CONFERENCE ON DEMOCRATIC TRANSITION AND CONSOLIDATION
Working Group 4: Anti-Corruption Measures
Coordinator: Susan Rose-Ackerman
Conflicts of Interests and Transparency
Roberto de Michele
SUMMARY
“If men were angels, no government would be necessary. If angels were to govern
men, neither external nor internal controls on government would be necessary.”
The problem of conflicts of interests is common to every political system, whether
developed or in transition. Yet, for those societies that are in the process of establishing the
rule of law, the consequences of this problem can be far more harmful, given its negative
impact on trust, credibility and confidence in the impartial role of government.
In this presentation, I introduce the problem of conflicts of interest and sketch briefly
why we should be seriously concerned about this issue. Secondly, I will comment on public
policies and strategies that try to prevent this problem. Particularly, I will describe a
specific strategy with three components to prevent conflict of interests. This strategy is
based on lessons learned from the experience of the Anticorruption Office in Argentine in
trying to apply the existing regulations on conflicts of interests.
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1. DEMOCRACY AND CONFLICTS OF INTEREST
A democratic system demands that public officials justify their actions and decisions,
providing reasons to support them. The process of providing reasons for a public or
political decision is connected with the idea of fairness behind the exercise of public office,
whether appointed or elected.
Citizens in a democratic system also expect the decisions of public officials to be
based upon impartial considerations. Fairness and impartiality should be emphasised when
public decisions will generate an economic advantage to certain individuals, corporations,
or will affect fundamental rights . These principles are meant to avoid arbitrary and
discretionary decisions
Most of all, under a constitutional democracy, we expect the public interest to prevail
above particular claims and demands from citizens, groups, economic sectors and
individual public officials themselves, whether elected or appointed.
The requirement to justify public decisions and to act according to the principle of
impartiality is part of a substantive foundation of the rule of law.
The expectations of fairness and impartiality do not preclude the notion that the
public decision-making process can take into consideration the particular interests at stake.
Rather, it points at the importance of reaching the decision from a standpoint that is
reasonably distant from competing particular interests, while at the same time providing
acceptable reasons to support it .
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2. THE CONSEQUENCES OF CONFLICT OF INTERESTS
Why is the problem of conflicts of interests a pressing issue for a democratic system?
First, it has an impact on basic resource allocation. Biased and unfair decisions of
public officials affect the market. They produce incorrect information concealing the actual
reasons behind the decision-making process, thus contributing to market imperfection and
the inefficient allocation of resources.
Decisions made in a situation of conflicts of interests erode the credibility and
trustworthiness of government’s actions. In the long run, a malfunctioning public
administration can increase a country’s risk rating, deterring both local and foreign
investment. At the same time, incidents of conflicts of interest produce an unnecessary
level of uncertainty, which is costly in terms of expected rate of return for investors and
economic decision-makers.
Conflicts of interest also undermine the proper functioning of democracy and the rule
of law. It weakens the ideal of fairness and impartiality. Objectivity in decision-making is
replaced by tailor-made decisions that suit private necessities. Citizens perceive that public
officials are serving themselves, rather than the public good. This situation enhances the
reciprocal distrust between society and public officials. This cycle affects the performance
of public institutions and blocks the advancement of the public good.
In short, both in scope and in severity, conflicts of interest have consequences for the
democratic system similar to corruption.
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3. CONFLICTS OF INTEREST DEFINED
Conflicts of interests constitute a deviation from the principles of fairness and
impartiality.
Cases of conflicts of interest are often connected with the idea of corruption. In fact,
they constitute a sort of prerequisite for corruption. However, they should be distinguished
from some basic forms of corruption, like bribery. A case of conflicts of interest does not
require a third party exchanging favours with the public official.
Such conflicts should also be distinguished from the problem of holding more than
one position or employment. The condition of multiple employments is neither necessary
nor sufficient to determine a situation of conflict of interest. Conflicts of interest can occur
even if the public official holds only an official appointment.
Conflicts of interests can be defined as a collision between the private interests of the
public official and the duties and obligations attached to his or her position .
Regulations defining conflicts of interest vary significantly. In trying to define what
constitutes conflicts of interests, statutes generally include economic and financial interests.
Other situations, such as partisan membership or similar positions in the private sphere, are
often reached by regulations, broadening the definition.
Obviously, public officials are the main targets of these regulations. Yet, almost every
statute goes beyond the public official, reaching spouses and descendants. Sometimes, close
relatives are included as well.
Some regulations don’t require that conflicts of interests actually take place. A socalled perceived situation of conflicts of interests is sometimes treated as if it were concrete
one.
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The Organisation for Economic Co-operation and Development has proposed a
working definition of conflicts of interest that seems to capture the general trend. It
“…involves a situation in which an official’s personal interests (not necessarily limited to
his/her financial interest) and the requirements of his/her official duties are in conflict
(actual conflict of interests) or could be seen in conflict (perceived conflict of interests).”
More specifically, a situation of conflict of interest occurs when a public official has
the opportunity to use his or her decision-making capacity to obtain a personal gain or
benefit. In this case, the private interest of the public official is advanced above the public
interest .
The typical example is the case when a public official owns shares of a particular
corporation that is under his or her regulation, control or jurisdiction.
In the next section, while dealing with the basic components of a strategy to prevent
conflicts of interest, I will try to argue in favour of a rather strict, or limited, definition.
4. STRATEGIES TO PREVENT CONFLICTS OF INTEREST
An adequate strategy to prevent conflicts of interest requires three basic components.
First, it is necessary to define a legal framework with standards and rules that help identify,
prevent and solve conflicting situations. Second, a procedure or system of financial
disclosure forms to collect and process the information related to the private interests of
public officials has to be implemented. Finally, the third component implies the
enforcement of rules for conflicts of interest.
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What follows is the description of the basic elements of each component, and some
suggestions on positive and negative experiences in dealing with their application.
4.1. THE LEGAL FRAMEWORK
Several countries have enacted legislation and established procedures to prevent
conflicts of interest. A non-exhaustive list of countries that have primary legislation on
conflict of interests includes Australia, Austria, Belgium, Canada, the Czech Republic,
Germany, Greece, Hungary, Italy, Japan, Mexico, New Zealand, Norway, Poland, Spain,
Sweden, the United States, and Argentina.
In establishing the legal framework, the following criteria should be observed:
a. Rules defining conflicts of interest should be narrowly defined. General definitions
are tempting. The main advantage of these is that they reach a broader set of situations.
However, this apparent benefit should be contrasted in light of the following. First, they can
create uncertainty at the time of interpretation. This is a problem not only for those
responsible for the enforcement of these rules, but also for those who in good faith are
willing to comply with the law. Second, treating actual and perceived conflicts of interest
alike has its shortcomings. Dealing with both situations as equivalent, requires granting the
agency or public official responsible for the enforcement of these rules significant
discretionary authority to determine when a perceived situation deserves the same treatment
as an actual case. Third, it is difficult to compare two different perceived situations, and in
practice, unfair adjudication can take place. Such definitions increase uncertainty. Perhaps a
convincing argument in favour of a limited definition, including essentially economic and
financial interests, is that these can be objectively evaluated, by enforcement agencies, by
those who are compelled to comply with the law, and by the public at large . In short, it is
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advisable to define a conflict of interest as the situation when a decision of a public official
will generate a personal gain or benefit for her, himself, or some specific members of his
family.
b. An exception to the limited approach proposed above concerns regulations to enter
and exit public positions. Some claim that such regulations might cause undesirable effects.
They argue that they are likely to limit the entry of capable people into the public
administration or elected positions. Rules that lack an appropriate distinction of
professional experience should also be carefully scrutinized. It is not the same to have acted
as a consultant, a general manager, a member of a board, a comptroller, etc.
c. However, in the case of regulations for those leaving office, it is advisable to
maintain reasonable levels of restrictions on public officials assuming positions in the
private sphere that were previously under their regulatory control or within their decisionmaking authority. These rules will help avoiding capture of the administration or having
public officials inclined to favour certain interests as a job seeking strategy.
d. Rules defining conflicts of interest should be clearly distinguished from other rules
and regulations. The general tendency is to develop the legal framework within the domain
of administrative regulations. Criminal regulations should only be used as a last resort in
cases of non-compliance with the general requirements of the legal framework, such as not
submitting a Financial Disclosure Form.
e. Rules defining conflicts of interest should allow reasonable distinctions in
connection with working positions. People serving in appointed posts differ from those
serving in elected ones. Judges are different from congressional consultants who hold a
part-time position. It is fair to discriminate either in favour of or against particular
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positions, as long as the criteria are as objective as possible. For example, people occupying
key strategic posts (regulatory agencies, monetary agencies, etc.) can be subject to more
rigorous rules than the rest of the administration.
f. In the public administration, every high-ranking position is unique in its functions
and duties. In addition, every appointee has a different background and a different set of
interests. A candidate for appointment might be in conflict in one position, but not in
another. Determining conflicts of interest is mostly a case-by-case job.
g. Avoid regulating what cannot be enforced.
4.2. THE SYSTEM OF FINANCIAL DISCLOSURE FORMS
The enactment of a legal framework is not a sufficient condition for its enforcement.
In order to satisfy this particular component, it is necessary to register, monitor and
determine whether the private interests of a public official are in conflict with his or her
public duties and position. The disclosure of those interests that might collide with the
public duties of a given officer prior to his or her appointment or election is an effective
preventive strategy.
Financial disclosure systems serve two main purposes: identifying conflicts of
interest and monitoring the evolution of assets of public officials. The basic elements of
such a system are the following:
a. Public officials should report their assets and other types of information required
by the applicable statutes to evaluate a potential situation of conflict of interests. This
information can include investments, partnerships in corporations, previous occupations,
secondary employment (public and/or private), positions held in the private sector and other
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forms of property and activities. Family members and in some cases close relatives should
provide identical information.
b. The usual carrier of this information is a financial disclosure form (FDF). The
information contained in these documents is the raw material for detecting and preventing
situations of conflict of interests. They should be completed before entering into the public
sector, periodically up-dated and completed when leaving. In some cases, monitoring the
assets of former public officials might be necessary.
c. When establishing a system of FDF avoid, if possible, paper forms. They are
costly, error prone and require large number of personnel for their control. The
Anticorruption Office of Argentina has developed an electronic FDF using information
technology that reduces dramatically the cost of operation while at the same time strongly
expands the capacity to detect cases of conflict of interests or illicit enrichment and
compliance .
d. A common error in some legal frameworks is to ask public officials to submit
information that has no effect on evaluating either conflict of interests or a illicit
enrichment. These requirements might reduce voluntary compliance.
e. A key factor is the access to the information contained in the FDF of public
officials. Public scrutiny – via the media and NGOs - plays a critical role in helping detect
cases and enforcing accountability. In the Argentine experience, several cases were
initiated after media investigations.
f. It is critical to determine, before implementing a FDF system (whether paper-based
or electronic), if the public sector has the human and technical resources to implement and
manage such a system.
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Roberto de Michele
4.3. THE ENFORCEMENT OF RULES OF CONFLICT OF INTERESTS
The enforcement of rules of conflict of interest is an essential component of the
strategy. As with other policies aimed at curbing corruption, it is better to implement
preventive and anticipatory measures, seeking to avoid the negative effects of conflicts of
interest in advance. The following ideas should be taken into account:
a. The enforcement of these rules can be concentrated in one unit, as in the Oficina
Anticorrupción de Argentina, or decentralised, as with the Office of Government Ethics in
the United States. It can also be divided following the division of powers –e.g. an agency
for the Executive and one for Congress-. In any case, the designated unit should be
endowed with appropriate resources and a sufficient mandate to perform its duty.
b. The State should provide public officials and prospective candidates to office with
counselling and training. Though common in the private sector, rules of conflicts of
interests are only recent in the public domain, especially in newly democratic states.
c. When describing the legal framework, I argued against including perceived
conflicts of interest in an operative definition. This doesn’t rule out preventive measures to
avoid actual cases from happening, such as asking a prospective candidate for a position to
divest part of his investment prior to taking office.
d. General remedies should be defined in advance: divestments, transfers of duties,
resignations to positions in the private sector, blind trusts, etc. In some cases, in addition to
the general remedies, specific solutions might be needed. It is important to introduce
incentives along with remedies, especially in cases were public officials have to divest
funds in unfavourable market conditions. The Argentine regulation on conflicts of interests
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is rather poor both on the proposed remedies and in providing incentives for compliance .
Corrective measures have been mostly crafted on a case by case basis. Transfer of duties
and resignations to positions in the private sector have been widely used.
e. For those administrations with no prior experience in implementing financial
disclosure systems, it is advisable to start with a limited number of cases connected with
the highest-ranking public officials, ruling out the less significant cases but carrying
through on the most important ones.
f. The enforcement unit should try to establish an open communication with civil
society and with the administration itself to receive reports and information on potential
situations of conflicts of interest. This particular strategy has been very helpful in Argentina
to detect cases that were not originally reported in some FDFs.
Again, it is important to concentrate on the evaluation of individual cases, prior or at
the time of the official’s appointment. This approach allows more room to apply preventive
measures. Even if this is not specifically mentioned under the Argentine regulations,
several high-ranking officials, particularly the former and the current Ministers of Economy
have consulted the Anticorruption Office for a preliminary opinion prior to certain
appointments. These preliminary opinions helped in evaluating the profile of candidates in
terms of a potential situation of conflicts of interest, reducing uncertainty about their
decision-making capacity once in office.
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5. SOME ADDITIONAL CONSIDERATIONS AND CONCLUSIONS
I began these remarks by citing one of the founders of the American constitutional
system, but it should be stressed that no two political, legal and institutional regimes are
alike.
An Argentine writer once said:
“The Argentine, unlike the Americans of the North and almost all Europeans, does
not identify with the State. This is attributable to the circumstance that the governments in
this country tend to be awful, or to the general fact that the State is an inconceivable
abstraction. One thing is certain: the Argentine is an individual, not a citizen. Aphorisms
such as Hegel’s ‘the State is the reality of a moral idea’ strike him as sinister jokes. The
State is impersonal; the Argentine can only conceive of personal relations. Therefore, to
him, robbing public funds is not a crime. I am noting a fact; I am not justifying or excusing
it”
A policy designed to prevent conflicts of interest is aimed at rescuing the primacy of
the public good, enhancing the importance of fairness above personal interests.
Political and legal traditions may vary significantly in the way they approach and
consider the issue of conflict of interests . Sometimes, other reasons have to be considered
when trying to understand the particular development of a political community. The
temptation to simply translate the experience of one legal system to another should be
seriously evaluated. This applies to rules dealing with conflicts or interests as well.
Financial disclosure systems are an important part of a preventive strategy. But
sometimes they can be overrated in terms of their capacity to prevent and control
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corruption. They constitute a useful device for what they have been designed for, that is,
detecting conflicts of interest and helping track illicit enrichment.
An effective policy to avoid conflicts of interests requires an adequate approach to the
legal, administrative and enforcement components. Precise rules defining conflicts of
interest, an efficient system to manage information, and the capacity of enforcement are the
basics for a successful strategy. Preventive application of rules of conflicts of interest is
also a plus for this particular policy.
Other administrative measures are very helpful in creating a transparent and more
accountable environment for public decision-making. Such procedures as public hearings,
rule-making, notice and comments and other administrative techniques enhance
transparency and limit the possibility of entrenched interests to pervade the decision
making process.
Preventive strategies of corruption require other policies, procedures and institutions
to function adequately . The lack of enforcement and impunity also affect the credibility of
these initiatives. Financial disclosure systems cannot replace other strategies that are
important. And most of all, they will not function properly if the organisational and
managerial requirements for this policy have not been addressed in the public
administration before implementing the system.
It is important to bear in mind the delicate equilibrium between publicity and privacy.
Financial disclosure systems are designed to intrude in people’s private domain. Why
should a public official be treated differently than other citizens? Why should her relatives
be subject to scrutiny that is unheard of in the private sphere? Where should the line be
drawn? Arguments for and against disclosure are solid on both sides.
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Perhaps transparency can be considered as an operational requirement of the
principles of fairness and impartiality connected with democracy and the rule of law.
The excessive regulation of public ethics should also concern policy makers. This
tendency is particularly present in some transitional democracies. Probably the worst policy
for public ethics is keeping it at as an aspiration. Fewer rules, with greater capacity of
enforcement will pay a better tribute to public ethics. Or, in other words, “Whatever the
ethical purposes ultimately selected, they need to be tailored in light of their impact on the
public sector’s effectiveness in achieving policy goals, their efficiency in the use of
resources, and their contribution to the recruitment and retention of high-quality
employees”
Entry and exit into the public administration should also be evaluated. Some believe
that ethical regulations create artificial barriers for entry and exit from the public sector.
They also contend that government is too slow to up-date the skills of its employees.
According to this position, the market is the best pool for talents and that is unfair to keep
people from going back unrestricted to their private positions. In turn, critics of this
position hold that such a system equals transforming employment in the public sector into a
revolving door. True, unrestricted exit might make it very difficult to control conflicts of
interest. Although there isn’t sufficient empirical evidence to support either claim, exit
regulations should be paid additional attention, as mentioned above, given their greater
connection to conflicts of interest.
It is advisable to properly balance possible restrictions on exit with the due weight
and consideration to other rights, like the right to work.
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It is also the case that many transitional democracies require high-qualified experts to
enforce the consolidation process. Seldom this type of human resources is easily found
within the rank and file of existing bureaucracies. This is probably a good argument not to
create restrictions on entry, other than those specifically needed to avoid actual conflicts of
interests once the appointment has been made. These, rather than restriction can be crafted
as remedies.
The idea of a properly functioning government that honestly operates above
particular interests, allocating goods and resources impartially and efficiently, is far from a
reality in most societies. Still, it is a desirable goal to achieve.
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