Commercial Bribery Under Attack

With relatively little fanfare, the routine practice of bribing foreign officials to win commercial contracts in many parts of the world is being systematically attacked.

The United States has had a tough anti-bribery law on the books for 23 years, but many other industrialized nations have long regarded payola as standard operating procedure for domestic firms doing business in the international marketplace. In fact, a number of countries until recently allowed companies to write off overseas bribes as tax deductions.

But earlier this month, France, which had once condoned such write-offs, inched closer to passing legislation that makes it a crime for domestic companies to pay overseas bribes.

The action was the result of pending legislation in France’s National Assembly to comply with the Organization of Economic Cooperation and Development’s anti-bribery convention. The OECD’s 29 members include many of the world’s largest trading partners, among them Japan, Germany, France, United States and South Korea. And the OECD is considered one of the more effective international efforts at combating corruption because it targets bribe payers rather than those on the receiving end.

Although France’s move was an incremental step in the battle against bribery, “I think there will be a kind of domino effect” that encourages other nations to sign on, said Mark Pieth, a Swiss diplomat who chairs the OECD’s anti-bribery working group.

“I think companies all around the world are sitting up and taking note of these” agreements, said Martin J. Weinstein, a partner in Washington law firm Foley & Lardner and a former federal prosecutor. “The countries that have signed on have sent a big signal and companies are getting the message.”

Weinstein should know. He served as lead prosecutor in one of the world’s biggest bribery cases that led to Lockheed Corp. paying a record $24.8 million in penalties in 1995 for illegally bribing an Egyptian official to win an aircraft contract. The company had violated the U.S. Foreign Corrupt Practices Act, a law that arose from another Lockheed bribery scandal two decades earlier.

For the U.S., the issue of leveling the international playing field is fundamental. American companies lost out on $37 billion worth of overseas contracts because of foreign bribery in 1998, according to the most recent Commerce Department figures. Since 1994, bribery is believed to have influenced decisions on 294 major overseas commercial contracts valued at $145 billion.

Since 1997, 34 nations have signed on to the OECD convention and so far 21 have ratified it, which means they have agreed to adopt laws making paying bribes to foreign public officials a punishable crime. And unlike other anti-corruption conventions, the OECD has a process of peer review in which questionable deals can be brought before the body. It’s designed to keep the pressure on members to enforce, and if necessary toughen, their laws.

“If you have companies, say, from four of these signatory nations that are all bidding on a major port project somewhere in the Middle East, and if three of them realize that the fourth got the contract because of that envelope, there’s going to be a lot of hollering and screaming,” said a U.S. State Department official working with the OECD on the bribery issue.

That’s already begun to happen. The United States has recently brought to the attention of British authorities four cases in which British firms have been accused of paying bribes to foreign officials since the convention went into effect 2 1/2 years ago.

Britain maintains that three laws it passed nearly a century ago meet the standards set by the OECD convention--even though the laws have yet to result in a single conviction. The OECD standards require that bribery of foreign public officials be punishable by “effective, proportionate . . . criminal penalties” comparable to those applied to their own public officials.

Britain reportedly has new legislation in the works. But if the British drag their feet on the cases, under the OECD convention, U.S. officials could turn to Pieth’s compliance group for help.

That is why the OECD program is considered the international community’s best effort to combat corruption, because it focuses on the supply side: namely, the corporate bribe payers from industrialized nations that want to win foreign contracts. Most other anti-bribery conventions call on nations to crack down on the civil servants who accept bribes. Many believe this has been counterproductive, particularly when dealing in developing countries where public officials and bureaucrats are paid so poorly bribes are a culturally acceptable means of supplementing their meager incomes.

“Many more people are willing to acknowledge that corruption and bribery does a lot of damage not only in the developing world where the bribes are paid, but also to the companies that are paying them,” said Nancy Boswell, managing director of Transparency International USA, the American chapter of a private Berlin-based corruption watchdog group.

“Companies never want to see their names as part of a scandal. It’s expensive for them and it makes doing business quite unpredictable,” she said.

But the process of changing attitudes by enacting laws is not easy. Not surprisingly, all of the East European signatories to the OECD are having difficulty implementing anti-bribery laws that are acceptable, a State Department official said. “Some of these guys, after 40 years of being part of the Soviet bloc, don’t even have a school that teaches commercial law.”

OECD members Italy and the Netherlands have yet to ratify the convention, and some observers, including Transparency International, question the effectiveness of some members’ laws that are barely punitive.

But regardless of the toughness of the laws on the books, they will only have value if they are enforced.

“With the OECD, we’d like to start seeing some prosecutions during the next 24 months,” Weinstein said. “Right now, the anti-corruption message is quite sharp; but if there are no prosecutions in the next two or three years, it’ll lose its edge.”

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Payola Overseas

The Gallup Organization polled international business leaders to measure how common bribery is in international deals. In the scoring: 10 represents a perceived level of negligible bribery; 0 indicates very high levels of bribery. The survey was commissioned by Transparency International, an anti-corruption organization in Berlin. A total of 779 interviews were conducted.

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Rank/country Score 1. Sweden 8.3 2. Australia 8.1 3. Canada 8.1 4. Austria 7.8 5. Switzerland 7.7 6. Netherlands 7.4 7. Britain 7.2 8. Belgium 6.8 9. Germany (tie) 6.2 10. United States (tie) 6.2 11. Singapore 5.7 12. Spain 5.3 13. France 5.2 14. Japan 5.1 15. Malaysia 3.9 16. Italy 3.7 17. Taiwan 3.5 18. South Korea 3.4 19. China 3.1

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