29 Countries Commit to Pact Against Bribery
For 20 years, ever since Congress made it a crime for American citizens to bribe foreign officials, U.S. business leaders have complained of having to fight uphill against foreign competitors. Other industrial countries allow commercial bribery as a necessary part of winning foreign contracts, they pointed out, and some even make bribes tax deductible.
Now, after a bruising diplomatic campaign by the last three administrations, the United States has finally scored a major breakthrough--a commitment from the world’s other big industrial countries to adopt anti-bribery laws of their own.
In an announcement to be made here today after arduous negotiations that were completed only at the eleventh hour Thursday, the European and Asian members of the 29-nation Organization for Economic Cooperation and Development will agree to a treaty setting the end of next year as the deadline for each country to adopt the anti-corruption rules.
The pact, to be signed by cabinet members from the OECD nations in a ceremony here in mid-December, is seen as an important step in leveling the playing field for U.S. and overseas companies seeking contracts with foreign governments.
And more than that, it is a sign of greater willingness by other industrial countries to confront a broad array of international crime and corruption--the spread of which constitutes a major threat to the global economy.
Coming to Grips With Evils of Corruption
Timothy E. Wirth, undersecretary of State for global affairs, said the pact symbolized the way many countries around the world are coming to grips with corruption by finally acknowledging that it has seriously undermined their economies and the rule of law.
“The treaty means countries will no longer be rewarding the disease of corruption and are bringing out into the open a taboo that has been undercutting the global economy,” said Wirth, a leading proponent of the 1977 Foreign Corrupt Practices Act when he served in the House of Representatives 20 years ago.
Negotiators worked feverishly, late into the nights this week, OECD sources said, to hammer out agreements on the thorniest issues. They called the final round of negotiations a “cliffhanger.”
The final sticking point was whether to include legislators and political party leaders among the officials whom it would be illegal to bribe. Some countries, particularly in Europe, resisted the U.S. demand that all be included. U.S. sources said the final bargain includes legislators and party officials in countries with one-party political systems in which the party and the government are essentially identical.
As negotiations were proceeding, Commerce Secretary Bill Daley complained in an interview that some OECD countries were backing down on promises and trying to narrow the treaty’s scope. But, he said, “I feel good the treaty as approved will be a big step forward.”
Final work on the OECD treaty comes at a time of rising awareness of corruption’s cost to advanced and developing nations alike. The World Bank and the International Monetary Fund, for example, long shied from the issue but now see it as a major obstacle to economic progress.
“Studies show corruption has massive costs to countries in which we’re operating, encourages wasteful use of resources, ineffective government, and unneeded expenditures and tax evasions,” World Bank President James D. Wolfensohn told a recent symposium in Peru.
He called corruption the single largest deterrent to private sector investment in developing countries, saying, “It undermines political legitimacy of governments, obstructs economic growth and development.”
The Commerce Department says that since mid-1994, it has cataloged significant allegations of bribery by foreign firms in 139 international commercial contracts valued at $64 billion. U.S. firms lost 36 of those contracts, valued at $11 billion, and the department said this represented only a fraction of total U.S. losses on all such contracts.
Foreign firms willing to offer bribes typically win 80% of international deals, it said.
Europe’s Attitudes on Bribery Harden
Although attitudes in Europe are hardening against bribery and many companies are adopting codes of conduct to combat corruption, not all European business-people are enthusiastic about the reforms. “Many Germans have considered making payments the last weapon Germans have against American domination of business,” said Ludwig Von Roche, director of IBM’s Berlin office.
Still, Von Roche said, “a mind-shift is taking place in Germany, and it is clear Germans now consider that corruption is bad for the economy at home and overseas. Most businessmen want to end bribery. They just don’t want to do it before any of the other countries and put themselves at a competitive disadvantage in dealing with Third World countries.”
Similarly, Adair Turner, director of the Confederation of British Industries, said that, while “a lot of companies do still pay bribes to do business in Third World countries, most British companies welcome a clear set of rules on bribery and support the OECD goals.”
In recent years, he pointed out, increasing numbers of British companies have adopted codes of conduct that ban bribes. “Forget the morality issue about bribery,” Turner said. “Corruption’s become a big issue because it just costs business so much more these days.”
The cost of buying influence has escalated, experts say, because with global trade expanding, officials in developing countries are demanding much larger bribes in return for business contracts.
The average price of bribery has risen to 10% to 15% of a contract’s value, says George Moody-Stuart, a retired British businessman who has worked in many countries in Africa and the Caribbean. Moody-Stuart chairs the British chapter of Transparency International, a Berlin-based organization that fights corruption worldwide.
Nations to Impose Criminal Penalties
The OECD treaty to be announced today includes these major provisions:
* Member countries will adopt definitions of what constitutes bribery of a foreign official that closely parallel the terms of the United States’ Foreign Corrupt Practices Act.
* Nations signing the treaty will impose criminal penalties on those who bribe foreign public officials that are comparable to the penalties for bribing public officials in their own countries.
* The proceeds of bribes and the profits of any bribe-induced transactions can be seized and confiscated, again following terms of the U.S. act.
Implementing legislation for the pact is to go before national parliaments by next April and to be adopted by the end of 1998, though supporters concede that new resistance may arise as individual parliaments take up the agreement.
In several countries, including Germany, business interests are expected to argue once more that they cannot compete abroad, especially in less developed countries, if they are barred from paying the bribes that officials in such countries expect to receive.
Moreover, some European business leaders argue that they need the freedom to pay bribes to offset the power of larger American firms and the economic and diplomatic help U.S. firms often get from their national government.
In Germany, bribery has been such an accepted international business practice that, a U.S. Justice Department official said, “somebody from Siemens [a huge German electronics company] could stand on the corner in Frankfurt with a signboard saying ‘We are going to bribe the king of Siam,’ and nobody would do a damn thing about it.”
In fact, despite the German government’s official support for the treaty, implementing legislation still may lack majority support in the German parliament, according to Peter Eigen, director of Transparency International.
Japan could also be a problem. Its decision-making process is slow, and an OECD source said the Japanese “say it’s virtually impossible to get the criminal code changed, it’s almost in stone.”
Even getting this far has been a long, difficult struggle for U.S. negotiators, with the Clinton administration playing serious hardball to carry the final innings. In one OECD meeting earlier this year, U.S. officials criticized the German government so harshly that Eigen worried that they had gone too far.
“The Americans have been brutal in the way they talked about the German government tolerating corruption, and Germans find it hypocritical for the U.S. to back them in a corner,” Eigen said. “Americans should recognize there is a deep-seated feeling the United States is trying to keep Germany in its place.”
At OECD headquarters here, a U.S. official conceded “there may have been an element of unfairness” in singling out Germany for such attacks. But the official pointed out that the Germans had steadfastly defended the system of bribery and making bribes tax deductible.
When the OECD’s 29 countries agreed in May to work toward completing an anti-corruption treaty by the end of this year, some observers considered the deadline too ambitious. Washington itself had initially urged individual countries to enact anti-bribery legislation without first adopting an OECD-wide treaty for fear that Germany and France were only paying lip service to the treaty proposal as a delaying tactic.
The administration eventually joined in pushing for a treaty but insisted on firm implementation deadlines. Joanna R. Shelton, deputy OECD secretary-general, sees approval of the pact as creating momentum to ensure that the deadlines are met.
500 Corporations Admit to Payments
Except for public pressure, the OECD will have no direct power to see that anti-bribery laws are enforced. “It’s a continuing process,” Shelton said. “OECD will monitor enforcement and assess it. Any deficiencies will be reported.”
In the 1970s, after allegations of widespread bribery of foreign government officials by U.S. firms rocked the corporate world, the Securities and Exchange Commission created a disclosure program that resulted in almost 500 corporations admitting questionable payment activity overseas.
About 100 of the disclosures were investigated by the Justice Department and resulted in prosecutions for federal offenses, according to an International Quarterly article by William F. Pendergast, a Washington lawyer and expert on the Foreign Corrupt Practices Act.
The U.S. experience with the act offers clues to what might happen if other countries begin enforcing similar laws as provided by the OECD treaty.
Since 1977, the Justice Department has prosecuted 16 cases involving 15 countries, including Mexico, Nigeria, Iraq, Canada, Germany, Colombia, Israel and Egypt.
Seventeen companies and 33 individuals have been charged with bribing presidents, prime ministers, members of royal families and military officers, Justice Department sources say.
The Justice Department is investigating more than 40 additional alleged violations. While some firms undoubtedly still break the law or look for ways to circumvent it, a department official said, most corporations take pains to avoid even the appearance of violations because investigations can be costly and time-consuming--and a verdict of guilty can be devastating.
When Lockheed Corp. pleaded guilty in 1995 to conspiring to pay a $1-million bribe to a member of the Egyptian parliament, it was hit with fines and civil penalties totaling $24.8 million. Moreover, a former Lockheed vice president was convicted and sentenced to 18 months in prison, the first person to be imprisoned under the act.
“The impact of the law is greater than you might think based on the number of prosecutions,” said a Justice Department official. “No corporate executive wants to spend time in prison. The Lockheed case shook up a lot of people.”
