Corruption and its American response are both on the spot

By , Staff correspondent of The Christian Science Monitor

* Over lunch in Bangkok, a Thai official and a US businessman negotiate a milliondollar sales contract. Suddenly the Thai gives an indirect cue for a kickback: "I believe you just dropped your wallet with $20,000 in it."

How should the American respond?

* In the Philippines, a famous US blue jean manufacturer hires a detective to uncover illegal use of the company label. But when police are asked to arrest the culprits, some "grease" (cash) is requested.

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Should the company make the payoff, keeping it off the books by having the detective do the dirty work?

* A machine part imported for a US-owned factory is delayed at the Jakarta airport.An executive feels compelled to pay "tea money" (a term implying extra cash for tea) to custom officials.

Has he broken a US law, as would he if the bribe were paid in the United States?

Such unsettling dilemmas of graft are nothing new to US firms doing business abroad, especially in Asia. But in the three years since the US Congress passed a Foreign Corrupt Practice Act, business wrong-doing in all its shades has become a hot topic among American multinationals.

"The anxieties created by the Foreign Corrupt Practices Act -- among men and women of utmost good faith -- have been, in my experience, without equal," states Harold Williams, chairman of the US Securities and Exchange Commission (SEC), the agency that administers the controversial law.

The act's apparent ambiguities, pitfalls, and alleged misunderstandings of how other cultures conduct business are now under attack.A revision is expected by a pro-business Reagan administration and a new Congress.

"It's fine to set the standards of morality for the world, but no one is listening," says George Sutur, director of the American Chamber of Commerce in the Philippines.

The act was not passed in 1977 without reason.In the early 1970s, disclosures showed that more than 400 US corporations had made illegal, or at least questional, payments totaling over $300 million to foreign agents, officials, or politicians. Not only was such corruption considered immoral and embarrassing, but Congress felt it warped the free-market system by directing business to companies too inefficient to compete on price or quality.

The act threatens jail sentences for US corporate officials who have "reason to know" of either direct or indirect giving to government officials of "anything of value" by workers -- or even third-party agents.

In addition to not needing actual knowledge of a payoff to be prosecuted, company officials must follow new standards of recordkeeping and control of agents which, if not followed, can result in SEC action. Ironically, the act's most immediate effect has been to impose a national system of internal accounting controls.

"Most people outside the US believe we shot ourselves in the foot," says Wallace Timmery, a New York lawyer who advises companies on the antibribery act. Unencumbered by such a law, European and Japanese competitors have filled the vacuum left by restricted US companies.

In Asia, American businessmen point to many Japanese companies which still eagerly provide "rebates" even when they are not asked for one. "The Japanese have bred graft throughout Asia," Mr. sutur says.

If the act is weakened, the question still remains whether corruption in international business can ever be lessened.

Congress in passing the law admitted that prohibiting some graft is futile.Extra payments to low-level officials performing regular ministerial duties, such as customs, are overlooked. But bribes to high-ranking foreign officials who have discretion to make one-time judgments on important transactions are not.

Deep-rooted Asian traditional of favoritism, woven into peasant economies and based on rice-paddy politics, kinship, kingship, and modern patronage, are oftentimes difficult to understand from a Western point of view. "A Westerner makes a big mistake if he translates his morality into this mistake if he translates his morality into this part of the world," says Ernest Ettlinger, chief of post-evaluation for the Asian Development Bank.

A conflict of interest often is seen as a convergence of interests. "There is a delicate balance between integrity and the need to compete," says one Japanese banker.

Asian expert Herman Kahn of the Hudson Institute points out that subtle distinctions must be made between five percent tips to officials for getting things done and excessive fees for going against public policy.

In three years, the act's effect on graft may not be able to be measured. One informal survey in Indonesia found US companies comfortable with the law and that they were particularly pleased to point to the act -- and its penalties -- whenever an Indonesian official came around with sticky fingers.

US efforts to negotiate similar laws in other countries have failed, and attempts by several international bodies, including the UN, to set standards or seek voluntary compliance have fizzled once the ink was dry.

Attempts to raise civil service salaries have been made in some countries to remove the urge to steal. In March, the Philippines' First Lady, Imelda Marcos, ordered firefighters' hazard allowances increased after several of them were caught looting jewelry in a burning house. In the more-developed nation of Singapore, graft lessened when Prime Minister Lee Kuan Yew took strong action against it. Taiwan recently sentenced four officials to death for a land-reform scandal.

Still, most businessmen believe third-world bureaucrats will augment their low pay when given the chance. One-third of Thailand's $7 billion national budget probably goes to line the pockets of corrupt officials, finds the Thai Commission on Counter-Corruption, which blames status-seeking, luxury-loving wives for pressure on national leaders.

Indonesia once topped most businessmen's lists of nations with the worst corruption. But one US consultant with a decade of experience in the country finds graft declining. In 1977, a government anticorruption committee known as Obtib (Operation Order) was set up and promptly recovered $360 million from official takes. That oil-rich nation also learned to slow its boom economy to prevent high expectations -- and high corruption.

Perhaps the best defense against corruption, businessmen say, is to use friendship rather than money to cultivate good relations with a foreign government official.

Gestures of respect to a bureaucrat, such as a $15 wedding present to his daughter, may save $50,000 in payoffs later. Better yet, sensitive understanding of an official's culture by learning his language can help bring about a reciprocal understanding of the businessmen's company policy against graft.

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