Corruption in Spain describes the prevention and occurrence of corruption in Spain. That (in the early 21st century) there are many political corruptionlegal processes in the post Franco years of democratic Spain indicates both a social intolerance of the Ancien Régime and a willingness to investigate allegations by a largely young and independent judiciary, despite its senior judges being appointees of parliamentary committees
Transparency International rated Spain between 2001 and 2012. The average value for Spain during that period was 66.67 points with a maximum of 70 points in 2001 and minimum of 61 points in 2009 and (100 being no corruption). In 2011 it was rated 30th least corrupt country in the world Transparency International's 2017 Corruption Perception Index ranks the country 42nd place out of 180 countries. Spain is still one of Europe's most corrupt countries. According to Politico, 1378 officials were prosecuted for corruption between July 2015 and September 2016.
Political corruption is a large concern in Spain. Political corruption is defined as the action or inaction of one or more real persons managing public resources for their own or a third party's benefit to the detriment of all the citizens they should serve and benefit. Transparency International Global Corruption Barometer 2013 shows that the surveyed households consider political parties, Parliament and the judiciary the most corrupt institutions. In fact, the Spanish population considers corruption their second biggest problem, only eclipsed by unemployment.
However, the occurrence of petty corruption is rare in Spain, according to the Barometer 2013. Several other sources, including World Economic Forum Global Competitiveness Report 2013-2014 and Ernst & Young Fraud Survey 2013, show that bribery and corrupt practises are widespread in businesses in Spain. As suggested in Business Anti-Corruption Portal, anti-corruption strategies should be significantly strengthened at all levels of the government. One example could be to strengthen investigative and prosecution efforts in foreign bribery cases and enforcing existing laws.
Reign of Philip III of Spain
The period 1598 to 1617 in which Francisco Gómez de Sandoval, 1st Duke of Lerma held the government on behalf of Philip III was one of the most notoriously corrupt of Spanish regimes. It was infamous because of the self-enrichment activities of his crony bureaucrat, Pedro Franqueza, his secretary, Rodrigo Calderón, Count of Oliva and the Duke of Lerma himself.
The Queen Regent Maria Christina of the Two Sicilies became famous for her involvement in shady deals that divided the people from the elite. Speculation in the production of salt, construction of railways and even the illegal slave trade, which also involved Ramón María Narváez, 1st Duke of Valencia. It was said that there was no industrial project in which the Queen Mother had no interest. Her fortune was estimated at 300 million Spanish reals.
The Generalísimo Francisco Franco won power in Spain by a brutal military rebellion against the democratically elected Frente Popular. Both Britain and the United States supported the rebel army and military junta of Franco in various ways and at various times, but never supported the elected Second Spanish Republic. During his time, Spanish people started at last to create a middle class an economic prosperity as never before in Spanish history, he created the first social security system, pension retirement and security was totally assured to the Spanish population.
The Accession of Juan Carlos I (raised by Franco from his childhood to perpetuate his legacy) to the Spanish throne saw the advent of a democratic state built on the foundations of the Spanish Constitution of 1978 operated by largely the same institutions that had formerly served the Falange (Franco's Fascist party) administrations. After some three decades the younger 'democracy generation' of jurists began to investigate issues that had been 'overlooked' by the early reformers in pursuit of creating a peaceful and lasting state which would adopt fully European values at some later time.
Corruption cases in the post-Franco era
In 1987 a judge in his early thirties, Baltasar Garzón led an investigation which led to the conviction of a former (Socialist) Interior minister, who had adopted a clandestine policy of State terrorism via operations of the Grupos Antiterroristas de Liberación (GAL), - a collection of criminal gangs who (formerly on the covert behalf of the Falange) were still fighting Franco's dirty war against the Basque separatist ETA movement. The case was vigorously defended and appealed, to the Constitutional Court of Spain where sentence confirmed by four votes to three, and later endorsed by the European Court of Human Rights
Rumasa and Nueva Rumasa
Rumasa (Ruiz Mateos SA) was founded in 1961 by the family of José María Ruiz Mateos. It originally exported wine to England. In 1983 it had become very large (allegedly because it was linked to Opus Dei) and so debt-ridden that it was nationalized by the socialist PSOE government of Felipe González "in the public interest".
At the time it consisted of more than 700 companies, with a staff that reached 60,000 people, with an annual turnover of about 350,000 million pesetas (more than 2,000 million euros). Eventually parts of the empire were re-privatized.
The group, was originally rooted primarily in the wine sector, and diversified into banking. Its gradual but massive growth occurred through the acquisition of companies with financial problems so that it became a group of companies that (supposedly) supported each other. RUMASA was present in the following sectors:
- Wine production: Bodegas (Wineries) including Paternina (es), Garvey Group (es), Bodegas Franco-Españolas, René Barbier, Segura Viudas, Conde de Caral
- Banking: including the banks Atlantic (es), Jerez, Masaveu (es), Exbank, AVA, Eurobank, Banfisa
- Hospitality: The hotel chain "Hotasa"
- Retail: 22 Department Stores "Galerías Preciados" (since integrated into El Corte Inglés) and Spanish luxury goods "Loewe". (now part of the Louis Vuitton, Moët HennessyLVMH group)
Following the nationalization of his empire Ruiz-Mateos fled to London and started a series of legal cases to recover some of his seized assets. In 1985 he was arrested at Frankfurt airport and extradited to Spain.
The Francoist-leaning Alianza Popular political party (now integrated into the Popular Party) failed to persuade the constitutional court to reverse the sequestration. The High court eventually received a total of 165 claims from Ruiz-Mateos, and eventually resolved a "fair price" settlement (although the family got nothing)
Twelve years later in 1997 (shortly after the People's Party government of José María Aznar took power) the High court absolved Ruiz-Mateos from the criminal charges, and in 1999 also the civil actions, so that his bail bonds were returned.
The family started a new company (Nueva Rumasa) with a "Busy Bee" logo that eventually comprised major brands, including: The Dhul Food Group, which include brands Cacaolat, Carcesa (which owns Apis conserved tomato products as well as Fruco tomatoes and tomato juice), Clesa dairy products, Royne ice cream, Chocolates Trapa. Wine and beverages include Los Conejos & Gabín Garres liquers, rum, rum-punch, sherry, brandy, and other related products.
The company claimed a total of 10,000 employees (the Trade union estimate was 6000) and net worth of almost six billions. It started a huge advertising campaign to attract private investors, and was reprimanded several times by the regulatory authorities, who also issued warnings to existing and potential investors.
In 2011 the firm collapsed with a debt of 700 million Euros spread across some 23 banking institutions, private creditors and government agencies. Most of the debt arose from Dhul an Clesa, which together lost 434 million euros.
In 2012 the founding father José María Ruiz-Mateos was arrested and has again spent time in prison on remand. He is essentially accused of operating a vast pyramid scheme (paying dividends to shareholders from fresh investments). Two of his sons who ran hotels in Andalucia are formal suspects in the ERE trial process.
The so-called Naseiro case was a corruption investigation within the People's Party shortly after the arrival of José María Aznar to the party presidency in 1989. A magistrate in the Valencian Community issued an indictment against several members of the People's Party including the party treasurer Rosendo Naseiro and Angel Perales Sanchis, a representative for Valencia, for receiving illegal commissions for the direct awarding of projects and contracts.
Because of the prominence of the accused, the case was heard by the Supreme Court of Spain but shelved for lack of evidence. Nevertheless, the defendants were still strongly suspected of misconduct and expelled from the Popular Party.
In 1997 the People's Party government of José María Aznar announced the sale of the nation's remaining minority stake (golden shares) in the Telefónica telecommunications company and the petroleum group Repsol YPF. as well as in Endesa, Argentaria and Tabacalera, all major enterprises managed by people close to Aznar, and since been declared illegal by the European Union.
This marked the beginning of a period of privatizations which has continued vigorously under PP administrations. A contested case being the Madrid region's public health service, in which the bidders are suspected of very close ties with the governing party, and in one case, run by a former regional health minister, Manuel Lamela.
In 2012 privatized or 'externalized' health services contracted by the Madrid public health service cost the region, by some estimates, 345 million euros more than similar activities previously performed by that public sector organization itself.
Main article: Gürtel case
Gürtel is a huge case, code-named after one of its main suspects, construction businessman Francisco Correa. His surname translates to belt in English and to Gürtel in German. The case covers bribery, money laundering and tax evasion, and implicates a wide circle of powerful businessmen and top politicians (90 per cent of the whole party) in the People's Party who had gained an absolute majority in the national elections of Spain.
The affair was first uncovered by the Spanish newspaper El Pais, whose researchers were awarded prizes for investigative journalism. Initial investigations were conducted in Madrid, Valencia & la Costa del Sol by the notable Spanish National Court Judge Baltasar Garzón, an examining magistrate serving the Juzgado Central de Instrucción No. 5.
Although Manos Limpias was party to the initial process, but as the case focussed on wayward politicians they brought an action against Garzón for investigating Francoist atrocities, which caused delay and confusion for Gürtel as Garzón was suspended for three years pending his eventual acquittal in February 2012, whereupon he was charged and convicted of a completely different crime connected to Gürtel: that of ordering the interception of communications between powerful construction company directors accused of bribing high officials and their lawyers, who were suspected of money laundering. His suspension is pending appeal at the European Court of Human Rights which have previously annulled a similar conviction
Francisco Camps (PP party former)
A part of Gürtel detached in 2009, known as the case of Francisco's suits (caso de los trajes), involved the president of the Valencia region Francisco Camps who allegedly accepted very expensive bespoke tailoring paid by corrupt businessmen. He was tried by jury in early 2012, and acquitted by a majority verdict. Similar allegations about the high-fashion handbags of the Lady Mayor of Valencia, Rita Barberá Nolla, were dismissed. Camps resigned his presidency to fight his case, but remained a deputy of the Valencia government. Rita Barberá (PP party former)remained in office, but took a beating at the following 2015 city elections. All council members from her list, but her, have been indicted for corruption in another case. She was a senator, and under Spanish law therefore only answerable to a higher court than the one which served those indictments. On April 21, 2016, the investigating judge requested her indictment for money laundering to the Tribunal Supremo. In November she died and therefore all her pending indictments and investigations were suspended.
Luis Bárcenas (PP party former)
Main article: Bárcenas affair
The Gurtel case separated material relating to Luis Bárcenas, at the time the treasurer of the conservative party. He subsequently accused his former employer of constructive dismissal Allegedly concessions for major public infrastructure works were obtained by major construction companies in exchange for secret corporate donations amounting to naked bribery during the period 1990 - which funds were kept or accounted-for in the so-called slush fund Barcenas then used this slush fund to pay extra salaries of between 5000 - 15,000 Euros to party leaders each month, including Spanish Government President Mr Mariano Rajoy and his deputy María Dolores de Cospedal.
Spanish law prohibits senior politicians from receiving any income from sources other than the state institutions by which they are employed for defined official duties, and severely restricts political party funding and Political campaign donations.
Large deposits of money amounting to some 38 millions of Euros were found in several foreign bank accounts operated by Barcenas or his agents, suggesting that he may have retained some bribery money for his personal gain.
El País, the national center-left newspaper, published the so-called 'Barcenas papers' outlining some of the transactions for some of the alleged financial fraud. Its center-right rival, El Mundo, later published text messages of support sent by President Mariano Rajoy to Barcenas, indicating considerable personal friendship and moral support.
On 27 June 2013 High Court Judge Pablo Ruz ordered former Popular Party (PP) treasurer Luis Bárcenas held in custody without bail until his eventual trial. The judge set bail at 45 million Euro to cover his civil obligations, although the state prosecutor assessed these at a mere 12 million Euro.
External links to Bárcenas case evidence (in Spanish)
ERE in Andalusia
Main article: w:es:Caso ERE en Andalucía
(in Spanish Wikipedia)
Employment contract severance conditions in Spain are regulated by law, and usually abbreviated to 'ERE' (expediente de regulación de empleo).
In 2001 the (socialist dominated) regional government of Andalusia presided by Manuel Chaves González (later a Minister of State) gave support to a major commercial supplier of foodstuff (Mercavilla) which was considered to be both strategically important and financially failing. It provided grants for Severance packages and subsidised early retirement pensions as well as commissions for services related to such transactions.
In 2008 the conservative opposition alleged that payments were made irregularly, and the Civil Guard presented evidence of a 'Reptilian Fund' as well as unjustified payments to persons who were not actually employed and excessive commissions to trade-union officials and company directors who managed the transactions.
In consequence, there have been several resignations, probation and bail and even Remand (detention) orders, In August 2013 the long-serving regional president, Manuel Chaves resigned and handed power to his deputy in order to deal with the accusations.
On 19 March 2013, as a result of police Operación Heracles the examining magistrate, Mrs Mercedes Alaya ordered the arrest and detention of 20 people who had held significant positions in society.
Palma Arena is a velodrome in Palma, Majorca which was allegedly constructed to an inferior specification at an exorbitant cost and with much money diverted to politically connected operators. The former president of the Baleares region, Jaume Matas (Partido Popular), received a six years jail sentence, and other aspects of the case are still under investigation.
The Nóos case is a spinoff of the Palma Arena case. Instituto Nóos was a Foundation (nonprofit) also known as Strategic Studies Association Sponsorship and Patronage and Noos Institute of Applied Research. Apparently it solicited and accepted huge payments from public bodies for major sports promotional activities which were either trivial or never started. Its directors were Diego Torres Pérez and former handball star Iñaki Urdangarin, Duke of Palma the son in law of the Spanish King, who also ran a consultancy with his wife, the princess Cristina de Borbón y Grecia.
Powerful officials made strenuous efforts to keep the princess out of the case. In 2013 she accepted a position in Vienna, where she moved with the children of the marriage whilst her husband remained in Barcelona to answer charges.
Millet or Palau de la Música Catalana
In 2009 the director of the Palau de la Música Catalana in Barcelona, Fèlix Millet Tusell was accused of systematically raiding the coffers of this public body and confessed to embezzling 3.3 millions of Euros. in 2012 he was placed on bail and the prosecutor sought six years imprisonment as well as massive fines.
On 15 January 2018, a court in Barcelona ruled that the Democratic Convergence of Catalonia (CDC, now PDeCAT) had received €6.6 million in illegal commissions from building firm Ferrovial (previously Grupo Ferrovial) between 1999 and 2009, in exchange for public works contracts. The scheme used the Palau de la Música Catalana concert venue as a front for false invoicing. Twelve people were jailed and fined millions. The former CDC treasurer Daniel Osàcar was sentenced to four years and five months in prison and fined €3.7 million for influence peddling and money laundering. Fèlix Millet, the former director of the Palau, was jailed for just under 10 years and fined €4.1 million and his deputy, Jordi Montull, received a 7 years and six months sentence and was fined €2.9 million. Millet and Montull were the individuals who benefited most from the scam, controlling the Palau’s funds. The Turkey Telegraph noted the "final impunity of the CDC leaders", and also the impunity for the company that paid illegal commissions. Earlier in January, Artur Mas, who was a close ally of Osàcar, stepped down as party president.
Bankia is a Spanish bank consisting of several failed financial institutions with largely conservative political direction. On 11 June 2012 the relatively young political party Union, Progress and Democracy (UPyD) filed a lawsuit against the directors of Bankia and its main subsidiary for alleged fraud, misappropriation, falsification of financial statements in connection with corporate crime, mismanagement and scheme to alter the price of assets. The Indignant Protesters (M-15) raised 15,000 euros by crowd funding, and filed another lawsuit for false accounting and commercial fraud.
Judge Fernando Andreu agreed to hear both complaints which called 27 defendants which included: Rodrigo Rato (President and former conservative minister of Economy), José Luis Olivas (Deputy director and former conservative president of the Valencia region), Angel Acebes (director and former secretary general of the conservative party) and Francisco Verdú (an experienced banker and sometime consultant to the construction industry). Also called as witnesses were former Governor of the Bank of Spain, Miguel Angel Fernández Ordóñez, the president of the National Securities Market, Julio Segura (es), and the author of the Bankia audit conducted by Deloitte, Francisco Celma. However, the court dismissed the request to extend the complaint to four other directors who were not in the Bankia prospective but who took office after the company was listed on the stock exchange.
Corruption is an issue that adversely affects India's economy of central, state and local government agencies. Not only has it held the economy back from reaching new heights, but rampant corruption has stunted the country's development. A study conducted by Transparency International in 2005 recorded that more than 92% of Indians had at some point or another paid a bribe to a public official to get a job done. In a study conducted in 2008, Transparency International reported that about 50% of Indians had first hand experience of paying bribes or using contacts to get services performed by public offices.
Transparency International's 2017 Corruption Perception Index ranks the country 40th place out of 180 countries.
The largest contributors to corruption are entitlement programs and social spending schemes enacted by the Indian government. Examples include the Mahatma Gandhi National Rural Employment Guarantee Act and the National Rural Health Mission. Other areas of corruption include India's trucking industry which is forced to pay billions of rupees in bribes annually to numerous regulatory and police stops on interstate highways.
The media has widely published allegations of corrupt Indian citizens stashing millions of rupees in Swiss banks. Swiss authorities denied these allegations, which were later proven in 2015–2016. The Indian media is largely controlled by extremely corrupt politicians and industrialists who play a major role by misleading the public with incorrect information and use the media for mud-slinging at political and business opponents.
The causes of corruption in India include excessive regulations, complicated tax and licensing systems, numerous government departments with opaque bureaucracy and discretionary powers, monopoly of government controlled institutions on certain goods and services delivery, and the lack of transparent laws and processes. There are significant variations in the level of corruption and in the government's efforts to reduce corruption across different areas of India.
See also: Booth capturing
Corruption in India is a problem that has serious implications for protecting the rule of law and ensuring access to justice. As of December 2009, 120 of India's 524 parliament members were accused of various crimes, under India's First Information Report procedure wherein anyone can allege another to have committed a crime. Many of the biggest scandals since 2010 have involved high level government officials, including Cabinet Ministers and Chief Ministers, such as the 2010 Commonwealth Games scam (₹70,000 crore (US$11 billion)), the Adarsh Housing Society scam, the Coal Mining Scam (₹1.86 lakh crore (US$28 billion)), the Mining Scandal in Karnataka and the Cash for Vote scams.
Sole philosophy pages on all norms and guidelines to clear mess, but now placed below plates.
A 2005 study done by the Transparency International in India found that more than 92% of the people had firsthand experience of paying bribes or peddling influence to get services performed in a public office. Taxes and bribes are common between state borders; Transparency International estimates that truckers annually pay ₹222 crore (US$34 million) in bribes.
Both government regulators and police share in bribe money, to the tune of 43% and 45% each, respectively. The en route stoppages at checkpoints and entry-points can take up to 11 hours per day. About 60% of these (forced) stoppages on roads by concerned authorities such as government regulators, police, forest, sales and excise, octroi, and weighing and measuring departments are for extorting money. The loss in productivity due to these stoppages is an important national concern; the number of truck trips could increase by 40%, if forced delays are avoided. According to a 2007 World Bank published report, the travel time for a Delhi-Mumbai trip could be reduced by about 2 days per trip if the corruption and associated regulatory stoppages to extract bribes were eliminated.
A 2009 survey of the leading economies of Asia, revealed Indian bureaucracy to be not only the least efficient out of Singapore, Hong Kong, Thailand, South Korea, Japan, Malaysia, Taiwan, Vietnam, China, Philippines and Indonesia, but that working with India's civil servants was a "slow and painful" process.
Land and property
See also: Illegal housing in India
Officials are alleged to steal state property. In cities and villages throughout India, groups of municipal and other government officials, elected politicians, judicial officers, real estate developers and law enforcement officials, acquire, develop and sell land in illegal ways. Such officials and politicians are very well protected by the immense power and influence they possess. Apart from this, slum-dwellers who are allotted houses under several housing schemes such as Pradhan Mantri Gramin Awaas Yojana, Rajiv Awas Yojna, Pradhan Mantri Awas Yojna etc., rent out these houses to others, to earn money due to severe unemployment and lack of a steady source of income.
Tendering processes and awarding contracts
A 2006 report claimed state-funded construction activities in Uttar Pradesh, such as road building were dominated by construction mafias, consisting of cabals of corrupt public works officials, materials suppliers, politicians and construction contractors.
Problems caused by corruption in government funded projects are not limited to the state of Uttar Pradesh. According to The World Bank, aid programmes are beset by corruption, bad administration and under-payments. As an example, the report cites that only 40% of grain handed out for the poor reaches its intended target. The World Bank study finds that the public distribution programmes and social spending contracts have proven to be a waste due to corruption.
For example, the government implemented the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) on 25 August 2005. The Central government outlay for this welfare scheme is ₹400 crore (US$61 million) in FY 2010–2011. After 5 years of implementation, in 2011, the programme was widely criticised as no more effective than other poverty reduction programmes in India. Despite its best intentions, MGNREGA faces the challenges of corrupt officials reportedly pocketing money on behalf of fake rural employees, poor quality of the programme infrastructure, and unintended destructive effect[clarification needed] on poverty.
Hospitals and health care
In Government Hospitals, corruption is associated with non-availability/duplication of medicines, obtaining admission, consultations with doctors and receiving diagnostic services.
National Rural Health Mission is another health care-related government programme that has been subject to large scale corruption allegations. This social spending and entitlement programme hoped to improve health care delivery across rural India. Managed since 2005 by the Ministry of Health, the Indian government mandated a spending of ₹2.77 lakh crore (US$42 billion) in 2004–2005, and increased it annually to be about 1% of India's gross domestic product. The National Rural Health Mission programme has been clouded by a large-scale corruption scandal in which high-level government appointed officials were arrested, several of whom died under mysterious circumstances including one in prison. Corruption, waste and fraud-related losses from this government programme has been alleged to be ₹1 lakh crore (US$15 billion).
Science and technology
CSIR, the Council of Scientific and Industrial Research, has been flagged in ongoing efforts to root out corruption in India. Established with the directive to do translational research and create real technologies, CSIR has been accused of transforming into a ritualistic, overly-bureaucratic organisation that does little more than churn out papers.
There are many issues facing Indian scientists, with some, such as MIT systems scientist VA Shiva Ayyadurai, calling for transparency, a meritocratic system, and an overhaul of the bureaucratic agencies that oversee science and technology. Sumit Bhaduri stated, "The challenges of turning Indian science into part of an innovation process are many. Many competent Indian scientists aspire to be ineffectual administrators (due to administrative power and political patronage), rather than do the kind of science that makes a difference". Prime minister Manmohan Singh spoke at the 99th Indian Science Congress and commented on the state of the sciences in India, after an advisory council informed him there were problems with "the overall environment for innovation and creative work" and a "war-like" approach was needed.
Income tax department
There have been several cases of collusion involving officials of the Income Tax Department of India for preferential tax treatment and relaxed prosecutions in exchange for bribes.
Preferential award of mineral resources
See also: Illegal mining in India
In August 2011, an iron ore mining scandal became a media focus in India. In September 2011, elected member of Karnataka's legislative assembly Janardhana Reddy, was arrested on charges of corruption and illegal mining of iron ore in his home state. It was alleged that his company received preferential allotment of resources, organised and exported billions of dollars' worth of iron ore to Chinese companies in recent years without paying any royalty to the state government exchequer of Karnataka or the central government of India, and that these Chinese companies made payment to shell companies registered in Caribbean and north Atlantic tax havens controlled by Reddy.
It was also alleged that corrupt government officials cooperated with Reddy, starting from government officials in charge of regulating mining to government officials in charge of regulating port facilities and shipping. These officials received monthly bribes in exchange for enabling the illegal export of illegally mined iron ore to China. Such scandals have led to a demand in India for consensually driven action plan to eradicate the piracy of India's mineral resources by an illegal, politically corrupt government officials-business nexus, removal of incentives for illegal mining, and the creation of incentives for legal mining and domestic use of iron ore and steel manufacturing.
A study conducted between 2004 and 2005 found that India's driver licensing procedure was a hugely distorted bureaucratic process and allows drivers to be licensed despite their low driving ability through promoting the usage of agents. Individuals with the willingness to pay make a significant payment above the official fee and most of these extra payments are made to agents, who act as an intermediary between bureaucrats and applicants.
The average licensee paid Rs 1,080, approximately 2.5 times the official fee of Rs 450, in order to obtain a license. On average, those who hired agents had a lower driving ability, with agents helping unqualified drivers obtain licenses and bypass the legally required driving examination. Among the surveyed individuals, approximately 60% of the license holders did not even take the licensing exam and 54% of those license holders failed an independent driving test.
Agents are the channels of corruption in this bureaucratic driver licensing system, facilitating access to licenses among those who are unqualified to drive. Some of the failures of this licensing system are caused by corrupt bureaucrats who collaborate with agents by creating additional barriers within the system against those who did not hire agents.
Professor Bibek Debroy and Laveesh Bhandari claim in their book Corruption in India: The DNA and RNA that public officials in India may be cornering as much as ₹921 billion (US$14 billion), or 1.26 per cent of the GDP through corruption. The book claims most bribery is in government delivered services and the transport and real estate industries.
Bribery and corruption are pervasive, but some areas tend to more issues than others. A 2013 EY (Ernst & Young) Study reports the industries perceived to be the most vulnerable to corruption as: Infrastructure & Real Estate, Metals & Mining, Aerospace & Defense, and Power & Utilities. There are a range of specific factors that make a sector more susceptible to bribery and corruption risks than others. High use of middlemen, large value contracts, and liasioning activities etc. drive the depth, volume and frequency of corrupt practices in vulnerable sectors.
A 2011 KPMG study reports India's real estate, telecommunications and government-run social development projects as the three top sectors plagued by corruption. The study found India's defence, the information technology industry and energy sectors to be the most competitive and least corruption prone sectors.
CMS India claims in its 2010 India Corruption Study report that socio-economically weaker sections of Indian society are the most adversely affected by government corruption. These include the rural and urban poor, although the study claims that nationwide perception of corruption has decreased between 2005 and 2010. Over the 5-year period, a significantly greater number of people surveyed from the middle and poorest classes in all parts of India claimed government corruption had dropped over time, and that they had fewer direct experiences with bribery demands. Whereas in reality corruption has increased ten folds since 2010 and continues to grow relentlessly on a daily basis.
The table below compares the perceived anti-corruption effort across some of the major states in India. A rising index implies higher anti-corruption effort and falling corruption. According to this table, the states of Bihar and Gujarat have experienced significant improvements in their anti-corruption efforts, while conditions have worsened in the states of Assam and West Bengal. Consistent with the results in this table, in 2012 a BBC News report claimed the state of Bihar has transformed in recent years to become the least corrupt state in India.
Main article: Indian black money
Black money refers to money that is not fully or legitimately the property of the 'owner'. A government white paper on black money in India suggests two possible sources of black money in India; the first includes activities not permitted by the law, such as crime, drug trade, terrorism and corruption, all of which are illegal in India and secondly, wealth that may have been generated through lawful activity but accumulated by failure to declare income and pay taxes. Some of this black money ends up in illicit financial flows across international borders, such as deposits in tax haven countries.
A November 2010 report from the Washington-based Global Financial Integrity estimates that over a 60-year period, India lost US$213 billion in illicit financial flows beginning in 1948; adjusted for inflation, this is estimated to be $462 billion in 2010, or about $8 billion per year ($7 per capita per year). The report also estimated the size of India's underground economy at approximately US$640 billion at the end of 2008 or roughly 50% of the nation's GDP.
Indian black money in Switzerland
India was ranked 38th by money held by its citizens in Swiss banks in 2004 but then improved its ranking by slipping to 61st position in 2015 and further improved its position by slipping to 75th position in 2016. According to a 2010 The Hindu article, unofficial estimates indicate that Indians had over US$1,456 billion in black money stored in Swiss banks (approximately US$1.4 trillion). While some news reports claimed that data provided by the Swiss Banking Association Report (2006) showed India has more black money than the rest of the world combined, a more recent report quoted the SBA's Head of International Communications as saying that no such official Swiss Banking Association statistics exist.
Another report said that Indian-owned Swiss bank account assets are worth 13 times the country's national debt. These allegations have been denied by Swiss Bankers Association. James Nason of Swiss Bankers Association in an interview about alleged black money from India, holds that "The (black money) figures were rapidly picked up in the Indian media and in Indian opposition circles, and circulated as gospel truth. However, this story was a complete fabrication. The Swiss Bankers Association never published such a report. Anyone claiming to have such figures (for India) should be forced to identify their source and explain the methodology used to produce them."
In a separate study, Dev Kar of Global Financial Integrity concludes, "Media reports circulating in India that Indian nationals held around US$1.4 trillion in illicit external assets are widely off the mark compared to the estimates found by his study." Kar claims the amounts are significantly smaller, only about 1.5% of India's GDP on average per annum basis, between 1948 and 2008. This includes corruption, bribery and kickbacks, criminal activities, trade mispricing and efforts to shelter wealth by Indians from India's tax authorities.
According to a third report, published in May 2012, Swiss National Bank estimates that the total amount of deposits in all Swiss banks, at the end of 2010, by citizens of India were CHF 1.95 billion (₹92.95 billion (US$1.4 billion)). The Swiss Ministry of External Affairs has confirmed these figures upon request for information by the Indian Ministry of External Affairs. This amount is about 700-fold less than the alleged $1.4 trillion in some media reports. The report also provided a comparison of the deposits held by Indians and by citizens of other nations in Swiss banks. Total deposits held by citizens of India constitute only 0.13 per cent of the total bank deposits of citizens of all countries. Further, the share of Indians in the total bank deposits of citizens of all countries in Swiss banks has reduced from 0.29 per cent in 2006 to 0.13 per cent in 2010.
Domestic black money
Indian companies are reportedly misusing public trusts for money laundering. India has no centralised repository—like the registrar of companies for corporates—of information on public trusts.
2016 Evasion attempts after note ban
In Gujarat, Delhi and many other major cities, sales of gold increased on 9 November, with an increased 20% to 30% premium surging the price as much as ₹45,000 (US$690) from the ruling price of ₹31,900 (US$490) per 10 grams (0.35 oz).
Authorities of Sri Jalakanteswarar temple at Vellore discovered cash worth ₹4.4 million (US$67,000) from the temple Hundi.
- Multiple bank transactions
There have also been reports of people circumventing the restrictions imposed on exchange transactions and attempting to convert black money into white by making multiple transactions at different bank branches. People were also getting rid of large amounts of banned currency by sending people in groups to exchange their money at banks. In response, the government announced that it would start marking customers with indelible ink. This was in addition to other measures proposed to ensure that the exchange transactions are carried out only once by each person. On 17 November, the government reduced the exchange amount to ₹2,000 (US$31) to discourage attempts to convert black money into legitimate money.
As soon as the demonetisation was announced, it was observed by the Indian Railways authorities that a large number of people started booking tickets particularly in classes 1A and 2A for the longest distance possible, to get rid of unaccounted for cash. A senior official said, "On November 13, 42.7 million passengers were nationally booked across all classes. Of these, only 1,209 were 1A and 16,999 for 2A. It is a sharp dip from the number of passengers booked on November 9, when 27,237 passengers had booked tickets in 1A and 69,950 in 2A."
The Railways Ministry and the Railway Board responded swiftly and decided that cancellation and refund of tickets of value ₹10,000 and above will not be allowed by any means involving cash. The payment can only be through cheque/electronic payment. Tickets above ₹10,000 can be refunded by filing ticket deposit receipt only on surrendering the original ticket. A copy of the PAN card must be submitted for any cash transaction above ₹50,000. The railway claimed that since the Railway Board on 10 November imposed a number of restrictions to book and cancel tickets, the number of people booking 1A and 2A tickets came down.
- Municipal and local tax payments
As the use of the demonetised notes had been allowed by the government for the payment of municipal and local body taxes, leading to people using the demonetised ₹500 and ₹1,000 notes to pay large amounts of outstanding and advance taxes. As a result, revenue collections of the local civic bodies jumped. The Greater Hyderabad Municipal Corporation reported collecting about ₹1.6 billion (US$25 million) in cash payments of outstanding and advance taxes within 4 days.
Income Tax officials raided multiple branches of Axis Bank and found bank officials involved in acts of money laundering.
Business and corruption
Public servants have very wide discretionary powers offering the opportunity to extort undue payments from companies and ordinary citizens. The awarding of public contracts is notoriously corrupt, especially at the state level. Scandals involving high-level politicians have highlighted the payment of kickbacks in the healthcare, IT and military sectors. The deterioration of the overall efficiency of the government, protection of property rights, ethics and corruption as well as undue influence on government and judicial decisions has resulted in a more difficult business environment.
According to Transparency International[unreliable source?], Judicial corruption in India is attributable to factors such as "delays in the disposal of cases, shortage of judges and complex procedures, all of which are exacerbated by a preponderance of new laws". Over the years there have been numerous allegations against judges, and in 2011 Soumitra Sen, a former judge at the Kolkata High Court became the first judge in India to be impeached by the Rajya Sabha, (Upper House of the Indian Parliament) for misappropriation of funds.
Right to Information Act
Main article: Right to Information Act
The 2005 Right to Information Act required government officials to provide information requested by citizens or face punitive action, as well as the computerisation of services and the establishment of vigilance commissions. This considerably reduced corruption and opened up avenues to redress grievances.
Right to public services legislation
Main article: Right to Public Services legislation
Right to Public Services legislation, which has been enacted in 19 states of India, guarantee time bound delivery of services for various public services rendered by the government to citizen and provides mechanisms for punishing the errant public servant who is deficient in providing the service stipulated under the statute. Right to Service legislation is meant to reduce corruption among the government officials and to increase transparency and public accountability.
Anti-corruption laws in India
Public servants in India can be imprisoned for several years and penalised for corruption under the:
Punishment for bribery in India can range from six months to seven years.
India is also a signatory to the United Nations Convention against Corruption since 2005 (ratified 2011). The Convention covers a wide range of acts of corruption and also proposes certain preventive policies.
The Lokpal and Lokayuktas Act, 2013 which came into force from 16 January 2014, seeks to provide for the establishment of the institution of Lokpal to inquire into allegations of corruption against certain public functionaries in India.
Whistle Blowers Protection Act, 2011, which provides a mechanism to investigate alleged corruption and misuse of power by public servants and also protect anyone who exposes alleged wrongdoing in government bodies, projects and offices, has received the assent of the President of India on 9 May 2014, and (as of 2 August) is pending for notification by the Central Government.
At present there are no legal provisions to check graft in the private sector in India. Government has proposed amendments in existing acts and certain new bills for checking corruption in private sector. Big-ticket corruption is mainly witnessed in the operations of large commercial or corporate entities. In order to prevent bribery on supply side, it is proposed that key managerial personnel of companies' and also the company shall be held liable for offering bribes to gain undue benefits.
The Prevention of Money Laundering Act, 2002 provides that the properties of corrupt public servants shall be confiscated. However, the Government is considering incorporating provisions for confiscation or forfeiture of the property of corrupt public servants into the Prevention of Corruption Act, 1988 to make it more self-contained and comprehensive.
A committee headed by the Chairman of Central Board of Direct Taxes (CBDT), has been constituted to examine ways to strengthen laws to curb generation of black money in India, its illegal transfer abroad, and its recovery. "The Committee shall examine the existing legal and administrative framework to deal with the menace of generation of black money through illegal means including inter-alia the following: 1. Declaring wealth generated illegally as national asset; 2. Enacting/amending laws to confiscate and recover such assets; and 3. Providing for exemplary punishment against its perpetrators." (Source: 2013 EY report on Bribery & Corruption)
The Companies Act, 2013, contains certain provisions to regulate frauds by corporations including increased penalties for frauds, giving more powers to the Serious Fraud Investigation Office, mandatory responsibility of auditors to reveal frauds, and increased responsibilities of independent directors. The Companies Act, 2013 also provides for mandatory vigil mechanisms which allow directors and employees to report concerns and whistleblower protection mechanism for every listed company and any other companies which accepts deposits from public or has taken loans more than 50 crore rupees from banks and financial institutions. This intended to avoid accounting scandals such as the Satyam scandal which have plagued India. It replaces The Companies Act, 1956 which was proven outmoded in terms of handling 21st century problems.
In 2015, Parliament passed the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Bill, 2015 to curb and impose penalties on black money hoarded abroad. The Act has received the assent of the President of India on 26 May 2015. It came into effect from 1 July 2015.
Anti-corruption police and courts
The Directorate General of Income Tax Investigation, Central Vigilance Commission and Central Bureau of Investigation all deal with anti-corruption initiatives. Certain states such as Andhra Pradesh (Anti-Corruption Bureau, Andhra Pradesh) and Karnataka (Lokayukta) also have their own anti-corruption agencies and courts.
Andhra Pradesh's Anti Corruption Bureau (ACB) has launched a large scale investigation in the "cash-for-bail" scam. CBI court judge Talluri Pattabhirama Rao was arrested on 19 June 2012 for taking a bribe to grant bail to former Karnataka Minister Gali Janardhan Reddy, who was allegedly amassing assets disproportionate to his known sources of income. Investigation revealed that India Cements (one of India's largest cement companies) had been investing in Reddy's businesses in return for government contracts. A case has also been opened against seven other individuals under the Indian Penal Code and the Prevention of Corruption Act.
Civic anti-corruption organisations
A variety of organisations have been created in India to actively fight against corrupt government and business practices. Notable organisations include:
- [Bharat Swabhiman Trust], established by Ramdev, has campaigned against black money and corruption for a decade.[when?]
- 5th Pillar is most known for the creation of the zero rupee note, a valueless note designed to be given to corrupt officials when they request bribes.
- India Against Corruption was a popular movement active during 2011–12 that received much media attention. Among its prominent public faces were Arvind Kejriwal, Kiran Bedi and Anna Hazare. Kejriwal went on to form the Aam Aadmi Party and Hazare established Jan Tantra Morcha.
- Jaago Re! One Billion Votes was an organisation founded by Tata Tea and Janaagraha to increase youth voter registration. They have since expanded their work to include other social issues, including corruption.
- Association for Social Transparency, Rights and Action (ASTRA) is an NGO focused on grass-roots work to fight corruption in Karnataka.
- The Lok Satta Movement, has transformed itself from a civil organisation to a full-fledged political party, the Lok Satta Party. The party has fielded candidates in Andhra Pradesh, Tamil Nadu, and Bangalore. In 2009, it obtained its first elected post, when Jayaprakash Narayan won the election for the Kukatpally Assembly Constituency in Andhra Pradesh.
See also: Electoral reform in India
A number of ideas have been in discussion to improve the efficiency and effectiveness of electoral processes in India.
Factors contributing to corruption in India
In a 2004 report on Corruption in India, one of the world's largest audit and compliance firms KPMG notes several issues that encourage corruption in India. The report suggests high taxes and excessive regulation bureaucracy as a major cause; India has high marginal tax rates and numerous regulatory bodies with the power to stop any citizen or business from going about their daily affairs.
This power of Indian authorities to search and question individuals creates opportunities for corrupt public officials to extract bribes—each individual or business decides if the effort required for due process and the cost of delay is worth paying the bribe demanded. In cases of high taxes, paying off the corrupt official is cheaper than the tax. This, according to the report, is one major cause of corruption in India and 150 other countries across the world. In the real estate industry, the high capital gains tax in India encourages large-scale corruption. The KPMG report claims that the correlation between high real estate taxes and corruption is high in India as it is other countries including the developed economies; this correlation has been true in modern times as well as throughout centuries of human history in various cultures.
The desire to pay lower taxes than those demanded by the state explains the demand side of corruption. The net result is that the corrupt officials collect bribes, the government fails to collect taxes for its own budget, and corruption grows. The report suggests regulatory reforms, process simplification and lower taxes as means to increase tax receipts and reduce causes of corruption.
In addition to tax rates and regulatory burdens, the KPMG report claims corruption results from opaque process and paperwork on the part of the government. Lack of transparency allows room for manoeuvre for both demanders and suppliers of corruption. Whenever objective standards and transparent processes are missing, and subjective opinion driven regulators and opaque/hidden processes are present, conditions are ripe for corruption.
Vito Tanzi in an International Monetary Fund study suggests that in India, like other countries in the world, corruption is caused by excessive regulations and authorisation requirements, complicated taxes and licensing systems, mandated spending programmes, lack of competitive free markets, monopoly of certain goods and service providers by government controlled institutions, bureaucracy, lack of penalties for corruption of public officials, and lack of transparent laws and processes. A Harvard University study finds these to be some of the causes of corruption and underground economy in India.
Impact of corruption
Loss of credibility
In a study on Bribery and Corruption in India conducted in 2013 by global professional services firm Ernst & Young (EY), a majority of the survey respondents from PE firms said that a company operating in a sector which is perceived as highly corrupt may lose ground when it comes to fair valuation of its business, as investors bargain hard and factor in the cost of corruption at the time of transaction.
According to a report by KPMG, "high-level corruption and scams are now threatening to derail the country's its credibility and [its] economic boom".
Corruption may lead to further bureaucratic delay and inefficiency if corrupted bureaucrats introduce red tape in order to extort more bribes. Such inadequacies in institutional efficiency could affect growth indirectly by lowering the private marginal product of capital and investment rate. Levine and Renelt showed that investment rate is a robust determinant of economic growth.
Bureaucratic inefficiency also affects growth directly through misallocation of investments in the economy. Additionally, corruption results in lower economic growth for a given level of income.
Lower corruption, higher growth rates
If corruption levels in India were reduced to levels in developed economies such as Singapore or the United Kingdom, India's GDP growth rate could increase at a higher rate annually. C. K. Prahalad estimates the lost opportunity caused by corruption in terms of investment, growth and jobs for India is over US$50 billion a year.