ECONOMIC growth has been slow over the past year. Partly to blame is the overly stringent focus on accountability.
The issue is simple: the cost of a rigorous accountability drive must be weighed against the cost it imposes on the freedom of individuals to enter into voluntary exchanges. While the emphasis on curbing corruption and profiteering is essential, the National Accountability Bureau has come down hard on all those it believes are engaged in corrupt practices. The NAB Ordinance 1999 empowers NAB to investigate and prosecute offences that fall within the definition of ‘corruption or corrupt practices’.
The law’s main function is to monitor the actions of public office holders and others, and to prevent transactions that impose costs on third parties, which includes the citizenry, by defining a strict punishment regime.
But the law must always ensure an optimal trade-off between accountability and incentivisation of transactions for improved social welfare, eg the LNG deal, PKLI project etc. At present, the balance tilts heavily in favour of accountability, compromising the gains from legitimate transactions. In fact, the ordinance, instead of recognising the distinction between those who undertake transactions resulting in the efficient allocation of resources and those who indulge in illegal profiteering, ends up discouraging all individuals and officials from entering into transactions.
For example, Section 9(vi) of the ordinance makes it an offence for public office holders or other persons to knowingly misuse their authority to gain benefits for themselves or any other person, to prove and prosecute which, the law authorises NAB to conduct investigations.
A draconian law is hindering public welfare.
During the investigation stage and before — and distinct from the general practice under the law — NAB is entitled under the ordinance to take steps that could deter all individuals indiscriminately from entering into any transaction whether the latter is meant for personal gain or to benefit society. For such individuals acting reasonably, self-protection comes first.
For instance, Section 24 gives the NAB chairman the powers of arrest for the purposes of investigating an accused for a period of 90 days, whereas under the general law codified in the Code of Criminal Procedure (CrPC), the physical remand of an accused cannot, under any circumstances, exceed 15 days.
The ordinance also makes all offences non-bailable. Bail is granted only in cases of extraordinary circumstances or extreme hardship. On the contrary, even in non-bailable offences under the CrPC, bail is denied only when there are reasonable grounds for believing that the accused is guilty.
These and other legal provisions of the ordinance make it easier for individuals to behave strategically and not choose an option even if it is economically efficient in order to avoid getting embroiled in investigations which, as the pattern suggests, are often politically motivated.
Such behaviour can also be explained through the paradigm of game theory which explains why it is rational for individuals to not act, even if their transactions would have enhanced public welfare. Consider a situation where a public official has the option of settling a pending dispute a third party has instituted against the state for an amount much less than what the actual cost/award could turn out to be.
In a dynamic game model, where the players — an honest public officer and a NAB official — are able to observe each other’s action before determining their respective strategies, the public officer will first observe the NAB official’s behaviour in similar situations and the authority he can exercise under the ordinance to determine whether or not to act.
He will consider the options the NAB officer has: 1) to conduct an investigation if the public officer settles ie reaches an agreement with the third party; 2) to not conduct an investigation in light of his powers under the law if the public officer settles; 3) to investigate on the grounds of failure to exercise authority where the public officer does not settle; and 4) to let it go where the officer does not settle.
Assuming that the best possible option is for the public officer to reach an agreement with the third party and NAB not to intervene, knowing that the ordinance allows the official to arrest the public office holder and obtain his remand for 90 days, the office holder being a rational individual, and despite any financial benefit to the public exchequer, will let the court determine the amount in the dispute to avoid a situation where the NAB officer starts to make his life difficult.
In the circumstances, the ordinance is only creating a situation where it is logical for individuals to hedge and hold back. And until such time that NAB is prevented from making threats indiscriminately, slow economic activity is likely to persist.
The writer is a lawyer with an interest in intellectual property law.
Published in Dawn, August 18th, 2019