1. The Pervasiveness of the Rule of Law 

What does the rule of law mean?

What are its prerequisites?

What are its benefits?

Definition: Rule of Law

The rule of law means that the government and citizens are bound by and abide by the law 1. It is the simplest and broadest definition of the rule of law. 

Prerequisites: Rule of Law

The definition of the rule of law presumes the existence of all the following:

1. There is a system of laws where laws include rules and regulations outlined in advance and stated in general terms. 
2. Laws must be generally known and understood by the government and citizens.
3. The requirements imposed by the law can be possible for people to meet. 
4. The law must be applied equally to everyone according to their terms. 
5. Mechanisms or institutions must enforce the legal rules when they are breached.

The legal system must possess these attributes as a foundation for the rule of law. The rule of law enhances predictability, certainty, and security. A growing body of evidence provides a positive correlation between the rule of law and economic development 2. 

The definition stated above does not include democracy and human rights. Why? 

Democracy is a system of governance. Human rights are an international set of standards. The definition of the rule of law does not say how laws are designed and applied or how public officials are assigned to their jobs. On the contrary, the United Nations defines the rule of law and includes democracy and human rights as follows 3:

"the rule of law is a principle of governance in which all persons, institutions and entities, public and private, including the State itself, are accountable to laws that are publicly promulgated, equally enforced and independently adjudicated, and which are consistent with international human rights norms and standards. It requires measures to ensure adherence to the principles of supremacy of the law, equality before the law, accountability to the law, fairness in the application of the law, separation of powers, participation in decision-making, legal certainty, avoidance of arbitrariness, and procedural and legal transparency."

The United Nations emphasizes the significance of the rule of law, asserting that it is fundamental to international peace, security, and political stability, achieving economic and social progress and development, and protecting people's rights and fundamental freedoms. It is foundational to people's access to public services, curbing corruption, restraining power abuse, and establishing the social contract between people and the State. 

Benefits: Rule of Law

The primary benefits of the rule of law, other factors are constant, are the following:

1. Preventing and deterring fraud and corruption
2. Enhancing citizenship and national security  
3. Lowering poverty 
4. Attracting foreign direct investment
5. Motivating local investment
6. Improving the quality of public services
7. Supporting economic growth and sustainable development

Misconceptions About The Rule of Law

The 2011 World Justice Project Rule of Law Index, for example, broadly asserts 4:

"Without the rule of law, medicines do not reach health facilities due to corruption; women in rural areas remain unaware of their rights; people are killed in criminal violence; and firms' costs increase because of expropriation risk. The rule of law is the cornerstone to improving public health, safeguarding participation, ensuring security, and fighting poverty."

It is crucial to note that such statements about the rule of law are untrue. There may be the rule of law, but still have shortages of medicines in health facilities, lack of security, and high poverty levels. The rule of law is fundamental to good governance and society, but more is needed.

The Pervasiveness of the Rule of Law

The rule of law becomes pervasive when the populace believes they must abide by it. There must be more than a body of well-written laws, rules, and regulations. What matters is that people are committed to and abide by the laws. People's commitment is part of their culture and value systems.  

Negative views towards the law are common where the law has a history of enforcing a colonial or authoritarian rule, where legal officials are perceived to be corrupt or inept, where legal professionals are distrusted, or where the content or application of the law is seen to be unfair or identified with particular interests or groups within society or with the elite 5. 

2. Effective Internal Control 

Internal control 6 (IC) is a process effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding achieving objectives relating to operations, reporting, and compliance.

Management shall annually assert that IC is effective and achieves its objectives. An independent auditor shall conduct an annual audit to express his opinion on IC effectiveness.

The absence of an independent audit of IC effectiveness is a high corruption risk factor. It is a rebuttable presumption 7 there is fraud or corruption in revenues and other significant cycles, functions, or units.

The following part of this review textbook explains that it consists of five components and seventeen principles. IC is fundamental to effective governance and preventing, deterring, and detecting corruption.

3. Effective and Good Governance

Governance 8 is initially a socioeconomic and political concept. It is always objective oriented and tied to accountability. The primary goal of “governance" is the welfare of society. Therefore, people initiate governance, and their well-being is its objective. As a result, whether it is a society, community, government, or organization, a form of governance is employed to achieve a set of agreed-on purposes. 

Corporate governance is "the system by which companies are directed and controlled." Companies are directed and controlled by ownership, boards of directors, incentives, company law, culture, and other mechanisms. 

Corporate governance aims to ensure that the right management and employees are in place, the right plans, strategies, policies, and procedures are established, the proper objectives are set, and adequate checks and balances exist to achieve the agreed-on corporate goals. 

The primary purpose of “corporate governance” is to achieve good and acceptable performance and protect and optimize the use of the entity's resources.

Those who are charged with governance and management shall annually assert that the entity's governance is effective and achieves its objectives. An independent auditor shall conduct an annual compliance audit to express his opinion on the entity's governance effectiveness. 

The absence of an independent audit of the entity's governance effectiveness is a high corruption risk factor. It is a rebuttable presumption there is fraud or corruption in revenues and other significant cycles, functions, and units.

4. Independent and Effective Judiciary

In a democracy, there are three branches of government. They are the legislature, executive, and judiciary. A competent, independent, and impartial judiciary is essential to each one of the following 9:

The Universal Declaration of Human Rights asserts that:

All are equal before the law and are entitled without any discrimination to equal protection of the law. All are entitled to equal protection against any discrimination in violation of this Declaration and against any incitement to such discrimination 10.”, and 

"Everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him 11.” 

The United Nations Basic Principles on the Independence of the Judiciary 12 provides basic principles to assist the U.N. member States in securing and promoting the independence of the judiciary . The following are the independence of the judiciary principles 13: 

Independence of the judiciary 

The Bangalore Principles of Judicial Conduct 14 provide principles to establish standards of ethical conduct of judges. They are fundamental principles to support the independence of the judiciary. The following are selected principles of Bangalore Principles of Judicial Conduct: 

Independence: Judicial independence is a prerequisite to the rule of law and a fundamental guarantee of a fair trial. A judge shall therefore uphold and exemplify judicial independence in both its individual and institutional aspects. 

a. A judge shall be independent concerning society in general and concerning the particular parties to a dispute which the judge has to adjudicate.

b. A judge shall not only be free from inappropriate connections with, and influence by, the executive and legislative branches of government but must also appear to a reasonable observer to be free from that place.

c. In performing judicial duties, a judge shall be independent of judicial colleagues regarding decisions that the judge is obliged to make independently.

d. A judge shall exhibit and promote high standards of judicial conduct to reinforce public confidence in the judiciary, which is fundamental to maintaining judicial independence.

Impartiality: Impartiality is essential to the proper discharge of the judicial office. It applies not only to the decision itself but also to the process by which the decision is made. 

a. A judge shall perform his or her judicial duties without favor, bias, or prejudice.

b. A judge shall ensure that his or her conduct, both in and out of court, maintains and enhances the confidence of the public, the legal profession, and litigants in the judge's and judiciary's impartiality. 

c. A judge shall not knowingly, while a proceeding is before, or could come before, the judge, make any comment that might reasonably be expected to affect the outcome of such proceeding or impair the manifest fairness of the process. Nor shall the judge make any public comment that might affect the fair trial of any person or issue. 

Integrity: Integrity is essential to the proper discharge of the judicial office. 

a. A judge shall ensure that his or her conduct is above reproach in the view of a reasonable observer. 

b. The behavior and conduct of a judge must reaffirm the people's faith in the judiciary's integrity. Justice must not merely be done but also seen to be done. 

Propriety: Propriety, and the appearance of propriety, are essential to the performance of all of the activities of a judge. 

a. A judge shall not participate in determining a case in which any member of the judge's family represents a litigant or is associated in any manner with the case. 

b. A judge shall not allow the use of the judge's residence by a member of the legal profession to receive clients or other members of the legal profession. 

c. A judge, like any other citizen, is entitled to freedom of expression, belief, association, and assembly, but in exercising such rights, a judge shall always conduct himself or herself in such a manner as to preserve the dignity of the judicial office and the impartiality and independence of the judiciary. 

d. A judge shall inform himself or herself about the judge's personal and fiduciary financial interests and shall make reasonable efforts to be informed about the financial interests of members of the judge's family. 

e. A judge shall not improperly allow the judge's family, social or other relationships to influence the judge's judicial conduct and judgment as a judge. 

f. A judge shall not use or lend the prestige of the judicial office to advance the private interests of the judge, a member of the judge's family, or anyone else, nor shall a judge convey or permit others to convey the impression that anyone is in a particular position improperly to influence the judge in the performance of judicial duties. 

g. Confidential information acquired by a judge in the judge's judicial capacity shall not be used or disclosed by the judge for any other purpose unrelated to the judge's judicial duties. 

Equality: Ensuring equality of treatment to all before the courts is essential to the due performance of the judicial office. 

A judge shall not, in the performance of judicial duties, by words or conduct, manifest bias or prejudice towards any person or group on irrelevant grounds. 

Competence and diligence: Competence and diligence are prerequisites to the due performance of the judicial office. 

a. A judge shall take reasonable steps to maintain and enhance the judge's knowledge, skills, and personal qualities necessary for proper judicial duties, taking advantage of the training and other facilities which should be made available, under judicial control, to judges. 

b. A judge shall keep himself or herself informed about relevant developments in international law, including international conventions and other instruments establishing human rights norms. 

c. A judge shall perform all judicial duties, including the delivery of reserved decisions, efficiently, fairly, and reasonably promptly. 

Effective Judiciary 

Citizens expect court decisions to be implemented effectively and fairly 15. Citizens also expect court decisions to be reached within a reasonable timeframe. The administration of the judiciary and its independence are significant determinants of its effectiveness. The effectiveness of the judiciary enhances public trust in the judicial system. 

The independence of the judiciary from the executive and legislative branches of government is fundamental to fighting corruption. Corruption risks increase when the independence of the judicial system is low.

5. Authority and Associated Accountability

Authority

Authority is "the power to act that is officially or formally granted (as by statute, corporate bylaw, or court order). 16" It is also the power and capacity to act granted by someone in a position of control precisely: the power to act granted by a principal to his or her agent 17.

The review of authority and associated accountability focuses mainly on the principal-agent relationship theory. The principal and agent contract defines their respective duties and obligations. For example, when the board of directors employs a CEO for an organization, the CEO is an agent while the organization is the principal. When the public elects the members of the parliament, the elected parliament members are the agents, and the public is the principal. 

Each agreement between the principal and the agent must have objectives. Therefore, the principal must provide the agent with the proper authority and resources to enable him to achieve those objectives. The authorization and the resources of the agent define his power and responsibility. They also establish the foundation of his accountability. 

A mismatch between the granted authority and objectives shall negatively affect the agent's effectiveness. Also a mismatch between the agent’s competencies and granted authority increases corruption risks. However, the agent must not be accountable for anything outside the scope of his power and responsibility: authority.

Accountability

Accountability is a complex, abstract, and elusive concept 18. The AACI defines accountability as "the duty to report to stakeholders the results of executed responsibilities based on entrusted power. " In a governance context, accountability is a governance concept and falls primarily on those charged with governance. When appropriately applied, it restrains power and lowers corruption risks. 

Elements of Accountability

The following diagram clearly shows the elements of accountability. They are: 

While the principal has the right to request specific information from the agent, the agent must respond accordingly. The laws, rules, and regulations should clearly state the rights and obligations of each principal and agent and communicate the mechanisms to resolve their potential disputes. Courts are a mechanism that should be available as a mechanism to settle disputes.

But what if the judicial branch of government is ineffective or a deterrent? What happens if there is insufficient or excessive accountability? What will happen when the principal and/or agent must be made aware of how to exercise their accountability rights and duties? The answers to these questions determine the level of corruption in a country, economic sector, or institution.

Power

It is a socio-economic and political concept. Power is always dynamic. Research shows that while people usually gain power through traits and actions that advance the interests of others, such as empathy, collaboration, openness, fairness, and sharing, when they start to feel powerful or enjoy a position of privilege, those qualities begin to fade. The powerful are likelier than others to engage in rude, selfish, and unethical behavior 19. 

 Example 1: A company's management prepares and fairly presents the company's financial position as of December 31, 2020, and the results of its operations and cash flows for the year then ended. The company's law requires management to submit audited financial statements to the respective ministry and regulatory agencies. Investors and creditors need the company to send them audited financial statements. 

The company's shareholders (principal) granted the board of directors (agent) explicit authority to direct and control the company. As a result, the board is accountable to its stakeholders: the shareholders, government agencies, investors, and creditors. An independent auditor issued an opinion on the financial statements lending credibility to these statements. 

What would happen if the board does not prepare financial statements and have them audited by an independent public accountant? Accountability decreases, and the risks of abuse of power increase. 

Example 2: On January 10, 2019, the head of a developing country appointed Mr. Ahmed as the health minister. Mr. Ahmed is thirty years old, whose father was the prime minister in 1995. Mr. Ahmed still needs to finish high school and works as a merchant. He did not meet the primary senior staff of his ministry. He relies on his office manager to run the daily activities of the ministry. Mr. Ahmed spends most of his time traveling to develop his business. On December 1, he signed the ministry's 2020 budget based on an oral recommendation by his office manager. 

Unfortunately, the regulatory agencies of his country do not have qualified departments or personnel. Therefore, there is no assurance that Mr. Ahmed

1. Runs the ministry fairly. 
2. Executes spendings in accordance with the applicable laws, rules, and regulations. 
3. Does not abuse his power.

There needs to be more proper oversight of the minister's conduct and the operations of the health ministry. There needs to be an assurance that the performance of the health ministry meets planned targets.

There is a mismatch between the minister's competencies and authority. Finally, he appears not to be held accountable for the level of granted authority. The tone set at the top of the health ministry increases corruption risks. 

6. Investment in Corruption Prevention

Fighting Corruption

It is a process effected by those charged with governance, employees, citizens, and other stakeholders to provide a reasonable assurance that those entrusted with power do not abuse it for private gain. It is 

Processes used to fight corruption are classified as follows:

Preventive anti-corruption measures aim to lower the likelihood of corruption occurrence. Examples of corruption prevention measures are the following non-exhaustive list:

Expenditure on fighting corruption is not an expense; it is an investment. The magnitude of investment in preventing corruption indicates the commitment to eradicating corruption. Adequate investment in preventing corruption should be tied to performance. There is a positive correlation between the level of investment in preventing corruption and good performance.

The investment in corruption prevention is most likely medium-term or long-term in nature and impact. For example, the senior executives of a bank need more than one annual anti-corruption learning program to achieve relatively planned results. 

Whistleblowing

Whistleblowing is commonly defined as the disclosure by organization members (former or current) of illegal, immoral, or illegitimate practices under the control of their employers to persons or organizations that may be able to effect action 20.

Research shows that employees often become aware of wrongdoing but do not necessarily report the wrongdoing 21. The existence of a proper and adequate whistleblowing system prevents and deters culprits from committing corrupt acts. 

7. Quantification of Corruption Exposure

In an organizational setting, corruption is a business risk. It is a socio-economic risk. A risk is a quantifiable event; therefore, a corruption risk is always measurable. Measurement could be qualitative, quantitative, or both.

Corruption damages shall be established and estimated. Due to its nature, corruption damages (costs) are always estimated.

If it is adequately measured, corruption will be managed. As a result, assertions of achieving results in fighting corruption mean that the following both conditions are met:

1. Corruption risks and costs were measured at the beginning of the period, and
2. Corruption risks and costs were measured at the end of the period.

Otherwise, such assertions are, at best, meaningless.

Each entity and community is always exposed to fraud, corruption, and money laundering. Entities and communities shall quantify corruption and its risks as an integral part of their strategies of fighting corruption.  

Perception of corruption is not a stand-alone valid quantification of corruption exposure or damage. It may be incorporated with other methods to measure corruption damage estimates. 

8. Certainty of Punishment

One shall genuinely believe that if he engages in a corrupt act and gets caught, the relevant laws shall apply to him and anyone else. The certainty of punishment is primarily a deterrence measure. It is a prerequisite for the rule of law.

In countries where corruption is rampant, the certainty of punishment is generally low, whereas it is higher in countries with lower levels of corruption.

For example, the prevalence of nepotism or favoritism weakens the certainty of punishment and increases the risks of corruption and its damages. The lack of this principle in an organization, community, or country negatively affects people's loyalty, citizenship, and performance.

9. No Statutes of Limitation

"Statute of limitations, legislative act restricting the time within which legal proceedings may be brought, usually to a fixed period after the events that gave rise to the cause of action. Such statutes are enacted to protect persons against claims made after disputes have become stale, evidence has been lost, memories have faded, or witnesses have disappeared. 22" 

When a country does not have statutes of limitations on any corrupt or fraudulent act, it deters those who may commit such ill acts and strengthen its national anti-corruption strategy. Senior public officials, family members, or associates who steal from their countries must not be able to pass their ill-gotten assets and wealth to their inheritors. 

10. Rewarding Corruption Fighters

Corruption fighters exist in all societies, communities, and organizations. They 

A corruption fighter may be an entity such as a non-governmental organization. 

Irrespective of their motives, corruption fighters should be rewarded for disclosing corruption. As rewards could be financial and non-financial, providers may be governmental agencies, the private sector, and civil society. 

Whistleblowers are essential corruption fighters. "The U.S. Securities & Exchange Commission (SEC) Whistleblower Program has grown significantly in both scope and impact. Since the inception of the program in 2010, financial penalties against wrongdoers have surpassed $1.6 billion, annual tips have steadily risen, payment amounts per award have increased substantially, and payments to employees with internal compliance roles have increased. 23” "Whistleblowers in the US have played a key role in helping to protect patients, troops, investors, pensioners, and many others. They come forward because they understand that the professional risks and disruption in personal relationships that come with whistleblowing are balanced with the possibility of a reward 24.”

Investigative journalism is another class of corruption fighters. For example, International Consortium of Investigative Journalists 25 exposed Luanda Leakes 26 and Panama Papers 27.

The government must encourage, incentivize, and protect corruption fighters. Public and private sectors shall recognize corruption fighters publicly and celebrate their role in fighting corruption. 

References and Further Readings

1. See Brian Z. Tamanaha, The History and Elements of the Rule of Law, Singapore Journal of Legal Studies, pp 232–247 [2012] 

2. See Robert J. Barro, Determinants of Economic Growth: A Cross Country Empirical Study (Cambridge, MA: MIT Press, 1997). 

3. See United Nations and the Rule of Law, What is the Rule of Law, https://www.un.org/ruleoflaw/what-is-the-rule-of-law/

4. Mark David Agrast, Juan Carlos Botero & Alejandro Ponce, The World Justice Project Rule of Law Index 2011, (Washington D.C.: The World Justice Project) 

5. Read Brian Z. Tamanaha, The History and Elements of the Rule of Law, 6. Singapore Journal of Legal Studies, pp 232–247 [2012] 

 Internal Control-Integrated Framework as defined by COSO. Read more on COSO.org. 

7. Presumption of fact, which can be defeated by persuasive evidence to the contrary.

8. Part 6: Corporate Governance of this review textbook is integral to this principle. 

9. The Bangalore Principles of Judicial Conduct 2002, https://www.unodc.org/pdf/crime/corruption/judicial_group/Bangalore_principles.pdf

10. Universal Declaration of Human Rights, Article 7, https://www.un.org/en/universal-declaration-human-rights/

11. Universal Declaration of Human Rights, Article 10, https://www.un.org/en/universal-declaration-human-rights/

12. Read more https://www.un.org/ruleoflaw/blog/document/basic-principles-on-the-independence-of-the-judiciary/

13,.ibid

14. The Bangalore Principles of Judicial Conduct 2002, https://www.unodc.org/pdf/crime/corruption/judicial_group/Bangalore_principles.pdf

15. OECD (2015), "Effectiveness and fairness of judicial systems", in Government at a Glance 2015, OECD Publishing, Paris, https://doi.org/10.1787/gov_glance-2015-65-en.

16. Read more on https://www.merriam-webster.com/dictionary/authority#legalDictionary 

17. Ibid

18. Sinclair, A. (1995) ‘The Chameleon of Accountability: Forms and Discourses’, Accounting, Organizations and Society 20.2–3: 219-37.

19. See Dacher Keltner, “Don’t Let Power Corrupt You”, Harvard Business Review, Oct. 2016 reached on January 30, 2020 https://hbr.org/2016/10/dont-let-power-corrupt-you 

20. Near, J. P., & Miceli, M. P. (1985). Organizational dissidence: The case of whistleblowing. Journal of Business Ethics, 4, 1–16.

21. "Companies' use of Whistleblowing to Detect Fraud: An Examination of Corporate Whistleblowing Policies: JBE JBE." Journal of Business Ethics 114, no. 2 (05, 2013): 283-295. doi:http://dx.doi.org/10.1007/s10551-012-1348-9. https://library.pittstate.edu/login?url=https://search.proquest.com/docview/1353500696?accountid=13211.

22. Read more on Encyclopedia Britannica https://www.britannica.com/topic/statute-of-limitations

23. Boyle, Douglas M, DBA,C.M.A., C.P.A. and Daniel J. Gaydon. "SEC WHISTLEBLOWER PROGRAM EXPANDS." Strategic Finance 101, no. 5 (11, 2019): 38-45,

24. "Why Rewarding Whistleblowers is Essential." FT.Com (Aug 02, 2017),(accessed February 1, 2020).

25. Read more on https://www.icij.org/ 

26. Read more on https://www.icij.org/investigations/luanda-leaks/ 

27. Read more on https://www.icij.org/investigations/panama-papers/