Oil Greases the Way for Corruption

The current investigation by the U.S. Department of Justice into the possibility that millions of dollars may have been illegally funneled from oil companies to top-ranking officials in Kazakhstan puts the United States over a barrel.

If it is discovered that American companies directly, or knowingly through indirect channels, transferred funds to Kazakh leaders, it will confirm the cynicism of many Europeans and Asians that American firms, despite more than 20 years of operating under the rules of the Foreign Corrupt Practices Act--indeed, because of it--are no less corrupt but simply more artful. If, instead, the Department of Justice finds no crime or that the transactions are beyond its jurisdiction, it will fuel suspicions that the U.S. protects its own. American credibility is on the line.

The mixture of oil under the ground and cash under the table is not new. Traditionally, oil is dirty business. With more than 80% of the world’s oil and gas reserves located in the countries that are ranked as the most corrupt, the industry can expect scrutiny.

Some saw Kazakhstan’s use of an American company to negotiate its oil deals as a model for the future. It paid off for a country like Kazakhstan, rich in resources but lacking experience in global capitalism, at the same time reducing the risks foreign companies faced operating in potentially corrupt environments. Whether anyone seriously believed that Kazakh officials were not getting rich is moot. The Foreign Corrupt Practices Act does not require that firms clean up the world, only that they comply with the law.

The Organization of Economic Cooperation and Development’s convention against bribery in 1999 globalized the Foreign Corrupt Practices Act and represented a victory for the proponents of ethical business practices. The agreement, however, does not reflect consensus. Many factors persuaded governments to go along. Principles played a role, but domestic politics drove decisions.

For the United States, supporting the OECD agreement was easy. Convinced that American firms have lost tens of billions of dollars to foreign competitors who were ready to pay bribes, expanding anti-corruption pacts has been a matter of high priority. The U.S. government also intends to play a significant role in ensuring that the new anti-bribery laws required by the OECD agreements are vigorously enforced. According to former CIA chief R. James Woolsey, this includes having the Central Intelligence Agency spy on foreign firms to see if any of them are paying bribes.

For European and Asian governments, the reasons for supporting the convention varied. In addition to being persuaded that it was a good thing to do, they faced hectoring by the Americans and more gentle but effective persuasion by the International Chamber of Commerce and World Economic Forum.

Highly publicized investigations of corruption in Italy, France, Belgium, Spain, Japan and South Korea made it difficult to distinguish between domestic and foreign graft. Signing an anti-bribery agreement provided an antidote to domestic scandal. It was good politics.

But this diversity of motive warns against presuming unanimity in implementation. Enforcement will be matched by evasion, compliance will be accompanied by continued corruption.

Many outside the United States believe that under the new international rules American firms now have an advantage. American companies, they believe, have learned how to pay bribes without getting caught, primarily through the use of middlemen. Moreover, they see the U.S. government not as a tough cop but as a powerful promoter of American business interests.

American firms, in the eyes of critics abroad--and many in the U.S.--have less need to bribe foreign government officials. Instead they openly contribute huge sums of money to U.S. political campaigns and put a superpower in their corner to smooth the way abroad. This is especially true in the oil and gas industry.

The domestic politics are complex. The Clinton administration deeply involved itself in securing Central Asian oil. Vice President Al Gore led the U.S. charge against international corruption. Add to this George W. Bush and Dick Cheney’s close connections with the oil industry, oil at $33 a barrel and the Middle East in turmoil.

Whatever the facts, the Justice investigation will be seen by many skeptics as a test of American credibility and intentions. At the very least, it will expose the loopholes. Having led the way in making the rules, it is now up to the United States to ensure that justice is done.