draining development.pdf - Khazar University

388 Draining Development?Situational opportunity models of corruptionIt is illuminating to examine the different conditions under which situationalopportunities for corruption are created and exploited. Publiccorruption cases typically involve either (1) a legal or natural personoutside the government (the corruptor) who pays a person inside thegovernment (a corrupt PEP) in exchange for a government benefit, or(2) a PEP who (with or without active collusion) embezzles public funds.In the second type, corruptors outside the government are not usuallyinvolved in the scam, though they may set up corporate or other nontransparentvehicles and act as bankers or other types of value transferors.The price extracted for the corrupt benefit may be modest in theview of the corruptor, but significant in the view of the recipient, or itmay be significant for both. The potential funds transfers are a functionof this and other expenditures. The development of land for tourism—the alleged source of corruption that, not for the first time, led to thesuspension of local government in the Turks and Caicos Islands and hasbeen the subject of a major criminal investigation by the U.K. government(Auld 2009)—may generate substantial rewards for all parties,though only if the infrastructure actually is developed. 20Gordon (2009) argues that, in almost all grand corruption cases, thecorrupt proceeds are already within the financial system at the time oftheir generation (that is, no cash is involved), while, in two cases, muchof the proceeds may not have been in cash. This is not surprising giventhat the sources of corrupt proceeds are primarily kickbacks on governmentcontracts and bribes to receive a government benefit. The corruptormight therefore normally be a businessperson who receives the governmentbenefit in the form of checks or wire transfers directly from thestate. If—before or after the award of the contract, depending on thelevel of trust and other factors—the corrupt government contractorwithdraws cash and transfers it to a corrupt PEP, this would break thechain of bank records connecting the two. However, a new problem isgenerated because the corrupt PEP may be required to deposit cash backinto the financial system. If the problems associated with this redepositof cash by the corrupt PEP are considered to outweigh the benefits ofbreaking the chain of financial records, the PEP and the “donors” oftenattempt to mask their association with the funds by hiding the identityof the beneficiary. 21 The donor—who may be at risk of being discovered