By Andrea Repetto Lisboa, PHD in Economics, former member of the Presidential Commission for Pension Reform, Member of the Presidential Council Against Conflicts of Interest, Influence Trafficking, and Corruption. Director of Pubic and Academic Space of the Universidad Adolfo Ibañez.
Translated by Anthony Rauld
The illegal financing of elections, corruption, bribery, conflicts of interest, influence trafficking, tax evasion, collusion, illicit misappropriation, and misuse of insider information are terms that are all commonplace within the media today, and which have found their way into the everyday lingo of Chileans.
It is not surprising, then, to see that citizen confidence in the political world has deteriorated. In fact, the percentage of people who claim to have a lot of, or considerable, trust in the government, the congress, the political parties and in the business sector respectively, has been cut by half in the last fifteen years (CEP opinion poll).
The political and business leaders are in a state of crisis because these situations damage the public trust and affect ordinary Chileans, who are citizens, voters, taxpayers, consumers and minority shareholders.
In the early part of 2015, the Penta scandal, and then the Caval scandal, triggered a political response in the form of the creation of the Presidential Council Against Conflicts of Interest, Influence Trafficking and Corruption, which I had the honor of participating in.
The Council’s work was permeated by the idea that these problems were intimately associated with certain weaknesses of our institutional system, and that we had to take advantage of the crisis to jumpstart an ambitious probity agenda, which would include both the political and the business worlds.
The council proposed 200 measures dealing with a variety of general areas, which include the prevention of corruption, the regulation of conflicts of interest, the separation of campaign financing from business interests, the improvement of the tools needed for the strengthening of markets, and ideas pertaining to the establishment of more integrity and more ethical standards in our society.
Although the scandals that led to the creation of the Council had to do with illegal campaign financing and influence peddling, the commission thought it relevant to also move forward with respect to probity in the business world. Emblematic cases of conflict, strictly within the private sphere, that took place in the past few years—illicit use of privileged information, collusion and infractions committed against minority shareholders—have had a negative, and significant, impact on how much faith citizens have in the market, affecting its correct functioning and generating the perception that the private sector is increasingly abusive and unjust.
There are three groups of proposals in the Commission’s report aimed at increasing probity in the business sector, which I would like to highlight here: an improved regulation of the “revolving door” phenomenon, increased faculties for regulatory agencies to perform their tasks with efficiency, and the strengthening of the corporate governance of companies.
The revolving door involves the coming and going of persons between a legislative position, or regulatory agency, and a private company, for profit or otherwise, that operates within a market that is under regulation. In one direction, we are dealing with a legislator, a high office-holder within the executive branch, or a regulator, who leaves the public sector to assume a relevant position (director, administrator, investor, or consultant) in a sector that he/she has regulated. In the other direction, we are talking about a high executive of a regulated company who assumes an office in the executive branch, in the congress, or in a regulatory agency operating in the same area.
A revolving door that goes round and round without any reservations facilitates an undue benefit to a former or potential employer, as well as the access to sensitive information obtained while in office. In this way, it procures private advantages due to the holding of public office and is not different from receiving a bribe.
The major challenge with regards to revolving door regulation is to achieve a delicate balance between the ability to attract talented people to public office—guaranteeing the right to choose one’s occupation—while at the same time preventing conflicts of interest so that public sector agents can act with impartiality and independence.
The Council proposed to expand the category of agents who fall under potential incompatibility after their employment, defining a “cooling off” period in which private sector positions cannot be accepted, nor property owned. In exchange, a compensation system was suggested, and sanctions for non-compliance were defined.
With respect to the regulatory agents, the Council found it necessary to provide them with more efficient tools capable of tracking the compliance of norms. Without supervision or tracking, it is hard to dissuade and apply effective sanctions.
Fundamentally, the report proposes to give new faculties to the regulatory organisms that go after illicit activity. These must go hand in hand with more independence, which is why the report also suggested modifying their governance structures, and the way their authorities are designated or removed.
Among these attributions is the enabling of rapid and effective sensitive information sharing, and the ability to investigate internally with the same faculties enjoyed by the Economic Prosecutor—faculties that are key to detect fresh cases of collusion—guaranteeing, of course, the basic rights of persons involved.
At the same time, the Council proposed the strengthening of plea-bargaining and witness protection programs for informants in order to encourage accusations and self-accusations, tools that have been recognized internationally as effective in the detection and prosecution of crimes.
In this arena, the Council also suggested revising criminal sanctions that harm market confidence, in order to ensure proportionality with respect to damage caused.
Finally, the Council proposed a series of measures aimed at strengthening the efficiency of the corporate governance structures of companies, the self-regulation mechanisms, as well as the internal/external auditing processes that can prevent illicit conduct and detect fraud and corruption within the company.
In terms of proposals, they include the definition of standards and regulations concerning transactions involving relatives and infrequent transactions like donations, and the norms governing executive salaries and incentives, including the methods of payment.
The proposals also include mechanisms to reduce asymmetries between company and clients, especially in the financial industry. For example, there is a proposal to advance in the certification system for financial market agents, with an emphasis on ethical issues and on the adoption of international certifications that deal with client treatment and ethical conduct. At the same time, there is a proposal to regulate instances where financial intermediaries recommend positions to their clients that contradict their own, and to establish mechanisms capable of ensuring transparency with regards to potential conflicts of interest on the part of market analysts who appear in the media, or when they deliver recommendations to their clients.
Recovering citizen trust in the institutions and organizations that buttress our democracy, as well as in the business world, depends on how and how far we can advance in issues related to probity. This is a complex agenda since it entails a wide range of issues. But it is also complex because it requires higher standards of probity and transparency than the current ones, and more importantly, it implies giving up power and privileges.
The Anticorruption Observatory of Ciudadano Inteligente and Espacio Público has been tracking the progress of this agenda. Only two years later, the Observatory has reported a 62% advance.
The proposals of the Council seek to strengthen our democracy, and to ensure that our markets function in a more competitive and just way. The concrete progress that is observed represents the first steps towards reestablishing a necessary level of confidence within our society.