Corrup&on

and Private Sector Development: Higher, or Lower, Transac&on Costs to Conduct Business?

Afghanistan Public Policy Research Organiza<on December 2011

Acknowledgements This paper is a product of a research project funded by Harakat Afghanistan Climate Investment Facility. APPRO expresses its sincere thanks to Harakat for their support and feedback on the various aspects of this research. This research would not have been possible without the acEve parEcipaEon and assistance from the many traders and customs ocials who were approached by APPRO. APPRO takes full responsibility for all omissions and errors. About the Authors Lead authors for this paper are Saeed Parto (Director of Research) and Anastasiya Hozyainova (Director of Research), assisted by Ehsan Saadat (Researcher). Rebecca Gang edited this report. About APPRO Afghanistan Public Policy Research OrganizaEon (APPRO) is an independent social research organizaEon promoEng social and policy learning to benet development and reconstrucEon eorts in Afghanistan. APPRO is registered with the Ministry of Economy (RegistraEon Number: 1212) as a not-for-prot, non-government organizaEon and headquartered in Kabul, Afghanistan. APPROs mission is to facilitate criEcal dialogue on policy and reconstrucEon issues. This mission has two components. The rst component is to measure development progress against strategic reconstrucEon objecEves and provide insights into how to improve performance against the milestones set by the Government of Afghanistan and the internaEonal donors. The second component is to train and mentor a pool of Afghan researchers to conduct research consistent with internaEonally recognized standards for social scienEc research. Research at APPRO is undertaken to address exisEng and pressing knowledge gaps in the policy making process and to advance the learning of researchers, academics, and decision and policy makers at all levels.

(c) 2011. Afghanistan Public Policy Research OrganizaEon. Some rights reserved. This publicaEon may be reproduced, stored in a retrieval system or transmi\ed only for non-commercial purposes and with wri\en credit to APPRO and the authors. Where this publicaEon is reproduced, stored or transmi\ed electronically, a link to APPROs website www.appro.org.af should be provided. Any use of this publicaEon falling outside of these permissions requires prior wri\en permission and can be sought by emailing mail@appro.org.af or by calling +93 700 538 081.

Table of Contents

ExecuEve Summary ...................................................................................................................1 1. IntroducEon ..........................................................................................................................4 2. ObjecEves and Methodology................................................................................................. 5 3. CorrupEon and ReconstrucEon: An Overview....................................................................... 6 3.1. AnEcorrupEon Eorts and Nature of CorrupEon in Afghanistan ..................................6 3.2. CorrupEon and Business PracEce in Afghanistan ..........................................................9 4. Key ndings .........................................................................................................................13 5. Conclusion ...........................................................................................................................16 6. RecommendaEons ..............................................................................................................18 Bibliography ............................................................................................................................19 Appendix 1: The Global Compacts 10th Principle ..................................................................21

ii

Glossary
ACCI AISA APPRO ASGP ASYCUDA GIAA HOO IARCSC ICC IWA MoCI MoF OECD UN UNCAC UNDP UNODC Afghanistan Chamber of Commerce and Industry Afghanistan Investment Support Agency Afghanistan Public Policy Research OrganizaEon Afghanistan Sub-naEonal Governance Program Automated System for Customs Data General Independent AdministraEon for AnEcorrupEon High Oce of Oversight and AnEcorrupEon Independent AdministraEve Reform and Civil Service Commission InternaEonal Chamber of Commerce Integrity Watch Afghanistan Ministry of Commerce and Industry Ministry of Finance OrganizaEon of Economic CooperaEon and Development United NaEons UN ConvenEon against CorrupEon United NaEons Development Programme United NaEons Oce on Drugs and Crime

iii

Execu4ve Summary

CorrupEon has been high on the list of prioriEes for the Government of Afghanistan and its internaEonal donors since reconstrucEon began in 2001. Thus far, naEonal and internaEonal eorts to curb corrupEon have been designed to clean up, raEonalize and restructure key state insEtuEons and administraEve processes. These iniEaEves were designed to challenge Afghanistans culture of corrupEon by mainstreaming anEcorrupEon values beyond insEtuEonal reform to capacity building, law enforcement, administraEve reform, and improved accountability mechanisms. In pracEce, the structural orientaEon of these reforms has revealed naEonal and internaEonal stakeholders focus on counteracEng the physical insecurity and Afghanistans acEve narcotrade. To date li\le or no a\empt has been made to deal with the more dicult aspect of corrupEon: the willingness of the general public to acquiesce to and thus help perpetuate the corrupt pracEces of state actors. This element of anEcorrupEon policy and programming is even more pressing in the business operaEng environment. Since 2001, transiEonal and elected authoriEes in Afghanistan have recognized their essenEal responsibility in regulaEng private sector actors across the full spectrum of business acEviEes from obtaining a business license to the payment of taxes. This commitment is exemplied in Afghanistans raEcaEon of the UN ConvenEon against CorrupEon as well as key internaEonal guiding principles on anEcorrupEon, such as the Global Compacts 10th Principle against corrupEon. Despite Afghanistans acceptance of internaEonal standards and success in bringing improvements to key private sector-oriented ministries and administraEve departments, the Government of Afghanistan and its internaEonal donors have been less successful in the ongoing implementaEon of anEcorrupEon eorts. In parEcular, li\le a\enEon has been paid to intensive monitoring of procedural reforms or to eecEng behavioral change among relevant ocials and business actors. The result has been a strong tendency for insEtuEonal regression to pre-reform status and thus renewed opportuniEes for bureaucraEc delay and the emergence and stabilizaEon of an unhealthy equilibrium in transacEon costs underpinned by insEtuEonalized corrupEon. Recognizing this dynamic, this research sought to document progress and ongoing challenges in anEcorrupEon eorts within Afghanistans business sector over the last decade. APPRO researchers engaged business actors to determine what they considered as the root causes of corrupEon in the private sector, whether and how anEcorrupEon iniEaEves had addressed these causes, and the pracEcal means available to business actors to increase the legiEmacy of their business acEviEes while minimizing transacEon costs in Afghanistans current business environment. Since 2001 a number of iniEaEves have been taken to ease such burdens on businesses. These include reducEon in the number of signature and the length of Eme required to obtain a business license, establishment of Afghanistan Investment Support Agency to ease obtaining business licenses

and business advice, increased empowerment of the Ministry of Commerce and Industry to play a leading role in promoEng business acEvity and business interests in Afghanistan, customs reform aimed at modernizing infrastructure and to minimize revenue leakages from customs revenue, and capacity building at and professionalizaEon of the Ministry of Finance to systemaEze the revenue and taxaEon system. AddiEonally, in 2008 Afghanistan Chamber of Commerce and Industry (ACCI) merged with Afghanistan InternaEonal Chamber of Commerce to create a unied body to represent private sector and trade related interests. The new ACCI is tasked with speaking and advocaEng on behalf of the business community and to ease regulaEons for a more enabling environment for business acEvity. The above iniEaEves represent major steps in organizing and regulaEng business acEvity and facilitaEng increased formalizaEon of business transacEons. Increased formalizaEon is likely to yield a number of signicant benets to businesses and the government. Businesses will benet from increased predictability and transparency in the operaEng environment while the government will become empowered to collect taxes, which, ideally, could be used in reconstrucEon and state building eorts. Given the centrality and worldwide recogniEon of the adverse eects of corrupEon, there are a number of resources and policy pathways available to governments, and businesses, to ght corrupEon. This research nds that the applicability of the various guides, principles, or tools to bring corrupEon under control remains to be tested in Afghanistan. Further, while many eorts have been made by the government and the internaEonal donors since 2001 to tackle corrupEon, in 2011 widespread corrupEon appears to have become insEtuEonalized and, as such, much more dicult to ght than the period immediately following 2001. This research also nds that despite high levels of corrupEon in Afghanistan business acEvity conEnues unimpeded though weakened and threatened by corrupEon.

Recommenda4ons
- The Government of Afghanistan should examine and idenEfy which of the available anEcorrupEon guides and principles, such as those developed by ICC and Transparency InternaEonal for businesses and those developed for governments by the UN ConvenEon against CorrupEon (UNCAC), OECD, and the World Bank, could work in the Afghan environment. - The Government of Afghanistan and internaEonal donors should support Afghanistan Chamber of Commerce and Industry (ACCI) through ongoing capacity exchange to ensure its advocacy acEviEes become more eecEve in generaEng reform and more visible to its consEtuents.

The Government of Afghanistan must clarify mandates of key ministries and administraEve departments. Such consultaEons should be conducted in collaboraEon with and input from representaEves of key ministries, AISA, ACCI and the wider business community.

HOO and the Oce of the A\orney General should place increased emphasis on monitoring administraEve ocials in key business service departments in the Ministry of Finance.

The Government of Afghanistan and the internaEonal donors should engage the Ministry of Finance in any and all discussions regarding corrupEon in licensing / re-licensing process with Ministry of Commerce and Industry, ACCI, and AISA. Similarly, all these enEEes should be stakeholders in eorts to root out corrupEon in the customs system.

The Ministry of Finance and the Ministry of Commerce and Industry should be brought on board with HOOs mandate through concerted pressure and support from the government and its internaEonal donors.

The Government of Afghanistan and key associaEons and agencies should consider developing guides to set limits on acceptable gratuiEes for services. The InternaEonal Chamber of Commerce (ICC) Rules of Conduct and RecommendaEons for CombaEng ExtorEon and Bribery provide a helpful model for such iniEaEves.

Afghan businesses should be mandated by law to establish fully auditable accounEng systems. Possession of complete and auditable accounts will act as a deterrent to corrupt ocials at several key phases of the relicensing process, for example. Only authorized ocials should be permi\ed to review accounts, as guaranteeing condenEality will be essenEal in ensuring business actors willingness to engage in honest reporEng on their business acEviEes and fair and accurate payment of taxes due to the government.

1. Introduc4on
Endemic corrupEon is common to countries aicted by conict or where conict has recently ceased.1 According to the InternaEonal Chamber of Commerce (ICC), corrupEon is the greatest obstacle to economic and social development around the world.2 It distorts markets, sEes economic growth, debases democracy and undermines the rule of law. Worldwide, the cost of corrupEon is esEmated at around 5% of the global gross domesEc product, amounEng to $2.6 trillion with over $1 trillion paid in bribes each year.3 Decades of conict, weak governance, and a rapid inux of internaEonal aid have created the perfect storm for the rise of endemic corrupEon in Afghanistan. In 2010 alone, it is esEmated that Afghan ciEzens paid more than $2.5 billion in bribes, almost 25% of the naEonal gross domesEc product.4 CorrupEon has been high on the list of prioriEes for the Government of Afghanistan and its internaEonal donors since reconstrucEon began in 2001. Seen primarily as a problem of weak governance, naEonal and internaEonal eorts to curb corrupEon were designed to clean up, raEonalize and restructure key state insEtuEons and administraEve processes parEcularly those related to controlling Afghanistans borders, tax revenue, and opium industry. These iniEaEves were designed to challenge Afghanistans culture of corrupEon by mainstreaming anEcorrupEon values beyond formal insEtuEonal reform. This structural orientaEon was, however, primarily focused on counteracEng physical insecurity, and Afghanistans acEve narcotrade.5 Eorts have been made to create dedicated agencies to counter corrupEon. In 2008 the Government of Afghanistan set up the High Oce for Oversight and AnEcorrupEon (HOO) with the mandate to deliver monitoring and counter corrupEon measures.6 The HOO replaced the General Independent AdministraEon for AnEcorrupEon (GIAA), which was dissolved due to lack of performance.7 Despite these measures, systemic corrupEon conEnues to plague the Afghan poliEcal economy and there is li\le indicaEon of how and through what means the Government and the internaEonal donors can bring corrupEon under control.
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1 This pa\ern is evident in, for example, Transparency InternaEonals CorrupEon PercepEons Index for 2010, available at h\p://www.transparency.org/policy_research/surveys_indices/cpi/2010/results. 2 The ICC denes corrupEon as the abuse of entrusted power for private gain. See ICC (undated). Clean Business is Good Business: The Business Case against CorrupEon. Available at: h\p://www.iccwbo.org/policy/anEcorrupEon/icccgbdg/ index.html 3 ICC (undated). Clean Business. 4 UNODC (2010). CorrupEon in Afghanistan: Bribery as reported by the vicEms. Available at: h\p://www.unodc.org/ documents/data-and-analysis/Afghanistan/Afghanistan-corrupEon-survey2010-Eng.pdf 5 See, for example: General Michael V. Hayden, Director, Central Intelligence Agency, Statement for the Record before the Senate Armed Services Commi\ee. Accessible at: h\p://www.globalsecurity.org/intell/library/congress/2006_hr/ 061115-hayden.htm; World Bank et al. 2007. FighEng CorrupEon in Afghanistan: A Roadmap for Strategy and AcEon. Informal Discussion Paper; Rubin, B.R. (2007). Salvaging Afghanistan. TesEmony before the United States Senate Armed Services Commi\ee. (US Government PrinEng Oce: Washington, D.C.). 6 Checchi (2009). Assessment of CorrupEon in Afghanistan. Report prepared by Checchi and Company ConsulEng, (Kabul: USAID). 7 Checchi (2009). Assessment of CorrupEon in Afghanistan.

To date, li\le or no a\empt has been made to deal with the more dicult aspect of corrupEon: the willingness of the general public to acquiesce to and thus help perpetuate the corrupt pracEces of state actors. This element of anEcorrupEon policymaking and programming is even more pressing relaEve to business actors. Despite the benets of anEcorrupEon eorts for the business community in the longer term, in the short term business actors appear willing to conEnue to engage in acEviEes that most benet their business bo\om line, regardless of legality. Experience from other contexts suggests that tackling corrupEon is ouen best achieved through simultaneous top-down and bo\om-up approaches and over extended periods of Eme. Most crucial to the success of anEcorrupEon eorts is the recogniEon that those who are subjected to or benet from corrupEon must want to break with corrupt and corrupEve pracEces. While intervenEons through top-down regulaEon, procedural reform, oversight and enforcement are necessary means for tackling corrupEon within formal state structures, they are not sucient in post-conict, largely undocumented, economies that have proven eecEve in bypassing all manner of regulaEon including those aimed at eliminaEng corrupEon. Recognizing this dynamic, this research sought to engage business actors to determine what they consider as the root causes of corrupEon in the private sector, whether and how anEcorrupEon iniEaEves have addressed these causes, and pracEcal and legiEmate means available to business actors for minimizing business transacEon costs in Afghanistan.

2. Objec4ves and Methodology

This research sought to document progress and ongoing challenges in anEcorrupEon eorts within Afghanistans business sector since 2001. The objecEves of this study were thus to: 1. Document business-related anEcorrupEon measures introduced since 2001; 2. Assess the impact of these measures on actual business pracEces, with an emphasis on whether corrupEon as pracEced today increases, or decreases, transacEon costs; 3. IdenEfy the needs, interests and likely incenEves of key stakeholders in the public and private sector to be\er facilitate parEcipaEon in anEcorrupEon eorts; and 4. Generate recommendaEons for future intervenEons aimed at reducing corrupEon in the business environment. To meet these objecEves, researchers completed a desk review of anEcorrupEon-related reforms in Afghanistan since 2001. Originally, APPRO had planned to launch the study through an incepEon workshop with relevant stakeholders at the Afghanistan Chamber of Commerce and Industry (ACCI),
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8 For the role of ACCI see its website, at h\p://www.acci.org.af.

given ACCIs role as a key business-directed civil society organizaEon in Afghanistan.8 A\empts to convene the workshop with representaEve businesspersons at ACCI were unsuccessful for a variety of reasons, however, not least because of ACCIs lack of credibility among some larger businesses.9 Instead, two focus group discussions were convened at APPROs oces with representaEves of large, Kabul-based businesses involved in internaEonal transacEons. In this environment, the key informants were more willing to have open discussions about pa\erns of corrupEon in businesses in Afghanistan, and to provide insights on how corrupEon might be more eecEvely counteracted in private sector development in the future. Several of these focus group parEcipants were idenEed as key informants and interviewed in greater detail, as were a selecEon of relevant government ocials. The key ndings from the analysis of the data from primary and secondary sources were presented at a conference a\ended by key ocials from the Ministry of Finance, High Oce of Oversight, business associaEons and business individuals in September 2011. This report incorporates the inputs from the conference.

3. Corrup4on and Reconstruc4on: An Overview

3.1. An9corrup9on Eorts and Nature of Corrup9on in Afghanistan
One outcome of Afghanistans turbulent period from the early 1990s unEl 2001 was its emergence as a hub for illicit economic acEviEes, namely opium producEon and cross-border smuggling.10 By 2001 corrupEon had been redened as a key security issue, with internaEonal approaches to anEcorrupEon targeEng the nexus between terrorism, narcoEcs, organized crime and state failure.11 A central focus of reconstrucEon eorts upon entering Afghanistan in 2001 was thus to counteract the rise of narcotrade and the corrupt pracEces that facilitated it, primarily through poppy eradicaEon and reforms targeEng key insEtuEons and administraEve processes. NaEonal and internaEonal eorts aimed at curbing corrupEon have included capacity building, technical assistance, and mentorship for such governmental enEEes as the Independent AdministraEve Reform and Civil Service Commission, the Oce of the A\orney General, Control Audit Oce, and several others. Key administraEve areas such as customs, business licensing, and
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9 In a focus group discussion with major traders held in Kabul in April 2011, there were strong suggesEons by some traders to create an alternaEve to ACCI, since ACCI had proven ineecEve in its ability to inuence government policy making and to protect and support private sector interests. 10 Goodhand, J. (2002). Aiding violence or building peace? The role of internaEonal aid in Afghanistan. Third World Quarterly, 23 (5), pp 837859, 838. 11 Le Billon, Philippe (2008). CorrupEng Peace? Peacebuilding and Post-Conict CorrupEon. Interna?onal Peacekeeping, 15 (3), pp 344-361, 344.

tax collecEon have beneted from infrastructural improvements, raEonalizaEon of laws, and streamlining of procedures. Transparency measures were also incorporated into such programs as Afghanistan Sub-naEonal Governance Program (ASGP). The World Banks Vulnerabili?es to Corrup?on Assessments Program and UNDPs Accountability and Transparency Program remain as two key iniEaEves to combat corrupEon in Afghanistan today. Although designed to challenge social engagement in corrupEon by mainstreaming anEcorrupEon values beyond insEtuEonal reform, the structural nature of these iniEaEves reveals an emphasis on counteracEng the physical insecurity and Afghanistans acEve narcotrade rather than counteracEng corrupEon as a deeply rooted socio-cultural phenomena.12 In 2006, a report by the United States Congressional Commi\ee on InternaEonal RelaEons led to a change in corrupEon-related programming. The Commi\ees report focused on the increasing prevalence of corrupEon in Afghanistan, concluding that a lack of basic democraEc structures, such as poliEcal parEes, had facilitated the insEtuEonalizaEon of corrupEon through the development of otherwise unlikely mulE-party alliances.13 By 2007, the systemaEc nature of corrupEon in Afghanistan came to be recognized as a major problem for both the public and private sectors, including but also surpassing pre-exisEng concerns about narcotrade and smuggling. At a donor conference in Paris in 2008, the blatant and endemic nature of corrupEon had taken center stage facing increasing pressure from their own consEtuents, internaEonal donors made it clear to the Government of Afghanistan that corrupEon would have to be tackled more visibly, directly and systemaEcally to ensure conEnued funding. This pressure brought about the launch of the High Oce of Oversight and AnEcorrupEon (HOO) in 2008 to replace the General Independent AdministraEon for AnEcorrupEon (GIAA), which had proved impressively impotent since being established in 2004.14 Reforms of such a structural nature take root slowly, however. In 2011 Transparency InternaEonals CorrupEon PercepEons Index (Figure 1) placed Afghanistan second from the bo\om sharing the place with Myanmar (Burma), down from ninth in 2007.15 According to studies by Integrity Watch Afghanistan (IWA) and the United NaEons Oce on Drugs and Crime (UNODC), the scale of corrupEon in Afghanistan is consistently idenEed as a top concern by ciEzens and ranked equal to or higher than concerns about insecurity.16
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12 See, for example: General Michael V. Hayden, Director, Central Intelligence Agency, Statement for the Record before the Senate Armed Services Commi\ee. Accessible at: h\p://www.globalsecurity.org/intell/library/congress/2006_hr/061115- hayden.htm; World Bank et al. 2007. FighEng CorrupEon in Afghanistan: A Roadmap for Strategy and AcEon. Informal Discussion Paper; Rubin, B.R. (2007). Salvaging Afghanistan. TesEmony before the United States Senate Armed Services Commi\ee. (US Government PrinEng Oce: Washington, D.C.). 13 Commi\ee on InternaEonal RelaEons (2007). Afghanistan: Five Years auer 9/11. Hearing before The Commi\ee on InternaEonal RelaEons, House of RepresentaEves, One Hundred Ninth Congress, Second Session. Serial No. 109230. (Washington, DC: U.S. Government PrinEng Oce). 14 Bertram, C. (2011). CorrupEon in Afghanistan among the most important problems for development: Interview with Yama Torabi, of Integrity Watch Afghanistan. Accessible at: h\p://www.boell.de/worldwide/asia/asia-corrupEon-afghanistan- interview-torabi-12589.html 15 Transparency InternaEonals CorrupEon PercepEons Survey 2011 can be accessed at: h\p://cpi.transparency.org/cpi2011/results/. 16 Commi\ee on InternaEonal RelaEons (2007). In 2010 Afghan ciEzens faced corrupEon daily, with UNODC calculaEng that in 2009 Afghans paid about 2.5 billion dollars in bribes, or 23% of the naEonal GDP. UNODC (2010). IWA makes a humbler esEmate of 1 billion dollars, which consEtutes about 10% of the naEonal GDP. IWA (2010).

Figure 1. Global Ranking of Corrup4on

Source: Transparency InternaEonals 2011 Corrup?on Percep?ons Index. The score relates to percepEons of the degree of corrupEon and ranges between 10 (highly clean) and 0 (highly corrupt).

Ordinary Afghans face the bulk of corrupEon when a\empEng to gain access to basic social services. In rural areas, most bribes go to secure access to educaEon and health, land registraEon, or to prevent the police from interfering in domesEc aairs.17 In urban areas, the majority of bribes were paid to purchase ocial posiEons, gain access to the judiciary, or to reduce the payment of duEes and taxes.18 Traders or self-employed businesspeople (29% of respondents) reportedly paid bribes in 2010 to ocials at the municipal level and at the Ministry of Commerce and Industry.19 UNODC reports that bribes have become the norm to speed up administraEve procedures, while the IWA suggests that it has become virtually impossible to accomplish administraEve tasks without paying some amount of illicit fee.20 This form of pe\y corrupEon is parEcularly common in dealing with the police, the judiciary and customs operaEons where corrupEon is reportedly most entrenched.21

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17 IWA (2010). Afghan PercepEons and Experiences of CorrupEon: A NaEonal Survey 2010. (Kabul: IWA). 18 IWA (2010). Afghan PercepEons. 19 IWA (2010). Afghan PercepEons. For further examinaEon of corrupEon in Afghanistans customs system, see APPROs Working Paper, Customs Reform in Afghanistan: Between Structural and Behavioral Change, December 2011. 20 IWA (2007). Afghans Experience of CorrupEon: A Study across Eight Provinces. (Kabul: UNDP-IWA). According to UNODC (2010) bribes are paid for specic purposes: 74% paid a bribe to speed up an administraEve procedure, 51% to nalize a procedure, 30% to reduce costs of the procedure, and another 28% to receive be\er treatment. About 25% of bribes were given to police ocers, another 25% to municipal and provincial ocers, and about 15% to tax, customs and cadastral ocers. In total, 65% of bribes were paid to ocials with whom business people are required to deal with for a range of services. UNODC (2010). 21 UNODC (2010). IWA denes pe\y corrupEon as behavior that can involve the exchange of very small amounts of money, the granEng of minor favours by those seeking preferenEal treatment or the employment of friends and relaEves in minor posiEons. IWA (2007: page 15).

3.2. Corrup9on and Business Prac9ce in Afghanistan

Afghanistans descent from pe\y to systemic corrupEon has been fueled by many factors including poor implementaEon of structural reforms, rising insecurity, decreasing commitment to the rule of law and a reinvigorated opium industry combined with the rapid inux and poor regulaEon of internaEonal funds. CollecEvely, these factors have disrupted pre-exisEng pa\erns in business- related transacEon costs and led to the empowerment of strongmen, a culture of impunity, and thus the abuse of authority at all levels of public and private exchange.22 When supported by the private sector as a necessary means of doing business, corrupEon reinforces the informal economy and inhibits producEve economic acEvity and growth. As businesses avoid direct confrontaEon with the public and private actors who engage in extorEon, a vicious circle emerges which entrenches the pracEce.23 The United States guide for doing business in Afghanistan from 2007 idenEed corrupEon as one of the key challenges facing the business community, specically ciEng Afghanistans weak legal framework, regulatory enforcement, dispute resoluEon mechanisms, and customs regulaEons and procedures that are neither transparent nor consistent.24 By 2009, corrupEon itself had emerged as the most urgent concern: the inadequacy of the regulatory system, and corrupEon among those working-level ocials who administer it, are larger obstacles to investors than the transparency of the regulaEons.25 In 2011, the language is more explicit sEll: CorrupEon is a serious challenge to doing business in Afghanistan.26 While high levels of corrupEon are common in transiEonal and fragile states, to understand the systemic nature of such high levels of corrupEon in Afghanistans private sector it is important to examine culturally accepted (or at least prevalent) pa\erns in business transacEons. In Afghan society, the exchange of symbolic or actual gratuiEes between parEes to a transacEon is anEcipated as an element of that transacEons cost. For generaEons, gius or rewards have been oered and received by parEes involved in transacEons as tokens of saEsfacEon and appreciaEon but also as instruments to strengthen social Ees through the solidicaEon of powerful patronage networks. An IWA study reports extremely high frequency of pe\y corrupEon in conduct of administraEve tasks while the respondents viewed the requests for payment as the most tolerable and jusEable form of corrupEon. As long as requests were kept at reasonable level, respondents were sympatheEc to supporEng the survival strategies of low paid public workers as well as accepEng of the concept of paying for services received.27
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22 See UNODC (2010) CorrupEon in Afghanistan. Page 4. 23 Checchi (2009). Assessment of CorrupEon in Afghanistan. 24 US Commercial Service (2007). Doing Business in Afghanistan: A Country Commercial Guide for US Companies. (Washington DC: State Department) Available at: h\p://trade.gov/staEc/afghanistan_ccg_2007.pdf 25 Bureau of Economic, Energy and Business Aairs (2009). Investment Climate Statement Afghanistan. (Washington DC: State Department). Retrieved from: h\p://www.state.gov/e/eeb/rls/othr/ics/2009/117835.htm 26 US Commercial Service (2011). Doing Business in Afghanistan: A Country Commercial Guide for US Companies. (Washington DC: State Department) Retrieved from h\p h\p://trade.gov/staEc/2011CCG_Afghan.pdf 27 IWA (2007). Afghans Experience of CorrupEon. Page 16.

In recent years, however, the somewhat benign social insEtuEon of giving and receiving gratuiEes has morphed into a much more menacing problem of systemaEcally pervasive corrupEon. Afghan ciEzens are now forced to pay illicit fees in almost every arena of daily life, while for those in the business community the spiraling cost of such fees has far surpassed any previously acceptable costs incurred in payment of gratuiEes. That said, there is strong impetus for business actors to engage in corrupEon as requests for bribes present an opportunity for minimizing transacEon costs and thus maximizing prot. When taxes are applied inconsistently by ocials, for example, business actors with the right personal, familial, ethnic, or poliEcal contacts are able to bypass or even benet from such hurdles by circumvenEng scheduled fees in collusion with their connecEons. Businesses without such relaEonships are forced to negoEate a labyrinth of administraEve requirements, taxes (formal and informal), and bribes or face the risk of excessive delays.28 For all businesses paying illicit fees to facilitate administraEve services has become a key condiEon for remaining operaEonal and turning a prot. CorrupEon is by no means limited to administraEve ocials. In a study of the Afghan trucking industry, it was reported that the governors, provincial police chiefs, district police chiefs, and local commanders for the NaEonal Directorate of Security, in addiEon to local deployments of the Afghanistan NaEonal Army and Afghanistan NaEonal Police extorted bribes for amounts ranging from $1,000 - $10,000 per month.29 Torkham, a major border point between Afghanistan and Pakistan, is the most expensive port of entry naEonwide due in part to the provincial governors imposiEon of a development fee, enforced through a coordinated provincial network.30 This not only detracts from traders ability to maximize prots, but also severely undermines naEonal eorts to increase state revenues from licit business acEvity and to insEll a naEonwide commitment to the rule of law. At the same Eme as public and private strongmen have become increasingly predatory, a new form of extra-regulatory acEvity has also gained ground that of middlemen or xers, referred to as komishenkars. Komishenkars have become a common feature in administraEve oces across Afghanistan. Paid to navigate through the ouen complex bureaucraEc phases required for various administraEve tasks, the komishenkars can reduce signicantly the amount of Eme and money in fullling administraEve requirements.31 A porEon of these fees is passed on systemaEcally to the administraEve ocials who prioriEze the komishenkars clients.32 While the work of komishenkars can be seen as a new form of insEtuEonalized corrupEon, the pracEce has gained popularity and legiEmacy among ordinary Afghans, state actors and the business
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28 USAID (2008). Case Study of Poultry and Grape/Raisin Subsectors in Afghanistan. (USAID: Kabul). 29 Tierney, J.F. (2010). Warlord, Inc.: ExtorEon and CorrupEon along the U.S. Supply Chain in Afghanistan. Report by the Majority Sta, Subcommi\ee on NaEonal Security and Foreign Aairs Commi\ee on Oversight and Government Reform, U.S. House of RepresentaEves, 41. 30 APPRO (2011). Customs Reform in Afghanistan. The standard exchange rate for 50 Afghanis equals $1. 31 In 2007, komishenkars played a role in 35% of the cases of reported bribe giving/taking, while in 2010 komishenkars were involved in 44% of cases. IWA (2007) and IWA (2010). 32 IWA (2010). Afghan PercepEons and Experiences.

10

community as a way to lower transacEon costs by speeding up administraEve processes. In fact, key ministries such as the Ministry of Commerce and Industry and the Ministry of Finance openly condone the role of komishenkars by sancEoning their presence, someEmes providing them with oce space and forms and other documentaEon materials, and recommending their services to businesses and traders as the best means of ensuring Emely and ecient service.33 While there is plenty of opportuniEes for abuse within this as-of-yet unregulated system, exchanging payment for increased eciency in the face of highly technical, unclear and poorly documented administraEve requirements can be a sensible and raEonal choice by the members of the business community whose main priority is to minimize transacEon costs and operate within a predictable, rather than uncertain, environment.34 For structural reforms to take root business actors must become vested stakeholders in the process. Understanding how this might be done has everything to do with understanding a businesspersons bo\om line: business enterprises exist to minimize transacEon costs and maximize prot. If ghEng corrupEon is likely to result in a reducEon in transacEon costs and an increase in prots, then private sector actors will have an incenEve to demand an end to endemic corrupEon. If, on the other hand, eorts by private sector actors to ght corrupEon result in increased transacEon costs and loss of revenue or prot, this will create a negaEve incenEve to conEnue engaging in ghEng corrupEon. To protect their interests and future earning capacity, private sector actors the world over are more likely to adapt to, or withdraw from, a dicult operaEng environment rather than try to change it. As seen in the example of customs reform in Afghanistan, having adequate technology and infrastructure is necessary but not sucient for eliminaEng corrupEon and maximizing government revenue, especially if business actors incur addiEonal costs by using the system or by advocaEng for its reform.35 Recognizing this, the InternaEonal Chamber of Commerce (ICC) has issued guidelines emphasizing the importance of developing enterprise-based rules of operaEon and conduct (Box 1).36 Self- imposed rules increase the likelihood of conformance as rules tend to mirror a groups exisEng values and business pracEces. AddiEonally, enterprise-based guidelines can be formulated in light of naEonal and internaEonal obligaEons, emphasizing the basic and fundamental responsibility of naEonal governments and internaEonal organizaEons in the ght against corrupEon. Without the guarantee of strict enforcement by non-corrupt ocials, however, there is li\le incenEve for businesses to self-impose ethical codes of conduct, parEcularly when such changes are likely to increase transacEon costs in an already dicult operaEng environment.
_____________________________________________________________________________________

33 Key informants interviewed in Kabul, June 2011, and observaEons made at the Ministry of Finance and the Ministry of Commerce and Industry. 34 UNODC (2010). 34% of the respondents who paid bribes indicated that they had enough informaEon to understand administraEve procedures, whereas the remainder either did not have enough informaEon or were not able to comprehend procedures due to the poor quality of informaEon or illiteracy. 35 Parto and Saadat. 2011. Customs Reform in Afghanistan: Moving Between Introduced and Pre-exisEng Structures. (APPRO: Kabul). 36 The ICC Rules of Conduct and RecommendaEons for CombaEng ExtorEon and Bribery are available at h\p:// www.iccwbo.org/uploadedFiles/ICC/policy/anEcorrupEon/Statements/ICC_Rules_of_Conduct_and_RecommendaEons %20_2005%20Revision.pdf.

11

Box 1. ICC An4corrup4on Rules of Conduct for Businesses

ICC oers a range of other arEcles to be addressed in ghEng corrupEon, including: Ar4cle 1: Prohibi4on of Bribery and Extor4on Enterprises should prohibit bribery and extorEon at all Emes and in any form, whether direct or indirect, including through agents and other intermediaries. Ar4cle 2: Agents and Other Intermediaries Enterprises should make their anEcorrupEon policy known to all agents and other intermediaries and make it clear that they expect all acEviEes carried out on their behalf to be compliant with their policy. Ar4cle 3: Joint Ventures and Outsourcing Agreements Enterprises should take measures within their power to ensure that anEbribery provisions consistent with these Rules of Conduct are accepted by joint- venture partners as applicable to the joint venture and by parEes to outsourcing agreements. Ar4cle 4: Poli4cal and Charitable Contribu4ons and Sponsorships Enterprises should only make contribuEons to poliEcal parEes, party ocials and candidates in accordance with applicable laws, and all requirements for public disclosure should be fully complied with. Ar4cle 5: GiRs, Hospitality and Expenses Enterprises should establish procedures covering the oer or receipt of gius, hospitality or expenses to ensure that such arrangements are limited to reasonable and bona de expenditures and do not improperly aect, or might be deemed to improperly aect, the outcome of a procurement or other business transacEon. Ar4cle 6: Facilita4on Payments Enterprises should not make facilitaEon payments. In the event that an enterprise determines, auer appropriate managerial review, that facilitaEon payments cannot be eliminated enErely, it should establish controls and procedures to ensure that their use is limited to small payments to low-level ocials for rouEne acEons to which the enterprise is enEtled. Ar4cle 7: Corporate Policies To prevent bribery and extorEon, enterprises should implement comprehensive policies or codes reecEng these Rules of Conduct as well as their parEcular circumstances and specic business environment. Ar4cle 8: Financial Recording and Audi4ng All nancial transacEons must be properly and fairly recorded in appropriate books of account available for inspecEon by boards of directors, if applicable, or a corresponding body, as well as auditors. Ar4cle 9: Responsibili4es The board of directors or other body with ulEmate responsibility for the enterprise, should take reasonable steps to ensure compliance with these Rules of Conduct.
Source: CAC (2005)

The need for government leadership in ghEng corrupEon has been underlined Eme and again by private sector actors, including those engaged for this research.37 Even as ACCI increases its eorts in advocaEng for the needs and interests of Afghan businesses and appears likely to conEnue doing so, it has received limited response or support from the state. Without concerted government acEon to engage with or address changes advocated by the ACCI, essenEal civil society organizaEons such as ACCI will have li\le or no impact on the governments role in curbing corrupEon in the short or long term. If the government cannot or will not fulll its role in creaEng a business environment that meets internaEonal standards (see Box 2), and trader associaEons will be required to ll the void. For trade associaEons to be successful, organizaEons such as the ACCI will need to improve their standing and scope of authority within the business community at the local, naEonal and internaEonal levels. How this will be achieved without clear backing from the government, however, is uncertain.
_____________________________________________________________________________________

37 This was a major point of discussion during the second focus group discussion with traders, held in Kabul in April 2011.

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Box 2: ICC Rules of Conduct and Recommenda4ons for Na4onal Governments

Capacity Building: Governments should provide adequate resources including funding, stang and training for the organizaEons combaEng corrupEon. These resources should be aimed at raising public awareness of the economic and social consequences of corrupEon. Strengthen Enforcement: Even though laws prohibiEng extorEon and bribery have been on the books in virtually all countries, enforcement is weak or nonexistent in many countries. Governments [should] strengthen enforcement of anEbribery laws, including laws prohibiEng extorEon by public ocials and laws prohibiEng commercial bribery. Governments should also establish reporEng channels for complaints about corrupEon. Economic Regula4ons: Governments should, as far as possible, minimize the use of systems requiring issuance of individual permits, authorizaEons, etc., because such systems oer scope for extorEon and bribery. Public Procurement: Governments should commit themselves to improve transparency in public procurement, including public bidding, and publicaEon of the criteria upon which awards are based. In parEcular, in the case of projects nanced by an internaEonal nancial insEtuEon, observance of these principles should be reected in contractual arrangements between the parEes. Poli4cal Contribu4ons: Undisclosed poliEcal contribuEons can be a source of abuse. Governments should, subject to the specics of their naEonal poliEcal system, regulate the condiEons under which poliEcal contribuEons can be made. Accoun4ng and Audi4ng: Governments should require audiEng by independent public auditors of the accounts of all economically signicant enterprises. Governments should also support the adopEon of strong and consistent internaEonal standards for accounEng and audiEng. Export Credit Agencies: Export credit agencies should include in their condiEons that nancing and guarantees are not provided for contracts secured through bribery and that sancEons shall be applied in the event of violaEons. Ocial Development Assistance: Development assistance programmes should require strict adherence to anEcorrupEon rules by government ocials and contractors.
Adapted from CAC (2005)

The next secEon summarizes the ndings from a review of the relevant literature, two focus group discussions held with traders involved in internaEonal transacEons, and interviews with government and business key informants. Where appropriate, these ndings are linked with ndings from other studies by APPRO.

_____________________________________________________________________________________

38 The UN Global Compact Leaders Summit is the worlds largest corporate sustainability iniEaEve. The Compacts 10th Principle is outlined in Appendix 1, while further informaEon can be found at the Compacts website: www.unglobalcompact.org.

13

4. Key ndings
Since 2001, transiEonal and elected authoriEes in Afghanistan have recognized their essenEal responsibility in regulaEng private sector actors across the full spectrum of business acEviEes from obtaining a business license to the payment of taxes. This commitment is exemplied in Afghanistans raEcaEon of the UN ConvenEon against CorrupEon as well as key internaEonal guiding principles on anEcorrupEon, such as the Global Compacts 10th Principle against corrupEon (Appendix 1).38 Despite Afghanistans acceptance of internaEonal standards and the resulEng improvements to key private sector-oriented ministries and administraEve departments, the Government of Afghanistan and its internaEonal donors have been less successful in the ongoing implementaEon of anEcorrupEon eorts. In parEcular, li\le a\enEon has been paid to intensive monitoring of procedural reforms or eecEng behavioral change among relevant ocials and business actors through bo\om up approaches such as consultaEon or awareness changing iniEaEves and incenEves. The result has been a strong tendency for insEtuEonal regression to pre-reform status, and thus renewed opportuniEes for bureaucraEc delays, corrupEon, and increased transacEon costs for businesses that wish to remain within the law by following the relevant rules and procedures. CorrupEon has persisted and thrived in part due to an overabundance of formal and informal red tape, excessive or duplicaEve reporEng requirements at various ministries, irregular taxaEon, and (informal) protecEon services through uElizing kinship or poliEcal allegiances. Since 2001 a number of iniEaEves have been taken to ease such burdens on businesses, with varying success. Examples of this progress/regression pa\ern can be drawn from some of the most important areas of business-related reforms such as licensing, customs, taxaEon, and support to civil society as follows: - Reforms to business licensing were deemed highly successful when, between 2004 and 2006, procedural steps required by the Ministry of Commerce and Industry were reduced to eight from over 50. By 2011, however, the procedural steps have risen to over 20 and license applicants almost universally expect to pay some form of illicit fee, ouen at mulEple stages. This has led to the emergence of a new insEtuEonal actor, the komishenkar, who reduces processing Emes by around half and for approximately double the average legal cost.39 - Afghanistan Investment Support Agency (AISA) was established in 2003 to help ease the process of obtaining and renewing business licenses. AISA was designed to be a one-stop-shop for obtaining licenses in all areas of business acEvity except import and export licenses, which are issued by the Ministry of Commerce and Industry (MoCI), and was lauded by the government and the internaEonal donors as a signicant and posiEve development. However, lack of clarity on AISAs insEtuEonal mandate has fueled ongoing compeEEon for resources and authority with
_____________________________________________________________________________________

39 For more informaEon, see APPRO. (2011) Business Licensing in Afghanistan, available at: h\p://www.appro.org.af/PublicaEons.html.

14

MoCI. The compeEEve stance by both enEEes is likely to undermine the consolidaEon of successes by both enEEes, limiEng the prospects for eecEve monitoring while increasing opportuniEes for delay and corrupEon.40 - Afghanistans automated customs system is ouen the envy of South and Central Asian countries.41 At the same Eme, customs system users and operators report ever-increasing levels of corrupEon throughout the customs process. While new, streamlined and mechanized systems have been put in place through reform programs, public and private sector actors conEnue to nd ways to subvert the implementaEon of these reforms and do not, adequately, uElize the sophisEcated tracking system of ASYCUDA. Private sector actors conEnue to pay illicit fees set at rates lower than the ocial duty fees, while ocials are becoming increasingly skillful at manipulaEng the new technology for extorEon. PosiEve and negaEve incenEves to disengage from, report on, and address corrupt pracEces are noEceably absent from the experiences of customs system users and ocials.42 - Signicant eorts have been directed at capacity building within the Ministry of Finance, parEcularly in the departments dealing with the assignment of Tax IdenEcaEon Numbers (TIN) and tax collecEon. As a result of these reforms, Afghanistans taxaEon and revenue collecEon systems operate with increasing success, consEtuEng an important source of revenue for the government. However, traders interviewed by APPRO reported that the threat of delay and corrupEon remained as signicant hurdles within MoF. In the realm of renewing business licenses, for example, each MoF department involved was reported to demand a giu, ranging from about $600 for ling a form to $1000 for nal clearance, while procedural delays were reported to run from days to even weeks for each stage of the process.43 - In 2008, a unied body to represent private sector and trade related interests was created through the merger of the Afghanistan InternaEonal Chamber of Commerce and the Afghanistan Chamber of Commerce and Industry (ACCI). The new ACCI is an independent civil society organizaEon tasked with supporEng the creaEon of a more enabling business environment through streamlining administraEve processes and advocaEng for the interests of the business community. While this merger represents a posiEve step in improving the business environment, insucient thought seems to have been given to how this new insEtuEon would gain legiEmacy among key business actors and government ocials. This gap was evident in 2011, when business community members refused to parEcipate in a consultaEon meeEng organized by APPRO at ACCI, due to reservaEons about ACCIs perceived impotence and inability to protect the interests of, and advocate for, its business consEtuents.
_____________________________________________________________________________________

40 APPRO (2011). Business Licensing in Afghanistan. 41 Interview with customs internaEonal expert in Kabul, May 2011. 42 See Parto and Saadat 2011, Customs Reform in Afghanistan. Available at: h\p://www.appro.org.af/PublicaEons.html. 43 APPRO, Business Licensing.

15

Despite various shortcomings, these iniEaEves represent major steps in organizing and regulaEng business acEvity and facilitaEng increased formalizaEon of business transacEons. Increased formalizaEon is likely to yield a number of signicant benets to businesses and the government. Businesses will benet from increased predictability and transparency in the operaEng environment while the government will become empowered to collect taxes, which, ideally, could be used in reconstrucEon and state building eorts. Yet as reviews show the implementaEon of these iniEaEves present major challenges. The manner in which the above iniEaEves have evolved points to one key observaEon. That is, for structural intervenEons to take root, a major component in insEtuEonal reform has to be concerned with eecEng behavioral change in the mindset of businesses and their governmental counterparts. Given the current condiEons, behavioral change can be a\empted in a range of areas including a\empts to increase the capacity of trade associaEon such as ACCI to advocate on behalf of the business community, encourage business associaEons to reward members that engage in transparent and ecient pracEces, and create an accessible, condenEal and results-oriented reporEng system to report on corrupEon for use by business actors and government ocials alike.44

5. Conclusion
The overview of measures taken since 2001 by the Government of Afghanistan and its internaEonal donors to ght corrupEon reveal that that while signicant eorts and improvements have been made over the last decade, by 2011 corrupEon appears to have become endemic, insEtuEonalized and much more dicult to ght than the period immediately following 2001. Successes are apparent in the establishment of highly visible anEcorrupEon eorts including the modernizaEon of the customs system, the streamlining of business licensing, and se|ng up the High Oce of Oversight and AnEcorrupEon, for example, but failures are just as evident in the implementaEon and monitoring of these projects. A prime example of naEonal and internaEonal stakeholders inability to tackle corrupEon through high level structural intervenEons alone is the General Independent AdministraEon for AnEcorrupEon (GIAA). Launched in 2004 as the insEtuEonal agship for anEcorrupEon in Afghanistan, GIAA was almost immediately infamous for its lack of resources and general impotence, ulEmately being dissolved in 2008. Given that the total absence of a naEonal anEcorrupEon body was unacceptable, the High Oce of Oversight and AnEcorrupEon (HOO) was formed soon auer the 2008 Paris Conference. It remains to be seen how the HOO will cope with the increasingly insurmountable challenge of corrupEon in Afghanistan and whether it can have a fate dierent than that of GIAA.
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44 Recent a\empts in this regard are to be noted here, in a recent (December 2011) announcement by the High Oce of Oversight. For more informaEon see: h\p://anE-corrupEon.gov.af/en/page/1733

16

Three interconnected aspects of this challenge warrant parEcular a\enEon. First, it is unlikely that HOO can succeed in fullling its mandate while the relaEonships and pracEces that resulted in the failure of GIAA and the insEtuEonalizaEon of corrupEon remain intact. FighEng endemic corrupEon requires strong, clear and coordinated eorts led by the government, as intended through the establishment of HOO, and through the key ministries. This ght cannot be the responsibility of one naEonal-level organizaEon alone, however. RaEonalizaEon of laws, streamlining of procedures, monitoring implementaEon, and the development of easy to access and condenEal reporEng mechanisms must be put in place in ministries and administraEve departments across the country. Civil society counterparts to HOO should also be encouraged to ourish, to give ordinary Afghans a stake in, or a least a window onto, the ght against corrupEon at all levels of interacEon. Second, top-down structural reforms are insucient in bringing about systemic and sustainable behavioral change among key stakeholders who benet from and perpetuate endemic corrupEon. Those who engage in corrupEon both the givers and the receivers must be given posiEve and negaEve incenEves to change their viewpoints and behavior, parEcularly in the business sector. As long as deviaEng from standard procedure reduces transacEon costs, business actors will conEnue to pay, thereby ensuring that ocials, strongmen and any others who hold the requisite power, will conEnue to ask. Public and private actors must become stakeholders in the reform process, something that is likely to result from more consultaEve and grassroots approaches. A nal element is the damaging role played by internaEonal donors and their naEonal and internaEonal contractors and counterparts through aid delivery mechanisms. These mechanisms severely lack transparency and accountability and run the risk of succumbing to corrupt and corrupEve acEviEes. Thus, future eorts to ght corrupEon in Afghanistan would be ill informed not to address the role of the internaEonal donors and their contractors and Afghan counterparts. Lack of oversight and accountability in contracEng arrangements detracts from the legiEmacy of internaEonal intervenEon in Afghanistan in general, and in the ght against corrupEon in parEcular. Despite high levels of corrupEon in Afghanistan, business acEvity conEnues to ourish though weakened and threatened. This is due, in part, to the fact that businesses can pass the costs of corrupEon onto their customers. As a business key informant put it,
Every year I pay at least 40 million Afghanis in taxes and other expenses to the government. But, note that when I pay this money it is not from my own pocket but from my customers pockets because I raise my prices to reect the costs I incur. This is unjust to my customers but I have no choice.45

Thus it is the ordinary Afghans that bear the brunt of corrupEon, while ocials and businesspeople nd ways to cover their costs. A substanEal challenge in addressing corrupEon is nding entry points for working with grassroots actors, such as the trader quoted above, to eect reform. As we have
_____________________________________________________________________________________

45 A trader interviewed for this study.

17

stated elsewhere, one cannot hope or expect that one day Afghan traders will, on their own, decide against being party to corrupEon as they have no incenEve to do so. The task of iniEaEon thus must fall on intermediary organizaEons such as ACCI, AISA, and etehadias (guilds or trade associaEons). CorrupEon, parEcularly in less developed, post-conict, and in-conict countries has been a topic of much discussion in global business forums, the internaEonal aid community, and by governments of countries suering from high levels of corrupEon. Given the internaEonal recogniEon of corrupEon as one of the most adverse of all challenges facing transiEonal and developing states, there are a number of resources and policy pathways available to governments and businesses to ght corrupEon many of these and other legal provisions have already been adopted by the Government of Afghanistan and private sector structures.46 Due to conEnued weaknesses within the state enEEes, insucient rule of law, and ongoing incenEves to engage in corrupEon, however, the majority of reforms remains unenforced or runs the risk of being reversed. The applicability of the various internaEonal guides, principles, toolkits and best pracEces to bring corrupEon under control thus remains to be tested in Afghanistan.

6. Recommenda4ons
- The Government of Afghanistan should examine and idenEfy which of the available anEcorrupEon guides and principles, such as those developed by ICC and Transparency InternaEonal for businesses and those developed for governments by the UN ConvenEon against CorrupEon (UNCAC), OECD, and the World Bank, could work in the Afghan environment. - The Government of Afghanistan and internaEonal donors should support Afghanistan Chamber of Commerce and Industry (ACCI) through ongoing capacity exchange to ensure its advocacy acEviEes become more eecEve in generaEng reform and more visible to its consEtuents. - The Government of Afghanistan must clarify mandates of key ministries and administraEve departments. Such consultaEons should be conducted in collaboraEon with and input from representaEves of key ministries, AISA, ACCI and the wider business community. - HOO and the Oce of the A\orney General should place increased emphasis on monitoring administraEve ocials in key business service departments in the Ministry of Finance. - The Government of Afghanistan and the internaEonal donors should engage the Ministry of Finance in any and all discussions regarding corrupEon in licensing / re-licensing process with
_____________________________________________________________________________________

46 See, for example, Box 1 and 2 regarding ICC standards for businesses and naEonal governments, as well as Appendix 1 for the Global Compacts 10th Principle.

18

Ministry of Commerce and Industry, ACCI, and AISA. Similarly, all these enEEes should be stakeholders in eorts to root out corrupEon in the customs system. - The Ministry of Finance and the Ministry of Commerce and Industry should be brought on board with HOOs mandate through concerted pressure and support from the government and its internaEonal donors. - The Government of Afghanistan and key associaEons and agencies should consider developing guides to set limits on acceptable gratuiEes for services. The InternaEonal Chamber of Commerce (ICC) Rules of Conduct and RecommendaEons for CombaEng ExtorEon and Bribery provide a helpful model for such iniEaEves. - Afghan businesses should be mandated by law to establish fully auditable accounEng systems. Possession of complete and auditable accounts will act as a deterrent to corrupt ocials at several key phases of the relicensing process, for example. Only authorized ocials should be permi\ed to review accounts, as guaranteeing condenEality will be essenEal in ensuring business actors willingness to engage in honest reporEng on their business acEviEes and fair and accurate payment of taxes due to the government.

19

Bibliography
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US Commercial Service. 2011. Doing Business in Afghanistan: A Country Commercial Guide for US Companies. (State Department: DC.) Retrieved from h\p h\p://trade.gov/staEc/ 2011CCG_Afghan.pdf USAID. 2008. Case Study of Poultry and Grape/Raisin Subsectors in Afghanistan. (USAID: Kabul). World Bank et al. 2007. FighEng CorrupEon In Afghanistan: A Roadmap For Strategy And AcEon. Informal Discussion Paper. Transparency InternaEonal. 2011. CorrupEon PercepEon Index 2011. h\p://cpi.transparency.org/
cpi2011/results/

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Appendix 1: The Global Compacts 10th Principle

On 24 June 2004 the rst Global Compact Leaders Summit announced that the Global Compact, the worlds largest corporate sustainability iniEaEve, had adopted a 10th Principle against corrupEon: Businesses should work against corrup?on in all its forms, including extor?on and bribery. The adopEon of the 10th Principle sent a strong worldwide signal that the private sector and other non- state-actors share responsibility for eliminaEng corrupEon and stand ready to play their part. The 10th Principle commits Global Compact parEcipants not only to avoid bribery, extorEon and other forms of corrupEon, but also to develop policies and concrete programmes to address it. Companies are challenged to join governments, UN agencies and civil society to realize a more transparent global economy. The 10th Principle was the response of the business community and other non-state actors to the adopEon of the United NaEons ConvenEon against CorrupEon. The UN General Assembly adopted the ConvenEon in October 2003, and it entered into force on 14 December 2005. As of September 2009, over 140 States had raEed the ConvenEon. As the sole global, legally binding anEcorrupEon instrument, the ConvenEon provides a unique opportunity to prevent and ght corrupEon in both public and private sectors. With this in mind, the 2004 Global Compact Leaders Summit designated the UN ConvenEon against CorrupEon as the underlying legal instrument for the new 10th Principle. In fact, while the ConvenEon is legally binding only for countries that have raEed it, its values and principles are applicable to the widest spectrum of society, including the business community. The principles enshrined in the ConvenEon can serve as an inspiraEonal tool for companies adopEng or reviewing internal anEcorrupEon policies, strategies, and measures. Following adopEon of the 10th Principle, the Global Compact established a mulE-stakeholder working group to provide strategic input to the Global Compacts work on anEcorrupEon and to dene the needs of the business community in implemenEng the principle. The Working Group on the ImplementaEon of the UN Global Compacts 10th Principle also aims to contribute to greater coherence by supporEng the alignment of exisEng iniEaEves and avoiding the duplicaEon of eorts. The Working Group has established several task forces to develop various tools and resources to help businesses achieve the goals of the 10th Principle. This Guidance is the result of one such eort.
Source: Transparency InternaEonal (2009). ReporEng Guidance on the 10th Principle against CorrupEon. Available from: h\p://www.iccwbo.org/policy/anEcorrupEon/id879/index.html

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