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Case studies

The csc case study template: corruption case studies.

Download the CSC Case Study Template for use in your own research or study [PDF 797 KB]
Book of Case Studies: Understanding Corruption. Order from the UK.
Book of Case Studies: Understanding Corruption. Order from the US.

The faculty at the Centre for the Study of Corruption (CSC) have developed the CSC Case Study Template for use in teaching and research. It has been extensively field-tested amongst students and forms the basis for an entire module of our online MA in Corruption & Governance.

Case studies are a widely used tool in campaigning and policy-making, both in relation to corruption and other subjects. In an educational context, they are perhaps most frequently and systematically used in business schools, with the Harvard format being widely recognised as an effective device for practical analysis. The CSC Case Study Template is designed to allow a systematic analysis of a case; a judgement to be made as to whether it is or is not a case of corruption; and the presentation of information in a readable form that has multiple end-uses, including policy-making, advocacy, campaigning and education.

We believe the CSC Case Study template offers a useful approach to anti-corruption problem-solving. The theory behind this approach is simple: if you have a good understanding or diagnosis of the problem, you are more likely to find a solution; and the diagnosis needs to examine a case from angles that include the harm, the benefits, the enabling environment, systems failures and the effectiveness of penalties. The CSC Case Study Template is designed to give such a description of a corruption problem, combining a concise narrative with a rigorous analysis from all angles, including the problem of how it came to happen.

The template:

Provides a systematic analysis of a case of corruption
Describes and analyses the case in a manner that can be used for campaigning, educating, advocacy or policymaking
Draws out key insights
Combines practical and academic approaches
Gives students and researchers a tool they can use to analyse any case of corruption – including determining whether it is actually a case of corruption.

Case Studies:

Petty Bribery in the UK [PDF 0.99MB]

Understanding Corruption: how corruption works in practice

Barrington, r., dávid-barrett, e., power, s., hough, d. (2022). understanding corruption: how corruption works in practice . newcastle upon tyne: agenda publishing., order your copy now.

Corruption is known to be a complex problem, and understanding corruption in its many forms and global reach is the work of many years. This books tells the story of how corruption happens in practice, illustrated through detailed case studies of the many different types of corruption that span the globe.

Written by an expert team, each case study follows a tried and tested analytical approach to understand the different forms of corruption (bribery, political corruption, kleptocracy and corrupt capital) and how to tackle them.

With an emphasis on the harm such corruption causes, its victims, and where it has been tackled successfully, the authors draw lessons from the case studies to build a picture of the global threat that corruption poses and the responses that have been most effective.

Understanding corruption in the twenty-first century: towards a new constructivist research agenda

Review Article
Published: 12 January 2021
Volume 19 , pages 82–102, ( 2021 )

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Sofia Wickberg 1

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The search for a universally acceptable definition of corruption has been a central element of scholarship on corruption over the last decades, without it ever reaching a consensus in academic circles. Moreover, it is far from certain that citizens share the same understanding of what should be labelled as ‘corruption’ across time, space and social groups. This article traces the journey from the classical conception of corruption, centred around the notions of morals and decay, to the modern understanding of the term focussing on individual actions and practices. It provides an overview of the scholarly struggle over meaning-making and shows how the definition of corruption as the ‘abuse of public/entrusted power for private gain’ became dominant, as corruption was constructed as a global problem by international organizations. Lastly, it advocates for bringing back a more constructivist perspective on the study of corruption which takes the ambiguity and political dimensions of corruption seriously. The article suggests new avenues of research to understand corruption in the changing context of the twenty-first century.

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Approaches to Corruption: a Synthesis of the Scholarship

Monica Prasad, Mariana Borges Martins da Silva & Andre Nickow

Corruption, Crisis, and Change: Use and Misuse of an Empty Signifier

The abuse of entrusted power for private gain: meaning, nature and theoretical evolution

Joseph Pozsgai-Alvarez

Author’s own translation.

Interestingly, in French, ‘corruption’ also refers to the sexual abuse of youth, reflecting the original polysemy.

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Wickberg, S. Understanding corruption in the twenty-first century: towards a new constructivist research agenda. Fr Polit 19 , 82–102 (2021). https://doi.org/10.1057/s41253-020-00144-4

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Accepted : 18 December 2020

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DOI : https://doi.org/10.1057/s41253-020-00144-4

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7 What Can We Learn about Corruption from Historical Case Studies?

Mark Knights is Professor of History at the University of Warwick where he has directed its Early Modern and Eighteenth Century Centre. He has published many works on seventeenth- and eighteenth-century Britain, and his book Trust and Distrust: Corruption in Office in Britain and its Empire, 1600-1850 will be published by Oxford University Press.

Published: 14 July 2021
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The chapter shows how a historical approach can offer a productive and useful dataset and tools to understand corruption and anticorruption. Since corruption has existed across time and space, and is multifaceted, involving politics, economics, law, administration, social, and cultural attitudes, it can best be studied in a multidisciplinary way that includes the study of the past as well as the present. A historical approach offers ways of thinking about change and continuity, and hence also about how and why reform processes occur and are successful. Historical case studies can test and challenge social science models but also offer different, more qualitative, evidence that can help us to reconstruct the mentalities of those who refused to accept that their behavior constituted “corruption,” as well as the motives of those bringing the prosecution or making allegations. Historical sources, often offering multiple perspectives of different participants, can also enable us to form a more holistic view of corruption scandals and of the important role of public discussion in shaping quality of government.

This chapter will argue that history can offer something important to the study of corruption and quality of government—and of course can in turn learn from other disciplines. This may seem a surprising claim when quantitative studies, based on large datasets from opinion surveys, such as the various indices that are routinely subjected to mathematically informed interrogation, are simply not available for the past. But what may seem like an obstacle to cross-disciplinary conversation may actually be an advantage, since the historian is freed from sometimes dubious datasets, correlations, and abstractions; is able to test some of the models and conclusions put forward in other disciplines; and can offer vital contextual analysis. Indeed, history offers a mass, and many different types, of data—press reports, legal cases, legislative debates, diaries, correspondence, and governmental inquiries, to name but a few—that are seldom explored by social scientists because they do not easily lend themselves to treatment by some of their methodologies and perhaps because the past is conceived of as “not relevant” to the present. But historians have studied quality of government and corruption, albeit in a somewhat patchy way, and there are always echoes and resonances of their themes across time as well as space ( Aylmer 1980 ; Burns and Innes 2007 ; Dirks 2006 ; Geltner, Kroeze, and Vitoria 2017 ; Graham 2015 ; Harling 1996 ; Harling and Mandler 1993 ; Hellmuth 1999 ; Hurstfield 1967 , 1973 ; Kramnick 1994 ; Kreike and Jordan 2004 ; Marshall 1976 ; Peck 1990 ). If we accept that concerns about good government, and corruption in particular, are not just a “modern” phenomenon, history offers a huge array of data to help us explore which reform processes worked, which didn’t and why. History offers the scholar and the policymaker another important and useful tool. So this chapter is a plea for a multidisciplinary approach that includes history far more than at present, though it is not an argument for the superiority of that discipline over others.

The discussion that follows seeks to set out how a historical approach based on the collection and analysis of empirical, archival data can be useful. The focus will be on corruption as a quality of government issue, though quality of government more generally generated a vast and useful pre-modern literature, as numerous treatises and pamphlets were written as advice and counsel to rulers, primarily to monarchs but also to assemblies, republican regimes, and the wider public. Political theory considers works by Machiavelli, Hobbes, Locke, Montesquieu, and others but these writers were part of a much larger public discussion about good kingship and good government that penetrated far down the social scale, not least because the Reformation in church government, as well as rebellions and revolutions in Britain and across Europe, and participation in both local government and imperial ventures, required many to take a position about whether government was working well, needed reform, or had to be overturned. Analysis of this extensive public debate would merit a book in its own right, so the subtheme here of corruption will be used to illustrate some broader themes.

The chapter’s brief is to explain the methodology of the historian— how we can learn about corruption through historical case studies and why we should embrace them—rather than the conclusions of what particular lessons history might suggest, though some of the latter will nevertheless surface and more are available in a freely downloadable report written for Transparency International ( Knights 2016a ). Both the latter and subsequent observations in this chapter are informed by my work on corruption and office-holding in Britain between 1600 and 1850 (Knights, forthcoming, 2021b). During that time there were some very significant changes in the way that corruption was conceptualized, how it proliferated, and how it was reformed (for the wider evolution of the concept see Rothstein and Varraich 2017 , chapter 3 ). Corruption shifted from what was primarily a religious concept to one concerned with politics, economic, and the state; opportunities for corruption expanded as the state and empire expanded; and reforms abolished the sale of office, curbed gift-giving and embezzlement, defined what constituted public money, and introduced an actionable concept of “abuse of trust.” In other words the “early modern” period, as it is known, was a key one in the evolution of about the evolution of corruption and anticorruption and therefore worthy of study for what it can tell us about the development of good government.

The Importance of Case Studies and Context

History is a broad discipline with a range of different methodologies, ideologies, and concepts (for overviews of history and its methods see Tosh 2008 , 2015 , 2018 ; Jordanova 2006 , 2012 ). Nevertheless, most historians use archival material that is often generated by institutions or individuals, enabling historians to marshal evidence and create or test theories through compilations of case studies. Some in the social sciences may find this approach problematic and overly concerned with a particular moment in the past at the expense of broader conclusions. Case studies can indeed be unhelpful when the love of telling a particular story or the detail of reconstructing the past obscures the wider point that such evidence can illuminate or when the compilation of evidence becomes an end in itself, with little analytical framework to guide the reader or draw out more general conclusions; but the latter is simply poor history rather than a reason to avoid history altogether. A good case study will, in fact, highlight the importance of context for understanding the challenges facing government, something that anticorruption studies are gradually accepting as more and more important ( Heywood and Johnson 2017 ; Heywood 2018 ; Johnston 2006 , 2012 ; Nicoletti 2017 ). Indeed, there has been something of a “historical turn” to the study of corruption, a recognition that the past has important things to tell us about what has or has not worked, why they did or did not succeed, and what conditions needed to prevail for reform to be successful. Different legal, economic, religious, and moral as well as political and social cultures all shape government and attitudes to corruption. It matters, for example, if a country has a tradition of fiduciary law: the legal concept and practice of a “trust” by which a principal entrusts property or powers to an agent to act as a “trustee.” A trust thus carries legal duties and responsibilities for which the agent can be held accountable but also much more discretion than a contract. Without that notion or framework, the idea of “entrusted power” is unlikely to take firm root. Britain and Spain, which developed legal histories along different lines, thus had different anticorruption trajectories.

An effective case study—or even a microhistory—can also explore the role and beliefs of individuals within the macro data often studied by social scientists, adding an important layer of analysis that examines the behavior of agents within the game being played ( Ginzburg 1993 ; Center for Microhistorical Research. http://www.microhistory.org/ ). By drilling down into detail, a case study’s particular spatial or temporal focus can help us better understand the factors driving or preventing reform; and global and transnational case studies (for example, the study of transnational corporations, such as the European East India Companies) can explore processes of interaction and points of comparison. Cumulatively, case studies provide data from which generalizations are possible even if they are contextually colored.

If social scientists appreciate the value of the notion of path dependency, they will necessarily have to engage with the history that helped to shape it ( Hellmann 2017 ). And that requires a recognition of the role of contingency and local circumstance. Britain’s history of pre-modern anticorruption was thus fundamentally shaped by its religious reformation; parliamentary tradition; acquisition of empire; legal and print culture; and its process of socioeconomic transformation. But none of these factors was a fixed determinant. Each of them was vigorously contested and hence fluid: history suggests that there were often multiple paths that might have been taken and that the path pursued reflected a complex of contingent and contested factors. Venality of office, for example, was removed in Britain by a protracted legal and legislative process; but in France it took a relatively swift revolution. Path dependency does not mean historical inevitability, since both the direction and nature of the pathways were often bitterly fought over—the direction of the reformation, the triumph of parliamentary sovereignty, the freedom of the press, an increasingly independent judiciary, and economic liberalism were all deeply controversial and disputed. So the particular context matters. And this applies to peoples as well as institutions and structures. People are themselves conditioned by their historical context. And the choices made at one time shaped the mentalities of the next generation(s) because individuals are partly conditioned by their historical environment: “different historical circumstances make different kinds of actors” ( Little 2017 , 324). That means that there is no one single, universal, timeless right path but rather a variety of different strategies that have worked (or not) in different contexts. If the problems of government were the same over time and space, universal laws and practices would surely have been developed by now to prevent it.

A historical understanding of change thus challenges “one-size-fits-all” solutions. A good deal of research and international policy in the late twentieth and early twenty-first centuries assumed that corruption is universal and that universal remedies are therefore appropriate. A historical view, which involves reconstructing different ways of thinking about and tackling corruption in the past, challenges this and suggests that corruption and anticorruption evolved according to local contexts, and that these contingent factors should be taken into account by modern policymakers if they want to be successful.

The reconstruction of the past requires imagination—and imagining ourselves back into past lives and contexts helps us appreciate that although basic emotional responses of fear, love, hatred, and greed have always existed, their expression and form have always been constructs, the result of pressures from society, culture, religion, law, the economy, and the state (for the history of emotions see Plamper 2017 ; Reddy 2001 ; Rosenwein 2006 ). The universal, rationally calculating, self-interested actor beloved by some economists would be hard to find in history: such a view of human nature is itself a construct. Understanding the different mindsets of the past should thus be of interest to policymakers because they challenge current assumptions.

Change and Continuity

One obvious area that history can help with is change and continuity over time. A “long view” can correct any assumption that corruption and anticorruption are, as has sometimes been claimed, very recent phenomena and intrinsically connected either with “modernity” ( Engels 2017 ) or with the wave of NGO policies developed from the late 1990s onwards. Corruption and anticorruption have existed throughout history, even if the types and even concept of corruption have themselves changed over time ( Geltner, Kroeze, and Vitoria 2017 ; Buchan and Hill 2014 ). One way of charting this evolution is through historical discourse analysis ( Brett 2002 ; de Bolla 2013 ; Pocock 1987 ; Skinner 2002 ). Increasing quantities of historical, printed material have been digitized and are now searchable in interesting (though not always unproblematic) ways. History can thus help chart the evolution of the terms and concepts in which we are all interested and suggest that although the discourse of “corruption” does similar work across time—giving a moral and often political charge to accusations that something has decayed from its original or ideal purity—its specificity was given to it by its context. What was once described or conceptualized as corrupt in the past (charging interest on money, for example, which was known as usury) are now no longer seen as such or hold much less sway, in many countries at least ( Fontaine 2014 ; Hawkes 2010 ; Nelson 1969 ).

Another important aspect of the historical study of change and continuity has to do with causality and processes of reform and innovation—essential features of any anticorruption strategy or policy for the improvement of government. Given that there is now a general awareness that modern corruption policies may not have been as swiftly effective as their designers hoped, understanding the speed and nature of change is clearly central to current policy formation. By looking at the past we can suggest how, and in what conditions, reform processes came about and flourished; and, more generally, how transformations of government have worked. Historians, together with social scientists and political thinkers such as Weber and Marx, have developed a large range of theories to help explain different types of change and reform processes (for overviews see Kramer and Maza 2002 ; Little 2000 ; 2007 ). Indeed, the word “reform” is itself one with a deep history, a contraction of the word “reformation,” the term applied to the major changes brought about by the birth and development of the protestant church when it broke away in the sixteenth century ( Innes 2007 ). It is therefore instructive to reflect briefly on how historians have explained and characterized the fundamental shift of views, practices and institutions during the Reformation—not least since “corruption” was a term most frequently applied in the pre-modern British context to religious belief to denote original sin or sins of the body and mind and because corruption has always had a moral connotation. Historians have had, of course, more than one interpretation of the Reformation: it used to be seen as a rapid process, dictated from above, but the growing consensus is now that although there were some early adopters it was generally a slow process, burning from below and taking several centuries to complete—not least because belief was embedded in social and cultural practices that shaped mind-sets and often proved stubbornly resistant to reform ( Clark 2000 ; Haigh 1990 ; Ryrie 2013 ; Shagan 2003 ; Tyacke 1998 , 2007 ). So a study of the Reformation will caution against thinking that a major set of reforms can ever be achieved simply by dictat or legislative frameworks, necessary though those may be: changing cultural values takes time. There was a “big bang” of legislative change in the 1530s, both in terms of religion and administration, but this took far longer to be implemented at the local, parish level; and historians increasingly talk of a “long reformation” that, for some, lasted from the early sixteenth until the eighteenth century.

Thinking about how big shifts in institutional and individual culture come about is thus an essential part of the historian’s remit but is also the task of those seeking to escape the collective action problem of a prevalent culture of corruption. So another interesting model to “think with” is provided by historical sociologist/philosopher of science Thomas Kuhn’s ideas about the “Scientific Revolution” ( Kuhn 2012 ). He argued that a fundamental change in basic concepts and practices of scientific discipline could constitute a paradigmatic shift. This occurred when practitioners encountered anomalies that could no longer be explained by the universally accepted paradigm, which was not just a way of understanding science but a complete worldview in which that understanding operated: “science” was not a single strand of activity but one embedded in much larger worldviews. When enough anomalies had been accumulated, the study of science was thrown into a crisis in which new ideas were tried out—though this process involved a series of protracted attacks before a new paradigm prevailed. The term “revolution” may imply quick and sudden change, but in reality the process was more protracted, involved social and intellectual change, and was messy. Kuhn’s ideas are now contested—the history of science has generally seen apparently-conflicting ideas as far more able to coexist than Kuhn allowed ( Toulmin 1972 ; Iliffe 2017 )—but the question of what leads to paradigmatic change is still a relevant one. In the context of quality of government, we might talk of a paradigmatic shift in the notion of office-holding, for example, during the period 1600–1850 in Britain. This involved a series of scandals and contests that cumulatively chipped away at the old paradigm of office as either a piece of personal property or as something responsible only to the monarch, making that paradigm ultimately untenable ( Johnston 1991 ; Knights forthcoming 2021b). During this process there were rival and contested versions of what should be the right paradigm. Rather than a single factor or set of policies explaining all change, a complex of factors was at play. And even once a paradigmatic shift had been achieved, remnants of the old paradigm still prevailed: in Britain, administrative reform did not remove some of the social attributes of corruption—such as securing jobs for friends and cronies or for members of a similar class and background. Even Charles Trevelyan, the man most associated with civil service reform in mid-nineteenth century Britain and who hated patronage as a fundamentally corrupting phenomenon, argued that his plans for a more professional and efficient civil service were designed to bolster the strength of the educated social elite. In a private memorandum he asked,

Who are so successful in carrying off the prizes at competing scholar ships, fellowships, &c. as the most expensively educated young men? Almost invariably, the sons of gentlemen, or those who by force of cultivation, good-training and good society have acquired the feelings and habits of gentlemen. The tendency of the measure will, I am confident, be decidedly aristocratic ( Hughes 1949 , 72).

History can thus highlight how and why some things remain stubbornly resistant to change (even whilst other elements are reformed), and governmental powers embedded in social hierarchies would be one of them. Another might be imperial exploitation: some (though not all) historians argue that anticorruption may actually have served to legitimize colonial rule ( Dirks 2006 ; Epstein 2012 ).

My own view is that change has often been cyclical or wave-like—a process —rather than a single event or a linear progression from one state to another. Whilst some social science has suggested that societies become “modern” after tipping irrevocably over a threshold to become societies where the quality of government enables economic prosperity ( North, Wallis, and Weingast 2009 ), historians might want to stress a series of recurring crises and reform processes, perhaps even occurring in different fields (administrative, economic, political, social, legal) at different times, that cumulatively brought about change (and which therefore also left some aspects unchanged). Such waves of reform were necessary because new forms of corruption emerged as the state, society, and economy developed in new ways. And anticorruption often coincided with repeated campaigns for moral reform—waves of anxiety that the moral fabric of society needed repair through a return to moral codes ( Dabhoiwala 2012 ; Ingram 1996 ; Lemmings and Walker 2009 ; Roberts 2004 ). Such moral reform campaigns punctuated the pre-modern period, and arguably continue to shape the modern, and they provided a macro framework within which the moralizing spirit of anticorruption could prevail. Moral reform, we might say, was a macro factor—a context adding weight to micro factors such as personal agency and meso factors such as governmental or institutional initiatives. The combination of macro, meso, and micro factors helps to explain change—and hence also to underline that each context is sui generis even if there may be general principles at work ( Knights 2017a ). It is not that we should think of personal integrity, institutional reform, and societal reform as alternative or rival strategies—a mixture of all three were necessary. History thus urges analysts of the quality of government to avoid single-factor explanations and to think, as Michael Johnston does, of how different complexes of factors require different solutions ( Johnston 2006 ).

Another macro factor, much studied by historians, is the role that war has played in state formation and hence also in the development of corruption and anticorruption. War has often opened up huge challenges for good government as states struggled to meet the logistical demands of conflict and to regulate the provisioning and supply of troops ( Baker 1971 ; Brewer 1990 ; Brewer and Hellmuth 1999 ; Graham 2015 ; Graham and Walsh 2016 ). Defeat—or even mismanaged victory—has historically led to major reform processes, forcing states to confront the reasons for their inadequacies and their spiraling costs ( Christie 1962 ). A historical approach will thus pay attention to exogenous factors as well as internal or institutional ones. Such factors are, of course, difficult for policymakers—recommending losing a war is clearly not such a great anticorruption solution—but they might help us define what elements of postwar reform can be replicated in more peaceful contexts.

History never repeats itself in the same ways; but challenges can recur in ways that are constructive to think about. The developing world, in Africa and Eastern Europe, is of course a collection of many different local and national stories and we should be very cautious about uncritically applying the lessons of the European experience to other contexts; but in some ways many of the processes at work in developing countries bear marked similarities with the pre-modern European world in terms of the importance accorded to social institutions such as friendship, patronage, kinship, and gift-giving which shaped how office-holding was/is regarded. The analysis of a historian will thus chime closely with the anthropological approaches to corruption developed by Oliver de Sardan and others ( Blundo, Sardan, and Arifari 2006 ; de Sardan 1999 ). The European history of the ways in which corruption was socially embedded and constructed may help us better understand the complexities of such processes in our own day—and make us pause for thought before simplistic condemnation of practices that have been ubiquitous in the past in Western societies. Indeed, pre-modern Britain was a developing country, offering a well-documented case study of a prolonged struggle against corruption.

The history of the pre-modern is also instructive for insights into the notion of office and the interplay between the “state” and private or semi-private enterprises. Many modern definitions of corruption tend to focus on “public office,” but in the pre-modern world, office was something far larger ( Braddick 2000 ; Condren 2006 ; Goldie 2001 ; Withington 2005 ). It extended to the unpaid officers in the parishes and towns, the trustees of road and rail improvement schemes, the unpaid magistrates whose responsibility it was to enforce the law at the local level. Indeed, the pre-modern state was very rudimentary: it had few paid officials, no police force until the mid-nineteenth century, and was hugely reliant on the integrity of local power brokers. And these local officers owed their authority in part to royal or government appointment, but also, and as much, to their social and cultural standing in their communities. This meant that for much of the pre-modern period, Britain had a weak, dispersed “central” state and was reliant on officials whose authority stemmed as much from their social and cultural capital as it did that of the office itself. This will be a familiar scenario to those investigating development and corruption.

There are other ways in which a dialogue between past and present can be helpful. The “dispersed” and voluntary pre-modern state was also reliant on private entrepreneurs to fill what we might now see as state functions, another issue that faces many current policy concerns about procurement. The early state had to make use of a tribe of contractors, especially in order to meet the demands of war, which were frequent and unprecedentedly expansive, particularly after the late seventeenth century, when war between continental rivals tended to spill out across an imperial and hence increasingly global theater. Contractors supplied the troops with food, drink, clothing, and transport—in an era when army commissions were for sale and when commanders sought profit from the contracts they could award. The army and navy contracts or were private, profit-seeking individuals fulfilling a public role in which the national interest was paramount. The resulting tensions played out in scandal after scandal of contractors abusing their positions to make excessive profits. The pre-modern state was thus composed of hybrid private–public partnerships that should be of interest to anyone concerned about how these operate today.

Two other examples of public–private hybrid institutions may be instructive. The Bank of England was for most of its life a semi-private, semi-public institution: it raised money from private investors but made loans to the state and became the custodian of public money. It was able to float the national debt because private investors received a profit from the interest on the money they loaned and the interest payments were secured on the receipts of public taxation. There were plenty of critics of the Bank which saw it as a corrupting force, advancing the “monied men” at the expense of the “true interest” of the nation, the landed classes. Another excellent example of a hybrid public–private body is the international trading companies on which the British Empire was in part founded, such as the East India Company and the Royal Africa Company. These were given state monopolies over certain regions or types of trade and in return they often gave or loaned money to the state; but they were also private companies ( Bowen 2006 ; Brenner 1993 ; Lawson 1993 ; Pettigrew 2013 ; Stern 2011 ). Those in authority in these companies were officers who had a duty to the public as well as to the company. The East India Company called their members “servants,” and those in the non-military arm of the company “civil servants,” from which the term moved in the nineteenth century to become a descriptor for public state servants.

Studying these hybrid public–private institutions should offer insights into the inherent conflicts of interest that lay in their structure and how these were tackled in the past. The history of the East India Company is of a “company state” with extensive political and civil powers as well as economic ones and its officials had to be reined in over the course of the later eighteenth and nineteenth centuries because of their widespread corruption and rapacity. Such a history is a reminder that good governance is not just about “state” officials unless we interpret that category in very broad terms; that the state has struggled in the past to regulate private–public relationships; but that some successes were possible. In 1782, for example, MPs in the House of Commons were barred from acting as contractors or having a personal interest in such concerns. As a Commons report—on such a lowly issue as hiring wagons and horses—put it, the private contractor was in effect a public officer:

The Officer is a Trustee for the Public; as such, he is bound to husband the Public Money committed to his Charge with as much frugality as if it were his own; what he saves, or what he gains, he save and gains not for himself, but for the Public. He ought not to be permitted, by any management or contrivance, to carve out for himself an interest in the execution of a public trust ( Commissioners of Public Accounts 1782 ).

Remarkably, the pre-modern period was actually stricter than the modern era about forcing MPs to withdraw from voting on issues in which they had a personal financial interest. Across the seventeenth and eighteenth centuries this was established convention, consolidated in a 1797 ruling by the Speaker ( Platt 1961 ). The reasons why this is no longer in force are something of a mystery, but the revival of this older procedure in the modern Parliament could only be beneficial ( Knights 2019a ).

The Benefits Offered by Varieties of Historical Data

Historical sources can offer data that other material about corruption might offer far less readily or not at all. What, then, is the type of data that historical analysis yields and how might it be useful? Diaries and correspondence, in particular, but also trial transcripts and memoirs offer insights into the mindsets of perpetrators of corruption and of those observing corruption in others. If corruption is often secretive, “ego” and legal documents can help to recover something of the private world that can help explain why people acted in the way they did. And this is illuminating, since very few individuals accused of corruption saw themselves as corrupt and offered plenty of justifications and vindications of their behavior ( Knights 2018a ). Such comments can be supplemented by the many instances of public professions of innocence—some of them successful defenses against prosecution. These underline that corruption is always a contested concept, that can be viewed in very different ways and that can be legitimized, at least in the eyes of the accused. But it is not just ego documents that can be revealing. Corporations such as the East India Company amassed huge archives ( Ogborn 2007 ) that enable us to examine how corruption worked in a semi-public, semi-private institution, and what measures it took to curb it. Literary and cultural works, including graphic satire, and material culture (house-building, art collection, precious objects) can also tell us much about the emotive display and ridicule of corruption and how these too change over time. This section will explore two key types of sources that both generate questions about corruption and help us to answer them. The first relates to legal and institutional history; the second to personal and cultural history.

One of the most useful and numerous types of evidence is the legal or quasi-legal: the documents generated by official or semi-official investigations or accounting bodies (undertaken by government departments, by Parliament, and by semi-private corporations such as the East India Company) together with the trials or hearings, and their verdicts or judgments. Such material almost immediately raises a number of questions: about the legal framework, both in terms of legal concepts and of institutions to enforce them; about who brought the prosecutions and why; and about the effectiveness of legal remedies. The cases themselves are also highly revealing, setting out contested notions of what constituted corruption and how behavior that was condemned by the prosecution could be redescribed as benign; about how cases and processes could be frustrated and undermined; and about institutional and personal failings. Each of these dimensions is worth expanding on further and illustrating.

Anticorruption is in part a history of the law and legal culture and here too a historical approach yields results, since legal history shows that legal cultures took time to evolve. Legislation surrounding corruption in pre-modern Britain was extremely patchy. Bribery was a concept limited in the courts to subornation of judges and magistrates, or to electoral malpractice, and it was not until the late eighteenth and early nineteenth century that prosecutions for bribery became possible under common law. Until then, extortion and exaction were far more frequent crimes, placing the blame squarely on the officer rather than those making the payment. Bribery thus has a history; it was not a universal constant ( Noonan 1984 ). It was, for example, closely linked to electoral as well as judicial malpractice. From the late seventeenth century onwards, legislation sought to limit the amount of money spent to influence voters and from 1729 voters were required to swear that they had not accepted a bribe or other inducement. Outside of the fields of justice and elections, the statute book was virtually empty in relation to bribery. There were some medieval laws against bribes given to procure office, reinforced a little in 1555, but only applicable to the realms of justice and the king’s revenue; but there was otherwise something of a legal vacuum until 1809 when “sale” of office was banned.

The paucity of anticorruption legislation had two consequences. First, public law had to borrow from private law. A trust was initially a legal instrument to protect private property by vesting land in the hands of another; but the trustee was supposed to act for the beneficiary of the trust and not himself, an altruism that made the concept attractive when applied to public office. That move was made in the mid-seventeenth century, as a result of the disputes that led to civil war: when the King claimed that he was only entrusted by God, Parliament responded that he was entrusted by the people ( Knights 2018b ; Maitland 2003 ; Maloy 2008 ; 2009 ; Mendle 1995 ). Very rapidly, the application of the notion of trust to public offices of all sorts became quite widespread, at home and in the empire; and in turn this led to the development of a body of law around the “abuse” or “breach” of trust. Indeed, it was this fiduciary concept that underpinned a landmark case in 1783 (still invoked today) that set out both who counted as a public official and the common law on misconduct in office ( Law Commission 2016 ). It is interesting that a developing area of public law seeks to apply these older fiduciary concepts to the present day ( Criddle et al. 2018 ; Finn, 1995 ; Fox-Decent 2011 ).

Second, serious cases of corruption tended to be pursued under the rather flexible charge of “high crimes and misdemeanours” prosecutable via an impeachment in Parliament, that is to say, a trial that took place when the House of Commons brought a prosecution on which the House of Lords passed judgement (Knights, forthcoming, 2021a). An alternative route was to bring a statute, called a bill of pains and penalties, against someone that the House of Commons had judged guilty of a crime and who had fled prosecution. Neither route was very satisfactory: impeachment, revived in 1621 to try a corruption case after a 150-year gap, was last used in 1806 after two failed impeachments of high-profile figures undermined confidence in the process ( Fry 1992 ; Marshall, 1965 ; Tite 1974 ). And in 1781-3 Sir Thomas Rumbold, who had amassed an enormous fortune in India under highly dubious circumstances, escaped a “bill of pains” because it seemed unjust to prosecute him in Parliament rather than the courts, where a higher standard of proof was required. Such cases remind us that the laws surrounding corruption must be invented and that it takes a long while for legal cultures to adapt to changing circumstances. It also reminds us that the law is often a blunt instrument for tackling corruption and that prosecutions of individuals can often back-fire. Tackling corrupt individuals alone—as opposed to the system in which they flourish—is both difficult and insufficient to effect reform. And processes such as impeachments very often become politicized to such an extent that the legal process is undermined. In Britain, trials were no substitute for systematic regulation at the administrative and corporate level or for a set of internalized and explicit ethical guides for behavior. Not that those were easy either. Numerous investigations and reports were conducted by government departments and within corporations such as the trading companies to try to tackle corruption and these provide wonderfully detailed information about malpractice and reform processes. Sometimes investigations into abuses or suggestions for how to change the system were initiated by internal whistleblowers, who generally came out badly from these encounters, and there was very little attempt at a higher level to create a framework in which this type of internal exposure of misgovernment could become routine, a problem that faces many institutions and governments today ( Knights 2007 ; Neufeld 2014 ).

History also underlines the gradual nature of the evolution of proper accounting procedures, which can be explored through analysis of attempts to establish national auditing bodies. As a result of the unprecedented amount of money raised by Parliament to fight the Crown in the civil wars of the 1640s, a number of committees were established to oversee and audit payments and pressure mounted for an overarching public accounts commission ( Peacey 2013 ). Although the latter was abolished in the 1650s, there were new attempts, again in the light of expenditure on war against the Dutch in the 1660s, to institute a parliamentary oversight of accounts. Britain’s entry into large-scale continental (and at times global) war after 1689 reanimated concerns for better national auditing and parliament created a commission of public accounts ( Brooks 1984 ; Downie 1976 ; Seaward 2002 ). Yet this, too, rapidly became a partisan tool and was allowed to lapse in 1716. It was only under the pressure of the (failing) war with the North American colonists that a new commission of accounts was created in 1780. Nor would such a history merely tell us about accounting, since the numerous and highly detailed reports that the new body generated were instrumental in changing administrative and remunerative practices across a wide number of government departments, even if the recommendations took a long time to implement fully ( Harling 1996 ). Thus, higher pay was introduced for public officers to remove the incentive for corrupt practices; best practice was shared across departments; and better auditing techniques were inculcated. The reports—and the minutes of earlier committees and commissions—are a superb resource for anyone interested in the nature of corruption in Britain and the innovations undertaken to curb it and promote good governance.

Turning to the legal cases and investigations themselves, many of which are readily available in published form or on modern databases of archival material, the courtroom or the floor of the Houses of Parliament or the minutes and papers of trading companies offer abundant evidence about attitudes to corruption and to reform. Indeed, some of the cases generated so much material that the problem is too much data rather than too little. The Governor General of India, Warren Hastings, for example, was impeached in a process that lasted from 1786 to 1795 with speeches made by Edmund Burke and Sheridan that went on for days at a time ( Marshall 1965 ). Or, to give another example, when Charles Trevelyan, the future author of the Northcote-Trevelyan report which is generally seen as the blue-print for the modern civil service, prosecuted his boss, Sir Edward Colebrooke, Resident of Delhi, in 1828, the papers generated by the case fill five large volumes in the East India Office archive in the British Library ( Prior, Brennan and Haines 2001 ). Indeed, as both the Hastings and Colebrooke cases illustrate, the data available relates not only to domestic corruption but increasingly to imperial corruption across a wider and wider sphere of influence and control. The Delhi materials allow us to reconstruct two very different views on what constituted corruption and hence also what constituted good government. From Trevelyan’s standpoint his superior, Colebrooke—egged on by his wife——had accepted presents from Indian princes that compromised the East India Company’s integrity. Trevelyan thus condemned a “system of corruption” operating in Delhi that was, in his eyes and those of the Governor General, extensive and damaging (British Library, IOR/F/4/1371/54509, 216, Trevelyan to the Governor General 1830; Papers 1833, 15). Yet Colebrooke had a very different take on his behavior. He came from a family with extensive Indian connections and he regarded the acceptance of gifts from Indian princes as an essential and customary lubricant for cordial relations between the Company and the Indians. Indeed, Colebrooke thought Trevelyan’s attitudes were part of a growing distaste among the British for intimate relations with the native population, who were increasingly being thought of as a corrupt race. And this, Colebrooke believed, would lead to an inevitable breach between the Company and the Indians. The prosecution, and the documents it generated, thus allow us to reconstruct two contrasting views of how to govern and hence also what were the legitimate boundaries for officials. For Trevelyan, quality of government meant never taking gifts; for Colebrooke, they were an essential part of good government. “Corruption,” then, involved clashing visions of how to conduct affairs—it was not a neutral term but part and parcel of the contest.

Such detailed sources allow us to reconstruct cases very fully—indeed more completely perhaps than some modern investigations and trials which are often held in secret, outside of the public domain, or only partially reported. And because many of the key actors left caches of private papers—correspondence, memoirs and vindications—it is possible to see a case in its round and through the eyes of the participants in a way that is seldom possible today. The diary of Samuel Pepys, for example, who faced a number of investigations for corruption, is a highly revealing document—not only does he record the sexual favors he sought in return for the disposal of the patronage he held for the Navy Office, but he also recorded a number of instances when he received “gifts” that were intended to influence his decisions ( Knights 2014 ). Such a personal and revelatory document gives us insights into how Pepys could both be horrified by the corruption of others—he reacted strongly against one official who told him that that “his horse was a bribe, and his boots a bribe and told us he was made up of bribes and that he makes every sort of tradesman to bribe him; and invited me home to his house to taste of his bribe-wine”—and yet also justify his own nest-feathering. Pepys, and indeed others accused of corruption, created a personal code of morality that saw some bribes as honorable. Lord Clive, for example, explained to a committee of the House of Commons what presents he thought were honorable (those that were freely given, not extorted, and rewarded good service) and those that were dishonorable (those that were extorted by force and were simply the result of avarice) ( First Report 1772, 148). The committee thus forced the articulation of assumptions that might otherwise have remained unsaid.

The historical evidence enables us to reconstruct not only the facts of a case but also to explore the contested and blurred boundary between public and private interests that often lies at the heart of corruption and misgovernment. Alfred Hirschman showed that the language of “interest,” on which self-interest depended, was an early modern innovation that took hold over the course of the seventeenth and eighteenth centuries ( Hirschman 1977 ; Force 2003 ). Historical allegations of corruption produced counterclaims that private interest was not necessarily incompatible with the public interest. To give an example, Samuel Vaughan was alleged in 1769 to have tried bribing the prime minister of the day to buy a legal office on the island of Jamaica, where he had considerable interests. Vaughan was part of a radical group in London that was a thorn in the government’s side; it was very convenient to smear one of their number with corruption, especially when the radicals alleged the government of misgovernment. But Vaughan tried to put a “public good” defense: he claimed he had wanted the post because it had previously been mismanaged and he could bring order and regularity to it by employing a competent deputy. Moreover, his defense team said, if corruption was prevalent it could not be resisted by a single man—swimming against the tide was an unreasonable expectation (Vaughan 1769 , 1770 ). At the heart of the case was therefore a judgment about where the public interest really lay and how far an individual should sacrifice their private interests to pursue it. If we are interested in the process by which the dividing line between public and private interests became firmer and clearer, we will need a historical explanation of a process by which waves of scandals gradually shifted public opinion and state action.

How and Why Key Concepts and Discourses Change

This final section will return to how history can help us think about change in order to make two further points: that studying the history of how the concept and language of corruption changed over time can be instructive and that such a history will be one that is not focused solely on the history of institutions and governmental administration but will also include both an ethical debate and a more popular element, charting popular engagement and pressure. Reform cannot be simply a top-down, formalistic process, but must also have an ethical dimension and engage and reflect, as well as lead, popular opinion.

Political scientists have spent a good deal of time trying to define and therefore fix what we mean by corruption (summarized in Philp 1997 ). A historical view will show that the meaning and concept of corruption has evolved over time and that it has always been a contested and ambiguous notion. As has already been noted, for much of the pre-modern period, the word corruption was mostly used in a religious context. After the protestant reformation of the sixteenth centuries it meant original or committed sin—man was a corrupt and sinful creature—but was also associated in Britain with a Catholic Church that was doctrinally corrupt (having moved away from scriptural purity) and institutionally corrupt (selling salvation for money in the form of “indulgences”). At the same time, “government” meant regulation of the self as well as of a nation, and government was only partially conceived of along the lines of a principal-agent model: officials were empowered by the Crown, it is true, but they were ideally to be guided by an internalized sense of public duty, an ethos inculcated both by Christian sensibilities and by classical literature, in which the pre-modern world was steeped. Aristotle and Cicero, in particular, offered influential guides to understanding corruption and quality of government. In the republican tradition of civic humanism, the classics underlined the importance of virtuous governors and of a virtuous population: corruption was the decay of this virtue in both rulers and ruled. These are very different ways of thinking about corruption to today, though echoes of them still survive and they remind us that Western cultures have thought about corruption in very different ways at different times. The focus on the abuse of office emerged in fits and starts over the best part of three hundred years.

One of the reasons why it did was public interest in scandals surrounding corruption and poor government. Whilst there has been a good deal of stress on the importance of civil society in anticorruption, there has been less of a concern with involving a wider public in the process of reform. A historical approach would nevertheless emphasize the importance of this, both because public pressure acted as an important force for change—there is a considerable history on the importance of popular culture, social action and non-elite actors as well as more elite shapers of public opinion—and because public debate helped to define what was acceptable and unacceptable. One way of exploring such forces is to study print culture. Pre-modern Britain had a particularly free press—the government lost control over pre-publication censorship in 1641, on the eve of the civil war, and although it regained some control on and off over the next half-century, after 1695 the government no longer required material to be published under licence. The press not only exposed corruption but was also a participant in the production of corruption scandals, with writers and publishers having their own agendas. These factors made for robust public discussion, with numerous pamphlets, newspapers and printed images—all highly illuminating data sources for anyone interested in the quality of government or in the public management of corruption scandals, and a testament to the depth of public discussion which itself played a significant part in the anticorruption process by increasing pressure on politicians ( Barker 2000 ; Clark 2004 ; Gatrell 2006 ; Knights 2006 ; O’Connell 1999 ; Peacey 2013 ; Raymond 2003 ; Sommerville 1996 ). The press articulated anxieties about corruption, either in the abstract or in relation to particular scandals. To be sure, such scandal-mongering was not always productive—a concern with the individual tended to obscure what needed to be structurally reformed—but corruption was a persistent and widespread popular concern, not least because it was used for political and electioneering purposes. Partisan rivalries were a key driver of the anticorruption campaigns as much in the past as now. But this also meant that politicians and polemicists were interested in using corruption to engage and inflame their audiences. This pressure brought about significant change—in the 1640s, for example, and again in the early 1830s, when popular pressure was instrumental in pushing through electoral reform in 1832 ( Aidt 2015 ). Fear of revolution concentrated the minds of the elite very well.

Graphic satires are another useful resource and can illustrate the point about the changing concept of, and attitudes to, corruption as well as the importance of engaging the public and showing how anticorruption became part of the creative and imaginative life of a country. Although the protestant reformation was somewhat distrustful of images, graphic satire could be justified where it had an anti-Catholic purpose ( Morton 2014 ); and one of the most enduring of biblical metaphors was the corrupt tree bringing forth corrupt fruit (Mathew 7:18–19; Luke 6: 43; Job 14:7). Anti-Catholicism and the biblical metaphor of corruption were combined in an image of the later sixteenth century, which showed the roots of a corrupted tree being nourished with money by “the worlde” and being watered by “ignorance” (British Museum 1916, 0212.2, Object reference number: PPA93310, analyzed by Watt, 1991 , 150–4). Lying on the right-hand side is Judas, who had betrayed Jesus for money; and on the other a figure from the Acts of the Apostles, Simon Magus, who gave his name to simony, that is, the buying and selling of clerical office. In this image, the reform(ation) of corruption was being lauded (Figure 7.1 ).

A detail of an untitled, uncatalogued satire from the later sixteenth century (British Museum 1916,0212.2, Object reference number: PPA93310).

We might contrast this with an image from over two hundred years later (Figure 7.2 ).

BM Satires 9214, James Gillray, The Tree of Liberty (1798)

In this satire, it is reform that is being attacked: John Bull is being tempted by a populist politician Charles James Fox with an apple labeled “reform” and the corrupt tree represents an association of negative attributes of reform, since its apples are labeled “conspiracy,” “revolution,” “Age of Reform,” “Slavery,” “Blasphemy,” and even “Treason.” In the background a flourishing tree has a trunk of “Justice” with roots in the “Commons,” “King,” “Lords,” branches of “Laws,” and “Religion” and fruit inscribed “Freedom,” “Happiness,” “Security.” Here, then, is a very different vision of government, in which reform could be dangerous.

The image is a useful reminder that reform was not universally welcomed or popular, and that it could be a pejorative term, particularly at times of crisis—during the French revolution and consequent revolutionary wars, reform was often seen as dangerous. Such prints may have been primarily intended for a fairly elite audience but we also know that they reflected a much more extensive public debate—one of the factors pushing reform in the early nineteenth century was a flood of cheap print that contained some biting critiques of corruption that deeply worried the governments of the day ( Gilmartin 1996 ; Knights 2017b ; Rickwood 1971 ; Wood 1994 , 2009 ). Moreover, allegorical depictions of “good” and “bad” government adorned public spaces, including municipal buildings where governance actually took place. We should not underestimate the power of the visual and the metaphorical to inculcate lessons—and to create visions of both the ideal and the corrupt. Indeed, using prints or historical case studies as a basis for ethical training may have distinct advantages, since they can be tailored to particular local cultures and also defuse the confrontational risks of directly tackling an individual’s moral compass (as an example, a discussion sheet about Pepys is available at Knights 2016b ). The past can help a dialogue with the present.

Conclusion and Future Agenda

History, then, offers a vast dataset of when and why quality of government was compromised or improved; it offers qualitative insights into the mentalities of individuals, groups, and societies that quantitative data alone cannot provide; it offers interpretations of and models for change; and it can show the ways in which corruption was and is part of a larger set of interrelated phenomena. Corruption is a topic in its own right; but it is also a lens through which larger societal problems are visible, that have to do with the process of state formation, the nature of the economy, religious and moral culture, the legal system, and the extent of informed public debate. History suggests that corruption cannot be seen in isolation from these other factors and that policy has to take this larger picture into account if it is to be successful.

All this helps to set an agenda for future research on national but also comparative histories. Although there are some interesting studies of corruption in different European and non-European countries in the pre-modern period, so that we know something about Denmark, Sweden, Italy, the Netherlands, France, Germany, colonial Spanish America, colonial British North America, and China ( Doyle 1996 ; Frisk Jensen 2014 ; Geltner, Kroeze, and Vitoria 2017 ; Kerkhoff 2013 ; Little and Posada-Carbó 1996 ; Moutoukias 1988 ; Paquette 2008; Park 1997 ; Teachout 2014 ; Uslaner and Rothstein 2016 ; Waquet 1991 ), there has been relatively little attempt to compare such experiences in order to analyze when and why anticorruption strategies worked and failed, and how different countries navigated their way through reform (though see Brewer and Hellmuth 1999 ; Crook and Crook 2011 ; Elliott 2006 , chapter 11 ; Innes and Philp 2013 ; 2018 ; Kroeze and Martinez 2018 ; Swart 1949 ; Wagenaar, Kerkhoff, and Kroeze 2013 ). Such a project would in turn throw up important conclusions about the evolution of the quality of government more generally, indicating which political, economic, religious, legal, and print cultures created the best environments (there may well have been more than one type) in which good government could emerge and flourish. Moreover, such a comparative European framework would also embrace an imperial dimension, since many continental nations, and the corporations they spawned, developed overseas colonies and empires that posed very considerable challenges in terms of government and corruption. And that history matters because imperial legacies have been important in shaping contemporary cultures. So understanding our European and imperial histories is not just an academic exercise but should tell us useful things about the processes and frameworks underpinning good government. If history has so far been slightly marginal to cross-disciplinary discussions about corruption and good government, this chapter has sought to make the case that in future it might usefully and routinely have a seat at the table.

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Navigating Corruption: A Case Study from India

In the face of corruption in India, wise business leaders must decide what is negotiable — and what isn’t.

November 22, 2022

Is it possible to be virtuous in a sea of corruption? Indian entrepreneur Rajah Koppala of Avis Vascular Centers is trying to do just that. Hear how he and his team are strategically and realistically fighting against the tide of corruption. And, gain insights from Saumitra Jha, an associate professor of political economy at Stanford Graduate School of Business, on what it takes to understand and navigate challenging ecosystems.

Rajah Koppala trained and practiced medicine in the United States before returning to India in 2013 to create a chain of vascular surgical centers which he calls “mini hospitals within hospitals.” As chairman and managing director of Avis Vascular Centers, he had to learn a lot about operating, quite literally, in a very different ecosystem. In the healthcare industry, much of the corruption is rooted in immense amounts of regulation and red tape. For every license that’s required, 23 in Koppala’s case, there’s an interaction with a public official, and therefore an opportunity for corruption. Koppala has decided that some things are negotiable and others aren’t. In this moral gray area, he has had to acknowledge what’s realistic for his business and has developed a set of consistent, intentional criteria to help him decide when he’ll pay and when he won’t.

“You just have to understand corruption is not going to go away. This goes all the way up to the very top. Everybody has their own self-interest. And to a degree, when the legal system is a little weak, when the wages of a lot of these officers is very low to start with, headwinds make this happen,” Koppala explains.

Saumitra Jha advises that there are certainly risks to giving bribes, even small ones, because once people become aware, he says, “They can ask for more and keep holding you up.” He advocates for strong, consistent leadership, making sure your employees are on board with “doing the right thing,” and finding partners in your industry to face obstacles together.

“Oftentimes in economics, companies might be competing with each other in an industry, but at the political level, they have a lot in common. And so thinking about how to do things at an industry level can often be much more beneficial,” Jha explains.

Rajah Koppala has also learned that relationships with public officials really matter. He encourages his team to have a cup of coffee and talk to the officials so they understand the gravity of the law that’s being broken, while still treating them with dignity. “Relationships equal money,” he says. “When you want to pay less, maintain a relationship.”

Listen to Koppala’s first-hand experiences navigating corruption in India and Jha’s strategies for surviving and thriving in these challenging and turbulent waters.

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Grit & Growth is a podcast produced by Stanford Seed , an institute at Stanford Graduate School of Business which partners with entrepreneurs in emerging markets to build thriving enterprises that transform lives.

Hear these entrepreneurs’ stories of trial and triumph, and gain insights and guidance from Stanford University faculty and global business experts on how to transform today’s challenges into tomorrow’s opportunities.

Full Transcript

Rajah Koppala: You can’t stand here and say, “Look, I followed, let us say, the drug control law or whatever.” And I can’t stand here and say that I will not be a signatory to this. It’s not possible for an Indian businessman at my scale, for sure.

Darius Teter: Corruption isn’t black and white, but when the environment is fluid, where do you draw the line?

Rajah Koppala: I can give this in writing, and you can survey the cases of SMEs who are less than 10 million, everybody would have to get through this.

Darius Teter: Welcome to the second season of Grit & Growth from Stanford Seed, the show where Africa and South Asia’s intrepid entrepreneurs share their trials and triumphs with insights from Stanford faculty and global experts on how to tackle challenges and grow your business.

As we were interviewing for our last episode, we were inspired by a question from one of our guests: Is it possible to be an island of virtue in a sea of corruption? After talking so much about corruption, we thought it might be nice to take a little break and go visit this island of virtue to see for ourselves. After all this podcasting, frankly, I could use a vacation. I could sit on the beach, enjoy the sun, play in the sand, maybe even get a pina colada. But it turns out that even this island has its problems. And it’s hard to relax when there’s something out there, lurking under the water.

You see, in our previous episode, we discussed corruption on a systemic level, how it works, and how you can fight it. But the truth is, many business owners don’t get to engage with systems. They have to deal with corruption operationally. They’re actually swimming in it, and down there things are complicated. So today we’re exploring that question: Can you be an island of virtue in a sea of corruption? And we’re doing it in India with a case study of a business that has been navigating this issue for many years.

Rajah Koppala: Hi, I’m Rajah Koppala, the chairman and managing director of Avis Vascular Centers. We are a chain of vascular surgical centers. We’re more than a clinic; we sublease areas of our hospital to run a mini hospital in that hospital. We call them a store-in-store, for lack of a better word. But we have now 18 centers spanned across India, mostly in South India, but pan-India right now.

Darius Teter: Rajah studied and practiced medicine in the U.S. before returning to India in 2013, and the Indian business ecosystem took some time to get used to. There are some organizations that track corruption around the world, and one of them produces something called the Corruption Perception Index, and that’s where they interview thousands of people, including business people, and ask them, “What do you perceive is the level of corruption in India?” And they have a scale from zero to a hundred where zero means utterly corrupt, just nothing happens without corruption, and 100 means everything operates under perfect legal conditions. I’m just curious: Where do you think India lies? What do you think India’s score is?

Rajah Koppala: I would probably put it around 25, maybe. I have seen worse. When I came back from the U.S., I was shell-shocked. I was like, “This is ridiculous.” And then I’ve since moved on. I would probably rate it somewhere between 25 to 30, at this point, yeah.

Darius Teter: Yeah, that’s true. It’s all relative, right? Well, the actual score for 2021 is 40, so not quite in the middle. And then if you rank all the countries that they survey, they survey 180 countries, India’s right in the middle there, too. They rank 85 out of 180 countries on the Corruption Perception Index. To put Rajah’s story in perspective, we turned to someone who thinks very seriously about these issues.

Saumitra Jha: On that, if I may, I want to share a joke a Pakistani friend of mine told me.

Darius Teter: That’s the voice of Saumitra Jha.

Saumitra Jha: Being from India and having a friend from Pakistan, we always used to make fun of each other. So one day to pull his leg, I said, “Well, you know, Shiraz, Pakistan is the second most corrupt country in the world according to Transparency International.” He said, “Oh, actually we’re the most corrupt, but we bribed them.”

Darius Teter: I love that.

Aside from comedy, Saum has another job.

Saumitra Jha: I’m Saumitra Jha. I’m an associate professor of political economy at the Graduate School of Business at Stanford University, as well as a senior fellow at the Freeman Spogli Institute for International Affairs.

Darius Teter: What is the importance of political economy at a business school?

Saumitra Jha: I think it’s very important. I might be a bit biased, but I think it’s being aware that a lot of the things that we think of as purely driven by markets are actually driven, to a large extent, by politics, as well. Think about food prices: that’s driven by the U.S. Farm Bill and EU agricultural policy or price supports in many developing countries. Or think about labor: that’s driven mostly, to a large extent, by immigration laws and restrictions of mobility. At some level, all markets are connected with politics. I think it helps us become better at strategy and helps us become better at trying to achieve the objectives of our organization, which I think is to change organizations and change the world.

Darius Teter: What Saum says is true all over the world, but it looks different depending on where you are and what you do. When Rajah came back to India, he had to learn how to operate in a completely different ecosystem. You came from the U.S.; you’re a bit naive, as you said. You weren’t really clear on how to navigate the system. You made some mistakes. What are the big lessons that you’ve learned over the years in managing this type of risk?

Rajah Koppala: Well, number one is that you cannot be an island of integrity and virtue in a sea of corruption and mediocrity. You can’t stand here and say, “Look, I followed, let us say, the drug control law or whatever, whatever.” And I can’t stand here and say that I will not be a signatory to this.. It’s not possible for an Indian businessman at my scale, for sure. I can give this in writing and you can survey the case of SMEs who are less than 10 million. Everybody would have to get through this.

You just have to understand this is not going to go away there. This goes all the way up to the very top. Everybody has their own self-interest. And to a degree, when the legal system is a little weak, when the wages of a lot of these offices is very low to start with, there are a lot of factors, headwinds that make this happen. It’s not you alone. It’s not some guys giving money because they want to give money. There’s a background to that. So try to understand, be more empathetic to the problem, and then it will probably be easier for you.

Darius Teter: I want to make sure in this conversation we don’t excuse all other countries and just pick on India, because I think Americans can be a little bit naive about the gazillion ways in which contracting and insurance industries and other things —

Rajah Koppala: Very, very slippery. Even medical practice in the U.S. can be very slippery.

Darius Teter: One of the things … you mentioned that before you went to India and set up your business, you were a physician in the United States. And so how many years did you work in the U.S. as a doctor?

Rajah Koppala: Seven years.

Darius Teter: Seven years. I’d love to hear whether you identified or observed similar types of challenges in the U.S. medical system.

Rajah Koppala: Oh, yeah. I’m never a man to mince my words. It can get pretty close. It can be almost incestuous at times, as well. We had the other extreme back when I was training, where such expensive meals, which a resident can’t even think about, were sponsored by these companies. I remember, I think the bill for each person was 300 bucks a person or something.

Darius Teter: Wait, we’re talking about a drug company hosting doctors for some kind of a so-called conference, right?

Rajah Koppala: Conferences. We’d have cruises. That was a funny part. The cruise would be a four-day cruise for you and your wife. All day they would talk about the drug at various ways; but you’d be in the swimming pool, you’d be drinking, eating, whatever. I keep saying this: they have a law and they have ethics and the ethics bracket is always bigger than the legal bracket, almost all the time. They are happy to compromise here and they’ll stick … be around the law. So they don’t actually break the law, but they’ll be somewhere around breaking the law in the ethics aspect. And that’s where I get a little worried.

Darius Teter: When I was younger and I was working overseas and advising governments, I was such a prima donna, because I had in my mind this idea that the United States had figured all these things out and was best practice. And I’m kind of embarrassed to admit it, but I would be lecturing senior government officials in other countries about their problems. And I was so naive because what the difference in the U.S. is, is that so much of what we call corruption in other countries, we’ve actually legalized it. The whole process of dark money donations for political influence, it’s legal; but it is millions and millions and millions of dollars being spent to influence the laws, but also the regulations that support those laws.

And in most contexts, you would say, “My God, that is so corrupt.” But it’s legal. It’s not ethical, but it’s legal. I think we could do a whole episode about what it takes to get a restaurant license in New York City and actually the story would not be different. It would look exactly the same. Corruption also looks different across industries. For Rajah, it involves red tape, lots and lots of red tape. You’re in the medical field, and presumably this is a field that requires lots of licenses and approvals, and there’s probably quite a lot of heavy regulation in your sector. Do you require a lot of services from public officials in running this chain of hospitals and store-within-a-store treatment facilities?

Rajah Koppala: There is enormous amount of regulation. We need to report to 23 licensing bodies. There are 23 guys who have to give us permission to run a hospital. And sometimes it’s good. Obviously, it’s health care. You’d like regulation and that’s probably the reason why it’s there. But sometimes it’s almost duplication, the same thing going back and forth. Out of the 23 guys, two guys in parallel take care of my fire problem. My fire complaint is done by two different people, for some strange reason. So we have the Department of Fire and then we have the Department of Municipal Affairs that also wants to look into fire, for some reason. So you can get this permission, but that guy will not give permission, and so on. Sometimes it’s almost redundant and ridiculous, but this is how things, especially medical, are regulated the world over. But it’s just extraordinarily special in India. There’s just so many of those permissions.

Darius Teter: Regulations are important to consumer protection, especially in fields like medicine. But each license creates an interaction with a public official and thus an opportunity for corruption. But Rajah found a novel way to decrease these touchpoints.

Rajah Koppala: Well, the store-within-the-store facilities, that’s the other reason why we moved to that model, is that a lot of the onus of licensing is on the store owners — the primary hospitals into which we set up the hospital.

Darius Teter: With the 23 licenses you needed to get, that regulatory forest or jungle pushed you to change your model from having a stand-alone hospital to having sort of a hospital within a hospital, because then the burden lies with the hospital that’s hosting you. Can you translate that into a reduced number of licenses that you have to worry about?

Rajah Koppala: Oh, big time. I operate across five states. Each state, again … when we say corruption, it’s very important to have a very nuanced view. It’s not corruption-corruption, as in a bad word always. But there’s an ecosystem that’s built around it. And I’d have to deal with five ecosystems. There’s no way with my bandwidth I would be able to do it. So we said, “Look, in return, if you lose about 5 to 8 percent of the revenue top line in handling those guys or whatever it takes to set up the licenses and all that, so be it.” This is a conscious plunge we took. But we see examples all the time where less regulation is easier to start, easier to run, easier to make more profits, more shareholder value, more jobs, better promotions, everything. But at my level, with my scale, I can’t cut it down. There’s no way. We just have to play the system and just do all the hacks that will make you follow all the laws. At the same time, make sure your life’s a little smoother.

Darius Teter: But even well-intentioned regulations can have unintended consequences.

Rajah Koppala: This whole thing, there’s a huge ecosystem, like I keep saying. There’s a guy who does PNDT licensing. I do vascular work for the legs. I do ultrasound for the legs and that’s how I diagnose varicose veins, for example. Now, in India — I know it’s done for a good reason, because we have a lot of female infanticides. People would kill female babies in this country. So they went overboard in the other extreme and said, “Any usage of medical ultrasound waves requires a special permission.” And if you don’t have the permission, you could be arrested, you lose your license. It’s a criminal offense not to have it. And that’s called PNDT. So I could be doing an echocardiography, I still require a PNDT. I could be doing ultrasound of the legs, I required PNDT. I could do ultrasound of the brain in a baby, I need a PNDT.

The law is so ridiculous. While it was set up for sex determination in moms, the law is applied pan-across because they have no way of distinguishing a guy who uses it for heart, versus for legs, versus babies. They have no way of implementing the law to that degree. It’s so ridiculous that … now I have 18 centers. In 18 places, I require this certificate. And this one the host hospital will not give me. I have to acquire it on my own. And everywhere it’s a one- to six-month process. So while I can open up a center in 10 days, I have a six-month downtime. I’d apply for everything six months in advance. And why? Because this committee of PNDT meets once in three months. And if, God forbid, they met yesterday, they won’t meet for another 89 days again.

Darius Teter: They want to make sure people are not using medical imaging devices to determine the sex of a fetus and thereby make decisions for infanticide. And so now they’re saying anybody who has any type of imaging device needs a certification. You can’t get it for six months, which means your business literally cannot function. This is an example of a law with good intentions that’s applied to everyone at a huge cost of doing business. That’s one example. This could literally shut you down for months. When you’re navigating all that red tape, it’s almost impossible not to trip up. If the system is rigged to make ethical business impossible, why even try?

Saumitra Jha: I would say that it’s good to be aware that there are a lot of risks associated with giving bribes and engaging in corrupt activities, particularly when you get too connected through these types of illicit transactions with certain people, because you are no longer going to be able to act independently. And people are aware of these things and they can then ask for more and they can keep holding you up until —

Darius Teter: Yeah. You’re hostage now.

Saumitra Jha: Yeah.

Darius Teter: They own you. But by the same token, Saum and Rajah agree you have to face reality.

Rajah Koppala: Coming off a higher horse doesn’t work. I was initially guilty of that. I said, “You know what? I’ve gone there. I’ve seen that. If this doesn’t work, I go back to the U.S.,” and so on. I sort of had this very black or white approach. And in that, I assumed that whatever I was seeing in U.S. was perfect and what I was seeing was not good. Maybe that doesn’t work. It’s a fair amount of gray in both sides. I think there, also, there’s a lot of stuff, and here, also, there’s a lot of stuff. I think a more measured approach works.

Saumitra Jha: It would be nice to say that the long-term benefits outweigh the short-term ones, and from trying to follow the law to the extent possible, but that might not always be the case, obviously. Sometimes things are just going to be difficult.

Darius Teter: In these moral gray areas, every decision is contextual. But what you lose with that approach is consistency. And in this kind of fluid environment, consistency can be powerful. Let’s go back to that island for a moment. There’s a saying in English, “to draw a line in the sand.” It means to set a limit, a boundary, that you won’t cross. Of course, the line itself won’t actually stop you from crossing. It’s not a barrier. There’s no penalty for stepping over it. But the more you cross that line, the less it means and the more it disappears back into the sand.

Saumitra Jha: I think this is why it’s good to be intentional about it. I think the worst situation is where you think you’re being ethical, but it is a death by a thousand cuts, where it’s like, “Okay, here’s the big story that I’m ethical, but then, all right, I’ll make this compromise and then I’ll make this compromise and I’ll do it in these dimensions.” Because one phrase that came up a lot in your discussion was this word “slippery.” That things begin to, once you make those compromises, it’s very easy to keep on making the next one and the next one. In fact, it gains momentum. I think that being aware that that’s the big tendency and saying, well, okay, in this situation maybe it’s life or death and you have to just do a certain thing because it’s better for humanity in the long run. But I think the key is to make it clear. Look, this was done for these reasons and we judged it based on a set of criteria that we think we still abide by, and it was above a certain threshold or it wasn’t.

Darius Teter: I like that. It rises to an existential threat.

Saumitra Jha: Yeah. I think as long as it’s clear what the criteria are, I think that’s the important thing. Because if there’s no line, then there’s going to be no check and no limit.

Darius Teter: Consistency also signals what type of business you’re running: one that’s willing to cut corners or one that tries to operate aboveboard. And that’s why Rajah always tries to pay his fines.

Rajah Koppala: Let’s say the differential is 10 X, and you follow the law, versus paying one X, and getting away by not following the law. Follow the law, and that just makes things easier. Everything is recorded in the system. We forgot to pay a thing called director’s tax. You pay 250 rupees every three months, which we forgot, God forbid. And so we had to pay 100,000 Indian rupees. And then the same guy calls me and says, “Can you pay 10,000 and I’ll just make this go away?” I said, “No, I’m paying 100,000 rupees.” Because I want this thing written up that I forgot and I paid, and therefore this case is closed. I don’t want the next officer who comes here to open this case again. I prefer that approach because you pay 10 X, doesn’t matter, but you made a mistake. You make sure you shut the mistake, you cross your T’s, dot your I’s, and that’s one rule.

Darius Teter: Okay, so this is a key point. The message to your team is: we follow the law. If we make a mistake and we get fined for it, we should pay the fine, but make sure it’s documented. Because you want to establish a pattern with regulatory authorities that you guys own your mistakes, you pay your fines, you’re not going to pay a bribe to get rid of the fine, you’re going to do better to avoid those mistakes in the future. You’re sending out a message to the regulatory group of people that are watching you, what kind of a business person you are.

Rajah Koppala: When you have the soft power of not paying everything willy-nilly, and if you make a mistake, you admit it and you pay the fines, then you’ll be taken seriously when you go with a real problem. That’s my view, at least.

Darius Teter: So how do you remain consistent in an environment where the rules are constantly changing? One way is to have simple criteria that you apply to every decision. Rajah, for instance, has outlined some things that he negotiates and some things that he doesn’t.

Rajah Koppala: In these 23 bodies that are supposed to inspect us, some are subjective, some are objective. Things like taxation, sales tax, income tax, it’s a pure numbers game. You check your numbers every time and then if your numbers aren’t in your favor, it’s a fairly straightforward thing. The whole taxation system, it’s a lot of legalese, but we should be able to handle it. Again, then I, as a law, almost have never paid anything. Then you have the other half, which is subjective. I don’t know. The Pharmacy Act for example, has about 400 points. I’m sure you’ll miss one or two, for sure. You need to let go of some things. For example, we work — we live in a street full of stores that have large holdings that show their wares. The government said it needs to be eight feet by 10 feet or something, some number.

And they came up and said, “Look, everybody who has a holding more than eight feet has to pay a fine.” Now, I could say, “Look, I’m a hospital, so this holding law may not apply to me. I’m trying to give people directions to my place. I run a 24/7 clinic and there’s no other clinic in this hospital.” I have enough reasons which I presented to the commissioner, who didn’t want to hear it. So I paid the fine. But if I had a legal system that would give a decision within a year, I would not pay a final bribe. I would definitely go and litigate that. But I know that if I took this to court, it’d take me at least five years before I got a decision, and the amount at stake was very small.

Darius Teter: So sometimes it makes more sense to pay an unfair fine than to litigate. There’s two things here I want to capture. You’ve said something really interesting. The first is, to be clear about which risks present the greatest threat to your business. In other words, what is the intensity of the issue? What is the potential downside? You’re looking at, if this goes bad, how painful will it be? And then there’s another factor which is, how probable is this risk? Intensity of impact, probability of actually happening. These are two critical factors. You may not have this written down, but dynamically you’re managing this against probability and pain.

Rajah Koppala: Correct.

Darius Teter: Of course, it’s hard to get consistency if you’re not the one making the decisions. Do all of these cases come to you? Or is this something where your team understands the marching orders, they understand the strategic framework, and they make these calls themselves?

Rajah Koppala: I insisted that they all come to me, because I feel in the last seven years the number of things I have to pay out have decreased. And this could, A, be because of better landscape, or B, because we’ve taken a value-based stand against it on most situations. And therefore, just like our vendors talk amongst themselves, so will these guys talk among themselves and say, “Look, if you go there with a trivial problem, they aren’t going to pay. They are going to push back.” And that’s something we’ve learned. We should develop that pushback attitude in the stakeholders.

Darius Teter: I think the other thing is, you don’t want your staff to make those decisions. I wouldn’t want my staff to be trying to figure out where the line is each time. I would want them to move that up to me or to someone I’ve designated to be the arbiter on that question. I don’t want staff to be out constantly agonizing over what is the right thing to do. I want them to always know what the right thing to do is. And if they’re really not sure, then ask somebody. Right?

Saumitra Jha: I think that’s right. And you want to consult the folks who understand what the implications are. I think there’s the ethical side of things which are … but there’s also, of course, the legal side of things. And so leaders have to deal with the ethics and then lawyers have to deal with the law. Within the confines of the law there’s going to be a question of what is the right thing to do.

Darius Teter: Saum says that organizational alignment may be hard, but it’s definitely worth the effort.

Saumitra Jha: On an issue like corruption, as well as of other ethical things that a company’s doing, it really helps to have the buy-in of the employees. Instead of saying, “Well, this is a top down, this is what we do,” which I think has its place, you want to get the message out and convince people, “Look, this is the best thing for all of us,” even though it’s going to mean that we spend more time doing things and it’s going to be hard. It will help you get the right employees, it’ll help you motivate the employees in moments where you’re not going to be able to observe what they’re doing. And I think that the extent to which you can get people on board with these approaches, as well, is often a challenging one, but I think one that’s worth investing a lot of time in, as well.

Darius Teter: All this corruption talk is stressful. So let’s get back to that island. Ah, that’s better. It’s empowering to think about what you can influence in these circumstances: your criteria, your consistency, and your employees. Of course, what’s most distressing are the things that are outside of your authority, especially the bureaucrats who enforce regulations. But while you can’t control how public officials treat you, you can control how you treat them. And that goes a long way.

Rajah Koppala: Relationship equals money. When you want to pay less to maintain a relationship, I’m afraid to say a lot of young business leaders, or even I when I came back, we come up from such a chair that we can sometimes disrespect this process. I’m not saying should you respect it or praise it, but you can’t hurt the guy’s ego. A small inspector comes. He writes the first information report of the so-called law that’s broken. These are the guys who will actually write the report and everything from that point is based on what he writes.

Darius Teter: Right. This very, very junior person. So relationships matter.

Rajah Koppala: It matters a hell of a lot. I now tell my guys, have a cup of coffee, talk to them, see the gravity of the law that’s been broken. And if he insists, then we come up with some number. But make sure this guy’s ego is not hurt. Make sure it doesn’t become a pissing contest between us and them. And it can’t be that. It shouldn’t be that at the first level, for sure. Any junior officer comes, have a cup of coffee. These guys are very small guys, but they need the time under the sun. And his first report is what matters until the end of this case. So this is something that’s very important, this relationship-building with all the guys. In a funny way, they are your stakeholders, as well. I always say, “Look, you have vendors, you have customers, and you have the whole regulatory bodies.” You need to have a manager for that, as well.

Darius Teter: So the government bodies are in your value chain?

Rajah Koppala: Absolutely.

Saumitra Jha: I think that’s absolutely the case. And also, being aware of what their objectives are and helping them achieve those objectives. So many folks want to be better civil servants and they want to advance in their careers. And so giving them the … oftentimes, businesses have a lot of expertise to provide that can help them learn and become better at their jobs. That is an opportunity. I think creating those relationships early in a way where you’re helping people become better at their jobs and treating them not just as a means, I think it can be really valuable down the line.

Darius Teter: Rajah often looks for creative ways to align with public officials.

Rajah Koppala: And I’m a great believer in that soft power. When we had COVID, for example, we were doing free meal distribution. I’m a guy who doesn’t pay the officers, so to speak, on a daily, regular basis. I don’t send them Diwali gifts or whatever. But during COVID, I made officers come and distribute meals as if it was their program, not mine. I actually gave up the credit. Some other person’s benefiting; but also, I’m trying to show that I have this nice side to me, a philanthropic side to me, in which you can participate. We are all friends, we will all go out to the people and say that, “We are out there for you.” I’m a hospital, I’m there for you; you’re the police officer, you’re there for you. They were getting a thousand phone calls about hunger every day when the COVID lockdown happened.

My first million meals, at about 500,000, I made the officers give it. I said, “Look, it’s your show. I don’t even want my name out there. These are the bags of rice and food or whatever. You just go for it.” You have to devise ways in which you can actually engage proactively, appeal to their nice side, if they have one, and say that you are always on that side. And you’re this guy who always doesn’t break the law as a habit, who’s always looking at the welfare of the people around them. And why don’t you join us a little bit? And that would be a nice way of appealing to them, if you can wield some soft power, which is what I believe in.

Saumitra Jha: Allowing other people to take the credit was a good way of building a relationship. I think it’s good to share the credit, not just —

Darius Teter: Hand it off?

Saumitra Jha: Yeah, but I think that I understand why that was the case and I can see that would be very useful. I think the reason I say share the credit is because I think it’s useful to be embedded in the local communities. And that can also make you less susceptible to the holdup situations that you can have when you’re based on relationships with specific members of the police or the bureaucracy. And so having local support where people know that, “These guys, in times of need, they helped us,” it inspires trust that … they’re providing medical services, which require a lot of trust already, so maybe they do care about us as human beings rather than —

Darius Teter: I totally see that.

Darius Teter: For industry-wide issues, it can even make sense to form bonds with your competitors.

Saumitra Jha: Oftentimes, in economics, companies might be competing with each other in an industry, but at the political level they have a lot in common. Thinking about how to do things at an industry level can often be much more beneficial on the political side, saying, “Look, we have this ridiculous queuing system. Is there a way of streamlining it? Can we facilitate that? Can we provide help to the government so it’s better at what it’s doing?” If it’s done at the industry level where people feel like, “Okay, this is a solution that makes everybody better off,” it makes consumers better off, it makes the industry better off, I think the governments often will be quite receptive to it. And particularly, the line ministries folks who want to show, “Look, I did this meaningful thing that helped improve efficiency in this sector.” But that’s best coming from a collective group of folks in the —

Darius Teter: Right. Industry association or something like that. Yeah. This can be an especially powerful strategy for taking on those well-intentioned regulations like the ultrasound law that Rajah mentioned earlier.

Saumitra Jha: Being in a position where you say, “Look, we can make this … we want to maintain the objective and the intent of this rule, but we want to narrow it in these ways that can also free up these other things.” I think that’s exactly where an industry association can be very helpful. Chances are there are going to be others that might have similar issues and then that’s an opportunity to work together to change the regulation or change the law.

Darius Teter: There’s another saying in English, “no man is an island.” You can’t do it all on your own. That’s especially true in these ecosystems. While it may feel like it’s you against the world, if you can get other people on your team, navigating corruption can be a lot less daunting.

Saumitra Jha: I think that at the end of the day, we can get quite cynical about bureaucracies. But I think a lot of these guys are just trying to make things better. And so if you approach them and say, “Look, this is not just my problem, it’s a problem that a lot of us face together. Let’s try and make this work because we want to improve the medical delivery for folks so they can walk in India.” I think that’s a really powerful message that people will resonate with. We all get bogged down in our day-to-day, but remember why you’re doing something, I think. And there are certain messages I think that people will find very appealing. I think there are opportunities there that we sometimes miss by tarring everyone with the same brush.

Darius Teter: All these strategies can help you survive the moral gray areas that come with corruption. They offer ways to mitigate risk and to turn obstacles into allies, but corruption can still be dangerous both to the business and to the people running it. Do you think Rajah’s taking a risk by telling his story as bluntly as he did? I’ve asked him this straight out. I said, “Are you okay with everything you said here being on a podcast?” He said, “Yeah, no problem.”

Saumitra Jha: Given that he is following the law, as he said, 99.99 percent of the time, and when he is not, he’s paying the fines, I don’t think there’s a legal risk. That’s often a question of perception because corruption does seem like it’s ubiquitous. But this is often a case where there’s bandwagon effects and there can often be the case that people think that there’s more corruption than there actually is, or that more people are willing to be corrupt than they actually are. And so there’s often what’s called a false consensus emerging around issues like these. It could be the case that we are actually on this bifurcation moment where even a few individuals acting in a visible way could really change the equilibrium.

Darius Teter: Corruption is contextual. What it looks like depends on where you are and what industry you’re in. And your response has to be contextual too. The first step is to understand the ecosystem and your company’s place in it. You’ve got to acknowledge reality and decide what is actually possible for your business. Being consistent and intentional can give you more control, so have criteria that will help you decide when you’ll pay and when you won’t. A line in the sand is useless if you keep crossing it. Find alignment within your organization and strive for it outside as well. Treat everybody with dignity, especially the junior people who are your primary touchpoints. Don’t assume everyone is a villain. These public officials are entrusted with enormous responsibility to actually make public policy work for people. Finding partners can strengthen your position and make your life easier. Relationships with your industry, your community, even the system itself, can provide solid ground.

Rajah Koppala: You cannot possibly hate the system and make this successful. You have to start falling in love with it somehow. It’s like a relationship you have to build.

Darius Teter: I’m grateful to Rajah Koppala and Saumitra Jha for sharing their stories. This has been Grit & Growth with the Stanford Graduate School of Business, and I’m your host, Darius Teter. If you liked this episode, leave us a review on your podcast app. It really helps us to share the stories of these incredible entrepreneurs with as many people as possible. To learn how Stanford Graduate School of Business is partnering with entrepreneurs in Africa and Asia, head over to the Stanford Seed website at seed.stanford.edu/podcast .

Grit & Growth is a podcast by Stanford Seed. Erika Amoako-Agyei and VeAnne Virgin researched and developed content for this episode. Kendra Gladych is our production coordinator, and our executive producer is Tiffany Steeves, with writing and production from Andrew Ganem and sound design and mixing by Alex Bennett at Lower Street Media.

For media inquiries, visit the Newsroom .

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1MDB corruption scandal in Malaysia: a study of failings in control and accountability

Public Administration and Policy: An Asia-Pacific Journal

ISSN : 2517-679X

Article publication date: 8 April 2020

Issue publication date: 2 July 2020

The aim of the paper is to examine the various aspects of the 1MDB scandal including the extent and types of corruption that occurred and the action taken to deal with them. In doing this, the paper seeks to identify the reasons for the scandal and the lessons that can be learnt to avoid such a scandal in Malaysia and elsewhere in the future.

Design/methodology/approach

The research for the paper is based on evidence from court hearings, reports of watchdog and regulatory agencies, media reports, and various articles and books written about 1MDB.

The paper shows that most of the scandal involved embezzlement, bribery, false declarations and bond mispricing relating to extensive borrowing by 1MDB, and entailed a global network of shell companies and individuals through which the illicit money was passed. It also shows weak governance in 1MDB, poor internal controls within banks, the failure of watchdog and enforcement bodies to take the necessary action partly due to political control over them, and overall the lack of political will to deal with the scandal.

Originality/value

The paper builds on the findings of other papers and books written on the 1MDB scandal. It does this by linking the corruption to the borrowings of 1MDB, the international network of money-laundering and bribery through which illicit money flowed, and the poor internal controls in the organisation. It also builds on previous research by highlighting the failure of banks to identify money-laundering and of watchdog and enforcement bodies to deal with the corruption. A further value of the paper is to identify the lessons that can be learnt about combatting corruption on such a scale.

Embezzlement

Money-laundering
Shell companies

Jones, D.S. (2020), "1MDB corruption scandal in Malaysia: a study of failings in control and accountability", Public Administration and Policy: An Asia-Pacific Journal , Vol. 23 No. 1, pp. 59-72. https://doi.org/10.1108/PAP-11-2019-0032

Emerald Publishing Limited

Published in Public Administration and Policy . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at http://creativecommons.org/licences/by/4.0/legalcode

Introduction

The 1 Malaysia Development Fund Bhd (1MDB) scandal is perhaps the most serious corruption scandal that has been recorded. The corruption has involved the embezzlement and laundering of billions of US dollars from its accounts together with gains from bribery and bond pricing, facilitated by false declarations by its officials and others. The illicit money was often transferred and laundered outside Malaysia. A cohort of bankers, businessmen and senior government officials mainly from Malaysia, but some from Saudi Arabia, the UAE and other countries have been implicated in the scandal. Increasingly from 2016 the spotlight has been placed on the former Malaysian Prime Minister, Najib Razak (who was also Chairman of the 1MDB Advisory Board), his wife, Rosmah Mansor, and Low Taek Jho (or Jho Low) a Malaysian businessman and associate of Najib. He is alleged to have been the mastermind behind the scandal.

The scandal came to light in 2015 and has given rise to investigations not only in Malaysia but in other countries where embezzled and other illicit money has been deposited and laundered. The investigations were intensified in 2018 with the change of government in Malaysia when the Pakatan Harapan coalition, under the new Prime Minister Mahathir Mohamad, replaced the Barisan Nasional Government led by Najib, which had ruled Malaysia since independence in 1957. The investigations and court trials are still on-going, as more evidence of the scandal comes to light.

The paper examines the various corrupt practices in the 1MDB scandal and explains why they occurred, focusing on political control and the lack of proper surveillance and accountability, with consideration given to the lessons that can be learnt from the scandal.

Aims, corporate structure and funding of 1MDB

1MDB began as the Terengganu Investment Authority (TIA), launched by the Menteri Besar (Chief Minister) of the State of Terengganu, Ahmad Said, in February 2009. It was set up as a holding and investment company for the State, and was funded initially by a bond issue of RM5 billion (US$1.19 billion). In September 2009, it changed its status to a Malaysian national investment fund under the name of 1MDB, wholly owned by the Malaysian Government through the Ministry of Finance Inc. ( Ali, 2015 , p. 134).

To facilitate its aims, 1MDB developed a network of joint ventures (JVs) with two subsidiaries of the Saudi Arabian company Petro Saudi International (PSI) and also an Abu Dhabi company, Aabar Investments PJSC, a subsidiary of the International Petroleum Investment Company (IPIC). From 2009 to 2015, 1MDB created numerous subsidiaries in its own right. Particular mention should be made of SRC International Sdn Bhd, whose remit was to borrow funds from the civil service pension fund, Kumpulan Wang Persaraan (KWAP). This company was separated from 1MDB in 2012 and became a wholly owned subsidiary of the Ministry of Finance Inc. ( Auditor-General of Malaysia [AGM], 2016 , pp. 57–62). As many of the JVs and subsidiaries of 1MDB were registered in other countries, it was difficult to trace illicit flows of money between them ( Gabriel, 2018 , pp. 69–70).

1MDB had several sources of funding. The initial source was the funds of TIA, mainly derived from a conventional bond issue, transferred to 1MDB on its formation in 2009. The second source of funding was Islamic bonds or sukuk issues for a medium term in 2009, and a short-term note issued in 2014 ( AGM, 2016 , pp. 13–16, 237; US Department of Justice, [DOJ], 2019 , p. 15). The third source of funding was three conventional bond issues in 2012 and 2013 which raised US$6.5 billion from the local and international bond markets. Goldman Sachs played a central role in arranging and underwriting these bond issues, charging above the market rate of 7.7 per cent of the securities ( Adam, 2018 ). Also relevant was the loan of RM4 billion (US$954 million) provided by the Malaysian Government in 2011 from the country's civil service pension fund, and raised by the 1MDB subsidiary, SRC International ( AGM, 2016 , p. 214; Malaysiakini , 2016 ). This loan remains a key issue in the present trial of Najib. Together with other loans, the sum total of the borrowing by 1MDB in 2015 was RM41.9 billion (US$10 billion) including RM8.2 billion (US$1.96 billion) of inherited loans from companies it took over ( AGM, 2016 , p. 233; Boey, 2015 ).

Corrupt practices

During the Good Star phase (2009–2011), in 2009 US$700 million (RM2.93 billion) of a cash grant of US$1 billion (RM4.19 billion) by 1MDB to a JV with PSI, was siphoned off to be credited to an account of a company, Good Star Ltd, owned by Jho Low ( Gabriel, 2018 , p. 71; US DOJ, 2019 , pp. 8, 17–18).

In May 2011 an additional US$330 million (RM1.38 billion) lent by 1MDB to the JV ended up as a deposit in the Good Star account ( Lee, 2018 ; US DOJ, 2019 , pp. 8–9, 17–18, 29–53).

In 2012 during the Aabar-BVI phase, of US$3.5 billion (RM14.51 billion) raised by 1MDB in bond issues in that year, approximately US$1.4 billion (RM5.80 billion), was misappropriated, ending up in an account owned by Jho Low ( Gabriel, 2018 , p. 72; US DOJ, 2019 , pp. 8–9, 53–88).

In 2013 during the Tanore phase, more than US$1.26 billion (RM5.30 billion) of a US$3 billion (RM12.62 billion) bond issue was embezzled for the benefit of Low, his associates and officials in 1MDB ( Gabriel, 2018 , p. 72; Lee, 2018 ; US DOJ, 2019 , pp. 9–10, 88–109).

Also in 2013 some of the loans to SRC International from the civil service pension fund, mentioned above, were reportedly embezzled to the benefit of an associate of Jho Low, Eric Tan Kim Loong ( Aw, 2016 ; Brown, 2018 , p. 421). It is also alleged that some of the funds were diverted locally to the accounts of Najib and former Malaysian Treasury Secretary-General, Irwan Serigar ( Ellis-Petersen, 2018 ).

In 2014, US$850 million (RM3.58 billion) were embezzled from a loan of US$1.23 billion (RM5.15 billion) to 1MDB from a syndicate of banks. This loan was to be used as a cash payment to IPIC in return for which it would act as guarantor of 1MDB debt. Again the benefactors were Low and his associates ( US DOJ, 2019 , pp. 10, 54, 59,107–108; Wright and Hope, 2018 , pp. 211, 216, 253).

Apart from being funneled through the chain of shell companies, the embezzled funds were also routed on occasions through the accounts of Low's father (a businessman) and brother. In addition, the nominal owner of some of the shell companies was Eric Tan, who acted as a proxy for Low. From these, large amounts of money were transferred to other accounts at the instruction of Low ( Edge Malaysia , 2018a ; Brown, 2018 , p. 421; US DOJ, 2019 , pp. 101, 232). According to US prosecutors, more than US$6.5 billion (RM27.34 billion) flowed from 1MDB, “through a complex web of opaque transactions and fraudulent shell companies, to finance spending sprees by corrupt officials and their associates” ( Tan, 2018 ). This plus the use of personal and family intermediaries and proxies were all designed to make it difficult to trace the final destination and ultimate use of the embezzled money.

While acting within the scope of my employment and with the intent to benefit Goldman Sachs and myself, as an employee and agent of Goldman Sachs, I entered into a conspiracy with those individuals identified in the Government's information to pay bribes and kickbacks to obtain and then retain business from 1MDB for Goldman Sachs. … The goal of paying bribes and kickbacks was to influence the government officials to take official action so that Goldman Sachs would receive business from 1MDB. I took part in the process of paying some of these bribes and kickbacks ( Edge Malaysia , 2018b ).

Further bribes were offered to 1MDB officials in managing its accounts to facilitate the embezzlement, and also to key figures in the banks in which the embezzled money was deposited or through which it was transferred in order to ignore its illicit nature ( eSpear , 2018 ).

Money laundering

Embezzlement and bribery in the 1MDB scandal led to another corrupt practice, namely, money laundering, which involved receiving or retaining money from these sources, disguising or not investigating its origins and purpose. Those in receipt either as intermediaries or ultimate beneficiaries were thus guilty of money laundering as was any bank (or legal or financial firm) which retained the money in one of its accounts on behalf of the sender or recipient without investigating its source. This was often in violation of anti-money laundering laws in the country to where such money was transferred, and in the case of banks, in breach of their own anti-money laundering compliance requirements.

Of course, given the chain of complex transactions through which the illicit money was transferred in the 1MDB scandal, the easier it was for recipients to cover up its origins and purpose, and the more difficult it was for the banks to undertake a proper investigation. As discussed below, the enforcement action against the corruption at 1MDB included money laundering as one of the key offences committed by both the recipients of the money and the banks involved in the retention and transfer of the money ( Ramesh, 2016 ; eSpear , 2018 ).

False declarations and bond mispricing

Another aspect of the 1MDB scandal was the repeated false declarations made between 2009 and 2014, which were specified in the court hearings in the US. These included false declarations by 1MDB officials to banks in Malaysia responsible for forwarding embezzled money, and to overseas banks receiving the money. There were also false declarations by the recipients or intermediaries in the transfer of the money. One of them was Jho Low. False statements were made from time to time by senior officials of 1MDB to the IMDB Board, to the Bank Negara (Malaysian Central Bank) and to banks from which loans were acquired about the purpose of the loans and value of 1MDB assets offered as collateral ( Ali, 2018 , pp. 1869, 1883, 1898).

A further malpractice was the mispricing of the 1MDB bonds (setting of the interest rates well above the market rates for government-guaranteed debt) and their sale to chosen investors in a private placement. This may arguably be considered another form of corruption as the investors in the placement pool were able to reap rewards from subsequently selling the bonds (flipping) at a substantial profit because of the high interest rates attached to the bonds ( KINIBIZ , 2015 ; Ali, 2018 , pp. 1876, 1879).

Cover-up and exposure of the scandal

For a number of years the 1MDB scandal was covered up by the Malaysian Government. This was achieved in 2015 and 2016 by the removal from office of key officials including the Deputy Prime Minister, four other ministers, the Attorney-General and some lower level officials, who were otherwise prepared to unveil evidence of corruption or support an open-ended inquiry. The Government was also able to hide the scandal by ensuring that documents and computer files were withheld from investigators and auditors, and by influencing investigators in the National Audit Department and the Malaysian Anti-Corruption Commission (MACC) to alter their findings or to abandon their investigations. This was illustrated not least in the redaction of the report of the AGM in 2016 ( Latiff and Ananthalakshmi, 2018 ).

Despite the efforts of the Malaysian Government to cover up the scandal, evidence gradually came to light to show widespread irregularities. Firstly, anomalies in 1MDB were initially revealed in 2013 and came from two sources. One was the Malaysian on-line business newspaper KINIBIZ , which ran a series of articles on bond mispricing, overpayment for energy assets and other questionable deals ( Gunasegaram and KINIBIZ , 2018 , p. 14). The second was the web portal managed by British journalist Clare Rewcastle Brown, Sarawak Report , alleging that Goldman Sachs had been overpaid for the bond issues. The exposure then widened at the beginning of 2015, when a retired Swiss banker and ex-employee of PSI, Xavier Justo, forwarded to Brown thousands of documents, including 227,000 emails. They came from the servers of PSI, and unearthed evidence of the theft of hundreds of millions of dollars from 1MDB and other corrupt practices ( Teh, 2018 , pp. 187–191). Important sections of the evidence were published in the Sarawak Report , and from this source they were also published in the British Sunday Times and Guardian , and the Wall Street Journal .

This evidence was also reported a few months later in certain news outlets in Malaysia itself such as Utusan Malaysia, Malaysiakini , Malaysia Insider and various publications of the Edge Media Group ( Teh, 2018 , pp. 189–190). In addition, the local press provided from 2015 further information relating to the financial dealings of 1MDB, together with major international newspapers including The Guardian , Daily Telegraph , and The Wall Street Journal . The press reports ensured that the scandal was kept at the centre of public attention. These reports gave opposition Members of Parliament (MPs) and some MPs of the ruling Barisan Nasional , important information to question the investment policies of 1MDB and raise suspicions of malpractices in its financial dealings. Ultimately, trust in Najib's government was undermined and contributed to its defeat in the 2018 general election. The concern of Najib's government regarding the role of the press was indicated in its suspension of two print publications of the Edge Media Group (the Edge Weekly and the Edge Financial News ) in July 2015. The order was ruled as illegal and revoked three months later by the High Court.

The cover-ups indicated above have simply exacerbated the 1MDB scandal. As pointed out by Lowi (1988 , pp. viii-ix), the repercussions of such cover-ups, which he refers to as the procedural scandal, may be as serious as the original malpractices, which he terms the substantive scandal (the actual embezzlement, money laundering, and bribery etc.). As the cover-ups have been exposed through the various channels mentioned above, so the procedural aspect of the scandal has increased alongside the substantive scandal.

Investigation and enforcement

Malaysia is of course the centre of the investigation into the corruption at 1MDB. The new government under Mahathir took steps to revive the investigation, re-establishing the special task force. It comprises the MACC, Attorney-General's Chambers, Royal Malaysia Police, and Bank Negara Malaysia, and its leading members are those who figured in the original task force but who fell out of favour with the previous government. According to the office of Prime Minister Mahathir, “This special task force will be responsible on [ sic ] all aspects of the investigation, from financial tracking and asset acquisition which resulted from the mismanagement of 1MDB funds that are kept or invested in the country or abroad” ( Star Online , 2018 ). Part of its remit is to cooperate with judicial and enforcement agencies in those countries which are also investigating the 1MDB scandal. The legislation under which enforcement is proceeding is the Anti-Money Laundering and Anti-Terrorism Financing Act, 2001, the Malaysian Anti-Corruption Commission (Amendment) Act, 2018, and the Penal Code (Section 409).

Other jurisdictions

Given the international nature of the 1MDB scandal, investigations have been and continue to be conducted in a number of countries under their respective anti-corruption and anti-money laundering laws where financial institutions have been in receipt of illicit money from 1MDB. The focus has been largely on money laundering although other offences such as bribery and supplying dishonest and misleading information are being investigated. In Singapore, money laundering by certain banks and individuals connected to 1MDB has been investigated since 2016 and enforcement action taken, as mentioned below. Detailed investigation has also been conducted in Switzerland by the Money Laundering Reporting Office Switzerland (MROS), the Office of the Attorney General of Switzerland (OAGS), and the Swiss FINMA (Financial Market Supervisory Authority). The main focus of the investigation, as in Singapore, is money laundering given the large amount of embezzled money from 1MDB that passed through banks in Switzerland. The main legislation under which it is proceeding is the Anti-Money Laundering Act of 1997 (revised in 2009) ( Attorney General of Switzerland, 2017 , pp. 19–20). In addition, investigations into 1MDB corruption continue to be conducted in the USA where certain locally registered banks and their senior managers are currently being investigated for money laundering, bribery and other offences connected to 1MDB. The main anti-corruption agency involved in this task is the Money Laundering and Asset Recovery Section (MLARS) of the DOJ.

Enforcement action so far

In Malaysia charges have been levied against several 1MDB officials. The former CEO of 1MDB, Arul Kanda, was charged in December 2018 with tampering with the audit report on 1MDB in 2016 to eliminate evidence of corruption. But the centre of the investigation and the focus of media speculation is the role of former Prime Minister Najib. In 2018, he was charged with 21 counts of money laundering and four counts of abuse of power. The trial is now on-going ( Lim, 2019 ). So far, a key focus of the trial is his alleged involvement in the embezzlement of funds from the state pension fund through SRC. In addition, apart from the main individuals involved in the scandal, enforcement action is being taken against those persons who had illicitly received money from 1MDB. For example, on 7 October 2019, 80 persons were fined US$100 million (RM418.6 million) for receiving illicit money from 1MDB ( Associated Press , 2019 ).

In addition, in December 2018 the two leadings bankers of Goldman Sachs in Southeast Asia, Tim Leissner (Chairman) and Roger Ng Chong Hwa (Deputy Chairman), were charged with misappropriating US$2.7 billion (RM11.34 billion), bribing officials and giving false statements when issuing the bonds ( Makortoff, 2018 ). Most recently, 17 current and ex-executives of Goldman Sachs have been charged for their part, according to the Malaysian Attorney-General, in “the fraudulent misappropriation of billions in bond proceeds”. The intention is to seek custodial sentences and criminal fines ( Bowie and Mulberry, 2019 ).

In two other countries, banks and their senior employees have already been subject to sanctions. In Singapore four bankers from the Falcon Bank and Banca della Svizzera Italiana ( BSI) were jailed for money laundering and related offences in 2016. The main charge was a failure to report suspicious and risky transactions as legally required with additional charges related to forging documents, mis-information and cheating. Four other bankers were given prohibition orders from 3 to 10 years for bribery and providing misleading information ( Monetary Authority of Singapore [MAS], 2018 , p. 11). Also in Singapore, fines of S$31 million (US$22.3 million) were imposed on the eight banks that received embezzled money from 1MDB, for not paying due diligence to the source and purpose of the transactions in violation of the anti-money laundering regulations. Furthermore, two private Swiss banks, the Falcon Bank owned by IPIC, and BSI have been closed. The reason was the extent to which they laundered money embezzled from 1MDB funds, and the serious misconduct of their senior managers in dealing with 1MDB transactions ( Daga, 2016 ; MAS, 2018 , p. 11).

In Switzerland, three banks (Falcon, BSI and Coutts) have been fined a total of 103 million Swiss Francs (US$105.2 million) for having “seriously breached money laundering regulations” in relation to the 1MDB scandal. Other banks which broke money laundering regulations in relation to 1MDB have not been fined, but informed by FINMA to improve their control and reporting procedures, followed by a period of close monitoring. FINMA has also warned the banks that if they do not improve their controls against money laundering, their licence to operate could be revoked. BSI, which has been the most culpable of the banks, has been taken over by another Swiss bank, EFG International. In addition, the OAGS is currently pursuing an investigation of six senior bank employees as a result of alleged personal gains from both the laundering of the embezzled money from 1MDB and accepting bribes to facilitate the money laundering ( FINMA, 2017 , pp. 18, 84; 2018 , pp. 12, 16, 46, 72, 76).

Steps have been taken in the USA to impose sanctions on banks and individuals involved in money laundering and offering and taking bribes connected to 1MDB. Under the Kleptocracy Asset Recovery Initiative of the DOJ, complaints have been filed by the DOJ for the forfeiture and recovery of assets in the USA worth more than US$1.5 billion paid for by the embezzled money and the bribes received. Sixteen senior figures in 1MDB and its JV partners, and their associates and cronies have been mentioned in US court files for involvement in the 1MDB scandal. In addition, in November 2018 indictments were issued in New York charging Low and his associate from Goldman Sachs, Roger Ng, for conspiring to launder billions of dollars embezzled from 1MDB and for paying bribes to various Malaysian and Abu Dhabi officials. Low is still at large while Ng is in remand in Malaysia and due to be extradited to the USA. Tim Leissner, as mentioned above, has already pleaded guilty in the USA to the charges of conspiring to launder money and paying bribes. According to court filings in the USA, he was ordered to forfeit US$43.7 million (RM183.58 million) as a result of his money laundering and bribery and could be sentenced to a jail term of several years ( US DOJ, 2018 ; New Straits Times , 2018 ).

In other countries, investigations of 1MDB are on-going with the likelihood of further charges being brought against those who were involved in the embezzlement, bribery and money laundering. These include Australia, New Zealand, Hong Kong, UAE and the United Kingdom. In these and other countries, banks, fund management companies, financial trusts and JV partners were located, which managed or guaranteed 1MDB assets, laundered the embezzled money or arranged 1MDB bond issues. In addition, in some of the countries involved in the scandal, the accounts of the shell companies were set up, in which the illicit money was deposited, or valuable physical assets were purchased from this money.

An important part of the enforcement work is the recovery of assets stolen from 1MDB and their return to Malaysia. So far, RM919 million (US$218.6 million) has been recovered. In June 2019 it was announced that civil forfeiture action has been taken by the MACC to recover a further RM270 million (US$64.3 million). Forfeiture claims are being made against 41 organisations and individuals. This is part of a long process to recover as much of the stolen funds as possible ( Mackessey, 2019 ).

Why did the 1MDB scandal arise?

There are six reasons why the 1MDB scandal arose, as indicated below.

Firstly, the internal controls over spending, lending and investment in 1MDB were weak and reflected in a defective system of governance. This was highlighted by the AGM's report on 1MDB in 2016. It found that management practices were in contravention of the Companies Act of 1965, the Malaysian Code on Corporate Governance and international best practices on corporate governance. Many examples were given in the AGM's report, including key decisions made by a Written Board Resolution outside of a Board of Directors (BOD) meeting and not subject to the scrutiny of a Board meeting. The Board was also repeatedly fed false and inaccurate information. Some key financial and investment decisions were made without reference to or approval of the Board at all. Nor did the management and BOD undertake feasibility studies and a proper evaluation process where these were called for, reflected not least in the absence of an Investment Sub-committee of the BOD with a remit to examine both funding and investment risks for a particular project or debt issue ( AGM, 2016 , pp. 313–320). Moreover, the AGM's report found that the “maintenance of records and documents in 1MDB is not satisfactory” and were marked by “serious flaws”. With such a lax system of control, it is not surprising that financial checks were not undertaken to identify and prevent the embezzlement of funds ( AGM, 2016 , p. 325; Ali, 2018 , pp. 1867–1946 passim).

Secondly, the attempts to deal with corruption in 1MDB were hamstrung by political control over the watchdog and investigative agencies. The special task force formed in 2015 to uncover evidence of corruption, was soon after side-lined and then abandoned, after incriminating evidence against Najib emerged ( Wright and Hope, 2018 , pp. 139, 251–253). The Attorney-General was removed from office in 2015, MACC officers were harassed and arrested, and the Public Accounts Committee's investigation into 1MDB was disrupted ( Ali, 2015 , pp. 137–138). The AGM's own investigation in 2016 was shackled by a lack of access to 1MDB documents compounded by being prevented from accessing 1MDB computers and servers. The AGM's original report on 1MDB in 2016 was redacted where it contained damaging evidence relating to Najib, Low and others. Moreover, it was classified under the Official Secrets Act so it could not be read by MPs, the press, and the public and acted upon by the MACC and the Attorney-General ( Ali, 2016 , pp. 59–68; Aziz, 2018 ). The MACC's own investigations into 1MDB were also restricted. In 2015 it declared that the funds transferred from 1MDB to Najib's account, were not the result of embezzlement but were a donation from Saudi Arabia, with the investigating officials removed from office. The investigation was closed in 2017 ( Wright and Hope, 2018 , p. 249). In fact, Tunku Abdul Aziz Ibrahim, the advisory board chairman of MACC, reportedly stated in 2015 that the MACC had suffered from “meddling” by the Government that was “ill-advised” ( Sherwell, 2015 ).

Thirdly, the corruption was facilitated by weak internal rules against money laundering in banks in Malaysia and elsewhere, and even where such rules existed by their willingness not to adhere to these rules or to anti-money laundering laws. It appears that given the profits to be made from managing such flows of money and the belief that little action would be taken against them, banks did not take money laundering prohibitions perhaps as seriously as they should have done. This again reflects how corruption springs from a perception that such practices were low risk and high reward ( Gabriel, 2018 , pp. 73–74; Fox, 2019 ). One commentary in 2019 singled out Goldman Sachs, stating: “the reality is that Goldman Sachs allowed key internal compliance controls to be over-ridden or simply avoided and there was no manner to check on what were clearly red flags raised”. The commentary continued: “there was a culture which supported doing business even if it was done illegally and others consciously looked the other way” ( Fox, 2019 ). These observations were supported by Tim Leissner's own testimony in his guilty plea ( US DOJ, 2018 ).

According to its own assessment, Goldman Sachs acknowledged: “the firm's business culture, particularly in Southeast Asia, at times prioritized consummation of deals ahead of the proper operation of its compliance functions” ( Goldman Sachs Group, 2018 , p. 89). Although it pointed the blame specifically at its leading employees in Southeast Asia, Tim Leissner and Roger Ng, for “repeatedly lying to control personnel and internal committees”, little seems to have been done to check the honesty of their reports ( Goldman Sachs Group, 2018 , pp. 88–89). Much of this could have been said of other banks which were involved in raising loans for 1MDB and in handling illicit money transfers from embezzlement and bribery connected to 1MDB.

The fourth and most important reason was the lack of political will. With Najib as Prime Minister and Chairman of 1MDB Advisory Board and allegedly himself a beneficiary of the embezzlement, there was no political will at the top to deal with the corruption in 1MDB. In fact, any minister in Najib's government who questioned the management of 1MDB was removed from office and eventually expelled from the United Malays National Organisation (UMNO), the dominant party in the then ruling Barisan Nasional coalition. It was only after the change of government in May 2018, did the political will become evident to root out the corruption. This allowed the shackles to be lifted from the watchdog and investigative agencies and enabled a far reaching investigation to be conducted and enforcement action to be taken within Malaysia itself.

The fifth reason for the 1MDB scandal was the hegemonic nature of the democratic system in Malaysia until after the May 2018 general election. This was based on the continued dominance of the Barisan Nasional coalition, at the centre of which was the main political party UMNO. The Barisan Nasional in recent years used its hegemony to place constraints on watchdog and enforcement institutions, such as the MACC, the National Audit Department and the Police Force, whenever its interests were at stake, while preventing Parliament from effectively scrutinising and vetting the actions of the government. Under such hegemony, Prime Minister Najib was able to exercise his personal authority with little restraint to suit his own ends.

Finally, there existed a mind-set in high places in government and the private sector in Malaysia which considered corrupt practices leading to large financial gains as acceptable and to be engaged in when opportunities arose. This was also reflected in a previous major scandal involving the state bank, Bank Negara ( Teh, 2018 , pp. 24–29, 118–124). In recent years, corruption in Malaysia has deteriorated as its Corruption Perceptions Index (CPI) score has dropped from 52 in 2014 to 47 in 2018 ( Transparency International, 2019 ). However, the defeat of the Barisan Nasional in the May 2018 general election resulted in Najib's arrest on 3 July by the new Pakatan Harapan government for money laundering and abuse of power. The change in government and the Pakatan Harapan government's strong anti-corruption stance is reflected in Malaysia's improved CPI score of 53 in 2019 ( Transparency International, 2020 ).

Consequences of the scandal

Insolvency and bail outs.

One consequence of the 1MDB scandal was to make the organisation insolvent by 2016, unable to meet key debt servicing payments. With so much money embezzled, the funds remaining for investment in many projects were insufficient to meet the interest payments on all of the borrowed funds. Subsequently, the Malaysian Government stepped in to pay RM6.98 billion (US$1.66 billion) in debt servicing payments in 2016 and 2017. The payments were met from cash generated by the sale of land by the Malaysian central bank, Bank Negara , and by the issue of shares by the sovereign wealth fund of the Government of Malaysia, Khazanah Nasional Berhad ( Tay, 2018 ; Aziz, 2018 ).

Erosion of trust

The second important consequence of the scandal was the erosion of public trust in both politicians and institutions of government. A survey of 1,000 persons in Malaysia conducted by civil society group Centre For a Better Tomorrow (Cenbet) in February 2018 (before the general election), found that only 16 per cent expressed trust in Malaysian politicians and that only 29 per cent expressed trust in the Federal Government ( Tho, 2018 ). It is likely that the emerging evidence of the 1MDB scandal had significantly decreased the level of trust, and in turn undermined support for Najib's government. The 1MDB scandal was a key issue in the campaign and certainly contributed to its defeat in the 2018 general election.

Implications for combating corruption in Malaysia and other countries

There are several implications of the 1MDB scandal which provide lessons for combating corruption in Malaysia and other countries.

Firstly, the 1MDB scandal indicates the necessity in public agencies engaged in major investment programmes, for strong internal auditing and management controls. Amongst other things, such controls can ensure that information presented to the Board of Directors with regard to the viability of investment projects, sources of funds, and disbursements of money is correct. They can ensure for bond issues with a government guarantee that underwriting fees and bond prices are close to market rates, and, where possible, private placements avoided. In this regard, action should be taken to identify if there has been bribery in setting the fees and bond prices and in the selection of investors in a private placement pool. In addition, control through a rigorous process of verification must be exercised on the remittances of money to outside bank accounts, and whether such remittances are intended to fund approved projects. Such controls can reduce the loopholes by which money is embezzled.

Secondly, it is essential that watchdog and investigative agencies in Malaysia such as the MACC, the National Audit Department, and the Attorney-General's Chambers should be protected from political interference. Such interference can only be prevented if there are safeguards both against pressure on such agencies to water down reports and remove evidence incriminating certain high level individuals in government, and also against restrictions on the availability of such reports to the public, the media and Parliament. Likewise, investigative and judicial staff should be protected against dismissal or harassment to stop them pursuing an investigation or engaging in a prosecution. This of course depends on the political will at the highest level of government to ensure such protection.

Thirdly, it is essential that banks in Malaysia and in other jurisdictions undertake thorough checks when transferring large amounts of money from a public agency to ensure that the remittance is for a legitimate purpose to fund an approved project. In addition, in the receiving banks, whether in Malaysia or overseas, due diligence should be exercised to identify the names of the recipient account holders and the true purpose for which the money was transferred so as to uncover money laundering. In this regard, internal compliance requirements in Malaysian banks and those in other jurisdictions regarding money laundering should be strengthened and strictly adhered to with the state financial services regulator or central bank (in the case of Malaysia, Bank Negara ) monitoring adherence to both compliance standards and anti-money laundering laws.

Particular attention should be paid to accounts held by shell companies both on-shore and off-shore, to establish why, when, by whom and for what purpose such companies were registered, and to identify who are their owners. Where suspicions of money laundering arise such as when there are disproportionately large, frequent and unusual transactions involving shell companies, the accounts should be frozen or closed and information should be forwarded to the relevant anti-corruption agency and the financial services regulator or the central bank for further investigation. This is necessary given the leading role of shell companies in the transfer and laundering of embezzled money from 1MDB. It is noticeable that the MAS in Singapore has signalled to banks the need to be pro-active in detecting and reporting suspicious transactions by shell companies and to be prepared to close their accounts in order to combat money laundering. In fact, during the past twelve months under the guidance of the MAS, banks in Singapore have closed the accounts of several shell companies after detecting unlawful transactions ( Daga, 2019 ). This is an example that could be followed in Malaysia.

Given the international nature of the 1MDB scandal, the prevention of illicit cross-border transfers of money, the penalties imposed on culpable banks and individuals, and the repatriation of stolen assets require much closer cross-border cooperation and more consistent application across jurisdictions. For example, a more consistent and stricter approach is required in dealing with shell companies (to follow Singapore's example), in applying guidelines in banks to check money laundering and in imposing penalties on culpable banks and their senior personnel that go beyond warnings and nominal fines.

In response to the 1MDB scandal the new Government unveiled in January 2019 a five-year plan to clamp down on corruption in government, called the National Anti-Corruption Plan (NACP) 2019–2023 . The plan, launched by former Prime Minister Mahathir Mohamad himself, would entail major changes to the appointment process for key posts, require MPs and ministers to publicly declare their assets, and ensure new laws to regulate political funding and lobbying. This sounds promising and is intended to prevent another major corruption scandal, but it remains to be seen how vigorously the plan will be implemented in practice and whether it will be also affected by political influences ( MACC, 2019 ).

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About the author.

David Seth Jones was an Associate Professor at the Department of Political Science, National University of Singapore, and the Faculty of Business, Economics and Policy Studies, University of Brunei Darussalam. He is currently a Policy and Management Consultant specialising in government procurement, public finance, public management reform, and land policy. He has published widely in these fields.

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Ex-assistant principal charged with child neglect in case of boy who shot teacher

The Associated Press

Signs stand outside Richneck Elementary School in Newport News, Va., Jan. 25, 2023. Denise Lavoie/AP hide caption

Signs stand outside Richneck Elementary School in Newport News, Va., Jan. 25, 2023.

NEWPORT NEWS, Va. — A former assistant principal at a Virginia elementary school has been charged with felony child neglect more than a year after a 6-year-old boy brought a gun to class and shot his first-grade teacher .

A special grand jury in Newport News found that Ebony Parker showed a reckless disregard for the lives of Richneck Elementary School students on Jan. 6, 2023, according to indictments unsealed Tuesday.

Parker and other school officials already face a $40 million negligence lawsuit from the teacher who was shot, Abby Zwerner. She accuses Parker and others of ignoring multiple warnings the boy had a gun and was in a "violent mood" the day of the shooting.

Criminal charges against school officials following a school shootings are quite rare, experts say. Parker, 39, faces eight felony counts, each of which is punishable by up to five years in prison.

The Associated Press left a message seeking comment Tuesday with Parker's attorney, Curtis Rogers.

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'say something' tip line in schools flags gun violence threats, study finds.

Court documents filed Tuesday reveal little about the criminal case against Parker, listing only the counts and a description of the felony charge. It alleges that Parker "did commit a willful act or omission in the care of such students, in a manner so gross, wanton and culpable as to show a reckless disregard for human life."

Newport News police have said the student who shot Zwerner retrieved his mother's handgun from atop a dresser at home and brought the weapon to school concealed in a backpack.

Zwerner's lawsuit describes a series of warnings that school employees gave administrators before the shooting. The lawsuit said those warnings began with Zwerner telling Parker that the boy "was in a violent mood," had threatened to beat up a kindergartener and stared down a security officer in the lunchroom.

The lawsuit alleges that Parker "had no response, refusing even to look up" when Zwerner expressed her concerns.

When concerns were raised that the child may have transferred the gun from his backpack to his pocket, Parker said his "pockets were too small to hold a handgun and did nothing," the lawsuit states.

Architecture

With gun control far from sight, schools redesign for student safety.

A guidance counselor also asked Parker for permission to search the boy, but Parker forbade him, "and stated that John Doe's mother would be arriving soon to pick him up," the lawsuit stated.

Zwerner was sitting at a reading table in front of the class when the boy fired the gun, police said. The bullet struck Zwerner's hand and then her chest, collapsing one of her lungs. She spent nearly two weeks in the hospital and has endured multiple surgeries as well as ongoing emotional trauma, according to her lawsuit.

Parker and the lawsuit's other defendants, which include a former superintendent and the Newport News school board, have tried to block Zwerner's lawsuit.

They've argued that Zwerner's injuries fall under Virginia's workers' compensation law. Their arguments have been unsuccessful so far in blocking the litigation. A trial date for Zwerner's lawsuit is slated for January.

Prosecutors had said a year ago that they were investigating whether the "actions or omissions" of any school employees could lead to criminal charges.

What schools can (and can't) do to prevent school shootings

Howard Gwynn, the commonwealth's attorney in Newport News, said in April 2023 that he had petitioned a special grand jury to probe if any "security failures" contributed to the shooting. Gwynn wrote that an investigation could also lead to recommendations "in the hopes that such a situation never occurs again."

It is not the first school shooting to spark a criminal investigation into school officials. For instance, a former school resource officer was acquitted of all charges last year after he was accused of hiding during the Parkland school massacre in 2018.

Chuck Vergon, a professor of educational law and policy at the University of Michigan-Flint, told The AP last year that it is rare for a teacher or school official to be charged in a school shooting because allegations of criminal negligence can be difficult to prove.

More often, he said, those impacted by school shootings seek to hold school officials liable in civil court.

elementary school

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1MDB corruption scandal in Malaysia: a study of failings in control and accountability

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Introduction

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Corrupt practices

Money laundering

False declarations and bond mispricing

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Why did the 1MDB scandal arise?

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Implications for combating corruption in Malaysia and other countries

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Ex-assistant principal charged with child neglect in case of boy who shot teacher

Shots - Health News

Architecture

What schools can (and can't) do to prevent school shootings

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