Corruption Prevention
Raising Transparency
Corruption fosters distrust in the state, in democracy and rule of law. Source: KfW Photo Archive / photothek.net
Corruption incurs great material but also immaterial damage, because it entails loss of trust. It hampers successful development cooperation at all levels, distorting competition and causing considerable harm to the partner country. Economically it acts like an additional tax, deters private investments and detracts from the quality of public services.
The adverse consequences, however, go well beyond the economic aspects. It fosters distrust in the state, in democracy and rule of law. In undemocratic countries, corruption also undermines already weak rule-of-law institutions. It therefore poses a serious development constraint to the particular detriment of the poor.
This is reason enough for us to take action against every form of unfair advantage. Anti-corruption rules apply for us at all levels. Both on the inside, as concerns the conduct of our personnel, and also on the outside in relations with our cooperation partners at programme and project level.
An obligatory code of conduct applies for all KfW personnel. The dual control and signature principle applied in our operations is assured through in-house monitoring systems and procedures. Clear responsibilities are assigned for every project. We document all major decisions. Suspected corruption is investigated in compliance with set procedures.
For Fair Competition
From the outset, KfW Entwicklungsbank requires its partners to adopt procedures to ensure transparency, fair competition and impartial supervision. This is particularly important, because each of the executing agencies or contractors in the partner countries bears responsibility for planning and implementing FC-financed programmes and projects, also including calls to tender and contract awards for supplies and services. Where the partners need assistance here, Financial Cooperation (FC) finances professional know-how through qualified consultancy firms.
This separation of tasks avoids conflicts of interest. By raising transparency, it enables very effective oversight of the whole engagement. This is essential for FC, because particularly the public sectors we promote in partner countries, such as water, power and transport infrastructure, but also education or health, have always been frequently prone to corruption.
KfW closely monitors the individual programmes and projects it finances. Project managers and technical experts keep constant track of project progress - also on the spot at regular intervals – to ensure the proper application of funds. Our personnel make sure that calls to tender for supplies and services meet fair competition standards. They check supply and service contracts for correctness and compliance and they only disburse funds after they have verified their proper use.
Preventing Unfair Advantage
We do not stop there, though: We regularly assign an independent, external auditor to verify that we adhere to our own in-house regulations and procedures and operate with due banking diligence. The inspector examines the books at head office and on site and also carries out spot checks of the partner’s accounts. He also regularly inspects sample FC-financed programmes/projects in situ and confirms whether FC funds have been used for the intended purpose.
With its anti-corruption clauses in FC loan and financing agreements, KfW Entwicklungsbank makes a contribution to international anti-corruption: borrowers or subsidy recipients must give an assurance in financing agreements that no corruption was entailed in the relevant project inception. On infringement, KfW can refuse to disburse funds. These anti-corruption provisions are also included in contracts for supplies and services.
KfW has taken many precautions to prevent unfair advantage wherever it occurs. The aim is clear: Each project financed without corruption sends an important message. This way, we contribute to creating mechanisms for preventing corruption and raising transparency.
Last updated: July 2011
