Ewan Sutherland, visiting adjunct professor at the University of the Witwatersrand, says corruption has become endemic in the telecommunications industry worldwide — and particularly in emerging markets.

He says it’s becoming vital that this corruption is exposed and that countries that are used for hiding ill gotten gains work with international anti-corruption bodies.

Though risks for new entrants to markets were traditionally in the areas of procurement contracts and the subsequent importing of equipment, Sutherland says liberalisation, especially in countries with a high risk of corruption, has opened a new can of worms.

He says there are many instances of previously state-owned operators being privatised and handed to associates or relatives of those in power in return for payments. The same is true of valuable radio frequency spectrum, where entities that have no use for it are given access without due process, or where it is sold for vastly inflated sums.

The result of this corruption is that it reduces competition, stifles growth in the sector and negatively affects consumers of the services by both reducing quality of service and falsely inflating service charges.

Sutherland says bribery is a big problem and comes in various forms, from “payments in cash” or “deposits in offshore bank accounts”, or even shares “concealed through offshore financial centres”.

The most common beneficiaries have been regulators, government officials, corrupt businessmen and even presidents and sovereigns and their immediate families.

According to Sutherland, the most difficult places to get away with corruption in the telecoms sector are the US and UK, because both have attempted actively to limit the opportunities through legislation and by punishing culprits severely.

The US has been particularly active in pursuing bribery and corruption using two pieces of legislation, namely the Foreign Corrupt Practices Act and the Securities Exchange Act. Sutherland says the latter is the most effective because, although the former act outlaws bribery overseas, the latter imposes detailed reporting requirements on company accounts and seeks to pursue not only those who pay bribes but seeks to extradite those who receive them to face trial in the US.

An ongoing problem in the case of international or intercontinental fraud is that those on the receiving end of bribes are so seldom successfully prosecuted. This means little is done to dissuade those with the opportunity to engage in corrupt practices.

In addition, Sutherland says there are often-lengthy delays between arrests and prosecutions, and corruption extends to foreign legal and political systems, making it harder to get convictions, particularly when senior officials or renowned businessmen are involved.

In India, 122 spectrum licences were sold on a “first-come, first-served basis”, only to result in all licences being thrown out by the that country’s courts after it was found that many of them were sold to companies with no use for them. Many international firms that bid for the licences by legal means either pulled out of the Indian market or sued the government.

Similarly, in Thailand, Police Lt Col Thaksin Shinawatra decided to become a politician when he found that his attempts to dominate the Thai telecoms market were being thwarted by his lack of political contacts.

Sutherland says Sinawatra eventually gained control of the ministry of communications, where he created an “uneven playing field for rivals”. Eventually, he became prime minister, but was ousted in 2006. Now in exile, Sinawatra has left what Sutherland calls a “Gordian knot” of a mess “that is still being unravelled”.

Amazingly, in all of his research, Sutherland says he has yet to find a telecoms regulator that has uncovered a bribery or corruption case. “Worse, a few regulators — recently the Korean and Liberian regulators — have been caught at it themselves.”

Sutherland says there is “little recognition of the problems” from international telecoms bodies such as the International Telecommunication Union and the Organisation for Economic Co-operation and Development.

“It’s very difficult to estimate the cost to consumers, and it’s almost impossible to tell whether the trend is increasing or declining,” he says, adding that far more must be done to drive both local and international transparency, and that global standards need to be to be put in place for international deals within the sector.

He says any company or government looking to deal with an international telecoms company should demand extensive documentation and look at it in forensic detail before concluding business transactions. All too often, however, the profit motive encourages laxity and results in deals being fast-tracked, even in dubious circumstances.

Sutherland publishes reports on his findings on his blog. — Craig Wilson, TechCentral