4. THE CONCEPT OF CORRUPTION

 

4.1.        Definition
 

There are a lot of various definitions of corruption, but the most precise and clear definition of this social phenomenon is provided in the Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee: Fighting corruption in the EU of 2011[44]:

 

Corruption shall mean an abuse of power for private gain.

 

This concept includes corruption in both the public and private sectors.

 

The scientists of the Law Institute of Lithuania offer a more detailed definition[45]:

Corruption shall mean any behaviour of any person employed in civil service (state politician, judge, state official, civil servant or other equivalent person) or in the private sector, exceeding one’s authority, behavioural standards established in legal acts or company's internal rules, in the pursuit of private or other persons’ advantage thus causing harm to the interests of the State or individual natural or legal persons.

 

The key elements of corruption:

1) personal authority held

  • the authority defines a person's behaviour in certain circumstances. It is usually embedded in:
    • a specific legal act (for example, the ethical principles of civil servants are embedded in the Republic of Lithuania Law on Civil Service, the Law on the Adjustment of Public and Private Interests in the Civil Service, etc.);
    • the procedure descriptions or rules approved by an organisation (for example, internal rules of conduct, codes of ethics, employment contracts, staff job descriptions of companies / institutions / organisations, etc.).

2) behaviour conflicting with the authority held

  • this behaviour can manifest in the following:
    • active actions, when it is behaved on the contrary to the rules established;
    • omission, when no required actions are taken deliberately.

3) pursuit of undue advantage for oneself or other persons

  • the advantage may be pursued for:
    • the private person himself / herself;
    • a friend, co-worker/associate, family member;
    • any other person.
  • possible type of advantage:
    • material advantage (money, property, services);
    • immaterial advantage (avoidance of costs, experience, fame, etc.).

4) damage

  • damage may be caused to:
    • the State and the society (the public interest);
    • any enterprise, institution, organisation in any legal form;
    • any natural person or a group of persons.
  • possible type of damage:
    • material (loss of property, losses, etc.);
    • immaterial (loss of good reputation, investments, income, etc.).

 

Corruption - related criminal acts shall mean bribery, trading in influence, graft, other criminal  acts committed in the pursuit of private or other persons’ advantage in the  public administration sector or by providing public services, namely the abuse of office or exceeding one’s authority, abuse of one’s authority,  tampering with official records and measuring devices, fraud, misappropriation or embezzlement of property, disclosure of an official secret, disclosure of a commercial secret, misrepresentation of information about income, profit or property, legitimisation of the proceeds and property of crime, interference with the activities of a public servant or a person discharging public administration functions, or other criminal acts, if these acts are committed with the aim of seeking or demanding a bribe, offering a bribe, or concealing or covering up the act of taking or offering a bribe[46].

 
4.2.       Forms of Corruption in the Private Sector
 

Corruption between business and the public sector entities

 

According to public opinion, corruption is the most prevalent in relations between the public and private sectors. The representatives of the public sector whose duty is to satisfy and defend the public interest, for undue advantage (bribes) from the representatives of the private sector, perform actions or make decisions for the advantage of the latter and to the detriment of the public interest.

Public sector shall mean the entirety of state and municipal bodies and institutions, which perform the functions of public administration and are financed by the resources of the State budget and municipal budgets.

 

Public administration[47] involves:

  • adoption of administrative decisions;
  • control of the implementation of laws and administrative decisions;
  • provision of administrative services[48] established by law;
  • administration of the provision of public services[49];
  • internal administration of an entity of public administration[50].

 

Private sector shall mean the entirety of private legal entities (including state and municipal enterprises as well as public limited companies), the purpose of which is to satisfy private interests (mostly — to earn money / profit) and the activities of which in terms of their compliance with the requirements laid down in legal acts are to a greater or a lesser extent monitored by the representatives of the public sector.

 

Corruption-related acts committed by the representatives of the public and private sectors are usually divided into:

Systemic (grand) corruption, which refers to cases, when business entities offer bribes to the higher-level civil servants or politicians in order to gain favourable decisions or state orders for their business. This type of corruption is common in the following fields:

  • lawmaking (when politicians with legislative powers are bribed in order to achieve legal regulation in favour of only a small group of private business interests);
  • public procurement (when bribed civil servants protect specific business entities by setting qualification requirements for suppliers or technical specifications for purchased objects, etc., which limit competition);
  • civil engineering and territorial planning sectors (when bribed persons authorised by the State, in breach of the requirements of legal acts, issue building permits to business entities, change land purpose, approve detailed plans illegally, etc.);
  • environmental protection sector (when corrupt environmental protection officials issue pollution permits illegally, adjust environmental impact assessments, are negligent in controlling waste management implemented by business entities, etc.);
  • justice system (when judges are bribed in order to gain favourable decisions during the trial; this field is characterised by exceptional immunity and great discretion in decision-making).

 

Characteristics of grand/systemic corruption:

  • This type of corruption has both material and moral detrimental effect on Lithuania's political and economic system.
  • The corruption of such level is characterised by higher bribe amounts, and often there are long-term mutually-beneficial corruption relations between bribers (usually business representatives) and bribe takers.
  • Systemic (grand) corruption not only diminishes the trust of the citizens of Lithuania in democratic governance of the State, promotes disrespect for laws and ruins the concept of a democratic state governed by the rule of law, but it also results in huge economic losses. Economic losses manifest through the loss of the State budget revenue, decline in investments, weak economic growth or distortion of competition in the market.

 

Petty (or household) corruption refers to illegal reward paid by citizens to the lower-level civil servants in order to avoid penalties or obtain public services by avoiding bureaucratic procedures or possible delays in decision-making. The ultimate premises for manifestation of petty corruption are in city and district municipalities, healthcare institutions, also in bodies and institutions that are authorised to implement administrative supervision and apply administrative penalties (Police, Tax Inspectorate, Customs, etc.).

 

Characteristics of petty corruption:

  • This type of corruption usually involves a larger group of persons and has a particularly negative moral effect on the citizens of Lithuania.
  • Business and citizens encounter this type of corruption in their daily environment; therefore even a one-time negative personal experience creates an impression of massive bribery involving all levels of authorities.
  • The belief that all authorities are highly corrupt promotes disappointment with state institutions, distrust with politicians and the Government, and thus creates an impression that bribery is the best and fastest way of solving a problem. Due to the aforementioned reasons, a part of the corruption crimes in these institutions are committed on the initiative of citizens themselves.

 

Corruption among business entities

 

Information about cases of corruption in the private sector or between individual entities of the private sector is practically never made public. It is likely that this occurs for several reasons:

  • business entities do their best to conceal this type of information in order to protect their reputation;
  • this problem was not yet examined in depth and its extent was unknown, thus it did not receive proper attention;
  • the society treats such offences in the private sector as unfair actions that do not incur criminal liability rather than corruption-related offences, thus showing partial tolerance.

 

A research conducted by the scientists of the Law Institute of Lithuania in 2014[51] showed that Lithuania is not a stranger to corruption in the private sector either. The research identified various potential corruption mechanisms in the following fields, for example:

  • the media (withholding (non-publication) or retouching detrimental information about the person who paid a bribe; defamation and other types of repression or harm to the interests of persons who have fallen into disfavour of media representatives, competitors or other clients for a payment, etc.);
  • sports (voting violations in sports organisations and federations, bribery, gifts and other types of remuneration for falsification of sports results; manipulation of the course, results or statistics of sports competitions, etc.);
  • education (trade in grades, examination tasks, diplomas, entrance examinations to higher education institutions; “buying” ratings for institutions of high education, etc.);
  • provision of legal services (simultaneous representation of two opposing parties; provision of fictitious services in order to launder money; unfair representation of interests, etc.);
  • personal healthcare services (payments in order to receive treatment without a queue, forgery of health certificates; protecting pharmaceutical companies by prescribing more expensive or inappropriate medicines/pharmaceuticals for patients, etc.);
  • pharmacy (fictitious clinical research; illegal sponsorship for physicians and pharmacists; market sharing, etc.);
  • business operations (embezzlement or misappropriation of a company's property; leaking of confidential information to competitors; adjustment of proposals; cartel agreements; choosing suppliers that offer bribes, etc.).

 

Thus, in their nature and purposes, corruption-related acts characteristic to the private sector are analogous to the acts committed in the public sector; only in this case, damage is caused not to the State, but to one or several business organisations.

It is noteworthy  that shareholders of companies often even do not give thought to the massive extent of damage caused to  the business organisations managed by them due to an organisation’s inappropriate internal rules of conduct and job descriptions, which give a broad discretion to company directors or ordinary managers; also, due to absence  of effective control of activities of the latter resulting in abuse of the authority entrusted to authorised employees  of a company and  the employees’ quite frequent use of  organisation's property for personal purposes by choosing suppliers that each time offer them an undue payment rather than those that offer the best price-quality ratio for their goods and services.

These unfair actions of employees cause triple damage to their business organisation, as it: 1) receives lower-quality goods / services and thus incurs irregular costs, 2) purchases the required goods / services for a higher price, 3) loses its reputation in the market, and, when the news go public — in the society.

 

4.3. Corruption-Related Risks and Potential Consequences of Corruption
 

It is generally agreed that corruption is unacceptable. Both business organisations and the authorities refer to combating corruption as a part of companies' social responsibility, thus more and more companies list anti-corruption as one of their values.

Organisations are interested in fighting corruption, because otherwise it can lead to serious legal sanctions and other negative outcomes. Therefore, organisations increasingly more often analyse their operations in order to define the key risks of corruption and apply preventive measures.

 

Potential consequences of corruption:

Risk of legal persecution. Corruption poses a huge legal risk both to business organisations and their employees — the risk of assuming criminal and civil liability for the organisation as well as responsibility for business partners and suppliers. Responsibility risk for the performance of subsidiaries lies with their parent companies, and organisations doing business outside Lithuania take additional risks of being prosecuted under laws of other countries.

Risk of costs. The cost of organisation's participation in corruption can be very high in terms of fines, compensations for damages, etc. In the worst cases corruption, can pose a threat to an organisation's existence. Ruined reputation may result in lost business opportunities. In public procurement, the anti-corruption clause is defined by law. This practice — used to block corrupt suppliers — is becoming increasingly common in tenders of the private sector as well.

Financial risk. A real threat is the inability to grow up financially and to attract investors. Organisations involved in corruption often have difficulties in getting a loan from national or international financial institutions. Should the recipient of funds prove to be involved in corruption, the available loan agreements with creditors and financial institutions may be terminated. If it transpires that an organisation is involved in a corruption scandal, responsible investors refuse to invest in shares and may withdraw the investments they have already made.

Risk to reputation. Ruined reputation influences the value, share price and future business opportunities of an organisation. Organisations with a reputation of unethical practices are regarded as undesirable business partners, thus, they lose clients and have difficulties in attracting good employees.

 

Increasing expectations of accountability raised by the authorities and the general public put increasing pressure on companies to act ethically, enhance the reputation risk and aggravate the potential consequences.

In Lithuania, high ethical standards are most often met by the international players, i.e. foreign investors or companies exporting their products or goods to Western European, US and Scandinavian markets, still, gradual orientation of the rest of business organisations towards these markets is also observed.

According to a quarterly research — Investors' Confidence Index for Lithuania (ICIL)[52] (Q1 2016) one of the major factors promoting ethical behaviour in business is the importance of a company's trademark and reputation. This factor was marked by 83% of respondent investors. Other equally important factors include public recognition (57%), consumer pressure (38%) and globalisation (31%). The interesting thing is that one of the more distinct reasons for business ethics indicated by business representatives is a mere belief that it is just the right thing to do.

 

It should be noted that quite often the companies enforcing ethical and transparent practices may decide to refrain from expanding their businesses in countries with tenacious and prevalent corruption or even leave such countries altogether. Unfortunately, this does not solve the problem, as the market is then entered by organisations with lower standards. Companies with high standards should perceive themselves as a part of the solution to the problem by being a good example and using their influence on the authorities, suppliers and business partners, by initiating cooperation with other market players and supporting civil society organisations. Helping the society to act properly, companies would actually also help themselves.

 

Corruption causes a huge damage to the State, business and each individual of the society. Some of the resonant scandals, which caused severe damage to all above-mentioned entities, include:

 

Schools in Sichuan Province. In 2008 an earthquake in the Chinese province of Sichuan resulted in a collapse of more than 7,000 classrooms (mostly in rural areas), leading to the death of nearly 5,000 students and the injury of over 15,000 students[53].

The schools attracted most attention namely because of the fact that in some areas they were the only buildings, which collapsed.  By the way, older schools did survive the earthquake. This led to allegations of corruption on the part of the officials of the Chinese Ministry of Education and agreements between construction companies, as new schools were built without meeting technical standards for construction, saving on construction materials or using low-quality materials.

 

Volkswagen emissions scandal (“emissions defeat devices”). Unfortunately, even the large companies with good reputation worldwide that have been there for years are also not safe from greed-driven corruption scandals. One of such companies is the German car producer Volkswagen. In 2015 it turned out that approximately 11 million cars manufactured by this company have a piece of software, which falsifies pollution emissions data (commonly called “emissions defeat devices”) [54]. It is acknowledged that the cases of forgery resulted in huge losses to the giant car manufacturer.

 

Shopping Centre Babilonas in Panevėžys. A similar case in the Lithuanian case-law practice can also be mentioned. Fortunately, in this case it was possible to avoid specific accidents. The essence of the case: a representative of the Fire and Rescue Department under the Ministry of the Interior of the Republic of Lithuania, being fully aware of the serious violations of fire safety measures and deviations from project documentation (e.g. insufficient number of fire alarm sensors, the distribution of which did not comply with building standards) at Shopping and Entertainment Centre Babilonas, gave illegal and unjustified instructions to his subordinate employees to abuse office and sign the deed of compliance of the above-mentioned object as suitable for use, which, in case of fire, would pose a substantial threat to the safety of the society,  health and life of the people[55].

 

4.4. Legal Regulation of Corruption and Related Liability
 

The application of criminal law is an extreme sanction (ultima ratio) used to defend the society against illegal actions and applied only for the most dangerous of offences, including corruption-related offences/criminal acts.

 

Lithuania is a member of the major international anti-corruption conventions, which have established the obligation of the State to criminalize corruption. The majority of these conventions, inter alia, obligate the signatory state to implement criminal liability for bribery in the private sector.

  1. EU Council Framework Decision[56] 2003/568/JHA of 22 July 2003 on combating corruption in the private sector;
  2. United Nations Convention against Corruption[57];
  3. Criminal Law Convention on Corruption[58];
  4. Civil Law Convention on Corruption[59];
  5. Convention on Combating Bribery of Foreign Public Officials in International Business Transactions[60].

 

Corruption-related criminal acts, which incur criminal liability, are listed in the Republic of Lithuania Law on Prevention of Corruption, and their composition is defined in the Criminal Code of the Republic of Lithuania (hereinafter referred to as the CC). Less dangerous corruption-related offences are defined in other legal acts and usually result in milder punishment (for example, disciplinary or administrative liability).

Article 2(2) of the Law on Prevention of Corruption, corruption-related criminal acts shall mean bribery, trading in influence, graft, other criminal  acts committed in the pursuit of private or other persons’ advantage in the  public administration sector or by providing public services, namely the abuse of office or exceeding one’s authority, abuse of one’s authority,  tampering with official records and measuring devices, fraud, misappropriation or embezzlement of property, disclosure of an official secret, disclosure of a commercial secret, misrepresentation of information about income, profit or property, legitimisation of the proceeds and property of crime, interference with the activities of a public servant or a person discharging public administration functions, or other criminal acts, if these acts are committed with the aim of seeking or demanding a bribe, offering a bribe, or concealing or covering up the act of taking or offering a bribe. .

The Annex No. 5 to the Handbook provides a detailed description and analysis of 5 main corruption-related criminal acts[61]: bribery (Article 225), trading in influence (Article 226), graft (Article 227), abuse of office (Article 228) and failure to perform official duties (Article 229).

 

Criminal liability for the above-mentioned criminal acts  applies to persons that have committed these criminal acts  in the territory of the Republic of Lithuania or the citizens of the Republic of Lithuania  as well as  other persons permanently living in Lithuania that have committed criminal offences abroad; and the liability for the criminal acts listed in Articles 225-227 of the CC (bribery, trading in influence and graft), which must be criminalized under international conventions and international agreements signed by Lithuania, is applied to all persons, regardless of their citizenship and place of residence, or the place of offence, or if the person is held liable for the offence according to the laws of the place of the offence.

 

It should be noted that for a long-time corruption was regarded a national offence, i.e. an offence, which stays within the borders of one state. However, in the long-run, in the context of globalisation processes, business organisations started to expand and relocate their activities to other countries, often located on different continents, including the less developed countries.

Vicious practices became prevalent, where businesses, in order to enter and establish themselves on the third-country markets without any competition, started making undue payments to the government representatives working in these countries.

Understanding that this type of international corruption has become an urgent moral and political problem, which hinders the principles of good governance of the state and the principles of economic development as well as distorts international competition, in 1997 the OECD adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions[62].

Pursuant to this Convention, any attempts to bribe any foreign public official are regarded as corruption-related criminal offence and incurs criminal liability according to the national law. Criminal liability for this type of offences/acts is also applied in Lithuania. More detailed information on the national legal regulation of corruption in some foreign states and international legal regulation of corruption as well as specific examples of corruption are provided  in  Annex No. 5 to the Handbook.


[44] http://www.europarl.europa.eu/meetdocs/2009_2014/documents/com/com_com(2011)0308_/com_com(2011)0308_lt.pdf 
[45] P. Ragauskas, E. Kavoliūnaitė-Ragauskienė, E. A. Vitkutė (2014) Korupcija privačiame sektoriuje: normatyvinė samprata ir paplitimas tam tikrose srityse (in English: Corruption in the Private Sector: Normative Concept and Prevalence in Appropriate Sectors), Vilnius: Justitia. http://www.stt.lt/documents/soc_tyrimai/Korupcija_privaciame_sektoriuje._LTI.pdf 
[46] Article 2( 3) of the Republic of Lithuania Law on the Special Investigation Service.

https://www.e-tar.lt/portal/lt/legalAct/TAR.9C9FA25983BC/StiOBRAAYr 
[47] Article 2(1) of the Republic of Lithuania Law on Public Administration.

https://www.e-tar.lt/portal/lt/legalAct/TAR.0BDFFD850A66/OCQvcNCBEt 
[48] Administrative service  means activities of an entity of public administration comprising the issue of authorisations, licences or documents confirming particular legal facts, accepting and processing declarations, providing consultations to persons on issues regarding the competencies of the entity of public administration, providing information of the entity of public administration as defined by the law, performing administrative procedure.
[49] Civil service means social, education, science, culture, sports and other services defined by laws, provided by legal entities controlled by state or municipality institutions. In cases and procedures defined by laws, public services may be provided by other persons as well.
[50] Internal administration means activities aimed at ensuring independent functioning of an entity of public administration (structure arrangement, management of documents, personnel, available material and financial resources) in order to implement the functions of public administration.
[51] P. Ragauskas, E. Kavoliūnaitė-Ragauskienė, E. A. Vitkutė (2014) Korupcija privačiame sektoriuje: normatyvinė samprata ir paplitimas tam tikrose srityse (in English: Corruption in the Private Sector: Normative Concept and Prevalence in Appropriate Sectors), Vilnius: Justitia. http://www.stt.lt/documents/soc_tyrimai/Korupcija_privaciame_sektoriuje._LTI.pdf 
[52] More information on the results is available on the website:

http://www.investorsforum.lt/files/LIPI%20ICIL/LIPI_2016_Q1_-_LT_-_Final.pdf 
[53] https://en.wikipedia.org/wiki/Sichuan_schools_corruption_scandal 
[54] http://www.telegraph.co.uk/finance/newsbysector/industry/11886419/The-Volkswagen-scandal-reveals-the-corruption-of-the-Lefts-regulation-dreamworld.html 
[55] Case No. 2K-359/2010 of 2 February 2010 of the Panel of Judges of the Division of Criminal Cases of the Lithuanian Supreme Court.
[56] http://www.stt.lt/files/129_doc_file_1_115815.pdf 
[57] http://www3.lrs.lt/pls/inter2/dokpaieska.showdoc_l?p_id=289015&p_query=&p_tr2=l?p_id=289015&p_query=&p_tr2= 
[58] http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=161366&p_query=&p_tr2= 
[59] http://www3.lrs.lt/pls/inter2/dokpaieska.showdoc_l?p_id=197963&p_query=&p_tr2= 
[60] http://www.oecd.org/corruption/oecdantibriberyconvention.htm (English version)

http://www.stt.lt/files/103_doc_file_1_094520.pdf  (Lithuanian version)
[61] Chapter XXXIII Crimes and Misdemeanours Against Civil Service and Public Interest of the Criminal Code of the Republic of Lithuania.
[62] An authentic text of the Convention in Lithuanian  is available here: https://e-seimas.lrs.lt/rs/lasupplement/TAP/1b1cff20316211e6a222b0cd86c2adfc/cf641ec1316211e6a222b0cd86c2adfc/format/ISO_PDF/