Chapter 14:GLOBAL BRIBERY AND CORRUPTION HOW MUCH FOR YOUR ETHICS?

CHAPTER 14

Global Bribery And Corruption – How Much For Your Ethics?

FEW MEN HAVE THE VIRTUE TO WITHSTAND THE HIGHEST BIDDER. – GEORGE WASHINGTON

THE WEALTHY ECONOMIES OF THE WORLD have long ago grown tired of having their firms solicited for bribes when conducting international negotiations. It is a highly inefficient means of planning and operating a company. Corporations recognize, however, that there are ethical failures on both sides. The demand side (officials who accept or demand bribes) and the supply side (businesses, small and large) share the blame, though not equally. To eliminate corruption both the demand and supply sides must be addressed.

Bribery and Corruption: It’s Everywhere

The attack on international business bribery is two-fold. First, countries and corporations have come to the conclusion that fighting bribery and corruption is no longer simply a moral and ethical imperative, but also a question of bottom line economics. Second, governments of wealthy economies realize that their demands for ending bribery fall on deaf ears in poor economies where corruption is often the standard means of getting things done.

The International Corruption Index

Transparency International (TI), a non-governmental organization dedicated to increasing government accountability and curbing international and national corruption, is the best-known non-governmental agency tracking corruption in the world today. Based in Berlin, Germany, Transparency International has chapters in 77 countries. Its vision is of a world in which government, politics, business, civil society and the daily lives of people are free of corruption.

Transparency International has produced its much-watched Corruption Perceptions Index (CPI) for over a decade. Perceptions of corruption, which are measured in the CPI, are precisely what their name suggests—perceptions—but they are a tremendously important indicator, telling government leaders how country analysts and business people around the world view their country. CPI’s methodology is based on a series of surveys specific to each nation.

The index ranks 102 countries. Some of the richest countries in the world— Finland, Denmark, New Zealand, Canada, Iceland, Singapore and Sweden— scored 9 or higher out of a clean score of 10 in the CPI, indicating very low levels of perceived corruption. But 70 countries—many of which are among the world’s

poorest—scored less than 5, suggesting high levels of perceived corruption in government and public administration. Scores of less than 5 were registered by countries on every continent—including members of the Organization of American States and the European Union. The countries with a score of 2 or less are Angola, Azerbaijan, Kenya, Indonesia, Madagascar, Nigeria, Paraguay and Bangladesh. NOTE : For all of its good intentions, TI will have to add patience to its long list of virtues. Its modus of “name and shame” has little effect in “kleptocracies,” like Russia or Nigeria. It has even less effect in places like China where access to data, such as that compiled by TI, is restricted.

Who’s Corrupt and Who’s Not?

According to the recent Transparency International CPI, here are the nations with the least and most corruption:

THE TOP TWENTY LEAST CORRUPT (Number 1 as least corrupt)

1. Denmark (tie) Finland (tie) New Zealand 4. Singapore (tie) Sweden 6. Iceland 7. Switzerland (tie) Netherlands 9. Canada (tie) Norway 11.Australia 12.Luxembourg (tie) U.K. 14.Hong Kong 15.Austria 16.Germany 17.Ireland (tie) Japan 19.France 20.U.S.A.

THE BOTTOM TWENTY MOST CORRUPT (Number 1 as most corrupt)

1. Somalia 2. Myanmar 3. Iraq 4. Haiti 5. Uzbekistan (tie) Tonga 6. Sudan (tie) Chad (tie) Afghanistan 7. Laos (tie) Guinea (tie) Equatorial Guinea (tie) D.R. Congo 8. Venezuela (tie) Turkmenistan (tie) Papua New Guinea (tie) Central African Rep. (tie) Cambodia (tie) Bangladesh 9. Zimbabwe (tie) Tajikistan

Through The Looking Glass: Corruption Barometer

Keeping with the spirit that bribery and corruption is indeed a two-headed ethical coin. Transparency International commissioned Gallup International Association to conduct in-depth interviews with private sector leaders in 14 emerging market economies; these combine to account for over 60 percent of imports of all emerging market economies, namely India, Indonesia, Philippines, South Korea, Thailand, Argentina, Brazil, Colombia, Hungary, Poland, Russia, Morocco, Nigeria and South Africa.

The scale of bribe paying by international corporations in the developing countries of the world is massive. Actions by the majority of governments of the leading industrial countries to curb international corruption are modest. Business executives and business professionals in leading emerging market countries view international bribe-paying to be greatest in the public works and construction sectors, followed by the arms industry.

TI’s Corruption Barometer is a pioneering effort to measure the supply side of bribery: the relative propensity to pay bribes by companies from leading exporting states in emerging economies. The questions in this survey, including those on business sectors, focused on large-scale business transactions. A score of 10 represents a perceived level of negligible bribery while 0 represents responses indicating very high levels of bribery. Below is a sampling. More details can be found at www.transparency.org

THE CORRUPTION RANKINGS 1. Australia 8.5 Less Bribery 2. (tie) Sweden 8.4 Switzerland 4. Austria 8.2 5. Canada 8.1 6. (tie) Netherlands 7.8 Belgium 8. UK 6.9 9. (tie) Germany 6.3 Singapore 11. Spain 5.8 12. France 5.5 13. (tie) Japan 5.3 United States 15. (tie) Malaysia 4.3 Hong Kong 17. Italy 4.1 18. South Korea 3.9 19. Taiwan 3.8 20. People’s Republic of China 3.1 More Bribery

What Causes Bribe Taking?

A third of the business leaders in emerging market countries surveyed by TI also said they perceived corruption as worsening; they rated the low salaries of public-sector officials as the main cause. Evidently, many officials in the public sector believe that they not only can secure immunity for themselves against prosecution, but that the chances of their criminal activities being discovered are low. One way to effectively battle corruption from the demand side would be to raise public service salaries, which in turn would improve government revenue collection (tax money goes into government coffers rather than civil servant pockets) and allow for better services to be provided to the public.

WHY DO OFFICIALS TAKE BRIBES? ■ Low Public Sector Salaries. ■ Immunity of Public Officials. ■ Secrecy in Government. ■ Greed. ■ Worsening Public Procurement Practices. ■ Increased Foreign Investment and Trade. ■ Restrictions on the Media.

Unfair Practices or Commercial Savvy

What some countries, cultures and governments perceive as good and ethical business practices meant to boost the competitive advantage of their home country corporations are often seen as just the opposite—bordering on the unethical and providing an unfair advantage over competitors.

The respondents to Transparency International’s Corruption Barometer saw diplomatic or political pressure as the leading unfair practice in international business apart from bribery. The reality today is that almost all countries use their foreign embassies, notably their commercial departments, to build and secure business opportunities for home country corporations. Some diplomatic services do this more effectively than others and some, notably from large industrial countries, have greater political access and influence, which may well strengthen the competitive positioning of their companies.

Competing corporations from smaller nations have turned that argument on its head, saying they must use bribery to overcome the use of diplomatic or political pressure by companies from other countries. Ethically, it is an argument that is hard to justify. Perceived unfair practices cannot excuse bribery, whatever the circumstances.

By an overwhelming margin, the business leaders from developing nations singled out the United States as the country that most frequently and effectively uses tools like diplomatic and political pressure to secure “unfair” advantage for its home country companies. France and Japan tied for second. The irony is, of course, the relationship between big business and government in the US is often seen as antagonistic while the French and Japanese governments have a much closer relationship with businesses at home.

The countries cited by developing nations for using economic and political pressure: 1.United States 61% Uses More

Economic and Political Pressure 2.France 34% 3.Japan 34% 4.China/Hong Kong 32% 5.Germany 27% 6.Italy 24% 7.South Korea 23% 8.United Kingdom 23% 9.Spain 17% 10.Malaysia 16% 11.Taiwan 16% 12.Singapore 13% 13.Belgium 9% 14.Australia 8% 15.Canada 8% 16.Sweden 8% 17.Netherlands 8% 18.Austria 7% 19.Switzerland 6% Uses Less

Economic and Political Pressure

NOTE : Developing countries face their own ethical dilemmas. While they may resent the economic or political pressure placed upon them by the wealthy economies, they are more than willing to accept aid to prop up their regimes. Sadly, much of this aid never reaches the proposed recipients, but is instead siphoned off into their secret bank accounts of political leaders and bureaucrats.

Business, Money and Politics

Big businesses are often the largest contributors to political campaigns, either legally or illegally, in such bastions of democracy as the United States, United Kingdom, France, Germany and Japan. The object is to win influence upon the decision-making process of lawmakers. It is not always just business making these “quid pro quo” contributions either. The Chinese government itself made substantial contributions to the Democratic party in the US in hopes of working with a more pliant White House.

While there are international conventions banning payoffs to government officials, there is no such convention prohibiting corporate donations to foreign

political parties. There is a moderate effort underway to formulate a set of global standards dealing with corporate donations to foreign political parties, but the obstacles are enormous. Many countries would view such attempts as interference in their internal affairs and in the political and election systems of other countries. This may be the case even if the countries practice the same form of government. Finding a set of ethical guidelines that would work on a global stage is a huge challenge.

Leading the Fight Against Bribery and Corruption

The OECD and the United Nations are generally seen as the leading multinational organizations in the fight against corruption. The United States was the first nation to make foreign bribery illegal for home country companies through the introduction of the Foreign Corrupt Practices Act of 1977. It has since been emulated by the OECD.

The OECD Anti-Bribery Convention is considered the key international convention in the fight against bribery and corruption in international business affairs. While all countries have some law against the bribing of their own officials, the Convention obliges signatories to adopt national legislation that makes it a crime to bribe foreign public officials. All 30 members of the OECD have signed the convention as well as four non-members (Argentina, Brazil, Bulgaria and Chile).

The convention is having an impact—at least on the supply side of the bribery equation. Until the OECD Convention came into force in 1999, French, Japanese and German companies could make bribes paid abroad tax deductible at home. In the regulatory and legislative spheres, that era has thankfully ended. Another key multinational inter-governmental initiative is the 31-member Financial Action Task Force, which is focusing on the laundering of money, especially from the illegal drug trade; this is seen as one of the root causes of corruption in many countries. How big is the problem? The International Monetary Fund has stated that the aggregate size of money laundering in the world could be somewhere between two and five percent of the global gross domestic product. These percentages would indicate that money laundering ranged between US$590 billion and US$1.5 trillion. The lower figure is roughly equivalent to the value of the total output of an economy the size of Spain. The retail revenue alone in the illegal drug trade is estimated by the UN at US$400 billion, nearly double the revenue of the legitimate pharmaceutical industry.