How the G20 can make state-owned enterprises champions of integrity

For the first time in its presidency of the G20, Argentina is hosting country representatives from across the globe to address the best ways of curtailing corruption and promoting integrity in state-owned enterprises (SOEs).

Controlled by national governments, SOEs rank among the largest companies in the world, often serving as some of the biggest employers in their country. SOEs are central to the daily lives of citizens, providing critical goods and public services in sectors such as transport, utilities, telecommunications and health. When SOEs work inefficiently due to corruption and other malpractice, ordinary citizens feel the impact: trains are delayed, households go without power or water, and the sick are deprived of essential medical treatment.

SOEs are particularly vulnerable to corruption because of their closeness to politicians and public officials, and the scale of the resources, contracts and operations they control.

Further details have recently emerged of a scandal that involves three SOEs in two G20 countries, South Africa and India. The Johannesburg branch of India’s state-owned Bank of Baroda played a crucial role in moving hundreds of millions of dollars into offshore accounts originating from illegal deals involving taxpayer money. According to an investigation by the Organized Crime and Corruption Reporting Project (OCCRP) and The Hindu, two state-owned South African companies provided the millions: electricity utility, Eskom, and railroad company, Transnet.

In Latin America in the last two years, corruption scandals involving SOEs have highlighted a devastating waste of taxpayer money through over-priced contracts and corruption-related fines. As part of Operation Car Wash, one of the world’s largest corruption scandals, employees of Petrobras, the Brazilian state oil company, took approximately US$788 million in bribes in return for construction contracts, and used public money to illegally fund political parties.

To tackle corruption at these high-risk companies, Transparency International recently developed 10 Anti-Corruption Principles for SOEs together with a multi-stakeholder group of SOEs, businesses and international organisations. The principles provide detailed guidance for anti-corruption best practice by SOEs and complement the Organisation for Economic Co-operation and Development’s Guidelines on Corporate Governance of SOEs.

Integrity and transparency are at the heart of these principles. As entities ultimately owned by citizens, SOEs have a higher responsibility to act ethically and set an example for other businesses.

“SOEs are owned by the public, so they should be beacons of integrity and transparency. Unfortunately, this does not always seem to be the case,” said Delia Ferreira Rubio, chair of Transparency International. “Citizens deserve quality infrastructure and services. By demonstrating political will at the highest level and adopting these principles, G20 leaders have it in their power to make this happen.”

SOEs cannot tackle corruption alone. Fighting corruption takes a joint effort of governments, international organisations and civil society.

There are several ways that the G20 countries meeting in Buenos Aires can contribute to this fight:

• Work with SOEs to apply the SOE principles.
• Improve transparency of how the state directs and works with SOEs.
• Encourage SOEs to act with integrity in every country they operate in, and encourage their partners to do so as well.
• Require SOEs to maintain up-to-date, online, public registers of conflicts of interest.
• Provide the public with secure channels for raising concerns about SOEs.

“G20 leaders run the risk of saying the right things but not putting those words into action. They have already adopted a number of anti-corruption principles, including on open data, integrity in public procurement and corporate ownership transparency in recent years. Putting them into action would dramatically help clean up SOEs and restore trust in government,” said Katja Bechtel, Transparency International’s head of business integrity.

SOEs continue to play an important role not only in their own countries, but also increasingly in countries far away from home. As they enter new markets in challenging environments, corruption risks for SOEs rise, and the need for transparency and integrity increases.

Download the 10 Anti-Corruption Principles for State-Owned Enterprises, an accompanying paper called State-Owned Enterprises: Beacons of Integrity? that makes the case for their use and a self-assessment tool for SOEs on anti-corruption practices. The tool is in a testing phase and Transparency International welcomes comments on its application to [email protected]. You can also download an additional paper with key information and recommendations on SOEs.