds        |
|     obtained in the form of penalties and compensations paid for      |
|     violations of forest utilization rules.                           |
|                                                                       |
| -   Developing a document at the federal level that regulates the     |
|     confiscation of technical and transport means used for illegal    |
|     logging and transportation of timber.                             |
|                                                                       |
| -   Establishing a ceiling for damage that may be caused by breaches  |
|     in forest utilization rules beyond which a lease-holders company  |
|     will be stripped of his lease and logging license.                |
|                                                                       |
| **Control over timber transportation and storage**                    |
|                                                                       |
| -   Proposing that regulations on transport certificates for the      |
|     transportation of unprocessed timber be worked out and enacted at |
|     the federal level.                                                |
|                                                                       |
| -   Tightening control over mandatory registration of all warehouses  |
|     and exchanges of unprocessed timber by appropriate administrative |
|     and tax authorities.                                              |
|                                                                       |
| -   Raising penalties for the transportation of timber without proper |
|     documents.                                                        |
|                                                                       |
| **Control over the sale of timber**                                   |
|                                                                       |
| -   Introducing customs codes for the Korean and Siberian Pine.       |
|                                                                       |
| -   Developing and enacting regulations on the mandatory sale of      |
|     unprocessed timber to foreign countries through auctions.         |
|                                                                       |
| -   Raising export duties for unprocessed timber and lowering them    |
|     for processed timber in order to encourage timber processing      |
|     inside the country.                                               |
+-----------------------------------------------------------------------+

These two examples of anti-corruption measures demonstrate very
different levels of detail that such strategies can be tailored to
address -- from generic mechanisms that can be applied to most
environmental programs to very specific customized approaches for
particular sub-sectors that attend to local conditions.

In developing an anti-corruption strategy or its components, the first
and the most logical step should be to conduct a sectoral diagnostic
assessment of corruption. This process should include both a
multidisciplinary assessment, involving targeted audience surveys and
focus groups, and assessments of existing legal frameworks, institutions
and programs. The focus of the assessment should be to identify and
analyze existing programs and activities conducted by different
institutions and stakeholder groups, to pinpoint particular transactions
in the environmental sector that are the most vulnerable to different
kinds of corruption, to identify openings for anti-corruption
interventions, and, finally, to develop priorities for anti-corruption
strategies. Such an overview can provide clear direction to develop
practical programs that target the most vulnerable and harmful impacts
of corruption.

Development and implementation of the strategy should be based on best
practices and lessons learned from anti-corruption activities
implemented in the environmental sector and any other sector when it is
appropriate.

It has been proven in practice that the most effective anti-corruption
strategies are those that combine enforcement, prevention and awareness
elements. For sustainability, anti-corruption efforts need to emphasize
the preventive reforms and public awareness components because these
ultimately reduce the opportunities for corruption to occur in the first
place.

In Table 1, we identified several types and levels of corruption in the
environmental sector. Table 2 presents both the areas vulnerable to
corruption and anti-corruption tools that are likely to be appropriate
and effective in addressing corruption.

###### TABLE 2. Vulnerabilities and Possible Responses 

+--------+-----------------------------+------------------------------+
| *Level | ## Are                      | ## Anti-Corruption Tools     |
| of     | as vulnerable to corruption |                              |
| corru  |                             |                              |
| ption* |                             |                              |
+--------+-----------------------------+------------------------------+
| Grand  | -   Environmental and       | -   Lobbying for reforms:    |
| corr   |     natural resources       |     transparency,            |
| uption |     policy and regulations  |     accountability, citizen  |
|        |     development             |     empowerment              |
|        |                             |                              |
|        |                             | -   Watchdog groups          |
|        |                             |                              |
|        |                             | -   Public oversight         |
|        |                             |                              |
|        |                             | -   Public-private dialogues |
|        |                             |                              |
|        |                             | -   Investigative reporting  |
|        |                             |                              |
|        |                             | -   Public awareness         |
|        |                             |     campaigns                |
+--------+-----------------------------+------------------------------+
| Mid    | -   Distribution and        | -   Process reengineering    |
| -level |     designation of          |     (streamlined procedures  |
| corr   |     environmental/natural   |     -- "one-stop-shops,"     |
| uption |     resources and           |     transparency with        |
|        |     territories for         |     embedded control         |
|        |     particular utilization  |     mechanisms)              |
|        |     (including through      |                              |
|        |     public procurement).    | -   Straightforward          |
|        |                             |     regulations to minimize  |
|        | -   Permitting and          |     discretion and enhance   |
|        |     certifications --       |     transparency and         |
|        |     issuing permits and     |     accountability           |
|        |     certificates for        |                              |
|        |     different utilization   | -   Justified reasonable     |
|        |     of territories and      |     standards and            |
|        |     natural resources, and  |     requirements             |
|        |     operating of industrial |                              |
|        |     sites including permits | -   Watchdog groups          |
|        |     for emissions,          |                              |
|        |     discharges, and solid   | -   Investigative reporting  |
|        |     wastes.                 |                              |
|        |                             | -   Stakeholder groups       |
|        | -   Environmental           |     awareness and education  |
|        |     assessments (including  |                              |
|        |     EIA)                    |                              |
+--------+-----------------------------+------------------------------+
| >      | -   Enforcement             | -   Process reengineering    |
|  Petty |     (inspections and        |     (streamlined and         |
| > corr |     policing) -- (1)        |     transparent procedures   |
| uption |     inspections by          |     with embedded control    |
|        |     environmental           |     mechanisms)              |
|        |     protection agencies and |                              |
|        |     other related agencies  | -   Strengthened and more    |
|        |     to assess whether       |     efficient enforcement    |
|        |     established             |                              |
|        |     environmental standards | -   Incentive/reward system  |
|        |     are being met, and (2)  |                              |
|        |     enforcement via         | -   Stakeholder groups       |
|        |     policing violations     |     awareness and education  |
|        |     such as, for example,   |                              |
|        |     poaching, illegal       | ```{=html}                   |
|        |     logging, emissions,     | <!-- -->                     |
|        |     etc.                    | ```                          |
|        |                             | -   Independent inspection   |
|        |                             |     groups (like WWF CEDAR   |
|        |                             |     groups in Russian Far    |
|        |                             |     East)                    |
+--------+-----------------------------+------------------------------+

To address corruption on the level of [policy development,]{.underline}
anti-corruption program should be focused on reforming the
decision-making process to be more transparent, opening draft documents
to public discussions, conducting negotiated rule-making, implementing
control mechanisms to ensure public official accountability, and
introducing clear and open procedures for lobbying**.** Anti-corruption
strategy on a policy development level can be viewed as inherently
cross-sectoral. To achieve better results, interested civil society
groups representing different sectors can develop coalitions or
alliances around common interests and goals, and together lobby
government for reforms.

To prevent corruption and pursue particular environmental interests on
the level of policy development, additional activities can be
considered. Citizen watchdog groups, for example, have proved to be very
effective in monitoring the government. Such watchdog groups usually
consist of professionals in environment and policy development who
develop and implement a system of monitoring of government activities
including, for example, establishing policy priorities and decision
making process, and reporting and publicizing any discovered
wrongdoings. Another tool that can be effective is establishing an
institutionalized dialogue among stakeholder groups and the government
to address and resolve potential corruption problems in environmental
programs early through developing policies and laws. This can be
accomplished by establishing joint working groups or councils, or
implementing negotiated rule-making procedures. The mass media can also
play an important role, working along with the watchdog groups, to
conduct investigations into alleged corruption and publicizing their
reports. Public awareness is a very essential element in developing
public understanding and getting public support for reforms.

To address corruption in the [distribution of environmental resources,
and in permitting and certification,]{.underline} anti-corruption
strategies should be focused on several areas: bylaws and regulations,
process reengineering, and effective oversight. It is essential to
ensure that bylaws and regulations are clear and do not leave too much
room for subjective interpretation and bureaucratic discretion. Existing
and draft laws and regulations should be assessed to increase the risk
for committing corrupt transactions. Laws and regulations should be
written in a plain language to reduce the opportunity for subjective
interpretations.

Streamlining is an important element in preventing corruption in any
process related to the distribution of resources or issuing permits.
Streamlining or simplification makes procedures clear and
straightforward, reduces the number of direct interactions with
officials, and reduces bureaucratic red tape to enhance process
transparency and embed internal and external controls.

Enhancing transparency in bureaucratic procedures and decision making
process is very essential to reduce opportunities for bureaucrats to
manipulate with rules and regulations in their personal interests. Laws
and regulations should be publicly available so that operators can know
and understand the rules. This would reduce opportunities for official
extortion due to the legal illiteracy of citizens.

Watchdog groups can also be very effective for this kind of corruption
by monitoring decisions made by government and keeping officials
accountable for their actions.

Corruption that occurs in [enforcement practices]{.underline}
(inspections and policing) requires similar type of responses as the
previous one with regards to process streamlining and establishing clear
regulations. At this level direct interactions between citizens and
businesses and representatives of environmental enforcement agencies are
most frequent. Officials who conduct inspections are usually underpaid
and are not given incentives for conducting fair inspections. Incentive
based system that envisions rewards for professional honest inspections
should be introduced along with strong control and oversight mechanisms.

**Conclusions**

The environmental and natural resources sector has number of areas that
are vulnerable to different kinds and levels of corruption. Some
environmental programs and projects address corruption by improving
transparency and accountability in government practices by conducting
traditional for environmental programs activities such as, for example:
increasing public awareness, introducing better management practices,
conducting training, improving legal and regulatory system. But often,
environmental programs underestimate the damaging impact of corruption
in achieving their environmental objectives and do not include direct
anti-corruption activities into their scope of work. Those programs that
try to address corruption often do it in a non-systematic way or as a
single activity and thus are not very successful in achieving
significant results.

It is our strong opinion that any environmental and natural resources
programs should assess any potential risk of corruption and develop an
adequate strategy to address it. Anti-corruption activities can be
either embedded into environmental programs or vice versa
anti-corruption program can be extended to environmental sector. In both
cases though experts from both, environment and anti-corruption areas,
should be equally involved to make efforts more professional and
effective.

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